<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 15, 1998
REGISTRATION NO. 333-49421
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SYKES ENTERPRISES, INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
FLORIDA 59-3157093
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
100 NORTH TAMPA STREET, SUITE 3900, TAMPA, FLORIDA 33602, TELEPHONE (813)
274-1000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
SCOTT J. BENDERT
SENIOR VICE PRESIDENT -- FINANCE, TREASURER, AND CHIEF FINANCIAL OFFICER
SYKES ENTERPRISES, INCORPORATED
100 NORTH TAMPA STREET, SUITE 3900, TAMPA, FLORIDA 33602, TELEPHONE (813)
274-1000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
MARTIN A. TRABER, ESQ. MICHAEL A. CAMPBELL, ESQ.
STEVEN W. VAZQUEZ, ESQ. MAYER, BROWN & PLATT
FOLEY & LARDNER 190 SOUTH LASALLE STREET
100 NORTH TAMPA STREET, SUITE 2700 CHICAGO, ILLINOIS 60603
TAMPA, FLORIDA 33602 (312) 782-0600
(813) 229-2300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------
If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==========================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE(3)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value.......... 2,838,692 Shares $18.50 $52,515,802 $15,493
==========================================================================================================================
</TABLE>
(1) Includes 370,264 shares of the Common Stock that would be purchased upon
exercise of an over-allotment option granted to the Underwriters.
(2) Estimated pursuant to Rule 457(c) under the Securities Act of 1933, as
amended, solely for the purpose of calculating the registration fee based on
the average of the high and low prices of the Common Stock as reported on
the Nasdaq National Market on June 11, 1998.
(3) A registration fee of $21,918 previously was paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION,
PROSPECTUS PRELIMINARY PROSPECTUS, DATED JUNE 1, 1998
2,468,428 SHARES
(SYKES ENTERPRISES, INC. LOGO)
COMMON STOCK
------------------------
All of the shares of Common Stock, par value $.01 per share (the "Common
Stock") of Sykes Enterprises, Incorporated ("Sykes" or the "Company") offered
hereby are being offered by certain selling shareholders of the Company (the
"Selling Shareholders"). The Company will not receive any proceeds from the sale
of shares of Common Stock offered hereby. The Common Stock is quoted on the
Nasdaq National Market under the symbol "SYKE." On May 28, 1998, the last
reported sale price for the Company's Common Stock on the Nasdaq National Market
was $20 7/8 per share. See "Price Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
================================================================================
<TABLE>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) SELLING SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------
Per Share................................... $ $ $
- -----------------------------------------------------------------------------------------------------------------------
Total(2).................................... $ $ $
=======================================================================================================================
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Certain Selling Shareholders have granted to the Underwriters an option,
exercisable within 30 days after the date hereof, to purchase up to 370,264
additional shares of Common Stock solely to cover over-allotments, if any.
If the Underwriters exercise such option in full, the total Price to Public,
Underwriting Discount, and Proceeds to Selling Shareholders will be
$ , $ and $ , respectively. See "Selling
Shareholders" and "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters and to certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about , 1998.
------------------------
MERRILL LYNCH & CO.
ROBERT W. BAIRD & CO.
INCORPORATED
FURMAN SELZ
------------------------
The date of this Prospectus is , 1998.
<PAGE> 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Securities and
Exchange Commission (the "Commission") are incorporated by reference in this
Prospectus:
(a) The Company's Annual Report on Form 10-K for the year ended
December 31, 1997;
(b) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998; and
(c) The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A filed under Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
All other documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to
the termination of the offering made by this Prospectus shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of such person, a
copy of any of the documents that are incorporated by reference in this
Prospectus, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents). Requests for such
copies should be directed to the Company's Investor Relations Department located
at the Company's executive offices at 100 North Tampa Street, Suite 3900, Tampa,
Florida 33602, telephone: (813) 274-1000.
---------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK TO COVER
SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and Consolidated Financial
Statements and related notes thereto, appearing elsewhere or incorporated by
reference in this Prospectus. Unless otherwise indicated, the information in
this Prospectus assumes (i) that the Underwriters' over-allotment option will
not be exercised and (ii) gives retroactive effect to a 3-for-2 stock split in
the form of a stock dividend effected on July 18, 1996 and a 3-for-2 stock split
in the form of a stock dividend effected on May 19, 1997. See "Underwriting."
This Prospectus contains forward-looking statements that involve risks and
uncertainties. Future events and the Company's actual results could differ
materially from the results in these forward-looking statements as a result of
certain of the factors set forth in "Risk Factors" and elsewhere in this
Prospectus and in the documents incorporated by reference herein.
THE COMPANY
Sykes is a global provider of a wide array of information technology ("IT")
outsourcing services, including information technology support services,
information technology development services and solutions and software
fulfillment. The Company's services are provided at various stages during the
life cycle of computer hardware and software products. Through its
state-of-the-art IT call centers, the Company provides services to leading
computer hardware and software companies by providing technical support services
to end users of their products and to major companies by providing corporate
help desk and other support services. The Company also provides fulfillment
services to computer hardware and software companies including design,
replication, material integration, packaging and distribution. In addition,
through its staff of technical professionals, the Company provides software
development and related services to large corporations, on a contract or
temporary staffing basis, including software design, development, integration
and implementation; systems support and maintenance; and documentation, foreign
language translation and software localization. The integration of these
services provides the Company's customers the opportunity to outsource a broad
range of their information technology services needs to the Company.
In 1993, in an effort to capitalize on the trend toward outsourcing
information technology services, the Company focused its strategic direction
exclusively on the information technology services marketplace and broadened its
array of services. Pursuant to this strategy, the Company began providing
information technology support services by opening IT call centers. Revenues
from information technology support services have grown rapidly through the
opening of two domestic IT call centers in 1994, two in 1995, three in 1996, and
one in 1997. In addition, the Company has begun construction of a new domestic
IT call center in Manhattan, Kansas, which the Company expects to be fully
operational in 1998. The domestic IT call centers are stand-alone facilities,
each modeled after the same prototype. The Company's strategy of locating its
domestic IT call centers in smaller communities, typically near a college or
university, has enabled the Company to benefit from a relatively low cost
structure and a technically proficient, stable work force. In addition to its
domestic call centers, internationally the Company opened one IT call center in
1994 and two during 1997. Additional international IT call centers were obtained
as part of the Company's acquisitions, of which one was acquired during 1996 and
eight were acquired during 1997. The Company estimates that its IT call centers
have the capacity to process in excess of 140,000 calls per day in the
aggregate, up from 7,000 calls per day in January 1994, from users of hardware
and software products seeking technical assistance.
The Company believes that outsourcing by information technology companies
and companies with information technology needs will continue to grow as
increasing competition encourages businesses to focus on their core competencies
rather than non-revenue producing activities. Rapid technological changes,
significant capital requirements for state-of-the-art technology and the need to
integrate and update complex information technology systems spanning multiple
generations of hardware and software components make it increasingly difficult
for businesses to cost-effectively maintain quality information technology
services in-house. To capitalize on this trend toward outsourcing, the Company
has developed a strategy that includes the following elements: (i) expand
information technology support services revenues through additional IT call
centers; (ii) market the Company's expanded customer care services to existing
customers to position the Company to become a preferred vendor of outsourced
services; (iii) establish a competitive advantage through the Company's
sophisticated and specialized technological capabilities; and (iv) expand its
customer base through strategic alliances and selective acquisitions.
3
<PAGE> 5
The Company was founded in 1977 in North Carolina and moved its
headquarters to Florida in 1993. In March 1996, the Company changed its state of
incorporation from North Carolina to Florida.
RECENT ACQUISITIONS AND ALLIANCES
The Company has expanded its services and customer base through strategic
acquisitions. During 1997, the Company expanded its international information
technology support services through its acquisition of Traffic, N.V. ("Traffic")
of Brussels, Belgium, on January 1, 1997, Telcare Telekommunikations --
Mehrwertdieste mbH ("Telcare") of Wilhelmshaven, Germany, on June 16, 1997, TAS
Telemarketing Gesellschaft fur Kommunikation und Dialog mbH ("TAS I") of Bochum,
Germany on September 25, 1997, TAS Hedi Fabinyi GmbH ("TAS II") of Stuttgart,
Germany on September 25, 1997, and McQueen International Limited ("McQueen") of
Galashiels, Scotland on December 31, 1997. In addition, the Company's growth of
its technical staffing, software development and documentation and software
translation services has been supplemented by the Company's acquisition in March
1997 of Info Systems of North Carolina, Inc., a provider of software and support
to national high volume retail chains. Each of the acquisitions set forth above,
except for Traffic, were accounted for utilizing the pooling-of-interests method
of accounting. With the McQueen acquisition, the Company has grown to an
organization of more than 6,500 employees across 40 worldwide locations,
providing IT support services at all stages in the life cycle of their products
and services.
The Company also has expanded its services and increased its IT call center
capabilities through strategic alliances. By combining technology acquired in
1996 with technology developed jointly pursuant to its May 1997 alliance with
SystemSoft Corporation, a leading vendor of remote diagnostic tools for software
products, the Company has introduced electronic technical support center
("ETSC") services that integrate hardware and software diagnostics with call
avoidance capabilities. The Company's ETSC diagnostic tools provide a
comprehensive solution for end users of computer hardware and software products.
The Company further expanded its IT call center utilization capabilities
through its July 1997 agreement with Tech Data, a leading wholesale distributor
of microcomputer products, to provide technical product support services to
customers of Tech Data's network of 35,000 computer product resellers. The
Company believes that this arrangement will enable the Company to reach end
users of computer hardware and software products through an established
distribution channel.
Sykes also expanded its services to the health care industry through its
formation and funding with HealthPlan Services Corporation ("HPS") of Sykes
HealthPlan Services, Inc. ("SHPS") in December 1997. The new company, SHPS, is
currently owned 50% by Sykes and 50% by HPS. SHPS is a provider of outsourced
care management services and products and employee benefit administration
services to large corporations and healthcare providers and payors. On April 24,
1998, SHPS filed with the Commission a Registration Statement relating to a
proposed initial public offering of its common stock, pursuant to which the
Company and HPS anticipate selling a portion of their interests in SHPS, if such
offering is completed.
THE OFFERING
Common Stock offered by the Selling
Shareholders.................................... 2,468,428 shares
Common Stock outstanding........................ 39,244,083 shares(1)
Use of proceeds................................. The Company will not receive
any proceeds from the sale of
shares of Common Stock
offered hereby.
Nasdaq National Market Symbol................... SYKE
- ---------------
(1) Excludes 1,144,029 shares of Common Stock issuable upon exercise of
outstanding stock options at a weighted average exercise price of $17.83 per
share.
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
------------------------------ -------------------------------
1995 1996 1997 MARCH 30, 1997 MARCH 31, 1998
-------- -------- -------- -------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenues............................. $155,957 $218,996 $313,184 $66,597 $89,149
Direct salaries and related costs.... 101,703 134,236 195,449 39,639 55,644
General and administrative........... 47,173 67,824 87,728 19,306 23,472
Impairment of long-lived assets...... -- -- 10,400 -- --
-------- -------- -------- ------- -------
Income from operations(1).......... 7,081 16,936 19,607 7,652 10,033
Interest income (expense), net....... (1,686) (597) 767 384 77
Loss from joint venture(2)(3)........ -- -- (2,828) -- (8,015)
Other................................ 176 455 (923) 58 (13)
-------- -------- -------- ------- -------
Income before income taxes......... 5,571 16,794 16,623 8,094 2,082
Provision for income taxes(4)........ 2,857 6,490 10,876 2,947 3,554
-------- -------- -------- ------- -------
Net income (loss).................... $ 2,714 $ 10,304 $ 5,747 $ 5,147 $(1,472)
======== ======== ======== ======= =======
Net income (loss) per common share:
Basic.............................. $ 0.09 $ 0.30 $ 0.15 $ 0.13 $ (0.04)
Diluted............................ $ 0.09 $ 0.29 $ 0.14 $ 0.13 $ (0.04)
Weighted average common shares
outstanding:
Basic.............................. 29,945 34,411 38,982 38,858 39,058
Diluted............................ 31,329 35,954 40,253 40,165 40,157
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------- MARCH 31,
1995 1996 1997 1998
------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................................ $ (279) $109,373 $108,316 $ 68,719
Total assets........................................... 85,958 214,524 241,663 211,102
Total long-term debt, less current installments........ 14,136 5,178 33,313 2,009
Total shareholder's equity............................. 18,201 144,143 147,787 142,558
</TABLE>
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(1) The year ended December 31, 1997 includes $10.4 million of charges
associated with the impairment of long-lived assets pursuant to Statement of
Financial Accounting Standards ("SFAS") No. 121 and one-time merger and
related charges of $3.1 million related to the acquisition of McQueen
International Limited. Exclusive of such charges and the expense referred in
(2) below, income from operations, income before income taxes, net income,
net income per basic share, and net income per diluted share would have been
approximately $33.1 million, $32.9 million, $22.0 million, $0.56, and $0.55,
respectively.
(2) The year ended December 31, 1997 includes $2.8 million of expense associated
with acquisition-related in-process research and development costs related
to an acquisition completed by SHPS.
(3) The three months ended March 31, 1998 includes $8.0 million of expense
associated with acquisition-related in-process research and development
costs incurred by SHPS. Exclusive of such charge, net income, net income per
basic share, and net income per diluted share would have been approximately
$6.5 million, $0.17 and $0.16, respectively.
(4) Adjusted as if an affiliate of the Company included in the consolidated
financial statements, which was an S corporation for federal income tax
purposes, was subject to income taxes for all periods presented, based on
the tax laws in effect during the respective periods.
5
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RISK FACTORS
An investment in shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, in addition to the other information contained or incorporated by
reference in this Prospectus, before purchasing the Common Stock offered hereby.
Certain matters discussed or incorporated by reference in this Prospectus are
forward-looking statements within the meaning of the federal securities laws.
Discussions containing such forward-looking statements may be found in the
material set forth below and under "Management's Discussion and Analysis of
Financial Condition and Results of Operation" and "Business," as well as in this
Prospectus and the documents incorporated by reference herein generally. The
terms "believe," "estimate," "expect," "intend," "anticipate," "plan," and
similar expressions and variations of such expressions identify certain of such
forward-looking statements which speak only as of the dates on which they were
made. Prospective investors are cautioned that any such forward-looking
statement are not guarantees of future performance, and involve risks and
uncertainties. Actual events or results may differ materially from those
discussed in the forward-looking statements as a result of various factors,
including, without limitation, the risk factors set forth below and the matters
set forth in this Prospectus and the documents incorporated by reference herein
generally.
RECENT ACQUISITIONS AND IMPLEMENTATION OF ACQUISITION STRATEGY
The Company completed six acquisitions during 1997, and, in the future, may
pursue other acquisitions. There can be no assurance that the Company will be
able to successfully integrate the operations and management of recent
acquisitions and future acquisitions. Acquisitions involve significant risks
that could have a material adverse effect on the Company, including: (i) the
diversion of management's attention to the assimilation of the businesses
acquired; (ii) the risk that the acquired businesses will fail to maintain the
quality of services that the Company has historically provided; (iii) the need
to implement financial and other systems and add management resources; (iv) the
risk that key employees of the acquired business will leave after the
acquisition; (v) potential liabilities of the acquired business; (vi) unforeseen
difficulties in the acquired operations; (vii) adverse short-term effects on the
Company's operating results; (viii) lack of success in assimilating or
integrating the operations of acquired businesses with those of the Company;
(ix) the dilutive effect of the issuance of additional equity securities; (x)
the incurrence of additional debt; (xi) research and development write-offs and
other acquisition-related expenses; and (xii) the amortization of goodwill and
other intangible assets involved in any acquisitions that are accounted for
using the purchase method of accounting. There can be no assurance that the
Company will successfully implement its acquisition strategy. Furthermore, there
can be no assurance any acquisition will achieve levels of revenue and
profitability or otherwise perform as expected, or be consummated on acceptable
terms to enhance shareholder value. Currently, the Company does not have any
arrangements or understandings with any party with respect to future
acquisitions. The Company, however, continues to monitor acquisition
opportunities. See "Business -- Recent Acquisitions and Alliances."
ABILITY TO MANAGE GROWTH
The Company has rapidly expanded its operations since it began providing
information technology support services through its IT call centers in 1993 and
anticipates continued growth to be driven by industry trends toward outsourcing
of such services. The continued growth of the Company's customer base and
expansion of the scope of services offered by the Company can be expected to
continue to place a significant strain on its resources. These resources could
be further strained from the opening of new IT call centers and the necessity to
successfully attract and retain qualified management personnel to manage the
growth and operations of the Company's business. There can be no assurance that
the Company will have sufficient resources or otherwise be able to maintain its
historic rate of growth or to maintain the quality of its services. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RAPID TECHNOLOGICAL CHANGE
The market for information technology services is characterized by rapid
technological advances, new product introductions and enhancements, and changes
in customer requirements. The Company's future
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<PAGE> 8
success will depend in large part on its ability to service new products,
platforms and rapidly changing technology. These factors will require the
Company to provide adequately trained personnel to address the increasingly
sophisticated, complex and evolving needs of its customers. Any failure by the
Company to anticipate or respond rapidly to technological advances, new products
and enhancements, or changes in customer requirements could have a material
adverse effect on the Company. See "Business -- Industry Background" and
"Business -- Operations."
DEPENDENCE ON KEY CUSTOMERS
Revenue from a single customer, which is also a Selling Shareholder,
comprised 13%, 13%, and 11% of the Company's consolidated revenues for the years
ended December 31, 1995, 1996 and 1997, respectively, pursuant to the
pooling-of-interests method of accounting. See "Selling Shareholders." The
Company's largest ten customers accounted for approximately 44% of the Company's
consolidated revenues in 1997. Generally, the Company's contracts are cancelable
by each customer at any time or on short term notice, and customers may
unilaterally reduce their use of the Company's services under such contracts
without penalty. The Company's loss of (or the failure to retain a significant
amount of business with) any of its key customers could have a material adverse
effect on the Company. See "Business -- Customers."
DEPENDENCE ON QUALIFIED PERSONNEL
The Company's business is labor intensive and places significant importance
on its ability to recruit and retain qualified technical and professional
personnel. The Company generally experiences high turnover of its personnel and
is continuously required to recruit and train replacement personnel as a result
of a changing and expanding work force. A higher turnover rate among the
Company's employees would increase the Company's hiring and training costs and
decrease operating efficiencies and productivity. Additionally, demand for
qualified professionals conversant with certain technologies is intense and may
outstrip supply as new and additional skills are required to keep pace with
evolving computer technology. There can be no assurance that the Company will be
successful in attracting and retaining the personnel that it requires to conduct
its operations successfully. Failure to attract and retain such personnel could
have a material adverse effect on the Company. See "Business -- Employees."
RELIANCE ON TECHNOLOGY AND COMPUTER SYSTEMS
The Company has invested significantly in sophisticated and specialized
telecommunications and computer technology and has focused on the application of
this technology to meet its clients' needs. The Company anticipates that it will
be necessary to continue to invest in and develop new and enhanced technology on
a timely basis to maintain the Company's competitiveness. Significant capital
expenditures may be required to keep the Company's technology up-to-date, and
investments in technology, including future investments in upgrades and
enhancements to software, may not necessarily maintain the Company's
competitiveness. The Company's future success also will depend in part on its
ability to anticipate and develop information technology solutions that keep
pace with evolving industry standards and changing client demands. In addition,
the Company's business is highly dependent on its computer and telephone
equipment and software systems, and the temporary or permanent loss of such
equipment or systems, through casualty, operating malfunction or otherwise,
could have a material adverse effect on the Company. See "Business --
Operations" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
YEAR 2000 COMPLIANCE
Date sensitive computer applications that currently record years in
two-digit, rather than four-digit, format may be unable to properly categorize
and process dates occurring after December 31, 1999 (the "Year 2000" problem).
The Company has made a preliminary determination that it should not incur
significant costs to make its software programs and operating systems Year 2000
compliant. If Year 2000 related failures were to occur in the Company's computer
and information systems, however, the Company could incur significant,
unanticipated liabilities and expenses. In addition, the Company is in the
process of determining whether other
7
<PAGE> 9
companies with whom the Company does business are Year 2000 compliant. The
failure of any such company to be Year 2000 compliant could have a material
adverse effect on the Company.
DEPENDENCE ON TREND TOWARD OUTSOURCING
The Company's business and growth depend in large part on the industry
trend toward outsourcing information technology services. There can be no
assurance that this trend will continue, as organizations may elect to perform
such services in-house. A significant change in the direction of this trend
could have a material adverse effect on the Company. See "Business -- Industry
Background."
EMERGENCY INTERRUPTION OF IT CALL CENTER OPERATIONS
The Company's operations are dependent upon its ability to protect its IT
call centers and its information databases against damage that may be caused by
fire, power failure, telecommunications failures, unauthorized intrusion,
computer viruses and other emergencies. The Company has taken precautions to
protect itself and its customers from events that could interrupt delivery of
the Company's services. These precautions include off-site storage of backup
data, fire protection and physical security systems, rerouting of telephone
calls to one or more of the Company's other IT call centers in the event of an
emergency, backup power generators and a disaster recovery plan. The Company
also maintains business interruption insurance in amounts that it considers
adequate. Notwithstanding such precautions, there can be no assurance that a
fire, natural disaster, human error, equipment malfunction or inadequacy, or
other event would not result in a prolonged interruption in the Company's
ability to provide support services to its customers. Such an event could have a
material adverse effect on the Company. See "Business -- Operations."
INTERNATIONAL OPERATIONS AND EXPANSION
The Company's international operations are conducted from eleven IT call
centers, six fulfillment centers and two offices located in Sweden, The
Netherlands, France, Germany, South Africa, Scotland, Ireland, and The
Philippines. Revenues from international operations for the years ended December
31, 1995, 1996 and 1997 were 44.7%, 40.3% and 38.1% of consolidated revenues,
respectively, pursuant to the pooling-of-interests method of accounting. The
Company intends to continue its international expansion. International
operations are subject to certain risks inherent in conducting business abroad,
including exposure to currency fluctuations, changes in foreign governmental
regulations, tariffs and taxes, import/export license requirements for the
Company's software, the imposition of trade barriers, difficulties in staffing
and managing foreign operations, political uncertainties, longer payment cycles,
foreign exchange restrictions that could limit the repatriation of earnings,
difficulties in accounts receivable collection, potentially adverse tax
consequences, and economic instability. There can be no assurance that one or
more of such factors or other factors relating to international operations will
not have a material adverse effect on the Company's business, results of
operations or financial condition.
The Company conducts business in various foreign currencies and therefore
is subject to the transaction exposures that arise from foreign exchange rate
movements between the dates that foreign currency transactions are committed and
the date that they are consummated. The Company also is subject to certain
exposures arising from the translation and consolidation of the financial
results of its foreign subsidiaries. The Company has from time to time taken
limited actions to attempt to mitigate the Company's foreign transaction
exposure. However, there can be no assurance that actions taken to manage such
exposure will be successful or that future changes in currency exchange rates
will not have a material impact on the Company's future operating results. The
Company does not hedge either its translation risk or its economic risk.
COMPETITION
The industry in which the Company competes is extremely competitive and
highly fragmented. Although many companies provide information technology
services, the Company believes that no one company is dominant. There are
numerous and varied providers of such services, including firms specializing in
call center operations, fulfillment, temporary staffing and personnel placement
companies, language translation companies, general management consulting firms,
major accounting firms, divisions of large hardware and software companies and
niche providers of information technology services, many of whom compete in only
certain
8
<PAGE> 10
markets. The Company's competitors include many companies who may possess
substantially greater resources, greater name recognition and a more established
customer base than it does. In addition, the services offered by the Company
historically have been provided by in-house personnel. The Company also competes
with other developers of software diagnostic tools, back office and
point-of-sale applications, many of which have significantly greater financial,
technical, marketing and other resources than the Company. There can be no
assurance that the Company will be able to compete successfully against existing
or potential new competitors as the industry continues to evolve.
The Company believes that the most significant competitive factors in the
sale of its services include quality and reliability of services, flexibility in
tailoring services to customer needs, price, experience, reputation and
comprehensive and integrated services. As a result of intense competition,
information technology development services and solutions engagements frequently
are subject to pricing pressure. Customers also require vendors to be able to
provide services in multiple locations. Competition for contracts for many of
Sykes' services takes the form of competitive bidding in response to requests
for proposals.
Many of the Company's large customers purchase information technology
services primarily from a limited number of preferred vendors. The Company has
experienced and continues to anticipate significant pricing pressure from these
customers in order to remain a preferred vendor. These companies also require
vendors to be able to provide services in multiple locations. Although the
Company believes it can effectively meet its customers' demands, there can be no
assurance that it will be able to compete effectively with other information
technology services companies. See "Business -- Competition."
RISKS ASSOCIATED WITH SOFTWARE DEVELOPMENT
During 1997 and the first quarter of 1998, the Company derived
approximately 7% and 6%, of its revenues, respectively, from the sale of
software products that it developed. The following risks relate to the sale of
those products or any other software products developed by the Company in the
future.
Dependence on New Products and Adaptation to Technological Change. The
computer software industry is subject to rapid technological change often
evidenced by new competing products and improvements in existing products. The
Company depends on the successful development of new products, including
upgrades of existing products, to replace revenues from products introduced in
prior years that have begun to experience reduced revenues. If the Company's
leading products become outdated and lose market share or if new products or
existing product upgrades are not introduced when planned or do not achieve the
revenues anticipated by the Company, the Company's operating results could be
materially adversely affected. Even with normal development cycles, the market
environment can change so quickly that features in certain products can become
outdated soon after market introduction. These events may occur in the future
and may have a material adverse effect on future revenues and operating results.
Competition. The personal computer market is intensely competitive,
subject to strategic alliances of hardware and software companies and
characterized by rapid changes in technology and frequent introductions of new
products and features. The Company's competitors include developers of operating
systems, applications and utility software vendors and personal computer
manufacturers that develop their own software products. The Company's current
software development revenues and profitability are dependent on the viability
of the Microsoft Windows and DOS operating systems. The Company expects to
encounter continued competition both from established companies and from new
companies that are now developing, or may develop, competing products. Many of
the Company's existing and potential competitors have financial, marketing and
technological resources significantly greater than those of the Company.
Future competitive product releases may cause disruptions in orders for the
Company's software products while users and the marketplace evaluate the
competitive products. The extent of the disruption in orders and the impact on
future orders of the Company's products will depend on various factors that are
not fully known at this time, including the level of functionality, performance
and features included in the final release of these competitive products and the
market's evaluation of competitive products compared to the then current
functionality, performance and features of the Company's products.
9
<PAGE> 11
The Company anticipates that the type and level of competition experienced
to date will continue and may increase and that future sales of its software
products will be dependent upon the Company's ability to timely and successfully
develop or acquire new software products or enhanced versions of its existing
products, and to demonstrate to the user a need for the Company's products while
developers of operating systems and competitive software products continue to
enhance their products. To the extent that operating system enhancements,
competitive products or bundling of competitive products with operating systems
or computer hardware reduce the number of users who perceive a benefit from the
Company's products, sales of the Company's software products in the future would
be materially adversely impacted.
Product Returns. Like other manufacturers of package software products,
the Company is exposed to the risk of product returns from distributors and
reseller customers. Although the Company believes that it provides adequate
allowances for returns, there can be no assurance that actual returns in excess
of recorded allowances will not result in a material adverse effect on business,
operating results and financial condition.
Dependence on and Intense Competition for Key Personnel. Recruitment of
personnel in the computer software industry is highly competitive. The Company's
success in this product area depends to a significant extent upon the
performance of its executive officers and other key personnel. The loss of the
services of key individuals could have a material adverse effect on the Company.
The Company's future success will depend in part upon its continued ability to
attract and retain highly qualified personnel. There can be no assurance that
the Company will be successful in attracting and retaining such personnel.
Patents and Proprietary Information. The Company provides its products to
end users under a nonexclusive, nontransferable license. Under the Company's
current form of software license agreement, software is to be used solely for
internal operations on designated computers at specified sites. The ability of
software companies to enforce such licenses has not been finally determined and
there can be no assurance that misappropriation will not occur.
The extent to which United States and foreign intellectual property laws
(including copyright and patent laws) protect software as well as the
enforceability of end user licensing agreements has not been fully determined.
In addition, changes in the interpretation of intellectual property laws could
expand or reduce the extent to which the Company or its competitors are able to
protect their software and related intellectual property.
Because the computer industry is characterized by technological changes,
the policing of the unauthorized use of computer software is a difficult task.
Software piracy is expected to continue to be a persistent problem for the
software industry. Despite steps taken by the Company to protect its software
products, third parties still may make unauthorized copies of the Company's
products for their own use or for sale to others. These concerns are
particularly acute in certain international markets. The Company believes that
the knowledge, abilities and experience of its employees, its timely product
enhancements and upgrades and the availability and quality of its support
services provided to users are more significant factors in protecting its
software products than protection afforded by intellectual property laws.
DEPENDENCE ON SENIOR MANAGEMENT
The success of the Company is largely dependent upon the efforts,
direction, and guidance of its senior management. Although it has entered into
employment and noncompetition agreements with certain of its executive officers,
the Company's continued growth and success also depends in part on its ability
to attract and retain qualified managers and on the ability of its executive
officers and key employees to manage its operations successfully. The loss of
John H. Sykes, Chairman of the Board, President and Chief Executive Officer, or
the Company's inability to attract, retain or replace key management personnel
in the future, could have a material adverse effect on it. See "Management."
CONTROL BY PRINCIPAL SHAREHOLDER; ANTI-TAKEOVER CONSIDERATIONS
As of the date of this Prospectus, John H. Sykes, the Company's Chairman of
the Board, President and Chief Executive Officer, beneficially owns
approximately 47.4% of the Company's outstanding Common
10
<PAGE> 12
Stock. As a result, Mr. Sykes retains significant voting power with respect to
the election of the Company's directors and the outcome of other matters
requiring shareholder approval. The voting power of Mr. Sykes, together with the
staggered Board of Directors and the anti-takeover effects of certain provisions
contained in both the Florida Business Corporation Act and in the Company's
Articles of Incorporation and Bylaws (including, without limitation, the ability
of the Board of Directors to issue shares of Preferred Stock and to fix the
rights and preferences thereof), may have the effect of delaying, deferring or
preventing an unsolicited change in the control of the Company, which may
materially adversely affect the market price of the Common Stock or the ability
of shareholders to participate in a transaction in which they might otherwise
receive a premium for their shares. See "Description of Capital Stock."
VOLATILITY OF STOCK PRICE
The Common Stock has experienced significant volatility since the Company's
initial public offering in April 1996. The market for securities of technology
companies historically has been more volatile than the market for stocks in
general. The trading of the Common Stock may be subject to wide fluctuations in
response to quarter-to-quarter variations in operating results, announcement of
recent developments or new products by the Company or its competitors, changes
in other conditions or trends in the Company's industry or in the industries of
any of the Company's significant customers, changes in securities analysts'
estimates of the Company's future performance or that of its competitors or its
industry, and other events or factors. In addition, the stock market has from
time to time experienced extreme price and volume fluctuations that have
particularly affected the market price for many technology companies and that
often have been unrelated to the operating performance of these companies. These
broad market fluctuations may materially adversely affect the market price of
the Common Stock. Sales of shares of Common Stock in the public market under
Rule 144, or pursuant to registration statements, under the Securities Act of
1933, as amended (the "Securities Act") or otherwise, or the perception that
such sales could occur, may materially adversely affect prevailing market prices
of the Common Stock. See "Price Range of Common Stock" and "Underwriting."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently anticipates that all of its earnings will be
retained for development and expansion of the Company's business and does not
anticipate paying any cash dividends in the foreseeable future. See "Dividend
Policy."
11
<PAGE> 13
PRICE RANGE OF COMMON STOCK
The Common Stock is quoted on the Nasdaq National Market under the symbol
"SYKE." The following table sets forth the high and low sales prices for the
Common Stock as reported on the Nasdaq National Market for the quarterly periods
indicated (after adjustment for a 3-for-2 stock split effected on July 28, 1996
and a 3-for-2 stock split effected May 19, 1997).
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Second Quarter (commencing April 30, 1996)................ $24 3/16 $13 11/16
Third Quarter............................................. 32 1/2 16 3/4
Fourth Quarter............................................ 35 3/8 23 11/16
YEAR ENDED DECEMBER 31, 1997
First Quarter............................................. $30 3/16 $16 5/16
Second Quarter............................................ 28 3/4 17
Third Quarter............................................. 32 19 3/4
Fourth Quarter............................................ 27 5/8 16 7/8
YEAR ENDING DECEMBER 31, 1998
First Quarter............................................. $25 $17
Second Quarter (through June 12, 1998).................... 22 1/2 18 3/16
</TABLE>
The last reported sale price of the Common Stock on the Nasdaq National
Market on June 12, 1998 was $18 3/16 per share. As of June 11, 1998, there were
approximately 200 holders of record of the Common Stock.
The Company issued a total of 2,712,728 shares of Common Stock in
connection with (i) its acquisition in 1996 of Datasvar Support AB ("Datasvar")
and DiagSoft, Inc. ("DiagSoft") and (ii) the Telcare, TAS I and TAS II
acquisitions in 1997. Of these shares, 814,770 shares were sold by selling
shareholders of Datasvar and DiagSoft on October 31, 1996 in connection with the
Company's secondary offering. Upon completion of such sale, the former
shareholders of Datasvar and DiagSoft held 567,958 shares of Common Stock, which
shares, to the extent not already sold by such holders, are eligible for sale
pursuant to Rule 144 under the Securities Act. Subsequently, the Company has
registered for sale under the Securities Act 665,000 shares of Common Stock for
the former shareholders of Telcare, TAS I and TAS II. Of the remaining 665,000
shares of Common Stock issued to such former shareholders, 375,000 of such
shares will become eligible for sale pursuant to Rule 144 under the Securities
Act on June 16, 1998 and the remaining 290,000 shares will become so eligible on
September 25, 1998.
DIVIDEND POLICY
The Company has never declared nor paid any cash dividends on the Common
Stock. The Company currently anticipates that all of its earnings will be
retained for development and expansion of the Company's business and does not
plan to pay any cash dividends in the foreseeable future. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition, results
of operations, capital requirements, and such other factors as the Board of
Directors deems relevant.
12
<PAGE> 14
CAPITALIZATION
The following table sets forth the current portion of long-term debt and
the consolidated capitalization of the Company at March 31, 1998. This table
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 the notes thereto contained elsewhere in this
Prospectus or incorporated herein by reference.
<TABLE>
<CAPTION>
AT MARCH 31, 1998
-----------------
(IN THOUSANDS)
<S> <C>
Current installments of long-term debt...................... $ 1,141
Long-term debt, less current portion........................ 2,009
--------
Total debt........................................ 3,150
--------
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; 39,129,986 shares issued and outstanding... 391
Additional paid-in capital................................ 133,610
Retained earnings......................................... 15,635
Unrealized gain on securities, net of taxes............... (3,603)
Accumulated foreign currency translation adjustments...... (3,475)
--------
Total shareholders' equity........................ 142,558
--------
Total capitalization.............................. $145,708
========
</TABLE>
- ---------------
(1) Excludes 1,144,029 shares of Common Stock issuable upon exercise of
outstanding stock options at a weighted average exercise price of $17.83 per
share.
13
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL DATA
The Balance Sheet Data as of December 31, 1996 and 1997 and the Statement
of Income Data for the years ended December 31, 1995, 1996, and 1997 have been
derived from the Company's Consolidated Financial Statements for such years,
which have been audited by Coopers & Lybrand L.L.P., independent public
accountants and are included elsewhere in this Prospectus. The Balance Sheet
Data as of December 31, 1993, 1994, and 1995 and the Consolidated Statement of
Operations Data for the years ended July 31, 1993 and 1994 and the five months
ended December 31, 1994 have been derived from the Company's Consolidated
Financial Statements for such years, which have been audited by Coopers &
Lybrand L.L.P., independent public accountants but are not included elsewhere in
this Prospectus. The Balance Sheet Date as of March 31, 1998, and the Statement
of Operations Data for the three-month periods ended March 30, 1997 and March
31, 1998 have been derived from the Company's unaudited consolidated financial
statements, which, in the opinion of the Company, reflect all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the results for these periods. The Statement of Operations Data for interim
periods are not necessarily indicative of results for subsequent periods or the
full year. The financial data presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with the Company's Consolidated Financial Statements and the
notes thereto appearing elsewhere in this Prospectus or incorporated herein by
reference.
<TABLE>
<CAPTION>
FIVE MONTHS THREE MONTHS ENDED
YEARS ENDED JULY 31, ENDED YEARS ENDED DECEMBER 31, ---------------------
--------------------- DECEMBER 31, ------------------------------ MARCH 30, MARCH 31,
1993 1994 1994 1995 1996 1997 1997 1998
--------- --------- ------------ -------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues.......................... $101,588 $104,545 $51,750 $155,957 $218,996 $313,184 $66,597 $89,149
Income from operations(1)......... 3,203 2,984 2,235 7,081 16,936 19,607 7,652 10,033
Net income (loss)(2)(3)........... 1,081 1,144 808 2,714 10,304 5,747 5,147 (1,472)
Net income (loss) per common
share:
Basic........................... $ 0.04 $ 0.04 $ 0.03 $ 0.09 $ 0.30 $ 0.15 $ 0.13 $ (0.04)
Diluted......................... $ 0.04 $ 0.04 $ 0.03 $ 0.09 $ 0.29 $ 0.14 $ 0.13 $ (0.04)
Weighted average shares
outstanding:
Basic........................... 29,945 29,945 29,945 29,945 34,411 38,982 38,858 39,058
Diluted......................... 31,329 31,329 31,329 31,329 35,594 40,253 40,165 40,157
</TABLE>
<TABLE>
<CAPTION>
JULY 31, DECEMBER 31, DECEMBER 31, MARCH 30, MARCH 31,
----------------- ------------ ----------------------------- --------- ---------
1993 1994 1994 1995 1996 1997 1997 1998
------- ------- ------------ ------- -------- -------- --------- ---------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................ $ 5,484 $ 2,920 $ 4,707 $ (279) $109,373 $108,316 $115,861 $ 68,719
Total assets........................... 36,491 48,311 56,953 85,958 214,524 241,663 226,309 211,102
Total long-term debt, less current
installments......................... 4,362 9,779 13,153 14,136 5,178 33,313 12,383 2,009
Total shareholder's equity............. 13,847 12,968 13,764 18,201 144,143 147,787 148,252 142,558
</TABLE>
(1) The year ended December 31, 1997 includes $10.4 million of charges
associated with the impairment of long-lived assets pursuant to Statement of
Financial Accounting Standards ("SFAS") No. 121 and one-time merger and
related charges of $3.1 million related to the acquisition of McQueen
International Limited. Exclusive of such charges and the expense referred in
(2) below, income from operations, income before income taxes, net income,
net income per basic share, and net income per diluted share would have been
approximately $33.1 million, $32.9 million, $22.0 million, $0.56, and $0.55,
respectively.
(2) The year ended December 31, 1997 includes $2.8 million of expense associated
with acquisition-related in-process research and development costs related
to an acquisition completed by SHPS.
(3) The three months ended March 31, 1998 includes $8.0 million of expense
associated with acquisition-related in-process research and development
costs incurred by SHPS. Exclusive of such charge, net income, net income per
basic share, and net income per diluted share would have been approximately
$6.5 million, $0.17 and $0.16, respectively.
14
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Consolidated Financial
Statements, including the notes thereto, included elsewhere or incorporated by
reference in this Prospectus.
OVERVIEW
The Company derives its revenues from providing information technology
support services, fulfillment solutions and information technology development
services and solutions. Revenues from information technology support services
provided through the IT call centers are recognized as services are rendered.
These services are billed on a fee per call, rate per minute or time and
material basis. Fulfillment services are generally billed on a per 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. Revenue from software licenses are sold
on a per unit or site basis and are recognized 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.
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. The phase-out of these services was
substantially completed in 1995.
Direct salaries and related costs include 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) consist primarily of interest expense or income and foreign currency
transaction gains and losses. Foreign currency transaction gains and losses
generally result from exchange rate fluctuations on intercompany transactions.
During 1997, the Company entered into the SHPS joint venture and its
proportionate share of the results of this entity are included in the Other
Income section of the Statements of Income.
Grants from local or state governments for the acquisition of property and
equipment are deferred and recognized as income over the corresponding useful
lives of the related property and equipment. The deferred grants, net of
amortization, totaled $12.1 million, $14.1 million, and $13.6 million at
December 31, 1996 and 1997 and March 31, 1998, 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.
15
<PAGE> 17
RESULTS OF OPERATIONS
The following table sets forth for the periods presented the percentage of
net sales represented by certain items in the Company's Consolidated Statements
of Operations:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, ----------------------
--------------------- MARCH 30, MARCH 31,
1995 1996 1997 1997 1998
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Direct salaries and related costs........ 65.2 61.3 62.4 59.5 62.4
General and administrative(1)(2)......... 30.2 31.0 31.3 29.0 26.3
----- ----- ----- ----- -----
Income from operations.............. 4.5 7.7 6.3 11.5 11.3
Interest and other income (expense)(3)... (1.0) (0.0) (1.0) 0.6 (9.0)
----- ----- ----- ----- -----
Income before income taxes.......... 3.6 7.7 5.3 12.1 2.3
Provision for income taxes(4)............ 1.8 3.0 3.5 4.4 4.0
----- ----- ----- ----- -----
Net income (loss)(1)(2)(3)(4)....... 1.7% 4.7% 1.8% 7.7% (1.7)%
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) Includes non-cash compensation expense of 0.6% related to the grant of stock
options to an executive officer in 1995.
(2) Includes charges associated with the impairment of long-lived assets
pursuant to SFAS No. 121 and one-time merger and related charges of 4.3%
related to the acquisition of McQueen International Limited during the year
ended December 31, 1997.
(3) Includes expense associated with acquired in-process research and
development costs of 0.9% and 9.0% related to acquisitions completed by SHPS
during the year ended December 31, 1997 and the three months ended March 31,
1998, respectively.
(4) 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 16 of Notes
to Consolidated Financial Statements.
Three Months Ended March 31, 1998 Compared to Three Months Ended March 30,
1997
Revenues. For the three months ended March 31, 1998, the Company recorded
consolidated revenues of $89.1 million, an increase of approximately $22.5
million, or 34%, from the $66.6 million of the comparable period of the previous
year. These results reflect an increase in revenues of $12.1 million from
information technology support services provided through IT call centers, an
increase in revenues of $10.9 million from fulfillment services, partially
offset by a decrease of $0.5 million from information technology services and
solutions. 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 and the resultant increase in call volumes from
clients. During the fourth quarter of 1997, the Company opened two new IT call
centers which were fully operational during the first quarter of 1998. The
increase in fulfillment services revenue is primarily associated with an
acquisition completed during the second quarter of 1997 by McQueen, which was
accounted for utilizing the purchase method of accounting. The decrease in
information technology services and solutions was primarily attributable to the
decrease in software sales.
Direct Salaries and Related Costs. Direct salaries and related costs
increased approximately $16.0 million to $55.6 million, or 40%, in the three
month period in 1998 from $39.6 million in the comparable period in 1997. As a
percentage of revenues, direct salaries and related costs increased to
approximately 62% in the 1998 quarter from approximately 60% from the same
quarter in 1997. The increase in the amount of direct salaries and related costs
was primarily attributable to the change in the Company's mix of business
associated with the McQueen acquisition and the addition of personnel to support
revenue growth.
16
<PAGE> 18
General and Administrative. General and administrative expenses increased
approximately $4.2 million to $23.5 million, or 22%, in the 1998 period, from
$19.3 million during the same period in 1997. As a percentage of revenues,
however, general and administrative expenses decreased to 26% in 1998 from 29%
in 1997. The increase in the amount of general and administrative expenses was
primarily attributable to the addition of management, sales and administrative
personnel to support the Company's growth. The decrease as a percentage of
revenues resulted from economies of scale associated with spreading costs over a
larger revenue base.
Interest and Other Expense. Interest and other expense was $8.0 million
during the first quarter of 1998 from interest and other income of $0.4 million
during the comparable 1997 period. As a percentage of revenues, interest and
other expense was approximately 9% in 1998 from interest and other income of 1%
in 1997. The increase in interest and other expense was primarily attributable
to the occurrence of approximately $8.0 million of acquisition-related
in-process research and development costs associated with the acquisitions
completed by SHPS, which was recorded as other expense. During 1998, the Company
repaid approximately $33.2 million of outstanding debt.
Provision for Income Taxes. The provision for income taxes increased to
$3.6 million in the first quarter of 1998 from $2.9 million in 1997, however, as
a percentage of revenue, decreased to 4.0% during the 1998 period when
contrasted to approximately 4.4% for the comparable 1997 period. The Company's
marginal tax rate increased to 171% from 36% during the first quarter of 1997
primarily as a result of nondeductible in-process research and development costs
associated with the acquisitions completed by SHPS.
Net Income. As a result of the foregoing, net income inclusive of special
one-time charges decreased to a loss of $1.5 million in the first quarter of
1998 from net income of $5.1 million in the same period in 1997. Net income
exclusive of the $8.0 million associated with acquisition-related in-process
research and development would have been $6.5 million for the three months ended
March 31, 1998.
Year Ended December 31, 1997 Compared To Year Ended December 31, 1996
Revenues. Revenues increased $94.2 million, or 43.0%, to $313.2 million in
1997 from $219.0 million in 1996. These results reflect an increase in revenues
of $44.5 million from fulfillment services, an increase in revenues of $40.8
million from information technology support services provided through IT call
centers and an increase in revenues of $8.9 million from information technology
services and solutions. At the completion of 1997, information technology
support services, fulfillment services and information technology services and
solutions accounted for 48.4%, 27.3%, and 24.3%, respectively, of the Company's
consolidated revenues, as compared to 50.5%, 18.8% and 30.7%, respectively in
1996.
The increase in fulfillment services revenue is primarily associated with
an acquisition completed in 1997 by McQueen accounted for utilizing the purchase
method of accounting. Sykes acquired McQueen in the fourth quarter of 1997
utilizing the pooling-of-interests method of accounting. 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 the beginning of
1996, and the resultant increase in call volumes from clients. During 1996, the
Company opened three new IT call centers which were fully operational throughout
1997, and opened three additional centers in 1997. 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 $61.2 million, or 45.6%, to $195.4 million in 1997 from $134.2 million
in 1996. As a percentage of revenues, direct salaries and related costs
increased to 62.4% in 1997 from 61.3% in 1996. The increase in the amount of
direct salaries and related costs was primarily attributable to the change in
the Company's mix of business associated with the McQueen acquisition referenced
above and the addition of personnel to support revenue growth.
General and Administrative. General and administrative expenses increased
$30.3 million, or 44.7%, to $98.1 million in 1997, inclusive of special one-time
charges, from $67.8 million in 1996. As a percentage of revenues, and inclusive
of special one-time charges, general and administrative expenses remained
relatively
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<PAGE> 19
constant at 31% in 1997 and 1996. The increase in the amount of general and
administrative expenses was attributable to the occurrence of special one-time
charges identified below. General and administrative expenses exclusive of $13.5
million of charges associated with the impairment of long-lived assets pursuant
to SFAS No. 121 and one-time merger and related charges associated with the
Company's acquisition of McQueen, increased $16.9 million, or 24.9%, to $84.7
million, or 27.0% of revenue. The decrease as a percentage of revenues resulted
from economies of scale associated with spreading costs over a larger revenue
base.
Interest and Other Expense. Interest and other expense increased to $3.0
million during 1997 from $0.1 million during 1996. As a percentage of revenues,
interest and other expense was 1.0% in 1997 compared to less than 0.5% in 1996.
The increase in interest and other expense was primarily attributable the
occurrence of approximately $2.8 million of acquisition related in-process
research and development costs, which was recorded as other expense and an
increase in the Company's debt position as a result of the acquisition of
McQueen completed during 1997, partially offset by interest income earned on
available funds realized from the Company's public offerings.
Income Taxes. Income taxes increased $4.4 million, or 67.7%, to $10.9
million during 1997 from $6.5 million during 1996, and increased as a percentage
of revenues to 3.5% from 3.0%, 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 increased to 65% during 1997 primarily as a result of
nondeductible expenses being a significantly higher percentage of income before
income taxes. These nondeductible expenses consisted primarily of goodwill and
in-process research and development costs.
Net Income. As a result of the foregoing, net income inclusive of special
one-time charges decreased to $5.7 million in 1997 from $10.3 million in 1996.
Net income for 1997 exclusive of the $13.5 million of charges associated with
the impairment of long-lived assets pursuant to SFAS No. 121 and one-time merger
and related charges, and exclusive of the $2.8 million associated with
acquisition related in-process research and development would have been $21.9
million.
Year Ended December 31, 1996 Compared To Year Ended December 31, 1995
Revenues. Revenues increased $63.0 million, or 40.4%, to $219.0 million in
1996 from $156.0 million in 1995. These results reflect an increase in revenues
of $48.3 million from information technology support services provided through
IT call centers, an increase in revenues of $15.8 million from information
technology services and solutions, and a $3.0 million increase in revenues from
fulfillment services, partially offset by a $4.1 million reduction in revenues
from non-information technology services that were substantially phased out in
1995. At the completion of 1996, information technology support services,
fulfillment services and information technology services and solutions accounted
for 50.5%, 18.8% and 30.7%, respectively, of the Company's consolidated
revenues, as compared to 39.9%, 24.5% and 35.6%, respectively, 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 had added 36 customers in its information technology
support services since the beginning of 1995, giving it 58 customers that
utilized these services as of December 31, 1996. The increase in revenues for
information technology services and solutions was primarily attributable to the
increase in hours billed to customers for professional services when compared to
the prior period. The increase in revenues for fulfillment services was
primarily attributable to an increase in orders from the Company's largest
customer.
Direct Salaries and Related Costs. Direct salaries and related costs
increased $32.5 million, or 32.0%, to $134.2 million in 1996 from $101.7 million
in 1995. As a percentage of revenues, however, direct salaries and related costs
decreased to 61.3% in 1996 from 65.2% in 1995. 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
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<PAGE> 20
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
$20.6 million, or 43.6% to $67.8 million in 1996 from $47.2 million in 1995. As
a percentage of revenues, general and administrative expenses increased to 31.0%
in 1996 from 30.3% 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 Expense. Interest and other expense decreased to $0.1
million during 1996 from $1.5 million during 1995. As a percentage of revenues,
interest and other expense was less than 0.5% in 1996 from interest and other
expense of 1.0% in 1995. The decrease was primarily attributable to a reduction
of interest expense as a result of certain debt repayments from proceeds
realized from the Company's public offerings completed during 1996.
Income Taxes. Income taxes increased $3.6 million, or in excess of 100.0%,
to $6.5 million during 1996 from $2.9 million during 1995, and increased as a
percentage of revenues to 3.0% 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 38.6% 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 earned during the year.
Net Income. As a result of the foregoing, net income increased to $10.3
million in 1996 from $2.7 million in 1995.
QUARTERLY RESULTS
The following tables present certain unaudited statements of income for
each of the eight quarters in the period ending March 31, 1998. This data has
been derived from unaudited consolidated financial statements, which, in the
opinion of the Company, reflect all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation thereof. This data is not,
however, necessarily indicative of the Company's future performance.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
1996 1997 1998
------------------------------ ----------------------------------------- --------
JUNE 30 SEP. 29 DEC. 31 MAR. 30 JUNE 29 SEP. 28 DEC. 31 MAR. 31
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................................. $50,252 $52,155 $64,791 $66,597 $79,224 $79,802 $87,561 $89,149
Direct salaries and related costs......... 30,592 32,935 39,285 39,639 49,618 50,828 55,364 55,644
General and administrative(1)(2).......... 15,625 16,358 20,518 19,306 32,620 21,606 24,595 23,472
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from operations(1)(2)..... 4,035 2,862 4,988 7,652 (3,014) 7,368 7,602 10,033
Interest and other income (expense)(3).... (108) 84 260 442 152 84 (3,662) (7,951)
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes(1)(2)........ 3,927 2,946 5,248 8,094 (2,862) 7,452 3,940 2,082
Income taxes(4)........................... 1,811 1,262 2,026 2,947 2,695 2,702 2,532 3,554
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)(1)(2)(4).............. $ 2,116 1,684 $ 3,222 $ 5,147 $(5,557) 4,750 $ 1,408 $(1,472)
======= ======= ======= ======= ======= ======= ======= =======
Net income (loss) per share............. $ 0.06 $ 0.04 $ 0.08 $ 0.13 $ (0.14) $ 0.12 $ 0.04 $ (.04)
Total diluted shares.............. 35,686 37,552 39,251 40,165 40,326 40,299 40,222 40,157
</TABLE>
- ---------------
(1) The quarter ended June 29, 1997, includes $10.4 million of charges
associated with the impairment of long-lived assets pursuant to SFAS No.
121. Exclusive of such charges, income from operations, income before income
taxes, net income and net income per diluted share would have been
approximately $7.4 million, $7.5 million, $4.8 million and $0.12,
respectively.
(2) The quarter ended December 31, 1997, includes $3.1 million of one-time
merger and related charges associated with the acquisition of McQueen.
Exclusive of such charges and the expense referenced in (3) below, income
from operations, income before income taxes, net income and net income per
diluted share would have been approximately $13.4 million, $9.8 million,
$7.3 million and $0.18, respectively.
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<PAGE> 21
(3) The quarters ended December 31, 1997 and March 31, 1998 includes $2.8
million and $8.0 million, respectively, of expense associated with
acquisition-related in-process research and development cost.
(4) 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 16 of Notes
to Consolidated Financial Statements for the year ended December 31, 1997.
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 Company
has utilized these proceeds and the balance of the funds available from its
equity offerings to make additional capital expenditures associated primarily
with its information technology support services, to repay debt associated with
entities it has acquired subsequent to the public offerings, to acquire interest
in and provide capitalization to SHPS' entry into the healthcare service
industry, invest in technology applications to further the Company's service
offerings, and for working capital and general corporate purposes. In addition,
the Company intends similar uses from the balance of its funds, including
possible additional acquisitions. Pending any such use, the Company will invest
the balance of its funds in short-term, investment-grade securities or money
market instruments.
During February 1998, the Company entered into a new $150.0 million
syndicated facility which provides for multi-currency lending. This new facility
accrues borrowings at tiered levels between 75 and 175 basis points above listed
LIBOR pursuant to a defined ratio calculation within the agreement. The
facility, which matures in February 2001, contains certain financial covenants
associated with debt, leverage and coverage ratios and capital expenditures and
acquisitions as defined by the agreement.
During the three month period ended March 31, 1998, the Company generated
approximately $8.2 million in cash, net, from operations. The Company utilized
these funds and its available cash and cash equivalents to fund $33.2 million of
repayments of debt, $12.0 million of additional investment in a joint venture
and $5.7 million of capital expenditures. The debt repayments were associated
with assumed debt levels resulting from certain acquisitions the Company
completed during 1997. During the first quarter of 1998, the Company funded
approximately $12.0 million of additional capital in the SHPS joint venture. The
capital equipment expenditures were predominately the result of the Company's
continued expansion, both domestically and internationally, in providing
technical product support services.
During 1997, the Company generated approximately $19.6 million in cash, net
from operating activities. The combination of these funds with the $3.0 million
received from issuance of common stock, $2.0 million received from grants
associated with the construction of its eighth domestic IT call center and
available cash and cash equivalents, were used in 1997 to fund $21.8 million of
capital expenditures, $8.0 million in marketable security investments, $5.4
million in repayment of debt, $5.1 million of investments in a joint venture and
$1.8 million to make an acquisition. The capital equipment expenditures were
predominantly the result of the Company's continued expansion, both domestically
and internationally, in providing information technology support services.
During 1997, the Company constructed its eighth domestic IT call center,
outfitted another and funded the expansion and enhancement of the technology
base from which services are provided. Internationally, the Company opened two
new IT call centers, expanded four other call centers and also enhanced its
technology base. As a result of the Company's expansion and continued
integration of its 1997 acquisitions, it is anticipated that 1998 capital
expenditures will approximate $20 million. The debt repayments were associated
with assumed debt levels resulting from certain acquisitions the Company
completed during 1997. Also in 1997, the Company was involved in the formation
of the SHPS joint venture. During 1997, the Company funded approximately $5.1
million and has committed another $12.4 million for its share of the
capitalization of this organization.
During 1997, the Company acquired Info Systems of North Carolina, Inc.,
Telcare Gesellschaft fur Telekommunikations-Mehrwertdieste mbH, TAS
Telemarketing Gesellschaft fur Kommunikations und Dialog mbH, TAS Hedi Fabinyi
GmbH, and McQueen International Limited. The aggregate purchase price for these
acquisitions was approximately 6,020,000 shares of the Company's Common Stock
plus assumed
20
<PAGE> 22
debt, and were accounted for using the pooling-of-interests method of
accounting. In addition, the Company also acquired the stock of Traffic and
related assets for $1.8 million in cash and accounted for the acquisition
utilizing the purchase method of accounting. In the aggregate, the acquisitions
expanded the Company's geographical presence in Europe and expanded the service
offerings that the Company provides. Pursuant to the acquisitions, the Company
assumed $36.3 million in debt in the year ended December 31, 1997.
During 1996, the Company generated approximately $0.6 million in cash, net,
from operations. The Company has used these funds plus a portion of its $111.2
million proceeds from its public offerings, together with $5.6 million received
as incentive grants from local and state governmental agencies, to fund $23.1
million of capital expenditures in 1996 predominantly to construct and outfit
three new IT call centers.
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 purchase price for these acquisitions was
approximately 1.4 million shares of the Company's Common Stock, and such
acquisitions were accounted for using the pooling-of-interests method of
accounting.
The Company believes that its current cash levels, accessible funds under
its credit facilities and cash flows from future operations, will be adequate to
meet its continued expansion objectives, anticipated levels of capital
expenditures and debt repayment requirements, including those that may be
required pursuant to the integration of its acquisitions, for the foreseeable
future.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financing Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income," which is effective for periods ending
after December 15, 1998. This statement establishes standards for computing and
presenting comprehensive income which includes translation adjustments. In June
1997, FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," which is also effective for periods ending after December
15, 1998. This statement establishes additional disclosure requirements for
business segments. Management is currently assessing the future period impact of
SFAS No. 130 and 131 on the Company's presentation of results of operations,
changes in shareholders' equity and segment disclosures.
YEAR 2000
The Company has evaluated the Year 2000 impact on its internal financial
and operational systems. The Company has made a preliminary determination that
it should not incur significant costs to make its software programs and
operating systems Year 2000 compliant. In addition, the Company is in the
process of determining whether other companies with whom the Company does
business are Year 2000 compliant.
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<PAGE> 23
BUSINESS
GENERAL
Sykes is a global provider of a wide array of information technology ("IT")
outsourcing services, including information technology support services,
information technology development services and solutions, and software
fulfillment. The Company's services are provided at various stages during the
life cycle of computer hardware and software products. Through its
state-of-the-art IT call centers, the Company provides services to leading
computer hardware and software companies by providing technical support services
to end users of their products, and to major companies by providing corporate
help desk and other support services. The Company also provides fulfillment
services to computer hardware and software companies including design,
replication, material integration, packaging and distribution. In addition,
through its staff of technical professionals, the Company provides software
development and related services to large corporations, on a contract or
temporary staffing basis, including software design, development, integration
and implementation; systems support and maintenance; and documentation, foreign
language translation and software localization. The integration of these
services provides the Company's customers the opportunity to outsource a broad
range of their information technology services needs to the Company.
In 1993, in an effort to capitalize on the trend toward outsourcing
information technology services, the Company focused its strategic direction
exclusively on the information technology services marketplace and broadened its
array of services. Pursuant to this strategy, the Company began providing
information technology support services by opening IT call centers. Revenues
from information technology support services have grown rapidly through the
opening of two domestic IT call centers in 1994, two in 1995, three in 1996, and
one in 1997. In addition, the Company has begun construction of a new domestic
IT call center in Manhattan, Kansas, which the Company expects to be fully
operational in 1998. The domestic IT call centers are stand-alone facilities,
each modeled after the same prototype. The Company's strategy of locating its
domestic IT call centers in smaller communities, typically near a college or
university, has enabled the Company to benefit from a relatively low cost
structure and a technically proficient, stable work force. In addition to its
domestic call centers, internationally the Company has opened one call center in
1994 and two during 1997. Additional international IT call centers were obtained
as part of the Company's acquisitions, of which one was acquired during 1996 and
eight were acquired during 1997. The Company estimates that its IT call centers
have the capacity to process in excess of 140,000 calls per day in the
aggregate, up from 7,000 calls per day in January 1994, from users of hardware
and software products seeking technical assistance.
The Company believes that outsourcing by information technology companies
and companies with information technology needs will continue to grow as
increasing competition encourages businesses to focus on their core competencies
rather than non-revenue producing activities. Rapid technological changes,
significant capital requirements for state-of-the-art technology, and the need
to integrate and update complex information technology systems spanning multiple
generations of hardware and software components make it increasingly difficult
for businesses to cost-effectively maintain quality information technology
services in-house. To capitalize on this trend toward outsourcing, the Company
has developed a strategy that includes the following elements: (i) expand
information technology support services revenues through additional IT call
centers; (ii) market the Company's expanded customer care services to existing
customers to position Sykes to become a preferred vendor of outsourced services;
(iii) establish a competitive advantage through the Company's sophisticated and
specialized technological capabilities; and (iv) expand its international
customer base through strategic alliances and selective acquisitions.
INDUSTRY BACKGROUND
In today's rapidly changing technological environment, consumers and
businesses require a variety of information technology services in order to
effectively use and manage their complex information technology systems,
including technical support, software development and information systems
integration and management. Many companies' computer systems incorporate a
variety of hardware and software components that may span a number of technology
generations. For example, a company may use client/server systems or mainframe
or midrange hardware platforms running a variety of operating systems, software
applications and
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<PAGE> 24
relational databases. Information technology services have become much more
important in this environment as information technology departments strive to
integrate a company's information processing capabilities into a single system
while providing the flexibility to change with technological innovations.
These technological changes are making it increasingly difficult and
expensive for companies to maintain in-house the necessary personnel to handle
all of their information technology needs. Hardware and software companies, as
well as businesses utilizing their products, are increasingly turning to third
party vendors to perform specialized functions and services. Outsourcing of (i)
product support functions by leading hardware and software companies, (ii)
employee help desk functions by major companies, and (iii) other information
technology services such as software design and systems integration and
management, is growing rapidly because of the following factors:
- Increasing need for companies to focus on core competencies rather than
non-revenue producing activities;
- Rapid technological changes requiring personnel with specialized
technical expertise;
- Growing capital requirements for sophisticated technology necessary to
provide timely product support and help desk functions;
- Increasing need to integrate and continually update complex systems
incorporating a variety of hardware and software components spanning a
number of technology generations;
- Extensive and ongoing staff training and associated costs required to
maintain responsive, up-to-date in-house technical support and
information technology services; and
- Cost savings from converting fixed employee costs to flexible, variable
costs.
In the face of rapid technological change, large corporations also find it
increasingly difficult and expensive to service all of their own information
technology needs through in-house personnel.
As the outsourcing of technical product support, help desk and other
information technology services has gained acceptance, many companies also are
seeking to consolidate the number of vendors that provide them with these
services. Accordingly, providers of information technology outsourcing services
must offer a wide array of services to maintain a preferred vendor relationship
with their customers. The Company believes its broad range of services will
allow it to capitalize on this trend.
STRATEGY
The Company's objective is to continue its growth and to become a leading
provider of a wide variety of information technology outsourcing services by
being responsive to and providing skilled personnel for its clients' long-term
outsourcing needs. The Company's principal strategies for achieving this
objective are as follows:
Expand Through Systematic Addition of IT Call Centers. The Company
has grown utilizing a strategy of both internal growth and external
acquisitions. This plan has resulted in an increase from three IT call
centers in 1994 to 20 IT call centers as of the date of this Prospectus.
The Company has built six domestic IT call centers between October 1995 and
September 1997 and a new domestic IT call center currently is under
construction. Acquisitions have included one IT call center acquired
through the Datasvar acquisition, one IT call center acquired through the
Telcare acquisition, three IT call centers acquired through the TAS
acquisitions, and four IT call centers acquired through the McQueen
acquisition. In addition, the Company has expanded its international
operations through the IT call centers added in Sunninghill, South Africa
and Les Ulis, France during 1997. The Company's IT call centers currently
have the capacity to handle up to approximately 36 million calls per year.
Sykes has systematized the establishment and ongoing operation of its
domestic IT call centers by: (i) locating the centers in smaller
communities, near a college or university, with a relatively low cost
structure and a technically proficient, stable work force; (ii)
constructing the IT call centers modeled after the same prototype; (iii)
utilizing standardized procedures to hire and train technicians; and (iv)
maintaining
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<PAGE> 25
consistently responsive, high quality services through call monitoring and
tracking technology and other quality assurance procedures. The Company's
systematic approach and procedures are part of its strategy of providing
responsive, high quality support at a lower cost than the Company's
competitors.
Position Sykes as a Preferred Vendor. The Company intends to
cross-market its expanded array of information technology services to
existing customers and to continue to provide consistently high quality
services to new and existing customers in order to position the Company as
a preferred vendor of outsourced services. The Company believes that its
ability to work in partnership with its customers during the life cycle of
their information technology products and systems, from software design and
systems implementation, through technical documentation and foreign
language translation, to product fulfillment including packaging and
distribution, to end user technical product support, gives it a competitive
advantage to become the provider of choice to its customers. The Company
has expanded the services it provides, such as help desk, diagnostic
support services and fulfillment, through its existing relationships with
Fortune 500 companies, particularly those customers using the Company's
services to satisfy all or part of their information technology development
services and solutions needs.
Capitalize on Sophisticated Technology. The Company seeks to
establish a competitive advantage by continuing to capitalize on its
sophisticated and specialized technological capabilities, including PBX
switches, automatic call distributors, call tracking software and
computer-telephone integration. These capabilities allow its IT call
centers to serve as the transparent extension of the Company's customers,
receive telephone calls and data directly from its customers' systems, and
report detailed information concerning the status and results of the
Company's services on a daily basis. The Company's sophisticated technology
and systems, which the Company is able to upgrade periodically because of
their open architecture, enable the Company to provide high response rates
at a low cost per transaction.
The Company's strategy is to continue to develop or acquire other
technologies that complement its technical product support functions. For
example, the Company intends to integrate the capabilities of it's
sophisticated diagnostic proprietary software with Sykes IT call centers to
further enhance the efficiency and quality of the Company's information
technology support services, and believes that enhancements to this
software will enable it to access and offer information technology support
services directly to the home and small business markets.
Growth Through Strategic Alliances. The Company intends to expand its
customer base, geographic presence and the information technology services
Sykes provides by seeking to form strategic alliances with other
information technology service providers, particularly those who do not
provide labor intensive technical support. For example, information
technology services providers such as systems integrators increasingly are
seeking partners to whom they can outsource the help desk requirements of
their customers. The Company continues to actively seek help desk contracts
with such providers.
Growth Through Selective Acquisitions. The Company intends to
continue to acquire complementary businesses to increase market share,
expand its services, enter key industry sectors and expand its geographic
presence. The Company has completed eight such strategic acquisitions since
its initial public offering in April 1996. The Company believes it can
expand the scope and quality of its information technology support services
by acquiring companies with IT call centers in international markets which
provide quality technical support for leading computer hardware and
software companies, as well as companies which enhance its ability to
provide such services. The Company further believes that significant
opportunities exist to acquire organizations that provide information
technology services within the Company's strategic focus of emerging
technology industries, such as banking and telecommunications industries in
which the Company primarily does not currently compete. The information
technology services industry is highly fragmented. Many of these local
firms may be attractive acquisition candidates because they would enable
the Company to expand existing service offerings or open new geographic
offices.
The Company believes the majority of its growth is attributable to its
opening of additional IT call centers and the execution of its acquisition
strategy. There can be no assurance, however, that the Company will continue to
experience the same level of success in the opening of additional IT call
centers or that it will be
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<PAGE> 26
able to find suitable entities which will enable it to continue the execution of
its acquisition strategy. See "Risk Factors -- Ability to Manage Growth. See
"Risk Factors -- Ability to Manage Growth."
RECENT ACQUISITIONS AND ALLIANCES
During 1997, Sykes increased its services and expanded its customer base
through strategic acquisitions of Traffic, N.V. ("Traffic") of Brussels,
Belgium, on January 1, 1997, Telcare Telekommunikations -- Mehrwertdieste mbH
("Telcare") of Wilhelmshaven, Germany, on June 16, 1997, TAS Telemarketing
Gesellschaft fur Kommunikation und Dialog mbH ("TAS I") of Bochum, Germany on
September 25, 1997, TAS Hedi Fabinyi GmbH ("TAS II) of Stuttgart, Germany on
September 25, 1997, and McQueen International Limited ("McQueen") of Galashiels,
Scotland on December 31, 1997. With the acquisition of McQueen, Sykes has grown
to an organization of more than 6,500 employees across 40 worldwide locations,
providing IT support services at all stages in the life cycle of their products
and services -- from initial development to documentation and training to
end-user support. Sykes also provides diagnostic capabilities and retail
software applications and support for back-office and point-of-sale customers.
Sykes also expanded its services and increased its IT call center
capabilities through strategic alliances. By combining technology acquired in
1996 with technology developed jointly pursuant to its May 1997 alliance with
SystemSoft Corporation, a leading vendor of remote diagnostic tools for software
products, Sykes has introduced electronic technical support center ("ETSC")
services that integrate hardware and software diagnostics with call avoidance
capabilities. The Company's ETSC diagnostic tools provide a comprehensive
solution for end users of computer hardware and software products. Through its
ETSC services, end users can (i) work with a Sykes call center agent to expedite
problem resolution utilizing communications protocols that allow for voice and
data communications over a single telephone line, (ii) forward a request for
assistance from a Sykes call center agent via the internet, or (iii) diagnose
and solve their technical hardware or software problems without the assistance
of an Sykes call center agent. The Company believes that its ETSC services will
provide it direct access to broader markets, including post-warranty support
services for home and small business users.
In addition to ETSC services, Sykes expanded its IT call center utilization
capabilities through its July 1997 agreement with Tech Data, a leading wholesale
distributor of microcomputer products, to provide technical product support
services to customers of Tech Data's network of 35,000 computer product
resellers. Sykes believes that this arrangement will enable the Company to reach
end users of computer hardware and software products through an established
distribution channel.
The Company's growth of its technical staffing, software development and
documentation and software translation services has been additionally
supplemented by Sykes's acquisition in March 1997 of Info Systems of North
Carolina, Inc., a provider of software and support to national high volume
retail chains. Sykes believes that its ability to work in partnership with its
customers during the life cycle of their information technology products and
systems, from software design and systems implementation, through technical
documentation and foreign language translation, to end-user technical product
support, gives it a competitive advantage to become a preferred provider of
outsourced IT services to its customers. In particular, the Company seeks to
broaden its IT outsourcing customer base in the retail, financial services,
healthcare and telecommunications industries.
Sykes also expanded its services to the health care industry through its
formation and funding with HealthPlan Services Corporation ("HPS") of Sykes
HealthPlan Services, Inc. ("SHPS") in December 1997. The new company, SHPS, is
currently owned 50% by Sykes and 50% by HPS. SHPS is a provider of outsourced
care management services and products and employee benefit administration
services to large corporations and healthcare providers and payors. On April 24,
1998, SHPS filed with the Commission a Registration Statement relating to a
proposed initial public offering of its common stock, pursuant to which the
Company and HPS anticipate selling a portion of their interests in SHPS, if such
offering is completed.
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<PAGE> 27
SERVICES
The Company provides a wide array of information technology outsourcing
services, including information technology support services and information
technology development services and solutions. The following is a description of
the Company's outsourcing services:
Technical Product Support. The Company provides technical product support
services by telephone (24 hours a day, 7 days a week) to end users of the
products of hardware and software companies through its nine stand-alone IT call
centers in the United States and eleven international call centers located in
Europe, South Africa and the Philippines. Consumers of hardware or software
products of Sykes' customers dial a technical support number listed in their
product manuals and are automatically connected to an IT call center technician
who is specially trained in the applicable product and acts as a transparent
extension of the hardware or software company in diagnosing problems and
answering technical questions. The IT call centers also provide technical
product support by electronic mail and electronic bulletin boards. The IT call
centers in Europe provide support in 11 languages to 20 European countries.
As a result of a strategic alliance with SystemSoft Corp., the Company
provides a modular bundled call center support management software product,
(ETSC-Electronic Technical Support Center) that integrates communication and
remote control technology with hardware and software diagnostic tools to provide
end users a total support solution. This technological capability allows a user,
with ETSC loaded on their computer, to connect to a technical support technician
located in a Sykes call center at the mouse click of an icon. Once connected the
end user can receive support from traditional voice response means or the
technician, with the user's authorization, can remotely fix the computer system
directly from the call center.
The Company also develops and markets the proprietary hardware diagnostic
software for use by manufacturers, professional service personnel and end users.
Proprietary diagnostic products are developed and marketed for use with a
variety of operating systems which include software used by personal computer
manufacturers for quality assurance and pre-installed or bundled software used
by professional service personnel and end users for verifying component
functionality, troubleshooting, resolving hardware and software conflicts and
hardware repairs.
Help Desk Services. The Company provides help desk services to major
companies, at their facilities or through the IT call centers, that have
outsourced technical support for their internal information technology systems.
Employees of Sykes' customers telephone the help desk number provided to them by
their employer for technical assistance. Trained technicians dedicated to a
specific customer answer questions and diagnose and resolve technical problems
ranging from a simplistic error message to a wide area network failure.
Software fulfillment. The Company provides fulfillment services to
computer hardware and software companies. These services include design,
replication, printing documentation, material integration, packaging and
distribution. The products are distributed to various levels of the distribution
chain as directed by the customer.
Software Design, Development, Integration and Implementation. Sykes'
professional personnel provide software application design services geared
toward the development of a functional and technical blueprint for a client's
desired software application. These professionals identify applicable business
processes supported by an application and its related functions, determine end
user requirements and prepare a comprehensive plan for developing and
implementing the application. They also develop custom software necessary to
operate a desired application, integrate the application into the customer's
existing information processing architecture, test the functionality of the
application and assist the customer in training its personnel to use the
application.
Software Localization and Documentation Development. Sykes also
specializes in the development of product information for high-tech companies
worldwide. Through its software localization, translation, technical
documentation, and on-line information development services, Sykes provides
turnkey solutions to help customers deliver their products to worldwide markets.
Localization services include cultural adaptation, language translation,
interface modification and international testing in over 24 languages. Technical
documentation and on-line development services are provided in many leading
formats (DOC, RTF, HTML, SGML) and a variety of platforms (Windows, Mac, Unix).
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<PAGE> 28
Systems Specialization and Maintenance. Sykes' professional personnel
provide a variety of services designed to support and maintain client/server
systems and mainframe and midrange platforms. These services include systems
administration, maintenance and management support, applications enhancement and
training services.
Retail Solutions. The Company provides design, programming, licensing and
support of software solutions for the retail industry. These retail solutions,
FS Pro (future store professional) Marketplace and FS Pro Chainstore 400 provide
retail users advanced back office and point-of-sale technology including
electronic ordering and receiving, cash management, sales analysis, inventory
and price management, and complete hand-held RF-based functionality.
OPERATIONS
IT Call Centers. The Company's strategy in the United States is to locate
its IT call centers in smaller communities with similar demographic
characteristics, typically near a college or university. The Company believes
these characteristics tend to provide a well-educated, technically proficient
employee pool from which to attract qualified candidates. These locations also
tend to have lower labor and infrastructure costs than large metropolitan areas.
New IT call centers are established to accommodate anticipated growth in
the Company's business or in response to a specific customer need. The Company
believes that additional IT call centers will be established in the United
States and Europe and potentially in Asia.
A typical domestic IT call center is approximately 42,000 square feet, has
425 work stations and can handle 12,000 calls per day. The IT call centers
employ current technology in PBX switches, call tracking software,
telephone-computer integration, interactive voice response and relational
database management systems that are integrated into centrally managed local
area networks and wide area networks. The Company's sophisticated equipment and
technology enable it to serve as the transparent extension of its customers at a
low cost per transaction and provide its customers with immediate access to the
status and results of the Company's services. Due to its modular, open system
architecture, the Company's computer system allows timely system updates and
modifications. The Company utilizes sophisticated call tracking software and
systems to provide efficient scheduling of personnel to accommodate fluctuations
in call volume.
Automated call distributors and digital switches identify each call by the
number dialed and automatically route the call to a technician with the
applicable knowledge and training. The technical product support calls are
routed directly from the end user to the IT call center or are overflow calls
routed from the client's place of business.
IT call center systems capture and download to permanent databases a
variety of information concerning each call for reporting on a daily basis to
customers, including number and duration of calls (which are important for
billing purposes for certain customers), response time and results of the call.
Summary data and complete databases are made available to the customer to enable
it to monitor the level of service provided by the Company, as well as to
determine whether end users of its products are encountering recurring problems
that require modification. The databases also provide Sykes customers with
considerable marketing information concerning end users, such as whether the
user is a home or business user and regional differences in purchasing patterns
or usage. The Company maintains tape backups and offsite storage designed to
assure the integrity of its reporting systems and databases.
The IT call centers are protected by a fire extinguishing system and backup
generators and short-term battery backup in the event of a power outage, reduced
voltage or power surge. Rerouting of telephone calls to one of the other IT call
centers is also available in the event of a telecommunications failure, natural
disaster or other emergency. Security measures are imposed to prevent
unauthorized access. Software and related data files are backed up daily and
stored off site at multiple locations. The Company carries business interruption
insurance covering interruptions that might occur as a result of damage to its
business. In addition, the Company believes that it has adequate arrangements
with its equipment vendors pursuant to which damaged equipment can be replaced
promptly.
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<PAGE> 29
Fulfillment Centers. Sykes has expanded its fulfillment services during
1997 through an acquisition. Sykes has two fulfillment centers located in the
United States and six fulfillment centers located in Europe. Through these
centers, the Company offers a broad range of brands in each of the product
categories it covers. By stocking a broad mix of products, Sykes meets the needs
of customers who prefer to deal with a single source for many of their product
needs. Sykes is continually evaluating new products, the demand for current
products, and its overall product mix.
Offices. Sykes' professional personnel are assigned to one of the
Company's fourteen offices, which are located in metropolitan areas throughout
the United States and Europe in order to be closer to their major customers.
Each office is responsible for staffing the professional personnel needs of
customers within its geographic region and customers referred from other offices
based on specialized needs. These offices give Sykes the ability to (i) offer a
broad range of professional services on a local basis, and (ii) respond to
changing market demands in each geographical area served. The number of
professionals assigned to each office ranges from 3 to 150.
Each office is staffed with one or more account executives whose goal is to
become the client's partner in evaluating and meeting the client's information
technology needs. The account executive's primary responsibilities include:
client development; understanding and identifying clients' information
technology service needs; working closely with recruiters to staff assignments
appropriately; setting billing rates for each assignment; and monitoring ongoing
assignments. Each account executive is responsible for between four and ten
active corporate accounts, some of which may involve several projects with
multiple operating units of a particular company. The account executive
cultivates and maintains relationships with the client's chief information
officer and numerous department and project managers within the client's
organization.
The account executive has responsibility for staffing an assignment on a
timely basis. Upon receiving a new assignment, the account executive prepares a
proposal with assignment specifications and distributes the proposal to a
recruiter who is familiar with the professionals who have the expertise required
for the assignment. The account executive reviews the recruiter's recommended
candidates, submits the resumes of qualified employees and other available
candidates to the client and schedules client interviews of the candidates.
Typically, an assignment is staffed within five working days. For certain
clients with whom the Company has long-term relationships, account executives
are given sole responsibility for staffing assignments with little or no client
involvement in the decision.
QUALITY ASSURANCE
The Company carefully trains, monitors and supervises its employees to
enhance efficiency and quality of its services. The training of new technicians
at the IT call centers is conducted in-house through certified trainers or by
professionals supplied by the Company's customers. The Company actively recruits
highly skilled professionals to staff specific assignment needs of its
information technology development services and solutions customers. Generally,
employees also receive ongoing training throughout the year to respond to
changes in technology.
An IT call center manager supervises project leaders, team leaders and
technicians dedicated to individual customer accounts. Each team leader at the
IT call centers monitors approximately ten technicians. A project leader
supervises a particular customer's account by monitoring calls and reviewing
quality standards. Using the Company's proprietary, sophisticated call tracking
software, the project leader monitors the number of calls each technician
handles, the duration of each call, time between calls, response time, number of
queries resolved after the first call and other statistics important in
measuring and enhancing productivity and service levels. Remote and on-site call
monitoring systems and on-line performance tracking are used to enhance high
quality services. Customers have daily access to a variety of measures of
service performance tracked by the Company's technology and can monitor calls
directly through the Company's remote call monitoring systems.
The Company emphasizes a team approach in order to provide high quality,
customized solutions to meet its clients' information technology development
services and solutions needs. The central role in this team approach is provided
by the Company's account executives and recruiters who work together to achieve
a
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successful relationship between the client and the Company's professionals. The
team shares information on active and prospective clients, reviews the
availability of professionals and discusses general market conditions. Such
forums enable the teams to remain informed and knowledgeable on the latest
technologies and to identify business development opportunities as they emerge.
The Company is committed to providing its customers with the highest
quality services. To that end, the Company's IT call center in Sterling,
Colorado has received ISO 9002 certification, an international standard for
quality assurance and consistency in operating procedures. The Company's other
locations are ISO 9002 compliant, but not certified. The Company anticipates
that ISO 9002 certification may become a factor to organizations outsourcing
their technical product support or help desk functions. Consequently, the
Company has modeled each IT call center after ISO 9002 procedures to achieve
consistency and quality. In addition, the Company received the 1995, 1996 and
1997 STAR Award in the highest call volume category. This award has been
presented annually since 1988 by the Software Support Professionals Association
(SSPA) to the software support company that achieves superior customer
satisfaction and call metrics.
SALES AND MARKETING
The Company's marketing objective is to develop long-term relationships
with existing and potential clients to become the preferred vendor of their
information technology outsourcing services. Sykes believes that its significant
client base provides excellent opportunities for further marketing of its broad
range of capabilities. The Company markets its information technology services
through a variety of methods, including client referrals, personal sales calls,
advertising in industry publications, attending trade shows, direct mailings to
targeted customers, telemarketing and cross selling additional services to
existing clients. As of March 1, 1998, the Company employed 77 people in its
direct sales force.
As part of its marketing efforts, the Company invites potential and
existing customers to visit the IT call centers, where the Company demonstrates
its sophisticated telecommunications and call tracking technology, quality
procedures and the knowledge of its technicians. The Company also demonstrates
its ability to quickly accommodate a new customer or a significant increase in
business from an existing customer by emphasizing its systematic approach to
establishing and managing IT call centers.
The Company also emphasizes account development to strengthen its
relationships with its customers. Sales representatives and account executives
are assigned to a limited number of accounts in order to develop a complete
understanding of each customer's particular needs, to form strong customer
relationships and encourage cross selling of other services offered by the
Company. Account executives also receive incentives for cross selling the
Company's services.
The Company's fulfillment services sales force is composed of field sales
representatives who manage relationships with the accounts. In addition, the
Company has inside customer sales representatives who receive product orders and
answer customer inquiries. The Company will process the order and ship the
product from the appropriate fulfillment center. Fulfillment services are
generally billed to the client based on a per unit basis.
Technical product support services provided through IT call centers
generally are billed to the client based on a fee per call, rate per minute or
time and material basis. As a result of the significant infrastructure costs
required for each IT call center, the Company requires a minimum billing amount
to facilitate planning and capital needs. Help desk services usually are billed
at a flat rate per employee per month, with the per employee charge varying
depending on the customer's total number of employees and the complexity of its
information systems.
Information technology development services and solutions engagements
generally are billed on a time and material basis. Sykes is expanding its
efforts to obtain contracts with customers lasting six months or longer to
increase recurring revenues, maximize utilization of professional personnel and
enhance long-term relationships. The Company also is attempting to obtain
contracts to provide for the management of a customer's entire information
technology project, rather than providing professionals to staff a
client-managed project, with a view to enhancing profit margins through the
provision of value-added management services.
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Retail solutions are marketed by both in-house direct sales staff and
through a remarketing agreement with IBM reached late in 1997. With IBM, the
Company has effectively increased its marketing program by approximately 150
sales people. The solutions are sold on a per license or location basis and
often include computer hardware equipment.
CUSTOMERS
The Company has customers in the United States, Canada, Europe and South
Africa. The Company's customers include Fortune 500 corporations and leading
hardware and software companies. The Company believes its nationally recognized
customer base presents opportunities for further cross-marketing of its
services.
A single customer of the Company, which is also a Selling Shareholder,
accounted for 13%, 13% and 11% of the Company's consolidated revenues for the
years ended December 31, 1995, 1996 and 1997, respectively, pursuant to the
pooling-of-interests method of accounting. The Company's loss of (or the failure
to retain a significant amount of business with) such customer could have a
material adverse effect on the Company. The Company's largest ten customers
accounted for approximately 44% of the consolidated revenues in 1997. Generally,
the Company's contracts are cancelable by each customer at any time or on
short-term notice, and customers may unilaterally reduce their use of the
Company's services under such contracts without penalty. Sykes provided services
to approximately 500 customers during 1997.
COMPETITION
The industry in which the Company competes is extremely competitive and
highly fragmented. While many companies provide information technology services,
management believes no one company is dominant. There are numerous and varied
providers of such services, including firms specializing in call center
operations, fulfillment, temporary staffing and personnel placement companies,
language translation companies, general management consulting firms, major
accounting firms, divisions of large hardware and software companies and niche
providers of information technology services, many of whom compete in only
certain markets. The Company's competitors include many companies who may
possess substantially greater resources, greater name recognition and a more
established customer base than the Company. In addition, the services offered by
the Company historically have been provided by in-house personnel. The Company
also competes with other developers of software diagnostic tools, back office
and point-of-sale applications, many of which have significantly greater
financial, technical, marketing and other resources than the Company.
The Company believes that the most significant competitive factors in the
sale of its services include quality and reliability of services, flexibility in
tailoring services to customer needs, price, experience, reputation and
comprehensive and integrated services. As a result of intense competition,
information technology development services and solutions engagements frequently
are subject to pricing pressure. Customers also require vendors to be able to
provide services in multiple locations. Competition for contracts for many of
Sykes' services takes the form of competitive bidding in response to requests
for proposals.
Many of Sykes' large customers purchase information technology services
primarily from a limited number of preferred vendors. Sykes has experienced and
continues to anticipate pricing pressure from these customers in order to remain
a preferred vendor. These companies also require vendors to be able to provide
services in multiple locations.
INTELLECTUAL PROPERTY
The Company relies upon a combination of contract provisions and
intellectual property laws to protect the proprietary technology it uses at its
IT call centers and to protect its proprietary software. The Company attempts to
further protect its trade secrets and other proprietary information through
agreements with employees and consultants. The Company does not hold any patents
and does not have any patent applications pending. There can be no assurance
that the steps taken by the Company to protect its proprietary technology will
be adequate to deter misappropriation of its proprietary rights or third party
development of similar proprietary software or to ensure that a third party
cannot assert that the Company's services or software
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misappropriate or infringe upon such third party's intellectual property rights.
Sykes(R) is a registered servicemark of the Company. The Company holds a number
of registered trademarks, including DIAGSOFT(R), QAPLUS/WIN(R), ETSC(R), FS
PRO(R) and FS PRO MARKETPLACE(R).
EMPLOYEES
As of March 1, 1998, the Company had 6,538 full-time employees, consisting
of 77 in sales and marketing, 4,282 customer support technicians at the IT call
centers, 1,130 technical professionals, 499 in fulfillment services and 550 in
management, administration and finance.
The technical and service nature of the Company's business makes its
employees an important corporate asset. While the market for qualified personnel
is extremely competitive, the Company believes its relationship with its
employees is good. The Company's employees with the exception of 157 employees
in Scotland, are not represented by any labor union.
The Company believes that it gains a competitive advantage by locating its
IT call centers in smaller communities in which they become an integral part of
the local economy and labor force. The Company believes that personnel located
in such communities can be employed at a lower overall cost than employees
located in a metropolitan setting. Sykes IT call centers are located in
communities near a college or university to provide a well-educated, technically
proficient, stable work force. Applicants are interviewed for technical skills
as well as interpersonal skills.
The Company recruits its professional personnel through a continually
updated recruiting network. This network includes a seasoned team of technical
recruiters, a Company-wide candidate database, Internet/ newspaper advertising,
candidate referral programs and job fairs. However, demand for qualified
professionals conversant with certain technologies may outstrip supply as new
skills are needed to keep pace with the requirements of customer engagements.
Competition for such personnel is intense and employee turnover in this industry
is high.
FACILITIES
The Company's principal executive offices are located in Tampa, Florida.
This facility currently serves as the headquarters for senior management, the
financial and administrative departments and the Tampa office. The following
table sets forth additional information concerning the Company's facilities:
<TABLE>
<CAPTION>
PROPERTIES GENERAL USAGE SQUARE FEET LEASE EXPIRATION
---------- ------------------------------------- ----------- ----------------
<S> <C> <C> <C>
UNITED STATES LOCATIONS:
Tampa, Florida............................... Corporate headquarters 18,000 December 2002
Tampa, Florida............................... Development office 5,000 September 1998
Tampa, Florida............................... Office 18,000 July 1999
Bismarck, North Dakota....................... IT call centers 84,000 Company owned
Greeley, Colorado............................ IT call center 42,000 Company owned
Hays, Kansas................................. IT call center 42,000 Company owned
Klamath Falls, Oregon........................ IT call center 42,000 Company owned
Manhattan, Kansas............................ IT call center (under construction) 42,000 Company owned
Minot, North Dakota.......................... IT call center 42,000 Company owned
Ponca City, Oklahoma......................... IT call center 42,000 Company owned
Sterling, Colorado........................... IT call center 34,000 Company owned
Fremont, California.......................... IT call center and fulfillment center 111,500 November 1999
Nashville, Tennessee......................... Fulfillment center 121,400 December 1998
Atlanta, Georgia............................. Office 2,000 May 2000
Boise, Idaho................................. Office 2,400 January 1999
Boston, Massachusetts........................ Office 26,000 September 2000
</TABLE>
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<PAGE> 33
<TABLE>
<CAPTION>
PROPERTIES GENERAL USAGE SQUARE FEET LEASE EXPIRATION
---------- ------------------------------------- ----------- ----------------
<S> <C> <C> <C>
Boulder, Colorado............................ Office 13,000 March 1999
Cary, North Carolina......................... Office 9,500 December 1999
Charlotte, North Carolina.................... Office 2,200 June 2000
Charlotte, North Carolina.................... Office 37,800 October 2003
Dallas, Texas................................ Office 5,500 June 1998
Denver, Colorado............................. Office 2000 January 2001
Lexington, Kentucky.......................... Office 1,600 June 2000
Orlando, Florida............................. Office 2,000 August 1998
Poughkeepsie, New York....................... Office 1,000 January 1999
St. Louis, Missouri.......................... Office 5,500 September 1998
INTERNATIONAL LOCATIONS:
Amsterdam, The Netherlands................... IT call center 27,700 April 1999
Amsterdam, The Netherlands................... IT call center 12,400 December 1999
Edinburgh, Scotland.......................... IT call center 35,900 September 2019
Les Ulis, France............................. IT call center 36,200 February 2007
Bochum, Germany.............................. IT call center 30,000 December 2000
Stuttgart, Germany........................... IT call center 9,200 December 2006
Wilhelmshaven, Germany....................... IT call center 36,800 March 2003
Manila, The Philippines...................... IT call center 13,200 June 2000
Sunninghill, South Africa.................... IT call center 4,000 September 2000
Sveg, Sweden................................. IT call center 13,200 June 1998
Shannon, Ireland............................. IT call center and fulfillment center 66,000 April 2013
Hoofddorp, The Netherlands................... Fulfillment center 12,000 August 1998
Sevran, France............................... Fulfillment center 19,400 August 2002
Galashiels, Scotland......................... Fulfillment center 92,800 Company owned
Kista, Sweden................................ Fulfillment center 6,500 December 2000
Stockholm, Sweden............................ Sales Office 2,700 December 1999
Brussels, Belgium............................ Office and fulfillment center 26,900 February 2001
</TABLE>
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
the date of this Prospectus are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
John H. Sykes..................... 61 Chairman of the Board, President, and Chief
Executive Officer
Gordon H. Loetz................... 48 Executive Vice President, Chief Operating
Officer, and Director
Scott J. Bendert.................. 41 Senior Vice President -- Finance, Treasurer,
and Chief Financial Officer
Keith L. Gibson................... 39 Senior Vice President -- Worldwide Sales and
Marketing
John D. Bray...................... 49 Senior Vice President -- Human Resources and
Administration
John L. Crites, Jr................ 54 Vice President and General Counsel
Furman P. Bodenheimer............. 68 Director
H. Parks Helms.................... 62 Director
Iain Macdonald.................... 53 Director
Linda McClintock-Greco, M.D....... 43 Director
Ernest J. Milani.................. 69 Director
R. James Stroker.................. 51 Director
Adelaide A. (Alex) Sink........... 50 Director
</TABLE>
John H. Sykes has been Chairman of the Board of Directors, President, and
Chief Executive Officer of the Company since its inception in 1977. Previously,
Mr. Sykes was Senior Vice President of CDI Corporation, a publicly-held
technical services firm.
Gordon H. Loetz joined the Company as Executive Vice President and Chief
Operating Officer during November 1997. Mr. Loetz has held a seat on the
Company's Board of Directors since 1993, also having previously served on the
Audit Committee. Prior to serving as Executive Vice President and Chief
Operating Officer, Mr. Loetz served as President of Comprehensive Financial
Services Insurance Agency, Inc., a financial investment advisory company.
Scott J. Bendert joined the Company in 1993 as Chief Financial Officer. In
1994, Mr. Bendert was named Treasurer and in 1997 was appointed Senior Vice
President -- Finance. From 1984 to 1993, Mr. Bendert held various management
positions with Reflectone, Inc., a publicly-held producer of complex computer
simulator trainers and devices, most recently as Corporate Controller.
Keith L. Gibson joined the Company as Senior Vice President-Worldwide Sales
and Marketing during October 1997. From 1991 until 1997, Mr. Gibson was a
partner of KPMG Peat Marwick LLP (KPMG) where he acted as the Chief Knowledge
Officer (CKO). Prior to his role as CKO, Mr. Gibson was Partner in Charge of
Outsourcing Assessments. Prior to joining KPMG, Mr. Gibson spent 13 years at IBM
in various marketing positions, working his way through many aspects of IBM's
marketing area.
John D. Bray joined the Company in 1996 as Vice President -- Human
Resources and was named Senior Vice President-Human Resources and Administration
during October 1997. From 1989 to 1995, Mr. Bray was Director of Human Resources
and Risk Management for Lil' Champ Food Stores, Inc.
John L. Crites, Jr. joined the Company as Vice President and General
Counsel in 1996. From 1991 to 1996, Mr. Crites served as Executive Director of
the Vivian L. Smith Foundation for Restorative Neurology at the Baylor College
of Medicine in Houston, Texas.
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Furman P. Bodenheimer, Jr. was elected to the Board of Directors of the
Company in 1991 and is a member of the Compensation and Stock Option Committees.
Mr. Bodenheimer has been President and Chief Executive Officer of Zickgraf
Enterprises, Inc. and Nantahala Lumber in Franklin, North Carolina since 1991.
Prior thereto and until 1988, Mr. Bodenheimer was President of First Citizens
Bank and Vice Chairman of First Citizens Mortgage Company and First Title
Insurance Company. From 1988 to 1991, Mr. Bodenheimer was a consultant to
financial institutions.
H. Parks Helms has served as a director of the Company since its inception
in 1977 and is a member of the Audit Committee. Mr. Helms is the Managing
Partner of the law firm of Helms, Cannon, Hamel & Henderson in Charlotte, North
Carolina. Mr. Helms has held numerous political appointments and elected
positions, including as a member of the North Carolina House of Representatives.
Iain Macdonald was elected to the Board of Directors of the Company in
1998. Prior to joining the Company's board, Mr. Macdonald served as a director
of McQueen International Ltd. from 1996 until its acquisition by the Company.
From 1984 until 1995, Mr. Macdonald was Chairman of ComputerGroup plc, a
supplier of personal computers, networks, and related services. In 1989,
ComputerGroup was acquired by SHL Systemhouse, Inc., and then was subsequently
acquired by MCI in 1996. Prior thereto and until 1983, Mr. Macdonald was UK
Divisional Marketing Support Manager for IBM United Kingdom, Ltd. Mr. Macdonald
also serves on the Board of Directors of Frederick's Dairies, Ltd.; Signs &
Labels, Ltd.; Lincoln Software, Ltd.; and Warthog Software, Ltd.
Linda McClintock-Greco, M.D. is Chief Executive Officer and Chief Medical
Officer of Tampa General HealthPlan, Inc. (HealthEase) and has spent the last
ten years in the health care industry as both a private practitioner in Texas
and a managed care executive serving as the Regional Medical Director with
Humana Health Care Plan. Dr. McClintock-Greco serves on the Board of Directors
of the Florida Association of Managed Care Organizations (FAMCO) currently
acting as Treasurer. Dr. McClintock-Greco also serves on the board of several
charitable organizations.
Ernest J. Milani was elected to the Board of Directors of the Company in
April 1996 and is a member of the Compensation Committee and became a member of
the Stock Option Committee April 1, 1998. From 1970 until 1996, Mr. Milani held
various positions with CDI Corporation, a publicly-held provider of engineering
and technical services, most recently as President of CDI Corporation Northeast
and CDI Technical Services Ltd., both of which are subsidiaries of CDI
Corporation.
R. James Stroker has served as a director of the Company since 1990 and is
a member of the Compensation and Stock Option Committees. Mr. Stroker is Judge
of the Ninth Judicial Circuit of the State of Florida and has over 21 years of
judicial experience. Mr. Stroker also serves on the Board of Directors of the
University of Orlando Law School. Mr. Stroker is the son-in-law of Mr. Sykes.
Adelaide A. (Alex) Sink was elected to the Company's Board of Directors in
1997 and is a member of the Audit Committee. Ms. Sink is the President of
NationsBank Private Client Group nationwide. From 1993 until 1997, she was
President of NationsBank Florida. Ms. Sink serves on several community and
statewide volunteer boards in Florida.
34
<PAGE> 36
SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of May 28, 1998, and as adjusted to reflect the
sale of Common Stock offered hereby (assuming no exercise of the Underwriters'
over-allotment option), with respect to each Selling Shareholder. Except as
otherwise indicated, the Company believes that all beneficial owners listed
below have sole voting and investment power with respect to all shares of Common
Stock beneficially owned by them.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR NUMBER OF OWNED AFTER
TO THE OFFERING SHARES THE OFFERING(1)
------------------- BEING -------------------
NUMBER PERCENT OFFERED NUMBER PERCENT
--------- ------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Adobe Incentive Partners, L.P. ................. 486,676 1.24% 486,676 -- --
Gray, David R.(2)............................... 3,988 * 3,988 -- --
Gray, Mark J.(3)................................ 3,988 * 3,988 -- --
Gray, Michael Maxwell(4)(14).................... 1,224,590 3.12 424,590 800,000 2.0%
The Michael Maxwell Gray Family Trust(5)........ 250,470 * 250,470 -- --
The M.M. Gray 1997 Liferent Trust(6)............ 645,814 1.65 645,814 -- --
Gray, Patricia Ann(7)........................... 80,355 * 80,355 -- --
Hart, Thomas J.(8).............................. 68,230 * 30,157 38,073 *
T.J. Hart Children Trust(9)..................... 32,290 * 32,290 -- --
T.J. Hart 1997 Liferent Trust(10)............... 57,934 * 57,934 -- --
IBJ Schroder Bank and Trust Company, Trustee.... 349,213 * 349,213 -- --
Tripp, Alan Charles MacDonald(11)............... 59,382 * 26,000 33,382 *
The Tripp Family Trust(12)...................... 16,145 * 16,145 -- --
The A.C.M. Tripp 1997 Liferent Trust(13)........ 60,808 * 60,808 -- --
University of Tampa(14)(15)..................... 57,000 * -- -- --
</TABLE>
- ---------------
* Less than 1%
(1) The named stockholder has sole voting and investment power with respect to
the shares shown as being beneficially owned by it, except as otherwise
indicated.
(2) David R. Gray is the adult son of Michael Maxwell Gray, a Director of
McQueen. See Footnote (4).
(3) Mark J. Gray is the adult son of Michael Maxwell Gray, a Director of
McQueen. See Footnote (4).
(4) The shares represented do not include shares of the Company's Common Stock
owned by The Michael Maxwell Gray Family Trust and The M. M. Gray 1997
Liferent Trust, irrevocable trusts for which Michael Maxwell Gray and
Patricia Ann Gray, his spouse, serve as trustees. The shares also do not
include shares owned by McQueen Employee Share Ownership Trust, for which
McQueen ESOT Trustees Limited serves as trustee. Michael Maxwell Gray is a
trustee of McQueen ESOT Trustees Limited. Further, the shares also do not
include shares owned by Patricia Ann Gray, the spouse of Michael Maxwell
Gray. Michael Maxwell Gray and Patricia Ann Gray have voting and
dispositive power over the shares owned by The Michael Maxwell Gray Family
Trust, The M. M. Gray 1997 Liferent Trust, as well as shares owned by each
other. Michael Maxwell Gray also shares voting and dispositive power over
the shares owned by McQueen Employee Ownership Trust. See Footnotes (5),
(6), and (7). Michael Maxwell Gray is a Director of McQueen and currently
provides executive management services pursuant to a Management Contract
with McQueen.
(5) The Michael Maxwell Gray Family Trust is an irrevocable trust. Michael
Maxwell Gray and Patricia Ann Gray, his spouse, serve as trustees of the
Trust and have voting and dispositive power over the shares owned by the
Trust. See Footnotes (4) and (7).
(6) The M. M. Gray 1997 Liferent Trust is an irrevocable trust. Michael Maxwell
Gray and Patricia Ann Gray, his spouse, are the trustees of the Trust, and
have voting and dispositive power over the shares owned by the Trust. See
Footnotes (4) and (7).
(7) Patricia Ann Gray is the spouse of Michael Maxwell Gray, a Director of
McQueen. The shares represented do not include shares of the Company's
Common Stock owned by The Michael Maxwell
35
<PAGE> 37
Gray Family Trust and The M. M. Gray 1997 Liferent Trust, irrevocable
trusts for which Patricia Ann Gray and Michael Maxwell Gray her spouse,
serve as trustees. The shares also do not include shares owned by Michael
Maxwell Gray, the spouse of Patricia Ann Gray. Patricia Ann Gray and
Michael Maxwell Gray have voting and dispositive power over the shares
owned by The Michael Maxwell Gray Family Trust, The M. M. Gray 1997
Liferent Trust, as well as shares owned by each other. See Footnotes (4),
(5) and (6).
(8) The shares represented include 8,073 shares of Common Stock which Thomas J.
Hart has the right to acquire pursuant to currently exercisable stock
options at an exercise price of $1.24 per share. The shares represented do
not include shares of the Company's Common Stock owned by The T. J. Hart
Children Trust and The T. J. Hart 1997 Liferent Trust, irrevocable trusts
for which Thomas J. Hart and Jill Hart, his spouse, serve as trustees.
Thomas J. Hart and Jill Hart have voting and dispositive power over the
shares owned by The T.J. Hart Children Trust, The T. J. Hart 1997 Liferent
Trust, as well as shares owned individually by T. J. Hart. See Footnotes
(9) and (10). Thomas J. Hart is employed by the Company as the Managing
Director -- Call Center Services of McQueen, Limited, a subsidiary of
McQueen.
(9) The T. J. Hart Children Trust is an irrevocable trust. Thomas J. Hart and
Jill Hart, his spouse, serve as trustees of the Trust and have voting and
dispositive power over the shares owned by the Trust. See Footnote (8).
(10) The T. J. Hart 1997 Liferent Trust is an irrevocable trust. Thomas J. Hart
and Jill Hart, his spouse, are the trustees of the Trust, and have voting
and dispositive power over the shares owned by the Trust. See Footnote (8).
(11) The shares represented include 8,073 shares of Common Stock which Alan
Charles McDonald Tripp has the right to acquire pursuant to currently
exercisable stock options at an exercise price of $1.24 per share. The
shares represented do not include shares of the Company's Common Stock
owned by The Tripp Family Trust and The A. C. M. Tripp 1997 Liferent Trust,
irrevocable trusts for which Alan Charles McDonald Tripp and Kathryn
Margaret Tripp, his spouse, serve as trustees. Alan Charles McDonald Tripp
and Kathryn Margaret Tripp have voting and dispositive power over the
shares owned by The Tripp Family Trust, The A. C. M. Tripp 1997 Liferent
Trust, as well as shares owned individually by Alan Charles McDonald Tripp.
See Footnotes (13) and (14). Alan Charles McDonald Tripp is employed by the
Company as the Managing Director -- Manufacturing and Fulfillment Services
of McQueen, Limited, a subsidiary of McQueen.
(12) The Tripp Family Trust is an irrevocable trust. Alan Charles McDonald Tripp
and Kathryn Margaret Tripp, his spouse, serve as trustees of the Trust and
have voting and dispositive power over the shares owned by the Trust. See
Footnote (12).
(13) The A.C.M. Tripp 1997 Liferent Trust is an irrevocable trust. Alan Charles
McDonald Tripp and Kathryn Margaret Tripp, his spouse, are the trustees of
the Trust, and have voting and dispositive power over the shares owned by
the Trust. See Footnote (12).
(14) In addition, Mr. Gray and the University of Tampa have granted to the
Underwriters an over-allotment option to purchase an additional 370,264
shares of Common Stock in the aggregate. If the Underwriters elect to
exercise this over-allotment option, Mr. Gray will sell to the Underwriters
up to the first 246,843 shares of Common Stock of such over-allotment
option, and the University of Tampa will sell to the Underwriters up to
123,421 shares only to the extent that the Underwriters' exercise such
over-allotment option in excess of 246,843 shares of Common Stock. See
"Underwriting."
(15) To the extent that the number of shares of Common Stock that the University
of Tampa is required to sell pursuant to the Underwriters' exercise of the
over-allotment option described in Footnote (15) exceeds the number of
shares then owned by the University of Tampa, John H. Sykes, the Company's
Chairman of the Board, President and Chief Executive Officer, has pledged
to donate to the University of Tampa such excess shares.
36
<PAGE> 38
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 200,000,000 shares
of Common Stock, of which 39,244,083 shares are issued and outstanding, and
10,000,000 shares of Preferred Stock issuable in one or more series by the Board
of Directors (the "Preferred Stock"), of which no shares are issued and
outstanding.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held of
record on all matters submitted to a vote of Shareholders. Shareholders do not
have the right to cumulate their votes in elections of directors. Accordingly,
holders of a majority of the issued and outstanding Common Stock will have the
right to elect all the Company's directors and otherwise control the affairs of
the Company, subject to any voting rights of the then outstanding Preferred
Stock.
Holders of Common Stock are entitled to dividends on a pro rata basis upon
declaration of dividends by the Board of Directors. Dividends are payable only
out of any assets legally available for the payment of dividends. Any
determination to declare or pay dividends in the future will be at the
discretion of the Company's Board of Directors and will depend on the Company's
financial condition, results of operations, capital requirements, and other
factors deemed relevant by the Board of Directors. See "Dividend Policy."
Upon a liquidation of the Company, holders of the Common Stock will be
entitled to a pro rata distribution of the assets of the Company, after payment
of all debts and liabilities of the Company, and subject to any preferential
amount payable to holders of any class of stock of the Company having preference
over the Common Stock, if any. Holders of Common Stock have no conversion,
preemptive or other rights to subscribe for additional shares or other
securities, and there are no redemption or sinking fund provisions with respect
to such shares.
PREFERRED STOCK
The Company's Articles of Incorporation permit the Company's Board of
Directors to issue shares of Preferred Stock in one or more series, and to fix
the relative rights, preferences, and limitations of each series without any
further vote or action by the Company's shareholders. Among such rights,
preferences, and limitations are dividend rights and rates, terms of redemption
(including sink fund provisions), redemption price or prices, voting rights,
conversion rights and liquidation preferences of the shares constituting such
series. Any issuance of Preferred Stock with a dividend preference over Common
Stock could adversely affect the dividend rights of holders of Common Stock. The
Board of Directors of the Company currently has no plans to issue any shares of
Preferred Stock.
The issuance of Preferred Stock, for example in connection with a
shareholder rights plan, could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding existing stock of the Company.
CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION
The Company's Articles of Incorporation provide for a classified Board of
Directors. The directors are divided into three classes, as nearly equal in
number as possible. The directors are elected for three-year terms, which are
staggered so that the terms of one-third of the directors expire each year. The
Company's Bylaws provide that any vacancies on the Board of Directors may be
filled by the affirmative vote of a majority of the remaining directors though
less than a quorum. The Articles of Incorporation permit removal of directors
only for cause by the shareholders of the Company at a special meeting of the
shareholders called for such a purpose by the affirmative vote of at least
two-thirds of the outstanding shares of Common Stock. The Articles of
Incorporation establish an advance notice procedure for the nomination of
candidates for election as directors, as well as for other shareholder proposals
to be considered at shareholders' meetings. The Articles of
37
<PAGE> 39
Incorporation of the Company contains provisions requiring the affirmative vote
of the holders of at least two-thirds of the Common Stock to amend certain
provisions thereof.
The above-described provisions may have certain anti-takeover effects. Such
provisions, in addition to the provisions described below and the possible
issuance of preferred stock discussed above, may make it more difficult for
other persons, without the approval of the Company's Board of Directors, to make
a tender offer or acquisitions of substantial amounts of the Common Stock or to
launch other takeover attempts that a shareholder might consider in such
shareholder's best interests, including attempts that might result in the
payment of a premium over the market price for the Common Stock held by such
shareholder.
CERTAIN PROVISIONS OF FLORIDA LAW
The Company is subject to several antitakeover provisions under Florida law
that apply to a public corporation organized under Florida law, unless the
corporation has elected to opt out of those provisions in its articles of
incorporation or bylaws. The Company has not elected to opt out of those
provisions. The FBCA prohibits the voting of shares in a publicly-held Florida
corporation that are acquired in a "control share acquisition" unless the
holders of a majority of the corporation's voting shares (exclusive of shares
held by officers of the corporation, inside directors, or the acquiring party)
approve the granting of voting rights as to the shares acquired in the control
share acquisition. A "control share acquisition" is defined as an acquisition
that immediately thereafter entitles the acquiring party to vote in the election
of directors within each of the following ranges of voting power: (i) one-fifth
or more but less than one-third of such voting power; (ii) one-third or more but
less than a majority of such voting power; and (iii) more than a majority of
such voting power.
The FBCA also contains an "affiliated transaction" provision that prohibits
a publicly-held Florida corporation from engaging in a broad range of business
combinations or other extraordinary corporate transactions with an "interested
shareholder" unless (i) the transaction is approved by a majority of
disinterested directors before the person becomes an interested shareholder;
(ii) the interested shareholder has owned at least 80% of the corporation's
outstanding voting shares for at least five years; or (iii) the transaction is
approved by the holders of two-thirds of the corporation's voting shares other
than those owned by the interested shareholder. An interested shareholder is
defined as a person who together with affiliates and associates beneficially
owns (as defined in Section 607.0901 (1)(e), Florida Statutes) more than 10% of
the corporation's outstanding voting shares.
TRANSFER AGENT AND REGISTRAR
The Company's transfer agent and registrar for the Common Stock is Firstar
Trust Company.
38
<PAGE> 40
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
Robert W. Baird & Co. Incorporated and Furman Selz LLC, are acting as the
representatives of the Underwriters. Subject to the terms and conditions set
forth in the purchase agreement (the "Purchase Agreement") among the Company,
the Selling Shareholders and the Underwriters, the Selling Shareholders have
agreed to sell to the Underwriters, and each of the Underwriters severally has
agreed to purchase from the Selling Shareholders, the number of shares of Common
Stock set forth opposite its name below at the public offering price less the
underwriting discount set forth on the cover page of this Prospectus.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
UNDERWRITER ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Robert W. Baird & Co. Incorporated .........................
Furman Selz LLC.............................................
---------
Total.......................................... 2,468,428
=========
</TABLE>
In the Purchase Agreement the several Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the shares of
Common Stock being sold pursuant to such agreement if any of the shares of
Common Stock being sold pursuant to such agreement are purchased. Under certain
circumstances, the commitments of non-defaulting Underwriters may be increased.
The Underwriters have advised the Company and the Selling Shareholders that
the Underwriters propose initially to offer the shares of Common Stock offered
hereby to the public at the public offering price set forth on the cover page of
this Prospectus, and to certain dealers at such price less a concession not in
excess of $ per share of Common Stock. The Underwriters may allow, and
such dealers may reallow, a discount not in excess of $ per share of
Common Stock on sales to certain other dealers. After the initial public
offering, the public offering price, concession and discount may be changed.
Certain Selling Shareholders have granted an option to the Underwriters,
exercisable for 30 days after the date of this Prospectus, to purchase up to an
aggregate of 370,264 additional shares of Common Stock at the public offering
price set forth on the cover page of this Prospectus, less the underwriting
discount. The Underwriters may exercise this option only to cover
over-allotments, if any, made on the sale of the Common Stock offered hereby. To
the extent that the Underwriters exercise this option, each Underwriter will be
obligated, subject to certain conditions, to purchase a number of additional
shares of Common Stock proportionate to such Underwriter's initial amount
reflected in the foregoing table. See "Selling Shareholders."
The Selling Shareholders have agreed not to sell or offer to sell or
otherwise dispose of any shares of Common Stock currently held by them (except
pursuant to this offering), any right to acquire any shares of Common Stock or
any securities exercisable for or convertible into any shares of Common Stock
for a period of 180 days after the date of this Prospectus without the prior
written consent of Merrill Lynch.
In addition, the Company and John H. Sykes, its Chairman of the Board,
President and Chief Executive Officer, have agreed that for a period of 90 days
after the date of this Prospectus they will not, without the prior written
consent of Merrill Lynch, offer, sell or otherwise dispose of any shares of
Common Stock except, in the case of the Company, shares issued and options
granted pursuant to its existing stock option plans and, in the case of Mr.
Sykes, up to five million shares in connection with forward contract
transactions.
Until the distribution of the Common Stock is completed, the rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Common Stock. As an exception to these
rules, the Underwriters are permitted to engage in certain transactions that
stabilize the
39
<PAGE> 41
price of the Common Stock. Such transactions consist of bids or purchases for
the purpose of pegging, fixing or maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the offering made hereby, i.e., if they sell more shares of
Common Stock than are set forth on the cover page of this Prospectus, the
Underwriters may reduce that short position by purchasing Common Stock in the
open market. The Underwriters may also elect to reduce any short position by
exercising all or part of the over-allotment option described above.
The Underwriters may also impose a penalty bid on certain Underwriters and
selling group members. This means that if the Underwriters purchase shares of
Common Stock in the open market to reduce the Underwriters' short position or to
stabilize the price of Common Stock, they may reclaim the amount of the selling
concession from the Underwriters and selling group members who sold these shares
as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it may
discourage resales of the security.
Neither the Company, the Selling Shareholders nor any of the Underwriters
makes any representation or prediction as to the direction or magnitude of any
effect that the transactions described above may have on the price of the Common
Stock. In addition, neither the Company, the Selling Shareholders nor any of the
Underwriters makes any representation that the Underwriters will engage in such
transactions or that such transactions, once commenced, will not be discontinued
without notice.
In connection with this offering, certain Underwriters and selling group
members (if any) or their respective affiliates may engage in passive market
making transactions in the Common Stock on the Nasdaq National Market
immediately prior to the commencement of sales of this offering, in accordance
with Rule 103 of Regulation M under the Exchange Act. In general, a passive
market maker may not effect transactions or display bids for the Common Stock in
excess of the highest independent bid price by persons who are not passive
market makers. Net purchases by a passive market maker on each day are generally
limited to 30% of the passive market maker's average daily trading volume in the
Common Stock during a specified two-month prior period or 200 shares, whichever
is greater, and must be discontinued when such limit is reached. A passive
market maker must identify passive market making bids as such on the Nasdaq
electronic inter-dealer reporting system. Passive market making may stabilize or
maintain the market price of the Common Stock at a level above that which might
otherwise prevail and, if commenced, may be discontinued at any time.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company and the Selling Shareholders by Foley &
Lardner, Tampa, Florida. Certain legal matters in connection with offering will
be passed upon for the Underwriters by Mayer, Brown & Platt, Chicago, Illinois,
counsel to the Underwriters.
EXPERTS
The Consolidated Financial Statements of the Company at December 31, 1996
and 1997, and for each of the three years in the period ended December 31, 1997,
appearing in this Prospectus and in the registration statement and incorporated
herein by reference from the Company's Annual Report on Form 10-K for the year
ended December 31, 1997, have been audited by Coopers & Lybrand L.L.P.,
independent auditors, as
40
<PAGE> 42
stated in their report thereon appearing herein and in the registration
statement, and have been so included herein and incorporated herein by reference
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing. The financial statements of McQueen International
Limited and subsidiaries for the years ended February 28, 1997 and 1996
incorporated in this Prospectus by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1997, have been audited by Grant
Thornton, independent auditors, as stated in their report, which is incorporated
herein by reference and have been so incorporated in reliance upon such report
given upon the authority of that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street N.W.,
Washington, D.C. 20549 and at the Commission's regional offices located at 7
World Trade Center, New York, New York 10048, and at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can also be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street N.W., Washington, D.C. 20549 and
from the Commission's web site at http://www.sec.gov.
The Company has filed with the Commission a registration statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock, reference is made to the Registration Statement, including the exhibits
filed as a part thereof, which may be inspected at the principal office of the
Commission, without charge, at 450 Fifth Street, N.W., Washington, D.C. 20549.
In addition, the Registration Statement can be obtained from the Commission's
web site at http://www.sec.gov.
Copies of the Registration Statement may be obtained from the Commission at
its principal office at Room 1024, 450 Fifth Street, N.W., Washington, D. C.
20549, upon payment of prescribed fees. Statements contained in this Prospectus
as to the contents of any contract or other document are not necessarily
complete, and, where the contract or the document has been filed as an exhibit
to the Registration Statement, each such statement is qualified in all respects
by reference to the applicable document filed with the Commission.
41
<PAGE> 43
SYKES ENTERPRISES, INCORPORATED
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants
for Sykes Enterprises, Incorporated....................... F-2
Report of the Independent Auditors
for McQueen International Limited......................... F-3
Consolidated Balance Sheets................................. F-4
Consolidated Statements of Operations....................... F-5
Consolidated Statements of Changes In Shareholders'
Equity.................................................... F-6
Consolidated Statements of Cash Flows....................... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 44
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Sykes Enterprises, Incorporated
We have audited the consolidated balance sheet of Sykes Enterprises,
Incorporated and subsidiaries as of December 31, 1997 and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the year ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Sykes Enterprises, Incorporated and subsidiaries as of December 31, 1997 and the
consolidated results of their operations and their cash flows for the year ended
December 31, 1997, in conformity with generally accepted accounting principles.
We previously audited and reported on the consolidated statements of income
and cash flows of Sykes Enterprises, Incorporated and subsidiaries for the years
ended December 31, 1995 and 1996, prior to their restatement for the 1997
pooling of interest of McQueen International Limited. The contribution of Sykes
Enterprises, Incorporated and subsidiaries to revenues and net income
represented 69 percent and 69 percent in 1995 and 73 percent and 84 percent in
1996, respectively, of the respective restated totals. Separate financial
statements of McQueen International Limited included in the 1995 and 1996
restated consolidated statements of income and cash flows were audited and
reported on separately by other auditors. We also audited the combination of the
accompanying consolidated balance sheet as of December 31, 1996 and the
statements of income and cash flows for the years ended December 31, 1995 and
1996, after restatement for the 1997 pooling of interests; in our opinion, such
consolidated statements have been properly combined on the basis described in
Notes 1 and 2 of notes to consolidated financial statements.
Coopers & Lybrand L.L.P.
Tampa, Florida
March 6, 1998
F-2
<PAGE> 45
MCQUEEN INTERNATIONAL LIMITED
REPORT OF THE INDEPENDENT AUDITORS
Board of Directors
McQueen International Limited
We have audited the consolidated balance sheets of McQueen International
Limited and its subsidiaries as of February 28, 1997 and 1996 and the related
consolidated statement of earnings, shareholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards in the United States. 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
statements 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 McQueen
International Limited and its subsidiaries as of February 28, 1997 and 1996 and
the consolidated results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles in the
United States.
GRANT THORNTON
Edinburgh
United Kingdom
February 18, 1998
F-3
<PAGE> 46
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1996 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.......................... $ 92,836,884 $ 70,523,067 $ 27,902,400
Receivables, including unbilled.................... 56,970,273 68,520,471 75,664,256
Prepaid expenses and other current assets.......... 8,266,841 11,377,920 13,977,704
------------ ------------ ------------
Total current assets....................... 158,073,998 150,421,458 117,544,360
Property and equipment, net.......................... 53,620,430 71,282,183 72,889,748
Marketable securities................................ -- 7,800,002 3,931,408
Investment in joint venture.......................... -- 2,285,142 6,253,120
Deferred charges and other assets.................... 2,829,103 9,874,680 10,483,075
------------ ------------ ------------
Total assets............................... $214,523,531 $241,663,465 $211,101,711
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current installments of long-term debt............. $ 8,345,239 $ 2,989,271 $ 1,141,424
Accounts payable................................... 15,104,013 19,905,671 19,742,216
Income tax payable................................. 1,899,168 2,725,177 4,378,650
Accrued employee compensation and benefits......... 10,203,068 10,035,233 12,583,677
Other accrued expenses and current liabilities..... 13,149,137 6,449,650 10,979,865
------------ ------------ ------------
Total current liabilities.................. 48,700,625 42,105,002 48,825,832
Long-term debt....................................... 5,177,678 33,312,597 2,009,480
Deferred income taxes................................ 4,420,562 4,374,963 4,072,515
Deferred grants...................................... 12,081,537 14,083,691 13,635,868
------------ ------------ ------------
Total liabilities.......................... 70,380,402 93,876,253 68,543,695
------------ ------------ ------------
Commitments and contingencies (Notes 7 and 10)
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; 38,858,274, 39,057,626 and
39,129,986 issued and oustanding................ 388,583 390,576 391,300
Additional paid-in capital......................... 131,013,883 133,579,200 133,610,048
Retained earnings.................................. 12,930,738 17,106,620 15,634,963
Unrealized loss on securities, net of taxes........ -- (734,518) (3,603,112)
Accumulated foreign currency translation
adjustments..................................... (190,075) (2,554,666) (3,475,183)
------------ ------------ ------------
Total shareholders' equity................. 144,143,129 147,787,212 142,558,016
------------ ------------ ------------
Total liabilities and shareholders'
equity................................... $214,523,531 $241,663,465 $211,101,711
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 47
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, -------------------------
------------------------------------------ MARCH 30, MARCH 31,
1995 1996 1997 1997 1998
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues............................... $155,956,584 $218,995,751 $313,184,554 $66,596,945 $89,149,324
------------ ------------ ------------ ----------- -----------
Operating expenses
Direct salaries and related costs.... 101,702,512 134,235,748 195,449,373 39,639,200 55,643,607
General and administrative........... 47,172,960 67,823,910 87,727,877 19,305,926 23,472,489
Impairment of long-lived asset....... -- -- 10,400,000 -- --
------------ ------------ ------------ ----------- -----------
Total operating expenses...... 148,875,472 202,059,658 293,577,250 58,945,126 79,116,096
------------ ------------ ------------ ----------- -----------
Income from operations................. 7,081,112 16,936,093 19,607,304 7,651,819 10,033,228
Other income (expense)
Interest, net........................ (1,685,656) (596,828) 766,637 383,469 76,748
Net loss from joint venture.......... -- -- (2,828,000) -- (8,015,149)
Other................................ 175,797 455,215 (922,735) 58,401 (12,484)
------------ ------------ ------------ ----------- -----------
Total other income
(expense)................... (1,509,859) (141,613) (2,984,098) 441,870 (7,950,885)
------------ ------------ ------------ ----------- -----------
Income before income taxes............. 5,571,253 16,794,480 16,623,206 8,093,689 2,082,343
Provision for income taxes
Current.............................. 1,429,857 6,437,122 10,863,000 2,946,821 3,554,000
Deferred............................. 1,255,753 (14,185) 13,000 -- --
------------ ------------ ------------ ----------- -----------
Total provision for income
taxes....................... 2,685,610 6,422,937 10,876,000 2,946,821 3,554,000
------------ ------------ ------------ ----------- -----------
Net income (loss)...................... 2,885,643 10,371,543 5,747,206 5,146,868 (1,471,657)
Preferred stock dividends.............. -- (47,343) -- -- --
------------ ------------ ------------ ----------- -----------
Net income (loss) applicable to common
shareholders......................... $ 2,885,643 $ 10,324,200 $ 5,747,206 $ 5,146,868 $(1,471,657)
============ ============ ============ =========== ===========
Pro forma income data (unaudited)
Income before income taxes............. $ 5,571,253 $ 16,794,480
Pro forma provision for income taxes
relating to S corporation............ 172,000 67,000
Actual provision for income taxes...... 2,685,610 6,422,937
------------ ------------
Total provision and pro forma
provision for income
taxes....................... 2,857,610 6,489,937
------------ ------------
Pro forma net income................... 2,713,643 10,304,543
Preferred stock dividends.............. -- (47,343)
------------ ------------
Pro forma net income applicable to
common shareholders.................. $ 2,713,643 $ 10,257,200
============ ============
Pro forma basic net income per share
(actual for 1997 and 1998)........... $ 0.09 $ 0.30 $ 0.15 $ 0.13 $ (0.04)
============ ============ ============ =========== ===========
Pro forma diluted net income per share
(actual for 1997 and 1998)........... $ 0.09 $ 0.29 $ 0.14 $ 0.13 $ (0.04)
============ ============ ============ =========== ===========
Shares outstanding
Basic................................ 29,945,275 34,411,266 38,982,002 38,858,274 39,058,422
Diluted.............................. 31,328,520 35,954,323 40,253,046 40,164,647 40,156,812
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 48
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
FOREIGN
COMMON STOCK ADDITIONAL UNREALIZED CURRENCY
--------------------- PAID-IN RETAINED UNEARNED LOSS ON TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS COMPENSATION SECURITIES ADJUSTMENT
---------- -------- ------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995...... 27,015,159 $270,152 $ 3,314,571 $ 8,310,368 $(2,081,611) $ -- $ (18,079)
Issuance of common stock...... 62,013 620 6,261,892 -- -- -- --
Stock dividend................ 123,104 1,231 (1,231) -- -- -- --
Repurchase of common stock.... -- -- (150,815) -- -- -- --
Distributions................. -- -- -- (683,452) -- -- --
Unearned employee compensation
from Employee Stock
Ownership Plan Trust........ -- -- -- -- 743,570 -- --
Reserve adjustment............ -- -- -- (716,100) -- -- --
Foreign currency translation
adjustment.................. -- -- -- -- -- -- 64,209
Net income.................... -- -- -- 2,885,643 -- -- --
---------- -------- ------------ ----------- ----------- ----------- -----------
Balance at December 31, 1995.... 27,200,276 272,003 9,424,417 9,796,459 (1,338,041) -- 46,130
Merger with Sykes Realty,
Inc......................... 2,745,000 27,450 238,116 (827,554) -- -- --
Conversion of redeemable
preferred stock............. 448,029 4,480 5,371,872 (5,376,352) -- -- --
Issuance of common stock...... 6,427,632 64,277 112,276,067 -- -- -- --
Three-for-two stock split..... 2,037,337 20,373 (20,373) -- -- -- --
Repurchase of common stock.... -- -- (142,702) -- -- -- --
Distributions................. -- -- -- (986,015) -- -- --
Tax effect of non-qualified
exercise of stock options... -- -- 3,866,486 -- -- -- --
Unearned employee compensation
from Employee Stock
Ownership Plan Trust........ -- -- -- -- 1,338,041 -- --
Foreign currency translation
adjustment.................. -- -- -- -- -- -- (236,205)
Preferred stock dividends..... -- -- -- (47,343) -- -- --
Net income.................... -- -- -- 10,371,543 -- -- --
---------- -------- ------------ ----------- ----------- ----------- -----------
Balance at December 31, 1996.... 38,858,274 388,583 131,013,883 12,930,738 -- -- (190,075)
Issuance of common stock...... 199,352 1,993 3,037,968 -- -- -- --
Capital contribution.......... -- -- 1,237,000 -- -- -- --
Repurchase of common stock.... -- -- (2,623,651) -- -- -- --
Tax effect of non-qualified
exercise of stock options... -- -- 914,000 -- -- -- --
Unrealized loss on securities,
net of income taxes......... -- -- -- -- -- (734,518) --
Distributions................. -- -- -- (496,972) -- -- --
Adjustments to conform fiscal
year of McQueen
International Limited (Note
2).......................... -- -- -- (1,074,352) -- -- --
Foreign currency translation
adjustment.................. -- -- -- -- -- -- (2,364,591)
Net income.................... -- -- -- 5,747,206 -- -- --
---------- -------- ------------ ----------- ----------- ----------- -----------
Balance at December 31, 1997.... 39,057,626 390,576 133,579,200 17,106,620 -- (734,518) (2,554,666)
Issuance of common stock
(unaudited)................. 72,360 724 30,848 -- -- -- --
Foreign currency translation
(unaudited)................. -- -- -- -- -- -- (920,517)
Unrealized loss on securities,
net of income taxes
(unaudited)................. -- -- -- -- -- (2,868,594) --
Net loss (unaudited).......... -- -- -- (1,471,657) -- -- --
---------- -------- ------------ ----------- ----------- ----------- -----------
Balance at March 31, 1998
(unaudited)................... 39,129,986 $391,300 $133,610,048 $15,634,963 $ -- $(3,603,112) $(3,475,183)
========== ======== ============ =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 49
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, --------------------------
------------------------------------------ MARCH 30, MARCH 31,
1995 1996 1997 1997 1998
------------ ------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)............................... $ 2,885,643 $ 10,371,543 $ 5,747,206 $ 5,146,868 $ (1,471,657)
Depreciation and amortization................... 4,629,638 7,978,342 13,260,621 2,741,652 3,835,693
Impairment of long-lived asset.................. -- -- 10,400,000 -- --
In-process research and development costs
expensed by joint venture..................... -- -- 2,795,000 -- 8,042,500
Capital contributions........................... -- -- 1,237,000 -- --
Deferred compensation........................... 949,960 -- -- -- --
Deferred income taxes........................... 1,255,753 283,582 13,000 543,557 (406,637)
ESOP allocation (unearned compensation)......... 743,570 1,338,041 -- -- --
Loss (gain) on disposal of property and
equipment..................................... 38,022 (99,286) (105,416) 1,700 (2,230)
Changes in assets and liabilities:
Receivables, including unbilled............... (12,953,900) (21,553,135) (6,567,198) (4,493,740) (7,373,311)
Prepaid expenses and other current assets..... (2,406,143) (3,132,602) (683,079) (1,360,976) (2,807,176)
Deferred charges and other assets............. (1,316,847) (743,451) (1,098,577) (1,712,782) (768,802)
Accounts payable.............................. 5,546,764 (1,715,852) 852,658 (368,660) (163,455)
Income taxes payable.......................... 255,427 566,643 1,740,009 1,893,400 2,066,714
Accrued employee compensation and benefits.... 5,834,552 1,901,386 (167,835) 1,808,617 2,548,444
Other accrued expenses and current
liabilities................................. 433,119 5,393,607 (7,808,556) (2,017,507) 4,663,730
------------ ------------ ------------ ----------- ------------
Net cash provided by operating
activities.............................. 5,895,558 588,818 19,614,833 2,182,129 8,163,813
------------ ------------ ------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures............................ (16,443,031) (23,115,413) (21,784,482) (4,538,469) (5,749,649)
Investment in marketable securities............. -- -- (8,000,000) -- --
Investment in joint ventures.................... -- -- (5,080,142) -- (12,016,127)
Acquisition of business......................... -- -- (1,800,000) (1,800,000) --
Proceeds from sale of marketable security....... -- -- -- -- 1,000,000
Proceeds from sale of property and equipment.... 100,402 201,425 208,351 3,854 21,205
------------ ------------ ------------ ----------- ------------
Net cash used for investing activities.... (16,342,629) (22,913,988) (36,456,273) (6,334,615) (16,744,571)
------------ ------------ ------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Paydowns under revolving line of credit
agreements.................................... (32,413,539) (20,771,718) (72,441,000) -- --
Borrowings under revolving line of credit
agreements.................................... 31,013,422 19,916,835 72,441,000 -- --
Proceeds from issuance of stock................. 6,261,892 112,340,344 3,039,961 -- 31,572
Proceeds from grants............................ 2,603,485 5,642,335 2,000,000 187,428 --
Proceeds from issuance of long-term debt........ 6,233,753 6,668,403 350,467 8,080,874 --
Subsidiary stock redemption..................... (150,815) (142,702) (2,623,651) -- --
Payment of long-term debt....................... (3,728,725) (12,255,388) (5,377,591) (1,771,189) (33,150,964)
Dividends paid.................................. (683,452) (1,033,358) (496,972) -- --
------------ ------------ ------------ ----------- ------------
Net cash provided by (used for) financing
activities.............................. 9,136,021 110,364,751 (3,107,786) 6,497,113 (33,119,392)
------------ ------------ ------------ ----------- ------------
Adjustment for foreign currency translation....... 64,209 (236,205) (2,364,591) (596,688) (920,517)
------------ ------------ ------------ ----------- ------------
Net increase (decrease) in cash, cash equivalents
and temporary investments....................... (1,246,841) 87,803,376 (22,313,817) 1,747,939 (42,620,667)
CASH AND CASH EQUIVALENTS -- BEGINNING............ 6,280,349 5,033,508 92,836,884 92,836,884 70,523,067
------------ ------------ ------------ ----------- ------------
CASH AND CASH EQUIVALENTS -- ENDING............... $ 5,033,508 $ 92,836,884 $ 70,523,067 $94,584,823 $ 27,902,400
============ ============ ============ =========== ============
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest...................................... $ 1,910,043 $ 1,414,925 $ 2,614,600
Income taxes.................................. $ 2,345,408 $ 4,913,279 $ 5,845,721
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE> 50
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sykes Enterprises, Incorporated and consolidated subsidiaries (the
"Company" or "Sykes") provides comprehensive information technology outsourcing
services including information technology support services, information
technology development services and solutions, and software fulfillment. The
Company's services are provided to a wide variety of industries.
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.
Interim Financial Information -- The unaudited interim consolidated
financial statements as of March 31, 1998 and for the three months ended March
30, 1997 and March 31, 1998, in the opinion of management, include all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly the Company's consolidated financial position, results of operations, and
cash flows. Operating results for the three months ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998.
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 and product 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, 1997, cash in the
amount of approximately $40.6 million was held in tax free interest bearing
investments, approximately $29.9 million was held in taxable interest bearing
investments, both of which are classified as available for sale and have an
average maturity of approximately 30 days.
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 $6.3, $9.2
and $13.2 million for the years ended December 31, 1995, 1996 and 1997,
respectively. Property and equipment includes approximately $620,000 and $1.3
million of additions included in accounts payable at December 31, 1996 and 1997,
respectively. Accordingly, these non-cash transactions have been excluded from
the accompanying Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1997, respectively.
Land received from various governmental agencies under grants is recorded
at fair value (as determined by an independent appraiser) at date of grant.
During the years ended December 31, 1995, 1996 and 1997 the Company recorded
approximately $1,824,000, $317,000 and $430,000, 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, 1996 and 1997.
F-8
<PAGE> 51
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Investment in Joint Venture -- The Company has a fifty percent interest in
a joint venture that is accounted for using the equity method of accounting.
Accordingly, the Company records its proportionate share of the gains and losses
of the joint venture in the consolidated statement of income (see Note 17).
Deferred Charges and Other Assets -- Deferred charges and other assets
consist primarily of goodwill, long-term deposits, and covenants not to compete
arising from business acquisitions. These intangible assets are being amortized
over periods ranging from two to fifteen years. Amortization expense was
approximately $337,000, $415,000 and $499,000 for the years ended December 31,
1995, 1996 and 1997, respectively. Accumulated amortization was approximately
$752,000 and $1,251,000 at December 31, 1996 and 1997, respectively.
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. In 1996, under this analysis, the Company
determined that the value of the assets were not impaired. During 1997, the
Company recorded an impairment loss of $10.4 million related to an acquisition
made during the year.
Income Taxes -- Deferred income taxes are recorded to reflect the tax
consequences on future years of differences between the tax basis of assets and
liabilities and their financial reporting amounts at each year end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income.
The Company and its consolidated subsidiaries are either taxed as C
corporations or have elected to be taxed as an S corporation under the
provisions of the Internal Revenue Code through the effective date of the
Company's initial public offering (See Note 16). The Company's affiliate which
elected to be taxed as an S corporation terminated its S corporation election
during 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 is not included in determining
net income, but is accumulated as a separate component of shareholders' equity.
Foreign currency transactional 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.
Accounting Pronouncements -- In June 1997, the Financing Accounting
Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income"
which is effective for periods ending after December 15, 1998. This statement
establishes standards for computing and presenting comprehensive income which
includes translation adjustments. In June 1997, FASB issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which is
also effective for periods ending after December 15, 1998. This statement
establishes additional disclosure requirements for business segments.
F-9
<PAGE> 52
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Management is currently assessing the future period impact of SFAS No. 130
and 131 on the Company's presentation of results of operations, changes in
shareholders' equity and segment disclosures.
NOTE 2 -- ACQUISITIONS AND MERGERS
Effective January 1, 1997, the Company acquired all of the common stock of
Traffic, N.V. ("Traffic") of Brussels, Belgium, and certain other assets, for
approximately $1.8 million in cash. Traffic specializes in foreign language
translation and multi-media documentation development. The transaction was
accounted for under the purchase method of accounting and pro forma information
is not presented, as the operating results are not material to the Company's
consolidated operations.
On March 31, 1997, the Company acquired Info Systems of North Carolina,
Inc. ("Info Systems") in exchange for approximately 1.1 million shares of the
Company's common stock. The Company accounted for the acquisition utilizing the
pooling-of-interests method of accounting. 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. The Company accounted for the acquisition utilizing the
pooling-of-interests method of accounting. Telcare operates an information
technology call center and provides technical support and service to numerous
industries in Germany.
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. TAS I provides technical call center support and customer care
services, database development, consulting and training services to customers in
Germany and surrounding countries.
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-interests method of accounting. TAS II provides technical call
center support and customer care services, to customers in Germany and
surrounding countries.
On December 31, 1997, the Company acquired all of the stock of McQueen
International Limited ("McQueen") of Galashiels, Scotland, in exchange for
3,540,000 shares of the Company's common stock. The Company accounted for the
acquisition utilizing the pooling-of-interests method of accounting. McQueen
provides inbound call center support and customer service, software fulfillment
and foreign language translation and localization services.
On April 7, 1997 McQueen acquired the Media Services divisions of Rand
McNally & Company, comprising the US Division, Rand McNally Media Services Inc.,
and Rand McNally International Business Services BV, a Netherlands division with
an operational branch in Ireland, for approximately $30.0 million, including
acquisition costs. This purchase price was entirely financed through the
issuance of notes to the seller. Accordingly, this non-cash transaction has been
excluded from the accompanying Consolidated Statement of Cash Flows for the year
ended December 31, 1997. The acquisition has been accounted for by the purchase
method of accounting. Accordingly, the results of operations for the eight
months ended December 31, 1997 of Rand McNally Media Services Inc and Rand
McNally International Business Services BV have been included in the
accompanying financial statements. The excess of the total acquisition cost over
the fair value of net assets acquired in the amount of $6.9 million after an
impairment of $10.4 million is being amortized on a straight line basis over
fifteen years. The unaudited pro forma combined historical results, as if the
Media Services division of Rand McNally & Company had been acquired on January
1, 1996, are estimated to be revenues of $285,249,000, net income of
$10,752,000, and basic and diluted earnings per share
F-10
<PAGE> 53
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of $0.31 and $0.30, respectively for 1996 and revenues of $329,748,000, net
income of $5,871,000, and basic and diluted earnings per share of $0.15 and
$0.15, respectively for 1997. The pro forma results include amortization of the
intangibles noted above and interest expense on the debt assumed to finance the
purchase. The pro forma results are not necessarily indicative of what actually
would have occurred if the acquisition had been completed as of the beginning of
1996, nor are they necessarily indicative of future consolidated results.
McQueen had a February 28 fiscal year end and, accordingly, the McQueen
statements of income for the years ended February 28, 1996 and 1997 have been
combined with the Sykes' statements of income for the years ended December 31,
1995 and 1996, respectively. In order to conform McQueen's fiscal year end to
Sykes' calendar year end, the consolidated statement of income for 1997 includes
two months (January and February 1997) for McQueen which are also included in
the consolidated statements of income for the year ended December 31, 1996.
Accordingly, an adjustment has been made during 1997 to retained earnings for
the duplication of net income of approximately $1.1 million for such two month
period. McQueen's revenue for the two months (January and February 1997) was
approximately $12.3 million.
The above transactions, excluding Traffic and McQueen's purchase of the
Media Services division of Rand McNally & Company, 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 Info
Systems, Telcare, TAS I, TAS II and McQueen.
Separate results of operations for the periods prior to the mergers with
Info Systems, Telcare, TAS I, TAS II and McQueen are outlined below.
<TABLE>
<CAPTION>
THREE MONTHS
DECEMBER 31, ENDED
--------------------------- MARCH 30,
1995 1996 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Revenue:
Sykes............................................. $ 74,594,634 $117,018,154 $38,245,596
Info Systems...................................... 23,317,923 25,196,629 7,022,451
Telcare........................................... 3,587,292 6,405,423 1,404,877
TAS I............................................. 4,318,972 7,922,762 1,090,533
TAS II............................................ 2,075,363 3,467,533 408,000
McQueen........................................... 48,062,400 58,985,250 18,425,488
------------ ------------ -----------
Combined............................................ $155,956,584 $218,995,751 $66,596,945
============ ============ ===========
Net income:
Sykes............................................. $ 2,396,085 $ 9,817,484 $ 4,021,527
Info Systems...................................... (304,526) (1,982,510) 46,186
Telcare........................................... (489,725) 282,130 42,589
TAS I............................................. 337,453 435,729 71,000
TAS II............................................ 53,556 124,560 28,000
McQueen........................................... 892,800 1,694,150 937,566
------------ ------------ -----------
Combined............................................ $ 2,885,643 $ 10,371,543 $ 5,146,868
============ ============ ===========
</TABLE>
F-11
<PAGE> 54
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS
DECEMBER 31, ENDED
--------------------------- MARCH 30,
1995 1996 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Other changes in shareholders' equity:
Sykes............................................. $ 190,775 $113,916,826 $ (337,279)
Info Systems...................................... 678,051 2,356,235 --
Telcare........................................... 46,912 69,494 --
TAS I............................................. (275,691) (290,208) --
TAS II............................................ (18,151) (13,445) --
McQueen........................................... 5,614,128 (464,865) (259,409)
------------ ------------ -----------
Combined............................................ $ 6,236,024 $115,574,037 $ (596,688)
============ ============ ===========
</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 $2.3 million of receivables from a significant
customer (See Note 15), the Company's credit concentrations are limited due to
the wide variety of customers and markets into which the Company's services are
sold.
NOTE 4 -- RECEIVABLES
Receivables consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Trade accounts receivable................................... $49,416,729 $56,256,991
Unbilled accounts receivable................................ 2,843,193 6,446,597
Note from officer........................................... -- 418,958
Other....................................................... 5,208,480 5,935,320
----------- -----------
57,468,402 69,057,866
Less allowance for doubtful accounts........................ 498,129 537,395
----------- -----------
$56,970,273 $68,520,471
=========== ===========
</TABLE>
NOTE 5 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Land........................................................ $ 2,506,421 $ 3,008,222
Buildings and leasehold improvements........................ 18,777,157 24,340,797
Equipment, furniture and fixtures........................... 56,469,008 82,950,507
Transportation equipment.................................... 759,822 441,647
Construction in progress.................................... -- 6,344,495
----------- -----------
78,512,408 117,085,668
Less accumulated depreciation............................... 24,891,978 45,803,485
----------- -----------
$53,620,430 $71,282,183
=========== ===========
</TABLE>
F-12
<PAGE> 55
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- MARKETABLE SECURITIES
On May 8, 1997, the Company purchased approximately 1.066 million shares of
SystemSoft Corp. common stock in conjunction with a strategic technology
exchange agreement between the parties. On June 20, 1997, the Company converted
a $1.0 million note receivable into a to be determined number of shares of
InfoCure Corporation common stock, which will have a market value of $1.0
million. In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," the
investments are classified as available-for-sale securities and are carried at
an aggregate market value of $7.8 million as of December 31, 1997. The Company's
cost basis in these investments is $9.0 million, and the unrealized loss of
approximately $1.2 million, net of deferred income taxes of approximately
$465,000, is reported as a separate component of shareholders' equity.
NOTE 7 -- LONG-TERM DEBT
Long term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Secured loan note, principal and interest payable in annual
installments through November 1999, interest at 8 percent,
collateralized by certain assets.......................... $ -- $ 855,675
Secured loan notes, interest payable in quarterly
installments through December 1999, interest at varying
rates up to 9.6 percent, principal due in three
installments during 1999, collateralized by certain
assets.................................................... -- 26,950,400
Notes payable and capital leases, principal and interest
payable in monthly installments through December 2002,
interest at varying rates up to prime plus 1 percent,
collateralized by certain receivables and equipment....... 13,522,917 8,495,793
----------- -----------
13,522,917 36,301,868
Less current portion........................................ 8,345,239 2,989,271
----------- -----------
$ 5,177,678 $33,312,597
=========== ===========
</TABLE>
Future principal maturities subsequent to December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999........................................................ $29,569,573
2000........................................................ 1,232,487
2001........................................................ 1,140,042
2002........................................................ 1,370,495
-----------
$33,312,597
===========
</TABLE>
Effective December 31, 1996, the Company entered into an agreement
replacing its 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, and includes as annual commitment fee of 0.1 percent of
the committed amount. The facility matures in June 1998, and contains certain
covenants associated with tangible net worth, debt and debt funding as defined
by the agreement. There were no borrowings outstanding under this agreement at
December 31, 1996 or 1997, respectively.
During February 1998, the Company entered into a new $150 million
syndicated credit facility which provides for multi-currency lending. This new
facility will accrue borrowings at tiered levels between 75 and
F-13
<PAGE> 56
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
175 basis points above listed LIBOR pursuant to a defined ratio calculation
within the agreement, and will accrue as unused commitment fee at tiered levels
between 15 and 37.5 basis points above listed LIBOR. The facility which matures
in February 2001, contains certain financial covenants associated with debt
ratios, leverage, coverage and capital expenditures and acquisitions 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. The Company had no borrowings under either
credit facility at December 31, 1996 or 1997, respectively, and both of these
credit facilities were canceled during 1997.
NOTE 8 -- INCOME TAXES
The components of income before income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1995 1996 1997
---------- ----------- -----------
<S> <C> <C> <C>
Domestic......................................... $1,179,908 $10,823,955 $ 8,551,740
Foreign.......................................... 4,391,345 5,970,525 8,071,466
---------- ----------- -----------
Total income before income taxes....... $5,571,253 $16,794,480 $16,623,206
========== =========== ===========
</TABLE>
Provision for income taxes consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
Current:
Federal......................................... $ (174,520) $3,573,533 $ 6,906,000
State........................................... (35,875) 610,632 1,229,000
Foreign......................................... 1,640,252 1,955,190 2,728,000
---------- ---------- -----------
Total current provision for income
taxes................................. 1,429,857 6,139,355 10,863,000
---------- ---------- -----------
Deferred:
Federal......................................... 1,054,967 (2,000) (99,000)
State........................................... 183,006 56,250 (25,000)
Foreign......................................... 17,780 229,332 137,000
---------- ---------- -----------
Total deferred provision for income
taxes................................. 1,255,753 283,582 13,000
---------- ---------- -----------
Total provision for income taxes........ $2,685,610 $6,422,937 $10,876,000
========== ========== ===========
</TABLE>
The components of the net deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Domestic current:
Deferred tax asset:
Accrued expenses.......................................... $ 686,000 $ 800,000
Deferred compensation..................................... -- 246,000
Bad debt reserve.......................................... 15,000 119,000
Other..................................................... 53,000 7,000
----------- -----------
Total current deferred tax asset.................. $ 754,000 $ 1,172,000
----------- -----------
</TABLE>
F-14
<PAGE> 57
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Deferred tax liability:
Property and equipment.................................... $ (149,000) $ --
Cash to accrual -- Section 481 adjustment................. (277,000) (488,000)
----------- -----------
Total current deferred tax liability................... (426,000) (488,000)
----------- -----------
Net domestic current deferred tax asset................ $ 328,000 $ 684,000
----------- -----------
Foreign current:
Deferred tax asset:
Net operating loss carry-forward.......................... $ 571,000 $ 135,000
Less: valuation allowance................................. (571,000) (135,000)
----------- -----------
Total foreign non-current deferred tax asset........... $ -- $ --
----------- -----------
Net current deferred asset.................................. $ 328,000 $ 684,000
=========== ===========
Domestic non-current:
Deferred tax asset:
Deferred compensation..................................... $ 240,000 $ --
Unrealized loss on security............................... -- 466,000
Intangible assets......................................... -- 40,000
Accrued expenses.......................................... 3,000 --
Other..................................................... -- 3,000
----------- -----------
Total non-current deferred tax asset................... $ 243,000 $ 509,000
----------- -----------
Deferred tax liability:
Property and equipment.................................... $ (338,000) $ (504,000)
Cash to accrual -- Section 481 adjustment................. (2,903,000) (2,437,000)
Accrued liabilities....................................... -- (258,000)
Other..................................................... (244,562) (526,963)
----------- -----------
Total non-current deferred tax liability.......... (3,485,562) (3,725,963)
----------- -----------
Net domestic non-current deferred tax liability... $(3,242,562) $(3,216,963)
----------- -----------
Foreign non-current:
Deferred tax liability:
Property and equipment.................................... $(1,178,000) $(1,158,000)
----------- -----------
Total non-current deferred tax liability.......... (1,178,000) (1,158,000)
----------- -----------
Net foreign non-current deferred tax liability.... $(1,178,000) $(1,158,000)
----------- -----------
Net non-current deferred tax liability...................... $(4,420,562) $(4,374,963)
=========== ===========
</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 $6.0
million at December 31, 1997, 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 $700,000
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.
F-15
<PAGE> 58
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes the principal differences between income taxes at
the federal statutory rate and the effective income tax amounts reflected in the
financial statements:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
Statutory tax................................... $1,894,000 $5,710,000 $ 5,818,000
State income taxes net of federal tax benefit... 67,000 316,000 759,000
Effect of income not subject to federal and
state income tax.............................. (155,000) (284,000) (1,015,000)
Change in tax rate.............................. -- -- 71,000
Non-deductible amortization..................... -- -- 3,640,000
Loss on joint venture........................... -- -- 990,000
Foreign taxes, net of foreign income not taxed
in the United States.......................... 444,264 276,937 133,000
Permanent differences........................... 366,555 153,000 582,000
Tax credits..................................... (90,209) -- --
Other........................................... 159,000 251,000 (102,000)
---------- ---------- -----------
Total provision for income taxes.............. $2,685,610 $6,422,937 $10,876,000
========== ========== ===========
</TABLE>
The Company is currently under examination by the Internal Revenue Service
for tax years ended July 31, 1991, 1992, 1993 and 1994. The Company has reviewed
various matters that are under consideration and believes that it has adequately
provided for any liability that may result from this examination. In the opinion
of management, any liability that may arise from prior periods as a result of
the examination will not have a material effect on the Company's financial
condition or results of operations.
NOTE 9 -- EARNINGS PER SHARE
Basic earnings per share are based on the weighted average number of common
shares outstanding during the periods. Diluted earnings per share includes the
weighted average number of common shares outstanding during the periods and
further 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. Diluted earnings per share includes, dilutive stock
options using the treasury stock method.
The numbers of shares used in the earnings per share computation are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------ MARCH 30, MARCH 31,
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Basic:
Weighted average common
outstanding......... 29,945,275 34,411,266 38,982,002 38,858,274 39,058,422
---------- ---------- ---------- ---------- ----------
Total basic.... 29,945,275 34,411,266 38,982,002 38,858,274 39,058,422
Diluted:
Conversion of preferred
stock............... 672,044 227,151 -- -- --
Dilution of stock
options............. 711,201 1,315,906 1,271,044 1,306,373 1,098,390
---------- ---------- ---------- ---------- ----------
Total
diluted...... 31,328,520 35,954,323 40,253,046 40,164,647 40,156,812
========== ========== ========== ========== ==========
</TABLE>
F-16
<PAGE> 59
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
The Company leases certain equipment and buildings under operating leases
having terms ranging from one to twenty-two years. The building leases contain
up to two five year renewal options.
Rental expense under operating leases for the years ended December 31,
1995, 1996 and 1997 was approximately $2,569,000, $6,177,000 and $4,949,000,
respectively. Rental expense for an office building leased from the Company's
major shareholder, net of subleases was approximately $104,000, $104,000 and
$88,000 for each of the years ended December 31, 1995, 1996 and 1997,
respectively. This building was sold during November 1997, which terminated the
sublease agreement.
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 the years ended December 31, 1995, 1996 and 1997 was approximately $51,000,
$615,000 and $618,000, respectively.
The Company had a five year sublease agreement with an unrelated tenant for
its Charlotte, North Carolina facility. The minimum sublease rental amounts the
Company was expected to receive for the years ended December 31, 1998 and 1999,
was approximately $187,000 and $94,000 respectively. This building was sold
during November 1997, which terminated the sublease agreement.
The following is a schedule of future minimum rental payments under
operating leases having a remaining noncancelable term in excess of one year
subsequent to December 31, 1997:
<TABLE>
<CAPTION>
RELATED NON-RELATED TOTAL
YEAR PARTY PARTY AMOUNT
- ---- ---------- ----------- -----------
<S> <C> <C> <C>
1998........................................... $ 618,000 $ 3,417,000 $ 4,035,000
1999........................................... 618,000 2,820,000 3,438,000
2000........................................... 618,000 2,131,000 2,749,000
2001........................................... 618,000 1,802,000 2,420,000
2002........................................... 618,000 1,306,000 1,924,000
Thereafter..................................... 1,803,000 12,485,000 14,288,000
---------- ----------- -----------
Total minimum payments required...... $4,893,000 $23,961,000 $28,854,000
========== =========== ===========
</TABLE>
During 1997, the Company entered into a joint venture with HealthPlan
Services, Inc., for the purpose of managing call centers focused on customer
services related to the health care services industry. The Company has committed
to invest $17.5 million for a fifty percent equity interest in the joint
venture. As of December 31, 1997, the Company has invested approximately $5.1
million of its commitment in the joint venture.
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 11 -- EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) plan covering defined employees who meet
established eligibility requirements. Under the original plan provisions, the
Company matched 25% of participant contributions to a maximum matching amount of
1% of participant compensation. During 1997, the Company increased the 401 (k)
matching provision to 50% of participating contributions to a maximum matching
amount of 2% of participant compensation. Company contributions are funded on a
bi-weekly basis. The Company contribution was approximately $143,000, $170,000
and $295,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
In addition, one of the Company's subsidiaries maintains a separate defined
contribution plan.
F-17
<PAGE> 60
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The contributions made to this plan was approximated $180,000, $198,000 and
$244,000 for the years ended December 31, 1995, 1996, and 1997, respectively.
In June 1992, one of the Company's subsidiaries established an Employee
Stock Ownership Plan ("ESOP") for the benefit of its employees. In August 1992,
the ESOP purchased 249,350 shares of the subsidiary's common stock. In
connection with the stock purchase, the subsidiary made a cash contribution of
$1.0 million to the ESOP and entered into a note payable of $3.1 million. 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. The
note payable associated with the ESOP was repaid as of December 31, 1996 and all
shares were released to eligible employees.
NOTE 12 -- 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 option 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 2,419,890 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 13 -- STOCK OPTIONS
In 1995, the Company granted options to an executive officer to purchase
1,143,000 shares of common stock at $3.02 per share. The Company determined that
the price was approximately $0.83 below fair market value at the date of the
grant and recognized $949,960 as compensation expense for the year ended
December 31, 1995. The options become exercisable three years from the date of
grant, except that one-third were exercisable to the extent that the underlying
shares were permitted to be included by the underwriters in an underwritten
public offering. In November, 1996 the Company completed its secondary public
offering and 381,000 of the options granted to the executive officer were
exercised and sold in the offering. The remaining 762,000 options expire if not
exercised by the tenth anniversary of their grant date.
Another executive officer was granted options under the Company's 1996
Employee Stock Option Plan to purchase 209,841 shares of the Company's common
stock with an exercisable price of (i) 33 1/3 % of such shares at $8.00 per
share, (ii) 33 1/3 % at $7.55 per share, and (iii) 33 1/3 % at $6.67 per share.
Compensation expense of approximately $28,000 and $42,000 is recognized in the
general and administrative expenses in the accompanying consolidated statements
of operations for the years ended December 31, 1996 and 1997, respectively.
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 approximately 2,324,000 shares of the Company's
common stock at not less than the fair value at the time the options are
granted. Certain other officers and employees hold options to purchase
additional shares of common stock at a range of $0.03 to $31.27 per share and
vest ratably over the three-year period following the date of grant, except for
approximately 360,000 options associated with the outstanding options from the
acquisition of McQueen and options granted to key employees of a 1996
acquisition, all of which are immediately exercisable. All options granted under
the Employee Plan expire if not exercised by the tenth anniversary of
F-18
<PAGE> 61
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
their grant date with the exception of outstanding options converted pursuant to
the acquisition of McQueen consistent with pooling-of-interests rules and expire
five years from grant date.
Transactions related to the 1996 Employee Stock Option Plan are summarized
as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at December 31, 1995.......................... --
Granted................................................. 973,605 $10.00
Exercised............................................... --
Expired or terminated................................... (71,813) $ 8.00
---------
Outstanding at December 31, 1996.......................... 901,792 $15.22
(Excercisable: 180,000 at $27.67)
Granted................................................. 893,816 $19.86
Exercised............................................... (190,322) $ 8.00
Expired or terminated................................... (231,300) $19.38
---------
Outstanding at December 31, 1997.......................... 1,373,986 $16.67
=========
Options available for future grant........................ 831,610
=========
</TABLE>
The following table further summarizes information about the 1996 Employee
Stock Option Plan at December 1997:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
RANGE OF NUMBER AVERAGE AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
PRICES AT 12/31/97 LIFE PRICE AT 12/31/97 PRICE
- ------------------------------------------ ----------- --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.03 to $ 1.24.......................... 236,441 5.0 $ 0.63 236,441 $ 0.63
$ 8.00 to $10.00.......................... 328,970 8.3 $ 8.00 6,150 $ 8.00
$19.18 to $31.27.......................... 808,575 9.6 $24.89 148,375 $27.70
$ 0.03 to $31.27.......................... 1,373,986 8.5 $16.67 390,966 $11.02
</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 approximately 431,000
shares of the Company's common stock to members of the Board of Directors who
are not employees of the Company. Each outside director will receive options to
purchase 5,000 shares of common stock on the day following each annual meeting
of shareholders. Also, 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 and 1997, 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.
F-19
<PAGE> 62
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Transactions related to the 1996 Non-Employee Director Stock Option Plan
are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE 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
Granted................................................... 42,500 $22.61
Exercised................................................. (26,250) $ 8.00
Expired or terminated..................................... --
-------
Outstanding at December 31, 1997............................ 72,500 $16.56
=======
Options available for future grant.......................... 341,250
=======
</TABLE>
The following table further summarizes information about the 1996
Non-Employee Director Stock Option Plan at December 1997:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
RANGE OF NUMBER AVERAGE AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
PRICES AT 12/31/97 LIFE PRICE AT 12/31/97 PRICE
- --------------------------------------------- ----------- --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 8.00 to $10.00............................. 30,000 8.3 $ 8.00 -- $ --
$22.23 to $25.42............................. 42,500 9.4 $22.61 -- $ --
$ 8.00 to $25.42............................. 72,500 8.9 $16.56 -- $ --
</TABLE>
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation", but applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for its plans. Therefore, no compensation
expense has been recognized for stock options granted under its plans. If the
Company had elected to recognize compensation expense for stock options based on
the fair value at grant date, consistent with the method prescribed by SFAS No.
123, net income and earnings per share would have been reduced to the pro forma
amounts shown on the following page:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
--------- --------- ---------
($ IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Pro forma net income as reported (actual for 1997)........ $ 2,714 $10,305 $ 5,747
Pro forma net income (loss) as prescribed by SFAS 123..... $ 784 $ 7,970 $ (300)
Pro forma net income per diluted share as reported (actual
for 1997)............................................... $ 0.09 $ 0.29 $ 0.14
Pro forma net income (loss) per diluted share as
prescribed by SFAS 123.................................. $ 0.03 $ 0.22 $ (0.01)
</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 percent for
1995 and 1996 and 6.05 percent for 1997; (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 4 years, for each year presented.
F-20
<PAGE> 63
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 -- GEOGRAPHIC INFORMATION
Information about the Company's operations by geographic location are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
United States.............................. $ 86,231,484 $130,653,666 $193,898,426
International.............................. 69,725,100 88,342,085 119,286,128
------------ ------------ ------------
$155,956,584 $218,995,751 $313,184,554
============ ============ ============
Income before income taxes:
United States.............................. $ 1,179,908 $ 10,823,955 $ 8,551,740
International.............................. 4,391,345 5,970,525 8,071,466
------------ ------------ ------------
$ 5,571,253 $ 16,794,480 $ 16,623,206
============ ============ ============
Total assets:
United States.............................. $ 44,766,987 $162,831,598 $176,310,372
International.............................. 41,191,342 51,691,933 65,353,093
------------ ------------ ------------
$ 85,958,329 $214,523,531 $241,663,465
============ ============ ============
</TABLE>
NOTE 15 -- SIGNIFICANT CUSTOMER
Revenues from one customer amounted to 13%, 13% and 11% for the years ended
December 31, 1995, 1996 and 1997, respectively.
NOTE 16 -- 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, and 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
(subsequently further amended to 200,000,000). 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 the three-for-two stock
splits) of common stock of the Company. All applicable share and per
F-21
<PAGE> 64
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 9, consistent with FAS Statement No. 128. In
addition, the calculation includes certain preferred stock issued during the
year that was converted to common stock immediately prior to the closing of and
sold in the Company's initial public offering. Such shares were deemed
outstanding for all periods presented.
In addition, the Company issued 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 17 -- INVESTMENT IN JOINT VENTURE
The Company has a 50% interest in a joint venture that is accounted for
using the equity method of accounting. Accordingly, the Company records its
proportionate share of the gains and losses of the joint venture in the
consolidated statement of income.
During March 1998, the Company's joint venture entity acquired Health
International ("HI") and Prudential Service Bureau, Inc. ("PSBI"). The combined
purchase price of the two acquisitions was $72.6 million. HI is a disease
management company that provides a comprehensive managed medical care program
for employees and plan administrators. PBSI provides a wide range of call
center-based health and welfare benefits and administrative services.
These acquisitions were accounted for by the joint venture utilizing the
purchase method of accounting. As a result, the Company recorded non-recurring
charges of approximately $8.0 million, representing its share of the joint
venture's acquired in-process research and development.
NOTE 18 -- COMPREHENSIVE INCOME
Effective January 1, 1998 the Company has adopted Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" which requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in the financial statements. Prior periods will
be reclassified as required. The Company's total comprehensive earnings were as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
MARCH 30, MARCH 31,
1997 1998
---------- -----------
(UNAUDITED)
<S> <C> <C>
Net income (loss)........................................... $5,146,868 $(1,471,657)
Other comprehensive earnings (losses):
Change in equity due to foreign currency translation
adjustments............................................ (596,688) (920,517)
Unrealized loss on securities, net of income taxes........ -- (2,868,594)
---------- -----------
Comprehensive earnings...................................... $4,550,180 $(5,260,768)
========== ===========
</TABLE>
F-22
<PAGE> 65
======================================================
NO DEALER, SALES PERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
SHAREHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITIES TO ANY PERSON IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by
Reference........................... 2
Prospectus Summary.................... 3
Risk Factors.......................... 6
Price Range of Common Stock........... 12
Dividend Policy....................... 12
Capitalization........................ 13
Selected Consolidated Financial
Data................................ 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 15
Business.............................. 22
Management............................ 33
Selling Shareholders.................. 35
Description of Capital Stock.......... 37
Underwriting.......................... 39
Legal Matters......................... 40
Experts............................... 40
Additional Information................ 41
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
2,468,428 SHARES
(SYKES ENTERPRISES, INC. LOGO)
COMMON STOCK
----------------------------
PROSPECTUS
----------------------------
MERRILL LYNCH & CO.
ROBERT W. BAIRD & CO.
INCORPORATED
FURMAN SELZ
, 1998
======================================================
<PAGE> 66
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF INSURANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee............... $ 21,918
NASD filing fee.............................................
Nasdaq listing fee..........................................
Blue sky fees and expenses..................................
Transfer agent expenses and fees............................
Printing and engraving......................................
Accountants' fees and expenses..............................
Legal fees and expenses.....................................
Miscellaneous...............................................
--------
Total............................................. $
========
</TABLE>
All of the fees, costs and expenses set forth above will be paid by the
Company. Other than the SEC filing fee and NASD filing fee, all fees and
expenses are estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Florida Business Corporation Act (the "Florida Act") permits a Florida
corporation to indemnify a present or former director or officer of the
corporation (and certain other persons serving at the request of the corporation
in related capacities) for liabilities, including legal expenses, arising by
reason of service in such capacity if such person shall have acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and in any criminal proceeding if such person had
no reasonable cause to believe his conduct was unlawful. However, in the case of
actions brought by or in the right of the corporation, no indemnification may be
made with respect to any matter as to which such director or officer shall have
been adjudged liable, except in certain limited circumstances.
The Company's Articles of Incorporation and Bylaws provides that the
Company shall indemnify directors and executive officers to the fullest extent
now or hereafter permitted by the Florida Act. In addition, the Company may
enter into Indemnification Agreements with its directors and executive officers
in which the Registrant has agreed to indemnify such persons to the fullest
extent now or hereafter permitted by the Florida Act.
The indemnification provided by the Florida Business Corporation Act and
the Company's Articles of Incorporation and Bylaws is not exclusive of any other
rights to which a director or officer may be entitled. The general effect of the
foregoing provisions may be to reduce the circumstances which an officer or
director may be required to bear the economic burden of the foregoing
liabilities and expense.
The Company may obtain a liability insurance policy for its directors and
officers as permitted by the Florida Act, which may extend to, among other
things, liability arising under the Securities Act of 1933, as amended (the
"Securities Act").
II-1
<PAGE> 67
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S> <C>
1.1 -- Form of Underwriting Agreement.
**4.1 -- Registration Rights Agreement dated December 31, 1997 among
the Company and certain shareholders of McQueen
International Limited.
**5.1 -- Opinion of Foley & Lardner.
23.1 -- Consent of Foley & Lardner (included in Exhibit (5.1)).
23.2 -- Consent of Coopers & Lybrand L.L.P.
23.3 -- Consent of Grant Thornton
**24.1 -- Power of Attorney relating to subsequent amendments
(included on the signature page of this Registration
Statement, as originally filed).
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rules 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) For purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-2
<PAGE> 68
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Tampa, Florida, on this 11th day of June, 1998.
SYKES ENTERPRISES, INCORPORATED
By: /s/ SCOTT J. BENDERT
------------------------------------
Scott J. Bendert
Senior Vice President -- Finance,
Treasurer, and
Chief Financial Officer
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board, President, June 11, 1998
- ----------------------------------------------------- Chief Executive Officer, and
John H. Sykes Director (Principal Executive
Officer)
/s/ SCOTT J. BENDERT Senior Vice President -- Finance, June 11, 1998
- ----------------------------------------------------- Treasurer, and Chief Financial
Scott J. Bendert Officer (Principal Financial
and Accounting Officer)
* Executive Vice President, Chief June 11, 1998
- ----------------------------------------------------- Operating Officer, and Director
Gordon H. Loetz
* Director June 11, 1998
- -----------------------------------------------------
Furman P. Bodenheimer
* Director June 11, 1998
- -----------------------------------------------------
H. Parks Helms
* Director June 11, 1998
- -----------------------------------------------------
Iain Macdonald
* Director June 11, 1998
- -----------------------------------------------------
Ernest J. Milani
* Director June 11, 1998
- -----------------------------------------------------
Adelaide A. Sink
* Director June 11, 1998
- -----------------------------------------------------
R. James Stroker
Director , 1998
- -----------------------------------------------------
Linda McClintock-Greco
</TABLE>
- ---------------
* By power-of-attorney.
II-3
<PAGE> 69
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S> <C>
1.1 -- Form of Underwriting Agreement.
**4.1 -- Registration Rights Agreement dated December 31, 1997 among
the Company and certain shareholders of McQueen
International Limited.
**5.1 -- Opinion of Foley & Lardner.
23.1 -- Consent of Foley & Lardner (included in Exhibit (5.1)).
23.2 -- Consent of Coopers & Lybrand L.L.P.
23.3 -- Consent of Grant Thornton
**24.1 -- Power of Attorney relating to subsequent amendments
(included on the signature page of this Registration
Statement, as originally filed).
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
Filed herewith.
<PAGE> 1
MBP Draft
06/12/98
SYKES ENTERPRISES, INCORPORATED
(a Florida corporation)
2,468,428 Shares of Common Stock
(Par Value $.01 Per Share)
PURCHASE AGREEMENT
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Robert W. Baird & Co. Incorporated
Furman Selz LLC
as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
The persons listed in Schedule B hereto (the "Selling Shareholders"),
each a shareholder of Sykes Enterprises, Incorporated (the "Company") confirm
their respective agreements with Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") and each of the other Underwriters
named in Schedule A hereto (collectively, the "Underwriters", which term shall
also include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom Merrill Lynch, Robert W. Baird & Co. Incorporated, and Furman
Selz LLC are acting as representatives (in such capacity, the
"Representatives"), with respect to the sale by the Selling Shareholders, acting
severally and not jointly, and the purchase by the Underwriters, acting
severally and not jointly, of the respective numbers of shares of common stock,
par value $.01 per share, of the Company ("Common Stock") set forth in Schedules
A and B hereto and the grant by certain Selling Shareholders to the
Underwriters, acting severally and not jointly, of the option described in
Section 2(b) hereof to purchase all or any part of 370,264 additional shares of
Common Stock to cover over-allotments, if any. The aforesaid 2,468,428 shares of
Common Stock (the "Initial Securities") to be purchased by the Underwriters and
all or any part of the
<PAGE> 2
370,264 shares of Common Stock subject to the option described in Section 2(b)
hereof (the "Option Securities") are hereinafter called, collectively, the
"Securities".
The Company and the Selling Shareholders understand that the
Underwriters propose to make a public offering of the Securities as soon as the
Representatives deem advisable after this Agreement has been executed and
delivered.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333-49421) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectuses. Promptly after
execution and delivery of this Agreement, the Company will either (i) prepare
and file a prospectus in accordance with the provisions of Rule 430A ("Rule
430A") of the rules and regulations of the Commission under the 1933 Act (the
"1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of the
1933 Act Regulations or (ii) if the Company has elected to rely upon Rule 434
("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a "Term
Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The
information included in such prospectus or in such Term Sheet, as the case may
be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each Prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
statement, including the exhibits thereto, schedules thereto, if any, and the
documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the 1933 Act, at the time it became effective and including the Rule 430A
Information and the Rule 434 Information, as applicable, is herein called the
"Registration Statement." Any registration statement filed pursuant to rule
462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b)
Registration Statement," and after such filing the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. The final prospectus,
including the documents incorporated by reference therein pursuant to Item 12 of
Form S-3 under the 1933 Act, in the forms first furnished to the Underwriters
for use in connection with the offering of the Securities is called the
"Prospectus." If Rule 434 is relied on, the term "Prospectus" shall refer to the
preliminary prospectus dated June 1, 1998 with the applicable Term Sheet, and
all references in this Agreement to the date of such Prospectus shall mean the
date of the applicable Term Sheet. For purposes of this Agreement, all
references to the Registration Statement, any preliminary prospectus, the
Prospectus, or any Term Sheet or any amendment or supplement to any of the
foregoing shall be deemed to include the copy filed with the Commission pursuant
to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR").
-2-
<PAGE> 3
All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Registration Statement, any preliminary prospectus or the Prospectus (or other
references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is incorporated
by reference in the Registration Statement, any preliminary prospectus or the
Prospectus, as the case may be; and all references in this Agreement to
amendments or supplements to the Registration Statement, any preliminary
prospectus or the Prospectus shall be deemed to mean and include the filing of
any document under the Securities Exchange Act of 1934 (the "1934 Act") which is
incorporated by reference in the Registration Statement, such preliminary
prospectus or the Prospectus, as the case may be.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company
represents and warrants to each Underwriter as of the date hereof and as of the
Closing Time referred to in Section 2(b) hereof, and as of each Date of Delivery
(if any) referred to in Section 2(b) hereof, and agrees with each Underwriter,
as follows:
(i) Compliance with Registration Requirements. The Company
meets the requirements for use of Form S-3 under the 1933 Act. Each of
the Registration Statement and any Rule 462(b) Registration Statement
has become effective under the 1933 Act and, to the Company's
knowledge, no stop order suspending the effectiveness of the
Registration Statement or any Rule 462(b) Registration Statement has
been issued under the 1933 Act and no proceedings for that purpose have
been instituted or are pending or, to the knowledge of the Company, are
contemplated by the Commission, and any request on the part of the
Commission for additional information has been complied with.
At the respective times the Registration Statement, and Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective and at the Closing Time, (and if any Option Securities are
purchased, at the Date of Delivery) the Registration Statement, and
Rule 462(b) Registration Statement and any amendments and supplements
thereto complied and will comply in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations and did not
and will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading. If Rule 434 is used, the Company will
comply with the requirements of Rule 434. Neither the Prospectus nor
any amendments or supplements thereto, at the time the Prospectus or
any such amendment or supplement were issued and at the Closing Time,
(and if any Option Securities are purchased, at the Date of Delivery)
included or will include an untrue statement of a material fact or
omitted or will omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. The representations and
warranties in
-3-
<PAGE> 4
this subsection shall not apply to statements in or omissions from the
Registration Statement or Prospectus made in reliance upon and in
conformity with information furnished to the Company in writing by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement or Prospectus.
Each preliminary prospectus and the prospectus filed as part of a
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied
when so filed in all material respects with the 1933 Act Regulations
and each preliminary prospectus and the Prospectus delivered to the
Underwriters for use in connection with this offering was identical to
the electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(ii) Incorporated Documents. The documents incorporated or
deemed to be incorporated by reference in the Registration Statement
and the Prospectus, at the time they were or hereafter are filed with
the Commission, complied and will comply in all material respects with
the requirements of the 1934 Act and the rules and regulations of the
Commission thereunder (the "1934 Act Regulations"), and, when read
together with the other information in the Prospectus, at the time the
Registration Statement became effective, at the time the Prospectus was
issued and at the Closing Time, (and if any Option Securities are
purchased at Date of Delivery) did not and will not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading.
(iii) Independent Accountants. The accountants who reported on
the financial statements and supporting schedules included in the
Registration Statement are independent public accountants as required
by the 1933 Act and the 1933 Act Regulations.
(iv) Financial Statements. The financial statements included
in the Registration Statement and the Prospectus, together with the
related schedules and notes, present fairly the respective financial
position of the Company and its consolidated subsidiaries and each of
its respective consolidated subsidiaries and so forth; in each case at
the dates indicated therein and the respective statement of operations,
stockholders' equity and cash flows of the Company and its consolidated
subsidiaries and each of its respective consolidated subsidiaries and
so forth, in each case for the periods specified therein; said
financial statements have been prepared in conformity with generally
accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved. The supporting schedules, if any,
included in the Registration Statement present fairly in accordance
with GAAP the information required to be stated therein. The selected
financial data and the summary financial information included in the
Prospectus present fairly the information shown therein and have been
compiled on a basis consistent with that of
-4-
<PAGE> 5
the audited financial statements included in the Registration
Statement. The pro forma financial information and the related notes
included in the Registration Statement and the Prospectus present
fairly the information shown therein, have been prepared in accordance
with the Commission's rules and guidelines with respect to pro forma
financial statements and have been properly compiled on the bases
described therein, and the assumptions used in the preparation thereof
are reasonable and the adjustments used therein are appropriate to give
effect to the transactions and circumstances referred to therein.
(v) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, except as otherwise stated therein, (A)
there has been no material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business
(a "Material Adverse Effect"), (B) there have been no transactions
entered into by the Company or any of its subsidiaries, other than
those in the ordinary course of business, which are material with
respect to the Company and its subsidiaries considered as one
enterprise, and (C) there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock.
(vi) Good Standing of the Company. The Company has been duly
incorporated and is validly existing as a corporation and its status is
active under the laws of the State of Florida and has corporate power
and authority to own, lease and operate its properties and to conduct
its business as described in the Prospectus and to enter into and
perform its obligations under this Agreement; and the Company is duly
qualified as a foreign corporation to transact business and is in good
standing or with active status in each other jurisdiction in which such
qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a
Material Adverse Effect.
(vii) Good Standing of Subsidiaries. Each "significant
subsidiary" of the Company (as such term is defined in Rule 1-02 of
Regulation S-X) (each a "Subsidiary" and, collectively, the
"Subsidiaries") has been duly organized and is validly existing as a
corporation in good standing or with active status under the laws of
the jurisdiction of its incorporation, has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and is duly qualified as a
foreign corporation to transact business and is in good standing in
each jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good
standing or with active status would not result in a Material Adverse
Effect; except as otherwise disclosed in the Registration Statement,
all of the issued and outstanding capital stock of each such
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<PAGE> 6
Subsidiary has been duly authorized and validly issued, is fully paid
and non-assessable and is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity; none of the outstanding
shares of capital stock of any Subsidiary was issued in violation of
the preemptive or similar rights of any securityholder of such
Subsidiary. The only subsidiaries of the Company are the subsidiaries
listed on Schedule D hereto and (b) certain other subsidiaries which,
considered in the aggregate as a single Subsidiary, do not constitute a
"significant subsidiary" as defined in Rule 1-02 of Regulation S-X.
(viii) Capitalization. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus under
the caption "Capitalization" (except for subsequent issuances, if any,
pursuant to this Agreement, pursuant to reservations, agreements or
employee benefit plans referred to in the Prospectus or pursuant to the
exercise of convertible securities or options referred to in the
Prospectus). The shares of issued and outstanding capital stock,
including the Securities to be purchased by the Underwriters from the
Selling Shareholders, have been duly authorized and validly issued and
are fully paid and non-assessable; none of the outstanding shares of
capital stock, including the Securities to be purchased by the
Underwriters from the Selling Shareholders, was issued in violation of
the preemptive or other similar rights of any securityholder of the
Company.
(ix) Authorization of Agreement. This Agreement has been duly
authorized, executed and delivered by the Company.
(x) Authorization and Description of Securities. The
Securities to be purchased by the Underwriters from the Selling
Shareholders have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement and, when delivered by the
Selling Shareholders pursuant to this Agreement against payment of the
consideration set forth herein and therein, will be validly issued and
fully paid and non-assessable; the Common Stock conforms in all
material respects to all statements relating thereto contained in the
Prospectus and such description conforms in all material respects to
the rights set forth in the instruments defining the same; no holder of
the Securities will be subject to personal liability by reason of being
such a holder other than ownership or transfer taxes; and the issuance
of the Securities is not subject to the preemptive or other similar
rights of any securityholder of the Company.
(xi) Absence of Defaults and Conflicts. Neither the Company
nor any of its subsidiaries is in violation of its articles of
incorporation or by-laws or in default in the performance or observance
of any obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, lease or other agreement or instrument to which the Company or
any of its subsidiaries is a party or by which it or any of them may be
bound, or to
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<PAGE> 7
which any of the property or assets of the Company or any subsidiary is
subject (collectively, "Agreements and Instruments") except for such
defaults that would not result in a Material Adverse Effect; and the
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein and in the
Registration Statement (including the sale of Securities) and
compliance by the Company with its obligations hereunder have been duly
authorized by all necessary corporate action and do not and will not,
whether with or without the giving of notice or passage of time or
both, conflict with or constitute a breach of, or default or Repayment
Event (as defined below) under, or result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of the
Company or any subsidiary pursuant to, the Agreements and Instruments
(except for such conflicts, breaches or defaults or liens, charges or
encumbrances that would not result in a Material Adverse Effect), nor
will such action result in any violation of the provisions of the
articles of incorporation or by-laws of the Company or any subsidiary
or any applicable law, statute, rule, regulation, judgment, order, writ
or decree of any government, government instrumentality or court,
domestic or foreign, having jurisdiction over the Company or any
subsidiary or any of their assets, properties or operations (except for
such violations that would not result in a Material Adverse Effect). As
used herein, a "Repayment Event" means any event or condition which
gives the holder of any note, debenture or other evidence of
indebtedness (or any person acting on such holder's behalf) the right
to require the repurchase, redemption or repayment of all or a portion
of such indebtedness by the Company or any subsidiary.
(xii) Absence of Labor Dispute. No labor dispute with the
employees of the Company or any subsidiary exists or, to the knowledge
of the Company, is imminent, and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its
or any subsidiary's principal suppliers, manufacturers, customers or
contractors, which, in either case, may reasonably be expected to
result in a Material Adverse Effect.
(xiii) Absence of Proceedings. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company, threatened, against or affecting the
Company or any subsidiary, which is required to be disclosed in the
Registration Statement (other than as disclosed therein), or which
might reasonably be expected to result in a Material Adverse Effect, or
which might reasonably be expected to materially and adversely affect
the properties or assets thereof or the consummation of the
transactions contemplated in this Agreement or the performance by the
Company of its obligations hereunder; the aggregate of all pending
legal or governmental proceedings to which the Company or any
subsidiary is a party or of which any of their respective property or
assets is the subject which are not described in the Registration
Statement, including ordinary routine litigation
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<PAGE> 8
incidental to the business, could not reasonably be expected to result
in a Material Adverse Effect.
(xiv) Accuracy of Exhibits. There are no contracts or
documents which are required to be described in the Registration
Statement, the Prospectus or the documents incorporated by reference
therein or to be filed as exhibits thereto which have not been so
described or filed as required.
(xv) Possession of Intellectual Property. The Company and its
subsidiaries own or possess, or have the right to use, or can acquire
on reasonable terms, adequate patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property") necessary
to carry on the business now operated by them, and neither the Company
nor any of its subsidiaries has received any notice or is otherwise
aware of any infringement of or conflict with asserted rights of others
with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or
inadequate to protect the interest of the Company or any of its
subsidiaries therein, and which infringement or conflict (if the
subject of any unfavorable decision, ruling or finding) or invalidity
or inadequacy, singly or in the aggregate, would result in a Material
Adverse Effect.
(xvi) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company of
its obligations hereunder, in connection with the offering or sale of
the Securities hereunder or the consummation of the transactions
contemplated by this Agreement, except such as have been already
obtained or as may be required under the 1933 Act or the 1933 Act
Regulations or state securities laws or the rules or by-laws of the
NASD.
(xvii) Possession of Licenses and Permits. The Company and its
subsidiaries possess such permits, licenses, approvals, consents and
other authorizations (collectively, "Governmental Licenses") issued by
the appropriate federal, state, local or foreign regulatory agencies or
bodies necessary to conduct the business now operated by them; the
Company and its subsidiaries are in compliance with the terms and
conditions of all such Governmental Licenses, except where the failure
so to comply would not, singly or in the aggregate, have a Material
Adverse Effect; all of the Governmental Licenses are valid and in full
force and effect, except when the invalidity of such Governmental
Licenses or the failure of such Governmental Licenses to be in full
force and effect would not have a Material Adverse Effect; and neither
the Company nor any of its subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such
Governmental
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<PAGE> 9
Licenses which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a Material
Adverse Effect.
(xviii) Title to Property. The Company and its subsidiaries
have good and marketable title to all real property owned by the
Company and its subsidiaries and good title to all other properties
owned by them, in each case, free and clear of all mortgages, pledges,
liens, security interests, claims, restrictions or encumbrances of any
kind except such as (a) are described in the Prospectus or (b) singly
or in the aggregate would not reasonably be expected to have a Material
Adverse Effect; and all of the leases and subleases material to the
business of the Company and its subsidiaries, considered as one
enterprise, and under which the Company or any of its subsidiaries
holds properties described in the Prospectus, are in full force and
effect, and neither the Company nor any subsidiary has any notice of
any material claim of any sort that has been asserted by anyone adverse
to the rights of the Company or any subsidiary under any of the leases
or subleases mentioned above, or affecting or questioning the rights of
the Company or such subsidiary to the continued possession of the
leased or subleased premises under any such lease or sublease.
(xix) Investment Company Act. The Company is not, and upon
sale of the Securities as herein contemplated will not be, an
"investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of
1940, as amended (the "1940 Act").
(xx) Compliance with Cuba Act. The Company has complied with,
and is and will be in compliance with, the provisions of that certain
Florida act relating to disclosure of doing business with Cuba,
codified as Section 517.075 of the Florida statutes, and the rules and
regulations thereunder (collectively, the "Cuba Act") or is exempt
therefrom.
(xxi) Environmental Laws. Except as described in the
Registration Statement and except as would not, singly or in the
aggregate, result in a Material Adverse Effect, (A) to the Company's
knowledge, neither the Company nor any of its subsidiaries is in
violation of any federal, state, local or foreign statute, law, rule,
regulation, ordinance, code, policy or rule of common law or any
judicial or administrative interpretation thereof, including any
judicial or administrative order, consent, decree or judgment, relating
to pollution or protection of human health, the environment (including,
without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata) or wildlife, including, without
limitation, laws and regulations relating to the release or threatened
release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of Hazardous Materials (collectively, "Environmental
Laws"), (B) to the Company's knowledge, the Company and its
subsidiaries have all permits, authorizations and approvals required
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<PAGE> 10
under any applicable Environmental Laws and are each in compliance with
their requirements, (C) to the Company's knowledge, there are no
pending or threatened administrative, regulatory or judicial actions,
suits, demands, demand letters, claims, liens, notices of noncompliance
or violation, investigation or proceedings relating to any
Environmental Law against the Company or any of its subsidiaries and
(D) there are no events or circumstances that might reasonably be
expected to form the basis of an order for clean-up or remediation, or
an action, suit or proceeding by any private party or governmental body
or agency, against or affecting the Company or any of its subsidiaries
relating to Hazardous Materials or any Environmental Laws.
(xxii) Registration Rights. Other than as described in the
Prospectus, there are no persons with registration rights or other
similar rights to have any securities (a) registered pursuant to the
Registration Statement, other than the Selling Shareholders with
respect to the shares of Common Stock being sold by them pursuant to
this Agreement or (b) otherwise registered by the Company under the
1933 Act, which rights have not been complied with by the Company or
waived by the holder.
(xxiii) Taxes. The Company and each of its subsidiaries have
filed all necessary federal, state, local and foreign income, payroll,
franchise and other tax returns (after giving effect to extensions) and
have paid all taxes shown as due thereon or with respect to any of its
properties (except where such failure to file or pay would not result
in a Material Adverse Effect and except for any such tax that currently
is being contested in good faith), and there is no tax deficiency that
has been, or to the knowledge of the Company is likely to be, asserted
against the Company, any of its subsidiaries or any of their properties
or assets that would result in a Material Adverse Effect.
(xxiv) Maintenance of Adequate Insurance. The Company and each
of its subsidiaries is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as is
reasonably prudent in the business in which it is engaged or proposed
to engage after giving effect to the transactions described in the
Prospectus; and the Company does not have any reason to believe that it
will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that
would not result in a Material Adverse Effect.
(xxv) Maintenance of Sufficient Internal Controls. The Company
and its subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing
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<PAGE> 11
assets at reasonable intervals and appropriate action is taken with
respect to any
differences.
(xxvi) Compliance with Laws. To the best of the Company's
knowledge, neither the Company nor any employee or agent of the Company
has made any payment of funds of the Company or received or retained
any funds in violation of any law, rule or regulation, including,
without limitation, the Foreign Corrupt Practices Act.
(xxvii) Government Regulations. To the Company's knowledge,
the Company and its subsidiaries have complied with all applicable
federal, state and local laws, rules and regulations (collectively,
"Government Regulations") governing the Company's business (including,
without limitation, those applicable to customers of the Company or any
of its subsidiaries with which the Company or any of its subsidiaries,
as the case may be, are obligated to comply), except where the failure
to so comply would not have a Material Adverse Effect; and neither the
Company nor any of its subsidiaries has received any notice of
proceedings relating to the violations of such Government Regulations
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would result in a Material Adverse Effect.
(b) Representations and Warranties by the Selling Shareholders. Each
Selling Shareholder severally and not jointly represents and warrants to each
Underwriter as of the date hereof and as of the Closing Time, and, if the
Selling Shareholder is selling Option Securities on a Date of Delivery as of
each such Date of Delivery and agrees with each Underwriter, as follows:
(i) Accurate Disclosure Relating to Selling Shareholders. Each
Selling Shareholder has reviewed and is familiar with the Registration
Statement and the Prospectus and, insofar as the statements therein
relate to such Selling Shareholder, neither the Prospectus nor any
amendments or supplements thereto includes any untrue statement of a
material fact or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading; each Selling Shareholder is not
prompted to sell the Securities to be sold by such Selling Shareholder
hereunder by any information concerning the Company or any subsidiary
of the Company which is not set forth in the Prospectus.
(ii) Authorization of Agreements. Each Selling Shareholder has
the full right, power and authority to enter into this Agreement and a
Power of Attorney and Custody Agreement (the "Power of Attorney and
Custody Agreement") and to sell, transfer and deliver the Securities to
be sold by such Selling Shareholder hereunder. The execution and
delivery of this Agreement and the Power of Attorney and Custody
Agreement and the sale and delivery of the Securities to be sold by
such Selling Shareholder and the consummation of the transactions
contemplated herein and
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<PAGE> 12
compliance by such Selling Shareholder with its obligations hereunder
have been duly authorized by such Selling Shareholder and do not and
will not, whether with or without the giving of notice or passage of
time or both, conflict with or constitute a breach of, or default
under, or result in the creation or imposition of any tax, lien, charge
or encumbrance upon the Securities to be sold by such Selling
Shareholder or any property or assets of such Selling Shareholder
pursuant to any contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, license, lease or other agreement or instrument
to which such Selling Shareholder is a party or by which such Selling
Shareholder may be bound, or to which any of the property or assets of
such Selling Shareholder is subject, nor will such action result in any
violation of the provisions of the charter or by-laws or other
organizational instrument of such Selling Shareholder, if applicable,
or any applicable treaty, law, statute, rule, regulation, judgment,
order, writ or decree of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over such Selling
Shareholder or any of its properties.
(iii) Valid Title. Such Selling Shareholder has and will at
the Closing Time and, if any Option Securities are purchased on the
Date of Delivery have valid title to the Securities to be sold by such
Selling Shareholder hereunder, free and clear of any security interest,
mortgage, pledge, lien, charge, claim, equity or encumbrance of any
kind, other than pursuant to this Agreement; and upon delivery of such
Securities and payment of the purchase price therefor as herein
contemplated, assuming each such Underwriter has no notice of any
adverse claim, each of the Underwriters will receive valid title to the
Securities purchased by it from such Selling Shareholder, free and
clear of any security interest, mortgage, pledge, lien, charge, claim,
equity or encumbrance of any kind.
(iv) Due Execution of Power of Attorney and Custody Agreement.
Such Selling Shareholder has duly executed and delivered, in the form
heretofore furnished to the Representatives, the Power of Attorney and
Custody Agreement with Scott J. Bendert as attorney-in-fact (the
"Attorney-in-Fact") and Firstar Trust Company as custodian (the
"Custodian"); the Custodian is authorized to deliver the Securities to
be sold by such Selling Shareholder hereunder and to accept payment
therefor; and each Attorney-in-Fact is authorized to execute and
deliver this Agreement and the certificate referred to in Section 5(f)
or that may be required pursuant to Section 5(k) on behalf of such
Selling Shareholder, to sell, assign and transfer to the Underwriters
the Securities to be sold by such Selling Shareholder hereunder, to
determine the purchase price to be paid by the Underwriters to such
Selling Shareholder, as provided in Section 2(a) hereof, to authorize
the delivery of the Securities to be sold by such Selling Shareholder
hereunder, to accept payment therefor, and otherwise to act on behalf
of such Selling Shareholder in connection with this Agreement.
(v) Absence of Manipulation. Such Selling Shareholder has not
taken, and will not take, directly or indirectly, any action which is
designed to or which has
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<PAGE> 13
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities.
(vi) Absence of Further Requirements. No filing with, or
consent, approval, authorization, order, registration, qualification or
decree of, any court or governmental authority or agency, domestic or
foreign, is necessary or required for the performance by such Selling
Shareholder of its obligations hereunder or in the Power of Attorney
and Custody Agreement, or in connection with the sale and delivery of
the Securities hereunder or the consummation of the transactions
contemplated by this Agreement, except such as may have previously been
made or obtained or as may be required under the 1933 Act or the 1933
Act Regulations or state securities laws.
(vii) Certificates Suitable for Transfer. Certificates for all
of the Securities to be sold by such Selling Shareholder pursuant to
this Agreement, in suitable form for transfer by delivery or
accompanied by duly executed instruments of transfer or assignment in
blank with signatures guaranteed, have been placed in custody with the
Custodian with irrevocable conditional instructions to deliver such
Securities to the Underwriters pursuant to this Agreement.
(viii) No Association with NASD. Except as disclosed in the
NASD Questionnaire to Selling Shareholders previously completed and
returned to the Representatives, neither such Selling Stockholder nor
any of his/her or its affiliates directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common
control with, or has any other association with (within the meaning of
Article I, Section 1(m) of the By-laws of the National Association of
Securities Dealers, Inc.), any member firm of the National Association
of Securities Dealers, Inc.
(c) Officer's Certificates. Any certificate signed by any officer of
the Company or any of its subsidiaries delivered to the Representatives or to
counsel for the Underwriters shall be deemed a representation and warranty by
the Company to each Underwriter as to the matters covered thereby; and any
certificate signed by or on behalf of a Selling Shareholder as such and
delivered to the Representatives or to counsel for the Underwriters pursuant to
the terms of this Agreement shall be deemed a representation and warranty by
such Selling Shareholder to the Underwriters as to the matters covered thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing.
(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, each Selling Shareholder, severally and not jointly, agrees to sell to
each Underwriter, severally and not jointly, and each Underwriter, severally and
not jointly, agrees to purchase from each Selling
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<PAGE> 14
Shareholder, at the price per share set forth in Schedule C, that proportion of
the number of Initial Securities set forth in Schedule B opposite the name of
such Selling Shareholder, as the case may be, which the number of Initial
Securities set forth in Schedule A opposite the name of such Underwriter, plus
any additional number of Initial Securities which such Underwriter may become
obligated to purchase pursuant to the provisions of Section 10 hereof, bears to
the total number of Initial Securities, subject, in each case, to such
adjustments among the Underwriters as the Representatives in their sole
discretion shall make to eliminate any sales or purchases of fractional
securities.
(b) Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth several of the Selling Shareholders, identified in Schedule B under
the caption "Option Securities" acting severally and not jointly, hereby grant
an option to the Underwriters, severally and not jointly, to purchase up to an
additional 370,264 shares of Common Stock, as set forth in Schedule B, at the
price per share set forth in Schedule C, less an amount per share equal to any
dividends or distributions declared by the Company and payable on the Initial
Securities but not payable on the Option Securities. The option hereby granted
will expire 30 days after the date hereof and may be exercised in whole or in
part from time to time only for the purpose of covering over-allotments which
may be made in connection with the offering and distribution of the Initial
Securities upon notice by the Representatives to the Selling Shareholders
setting forth the number of Option Securities as to which the several
Underwriters are then exercising the option and the time and date of payment and
delivery for such Option Securities. Any such time and date of delivery (a "Date
of Delivery") shall be determined by the Representatives, but shall not be later
than seven full business days after the exercise of said option, nor in any
event prior to the Closing Time, as hereinafter defined. If the option is
exercised as to all or any portion of the Option Securities, each of the
Underwriters, acting severally and not jointly, will purchase, that proportion
of the total number of Option Securities then being purchased which the number
of Initial Securities set forth in Schedule A opposite the name of such
Underwriter bears to the total number of Initial Securities, subject to such
adjustments as the Representatives in its discretion shall make to eliminate any
sale or purchases of fractional shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Securities shall be made at the offices of Foley &
Lardner, 100 North Tampa, Suite 2700, Tampa, Florida 33602-5804, or at such
other place as shall be agreed upon by the Representatives and the Selling
Shareholders, at 9:00 A.M. (Eastern time) on the third (fourth, if the pricing
occurs after 4:30 P.M. (Eastern time) on any given day) business day after the
date hereof (unless postponed in accordance with the provisions of Section 10),
or such other time not later than ten business days after such date as shall be
agreed upon by the Representatives and the Selling Shareholders (such time and
date of payment and delivery being herein called "Closing Time").
In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option
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<PAGE> 15
Securities shall be made at the above-mentioned offices, or at such other place
as shall be agreed upon by the Representatives and the Selling Shareholders, on
each Date of Delivery as specified in the notice from the Representatives to the
Selling Shareholders.
Payment shall be made to the Selling Shareholders by wire transfer of
immediately available funds to a bank account designated by the Custodian
pursuant to each Selling Shareholder's Power of Attorney and Custody Agreement
against delivery to the Representatives for the respective accounts of the
Underwriters of certificates for the Securities to be purchased by them. It is
understood that each Underwriter has authorized the Representatives, for its
account, to accept delivery of, receipt for, and make payment of the purchase
price for, the Securities which it has agreed to purchase. Merrill Lynch,
individually and not as representative of the Underwriters, may (but shall not
be obligated to) make payment of the purchase price for the Securities, to be
purchased by any Underwriter whose funds have not been received by the Closing
Time or the relevant Date of Delivery as the case may be, but such payment shall
not relieve such Underwriter from its obligations hereunder.
(d) Denominations; Registration. Certificates for the Securities shall
be in such denominations and registered in such names as the Representatives may
request in writing at least one full business day before the Closing Time, or
the relevant Date of Delivery as the case may be. The certificates for the
Securities will be made available for examination and packaging by the
Representatives in The City of New York not later than 10:00 A.M. (Eastern time)
on the business day prior to the Closing Time, or the relevant Date of Delivery
as the case may be.
SECTION 3. Covenants of the Company. The Company covenants with each
Underwriter as follows:
(a) Compliance with Securities Regulations and Commission
Requests. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify
the Representatives immediately, and confirm the notice in writing, (i)
when any post-effective amendment to the Registration Statement shall
become effective, or any supplement to the Prospectus or any amended
Prospectus shall have been filed, (ii) of the receipt of any comments
from the Commission, (iii) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement
to the Prospectus or for additional information, and (iv) of the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing
or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Securities for offering or sale
in any jurisdiction, or of the initiation or threatening of any
proceedings for any of such purposes. The Company will promptly effect
the filings necessary pursuant to Rule 424(b) and will take such steps
as it deems necessary to ascertain promptly whether the form of
prospectus transmitted for filing under Rule 424(b) was received for
filing by the Commission
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<PAGE> 16
and, in the event that it was not, it will promptly file such
prospectus. The Company will make every reasonable effort to prevent
the issuance of any stop order and, if any stop order is issued, to
obtain the lifting thereof at the earliest possible moment.
(b) Filing of Amendments. The Company will give the
Representatives notice of its intention to file or prepare any
amendment to the Registration Statement (including any filing under
Rule 462(b), any Term Sheet) or any amendment, supplement or revision
to either the prospectus included in the Registration Statement at the
time they became effective or to the Prospectus, whether pursuant to
the 1933 Act, the 1934 Act or otherwise, will furnish the
Representatives with copies of any such documents a reasonable amount
of time prior to such proposed filing or use, as the case may be, and
will not file or use any such document to which the Representatives or
counsel for the Underwriters shall not have given its consent, which
shall not be unreasonably withheld.
(c) Delivery of Registration Statement. The Company has
furnished or will deliver to the Representatives and counsel for the
Underwriters, without charge, signed copies of the Registration
Statement as originally filed and of each amendment thereto (including
exhibits filed therewith or incorporated by reference therein and
documents incorporated or deemed to be incorporated by reference
therein) and signed copies of all consents and certificates of experts,
and will also deliver to the Representatives, without charge, a
conformed copy of the Registration Statement as originally filed and of
each amendment thereto (without exhibits) for each of the Underwriters.
The copies of the Registration Statement and each amendment thereto
furnished to the Underwriters will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to
each Underwriter, without charge, as many copies of each preliminary
prospectus as such Underwriter reasonably requested, and the Company
hereby consents to the use of such copies for purposes permitted by the
1933 Act. The Company will furnish to each Underwriter, without charge,
during the period when the Prospectus is required to be delivered under
the 1933 Act or the 1934 Act, such number of copies of the Prospectus
(as amended or supplemented) as such Underwriter may reasonably
request. The Prospectus is and any amendments or supplements thereto
furnished to the Underwriters will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company
will comply with the 1933 Act and the 1933 Act Regulations and the 1934
Act and the 1934 Act Regulations so as to permit the completion of the
distribution of the Securities as contemplated in this Agreement and in
the Prospectus. If at any time
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<PAGE> 17
when a prospectus is required by the 1933 Act to be delivered in
connection with sales of the Securities, any event shall occur or
condition shall exist as a result of which it is necessary, in the
opinion of counsel for the Underwriters or for the Company, to amend
the Registration Statement or amend or supplement the Prospectus in
order that the Prospectus will not include any untrue statements of a
material fact or omit to state a material fact necessary in order to
make the statements therein not misleading in the light of the
circumstances existing at the time they are delivered to a purchaser,
or if it shall be necessary, in the opinion of such counsel, at any
such time to amend the Registration Statement or amend or supplement
the Prospectus in order to comply with the requirements of the 1933 Act
or the 1933 Act Regulations, the Company will promptly prepare and file
with the Commission, subject to Section 3(b), such amendment or
supplement as may be necessary to correct such statement or omission or
to make the Registration Statement or the Prospectus comply with such
requirements, and the Company will furnish to the Underwriters such
number of copies of such amendment or supplement as the Underwriters
may reasonably request.
(f) Blue Sky Qualifications. The Company will use its best
efforts, in cooperation with the Underwriters, to qualify the
Securities for offering and sale under the applicable securities laws
of such states and other jurisdictions as the Representatives may
designate and to maintain such qualifications in effect so as to permit
the completion of the distribution of the Securities as contemplated by
this Agreement; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it
is not otherwise so subject. In each jurisdiction in which the
Securities have been so qualified, the Company will file such
statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect so as to permit
the completion of the distribution of the Securities as contemplated by
this Agreement.
(g) Rule 158. The Company will timely file such reports
pursuant to the 1934 Act as are necessary in order to make generally
available to its securityholders as soon as practicable an earnings
statement for the purposes of, and to provide the benefits contemplated
by, the last paragraph of Section 11(a) of the 1933 Act.
(h) Listing. The Company will use its best efforts to maintain
the quotation of the Securities on the Nasdaq National Market and will
file with the Nasdaq National Market all documents and notices required
by the Nasdaq National Market of companies that have securities that
are traded in the over-the-counter market and quotations for which are
reported by the Nasdaq National Market.
(i) Restriction on Sale of Securities. During a period of 90
days from the date hereof, the Company will not, without the prior
written consent of Merrill
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<PAGE> 18
Lynch, (i) directly or indirectly, offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of any share of Common Stock or any
securities convertible into or exercisable or exchangeable for Common
Stock or file any registration statement under the 1933 Act with
respect to any of the foregoing or (ii) enter into any swap or any
other agreement or any transaction that transfers, in whole or in part,
directly or indirectly, the economic consequence of ownership of the
Common Stock, whether any such swap or transaction described in clause
(i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The foregoing sentence shall
not apply to (A) the Securities to be sold hereunder, (B) any shares of
Common Stock issued by the Company upon the exercise of an option or
warrant or the conversion of a security outstanding on the date hereof
and referred to in the Prospectus or (C) any shares of Common Stock
issued or options to purchase Common Stock granted pursuant to existing
employee benefit plans of the Company referred to in the Prospectus.
(j) Reporting Requirements. The Company, during the period
when the Prospectus are required to be delivered under the 1933 Act or
the 1934 Act, will file all documents required to be filed with the
Commission pursuant to the 1934 Act within the time periods required by
the 1934 Act and the 1934 Act Regulations.
SECTION 4. Payment of Expenses. (a) Expenses. The Company and the
Selling Shareholders will pay or cause to be paid all expenses incident to the
performance of their obligations under this Agreement, including (i) the
preparation, printing and filing of the Registration Statement (including
financial statements and exhibits) as originally filed and of each amendment
thereto, (ii) the preparation, printing and delivery to the Underwriters of this
Agreement, any Agreement among Underwriters and such other documents as may be
required in connection with the offering, purchase, sale, issuance or delivery
of the Securities, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the Underwriters, including any stock or
other transfer taxes and any stamp or other duties payable upon the sale,
issuance or delivery of the Securities to the Underwriters, (iv) the fees and
disbursements of the Company's counsel, accountants and other advisors, (v) the
qualification of the Securities under securities laws in accordance with the
provisions of Section 3(f) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation of the Blue Sky Survey and any supplement
thereto, (vi) the printing and delivery to the Underwriters of copies of each
preliminary prospectus, any Term Sheets and of the Prospectus and any amendments
or supplements thereto, (vii) the preparation, printing and delivery to the
Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii)
the fees and expenses of any transfer agent or registrar for the Securities (ix)
the filing fees incident to, and the reasonable fees and disbursements of
counsel to the Underwriters in connection with, the review by the National
Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of
the Securities and (x) the fees and expenses incurred in connection with the
inclusion of the Securities in the Nasdaq National Market. Except as
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<PAGE> 19
expressly set forth in this Agreement, the Underwriters shall pay their own
costs and expenses incident to the performance of their obligations under this
Agreement.
(b) Expenses of the Selling Shareholder(s). The Selling Shareholders,
jointly and severally, will pay all expenses incident to the performance of
their respective obligations under, and the consummation of the transactions
contemplated by this Agreement, including (i) any stamp duties, capital duties
and stock transfer taxes, if any, payable upon the sale of the Securities to the
Underwriters, and their transfer between the Underwriters pursuant to an
agreement between such Underwriters, and (ii) the fees and disbursements of
their respective counsel and accountants.
(c) Termination of Agreement. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5, Section 9(a)(i)
or Section 11 hereof, the Company and the Selling Shareholders shall reimburse
the Underwriters for all of their reasonable out-of-pocket expenses, including
the reasonable fees and disbursements of counsel for the Underwriters.
(d) Allocation of Expenses. The provisions of this Section shall not
affect any agreement that the Company and the Selling Shareholders may make for
the sharing of such costs and expenses.
SECTION 5. Conditions of Underwriters' Obligations. The obligations of
the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company and the Selling Shareholders
contained in Section 1 hereof or in certificates of any officer of the Company
or any subsidiary of the Company or on behalf of any Selling Shareholder
delivered pursuant to the provisions hereof (and to the extent that Option
Securities to be purchased by the Underwriters include any Sykes Option
Securities, (as defined in Schedule B hereto) to the accuracy of the
representations and warranties contained in the agreement referred to in (k)
below or in certificates of or on behalf of Sykes (as defined in Schedule B
hereto)), to the performance by the Company of its covenants and other
obligations hereunder, and to the following further conditions:
(a) Effectiveness of Registration Statement. The Registration Statement
including any Rule 462(b) Registration Statement has become effective and at
Closing Time no stop order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act or proceedings therefor
initiated or threatened by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of counsel to the Underwriters. A prospectus containing
the Rule 430A Information shall have been filed with the Commission in
accordance with Rule 424(b) (or a post-effective amendment providing such
information shall have been filed and declared effective in accordance with the
requirements of Rule 430A) or, if the Company has elected to rely upon Rule 434,
a Term Sheet shall have been filed with the Commission in accordance with Rule
424(b).
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<PAGE> 20
(b) Opinion of Counsel for Company. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Foley & Lardner, counsel for the Company, in form and substance
satisfactory to counsel for the Underwriters, together with signed or reproduced
copies of such letter for each of the other Underwriters to substantially the
effect set forth in Exhibit A hereto and to such further effect as counsel to
the Underwriters may reasonably request.
In giving such opinion such counsel may rely upon, as to all matters
governed by jurisdictions other than Florida law and the federal law of the
United States, upon the opinions of other counsel satisfactory to the U.S.
Representatives. Such counsel may also state that, insofar as such opinion
involves factual matters, they have relied upon, to the extent they deem proper,
certificates of officers of the Company and its subsidiaries and certificates of
public officials.
(c) Opinion of Counsel for the Selling Shareholders. At Closing Time,
the Representative shall have received the favorable opinion, dated as of
Closing Time, of Battle & Fowler LLP, Kirkland & Ellis and the general counsel
of Adobe Systems, Inc., constituting counsel for all the Selling Shareholders,
in form and substance satisfactory to counsel for the Underwriters, together
with signed or reproduced copies of such letter for each of the other
Underwriters to the effect set forth in Exhibit B hereto and to such further
effect as counsel to the Underwriters may reasonably request.
(d) Opinion of Counsel for Underwriters. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Mayer, Brown & Platt, counsel for the Underwriters, together with
signed or reproduced copies of such letter for each of the other Underwriters
with respect to the matters set forth in clauses (i) (insofar as it relates to
the existence and good standing of the Company), (ii), (v) (solely as to
preemptive or other similar rights arising by operation of law or under the
charter or by-laws of the Company), (vii) through (ix), inclusive, (xiii)
(solely as to the information in the Prospectus under "Description of Capital
Stock") and the penultimate paragraph of Exhibit A hereto. In giving such
opinion such counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of New York, the federal law of
the United States and the General Corporation Law of the State of Delaware, upon
the opinions of counsel satisfactory to the Representatives. Such counsel may
also state that, insofar as such opinion involves factual matters, they have
relied, to the extent they deem proper, upon certificates of officers of the
Company and its subsidiaries and certificates of public officials.
(e) Officers' Certificate. At Closing Time, there shall not have been,
since the date hereof or since the respective dates as of which information is
given in the Prospectus, any material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, and the Representatives shall have
received a certificate of the President or a Vice President of the Company and
of the chief financial or chief accounting officer of the Company, dated as of
Closing Time, to
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<PAGE> 21
the effect that (i) there has been no such material adverse change, (ii) the
representations and warranties in Section 1(a) hereof are true and correct with
the same force and effect as though expressly made at and as of Closing Time,
(iii) the Company has complied with all agreements and satisfied all conditions
on its part to be performed or satisfied at or prior to Closing Time, and (iv)
to such officer's knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or are contemplated by the Commission.
(f) Certificate of Selling Shareholders. At Closing Time, the
Representatives shall have received a certificate of an Attorney-in-Fact on
behalf of each Selling Shareholder, dated as of Closing Time, to the effect that
(i) the representations and warranties of each Selling Shareholder contained in
Section 1(b) hereof are true and correct in all respects with the same force and
effect as though expressly made at and as of Closing Time and (ii) each Selling
Shareholder has complied in all material respects with all agreements and all
conditions on its part to be performed under this Agreement at or prior to
Closing Time.
(g) Accountant's Comfort Letter. At the time of the execution of this
Agreement, the Representatives shall have received from Coopers & Lybrand,
L.L.P. and Grant Thornton a letter dated such date, in form and substance
satisfactory to the Representatives, together with signed or reproduced copies
of such letters for each of the other Underwriters containing statements and
information of the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus.
(h) Bring-down Comfort Letter. At Closing Time, the Representatives
shall have received from Coopers & Lybrand, L.L.P. and Grant Thornton a letter,
dated as of Closing Time, to the effect that they reaffirm the statements made
in the letter furnished pursuant to subsection (g) of this Section, except that
the specified date referred to shall be a date not more than three business days
prior to Closing Time.
(i) Approval of Listing. At Closing Time, the Securities shall have
been approved for inclusion in the Nasdaq National Market, subject only to
official notice of issuance.
(j) Lock-up Agreements. At the date of this Agreement, the
Representatives shall have received an agreement substantially in the form of
Exhibit C hereto signed by the persons listed on Schedule E. [Some Selling
Shareholders are selling all their shares? Lockup needed?]
(k) Other Agreement. At the date of this Agreement, the Representatives
shall have received an agreement reasonably satisfactory to them and
substantially in the form of Exhibit D hereto signed by John H. Sykes, Chairman
of the Board, President and Chief Executive Officer of the Company.
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<PAGE> 22
(l) Conditions to Purchase of Option Securities. In the event that the
Underwriters exercise their option provided in Section 2(b) hereof to purchase
all or any portion of the Option Securities, the representations and warranties
of the Company and the Selling Shareholders contained herein and the statements
in any certificates furnished by the Company, any subsidiary of the Company and
the Selling Shareholders hereunder shall be true and correct as of each Date of
Delivery and, at the relevant Date of Delivery, the Representatives shall have
received:
(i) Officers' Certificate. A certificate, dated such Date of
Delivery, of the President or a Vice President of the Company and of
the chief financial or chief accounting officer of the Company
confirming that the certificate delivered at the Closing Time pursuant
to Section 5(e) hereof remains true and correct as of such Date of
Delivery.
(ii) Certificate of Selling Shareholders. A certificate, dated
such Date of Delivery, of each Selling Shareholder selling Option
Securities confirming that the certificate delivered at Closing Time
pursuant to Section 5(f) remains true and correct as of such Date of
Delivery, and, if any Option Securities to be purchased by the
Underwriters include any Sykes Option Securities (as defined in
Schedule B hereto), the certificate of Sykes (as defined in Schedule B
hereto) required under the agreement referred to in (k) below.
(iii) Opinion of Counsel for Company. The favorable opinion of
Foley & Lardner, counsel for the Company, in form and substance
satisfactory to counsel for the Underwriters, dated such Date of
Delivery, relating to the Option Securities to be purchased on such
Date of Delivery and otherwise to the same effect as the opinion
required by Section 5(b) hereof.
(iv) Opinion of Counsel for the Selling Shareholders. The
favorable opinion of Battle & Fowler LLP, counsel for the Selling
Shareholders selling Option Securities, in form and substance
satisfactory to counsel for the Underwriters, dated such Date of
Delivery, relating to the Option Securities to be purchased on such
Date of Delivery and otherwise to the same effect as the opinion
required by Section 5(c) hereof, and if any Option Securities to be
purchased by the Underwriters include any Sykes Option Securities (as
defined in Schedule B hereto) the opinion of counsel for Sykes (as
defined in Schedule B hereto) required by the agreement referred to in
(k) below.
(v) Opinion of Counsel for the Underwriters. The favorable
opinion of Mayer, Brown & Platt, counsel for the Underwriters, dated
such Date of Delivery, relating to the Option Securities to be
purchased on such Date of Delivery and otherwise to the same effect as
the opinion required by Section 5(d) hereof.
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(vi) Bring-down Comfort Letter. A letter from Coopers &
Lybrand, L.L.P. and Grant Thornton in form and substance satisfactory
to the Representatives and dated such Date of Delivery, substantially
in the same form and substance as the letters furnished to the
Representatives pursuant to Section 5(g) hereof, except that the
"specified date" in the letters furnished pursuant to this paragraph
shall be a date not more than five days prior to such Date of Delivery.
(m) Additional Documents. At Closing Time and at each Date of Delivery,
counsel for the Underwriters shall have been furnished with such documents and
opinions as they may reasonably require for the purpose of enabling them to pass
upon the sale of the Securities as herein contemplated, or in order to evidence
the accuracy of any of the representations or warranties, or the fulfillment of
any of the conditions, herein contained; and all proceedings taken by the
Company and the Selling Shareholders in connection with the sale of the
Securities as herein contemplated shall be reasonably satisfactory in form and
substance to the Representatives and counsel for the Underwriters.
(n) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled, this
Agreement or in the case of any condition to the purchase of Option Securities
on a Date of Delivery which is after the Closing Time may be terminated by the
Representatives by notice to the Company at any time at or prior to Closing Time
or such Date of Delivery, and such termination shall be without liability of any
party to any other party except as provided in Section 4 and except that
Sections 1, 6, 7 and 8 shall survive any such termination and remain in full
force and effect.
SECTION 6. Indemnification.
(a) Indemnification of Underwriters. The Company and the Selling
Shareholders agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that the
indemnification hereunder by each Selling Shareholder shall relate only
to the
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<PAGE> 24
information relating to such Selling Shareholder provided in writing by
such Selling Shareholder for inclusion in the Registration Statement,
preliminary prospectus or Prospectus as the case may be;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission; provided
that (subject to Section 6(d) below) any such settlement is effected
with the written consent of the Company; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
provided, however, (a) that this indemnity agreement shall not apply to any
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through Merrill Lynch expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto); (b) that
the Company will not be liable to an Underwriter with respect to any preliminary
prospectus to the extent that the Company shall sustain the burden of proving
that any such loss, liability, claim, damage or expense resulted from the fact
that such Underwriter, in contravention of a requirement of this Agreement or
applicable law, sold Securities to a person to whom such Underwriter failed to
send or give, at or prior to the Closing Time, a copy of the Prospectus, as then
amended or supplemented if: (i) the Company has previously furnished copies
thereof (sufficiently in advance of the Closing Time to allow for distribution
by the Closing Time) to the Underwriters and the loss, liability, claim, damage
or expense of such Underwriter resulted from an untrue statement or omission of
a material fact contained in or omitted from the preliminary prospectus which
was corrected in the Prospectus as, if applicable, amended or supplemented prior
to the Closing Time and such Prospectus was required by law to be delivered at
or prior to the written confirmation of sale to such person and (ii) such
failure to give or send such Prospectus by the Closing Time to the party or
parties asserting such loss, liability, claim, damage or expense would have
constituted the sole defense to the claim asserted by such person; and (c) the
liability of any Selling Shareholder pursuant to this indemnity agreement shall
not exceed the aggregate proceeds received from the sale of Securities by such
Selling Shareholder hereunder.
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(b) Indemnification of Company, Directors and Officers. Each
Underwriter severally agrees to indemnify and hold harmless the Company, its
directors, each of its officers who signed the Registration Statement, each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act, and the Selling Shareholders against any
and all loss, liability, claim, damage and expense described in the indemnity
contained in subsection (a) of this Section, as incurred, but only with respect
to untrue statements or omissions, or alleged untrue statements or omissions,
made in the Registration Statement (or any amendment thereto), including the
Rule 430A Information and the Rule 434 Information, if applicable, or any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) in reliance upon and in conformity with written information furnished
to the Company by such Underwriter through Merrill Lynch expressly for use in
the Registration Statement (or any amendment thereto) or such preliminary
prospectus or the Prospectus (or any amendment or supplement thereto).
(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable
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for any settlement of the nature contemplated by Section 6(a)(ii) effected
without its written consent if (i) such settlement is entered into more than 45
days after receipt by such indemnifying party of the aforesaid request, (ii)
such indemnifying party shall have received notice of the terms of such
settlement at least 30 days prior to such settlement being entered into and
(iii) such indemnifying party shall not have reimbursed such indemnified party
in accordance with such request prior to the date of such settlement.
(e) Other Agreements with Respect to Indemnification. The provisions of
this Section shall not affect any agreement among the Company and the Selling
Shareholders with respect to indemnification.
SECTION 7. Contribution. If the indemnification provided for in Section
6 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Selling Shareholders on the one hand and the Underwriters on the other hand from
the offering of the Securities pursuant to this Agreement or (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Selling Shareholders on the one hand and of the Underwriters on the other hand
in connection with the statements or omissions which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Company and the Selling
Shareholders on the one hand and the Underwriters on the other hand in
connection with the offering of the Securities pursuant to this Agreement shall
be deemed to be in the same respective proportions as the total net proceeds
from the offering of the Securities pursuant to this Agreement (before deducting
expenses) received by the Company and the Selling Shareholders and the total
underwriting discount received by the Underwriters, in each case as set forth on
the cover of the Prospectus, or, if Rule 434 is used, the corresponding location
on the Term Sheet bear to the aggregate initial public offering price of the
Securities as set forth on such cover.
The relative fault of the Company and the Selling Shareholders on the
one hand and the Underwriters on the other hand shall be determined by reference
to, among other things, whether any such untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company or the Selling Shareholders or by the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company, the Selling Shareholders and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 7
were determined by pro rata
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<PAGE> 27
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 7 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as the Company. The Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Securities set forth opposite their respective names
in Schedule A hereto and not joint.
The provisions of this Section shall not affect any agreement among the
Company and the Selling Shareholders with respect to contribution.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company or any of its
subsidiaries or the Selling Shareholders submitted pursuant hereto, shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of any Underwriter or controlling person, or by or on behalf of the
Company or the Selling Shareholders, and shall survive delivery of the
Securities to the Underwriters.
SECTION 9. Termination of Agreement.
-27-
<PAGE> 28
(a) Termination; General. The Representatives may terminate this
Agreement, by notice to the Company and the Selling Shareholders, at any time at
or prior to Closing Time (i) if there has been, since the time of execution of
this Agreement or since the respective dates as of which information is given in
the Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States, any
outbreak of hostilities or escalation thereof or other calamity or crisis or any
change or development involving a prospective change in national or
international political, financial or economic conditions, in each case the
effect of which is such as to make it, in the judgment of the Representatives,
impracticable to market the Securities or to enforce contracts for the sale of
the Securities, or (iii) if trading in any securities of the Company has been
suspended or materially limited by the Commission or the Nasdaq National Market,
or if trading generally on the American Stock Exchange or the New York Stock
Exchange or in the Nasdaq National Market has been suspended or materially
limited, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices have been required, by any of said exchanges or by such system
or by order of the Commission, the National Association of Securities Dealers,
Inc. or any other governmental authority, or (iv) if a banking moratorium has
been declared by either Federal, New York or Florida authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. Default by One or More of the Underwriters. If one or more
of the Underwriters shall fail at Closing Time or Date of Delivery to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "Defaulted Securities"), the Representatives shall have the right, within
24 hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, the Representatives shall not have
completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the number of Securities to be purchased on such date, each of the
non-defaulting Underwriters shall be obligated, severally and not
jointly, to purchase the full amount thereof in the proportions that
their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of Securities to be purchased on such date, this Agreement or,
with respect to any Date of Delivery which occurs after the Closing
Time, the obligation of the Underwriters
-28-
<PAGE> 29
to purchase and the Selling Shareholders to sell the Option Securities
to be purchased and sold on such Date of Delivery shall terminate
without liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement or in the case of a Date of Delivery which is after the
Closing Time which does not result in a termination of the obligation of the
Underwriters to purchase and the Selling Shareholders to sell the relevant
Option Securities as the case may be, either (i) the Representatives or (ii) the
Company and any Selling Shareholder shall have the right to postpone Closing
Time or the relevant Date of Delivery as the case may be, for a period not
exceeding seven days in order to effect any required changes in the Registration
Statement or Prospectus or in any other documents or arrangements. As used
herein, the term "Underwriter" includes any person substituted for an
Underwriter under this Section 10.
SECTION 11. Default by one or more of the Selling Shareholders. (a) If
a Selling Shareholder shall fail at Closing Time or at a Date of Delivery to
sell and deliver the number of Securities which such Selling Shareholder is
obligated to sell hereunder, and the remaining Selling Shareholders do not
exercise the right hereby granted to increase, pro rata or otherwise, the number
of Securities to be sold by them hereunder to the total number to be sold by all
Selling Shareholders as set forth in Schedule B hereto, then the Underwriters
may, at option of the Representatives, by notice from the Representatives to the
Company and the non-defaulting Selling Shareholders, either (a) terminate this
Agreement without any liability on the fault of any non-defaulting party except
that the provisions of Sections 1, 4, 6, 7 and 8 shall remain in full force and
effect or (b) elect to purchase the Securities which the non-defaulting Selling
Shareholders have agreed to sell hereunder. No action taken pursuant to this
Section 11 shall relieve any Selling Shareholder so defaulting from liability,
if any, in respect of such default.
In the event of a default by any Selling Shareholder as referred to in
this Section 11, each of the Representatives and the non-defaulting Selling
Shareholders shall have the right to postpone Closing Time or Date of Delivery
for a period not exceeding seven days in order to effect any required change in
the Registration Statements or Prospectuses or in any other documents or
arrangements.
SECTION 12. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representatives, c/o Merrill Lynch, 5500
Sears Tower, Chicago, Illinois 60606 attention of Deborah Quazzo; notices to the
Company shall be directed to it at 450 East Las Olas Boulevard, Suite 1200, Ft.
Lauderdale, Florida 33301, attention of Scott Bendert; and notices
-29-
<PAGE> 30
to the Selling Shareholders shall be directed to Scott Bendert, c/o Sykes
Enterprises, Incorporated, 450 East Las Olas Boulevard, Suite 1200, Ft.
Lauderdale, Florida 33301.
SECTION 13. Parties. This Agreement shall each inure to the benefit of
and be binding upon the Underwriters, the Company and the Selling Shareholders
and their respective successors. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person, firm or
corporation, other than the Underwriters, the Company and the Selling
Shareholders and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Underwriters, the Company and the Selling Shareholders
and their respective successors, and said controlling persons and officers and
directors and their heirs and legal representatives, and for the benefit of no
other person, firm or corporation. No purchaser of Securities from any
Underwriter shall be deemed to be a successor by reason merely of such purchase.
SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY
TIME.
SECTION 15. Effect of Headings. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
-30-
<PAGE> 31
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company and the Attorney-in-Fact for
the Selling Shareholders a counterpart hereof, whereupon this instrument, along
with all counterparts, will become a binding agreement among the Underwriters,
the Company and the Selling Shareholders in accordance with its terms.
Very truly yours,
SYKES ENTERPRISES,
INCORPORATED
By
---------------------------------
Title:
------------------------------------
By
----------------------------------
As Attorney-in-Fact acting on
behalf of the Selling Shareholders
named in Schedule B hereto
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
ROBERT W. BAIRD & CO. INCORPORATED
FURMAN SELZ LLC
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
------------------------------------
Authorized Signatory
For itself and as Representatives of the other Underwriters named in Schedule A
hereto.
-31-
<PAGE> 32
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Name of Underwriter Securities
- ------------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Robert W. Baird & Co. Incorporated
Furman Selz LLC
----------
Total........................................................... 2,468,428
==========
</TABLE>
<PAGE> 33
<TABLE>
<CAPTION>
SCHEDULE B
Number of
Securities
Names of Selling Shareholders to be Sold
----------------------------- ----------
<S> <C>
INITIAL SECURITIES
Adobe Incentive Partners, L.P........................................................ 486,676
Gray, David R........................................................................ 3,988
Gray, Mark J......................................................................... 3,988
Gray, Michael Maxwell................................................................ 424,590
The Michael Maxwell Gray Family Trust................................................ 250,470
The M.M. Gray 1997 Liferent Trust.................................................... 645,814
Gray, Patricia Ann................................................................... 80,355
Hart, Thomas J....................................................................... 30,157
T.J. Hart Children Trust............................................................. 32,290
T.J. Hart 1997 Liferent Trust........................................................ 57,934
IBJ Schroder Bank and Trust Company, Trustee......................................... 349,213
Tripp, Alan Charles MacDonald........................................................ 26,000
The Tripp Family Trust............................................................... 16,145
The A.C.M. Tripp 1997 Liferent Trust................................................. 60,808
University of Tampa..................................................................
--
Total................................................................................
--------
</TABLE>
<PAGE> 34
OPTION SECURITIES
<TABLE>
<S> <C>
Gray, Michael Maxwell................................................................
Hart, Thomas J....................................................................... --1/
Tripp, Alan Charles MacDonald........................................................ --1/
University of Tampa.................................................................. --1/
--2/
Total................................................................................ --
</TABLE>
1/If the Underwriters elect to exercise this over-allotment option, Messrs.
Gray, Hart and Tripp will each sell to the Underwriters their pro rata share of
up to the first 246,843 shares of Common Stock of such over-allotment option,
and the University of Tampa will sell to the Underwriters up to 123,421 shares
only to the extent that the Underwriters' exercise such over-allotment option in
excess of 246,843 shares of Common Stock.
2/The University of Tampa will sell to the Underwriters up to 123,421 shares
only to the extent that the Underwriters' exercise such over-allotment option in
excess of 246,843 shares. To the extent that the number of shares that the
University of Tampa is required to sell pursuant to the Underwriters' exercise
of the over-allotment option exceeds the number of shares then owned by the
University of Tampa, John H. Sykes ("Sykes"), the Company's Chairman of the
Board, President and Chief Executive Officer, has pledged to donate to the
University of Tampa such excess shares (such donated excess shares, the "Sykes
Option Securities").
<PAGE> 35
SCHEDULE C
SYKES ENTERPRISES, INCORPORATED
___ Shares of Common Stock
(Par Value $.01 Per Share)
1. The initial public offering price per share for the Securities,
determined as provided in Section 2, shall be $_________.
2. The purchase price per share for the Securities to be paid by the
several Underwriters shall be $____, being an amount equal to the initial public
offering price set forth above less $____ per share; provided that the purchase
price per share for any Option Securities purchased upon the exercise of the
over-allotment option described in Section 2(b) shall be reduced by an amount
per share equal to any dividends or distributions declared by the Company and
payable on the Initial Securities but not payable on the Option Securities.
<PAGE> 36
SCHEDULE D
SYKES ENTERPRISES, INCORPORATED
LIST OF SUBSIDIARIES
<TABLE>
<S> <C>
Sykes Enterprises Incorporated of Canada Canada
Sykes Enterprises Incorporated Holdings B.V. Netherlands
Sykes Enterprises Incorporated, B.V. Netherlands
Sykes Realty, Inc. Florida
Sykes Enterprises-South Africa, Inc. Florida
DiagSoft, Inc. Florida
Datasvar Support AB Sweden
Info Systems of North Carolina, Inc. North Carolina
Sykes Holdings of Belgium B.V.B.A. Belgium
Translation, Fulfillment & Communication, N.V. ("Traffic") Belgium
Sykes Enterprises GmbH Germany
Telcare Gesellschaft fur Telekommunikations-Mehrwertdieste mbH
("Telcare") Germany
TAS Telemarketing Gesellschaft fur Kommunikations und Dialog mbH
("TAS I") Germany
TAS Hedi Fabinyi GmbH ("TAS II") Germany
McQueen Limited Scotland
McQueen International Limited Scotland
McQueen Integrated Manufacturing Services Ltd. Scotland
McQueen Graphics Ltd. Scotland
McQueen Europe Ltd. Scotland
Link Network Ltd. Scotland
McQueen Benelux BV Netherlands
McQueen France SA France
McQueen Inc. United States
McQueen Skandinavian AB Sweden
</TABLE>
<PAGE> 37
SCHEDULE E
[List of persons and entities subject to lock-up]
Adobe Incentive Partners, L.P.
Gray, David R.
Gray, Mark J.
Gray, Michael Maxwell
The Michael Maxwell Gray Family Trust
The M.M. Gray 1997 Liferent Trust
Gray, Patricia Ann
Hart, Thomas J.
T.J. Hart Children Trust
T.J. Hart 1997 Liferent Trust
IBJ Schroder Bank and Trust Company, Trustee
Tripp, Alan Charles MacDonald
The Tripp Family Trust
The A.C.M. Tripp 1997 Liferent Trust
University of Tampa
Sykes Enterprises, Incorporated
<PAGE> 38
Exhibit A
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Florida.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the Purchase
Agreement.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect.
(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under the caption "Capitalization"
(except for subsequent issuances, if any, pursuant to the Purchase Agreement or
pursuant to reservations, agreements or employee benefit plans referred to in
the Prospectus or pursuant to the exercise of convertible securities or options
referred to in the Prospectus); the shares of issued and outstanding capital
stock of the Company, including the Securities to be purchased by the
Underwriters from the Selling Shareholders, have been duly authorized and
validly issued and are fully paid and non-assessable; and none of the
outstanding shares of capital stock of the Company was issued in violation of
the preemptive or other similar rights of any securityholder of the Company.
(v) The sale of the Securities by the Selling Shareholder(s) is not
subject to the preemptive or other similar rights of any securityholder of the
Company.
(vi) Each Subsidiary has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and is
duly qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required, whether
by reason of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would not
result in a Material Adverse Effect; except as otherwise disclosed in the
Registration Statement, all of the issued and outstanding capital stock of each
Subsidiary has been duly authorized and validly issued, is fully paid and
non-assessable and, to the best of our knowledge, is owned by the Company,
directly or through subsidiaries,
Sch A - 1
<PAGE> 39
free and clear of any security interest, mortgage, pledge, lien, encumbrance,
claim or equity; none of the outstanding shares of capital stock of any
Subsidiary was issued in violation of the preemptive or similar rights of any
securityholder of such Subsidiary.
(vii) The Purchase Agreement has been duly authorized, executed and
delivered by the Company.
(viii) The Registration Statements has been declared effective under
the 1933 Act; any required filing of the Prospectus pursuant to Rule 424(b) has
been made in the manner and within the time period required by Rule 424(b); and,
to the best of our knowledge, no stop order suspending the effectiveness of any
of the Registration Statements has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or threatened
by the Commission.
(ix) The Registration Statement, the Prospectus, excluding the
documents incorporated by reference therein, and each amendment or supplement to
the Registration Statement and Prospectus, excluding the documents incorporated
by reference therein, as of their respective effective or issue dates (other
than the financial statements and supporting schedules included therein or
omitted therefrom, as to which we need express no opinion) complied as to form
in all material respects with the requirements of the 1933 Act and the 1933 Act
Regulations.
(x) The documents incorporated by reference in the Prospectuses (other
than the financial statements and supporting schedules included therein or
omitted therefrom, as to which we need express no opinion), when they were filed
with the Commission, complied as to form in all material respects with the
requirements of the 1934 Act and the rules and regulations of the Commission
thereunder.
(xi) The form of certificate used to evidence the Common Stock complies
in all material respects with all applicable statutory requirements, with any
applicable requirements of the charter and by-laws of the Company and the
requirements of the Nasdaq National Market.
(xii) To the best of our knowledge, there is not pending or threatened
any action, suit, proceeding, inquiry or investigation, to which the Company or
any subsidiary is a party, or to which the property of the Company or any
subsidiary is subject, before or brought by any court or governmental agency or
body, domestic or foreign, which might reasonably be expected to result in a
Material Adverse Effect, or which might reasonably be expected to materially and
adversely affect the properties or assets thereof or the consummation of the
transactions contemplated in the Purchase Agreement or the performance by the
Company of its obligations thereunder.
(xiii) The information in the Prospectus under "Description of Capital
Stock,"and in the Registration Statement under Item 15, to the extent that it
constitutes matters of law, summaries of legal matters, the Company's charter
and bylaws or legal proceedings, or legal conclusions, has been reviewed by us
and is correct in all material respects.
Sch A - 2
<PAGE> 40
(xiv) To the best of our knowledge, there are no statutes or
regulations that are required to be described in the Prospectus that are not
described as required.
(xv) All descriptions in the Registration Statement of contracts and
other documents to which the Company or its subsidiaries are a party are
accurate in all material respects; to the best of our knowledge, there are no
franchises, contracts, indentures, mortgages, loan agreements, notes, leases or
other instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed or incorporated by reference as exhibits thereto,
and the descriptions thereof or references thereto are correct in all material
respects.
(xvi) To the best of our knowledge, neither the Company nor any
subsidiary is in violation of its charter or by-laws and no default by the
Company or any subsidiary exists in the due performance or observance of any
material obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other agreement or
instrument that is described or referred to in the Registration Statement or the
Prospectus or filed or incorporated by reference as an exhibit to the
Registration Statement.
(xvii) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any court or governmental
authority or agency, domestic or foreign (other than under the 1933 Act and the
1933 Act Regulations, which have been obtained, or as may be required under the
securities or blue sky laws of the various states, as to which we need express
no opinion) is necessary or required in connection with the due authorization,
execution and delivery of the Purchase Agreement or for the offering, issuance,
sale or delivery of the Securities.
(xviii) The execution, delivery and performance of the Purchase
Agreement and the consummation of the transactions contemplated in the Purchase
Agreement and in the Registration Statement and compliance by the Company with
its obligations under the Purchase Agreement do not and will not, whether with
or without the giving of notice or lapse of time or both, conflict with or
constitute a breach of, or default or Repayment Event (as defined in Section
1(a)(xi) of the Purchase Agreement) under or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company or any subsidiary pursuant to any contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, lease or any other agreement or
instrument, known to us, to which the Company or any subsidiary is a party or by
which it or any of them may be bound, or to which any of the property or assets
of the Company or any subsidiary is subject (except for such conflicts, breaches
or defaults or liens, charges or encumbrances that would not have a Material
Adverse Effect), nor will such action result in any violation of the provisions
of the charter or by-laws of the Company or any subsidiary, or any applicable
law, statute, rule, regulation, judgment, order, writ or decree, known to us, of
any government, government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any subsidiary or any of their respective
properties, assets or operations.
Sch A - 3
<PAGE> 41
Nothing has come to our attention that has had us to believe that the
Registration Statement or any amendment thereto (except for financial statements
and schedules and other financial data included or incorporated by reference
therein or omitted therefrom, as to which we need make no statement), at the
time such Registration Statement or any such amendment became effective,
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or that the Prospectus or any amendment or supplement thereto
(except for financial statements and schedules and other financial data included
or incorporated by reference therein or omitted therefrom, as to which we need
make no statement), at the time the Prospectus was issued, at the time any such
amended or supplemented prospectus was issued or at the Closing Time, included
or includes an untrue statement of a material fact or omitted or omits to state
a material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
In rendering such opinion, such counsel may rely upon, as to all matters
governed by the laws of jurisdictions other than Florida law and the federal law
of the United States, upon the opinions of other counsel satisfactory to the
Representatives, and may rely, as to matters of fact (but not as to legal
conclusions), to the extent they deem proper, on certificates of responsible
officers of the Company and public officials. Such opinion shall not state that
it is to be governed or qualified by, or that it is otherwise subject to, any
treatise, written policy or other document relating to legal opinions,
including, without limitation, the Legal Opinion Accord of the ABA Section of
Business Law (1991).
Sch A - 4
<PAGE> 42
Exhibit B
FORM OF OPINION OF COUNSEL FOR THE SELLING SHAREHOLDERS
TO BE DELIVERED PURSUANT TO SECTION 5(c)
(i) No filing with, or consent, approval, authorization, license,
order, registration, qualification or decree of, any court or governmental
authority or agency, domestic or foreign, (other than the issuance of the order
of the Commission declaring the Registration Statement effective and such
authorizations, approvals or consents as may be necessary under state securities
laws, as to which [I][we] need express no opinion) is necessary or required to
be obtained by the Selling Shareholders for the performance by each Selling
Shareholder of its obligations under the Purchase Agreement or in the Power of
Attorney and Custody Agreement, or in connection with the offer, sale or
delivery of the Securities.
(ii) Each Power of Attorney and Custody Agreement has been duly
executed and delivered by the respective Selling Shareholder named therein and
constitutes the legal, valid and binding agreement of such Selling Shareholder.
(iii) The Purchase Agreement has been duly authorized, executed and
delivered by or on behalf of the Selling Shareholder(s) represented by such
counsel.
(iv) Each Attorney-in-Fact has been duly authorized by the Selling
Shareholders to deliver the Securities on behalf of the Selling Shareholders in
accordance with the terms of the Purchase Agreement.
(v) The execution, delivery and performance of the Purchase Agreement
and the Power of Attorney and Custody Agreement and the sale and delivery of the
Securities and the consummation of the transactions contemplated in the Purchase
Agreement and in the Registration Statement and compliance by the Selling
Shareholders with their obligations under the Purchase Agreement have been duly
authorized by all necessary action on the part of the Selling Shareholders and
do not and will not, whether with or without the giving of notice or passage of
time or both, conflict with or constitute a breach of, or default under or
result in the creation or imposition of any tax, lien, charge or encumbrance
upon the Securities or any property or assets of the Selling Shareholders
pursuant to, any contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, license, lease or other instrument or agreement to which any
Selling Shareholder is a party or by which [he/she or it] may be bound, or to
which any of the property or assets of the Selling Shareholders may be subject
nor will such action result in any violation of the provisions of the charter or
by-laws of the Selling Shareholders, if applicable, or any law, administrative
regulation, judgment or order of any governmental agency or body or any
administrative or court decree having jurisdiction over such Selling Shareholder
or any of its properties.
(vi) To the best of [our][my] knowledge, each Selling Shareholder has
valid title to the Securities to be sold by such Selling Shareholder pursuant to
the Purchase Agreement, free
Sch B - 1
<PAGE> 43
and clear of any pledge, lien, security interest, charge, claim, equity or
encumbrance of any kind, and has full right, power and authority to sell,
transfer and deliver such Securities pursuant to the Purchase Agreement. By
delivery of a certificate or certificates therefor such Selling Shareholder will
transfer to the Underwriters who have purchased such Securities pursuant to the
Purchase Agreement (without notice of any defect in the title of such Selling
Shareholder and who are otherwise bona fide purchasers for purposes of the
Uniform Commercial Code) valid title to such Securities, free and clear of any
pledge, lien, security interest, charge, claim, equity or encumbrance of any
kind.
Sch B - 2
<PAGE> 44
[Form of lock-up from Selling Shareholders pursuant to Section 5(j)]
Exhibit C
____________, 1998
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Robert W. Baird & Co. Incorporated
Furman Selz LLC
as Representative(s) of the several
Underwriters to be named in the
within-mentioned Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Re: Proposed Public Offering by Sykes Enterprises, Incorporated
Dear Sirs:
The undersigned, a stockholder of Sykes Enterprises, Incorporated, a
Florida corporation (the "Company"), understands that Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") Robert W.
Baird & Co. Incorporated and Furman Selz LLC propose to enter into a Purchase
Agreement (the "Purchase Agreement") with the Company and the Selling
Shareholders providing for the public offering of shares (the "Securities") of
the Company's common stock, par value $.01 per share (the "Common Stock"). In
recognition of the benefit that such an offering will confer upon the
undersigned as a stockholder of the Company, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
undersigned agrees with each underwriter to be named in the Purchase Agreement
that, during a period of 180 days from the date of the Purchase Agreement, the
undersigned will not, without the prior written consent of Merrill Lynch,
directly or indirectly, (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant for the sale of, or otherwise dispose of or
transfer any shares of the Company's Common Stock or any securities convertible
into or exchangeable or exercisable for Common Stock, whether now owned or
hereafter acquired by the undersigned or with respect to which the undersigned
has or hereafter acquires the power of disposition, or (ii) enter into any swap
or any other agreement or any
Sch B - 1
<PAGE> 45
transaction that transfers, in whole or in part, directly or indirectly, the
economic consequence of ownership of the Common Stock, whether any such swap or
transaction is to be settled by delivery of Common Stock or other securities, in
cash or otherwise.
Very truly yours,
Signature:
--------------------------
Print Name:
-------------------------
Sch B - 1
<PAGE> 46
Annex A
[FORM OF ACCOUNTANTS' COMFORT LETTER PURSUANT TO SECTION 5(g)]
We are independent public accountants with respect to the Company within the
meaning of the 1933 Act and the applicable published 1933 Act Regulations
(i) in our opinion, the audited financial statements and the related
financial statement schedules included in the Registration Statement
and the Prospectus comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the published
rules and regulations thereunder;
(ii) on the basis of procedures (but not an examination in accordance with
generally accepted auditing standards) consisting of a reading of the
unaudited interim consolidated financial statements of the Company for
the three month periods ended March 30, 1997 and March 31, 1998,
included in the Registration Statement and the Prospectus
(collectively, the "Quarterly Financials"), a reading of the latest
available unaudited interim consolidated financial statements of the
Company, a reading of the minutes of all meetings of the stockholders
and directors of the Company the periods covered by such Quarterly
Financials and its subsidiaries and the committees of the Board of
Directors of the Company since January 1, 1998, inquiries of certain
officials of the Company and its subsidiaries responsible for financial
and accounting matters, a review of interim financial information in
accordance with standards established by the American Institute of
Certified Public Accountants in Statement on Auditing Standards No. 71,
Interim Financial Information ("SAS 71"), with respect to the periods
covered by such Quarter Financials and such other inquiries and
procedures as may be specified in such letter, nothing came to our
attention that caused us to believe that:
(A) the Quarterly Financials included in the Registration
Statement and the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements
of the 1933 Act and the 1933 Act Regulations or any material
modifications should be made to the unaudited consolidated
financial statements included in the Registration Statement
and the Prospectus for them to be in conformity with generally
accepted accounting principles;
(B) at May 31, 1998 and at a specified date not more than five
days prior to the date of this Agreement, there was any change
in the Stock of the Company and its subsidiaries or any
decrease in the consolidated net current assets or
shareholders' equity of the Company and its subsidiaries or
any increase in the long-term of the Company and its
subsidiaries, in each case as compared with amounts shown in
the latest balance sheet included in the Registration
Statement, except in each case for changes, decreases or
increases that the Registration Statement discloses have
occurred or may occur; or
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(C) for the period from April 11, 1998 to May 31, 1998 and for
the period from June 1, 1998 to a specified date not more than
five days prior to the date of this Agreement, there was any
decrease in revenues or the total or per share amounts of net
income in each case as compared with the comparable period in
the preceding year, except in each case for any decreases that
the Registration Statement discloses have occurred or may
occur;
(iii) based upon the procedures set forth in clause (ii) above and a reading
of the Selected Financial Data included in the Registration Statement
and a reading of the financial statements from which such data were
derived, nothing came to our attention that caused us to believe that
the Selected Financial Data included in the Registration Statement do
not comply as to form in all material respects with the disclosure
requirements of Item 301 of Regulation S-K of the 1933 Act, that the
amounts included in the Selected Financial Data are not in agreement
with the corresponding amounts in the audited consolidated financial
statements for the respective periods or that the financial statements
not included in the Registration Statement from which certain of such
data were derived are not in conformity with generally accepted
accounting principles;
(iv) we have compared the information in the Registration Statement under
selected captions with the disclosure requirements of Regulation S-K of
the 1933 Act and on the basis of limited procedures specified herein
nothing came to our attention that caused us to believe that this
information does not comply as to form in all material respects with
the disclosure requirements of Items 302, 402 and 503(d), respectively,
of Regulation S-K;
(v) in addition to the procedures referred to in clause (ii) above, we have
performed other procedures, not constituting an audit, with respect to
certain amounts, percentages, numerical data and financial information
appearing in the Registration Statement, which are specified herein,
and have compared certain of such items with, and have found such items
to be in agreement with, the accounting and financial records of the
Company.
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EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Amendment No. 2 to the
registration statement of Sykes Enterprises, Incorporated on Form S-3 of our
report dated March 6, 1998, on our audits of the consolidated financial
statements of Sykes Enterprises, Incorporated and subsidiaries as of December
31, 1997, and for the year ended December 31, 1997, which report is in the
Annual Report on Form 10-K for the year ended December 31, 1997. Separate
financial statements of McQueen International Limited included in the 1995 and
1996 restated consolidated statements of income and cash flows were audited and
reported on separately by other auditors. We also consent to the reference to
our firm under the caption "Experts."
Coopers & Lybrand L.L.P.
Tampa, Florida
June 15, 1998
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EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
of Sykes Enterprises, Incorporated on Form S-3 our report dated February 18,
1998 accompanying the financial statements of McQueen International Limited and
subsidiaries for the years ended February 28, 1997 and 1996 included in the
Annual Report on Form 10-K of Sykes Enterprises, Incorporated as of and for the
year ended December 31, 1997. We also consent to the reference to our firm under
the caption "Experts."
GRANT THORNTON
Edinburgh
United Kingdom
June 15, 1998
