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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
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COMMISSION FILE NUMBER 0-28274
SYKES ENTERPRISES, INCORPORATED
(Exact name of registrant as specified in its charter)
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FLORIDA 56-1383460
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
100 N. TAMPA STREET, SUITE 3900 33602
TAMPA, FLORIDA (Zip Code)
(Address of principal executive officers)
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(813) 274-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS
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Voting Common Stock $.0l Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes [X]
As of March 12, 1999, there were outstanding 42,080,581 shares of Common
Stock. The aggregate market value of the voting stock held by non-affiliates of
the registrant based on the last sale price reported on the Nasdaq National
Market as of March 12, 1999 was $731,717,129.
DOCUMENTS INCORPORATED BY REFERENCE:
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Documents................................................... Form 10-K Reference
Portions of the 1998 Sykes Enterprises,
Incorporated Annual Report................................ Part II Items 5-8
Portions of the Proxy Statement
dated April 1, 1999....................................... Part III Items 10-13
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SYKES ENTERPRISES, INCORPORATED
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PAGE NO.
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Cautionary Statements of Forward Looking Information
PART I
Item 1 Business....................................................
Item 2 Properties..................................................
Item 3 Legal Proceedings...........................................
Item 4 Submission of Matters to a Vote of Security Holders.........
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters.......................................
Item 6 Selected Financial Data.....................................
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................
Item 7a Qualitative and Quantitative Disclosures About Market
Risk......................................................
Item 8 Financial Statements and Supplementary Data.................
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................
PART III
Item 10 Directors and Executive Officers of the Registrant..........
Item 11 Executive Compensation......................................
Item 12 Security Ownership of Certain Beneficial Owners and
Management................................................
Item 13 Certain Relationships and Related Transactions..............
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form
8-K.......................................................
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Certain matters discussed or incorporated by reference in this report are
forward-looking statements within the meaning of the federal securities laws.
Although the company believes that the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, there can be
no assurance that its expectations will be achieved. Factors that could cause
actual results to differ materially from the Company's current expectations
include the loss of a significant customer; technological change; the inability
of the Company to manage its growth; the inability of the Company to integrate
the operations of acquisitions; risks associated with the Company's
international operations; general economic conditions, and other risks discussed
elsewhere in this report and in other filings of the Company with the Securities
Exchange Commission.
PART I
ITEM 1. BUSINESS
Sykes Enterprises, Incorporated ("Sykes" or the "Company") provides
information technology ("IT") outsourcing services including information
technology support services, information technology development services and
solutions, on-line clinical managed care services, medical protocol products,
employee benefit administration and support services, and customer product
services. 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, Sykes provides information
technology support services (i) to leading computer hardware and software
companies by providing technical product support services to end users of their
products and (ii) to major companies by providing help desk services to their
employees. The Company also provides outsourced care management services,
products, and employee benefit administration services through its wholly-owned
subsidiary, SHPS, Incorporated. In addition, through its staff of technical
professionals, Sykes provides information technology development services and
solutions to large corporations, on a contract or temporary staffing basis,
including software design, development, integration and implementation; systems
support and maintenance; and documentation, foreign language translation and
software localization. Sykes also provides customer product services to computer
hardware and software companies including design, replication, material
integration, packaging and distribution. The integration of these services
provides Sykes' 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, one
in 1997, and one in 1998. All of the domestic IT call centers with the exception
of the Charlotte, Scottsdale and Louisville locations 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 IT 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 business combinations, of which one was acquired during
1996, eight were acquired during 1997, and five in 1998. The Company estimates
that the IT call centers will have the capacity to process in excess of 200,000
calls per day in the aggregate, up from 7,000 calls per day in January 1994,
from various users of hardware and software products and ancillary services.
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
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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 which includes the following
key elements: (i) expand information technology support services revenues
through additional IT call centers; (ii) market the Company's expanded customer
care services to existing and new customers to position Sykes to become a
preferred vendor of outsourced services; (iii) establish a competitive advantage
through the Company's proprietary, sophisticated technological capabilities; and
(iv) expand its international customer base through strategic alliances and
selective acquisitions.
During 1998, the Company completed two business combinations for the
aggregate purchase price of approximately 2.1 million shares of the Company's
common stock. These business combinations were accounted for using the
pooling-of-interests method of accounting. In addition, the Company also
acquired the stock of SHPS, Incorporated ("SHPS") and related assets for
approximately $30.6 million in cash and accounted for the acquisition utilizing
the purchase method of accounting. In the aggregate, these acquisitions expanded
the Company's geographical presence in Europe, established operations in Canada
and expanded the vertical market service offerings that the Company provides.
Sykes was founded in 1977 in North Carolina and moved its headquarters to
Florida in 1993. In March 1996, Sykes changed its state of incorporation from
North Carolina to Florida.
INDUSTRY BACKGROUND
In today's rapidly changing technological environment, consumers and
businesses require a variety of information technology services in order to
effectively use and manage their complex information technology systems,
including technical support, software development and information systems
integration and management. Many companies' computer systems incorporate a
variety of hardware and software components which may span a number of
technology generations. For example, a company may use client/server systems or
mainframe or midrange hardware platforms running a variety of operating systems,
software applications and relational databases. Information technology services
have become much more important in this environment as information technology
departments strive to integrate a company's information processing capabilities
into a single system while providing the flexibility to change with
technological innovations.
These technological changes are making it increasingly difficult and
expensive for companies to maintain in-house the necessary personnel to handle
all of their information technology needs. Hardware and software companies, as
well as businesses utilizing their products, are increasingly turning to third
party vendors to perform specialized functions and services. Outsourcing of (i)
product support functions by leading hardware and software companies, (ii)
employee help desk functions by major companies, and (iii) other information
technology services such as software design and systems integration and
management, is growing rapidly because of the following factors:
- Increasing need for companies to focus on core competencies rather than
non-revenue producing activities;
- Rapid technological changes requiring personnel with specialized
technical expertise;
- Growing capital requirements for sophisticated technology necessary to
provide timely product support and help desk functions;
- Increasing need to integrate and continually update complex systems
incorporating a variety of hardware and software components spanning a
number of technology generations;
- Extensive and ongoing staff training and associated costs required to
maintain responsive, up-to-date in-house technical support and
information technology services; and
- Cost savings from converting fixed employee costs to flexible, variable
costs.
As the outsourcing of technical product support, help desk and other
information technology services has gained acceptance, many companies also are
seeking to consolidate the number of vendors which provide them with these
services. Accordingly, providers of information technology outsourcing services
must offer a
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wide array of services to maintain a preferred vendor relationship with their
customers. Sykes believes its broad range of services will allow it to
capitalize on this trend.
STRATEGY
The Company's objective is to continue its growth and to become a leading
provider of a wide variety of information technology outsourcing services by
being responsive to and providing skilled personnel for its clients' long-term
outsourcing needs. The Company's principal strategies for achieving this
objective are as follows:
Expand Through Systematic Addition of IT Call Centers. Sykes 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 29 IT
call centers as of March 12, 1999. The Company has built nine domestic IT call
centers between October 1995 and March 1999, has added an IT call center in
Charlotte, North Carolina, and has acquired 13 call centers through business
combinations. 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 and significantly expanded its call center in Sweden during
1998. The Company's IT call centers currently have the capacity to handle up to
approximately 55 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 consistently responsive, high quality services through call
monitoring and tracking technology and other quality assurance procedures. The
Company's systematic approach and procedures are part of its strategy of
providing responsive, high quality support at a lower cost than the Company's
competitors.
Position Sykes as a Preferred Vendor. The Company intends to cross-market
its expanded array of information technology services to existing customers and
to continue to provide consistently high quality services to new and existing
customers in order to position the Company as a preferred vendor of outsourced
services. Sykes believes that its ability to work in partnership with its
customers during the life cycle of their information technology products and
systems, from software design and systems implementation, through technical
documentation and foreign language translation, to product packaging and
distribution, to end user technical product support and other telephonic
services, gives it a competitive advantage to become the provider of choice to
its customers. Sykes has expanded the services it provides, such as help desk
and diagnostic support services through its existing relationships with Fortune
500 companies, particularly those customers using the Company's services to
satisfy all or part of their information technology development services and
solutions needs.
Capitalize on Sophisticated Technology. The Company seeks to establish a
competitive advantage by continuing to capitalize on its sophisticated and
specialized technological capabilities, including PBX switches, automatic call
distributors, call tracking software and computer-telephone integration. These
capabilities allow its IT call centers to serve as the transparent extension of
the Company's customers, receive telephone calls and data directly from its
customers' systems, and report detailed information concerning the status and
results of the Company's services on a daily basis. The Company's sophisticated
technology and systems, which the Company is able to upgrade periodically
because of their open architecture, enable the Company to provide high response
rates at a low cost per transaction.
The Company's strategy is to continue to develop or acquire other
technologies that complement its call center activity functions. For example,
the Company intends to integrate the capabilities of its 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 Vertical Industry Markets. The Company believes that
numerous industries such as retail, telecommunications, financial services and
healthcare will expand their usage of outsourcing vendors
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from the significant usage of emerging technologies. This strategy was imbedded
in the Company's formation and subsequent acquisition of SHPS to enter the
healthcare industry. The Company's strategy is to aggressively market itself to
new and existing customers as a single-source provider of comprehensive and
clinically sophisticated care management and employee benefit services. In
addition, the Company intends to continue to expand its service offerings to
meet its customers' existing needs as well as future needs created by regulatory
and other charges.
Growth Through Strategic Alliances. The Company intends to expand its
customer base, geographic presence and the information technology services Sykes
provides by forming strategic alliances with other information technology
service providers, particularly those who do not provide labor intensive
technical support. For example, information technology services providers such
as systems integrators increasingly are seeking partners to whom they can
outsource the help desk requirements of their customers. The Company continues
to actively seek help desk contracts with such providers.
Growth Through Selective Acquisitions and Mergers. The Company intends to
continue to acquire or combine with complementary businesses to increase market
share, expand its services, enter key industry sectors and expand its geographic
presence. Through December 31, 1998 the Company has completed 11 such strategic
combinations 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 or combining with companies with IT call centers
in international markets which provide quality call center activities 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 or combine with organizations which
provide information technology services within the Company's strategic focus of
emerging technology industries, such as the banking and telecommunications
industries in which the Company competes on a limited basis. The information
technology services industry is highly fragmented. Many of these firms may be
attractive acquisition or merger candidates because they would enable Sykes to
expand existing service offerings or open new geographic offices.
SERVICES
The Company provides a wide array of information technology outsourcing
services, including information technology support services and information
technology development services and solutions. The following is a description of
Sykes' outsourcing services:
Technical Product Support. Sykes provides technical product support
services by telephone (24 hours a day, 7 days a week) to end users of the
products of hardware and software companies through its 14 stand-alone IT call
centers in the United States, three call centers in Canada, and 12 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 16 languages to 20
European and Asian countries.
The Company provides a modular call center support management software
product (AnswerTeam), capable of being included on the hard drive of a personal
computer, that integrates communication and remote control technology with
hardware and software diagnostic tools to provide end users a total support
solution. This technology capability allows a user, with AnswerTeam 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 end user can also receive support through the Internet or via
E-mail.
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
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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.
Care Management. The Company's care management services and products
assist customers in improving the quality of healthcare services provided to
plan participants and monitor patients' compliance with their prescribed course
of treatment, while simultaneously reducing inappropriate medical costs. The
Company's care management services are designed to prospectively assist in
determining an individual's healthcare needs and monitor and evaluate the
delivery of clinical care provided. The Company's clinical staff, comprised of
registered nurses and physicians, interacts with patients, providers and payors
to assist in determining, implementing and monitoring an effective and efficient
customized care management program based on each patient's medical profile. The
Company's care management services include demand, utilization, care disease and
disability management. In addition, for providers and payors that wish to
perform their own utilization management or quality assurance functions, the
Company provides quality and utilization managed care software solutions through
its Optimed software products and related services. These products are based on
Optimed protocols developed and reviewed by the Company's medical panel of
approximately 250 board certified physicians.
Employee Benefit Administration and Support Services. The Company's
Employee Benefit Services allow its customers to outsource the administration of
their employee benefit plans, including enrolling new plan participants,
developing and maintaining records, verifying or paying claims and producing
management reports. The Company provides a broad range of Employee Benefit
Services, including benefit plan administration ("BPA"), flexible spending
account ("FSA") administration, COBRA administration, retiree benefits services
and other ancillary services.
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. Additional services provided could also include on
an independent program basis development of custom software necessary to operate
a desired application, integration of the application into the customer's
existing information processing architecture, the testing of the functionality
of the application and assisting 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 27 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).
Customer Product Services. The Company provides customer product services
to computer hardware and software organizations as well as other technology
companies. These services which can be provided through an e-commerce solution,
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.
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
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services include systems administration, maintenance and management support,
applications enhancement and training services.
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, the Pacific Rim region and South
America.
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), response time and results of the call. Summary data and
complete databases are made available to the customer to enable it to monitor
the level of service provided by the Company, as well as to determine whether
end users of its products are encountering recurring problems that require
modification. The databases also provide Sykes' customers with considerable
marketing information concerning end users, such as whether the user is a home
or business user and regional differences in purchasing patterns or usage. The
Company maintains tape backups and offsite storage to assure the integrity of
its reporting systems and databases.
The IT call centers are protected by a fire extinguishing system and backup
generators and short-term battery backup in the event of a power outage, reduced
voltage or power surge. Rerouting of telephone calls to one of the other IT call
centers is also available in the event of a telecommunications failure, natural
disaster or other emergency. Security measures are imposed to prevent
unauthorized access. Software and related data files are backed up daily and
stored off site at multiple locations. The Company carries business interruption
insurance covering interruptions that might occur as a result of damage to its
business. In addition, the Company believes that it has adequate arrangements
with its equipment vendors pursuant to which damaged equipment can be replaced
promptly.
Customer Product Centers. Sykes has expanded its customer product services
during 1997 and 1998 through acquisitions, and through its ability to utilize
the Internet. Sykes has three distribution centers located in the United States
and six distribution centers located in Europe. Each of these centers have
e-commerce capabilities through which the Company offers a broad range of brands
in each of the product categories it covers, and 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.
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Service and Solution Offices. Sykes' professional personnel are assigned
to one of the Company's 25 offices, which are located in metropolitan areas
throughout the United States, Canada, Europe and Singapore 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
Sykes carefully trains, monitors and supervises its employees to enhance
the efficiency and the 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. Sykes actively recruits
highly skilled professionals to staff specific assignment needs of its
information technology development services and solutions customers. Generally,
employees also receive ongoing training throughout the year to respond to
changes in technology.
An IT call center manager supervises project leaders, team leaders and
technicians dedicated to individual customer accounts. Each team leader at the
IT call centers monitors approximately ten technicians. A project leader
supervises a particular customer's account by monitoring calls and reviewing
quality standards. Using the Company's proprietary, sophisticated call tracking
software, the project leader monitors the number of calls each technician
handles, the duration of each call, time between calls, response time, number of
queries resolved after the first call and other statistics important in
measuring and enhancing productivity and service levels. Remote and on-site call
monitoring systems and on-line performance tracking are used to enhance high
quality services. Customers have daily access to a variety of measures of
service performance tracked by the Company's technology and can monitor calls
directly through the Company's remote call monitoring systems.
The Company emphasizes a team approach in order to provide high quality,
customized solutions to meet its clients' information technology development
services and solutions needs. The central role in this team approach is provided
by the Company's account executives and recruiters who work together to achieve
a successful relationship between the client and the Company's professionals.
The team shares information on active and prospective clients, reviews the
availability of professionals and discusses general market conditions. Such
forums enable the teams to remain informed and knowledgeable on the latest
technologies and to identify business development opportunities as they emerge.
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
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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, 1997 and 1998 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 and cross
selling 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. The Company currently employs 109
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 customer product 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 distribution center. Customer product 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 specific information technology
projects, rather than providing professionals to staff client-managed projects.
This activity is directed towards a view of enhancing profit margins through the
provision of value-added management services.
CUSTOMERS
The Company has customers in the United States, Canada, Europe, the
Phillippines, and South Africa. The Company's customers include Fortune 500
corporations and leading hardware and software companies.
8
<PAGE> 11
The Company believes its nationally recognized customer base presents
opportunities for further cross-marketing of its services.
Adobe Systems Incorporated, which became the Company's largest customer as
a result of the McQueen business combination during 1997, accounted for 12% and
10% of the Company's consolidated revenues for the years ended December 31, 1996
and 1997, respectively. In 1998, another customer became the Company's largest,
accounting for approximately 8% of consolidated revenues. The Company's loss of
(or the failure to retain a significant amount of business with) its key
customers could have a material adverse effect on the Company. The Company's
largest ten customers accounted for approximately 42% of the consolidated
revenues in 1998. 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 1,200 customers during 1998.
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 various call center
operations, product distribution, temporary staffing and personnel placement
companies, language translation companies, developers of software diagnostic
tools, 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 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 trade
secret laws to protect the proprietary technology it uses at its IT call centers
and facilities, and relies on a combination of copyright, trademark and trade
secret laws 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. Sykes(R) and SHPS(R) are registered
servicemarks of the Company. Sykes holds a number of registered trademarks,
including DIAGSOFT(R), QAPLUS/WIN(R), ETSC(R), FS PRO(R) and FS PRO
MARKETPLACE(R), AnswerTeam(R), and OPTIMED(R). In addition, the Company owns all
copyrights to HI CARES.
EMPLOYEES
As of February 15, 1999, the Company had 10,841 full-time employees,
consisting of 109 in sales and marketing, 8,468 customer support technicians at
the IT call centers, 822 technical professionals, 723 in distribution services
and 719 in management, administration and finance.
9
<PAGE> 12
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 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.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides the names and ages of the Company's executive
officers, and the positions and offices with the Company currently held by each
of them:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL POSITION
- ---- --- ------------------
<S> <C> <C>
John H. Sykes............. 62 Chairman and Chief Executive Officer
David L. Grimes........... 51 President and Chief Operating Officer
Scott J. Bendert.......... 42 Senior Vice President -- Finance, Treasurer,
and Chief Financial Officer
Keith L. Gibson........... 39 Senior Vice President -- Worldwide Sales and
Marketing
John D. Bray.............. 50 Senior Vice President -- Human Resources and
Administration
Gerry L. Rogers........... 53 Group Vice President, North America
</TABLE>
John H. Sykes has retained the titles and responsibilities of Chairman and
Chief Executive Officer since December 1998. Mr. Sykes has been President and
Chief Executive Officer of the Company from inception in 1977 until December
1998. Previously, Mr. Sykes was Senior Vice President of CDI Corporation, a
publicly-held technical services firm.
David L. Grimes joined the Company in December 1998 as President and was
named Chief Operating Officer during February 1999. From 1984 to 1998, Mr.
Grimes held various management positions with AT&T, a publicly-held
telecommunications firm, most recently as Region Vice President.
Scott J. Bendert joined the Company in 1993 as Chief Financial Officer and
was named Senior Vice President-Finance during October 1997. In 1994, Mr.
Bendert was named Treasurer, and in 1995 was appointed Vice
President -- Finance. From 1984 to 1993, Mr. Bendert held various management
positions with Reflectone, Inc., a publicly-held producer of complex computer
simulator trainers and devices, most recently as Corporate Controller.
Keith L. Gibson joined the Company as Senior Vice President -- Worldwide
Sales and Marketing during October 1997. From 1991 to 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.
10
<PAGE> 13
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.
Gerry L. Rogers joined the Company as Group Vice President, North America
in February 1999. From 1968 to 1999, Mr. Rogers held various management
positions with AT&T, a publicly-held telecommunications firm, most recently as
General Manager for the Business Growth Markets.
ITEM 2. PROPERTIES
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>
SQUARE
PROPERTIES GENERAL USAGE FEET LEASE EXPIRATION
- ----------------------------- ----------------------------- ------- ----------------
<S> <C> <C> <C>
UNITED STATES LOCATIONS
Tampa, Florida............... Corporate headquarters 18,000 December 2002
Tampa, Florida............... Office 18,000 July 1999
Tampa, Florida............... Office 19,900 June 2000
Ada, Oklahoma................ IT call center(Opened March 42,000 Company owned
1999)
Bismarck, North Dakota....... IT call center 84,000 Company owned
Charlotte, North Carolina.... IT call center 56,800 October 2000
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
Louisville, Kentucky......... IT call center/office 160,700 July 2005
Manhattan, Kansas............ IT call center 42,000 Company owned
Milton-Freewater, Oregon..... IT call center(Opened March 42,000 Company owned
1999)
Minot, North Dakota.......... IT call center 42,000 Company owned
Ponca City, Oklahoma......... IT call center 42,000 Company owned
Scottsdale, Arizona.......... IT call center 39,100 June 2002
Sterling, Colorado........... IT call center 34,000 Company owned
Fremont, California.......... Distribution center 111,500 November 1999
Nashville, Tennessee......... Distribution center 91,200 January 2001
Louisville, Kentucky......... Distribution center 78,750 June 2001
Atlanta, Georgia............. Office 2,000 May 2000
Boise, Idaho................. Office 2,400 January 2000
Boston, Massachusetts........ Office 26,000 September 2000
Boulder, Colorado............ Office 13,000 March 2000
Cary, North Carolina......... Office 5,400 December 1999
Charlotte, North Carolina.... Office 2,900 June 2000
Charlotte, North Carolina.... Office 37,800 October 2003
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
SQUARE
PROPERTIES GENERAL USAGE FEET LEASE EXPIRATION
- ----------------------------- ----------------------------- ------- ----------------
<S> <C> <C> <C>
Dallas, Texas................ Office 3,000 June 2003
Denver, Colorado............. Office 2,000 January 2001
Greenville, South Carolina... Office 4,300 December 1999
Jacksonville, Florida........ Office 1,800 November 2001
Lexington, Kentucky.......... Office 1,600 June 2000
Lexington, Massachusetts..... Office 12,200 October 2002
Poughkeepsie, New York....... Office 1,000 January 2000
St. Louis, Missouri.......... Office 5,500 September 2001
INTERNATIONAL LOCATIONS
Amsterdam, The Netherlands... IT call center/office 27,700 September 1999
Amsterdam, The Netherlands... IT call center 12,400 December 1999
Amsterdam, The Netherlands... IT call center 21,500 June 1999
Edinburgh, Scotland.......... IT call center/office 35,900 September 2019
London, Ontario.............. IT call center 40,000 Company owned
Toronto, Ontario............. IT call center 8,200 December 2001
Moncton, New Brunswick....... IT call center 1,700 June 1999
Les Ulis, France............. IT call center 38,700 February 2007
Bochum, Germany.............. IT call center 26,400 December 2000
Hannover, Germany............ IT call center 12,500 June 2001
Hamburg, Germany............. IT call center 6,400 November 2008
Esslingen, Germany........... IT call center 9,200 December 2005
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 4,300 September 2000
Sveg, Sweden................. IT call center 35,100 June 2001
Shannon, Ireland............. IT call center and 66,000 April 2013
distribution center
Hoofddorp, The Netherlands... Distribution center 20,000 July 2001
Sevran, France............... Distribution center 19,400 August 2002
Galashiels, Scotland......... Distribution center 92,800 Company owned
Kista, Sweden................ Distribution center 6,500 December 2000
Brentford, England........... Sales office 550 December 2005
Stockholm, Sweden............ Sales office 2,700 December 1999
London, Ontario.............. Sales office 2,800 May 2002
Ottawa, Ontario.............. Sales office 500 June 1999
Singapore.................... Sales office 500 December 1999
Vancouver, British
Columbia................... Sales office 1,000 June 1999
Leuven, Belgium.............. Office and distribution 30,100 January 2006
center
</TABLE>
The Company owns each of its domestic IT call centers as identified and
anticipates that additional IT call centers will be required due to growth and
expansion. The Company may operate from time-to-time in temporary facilities to
accommodate growth before new centers are available. The Company currently has
two such temporary facilities totaling 18,300 square feet.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation incidental to its
business. In the opinion of management, no litigation to which the Company
currently is a party is likely to have a materially adverse effect on the
Company's results of operations or financial condition, if decided adversely to
the Company.
12
<PAGE> 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security-holders during the fourth
quarter of the year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The information called for by this item is contained on page 22 of the
Company's Annual Report and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information called for by this item is contained in page 21 of the
Company's Annual Report and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information called for by this Item is contained in pages 24 through 31
of the Company's Annual Report and is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by this Item is contained in pages 30 through 31
of the Company's Annual Report and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this Item is contained in pages 34 through 58
of the Company's Annual Report and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On January 14, 1999, the Company appointed Ernst & Young LLP as its
independent public accounting firm engaged as the principal accountant to audit
the Company's financial statements for the year ended December 31, 1998. The
Company has selected Ernst & Young LLP as its principal independent public
accountant for 1999. A representative of Ernst & Young LLP will be present at
the Annual Meeting, and will be available to respond to appropriate questions
and may make a statement if he so desires.
PricewaterhouseCoopers, LLP, and one of PWC's predecessor firms, Coopers &
Lybrand, LLP (together "PWC"), previously served as the Company's principal
independent public accountant. The Company was advised by the Securities and
Exchange Commission (the "SEC") that PWC violated the independence standards
promulgated by the SEC, which require, among other things, that public
accounting firms and their professionals not have any direct or material
indirect financial interest in their audit clients. Among the violations, a
professional of PWC's Tampa office owned securities of the Company during the
period that PWC was designated as the Company's independent public accountant.
The Company was among a number of companies affected by this type of activity
within PWC. On January 14, 1999, the SEC announced that it instituted and
simultaneously settled proceedings brought against PWC for failing to comply
with the independence standards with respect to its publicly held audit clients.
In connection with the foregoing, on January 14, 1999, the Company appointed
Ernst & Young LLP as its principal independent public accountant to audit the
Company's financial statements for calendar year 1998 and dismissed PWC as the
Company's principal independent public accountant for calendar year 1998. Both
of these decisions were approved by the audit committee of the Board of
Directors.
13
<PAGE> 16
The Company did not know and did not have any reason to know of PWC's lack
of compliance with the SEC's independence standards. Moreover, PWC's conduct is
not consistent with the standards regarding compliance with the SEC's
independence standards that the Company expects from its independent public
accountant. Nonetheless, the Company does not believe that these violations
effected the quality or integrity of the Company's financial statements that
were audited by PWC or PWC's audit opinions rendered in connection with such
audits.
PWC's report on the Company's financial statements for 1996 and 1997 did
not contain an adverse opinion or a disclaimer of opinion and was not qualified
or modified as to uncertainty, audit scope, or accounting principles. In
addition, during the Company's 1996 and 1997 fiscal years and during the interim
period in 1998 preceding PWC's dismissal, there have not been any disagreements
with PWC on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreement, if not
resolved to the satisfaction of PWC, would have caused PWC to make reference to
the subject matter of the disagreement in connection with its report. During the
Company's 1996 and 1997 fiscal years and during the interim period in 1998
preceding PWC's dismissal: (a) PWC has not advised the Company that the internal
controls necessary for it to develop reliable financial statements do not exist;
(b) PWC has not advised the Company that information has come to PWC's attention
that has led it to no longer be able to rely on management's representations, or
that has made PWC unwilling to be associated with the financial statement
prepared by management; (c) PWC has not advised the Company of the need to
expand significantly the scope of its audit, or that information has come to
PWC's attention during such time period that if further investigated may (i)
materially impact the fairness or reliability of either a previously issued
audit report or the underlying financial statements, or the financial statements
issued or to be issued covering the fiscal periods subsequent to the date of the
most recent audited financial statements (including information that may prevent
PWC from rendering an unqualified audit report on those financial statements) or
(ii) cause PWC to be unwilling to rely on management's representations or be
associated with the Company's financial statements and; (d) PWC has not advised
the Company that information has come to PWC's attention that it has concluded
materially impacts the fairness or reliability of either (i) a previously issued
audit report or the underlying financial statements, or (ii) the financial
statements issued or to be issued covering the fiscal periods subsequent to the
date of the most recent financial statements covered by an audit report
(including information that, unless resolved to the accountant's satisfaction,
would prevent it from rendering an unqualified audit report on those financial
statements).
PART III
All information required by Items 10 through 13 with the exception of
information on Executive Officers which appears in the report under the caption
"Executive Officers of the Registrant" is incorporated by reference to the
Company's Proxy Statement for its 1999 Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Consolidated Financial Statements
Reports of Independent Auditors.
The following information is contained in pages 34 through 58 of the
Company's Annual Report, and is incorporated herein by reference:
- Consolidated Balance Sheets as of December 31, 1997 and 1998.
- Consolidated Statements of Income for the years ended December 31, 1996,
1997 and 1998.
- Consolidated Statements of Changes in Shareholders' Equity for the years
ended December 31, 1996, 1997 and 1998.
14
<PAGE> 17
- Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998.
- Notes to Consolidated Financial Statements.
(a)(2) Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts
(a)(3) Exhibits
The following documents are filed as exhibits to this report:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS DESCRIPTION
- ------- --------------------
<S> <C> <C>
2.1 -- Articles of Merger between Sykes Enterprises, Incorporated,
a North Carolina corporation, and Sykes Enterprises,
Incorporated, a Florida Corporation, dated March 1, 1996.(1)
2.2 -- Articles of Merger between Sykes Enterprises, Incorporated
and Sykes Realty, Inc.(1)
2.3 -- Stock Purchase Agreement dated July 1, 1996 among Sykes
Enterprises, Incorporated and Johan Holm, Arne Weinz and
Norhold Invest AB.(2)
2.4 -- Stock Purchase Agreement dated August 30, 1996 among Sykes
Enterprises, Incorporated and Gordon H. Kraft.(3)
2.5 -- Merger Agreement dated as of January 10, 1997 among Sykes
Enterprises, Incorporated, Info Systems of North Carolina,
Inc. and ISNC Acquisition Co.(4)
2.6 -- Stock Purchase Agreement date March 28, 19997 among Sykes
Enterprises, Incorporated, Sykes Holdings of Belgium,
B.V.B.A., Cycle B.V.B.A. and Michael McMahon.(5)
2.7 -- Joint Marketing and Distribution Agreement dated April 30,
1997 by and between Sykes Enterprises, Incorporated and
SystemSoft Corporation.(10)
2.8 -- Common Stock Purchase Agreement dated May 6, 1997 by and
between Sykes Enterprises, Incorporated and SystemSoft
Corporation.(10)
2.9 -- Acquisition Agreement, dated May 30, 1997, by and among the
holders of all of the capital interests of Telcare
Gesellschaft fur Telekommunikations-Mehrwertdienste mbH,
Sykes Enterprises GmbH, and Sykes Enterprises,
Incorporated.(7)
2.10 -- Acquisition Agreement, dated September 19, 1997, by and
among the holders of all of the capital interests of TAS
Telemarketing Gesellschaft fur Kommunikation und Dialog mbH,
Sykes Enterprises, GmbH, and Sykes Enterprises,
Incorporated.(8)
2.11 -- Acquisition Agreement, dated September 25, 1997, by and
among the holders of all of the capital interests of TAS
Hedi Fabinyi GmbH, Sykes Enterprises, GmbH, and Sykes
Enterprises, Incorporated.(8)
2.12 -- Shareholder Agreement dated December 18, 1997, by and among
Sykes Enterprises, Incorporated and HealthPlan Services
Corporation.(14)
2.13 -- Acquisition Agreement, dated December 31, 1997, by and among
the holders of all of the capital interests of McQueen
International Limited and Sykes Enterprises,
Incorporated.(11)
2.14 -- Stock Purchase Agreement, dated September 11, 1998, between
HealthPlan Services Corporation and Sykes Enterprises,
Incorporated.(17)
2.15 -- Acquisition Agreement, dated November 23, 1998, by and among
the holders of all of the capital interests of TAS GmbH Nord
Telemarketing und Vertriebsberatung, Sykes Enterprises,
GmbH, and Sykes Enterprises, Incorporated (filed herewith).
2.16 -- Combination Agreement, dated December 29, 1998, by and among
the holders of all of the capital interests of Oracle
Service Networks Corporation and Sykes Enterprises,
Incorporated.(18)
3.1 -- Articles of Incorporation of Sykes Enterprises,
Incorporated, as amended (filed herewith).
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS DESCRIPTION
- ------- --------------------
<S> <C> <C>
3.2 -- Articles of Amendment to Articles of Incorporation of Sykes
Enterprises, Incorporation (filed herewith).
3.3 -- Bylaws of Sykes Enterprises, Incorporated, as amended.(12)
4.1 -- Specimen certificate for the Common Stock of Sykes
Enterprises, Incorporated.(1)
10.1 -- Loan Agreement between NationsBank, N.A. and Sykes
Enterprises, Incorporated dated as of December 31, 1996.(6)
10.2 -- Employment Agreement dated as of January 1, 1996 between
John H. Sykes and Sykes Enterprises, Incorporated.(1)
10.3 -- Form of Employment Agreement between executive officers and
Sykes Enterprises, Incorporated.(1)
10.4 -- Stock Option Agreement between Sykes Enterprises,
Incorporated and David E. Garner dated as of December 31,
1995.(1)
10.5 -- 1996 Employee Stock Option Plan.(1)
10.6 -- 1996 Non-Employee Director Stock Option Plan.(1)
10.7 -- 1996 Non-Employee Directors' Fee Plan.(1)
10.8 -- Form of Split Dollar Plan Documents.(1)
10.9 -- Form of Split Dollar Agreement.(1)
10.10 -- Form of Indemnity Agreement between directors and executive
officers and Sykes Enterprises, Incorporated.(1)
10.11 -- Aircraft Lease Agreement between JHS Leasing of Tampa, Inc.
as lessor and Sykes Enterprises, Incorporated as lessee,
dated December 1, 1995.(1)
10.12 -- Single Tenant Property Lease Agreement between Sykes
Investments as landlord and Sykes Enterprises, Incorporated
as tenant dated October 31, 1989, for building in Charlotte,
North Carolina.(1)
10.13 -- Tax Indemnification Agreement between Sykes Enterprises,
Incorporated and John H. Sykes.(1)
10.14 -- Consultant Agreement between Sykes Enterprises, Incorporated
and E.J. Milani Consulting Corp. dated April 1, 1996.(1)
10.15 -- Credit Agreement between NationsBank N.A. and Sykes
Enterprises, Incorporated dated as of February 27, 1998.(16)
10.16 -- Amendment No. 1 to Credit Agreement between NationsBank N.A.
and Sykes Enterprises, Incorporated dated as of March 20,
1998.(16)
10.17 -- Guaranty Agreement between Sykes Enterprises, Incorporated
and HealthPlan Services Corp. to NationsBank N.A. dated
March 16, 1998.(16)
10.18 -- 1997 Management Stock Incentive Plan.(15)
10.19 -- 1999 Employee Stock Purchase Plan (filed herewith).
13.1 -- 1998 Sykes Enterprises, Incorporated Annual Report
(incorporates sections only in electronic filing).
21.1 -- List of subsidiaries of Sykes Enterprises, Incorporated
(filed herewith).
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS DESCRIPTION
- ------- --------------------
<C> <C> <S>
23.1 -- Consent of Ernst & Young LLP
24.1 -- Power of Attorney relating to subsequent amendments
(included on the signature page of this report).
27.1 -- Financial Data Schedule (for SEC use only)(filed herewith).
</TABLE>
- ---------------
(1) Filed as the same numbered Exhibit to the Registrant's Registration
Statement on Form S-1 (Registration No. 333-2324) and incorporated herein
by reference.
(2) Filed as an Exhibit to the Registrant's Form 8-K dated July 31, 1996, and
incorporated herein by reference.
(3) Filed as an Exhibit to the Registrant's Form 8-K dated September 16, 1996,
and incorporated herein by reference.
(4) Included as Appendix A to the Proxy Statement/Prospectus contained in the
Registrant's Registration Statement on Form S-4 (Registration No.
333-20465) and incorporated herein by reference.
(5) Filed as an Exhibit to the Registrant's Form 10-K dated March 30, 1997, and
incorporated herein by reference.
(6) Filed as Exhibit 2.5 to the Registrant's Registration Statement on Form S-4
(Registration No. 333-20465) and incorporated herein by reference.
(7) Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
June 16, 1997, and incorporated herein by reference.
(8) Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
September 26, 1997, and incorporated herein by reference.
(9) Filed as the same numbered Exhibit to the Registrant's Registration
Statement on Form S-3 (Registration No. 333-38513) and incorporated herein
by reference.
(10) Filed as an Exhibit to the Registrant's Form 10-Q dated June 29, 1997, and
incorporated herein by reference.
(11) Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
January 15, 1998, and incorporated herein by reference.
(12) Filed as an Exhibit to the Registrant's Registration Statement on Form S-3
(Registration No. 333-38513) and incorporated herein by reference.
(13) Filed as an Exhibit to the Registrant's Registration Statement on Form S-3
(Registration No. 333-46569) and incorporated herein by reference.
(14) Filed as an Exhibit to the Registrant's Form 10-K dated December 31, 1997,
and incorporated herein by reference.
(15) Filed as an Exhibit to the Registrant's Proxy Statement on Form 14A, dated
April 1, 1998, and incorporated herein by reference.
(16) Filed as an Exhibit to the Registrant's Form 10-Q dated March 31, 1998, and
incorporated herein by reference.
(17) Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
September 11, 1998, and incorporated herein by reference.
(18) Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
December 29, 1998, and incorporated herein by reference.
(b) Reports on Form 8-K
Item 2 -- Acquisition or Disposition of Assets
Acquisition of SHPS, Incorporated (formerly known as Sykes
HealthPlan Services, Inc.)
17
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Tampa,
and State of Florida, on this 24th day of March, 1999.
SYKES ENTERPRISES, INCORPORATED
(Registrant)
By:
------------------------------------
Scott J. Bendert
Senior Vice President -- Finance,
Treasurer
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated. Each person whose signature appears below constitutes and
appoints Scott Bendert and John Crites and each of them individually, his true
and lawful attorney-in-fact and agent, with full power of substitution and
revocation, for him and in his name, place and stead, in any and all capacities,
to sign any and all amendments to this report and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or either
of them, may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JOHN H. SYKES Chairman of the Board, Chief March 24, 1999
- ----------------------------------------------------- Executive Officer and
John H. Sykes Director (Principal Executive
Officer)
/s/ DAVID L. GRIMES President and Chief Operating March 24, 1999
- ----------------------------------------------------- Officer
David L. Grimes
/s/ SCOTT J. BENDERT Senior Vice March 24, 1999
- ----------------------------------------------------- President -- Finance, Chief
Scott J. Bendert Financial Officer and
Treasurer (Principal
Financial and Accounting
Officer)
/s/ GORDON H. LOETZ Vice Chairman of the Board and March 24, 1999
- ----------------------------------------------------- Director
Gordon H. Loetz
/s/ FURMAN P. BODENHEIMER, JR. Director March 24, 1999
- -----------------------------------------------------
Furman P. Bodenheimer, Jr.
/s/ H. PARKS HELMS Director March 24, 1999
- -----------------------------------------------------
H. Parks Helms
/s/ ERNEST J. MILANI Director March 24, 1999
- -----------------------------------------------------
Ernest J. Milani
/s/ ADELAIDE A. SINK Director March 24, 1999
- -----------------------------------------------------
Adelaide A. Sink
/s/ R. JAMES STROKER Director March 24, 1999
- -----------------------------------------------------
R. James Stroker
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ IAIN A. MACDONALD Director March 24, 1999
- -----------------------------------------------------
Iain A. Macdonald
/s/ LINDA MCCLINTOCK-GRECO Director March 24, 1999
- -----------------------------------------------------
Linda McClintock-Greco
</TABLE>
19
<PAGE> 22
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Sykes Enterprises, Incorporated
We consent to the incorporation by reference in this Form 10-K of Sykes
Enterprises, Incorporated of our report dated March 5, 1999, included in the
1998 Annual Report to Shareholders of Sykes Enterprises, Incorporated.
Our audit also included the financial statement schedule of Sykes
Enterprises, Incorporated listed in Item 14(a). This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audit. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, present fairly in all material respects the information set
forth therein.
We also consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 333-23681) pertaining to the Sykes Enterprises,
Incorporated, 1996 Employee Stock Option Plan of our report dated March 5, 1999,
with respect to the consolidated financial statements incorporated herein by
reference, and our report included in the preceding paragraph with respect to
the financial statement schedule included in this Form 10-K of Sykes
Enterprises, Incorporated.
Ernst & Young LLP
Tampa, Florida
March 25, 1999
20
<PAGE> 23
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Sykes Enterprises, Incorporated
We have audited the consolidated balance sheets 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 years ended December 31, 1996 and 1997, which financial statements
are included on pages 34 through 58 of the Sykes Enterprises, Incorporated and
subsidiaries Annual Report and incorporated by reference herein. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinions.
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, 1996 and 1997, in conformity with generally accepted
accounting principles.
PricewaterhouseCoopers LLP
Tampa, Florida
March 6, 1998
21
<PAGE> 24
SYKES ENTERPRISES, INCORPORATED
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
ADDITIONAL
CHARGE TO
BEGINNING COST AND ENDING
BALANCE EXPENSES DEDUCTIONS(1) BALANCE
--------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996.................. $310,739 $ 317,811 $130,421 $ 498,129
Year ended December 31, 1997.................. 498,129 167,396 128,130 537,395
Year ended December 31, 1998.................. 537,395 261,599 2,823 796,171
Foreign current deferred tax valuation
allowance:
Year ended December 31, 1996.................. $ -- $ 571,000 $ -- $ 571,000
Year ended December 31, 1997.................. 571,000 -- 436,000 135,000
Year ended December 31, 1998.................. 135,000 -- 135,000 --
Domestic non-current deferred tax valuation
allowance:
Year ended December 31, 1996.................. $ -- $ -- $ -- $ --
Year ended December 31, 1997.................. -- -- -- --
Year ended December 31, 1998.................. -- 3,000,000 -- 3,000,000
Foreign non-current deferred tax valuation
allowance:
Year ended December 31, 1996.................. $ -- $ -- $ -- $ --
Year ended December 31, 1997.................. -- -- -- --
Year ended December 31, 1998.................. -- 704,000 -- 704,000
</TABLE>
- ---------------
(1) Write-offs and recoveries
22
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
- ------- -------------------
<S> <C>
2.1 Articles of Merger between Sykes Enterprises, Incorporated, a North
Carolina corporation, and Sykes Enterprises, Incorporated, a Florida
Corporation, dated March 1, 1996. (1)
2.2 Articles of Merger between Sykes Enterprises, Incorporated and Sykes
Realty, Inc. (1)
2.3 Stock Purchase Agreement dated July 1, 1996 among Sykes Enterprises,
Incorporated and Johan Holm, Arne Weinz and Norhold Invest AB. (2)
2.4 Stock Purchase Agreement dated August 30, 1996 among Sykes
Enterprises, Incorporated and Gordon H. Kraft. (3)
2.5 Merger Agreement dated as of January 10, 1997 among Sykes Enterprises,
Incorporated, Info Systems of North Carolina, Inc. and ISNC
Acquisition Co. (4)
2.6 Stock Purchase Agreement date March 28, 19997 among Sykes Enterprises,
Incorporated, Sykes Holdings of Belgium, B.V.B.A., Cycle B.V.B.A. and
Michael McMahon. (5)
2.7 Joint Marketing and Distribution Agreement dated April 30, 1997 by and
between Sykes Enterprises, Incorporated and SystemSoft Corporation.
(10)
2.8 Common Stock Purchase Agreement dated May 6, 1997 by and between Sykes
Enterprises, Incorporated and SystemSoft Corporation. (10)
2.9 Acquisition Agreement, dated May 30, 1997, by and among the holders of
all of the capital interests of Telcare Gesellschaft fur
Telekommunikations-Mehrwertdienste mbH, Sykes Enterprises GmbH, and
Sykes Enterprises, Incorporated. (7)
2.10 Acquisition Agreement, dated September 19, 1997, by and among the
holders of all of the capital interests of TAS Telemarketing
Gesellschaft fur Kommunikation und Dialog mbH, Sykes Enterprises,
GmbH, and Sykes Enterprises, Incorporated. (8)
2.11 Acquisition Agreement, dated September 25, 1997, by and among the
holders of all of the capital interests of TAS Hedi Fabinyi GmbH,
Sykes Enterprises, GmbH, and Sykes Enterprises, Incorporated. (8)
2.12 Shareholder Agreement dated December 18, 1997, by and among Sykes
Enterprises, Incorporated and HealthPlan Services Corporation. (14)
2.13 Acquisition Agreement, dated December 31, 1997, by and among the
holders of all of the capital interests of McQueen International
Limited and Sykes Enterprises, Incorporated. (11)
</TABLE>
23
<PAGE> 26
<TABLE>
<S> <C>
2.14 Stock Purchase Agreement, dated September 11, 1998, between HealthPlan
Services Corporation and Sykes Enterprises, Incorporated. (17)
2.15 Acquisition Agreement, dated November 23, 1998, by and among the
holders of all of the capital interests of TAS GmbH Nord Telemarketing
und Vertriebsberatung, Sykes Enterprises, GmbH, and Sykes Enterprises,
Incorporated, (filed herewith).
2.16 Combination Agreement, dated December 29, 1998, by and among the
holders of all of the capital interests of Oracle Service Networks
Corporation and Sykes Enterprises, Incorporated. (18)
3.1 Articles of Incorporation of Sykes Enterprises, Incorporated, as
amended. (12)
3.2 Articles to Amendment to Articles of Incorporation of Sykes
Enterprises, Incorporated (filed herewith).
3.3 Bylaws of Sykes Enterprises, Incorporated, as amended. (12)
4.1 Specimen certificate for the Common Stock of Sykes Enterprises,
Incorporated. (1)
10.1 Loan Agreement between NationsBank, N.A. and Sykes Enterprises,
Incorporated dated as of December 31, 1996. (6)
10.2 Employment Agreement dated as of January 1, 1996 between John H. Sykes
and Sykes Enterprises, Incorporated. (1)
10.3 Form of Employment Agreement between executive officers and Sykes
Enterprises, Incorporated. (1)
10.4 Stock Option Agreement between Sykes Enterprises, Incorporated and
David E. Garner dated as of December 31, 1995. (1)
10.5 1996 Employees' Stock Option Plan. (1)
10.6 1996 Non-Employee Director Stock Option Plan. (1)
10.7 1996 Non-Employee Directors' Fee Plan. (1)
10.8 Form of Split Dollar Plan Documents. (1)
10.9 Form of Split Dollar Agreement. (1)
10.10 Form of Indemnity Agreement between directors and executive officers
and Sykes Enterprises, Incorporated. (1)
10.11 Aircraft Lease Agreement between JHS Leasing of Tampa, Inc. as lessor
and Sykes Enterprises, Incorporated as lessee, dated December 1, 1995.
(1)
10.12 Single Tenant Property Lease Agreement between Sykes Investments as
landlord and Sykes Enterprises, Incorporated as tenant dated October
31, 1989, for building in Charlotte, North Carolina. (1)
</TABLE>
24
<PAGE> 27
<TABLE>
<S> <C>
10.13 Tax Indemnification Agreement between Sykes Enterprises, Incorporated
and John H. Sykes. (1)
10.14 Consultant Agreement between Sykes Enterprises, Incorporated and E.J.
Milani Consulting Corp. dated April 1, 1996. (1)
10.15 Credit Agreement between NationsBank N.A. and Sykes Enterprises,
Incorporated dated as of February 27, 1998. (16)
10.16 Amendment No. 1 to Credit Agreement between NationsBank N.A. and Sykes
Enterprises, Incorporated dated as of March 20, 1998. (16)
10.17 Guaranty Agreement between Sykes Enterprises, Incorporated and
HealthPlan Services Corp. to NationsBank N.A. dated March 16, 1998.
(16)
10.18 1997 Management Stock Incentive Plan. (15)
10.19 1999 Employees' Stock Purchase Plan (filed herewith).
13.1 1998 Sykes Enterprises, Incorporated Annual Report (incorporates
sections only in electronic filing).
21.1 List of subsidiaries of Sykes Enterprises, Incorporated (filed
herewith).
23.1 Consent of Ernst & Young LLP
24.1 Power of Attorney relating to subsequent amendments (included on the
signature page of this report).
27.1 Financial Data Schedule (for SEC use only)(filed herewith).
- ---------------
(1) Filed as the same numbered Exhibit to the Registrant's Registration
Statement on Form S-1 (Registration No. 333-2324) and incorporated
herein by reference.
(2) Filed as an Exhibit to the Registrant's Form 8-K dated July 31, 1996,
and incorporated herein by reference.
(3) Filed as an Exhibit to the Registrant's Form 8-K dated September 16,
1996, and incorporated herein by reference.
(4) Included as Appendix A to the Proxy Statement/Prospectus contained in
the Registrant's Registration Statement on Form S-4 (Registration No.
333-20465) and incorporated herein by reference.
(5) Filed as an Exhibit to the Registrant's Form 10-K dated March 30,
1997, and incorporated herein by reference.
(6) Filed as Exhibit 2.5 to the Registrant's Registration Statement on
Form S-4 (Registration No. 333-20465) and incorporated herein by
reference.
(7) Filed as an Exhibit to the Registrant's Current Report on Form 8-K
dated June 16, 1997, and incorporated herein by reference.
</TABLE>
25
<PAGE> 28
<TABLE>
<S> <C>
(8) Filed as an Exhibit to the Registrant's Current Report on Form 8-K
dated September 26, 1997, and incorporated herein by reference.
(9) Filed as the same numbered Exhibit to the Registrant's Registration
Statement on Form S-3 (Registration No. 333-38513) and incorporated
herein by reference.
(10) Filed as an Exhibit to the Registrant's Form 10-Q dated June 29, 1997,
and incorporated herein by reference.
(11) Filed as an Exhibit to the Registrant's Current Report on Form 8-K
dated January 15, 1998, and incorporated herein by reference.
(12) Filed as an Exhibit to the Registrant's Registration Statement on Form
S-3 (Registration No. 333-38513) and incorporated herein by reference.
(13) Filed as an Exhibit to the Registrant's Registration Statement on Form
S-3 (Registration No. 333-46569) and incorporated herein by reference.
(14) Filed as an Exhibit to the Registrant's Form 10-K dated December 31,
1997, and incorporated herein by reference.
(15) Filed as an Exhibit to the Registrant's Proxy Statement on Form 14A
dated April 1, 1998, and incorporated herein by reference.
(16) Filed as an Exhibit to the Registrant's Form 10-Q dated March 31,
1998, and incorporated herein by reference.
(17) Filed as an Exhibit to Registrant's Current Report on Form 8-K dated
September 11, 1998, and incorporated herein by reference.
(18) Filed as an Exhibit to the Registrant's Current Report on Form 8-K
dated December 29, 1998, and incorporated herein by reference.
</TABLE>
26
<PAGE> 1
EXHIBIT 2.15
ACQUISITION AGREEMENT
BY AND AMONG
THE
SHAREHOLDERS
OF
TAS GMBH NORD TELEMARKETING UND VERTRIEBSBERATUNG,
SYKES ENTERPRISES, INCORPORATED,
AND
SYKES ENTERPRISES GMBH
DATED NOVEMBER 23, 1998
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
RECITALS.........................................................................1
ARTICLE I
DEFINITIONS......................................................................1
Section 1.1. Definitions...........................................1
ARTICLE II
PURCHASE, SALE AND ASSIGNMENT OF SHARES..........................................6
Section 2.1. Purchase and Sale of Shares...............................6
Section 2.2. Assignment of Shares......................................6
ARTICLE III
DELIVERY OF PURCHASE PRICE SHARES................................................6
Section 3.1. Delivery of Purchase Price Shares.....................7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLERS (GARANTIEN)........................8
Section 4.1. Corporate Organization................................8
Section 4.2. Capitalization........................................8
Section 4.3. Authority; Binding Effect.............................8
Section 4.4. Ownership of Share Capital; Title.....................9
Section 4.5. The Sellers' Consents and Approvals; No Violations....9
Section 4.6. Consents and Approvals; No Violations................10
Section 4.7. Financial Statements.................................10
Section 4.8. Undisclosed Liabilities..............................10
Section 4.9. Taxes................................................11
Section 4.10. Title to Properties..................................11
Section 4.11. Absence of Changes...................................12
Section 4.12. Intellectual Property................................14
Section 4.13. Leases...............................................15
Section 4.14. Bank Accounts; Investments; Powers of Attorney.......15
Section 4.15. Material Contracts and Customers.....................16
Section 4.16. Related Transactions.................................18
Section 4.17. Insurance............................................19
Section 4.18. Labor Matters........................................19
Section 4.19. Employee Benefit Plans...............................20
Section 4.20. Litigation...........................................20
Section 4.21. Compliance with Laws.................................20
Section 4.22. Books and Records....................................21
Section 4.23. Copies of Documents..................................21
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Section 4.24. Adequacy of Assets...................................21
Section 4.25. Grants...............................................21
Section 4.26. Accounts Receivable..................................21
Section 4.27. Brokers and Finders..................................22
Section 4.28. Investment Intent; Information Disclosures...........22
Section 4.29 Pooling of Interests.................................24
Section 4.30 Restrictive Covenants................................24
Section 4.31 Product Liabilities and Warranties...................24
Section 4.32 Real Estate..........................................25
Section 4.33 Environmental Matters................................25
Section 4.34 Disclosure...........................................25
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SYKES AND BUYER (GARANTIEN)...................26
Section 5.1. Corporate Organization...............................26
Section 5.2. Capitalization of Sykes..............................26
Section 5.3. Authority............................................26
Section 5.4. Sykes' Consents and Approvals; No Violations.........26
Section 5.5. Litigation...........................................27
Section 5.6. Brokers and Finders..................................27
Section 5.7. Sykes Information....................................27
Section 5.8 No Material Adverse Change...........................27
Section 5.9. Undisclosed Liabilities..............................27
Section 5.10. Compliance with Laws.................................27
ARTICLE VI
FURTHER COVENANTS AND AGREEMENTS................................................28
Section 6.1. Covenants of the Sellers Pending the Closing.........28
Section 6.2. Covenants of Buyer and Sykes Pending the Closing.....29
Section 6.3. Filings..............................................30
Section 6.4. Effective Time of Closing and Transfer...............30
Section 6.5. Announcements........................................30
Section 6.6. Costs and Expenses...................................30
Section 6.7. Further Assurances...................................31
Section 6.8. Certain Agreements...................................31
Section 6.9. Non-Disclosure; Covenant Not to Compete..............31
Section 6.10. Pooling of Interests.................................33
Section 6.11. Exclusive Dealing....................................33
Section 6.12 Repayment of Shareholder Loan, etc...................33
Section 6.13 Payment of Dividends.................................33
ARTICLE VII
TERMINATION.....................................................................33
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
Section 7.1. Termination..........................................33
Section 7.2. Procedure and Effect of Termination..................34
ARTICLE VIII
CONDITIONS TO BUYER'S AND SYKES' OBLIGATIONS....................................35
Section 8.1 The Sellers' Closing Deliveries......................35
Section 8.2. Representations and Warranties True..................36
Section 8.3. Performance..........................................36
Section 8.4. Governmental Consents and Approvals..................36
Section 8.5. No Injunction or Proceeding..........................36
ARTICLE IX
CONDITIONS TO THE SELLERS' OBLIGATIONS..........................................36
Section 9.1. Delivery of Purchase Price Shares....................36
Section 9.2. Buyer's and Sykes' Closing Deliveries................36
Section 9.3. Representations and Warranties True..................37
Section 9.4. Performance..........................................37
Section 9.6. Governmental Consents and Approvals..................37
Section 9.7. No Injunction or Proceeding..........................37
ARTICLE X
INDEMNIFICATION.................................................................38
Section 10.1. Indemnification by the Sellers.......................38
Section 10.2. Indemnification by Buyer and Sykes...................38
Section 10.3. Survival of Representations..........................39
Section 10.4. Indemnification Claims Procedures....................39
Section 10.5. Right of Set-Off.....................................40
Section 10.6. Limitation of Liability..............................40
ARTICLE XI
MISCELLANEOUS...................................................................41
Section 11.1. Governing Law........................................41
Section 11.2. Entire Understanding, Waiver, Etc....................41
Section 11.3. Severability; Gaps...................................42
Section 11.4. Captions.............................................42
Section 11.5. Notices..............................................42
Section 11.6. Successors and Assigns...............................43
Section 11.7. Parties in Interest..................................43
Section 11.8. Counterparts.........................................44
Section 11.9. Construction of Terms................................44
Section 11.10. Sykes Guarantee......................................44
</TABLE>
<PAGE> 5
EXHIBITS
Exhibit A Form of Pledge and Escrow Agreement
Exhibit B Form of Registration Rights Agreement
Exhibit C1 Form of Employment Agreement for Mr. Stockmann
Exhibit C2 Form of Employment Agreement for Mr. Emmert
Exhibit D TAS Real Property Transfer and Lease Terms
<PAGE> 6
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT is made and entered into as of November 23,
1998, by and among the undersigned persons (collectively, the "Sellers"), being
the holders of all the outstanding capital interests of TAS GMBH NORD
TELEMARKETING UND VERTRIEBSBERATUNG , a limited liability company organized
under the laws of the Federal Republic of Germany with offices in Hannover and
Hamburg (the "Company"), each such Seller being an individual residing in, and
a citizen of, the Federal Republic of Germany, SYKES ENTERPRISES GMBH , a
limited liability company organized and existing under the laws of the Federal
Republic of Germany ("Buyer"), and SYKES ENTERPRISES, INCORPORATED, a
corporation organized and existing under the laws of Florida ("Sykes").
RECITALS
WHEREAS, the Sellers own all of the issued capital interests of the
Company (the "Quotas");
WHEREAS, Sykes owns all of the issued capital interests of Buyer;
WHEREAS, the Sellers desire to sell the Quotas in exchange for shares
of Sykes' common stock, and Sykes is willing to cause the Buyer to purchase the
Quotas from the Sellers in exchange for shares of Sykes' common stock, on the
terms and subject to the conditions hereinafter set forth; and
WHEREAS, Sykes intends to treat the acquisition by the Buyer of the
Quotas as a "pooling of interests" for financial accounting purposes.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements hereinafter set forth and
for other good and valuable considerations, the receipt and sufficiency of
which are hereby expressly acknowledged by the Sellers, the Buyer and Sykes,
and intending to be legally bound, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. The terms defined in this Article shall have
the following respective meanings for all purposes of this Agreement:
<PAGE> 7
"Affiliate" means, with respect to any Person, an officer,
director or beneficial owner of five percent (5%) or more of the issued and
outstanding shares of any class of capital stock or other equity of such
Person, a family member of such Person, if an individual, and any other Person
controlling, controlled by or under common control with such Person.
"Alternative Transaction" means any merger, consolidation,
sale of substantial assets, sale of capital interests or securities or similar
transaction involving the Company, other than the transactions contemplated by
this Agreement.
"Business" means the business conducted as of the date of
this Agreement or as of the Closing Date, as the context permits or implies, by
the Company, which consists of providing the following services on a "for
hire" basis:
(i) call center services;
(ii) telemarketing and teleselling services;
(iii) fulfillment services for telemarketing and call center
customers;
(iv) database development services for telemarketing and call
center customers; and
(v) consulting and training services related to the above
service categories.
"Business Day" means any day on which banks are open for
business in New York, New York.
"Closing" means the consummation and effectuation of the
transactions contemplated herein pursuant to the terms and conditions of this
Agreement, which shall be held on the 27th day of November, 1998, at 10:00 AM
in the offices of Schon Nolte Finkelnburg & Clemm in Hamburg, Federal Republic
of Germany, or on such other date or at such other time or place as is mutually
agreed by the parties hereto.
"Closing Date" means the date on which the Closing actually
occurs.
"Code" means the Internal Revenue Code of 1986, as amended.
"Customers" shall have the meaning set forth in Section 4.15.
"Disclosure Schedule" means the disclosure schedule document
executed by Sellers as of the date hereof and previously delivered to the Buyer
and Sykes, without any amendment thereto subsequent to the date hereof.
<PAGE> 8
"Employee Benefit Plan" means any pension, retirement, profit
sharing, savings, thrift, stock bonus, stock option, stock purchase, restricted
stock purchase, stock ownership, stock appreciation right, phantom stock,
deferred compensation, supplemental retirement, deferred bonus, severance,
change of control, parachute, health, medical, dental, vision, prescription
drugs, fitness, dependent care, educational assistance, group legal services,
life insurance, accidental death, accidental dismemberment, sick pay,
short-term or long-term disability, supplemental unemployment income, training,
apprenticeship, scholarship, tuition reimbursement, employee assistance,
employee discount, subsidized cafeteria, fringe benefit, vacation, holiday,
employer-sponsored recreational facility, or other employee pension benefit or
welfare benefit plan, policy, contract, or arrangement, or other similar fringe
or employee benefit plan, program, policy, contract, or arrangement, written or
oral, qualified or nonqualified, funded or unfunded, foreign or domestic.
"Escrow Agent" means Firstar Trust Company of Milwaukee,
Wisconsin, or such other person as Sykes and the Sellers shall mutually agree
upon, in its capacity as escrow agent.
"Financial Statements" has the meaning set forth in Section
4.7.
"Form 10-Q Balance Sheet" means the unaudited balance sheet
dated September 30, 1998 (and any related notes thereto), found in the
quarterly report filed on Form 10-Q filed with the Securities and Exchange
Commission for the quarterly period ended September 30, 1998, a copy of which
is included as part of the Sykes Filings.
"GGAAP" means generally accepted accounting principles as in
effect in the Federal Republic of Germany on December 31, 1997.
"Grants" means governmental grants, subsidies, guarantees
and/or loans provided to or for the benefit of a Person.
"Intellectual Property" means all intellectual property and
intellectual property rights, whether arising under the laws of the Federal
Republic of Germany or any other jurisdiction including, without limitation,
(i) all patents, patent applications, continuations in part, divisions,
reissues and patent disclosures, (ii) all copyrights, whether registered or
unregistered, and pending applications to register the same, (iii) anything
recognizable as a trademark, service mark or trade dress at common law or under
the laws of any country, whether registered or not, which is used to identify
the source and quality of goods or services or to distinguish them from those
of others, and all registrations and applications for registration, including
intent-to-use registrations and applications for registration, (iv) all
licenses, sublicenses and rights to use any Intellectual Property of any other
Person, (v) all names used to identify a particular company, business,
subsidiary or division thereof, (vi) all confidential and proprietary ideas,
trade secrets, know how, concepts, methods, processes, formulae, reports, data,
customer lists, mailing lists, business plans or other proprietary information,
including, without limitation, with respect to any Person, any formulae,
pattern, device or compilation of information which is used in such
<PAGE> 9
Person's business and which derives independent commercial value from not being
generally known or readily ascertainable through independent development or
reverse engineering by other Persons who can obtain economic value from its
disclosure or use, and (vii) all other forms of proprietary information.
"Interim Balance Sheets" means the unaudited balance sheet of
the Company dated as of the Interim Balance Sheet Date (and any related notes
thereto), a copy of which is included as part of the Financial Statements.
"Interim Balance Sheet Date" means September 30,1998.
"Leased Real Property" means all real property and premises
currently leased to the Company.
"Material Adverse Effect" means, with respect to any Person,
a material adverse effect on the financial condition, results of operations or
business prospects of such Person.
"NASDAQ" means The Nasdaq National Stock Market, Inc.'s
National Market.
"Person" means an individual, partnership, limited liability
company, corporation, trust, unincorporated organization, association or joint
venture or a government, agency, political subdivision or instrumentality
thereof.
"Prepayment Amount" means all amounts payable by the Company
in respect of the termination of the Silent Partnership, other than amounts in
respect of principal and accrued interest thereon until the earlier of
termination or November 30, 1998 at the rate of nine percent per annum.
"Purchase Price Shares" means the shares of Sykes Stock to be
issued to the Seller in consideration of the transfer and assignment of the
Quotas pursuant to this Agreement, the number of which will equal 590,000 less
the Share Adjustment.
"Related Agreements" means the agreements described in
Section 6.8.
"SEC" means the United States Securities and Exchange
Commission.
"Share Adjustment" means a number of shares of Sykes Stock
equal to the result of the following formula:
P x.60 , where P equals the Prepayment Amount (in DM).
------
20
<PAGE> 10
"Silent Partnership"means the silent partnership between the
Company and Hannover Fonds Innovationsfinanzierungs-Gesellschaft mbH & Co
Beteiligungs KG.
"Sykes Filings" means the following filings made by Sykes
with the SEC: the annual report on Form 10-K for the annual period ending
December 31, 1997, the quarterly reports on Form 10-Q for the quarterly periods
ending March 31, 1998, June 30, 1998, and September 30, 1998, and the Annual
Report to Stockholders and related proxy statement filed on Schedule 14A with
respect to an annual meeting of Sykes' shareholders held on [date of 1998
meeting].
"Sykes Stock" means Sykes' common stock, $.01 par value per
share.
"Sykes Stock Closing Price" means the average of the closing
prices for Sykes Stock as reported on NASDAQ (as published in the Wall Street
Journal or, if not reported therein, in another mutually agreed upon
authoritative source) for the five (5) consecutive full trading days in which
such shares are traded on NASDAQ, ending on the last such trading day prior to
the date of determination.
"Seller's Shares" means, with respect to any Seller, a number
of shares of Sykes Stock equal to the Purchase Price Shares multiplied by such
Seller's percentage ownership (expressed as a decimal) in the Company as shown
in Section 2.1.
"Taxes" means all taxes, assessments, and charges imposed by
any national, federal, state, provincial, local, or foreign taxing authority,
including social security, insurance and other state-sponsored pension funds
and all interest, penalties and additions thereto.
"Transfer Agent" means Firstar Trust Company of Milwaukee,
Wisconsin, in its capacity as transfer agent for Sykes Stock.
"USGAAP" means generally accepted accounting principles as in
effect in the United States on December 31, 1997.
ARTICLE II
PURCHASE, SALE AND ASSIGNMENT OF SHARES ARTICLE
SECTION 2.1. PURCHASE AND SALE OF SHARES Upon the terms and subject to
the conditions hereof, each of the Sellers hereby sells to Buyer and Buyer
hereby buys from each of the Sellers, all of such Seller's right, title and
interest in and to the Quotas set forth below opposite the name of such Seller,
in each case together with the right to receive dividends with respect to such
Quotas as of October 1, 1997, and the applicable capital reserve, in each case
in consideration for the delivery of the Purchase Price Shares as provided in
Article III below.
<PAGE> 11
<TABLE>
<CAPTION>
Name Share Capital Percentage Interest
---- ------------- -------------------
<S> <C> <C>
Georg J. Stockmann DM37,500
DM7,500 90%
Annette Stockmann DM5,000 10%
Total DM50,000 100%
======== ====
</TABLE>
SECTION 2.2. ASSIGNMENT OF SHARES Each of the Sellers hereby assigns
and transfers such Seller's Quotas as specified in Section 2.1, together with
the right to receive dividends on the such Quotas as of October 1, 1997, to
Buyer at the Closing and Buyer hereby accepts such assignments. All such
assignments are subject to:
(a) the delivery of the Purchase Price Shares in accordance
with Article III hereof;
(b) the non-occurrence of a termination of this Agreement in
accordance with Section 7.1 prior to the Closing; and
(c) the fulfillment or waiver of all of the conditions
precedent specified in Article VIII and Article IX.
Each of the Sellers hereby consents to the sales and transfers
effected herein and waives any preemptive rights or rights of first refusal he
may have under the Articles of Association of the Company.
ARTICLE III
DELIVERY OF PURCHASE PRICE SHARES
SECTION 3.1. DELIVERY OF PURCHASE PRICE SHARES Upon the terms
and subject to the conditions hereof, Sykes shall issue, and Buyer shall
deliver, the Purchase Price Shares as follows:
(a) to the Escrow Agent promptly following the
Closing, a certificate or certificates issued in the name of each Seller, each
such certificate bearing the legend provided for in Section 4.28(g) and
evidencing a number of shares equal to ten percent (10%) of the applicable
Seller's Shares, rounded down to the nearest whole share, to be held in
accordance with a Pledge and Escrow Agreement dated as of the Closing Date by
and among Sykes, Buyer, the Sellers and the Escrow Agent substantially in the
form of EXHIBIT A (the "Pledge and Escrow Agreement"); and
<PAGE> 12
(b) to each of the Sellers at the Closing, a
certificate or certificates or, at Sykes' option, an original or a facsimile
copy of an irrevocable letter of instructions (accompanied by an original or a
facsimile of a letter from the Transfer Agent acknowledging receipt of such
letter of instructions) to the Transfer Agent for the issue and delivery of a
certificate or certificates, issued in such Seller's name, each such
certificate bearing or to bear the legend provided for in Section 4.28(g) and
evidencing or to evidence a number of shares equal to the applicable Seller's
Shares remaining after delivery of Seller's Shares for the account of such
Seller in accordance with Section 3.1(a) above.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLERS (GARANTIEN)
The Sellers hereby represent and warrant to Sykes and Buyer as
follows, the representations and warranties in Sections 4.2 through 4.5
relating to individual Sellers and their respective Quotas being made severally
by each such Seller, and all other representations and warranties in this
Article IV being made by Georg J. Stockmann only:
SECTION 4.1. CORPORATE ORGANIZATION. The Company is a
limited liability company duly organized and validly existing under the laws of
the Federal Republic of Germany and has the full right, power and authority to
own, lease and operate all of its properties and assets and to carry out the
Business as it is presently conducted by the Company. The Company is duly
licensed or qualified to do business and is in good standing in each
jurisdiction in which the ownership of property or the conduct of its Business
requires such qualification or license. Except as set forth in Section 4.1 of
the Disclosure Schedule, there are no corporations, joint ventures,
partnerships or other entities or arrangements in which the Company, directly
or indirectly, owns any capital stock or any equity interest. All such
interests set forth in Section 4.1 of the Disclosure Schedule have been duly
authorized and validly issued, are fully paid and non-assessable and were
issued without violation of any preemptive rights. The Company is the record
and beneficial owner of such interests, and holds such interests free and clear
of all liens, pledges or encumbrances of any kind.
SECTION 4.2. CAPITALIZATION. The aggregate stated share
capital of the Company consists of DM50,000. The Quotas, which represent all
issued share capital of the Company, have been duly authorized and validly
issued, are fully paid and nonassessable, were issued without violation of any
preemptive rights, and can be transferred to Buyer as provided herein free of
any preemptive rights. The Company has not repaid any stated share capital to
any of the Sellers, or to any prior holder of the Company's share capital, or
paid out any other equity capital in a manner which would adversely affect the
Company's ability to pay dividends in a situation in which the Company would
otherwise be permitted to pay dividends according to German law. Except for
this Agreement and as set forth in Section 4.2 of the Disclosure Schedule,
there are
<PAGE> 13
no options, warrants or other rights, nor any agreements, commitments or
arrangements of any kind, relating to the subscription for or the issuance,
voting, acquisition, sale, repurchase, transfer or disposition of (i) any share
capital of the Company or securities convertible into or exchangeable for share
capital of the Company, or (ii) any options, warrants or subscription rights
relating to any such share capital or other securities of the Company.
SECTION 4.3. AUTHORITY; BINDING EFFECT. Each of the Sellers
has all requisite right, power and authority to execute, deliver and perform
this Agreement and the Related Agreements to which such Seller is a party. This
Agreement and the Related Agreements to which the Sellers are parties have been
duly and validly executed and delivered by the Sellers and constitute the
legal, valid and binding obligations of each of the Sellers, enforceable
against each of the Sellers in accordance with their respective terms.
SECTION 4.4. OWNERSHIP OF SHARE CAPITAL; TITLE. Except as
disclosed in Section 4.4 of the Disclosure Schedule, each of the Sellers owns
of record and beneficially the Quotas set forth beside such Seller's name in
Section 2.1. All issued share capital of the Company has been owned of record
and beneficially at all times exclusively by individual citizens of, or other
Persons organized and existing under the laws of, the Federal Republic of
Germany. Each of the Sellers has and will have, on the Closing Date, good,
marketable and valid title to the Quotas to be sold by such Seller hereunder,
free and clear of all liens, pledges, encumbrances, claims, security interests,
charges, voting trusts, voting agreements, other agreements, rights, options,
warrants or other restrictions of any kind, nature or description, other than
those referenced in Section 4.4 of the Disclosure Schedule. The execution,
delivery, notarization and performance of this Agreement will convey to Buyer
at the Closing good title to the Quotas free and clear of all claims, liens,
encumbrances, security interests, charges or restrictions on transfer of any
nature whatsoever, other than those contained in the Company's Articles of
Association. No Seller is involved in any proceedings by or against such Seller
under any bankruptcy laws or under any other insolvency or debtor's relief act.
SECTION 4.5. THE SELLERS' CONSENTS AND APPROVALS; NO
VIOLATION. Except as set forth in Section 4.5 of the Disclosure Schedule, the
execution, delivery and performance by each of the Sellers of this Agreement
and the Related Agreements to which he is a party will not (with or without the
giving of notice or the passage of time, or both) (a) violate any applicable
provision of law or any rule or regulation of any national, federal, state,
provincial or local administrative agency or governmental authority applicable
to the Sellers, or any order, writ, injunction, judgment or decree of any
court, administrative agency or governmental authority applicable to the
Sellers, (b) violate or require any consent, waiver or approval under (except
for the matters referenced in Section 4.5 of the Disclosure Schedule), result
in a breach, modification or termination of any provisions of, constitute a
default under, affect the rights under or enforceability of, or result in the
imposition of any pledge, security interest or other encumbrance upon any of
the Quotas pursuant to, any agreement, indenture, mortgage, deed of trust,
lease, license, or other instrument to which any Seller is a party or by which
any of them is bound, or any license, permit or certificate held by any of them
including, without limitation, those listed
<PAGE> 14
on the Disclosure Schedule, or (c) based upon the information provided to the
Sellers with respect to Buyer, require any consent or approval by, notice to or
registration with any governmental authority or other Person which is
applicable to any Seller.
SECTION 4.6. CONSENTS AND APPROVALS; NO VIOLATIONS. Except as
set forth in Section 4.6 of the Disclosure Schedule, the execution, delivery
and performance by each of the Sellers of this Agreement and the Related
Agreements to which he is a party will not (with or without the giving of
notice or the passage of time, or both) (a) violate any provision of law or any
rule or regulation of any national, federal, state, provincial or local
administrative agency or governmental authority applicable to the Company or
any order, writ, injunction, judgment or decree of any court, administrative
agency or governmental authority applicable to the Company, (b) violate the
organizational documents of the Company, (c) violate or require any consent,
waiver or approval under, result in a breach, modification or termination of
any provisions of, constitute a default under, affect the rights under or
enforceability of, result in the imposition of any pledge, security interest or
other encumbrance pursuant to, or give any Person the right to terminate,
modify or renegotiate any provision of, any agreement, indenture, mortgage,
deed of trust, lease, license, or other instrument to which the Company is a
party or by which the Company is bound, or any license, permit or certificate
held by the Company including, without limitation, those listed on the
Disclosure Schedule, (d) based upon the information provided to the Sellers
with respect to Buyer, require any consent or approval by, notice to or
registration with any governmental authority or other Person which is
applicable to the Company, or (e) result in the creation of any lien, claim,
encumbrance or charge upon any property or assets of the Company.
SECTION 4.7. FINANCIAL STATEMENTS.
(a) Section 4.7(a) of the Disclosure Schedule
contains the audited balance sheet and the related audited income statement
(including any related notes thereto) of the Company as of and for the fiscal
years ended September 30, 1996, September 30, 1997 and (ii) the Interim Balance
Sheet and the related unaudited income statements of the Company as of and for
the twelve-month period ending as of the Interim Balance Sheet Date (including
any related notes thereto) (collectively, the "Financial Statements").
(b) Except as set forth on Section 4.7(b) of the
Disclosure Schedule, the Financial Statements (i) are true, correct and
complete in all material respects; (ii) are in accordance with the books and
records of the Company; (iii) have been prepared in accordance with principles
of orderly bookkeeping and GGAAP applied on a consistent basis throughout the
periods involved, respecting principles of prudence and continuity; (iv) fairly
present, in the case of each year-end balance sheet and the Interim Balance
Sheet, the financial position of the Company as of the respective dates thereof
and, in the case of the related income statements, the results of operations
and earnings of the Company for the respective periods indicated; and (v) in
the case of the Interim Balance Sheet, were prepared in accordance with
principles applicable to
<PAGE> 15
a year-end balance sheet and present information comparable to other balance
sheets included in the Financial Statements.
SECTION 4.8. UNDISCLOSED LIABILITIES. Except as set forth on
Section 4.8 of the Disclosure Schedule, the Company has no liabilities
(absolute, accrued, contingent or otherwise) which are required to be reflected
in a balance sheet or in the notes thereto under GGAAP, except (a) liabilities
reflected or reserved against in the Interim Balance Sheet, and (b) liabilities
incurred since the Interim Balance Sheet Date in the ordinary course of
business, or which, in the aggregate, do not exceed DM10,000 with respect to
the Company.
SECTION 4.9. TAXES. Except as set forth in Section 4.9 of the
Disclosure Schedule, the Company has timely filed all returns, declarations,
reports, information returns and statements required to be filed by it (the
"Returns") in respect of any Taxes and has paid all Taxes currently due and
payable by it. Except as set forth in Section 4.9 of the Disclosure Schedule,
the Returns accurately and completely reflect the facts regarding the income,
properties, operations and status of any entity required to be shown thereon,
and no notice of any proposed deficiency, assessment or levy in respect of
Taxes has been received by the Company. Except as set forth in Section 4.9 of
the Disclosure Schedule, the Company is not currently nor, during the past
three years, has been the subject of an audit or in receipt of a notice that it
is being or will be audited by a relevant Taxing authority, or has agreed to
any extension of time of any applicable statute of limitations period, and the
Company has duly withheld from each payment from which such withholding is
required by law, the amount of all Taxes required to be withheld therefrom and
has paid the same (to the extent due) together with the employer's share of the
same, if any, to the proper Tax receiving officers. Except as set forth in
Section 4.9 of the Disclosure Schedule, the charges, accruals, and reserves for
Taxes due, or accrued but not yet due, relating to the income, properties or
operations of the Company for any period prior to or including the Closing Date
as reflected on the books of the Company are adequate in all material respects
to cover such Taxes, all Tax deficiencies which have been proposed or asserted
against the Company have been fully paid or finally settled, and no issue has
been raised in any examination which, by application of similar principles, can
be expected to result in the proposal or assertion of a Tax deficiency for any
other year not so examined, the Company has not received any Tax incentive,
abatement or other credit with respect to its assets, the Business, its
employees or otherwise which contains provisions for the repayment of any Tax
benefit, and the Company has incurred liabilities for Taxes only in the
ordinary course of the Business. The Company has never conducted business in
the United States, has never had any assets, employees or shareholders located
or resident in the United States, and has never made any election with the
United States Internal Revenue Service regarding Taxes in the United States.
SECTION 4.10. TITLE TO PROPERTIES.
(a) Section 4.10(a) of the Disclosure Schedule sets
forth a complete and accurate list of all fixed assets owned by the Company and
used in the Business as of the Interim Balance Sheet Date.
<PAGE> 16
(b) Except for the normal reservation of title of suppliers
to the extent not paid and as set forth in Section 4.10(b) of the Disclosure
Schedule, the Company has good and marketable title to all the personal
property and assets (tangible and intangible) reflected as owned by it on the
Interim Balance Sheet or acquired since the Interim Balance Sheet Date (except
for properties and assets disposed of since such date in the ordinary course of
business and consistent with past practice), free and clear of all liens,
charges, security interests or other encumbrances of any nature whatsoever.
(c) Except as set forth on Section 4.10(c) of the Disclosure
Schedule, all such assets (i) are now in the possession of the Company, (ii)
are not subject to claims by any other Person with a right to possession of all
or any part of such assets, (iii) are in good operating condition (ordinary
wear and tear excepted), (iv) are not, individually or in the aggregate, in
need of any repairs which individually or in the aggregate could cost in excess
of DM10,000, and (v) are located on the Real Property referenced in Section
4.32 or on the Leased Real Property.
SECTION 4.11. ABSENCE OF CHANGES. Except as set forth in Section 4.11
of the Disclosure Schedule, since September 30, 1997, the Company has operated
only in the ordinary course of the Business in all material respects and there
has not been with respect to the Company:
(a) any change or changes in the Business, financial
condition, properties, results of operations or assets or liabilities, or any
development or event involving a prospective change, other than changes in the
ordinary course of the Business and other than changes which singularly or in
the aggregate, have not had and will not have a Material Adverse Effect;
(b) any material damage or destruction, loss or
other casualty, however arising and whether or not covered by insurance;
(c) any labor dispute or any other similar event or
condition of any character involving employees of the Company;
(d) any indebtedness incurred for borrowed money
(except by endorsement for collection or for deposit of negotiable instruments
received in the ordinary course of the Business);
(e) any change in the accounting methods, procedures
or practices or any change in depreciation or amortization policies or rates
theretofore adopted;
(f) any amendment or termination of any contract,
agreement, lease, franchise or license;
(g) any amendment of its organizational documents;
<PAGE> 17
(h) any mortgage, pledge or other encumbering of any
property or assets;
(i) any material liability or obligation incurred,
except current liabilities incurred in the ordinary course of the Business, or
any cancellation or compromise of any material debt or claim, or any waiver or
release of any right of substantial value to the Business;
(j) any sale, transfer, lease, abandonment
or other disposal of any machinery, equipment or real property with a fair
market value in excess of DM10,000 or, except in the ordinary course of the
Business, any sale, transfer, lease, abandonment or other disposal of any
portion of any other properties or assets (real, personal or mixed, tangible or
intangible);
(k) any transfer, disposal or grant of any
rights under any Intellectual Property owned by the Company, or any disposal of
or disclosure to any other Person other than representatives of Buyer or Sykes
of any material trade secret, formula, process or know-how not theretofore a
matter of public knowledge; except, in each case, in the ordinary course of the
Business;
(l) any bonus or other increase in the compensation
of its officers, employees or directors, or any agreement entered into with any
officer, employee or director, except, in each case, in the ordinary course of
the Business and consistent with past practice;
(m) any single capital expenditure made, or any
commitment to make any capital expenditure, in excess of DM10,000 for any
tangible or intangible capital assets, additions or improvements, except in the
ordinary course of the Business;
(n) any declaration, payment or reservation for
payment of any dividend or other distribution in respect of the Quotas or any
other securities, or any redemption, purchase or other acquisition, directly or
indirectly, of any Quotas or other securities of the Company;
(o) any grant or extension of any power-of-attorney
or guaranty in respect of the obligation of any other Person;
(p) any forward purchase commitments involving
more than DM10,000 in the aggregate or any other purchase commitments that are
not in the ordinary course of the Business;
(q)the adoption of any ruling, law, ordinance,
statute, rule, regulation, code, or other requirement of any governmental
authority which adversely affects the Company or the Business; or
<PAGE> 18
(r) any entry into any binding agreement, whether in
writing or otherwise, to take any action described in this Section 4.11.
SECTION 4.12. INTELLECTUAL PROPERTY.
(a) Section 4.12(a) of the Disclosure Schedule contains a
list and description (including information with respect to registration) of
all Intellectual Property owned or used by the Company, subdivided by type of
Intellectual Property. The Company owns or has the right to use all
Intellectual Property used by it in the conduct of the Business as presently
conducted by it. Except for the rights and licenses granted to the Company
under software contracts, the Company owns all right, title and interest in the
Intellectual Property required to be identified on Section 4.12(a) of the
Disclosure Schedule, free and clear of any encumbrance. The Company has not
granted, transferred, or assigned any right or interest in its Intellectual
Property to any other Person.
(b) Except as disclosed in Section 4.12(b) of the Disclosure
Schedule, no fees or royalties are payable or will be payable under any
software contracts listed in Section 4.12(a) of the Disclosure Schedule as a
result of the continued use of licensed software by the Company in the ordinary
course of the Business, other than fees or royalties due for upgrades and fees
or royalties that do not exceed DM20,000 per year in the aggregate.
(c) Except as disclosed in Section 4.12(c) of the Disclosure
Schedule, (i) all registrations for Intellectual Property required to be
identified in Section 4.12(a) of the Disclosure Schedule as being owned by the
Company are valid and in force and applications to register any unregistered
Intellectual Property so identified are pending and in good standing, all
without challenge of any kind and to the best knowledge of the Sellers, there
is no basis for any such challenge; and (ii) the Company has the exclusive
right to bring actions for infringement or unauthorized use of the Intellectual
Property identified as being owned by the Company, and there is, to the best
knowledge of the Sellers, no basis for any such action.
(d) Except as disclosed in Section 4.12(d) of the Disclosure
Schedule, all trade secrets of the Company (i) have at all times been
maintained in confidence, and (ii) have not been disclosed to employees,
consultants or other third parties except on a ,,need to know" basis in
connection with their respective performance of duties to the Company.
(e) Except as disclosed in Section 4.12(e) of the Disclosure
Schedule, no claims have been asserted by any Person against the Company
claiming ownership of or right to use any of the Intellectual Property required
to be disclosed on Section 4.12(a) of the Disclosure Schedule (other than
ownership of Intellectual Property licensed to the Company under the software
contracts listed on Section 4.12(a) of the Disclosure Schedule) nor, to the
best knowledge of the Sellers, is there any basis for any such claim. The use
of the Intellectual Property by the Company has not infringed on the rights of
any Person and, except as disclosed
<PAGE> 19
in Section 4.12(e) of the Disclosure Schedule, no claim of infringement or any
misuse or misappropriation of any the Intellectual Property of any other Person
has been made or asserted against the Company in respect of the Business, nor
is there, to the best knowledge of the Sellers, any basis for any such claim.
(f) Except as provided for in Section 4.12 (f) of
the Disclosure Schedule, the Company has confirmed, through appropriate testing
or written certifications from publishers, that all computer software used in
or material to the Business and which is either (i) owned or licensed by the
Company or (ii) owned or licensed by DTM (as defined in Section 4.15 (b)) (the
"Software") will record, store, process and present calendar dates falling on
or after January 1, 2000 in the same manner and with the same functionality as
the Software records, processes and stores calendar dates falling on or before
December 31, 1999.
SECTION 4.13. LEASES. Section 4.13 of the Disclosure Schedule
contains an accurate and complete list of all leases pursuant to which the
Company leases real or personal property. Except as set forth in Section 4.13
of the Disclosure Schedule, all such leases are in full force and effect and
are valid, binding and enforceable in accordance with their terms; there are no
existing defaults or events which, with the giving of notice or the lapse of
time or both, would constitute a default thereunder by the Company or any other
parties thereto. Except as set forth in Section 4.13 of the Disclosure
Schedule, all leased items of personality are in good operating condition, are
in a state of good maintenance and repair and are adequate and suitable for the
purpose for which they are presently being used. Each such lease contains terms
and conditions obtained from independent third parties and negotiated in good
faith at arms-length. None of the rights of the Company under each such lease
is subject to termination or modification as a result of the transactions
contemplated hereby.
SECTION 4.14. BANK ACCOUNTS; INVESTMENTS; POWERS OF ATTORNEY.
(a) Section 4.14(a) of the Disclosure Schedule sets
forth the names and locations of all banks, trust companies, savings and loan
associations and other financial institutions at which the Company maintains
safe deposit boxes or accounts of any nature and the names (and limits, if any)
of all persons authorized to draw thereon, make withdrawals therefrom or have
access thereto.
(b) Section 4.14(b) of the Disclosure Schedule sets
forth a list and description (including interest rates and other significant
terms) of all funds, securities and other instruments in which excess cash of
the Company was invested as of the Interim Balance Sheet Date (the
"Investments"). All such Investments are investment grade and can be liquidated
within one business day without being discounted.
(c) Except as set forth in Section 4.14(c) of the
Disclosure Schedule, neither the Company nor any of its Affiliates beneficially
or of record owns any shares of Sykes Stock.
<PAGE> 20
(d) The Company has not granted or extended to any
Person, nor is the Company otherwise subject to or bound by, any power of
attorney which remains in effect, except for the authorizations set forth in
Section 4.14(a) of the Disclosure Schedule.
SECTION 4.15. MATERIAL CONTRACTS AND CUSTOMERS.
(a) Section 4.15(a) of the Disclosure Schedule
contains a true and correct list of all material contracts, agreements or other
understandings or arrangements, written or oral, or commitments therefor,
relating to the Company, the Business, or the assets or liabilities of Company
(collectively, the "Contracts"). Except as set forth in Section 4.15(a) of the
Disclosure Schedule, the Company is not a party to, or otherwise bound by, any
written or oral, formal or informal:
(i)purchase orders and other
contracts, in each case for the sale of goods or services, in excess of
DM40,000 (net of value added taxes) individually or, for any group of related
purchase orders and contracts, in the aggregate;
(ii)contracts, agreements or commitments
for the purchase of materials or services which are not required by the Company
in the current operation of the Business in the ordinary course, or any
agreements or commitments for the sale of goods or services which are
inadequate to recover current costs of the Company;
(iii)contracts involving the expenditure
for the purchase of material, supplies, equipment or services of more than
DM40,000 per contract;
(iv)contracts not otherwise referenced
involving the expenditure of more than DM40,000 (per contract) which are not
cancelable within thirty (30) days without penalty;
(v)contracts relating to the leasing (as
lessor or lessee) or the conditional purchase or sale by the Company of any
property, whether real, personal or mixed;
(vi)contracts to which the Company is a
party or by which any of its assets are bound and that require consent by any
other Person in connection with the transaction contemplated hereby, either to
prevent a breach or continue the effectiveness thereof;
(vii)contracts or arrangements with any
governmental body, agency or authority;
(viii)indentures, mortgages, promissory
notes, loan agreements, capital leases, security agreements or other agreements
or commitments for the borrowing of
<PAGE> 21
money, or the deferred purchase price of assets, or which create a lien or
encumbrance on any assets of the Company;
(ix)guarantees of the obligations of
third parties or agreements to indemnify third parties (other than
indemnification provisions provided in the ordinary course to or for the
benefit of the customers of the Company);
(x)agreements which restrict the Company
from doing business in any geographic location;
(xi)policies of insurance in force and
effect with respect to the Company, the Business or its assets;
(xii)contracts or agreements not otherwise
referenced with any of the Sellers or their Affiliates;
(xiii)license agreements (as licensee or
licensor) with third parties;
(xiv)employment or consulting agreements
which vary materially from the model employment agreements referenced in
Section 4.18(b) or which involve the payment of DM50,000 or more during any
twelve month period;
(xv)distributor, dealer, sales,
advertising, agency, manufacturer's representative, franchise or similar
contracts or any contract relating to the payment of a commission;
(xvi)collective bargaining or other
agreements with labor unions;
(xvii)contracts or agreements for
charitable contributions by the Company;
(xviii)any contract or agreement which
could reasonably be expected to have a Material Adverse Effect on the Company;
or
(xix)other contracts outside the ordinary
course of the Business which are not otherwise described in this Subsection.
(b) True and complete copies of each of the
Contracts have been made available to Buyer and Sykes by the Sellers. Each of
the Contracts is in full force and effect and there exists no default or event
which, with the giving of notice or lapse of time or both, would constitute a
default thereunder by the Company or, to the knowledge of the Sellers, by any
other party thereto. Except as referenced in Section 4.6 of the Disclosure
Schedule, none of the rights
<PAGE> 22
of the Company under any of the Contracts is subject to termination or
modification as a result of the transactions contemplated hereby. With respect
to the item referenced in Section 4.6 of the Disclosure Schedule, the Sellers
have no reason to believe that the relationship of the Company with DeTeMobil
Deutsche Telekom MobilNet GmbH ("DTM") will be discontinued as a result of the
transactions contemplated hereby. Without limiting the preceding sentence, Mr.
Buchholz, the DTM official with whom the Sellers have discussed the pending
transaction, is the DTM official responsible for its customer care group and
has the authority to make a binding commitment in this regard. No notice of
termination or nonrenewal has been given under any Contract. All Contracts
contain terms and conditions not less favorable to the Company than those that
would be obtained from independent third parties and have been negotiated in
good faith at arms-length. None of the Contracts with suppliers of goods or
services to the Company requires the payment of any commission, royalty, fee,
brokerage fee or other similar charge. For the purposes of Section 4.15(a),
"material" contracts means contracts described in Section 4.15(a)(i) through
(xix). The amounts set forth in this Section 4.15 with respect to the Contracts
shall not be deemed to represent any standard of "materiality" with respect to
the Contracts or otherwise for any other purpose and shall have no application
to any other Section of this Agreement.
(c) Section 4.15(c) of the Disclosure Schedule
contains a list of the name and location of the five (5) largest customers (the
"Customers") and the five (5) largest suppliers, in each case measured by
revenues generated or amounts paid, of the Business as of the Interim Balance
Sheet Date. The relationships of the Company with each of the Customers is
good, and no Seller is aware of any intention of any such Customers or
suppliers to terminate or modify any of such relationships. The Company is not
generally required to provide bonding or any other security arrangements in
connection with any transactions with its customers or suppliers.
SECTION 4.16. RELATED TRANSACTIONS.
(a) Except as set forth in Section 4.16 of the
Disclosure Schedule, the Company has no contractual relationship with, or any
obligation or liability owed to, any of its Affiliates, any Affiliate of the
Sellers, or any entity of which one or more Sellers is an Affiliate. All such
contractual relationships are on terms that are no less favorable to the
Company than would be the case with a non-affiliated party.
(b) Except as set forth in Section 4.16 of the
Disclosure Schedule, neither the Sellers nor any director or officer of the
Company, nor any Affiliate of any of them has any interest, direct or indirect,
in any Person which (i) is a competitor, customer, subcontractor of supplier of
the Company, or (ii) has an existing relationship with, or an interest in, the
Company including but not limited to lessors of real or personal property and
Persons against which rights or options are exercisable by the Company.
SECTION 4.17. INSURANCE. Section 4.17(a) of the Disclosure
Schedule contains an accurate and complete list of all policies of insurance
presently maintained with respect to the
<PAGE> 23
Company including, without limitation, "key man" insurance with respect to any
employee. Such list includes a description of coverage, the amount of coverage
and the name of the insurer or an indication that the Company has self-insured
any particular aspect of the Business. All such policies are in full force and
effect and no notice of cancellation or termination has been received with
respect to any such policy and there is, and has been, no default by the
Company with respect to its obligations under any such policy. Except as set
forth in Section 4.17(b) of the Disclosure Schedule, the Sellers and the
Company have not received during the past two (2) years any written notice or
other written communication from any insurance company declining to write
insurance with respect to the Business, or canceling or amending any of the
Company's insurance policies or proposing to do so. Section 4.17(c) of the
Disclosure Schedule sets forth a summary of information pertaining to property
damage, personal injury and products liability claims filed by the Company
during the past five (5) years which exceed DM2,000 in any instance, all of
which have been paid or are being defended by the Company's insurance carriers
and involve no exposure to the Company. Section 4.17(d) of the Disclosure
Schedule sets forth a complete list of any claims that the Company has under
any of its insurance policies which have not been fully paid to the Company.
SECTION 4.18. LABOR MATTERS.
(a) Except to the extent set forth in Section
4.18(a) of the Disclosure Schedule, (i) the Company is in compliance with all
rulings, laws, ordinances, statutes, rules, regulations, codes, and other
requirements of any governmental authority with respect to employment and
employment practices, (ii) there is no unfair labor practice charge or
complaint against the Company pending before or, to the best knowledge of the
Sellers, threatened to be brought before any labor grievance board, authority
or tribunal, nor has any such charge or complaint been, to the best knowledge
of the Sellers, threatened against the Company; (iii) there is no labor strike,
dispute, slowdown, or stoppage pending against or affecting the Company; (iv)
the Company is not a party to any collective bargaining agreement or contract
with any labor union and no works council exists with respect to employees of
the Company; (v) the Company has not experienced any labor difficulty during
the last three (3) years; and (vi) there are no other controversies pending
between the Company and any of its employees including, without limitation,
claims arising under any labor laws. There has not been any adverse change in
relations with employees of the Company as a result of any announcement or
other disclosure of the transactions contemplated by this Agreement.
(b) Section 4.18(b) of the Disclosure Schedule sets
forth a list of the names of all employees, consultants, officers and directors
of the Company as of the date hereof, including length of employment and date
of birth. Except as indicated on Section 4.18(b) of the Disclosure Schedule,
all employees have executed one of the Company's model employment agreements.
The Sellers have delivered to Sykes (i) copies of the Company's model
employment agreements, (ii) copies of all written employment agreements to
which the Company is a party with any of its employees identified in Section
4.18(b) of the Disclosure Schedule as having agreements which vary materially
from the model employment agreements, (iii) written summaries
<PAGE> 24
of the terms of all oral employment agreements that are other than at-will and
which vary materially from the applicable model employment agreements, and (iv)
a schedule of compensation for all employees.
SECTION 4.19. EMPLOYEE BENEFIT PLANS.
(a) Set forth in Section 4.19 of the Disclosure
Schedule is an accurate and complete list of each Employee Benefit Plan (other
than Employee Benefit Plans provided by statute) maintained or contributed to
by the Company.
(b) Except as set forth in Section 4.19 of the
Disclosure Schedule, all amounts that the Company is required to have
contributed to any Employee Benefit Plan have been contributed within the time
prescribed by applicable law and all benefits, expenses, and other amounts due
and payable and all transfers or payments required to be made with respect to
any Employee Benefit Plan have been paid within the time prescribed by the
applicable documents and governing law.
(c) Except as set forth in Section 4.19 of the
Disclosure Schedule, there are no claims (other than routine claims for
benefits) or lawsuits pending with respect to any Employee Benefit Plan.
(d) Except as set forth in Section 4.19 of the
Disclosure Schedule, the Sellers have previously delivered or made available to
Buyer and Sykes true and complete copies of the plan documents for each
Employee Benefit Plan identified in Section 4.19 of the Disclosure Schedule.
SECTION 4.20. LITIGATION. Except as set forth in Section 4.20
of the Disclosure Schedule, there are no claims, actions, suits, or proceedings
pending or, to the best knowledge of the Sellers, threatened against the
Company relating to this Agreement or the transactions contemplated hereby or
to the Business or the properties of the Company at law or in equity or before
or by any national, federal, state, provincial, local, or foreign court or
other governmental department, commission, board, agency, instrumentality or
authority, nor any arbitration proceeding, in each case including, without
limitation, any claims relating to environmental matters. The Company is not
subject to any adverse judgment, order, writ, injunction or decree of any court
or governmental body.
SECTION 4.21. COMPLIANCE WITH LAWS. Except as set forth in
Section 4.21 of the Disclosure Schedule, the Company has conducted the Business
so as to comply with in all material respects, and is not in material violation
of, nor has it received any written notice claiming it is in material violation
of any order, law, ordinance, statute, rule or regulation applicable to it, or
to the Business or any of the property or assets of it including, without
limitation, any environmental or worker safety and protection laws and
regulations. The Company has all
<PAGE> 25
material licenses, permits, certificates of occupancy and authorizations
necessary to conduct the Business.
SECTION 4.22. BOOKS AND RECORDS. The books, accounts and
records of the Company (a) are located at its headquarters at Windausstrasse 1,
30163 Hannover, Federal Republic of Germany, (b) are correct and complete in
all material respects, (c) have been maintained in accordance with law and good
business practice, and (d) constitute all the books, accounts and records
necessary to carry on the Business in the manner in which it is currently being
conducted and has over the preceding twelve (12) months been carried on. The
copies of the organizational documents and of the minutes of all Quota holder
and director meetings of the Company hereto delivered by the Sellers to Buyer
and Sykes are complete and correct.
SECTION 4.23. COPIES OF DOCUMENTS SECTION 4.23. COPIES OF
DOCUMENTS. Each of the Sellers and the Company has delivered or specifically
made available to Buyer, Sykes and their advisors true, complete and correct
copies of all documents referred to in this Agreement or in any Section of the
Disclosure Schedule with the understanding and intention that Buyer and Sykes
may and will rely upon the completeness and accuracy thereof.
SECTION 4.24. ADEQUACY OF ASSETS. Except as set forth in
Section 4.24 of the Disclosure Schedule, the assets of the Company and the
facilities, assets and services to which the Company has a contractual right of
use include all rights, properties, assets, facilities and services necessary
or appropriate for the carrying on of the Business in the manner in which it is
currently being and has over the immediately preceding twelve (12) months been
carried on, and the Company does not depend in any respect upon the use of
assets owned by, or facilities or services provided by, any of the Sellers or
any Affiliate of any of them.
SECTION 4.25. GRANTS. The Company has never received any
Grants.
SECTION 4.26. ACCOUNTS RECEIVABLE. Section 4.26 of the
Disclosure Schedule sets forth a true and correct list and aging of all unpaid
accounts receivable owing to the Company as of the Interim Balance Sheet Date.
The accounts receivable of the Company including, without limitation, those
reflected in Section 4.26 of the Disclosure Schedule, constitute or will
constitute as of the respective dates thereof, legal, valid, binding and
enforceable claims arising from bona fide transactions in the ordinary course
of the Business and, except to the extent reserved against on the Interim
Balance Sheet, are or will be as of the respective dates thereof collectible in
the ordinary course of the Business and are not subject to any known
counterclaims or set-offs. The reserves for doubtful accounts and allowances
with respect to the accounts receivables generated after the Interim Balance
Sheet Date and prior to the Closing will be established on the basis of
evaluation of specific accounts and age classifications in accordance with
GGAAP.
SECTION 4.27. BROKERS AND FINDERS. No agent, broker,
investment banker, person or firm acting on behalf of the Company, the Sellers
or any Affiliate of any of them is or will be
<PAGE> 26
entitled to any brokers' or finders' fee or any other commission or similar fee
directly or indirectly from any of the parties hereto in connection with the
transactions contemplated hereby.
SECTION 4.28. INVESTMENT INTENT; INFORMATION DISCLOSURES.
(a) Each of the Sellers acknowledges that the Sykes
Stock to be received by such Seller will be acquired for such Seller's own
account and without any view to the distribution of any part thereof without
registration under applicable federal and state securities laws, or the
delivery to Sykes of an opinion of counsel that registration is not required in
accordance with Section 4.28(e) hereof. Each Seller represents that such Seller
does not have any agreements or arrangements to sell, transfer or grant a
participation with respect to the Purchase Price Shares.
(b) Each Seller understands that the shares of Sykes
Stock constituting the Purchase Price Shares are not registered under the
United States federal or state securities laws in part on the grounds that the
transactions contemplated hereby are exempt from registration under the
Securities Act of 1933 (the "1933 Act") pursuant to Section 4(2) thereof, and
that Buyer's and Sykes' reliance on such exemption is predicated on each
Seller's representations set forth herein.
(c) Each Seller represents that such Seller has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of its investment in the Purchase Price Shares,
and has the ability to bear the economic risks of such investment. Each Seller
further represents that such Seller has had (i) access, prior to the Closing
Date, to the Sykes Filings (ii) the opportunity to ask questions of, and
receive answers from, Sykes concerning Sykes and the Purchase Price Shares, and
(iii) the opportunity to obtain additional information (to the extent Sykes
possessed such information or could acquire it without unreasonable expense)
necessary to verify the accuracy of any information received or to which such
Seller had access.
(d) Each Seller understands and agrees that the
Purchase Price Shares may not be sold, transferred or otherwise disposed of
without registration under the 1933 Act and applicable state laws, unless
exemptions from registration requirements are available, and that in the
absence of an effective registration statement covering the Purchase Price
Shares or an available exemption from applicable registration requirements, the
Purchase Price Shares must be held indefinitely. In particular, the Purchase
Price Shares may not be sold pursuant to Rule 144 promulgated under the 1933
Act unless all of the conditions of such rule are met.
(e) Each Seller agrees that such Seller will not
offer, sell, mortgage, pledge or otherwise dispose of any of the Purchase Price
Shares (other than pursuant to an effective registration statement under the
1933 Act) unless and until such Seller delivers an opinion of counsel
satisfactory to Sykes, or Sykes delivers to the Sellers an opinion of counsel,
that registration under applicable federal or state securities laws is not
required.
<PAGE> 27
(f) In addition, each Seller agrees that such Seller
shall not sell, assign, pledge, encumber or otherwise transfer any of the
Purchase Price Shares (or any interest therein) unless:
(i)such transfer occurs after financial
results reflecting at least thirty days of post-Closing combined operations of
the Company and Sykes have been prepared and published within the meaning of
Section 201.01 of the SEC's Codification of Financial Reporting Policies; and
(ii)either (A) such transfer occurs after
the first anniversary of the Closing, or (B) after giving effect to the
transfer, such Seller will continue to own at least fifty percent (50%) of the
Purchase Price Shares issued to him at the Closing (adjusted to account for any
additional shares issued in respect of such shares by way of stock splits,
stock dividends or otherwise).
(g) Each Seller agrees that all certificates for Purchase
Price Shares shall bear a legend in substantially the following form:
The securities represented by this certificate have not been
registered, qualified, recommended, approved or disapproved
under United States federal securities law or state
securities laws. The shares represented by this certificate
may not be sold, transferred or otherwise disposed of by an
investor without (i) registration under federal and state
securities laws, or (ii) delivery of an opinion of counsel
satisfactory to the corporation that neither the sale nor the
proposed transfer constitutes a violation of any United
States federal or state securities law.
The securities represented by this certificate are subject to
certain transfer restrictions set forth in an Acquisition
Agreement dated as of November 23, 1998 (a copy of which may
be obtained from the Company at its principal executive
office), and may not be sold, assigned, pledged, encumbered
or otherwise transferred except in compliance with the terms
and conditions of such agreement.
SECTION 4.29 POOLING OF INTERESTS. The Sellers acknowledge that Sykes
intends to account for the acquisition of the Quotas as a pooling of interests,
and that qualifying for such accounting treatment is dependent in part upon
actions taken, or not taken, by the Company and the Sellers both before and
after the date hereof. In this regard, and with the understanding that Sykes is
relying thereon in making its commitment to enter into this transaction, the
Sellers warrant that the Sellers, the Company and their respective Affiliates
have not, directly or indirectly, taken any
<PAGE> 28
of the following actions, which Sellers acknowledge could prevent Sykes from
obtaining such pooling accounting treatment:
(a) acquired or sold, assigned, transferred or otherwise
disposed of, or reduced any risk relative to, any Quotas or Sykes Stock in
contemplation of the transactions provided for herein;
(b) paid or received any dividends or other distributions
with respect to the capital interests of the Company, other than distributions
in the ordinary course of the Company's Business and not in contemplation of
the transactions provided for herein;
(c) altered the relative ownership interests of the Sellers
in the Company in contemplation of the transactions provided for herein;
(d) disposed of any part of the assets of the Company within
the nine months preceding the date hereof or in contemplation of the
transactions provided for herein;
(e) become a party to any contract, document, instrument or
any written or oral agreement regarding the sale, assignment or transfer of, or
allowed to be created any rights or obligations for the sale, assignment or
transfer of, or explicitly or impliedly agreed to sell, assign or transfer any
of the Quotas held by any of the Sellers to any other Seller or any Affiliate
of any other Seller; or
(f) entered into any agreement to do any of the foregoing,
including without limitation, any agreement to distribute or dispose of any
part of the assets of the Company upon the consummation of the transactions
provided for herein.
SECTION 4.30 RESTRICTIVE COVENANTS. Except as disclosed in Section
4.30 of the Disclosure Schedule, the Company is not subject to, or a party to,
any mortgage, lien, lease, license, permit, agreement, contract, instrument,
law, rule, ordinance, regulation, order, judgment or decree, or any other
restriction of any kind or character, which materially adversely affects its
Business practices, operations or condition or any of its assets or properties,
which restricts its ability to acquire any property or conduct its Business in
any area or which would prevent consummation of the transactions contemplated
by this Agreement, compliance by it with the terms, conditions and provisions
hereof or the operation of its Business by it after the date hereof on
substantially the same basis as heretofore operated by it.
SECTION 4.31 PRODUCT LIABILITIES AND WARRANTIES. There are no express
or implied warranties applicable to products or services sold or provided by
the Company except as provided by statute or disclosed on Section 4.31 of the
Disclosure Schedule. Except as set forth in Section 4.31 of the Disclosure
Schedule, there is no action, suit, proceeding or claim pending or, to the best
knowledge of the Sellers, threatened against the Company under any warranty,
express or implied, and there is no basis upon which any claim could be made.
Section 4.31 of the
<PAGE> 29
Disclosure Schedule also summarizes all product liability claims that have been
asserted against the Company during the five (5) years preceding the date of
this Agreement.
SECTION 4.32 REAL ESTATE. Section 4.32 of the Disclosure Schedule sets
forth a complete and accurate list of all real property owned by the Company
(the "Real Property"). Except as set forth in Section 4.32 of the Disclosure
Schedule, the Company owns the Real Property in fee simple free and clear of
all easements, covenants, mortgages, liens, leases or encumbrances. Except as
set forth in Section 4.32 of the Disclosure Schedule, all buildings, structures
and appurtenances located on the Real Property are in good operating condition
and in a state of good repair, are adequate and suitable for the purposes for
which they are presently being used, do not contain any asbestos or
asbestos-containing materials, and, with respect to each, the Company has
adequate rights of ingress and egress for the operation of the Business in the
ordinary course. Except as set forth in Section 4.32 of the Disclosure
Schedule, (i) none of such buildings, structures or appurtenances (or any
equipment therein), including the operation and maintenance thereof, violates
any restrictive covenant or any provision of any national, federal, state,
provincial or local law, ordinance, rule or regulation including, without
limitation, zoning ordinances but excluding environmental laws regulating
Hazardous Materials which are addressed in Section 4.33; and (ii) none of such
buildings, structures or improvements encroaches in any respect upon any
property owned by others. No condemnation proceeding is pending or threatened
which would preclude or impair the use of any of the Real Property, or any
building, structure, appurtenances thereon, in connection with the operation of
the Business.
SECTION 4.33 ENVIRONMENTAL MATTERS.
(a) Except as set forth in Section 4.33, to the Sellers'
knowledge there are no Hazardous Materials in, on or under (including, without
limitation, the soil or groundwater thereunder) the Real Property or any real
property leased by the Company.
(b) For purposes of this Agreement, "Hazardous Materials"
means any hazardous substances, oils, pollutants or contaminants, as those
terms are defined under any environmental law to the extent that the presence
of any such substance is at a level in excess of that permitted by any
environmental law.
SECTION 4.34 DISCLOSURE. None of the representations or warranties by
the Sellers herein, no statement contained in any certificate, list or other
writing furnished to Buyer or Sykes pursuant hereto and no statement contained
in any Section of the Disclosure Schedule, taken as a whole, contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein or therein, in light of the
circumstances in which they were made, not misleading. There is no fact known
to the Sellers which materially and adversely affects the Business, the
Company, or the prospects or financial condition of the Company, which has not
been set forth in this Agreement or in a Section of the Disclosure Schedule.
<PAGE> 30
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF SYKES AND BUYER (GARANTIEN)
Sykes and Buyer, jointly and severally, hereby represent and warrant
to the Sellers as follows:
SECTION 5.1. CORPORATE ORGANIZATION. Each of Buyer and Sykes
is a corporation or limited liability company, as the case may be, duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has the full right, power and authority to
own, lease and operate all of its properties and assets and to carry out its
business as it is presently conducted.
SECTION 5.2. CAPITALIZATION OF SYKES. All issued and
outstanding shares of Sykes Stock have been, and upon issuance the Purchase
Price Shares will be, duly authorized and validly issued, fully paid and
nonassessable. The issuance of the Purchase Price Shares is not subject to any
preemptive right or right of first refusal that has not or will not be
satisfied or waived.
SECTION 5.3. AUTHORITY. Each of Buyer and Sykes has all
requisite right, power and authority to execute, deliver and perform this
Agreement. The execution, delivery and performance of this Agreement and the
Related Agreements by Buyer and Sykes have been duly and validly authorized and
approved by all necessary corporate action. This Agreement has been duly and
validly executed and delivered by Buyer and Sykes and, assuming this Agreement
has been duly authorized, executed and delivered by the Sellers, constitutes
the legal, valid and binding obligation of Buyer and Sykes, enforceable against
each of them in accordance with its terms.
SECTION 5.4. SYKES' CONSENTS AND APPROVALS; NO VIOLATIONS.
The execution, delivery and performance of this Agreement by Buyer and Sykes
will not (with or without the giving of notice or the passage of time, or
both), (a) violate in any material respect any applicable provision of law or
any rule or regulation of any administrative agency or governmental authority
applicable to Buyer or Sykes, or any order, writ, injunction, judgment or
decree of any court, administrative agency or governmental authority applicable
to Buyer or Sykes, (b) violate the organizational documents of Buyer or the
Articles of Incorporation or Bylaws of Sykes, (c) violate or require any
consent, waiver or approval under, result in a breach, modification or
termination of any of any provisions of, constitute a default under, affect the
rights under or enforceability of, result in the imposition of any pledge,
security interest or other encumbrance pursuant to, give any Person the right
to terminate, modify or renegotiate any provision of, any material agreement,
indenture, mortgage, deed of trust, lease, license, or other instrument to
which Buyer or Sykes is a party or by which Buyer or Sykes is bound, or any
material license, permit or certificate held by Buyer or Sykes (other than any
consents which will have been obtained on or prior to the
<PAGE> 31
Closing Date), or (d) based upon the information provided to the Buyer with
respect to the Sellers, require any material consent or approval by, notice to,
or registration with any governmental authority.
SECTION 5.5. LITIGATION. There are no claims, actions, suits,
or proceedings pending or, to the best knowledge of Buyer and Sykes,
threatened, against Buyer or Sykes relating to this Agreement or the
transactions contemplated hereby or to the business or property of Buyer or
Sykes, at law or in equity or before or by any national, federal, state,
provincial, local, or foreign court or other governmental department,
commission, board, agency, instrumentality or authority, or any arbitration
proceeding, in each case which are likely to have a Material Adverse Effect.
Neither Buyer nor Sykes is subject to any judgment, order, writ, injunction or
decree of any court or governmental body.
SECTION 5.6. BROKERS AND FINDERS. No agent, broker,
investment banker, Person or firm acting on behalf of Buyer, Sykes or any
Affiliate of either of them is or will be entitled to any brokers' or finders'
fee or any other commission or similar fee directly or indirectly from any of
the parties hereto in connection with the transactions contemplated hereby,
other than Joachim Schoss, whose fee will be paid by the Buyer or an Affiliate
of the Buyer.
SECTION 5.7. SYKES INFORMATION. Sykes has delivered to the
Sellers true and complete copies of the Sykes Filings. At the date hereof, the
Sykes Filings, taken as a whole, do not contain any untrue statement of a
material fact or omit any material fact necessary to make the statements
contained herein, in light of the circumstances in which they were made, not
misleading.
SECTION 5.8 NO MATERIAL ADVERSE CHANGE. Since September 30,
1998, Sykes has not suffered any Material Adverse Effect.
SECTION 5.9. UNDISCLOSED LIABILITIES. Sykes has no
liabilities (absolute, accrued, contingent or otherwise) required by USGAAP to
be reflected or reserved against in the consolidated statement of assets and
liabilities of Sykes except (a) liabilities reflected or reserved against in
the Form 10-Q Balance Sheet, and (b) liabilities incurred since September 30,
1998 in the ordinary course of business, and which, in the aggregate, do not
have a Material Adverse Effect.
SECTION 5.10. COMPLIANCE WITH LAWS. COMPLIANCE WITH LAWS.
Each of Buyer and Sykes has conducted its business so as to comply with, and is
not in violation of, nor has it received any written notice claiming it is in
violation of, any order, law, ordinance, statute, rule or regulation applicable
to it, or to its business or any of its property or assets including, without
limitation, any environmental or worker safety and protection laws and
regulations, except to the extent that such non-compliance would not have a
Material Adverse Effect. Each of Buyer and Sykes has all material licenses,
permits, certificates of occupancy and authorizations necessary to conduct its
business.
<PAGE> 32
ARTICLE VI
FURTHER COVENANTS AND AGREEMENTS
SECTION 6.1. COVENANTS OF THE SELLERS PENDING THE CLOSING.
The Sellers covenant and agree that, pending the Closing and prior to the
termination of this Agreement, and except as otherwise agreed to in writing by
Buyer and Sykes, the Sellers shall or, as appropriate shall cause the Company
to:
(a) conduct the Business solely in the ordinary
course and consistent with the past practices of the Company;
(b) not take or intentionally omit to take any
action which would result in a breach of any of the Sellers' representations
and warranties hereunder in any material respect;
(c) continue to maintain and service the physical
assets used by the Company in the conduct of the Business consistent with past
practices;
(d) use its reasonable efforts to preserve the
Business and organization of the Company, to keep available the services of the
Company's present employees and agents and to maintain the relations and
goodwill with the suppliers, customers (including the Customers), distributors
and any others having business relations with the Company in connection with
the Business;
(e) use its and their reasonable efforts to cause
all of the conditions to the obligations of Buyer and Sykes under this
Agreement to be satisfied on or prior to the Closing Date and to obtain, prior
to the Closing, all consents of all third parties and governmental authorities
necessary for the consummation by the Sellers and the Company of the
transactions contemplated hereby. All such consents will be in writing and
executed counterparts will be delivered to Buyer and Sykes at or prior to the
Closing.
(f) cooperate with Buyer and Sykes in making
arrangements to obtain licenses, permits and certificates required to conduct
the Business or own the Quotas at Closing;
(g) provide Buyer's and Sykes' officers, employees,
counsel, accountants and other representatives with full access to, during
normal business hours, all of the books and records of the Company, make
available to representatives of Buyer and Sykes, knowledgeable employees of the
Company for reasonable periods of time to answer inquiries of such
representatives with respect to Buyer's and Sykes' investigation of the Company
and permit such representatives of Buyer and Sykes to consult with the
officers, employees, accountants and
<PAGE> 33
counsel of the Sellers; provided, that no such activities unreasonably
interfere with the operation of the Business;
(h) not grant to any Person a power of attorney or
similar authority to act for the Company;
(i) not enter into any guarantee of the obligations
of any Person to the extent such guarantee shall survive the Closing;
(j) not amend the charter, Articles of Association
or other organizational documents of the Company;
(k) make no change in the amount of issued share
capital of the Company or issue or create any option, warrant or any other
security of the Company;
(l) not increase the compensation payable or to
become payable to any officer, employee or agent of the Company other than in
the ordinary course of the Business, nor make any bonus payment or arrangement
to or with any Seller or any other officer, employee or agent of the Company
other than (in the case of such other officers, employees or agents) in the
ordinary course of the Business;
(m) not make any dividends or other distributions in
respect of the Quotas;
(n) not sell, transfer, lease, abandon or otherwise
dispose of (or commit to do so) any fixed assets of the Company; and
(o) not enter into any contract or commitment
calling for payment to or by the Company of an aggregate amount of more than
DM10,000, which is not terminable by the Company on less than thirty (30) days'
notice without penalty.
SECTION 6.2. COVENANTS OF BUYER AND SYKES PENDING THE
CLOSING. Buyer and Sykes covenant and agree that, pending the Closing and prior
to the termination of this Agreement, and except as otherwise agreed to in
writing by the Sellers, each of Buyer and Sykes:
(a) shall not take or intentionally omit to take any
action which would result in a breach of any of its representations and
warranties hereunder in any material respect.
(b) shall use its reasonable efforts to cause all of
the conditions to the obligations of the Sellers under this Agreement to be
satisfied on or prior to the Closing Date and to obtain prior to the Closing,
all consents of all third parties and governmental authorities necessary for
the consummation by it of the transactions contemplated hereby. All such
consents
<PAGE> 34
will be in writing and executed counterparts thereof will be delivered to the
Sellers at or prior to the Closing.
(c) shall promptly disclose to the Sellers any
information relating to its representations and warranties hereunder which,
because of an event occurring after the date hereof, is incomplete or is no
longer correct in any material respect.
SECTION 6.3. FILINGS. Promptly after the execution of this
Agreement, each of the parties hereto shall prepare and make or cause to be
made any required filings, submissions and notifications under the laws of any
domestic or foreign jurisdictions to the extent that such filings are necessary
to consummate the transactions contemplated hereby and will use its reasonable
efforts to take all other actions necessary to consummate the transactions
contemplated hereby in a manner consistent with applicable law. Each of the
parties hereto will furnish to the other party such necessary information and
reasonable assistance as such other party may reasonably request in connection
with the foregoing.
SECTION 6.4. EFFECTIVE TIME OF CLOSING AND TRANSFER. The
Closing shall be effective for all purposes as of the close of business on the
Closing Date.
SECTION 6.5. ANNOUNCEMENTS. Except as expressly contemplated
by this Agreement, the parties will mutually agree as to the time, form and
content before issuing any press releases or otherwise making any public
statements or statements to third parties with respect to transactions
contemplated hereby and shall not issue any press release or, except as
necessary to perform their respective obligations hereunder, discuss the
transactions contemplated hereby with any third party prior to reaching mutual
agreement with respect thereto, except as may be required by law.
Notwithstanding the foregoing, in the event prior to the Closing any party
hereto is required by law or the rules of any stock exchange on which such
party's securities are traded to make a statement with respect to the
transactions contemplated herein, such party shall notify in writing the other
party hereto as to the time, form and content of such statement.
SECTION 6.6. COSTS AND EXPENSES. Whether or not the
transactions contemplated by this Agreement are consummated, each party hereto
shall pay its own costs and expenses (including legal fees and expenses)
incurred in connection with due diligence reviews, the preparation, negotiation
and execution of this Agreement and all other agreements, certificates,
instruments and documents delivered hereunder, and all other matters relating
to the transactions contemplated hereby. All German transfer and intangible
Taxes, if any, arising in connection with the sale and assignment of the Quotas
hereunder shall be paid by the Sellers. All transfer and intangible Taxes, if
any, in connection with the sale and delivery of the Purchase Price Shares
hereunder shall be paid by Sykes. All fees and charges arising from notary
requirements applicable to the sale and assignment of the Quotas shall be paid
by the Buyer.
<PAGE> 35
SECTION 6.7. FURTHER ASSURANCES.
(a) Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
If at any time after the Closing Date any further action is necessary or
desirable to carry out the purposes of this Agreement, the parties hereto shall
take or cause to be taken all necessary action including, without limitation,
the execution and delivery of such further instruments and documents as may be
reasonably requested by the other party for such purposes or otherwise to
consummate and give effect to the transactions contemplated hereby. If any
consent or approval required for the consummation of the transactions
contemplated hereby is waived by the parties prior to Closing, at the request
of the Buyer the Sellers shall cooperate with Sykes, and attempt in good faith,
to obtain such consent or approval during the one year period immediately
following the Closing.
(b) From and after the Closing Date, the Buyer
and/or Sykes agree to promptly inform the Sellers of any Tax audit of the
Company by a Tax authority and to give the Sellers the opportunity to
participate in such a Tax audit. Furthermore, the Sellers shall be entitled to
request the Buyer, Sykes and/or the Company to duly and timely file the
appropriate recourse against any Tax assessment resulting in a higher Tax
burden for any period prior to the Closing Date. If such request is not
honored, the Buyer shall cause the Company, upon request by one or more of the
Sellers, to file such recourse nonetheless, provided that in this case the
Sellers who have made such request shall be liable to reimburse the Company for
all fees and expense incurred in the recourse proceedings to the extent such
fees and expenses are not borne by third parties.
SECTION 6.8. CERTAIN AGREEMENTS. On or before the Closing
Date, Buyer, Sykes, and the Sellers will execute the Pledge and Escrow
Agreement in the form of EXHIBIT A, the Sellers and Sykes will execute the
Registration Rights Agreement in the form of EXHIBIT B, and the Sellers will
execute, or cause to be executed, an employment agreement between the Company
and each of Georg J. Stockmann and Michael Emmert in the form of EXHIBIT C 1
and EXHIBIT C 2, and a commercial lease agreement with terms set forth in
EXHIBIT D between the Company and the partnership composed of Messrs.
Stockmann, Schoss and Grasserbauer, in each case to be effective upon the
Closing Date.
SECTION 6.9. NON-DISCLOSURE; COVENANT NOT TO COMPETE.
(a) The parties hereto acknowledge that (i) the covenants
contained in this Section 6.9 are a material inducement to the consummation by
Buyer and Sykes of the transactions contemplated by this Agreement and (ii)
Buyer and Sykes would not have entered into or performed this Agreement but for
the covenants herein contained.
<PAGE> 36
(b) Each of the Sellers agrees that, unless acting with the
prior consent of Buyer and Sykes, it will not, either alone or in conjunction
with any other Person, or directly or indirectly through any entity that it now
or in the future controls, for a period of three years from the Closing Date:
(i) employ or solicit the employment of any Person who within the month
preceding the Closing Date had been an employee of the Company; (ii) directly
or indirectly engage or participate, whether as officer, employee, director,
agent, consultant, shareholder, partner, or otherwise, in the ownership,
management, marketing or operation of any enterprise which is engaged in any
part of the Business within Europe (other than solely through the ownership of
equity securities or equivalent interests of any entity at a level which does
not create the ability to influence or control management of the entity); or
(iii) conduct any part of the Business with any Person that is a Customer of
the Company as of the Closing Date.
(c) It is stipulated and agreed that the Sellers have become
acquainted with confidential and privileged information of the Company relating
to customer files, customer lists, special customer matters, sales methods and
techniques, merchandising concepts and plans, new site locations, business
plans, sources of supply and vendors, special business relationships with
vendors, agents and brokers, promotional materials and information, financial
matters, mergers, acquisitions, selective personnel matters and confidential
processes, designs, formulas, ideas, plans, devices or materials and other
similar matters which are confidential (any and all such information being
referred to herein as the "Confidential Information"); and that the use of the
Confidential Information against the Company would seriously damage the
Business. As a consequence of the above, each of the Sellers agrees that,
unless acting with the prior written consent of Buyer, such Seller shall,
whether acting alone, in conjunction with any other Person, or directly or
indirectly through any entity that such Seller now or in the future controls:
not use, divulge, publish or otherwise reveal or allow to be revealed any
aspect of the Confidential Information to any Person; refrain from any action
or conduct which might reasonably or foreseeably be expected to compromise the
confidentiality or proprietary nature of the Confidential Information; and
shall have no right to apply for or to obtain any patent, copyright, or other
form of Intellectual Property protection with regard to the Confidential
Information.
(d) The parties hereto acknowledge and agree that any remedy
at law for any breach of the provisions of this Section 6.9 would be inadequate
and the Sellers hereby consent to the granting by any court of competent
jurisdiction of an injunction or other suitable relief and without the posting
of any bond or the necessity of actual monetary loss being proved, in order
that such breach may be effectively restrained.
SECTION 6.10. POOLING OF INTERESTS. The Sellers shall not, and shall
not permit the Company, to take, any of the following actions, each of which
could result in the transfer of the Quotas not qualifying to be accounted for
as a pooling of interests: (a) acquiring or transferring any capital interests
of the Company or any Sykes Stock during the thirty (30) days prior to the
Closing Date, and (b) selling, assigning or transferring, or agreeing or
allowing to be created any rights or obligation for the sale, assignment or
transfer of, any of the Purchase Price Shares or any other Sykes Stock in
violation of the restrictions set forth in Section 4.28(f)(i).
<PAGE> 37
SECTION 6.11. EXCLUSIVE DEALING. During the period from the
date of this Agreement through and including the Closing Date, the Sellers
shall not, and shall not permit the Company or any of their respective
directors, officers, employees, representatives or agents to, directly or
indirectly, solicit, initiate or participate in any negotiations with any
Person other than Sykes and the Buyer and their respective representatives,
agents and Affiliates, concerning any Alternative Transaction. The Sellers
shall immediately notify Sykes and Buyer of any proposal or offer received by,
any information requested from, or any discussions or negotiations sought to be
initiated or continued with, the Sellers or the Company in respect of an
Alternative Transaction and shall, in any such notice to Sykes and Buyer,
indicate the terms and conditions of any proposals or offers or the nature of
any requests, discussions or negotiations.
SECTION 6.12 REPAYMENT OF SHAREHOLDER LOAN, ETC. On or prior to July
31, 1999, or, if earlier the date of any sale by any Seller of any of the
Purchase Price Shares, the Sellers will repay all outstanding loans from the
Company to any of the Sellers and will purchase from the Company, and the
Company will transfer to the Sellers, the Mercedes-Benz E280T automobile,
license plate number H-TH 658, for its current fair market value as reported by
the Schwacke-Liste.
SECTION 6.13 PAYMENT OF DIVIDEND. The Buyer acknowledges the
shareholders' resolution of the Sellers dated November 20, 1998.
ARTICLE VII
TERMINATION
SECTION 7.1. TERMINATION This Agreement may be terminated at
any time prior to the Closing:
(a) by mutual written agreement executed by the
Sellers, Buyer and Sykes;
(b) by the Sellers, Buyer or Sykes at any time after
November 30, 1998 if, through no fault of the party seeking termination, the
Closing shall not have occurred;
(c) by the Sellers, Buyer or Sykes, if any
governmental or regulatory authority, agency or commission, including courts of
competent jurisdiction, domestic or foreign, shall have issued an order,
decree, or ruling or taken other action, restraining, enjoining or otherwise
prohibiting the transactions contemplated hereby and such order, decree, ruling
or other action shall have become final and nonappealable;
<PAGE> 38
(d) by Buyer or Sykes, if there has been a material
violation or breach by the Sellers of any agreement or any representation or
warranty contained in this Agreement which (i) is not curable, (ii) has
rendered the satisfaction of any condition to the obligations of Buyer and
Sykes impossible, and (iii) has not been waived by Buyer and Sykes; or
(e) by the Sellers, if there has been a material
violation or breach by Buyer or Sykes of any agreement, representation or
warranty contained in this Agreement which (i) is not curable, (ii) has
rendered the satisfaction of any condition to the obligations of the Sellers
impossible, and (iii) has not been waived by the Sellers.
SECTION 7.2. PROCEDURE AND EFFECT OF TERMINATION. In
the event of termination of this Agreement pursuant to Section 7.1 hereof,
written notice thereof shall forthwith be given to the other parties hereto and
this Agreement (other than Section 6.6 hereof and as provided in paragraph (b)
below) shall terminate and the transactions contemplated hereby shall be
abandoned without further action by the parties hereto. If this Agreement is
terminated as provided herein:
(a) all information with respect to the Business or
the Company received by and in the possession of Buyer, Sykes or any Person
that directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with Buyer or Sykes shall be returned
to the Sellers or destroyed by Buyer or Sykes;
(b) any termination pursuant to subparagraph (b),
(c), (d), or (e) of Section 7.1 shall not be deemed a waiver of any rights or
remedies otherwise available under this Agreement, by operation of law or
otherwise; and
(c) all filings, applications and other submissions
made pursuant to Section 6.3 hereof or prior to the execution of this Agreement
in contemplation thereof shall, to the extent practicable, be withdrawn from
the agency or other Person to which made.
ARTICLE VIII
CONDITIONS TO BUYER'S AND SYKES' OBLIGATIONS
Each and every obligation of Buyer and Sykes to consummate the
transactions described in this Agreement shall be subject to the fulfillment,
or the waiver by Buyer and Sykes on or before the Closing Date, of the
following conditions precedent:
SECTION 8.1 THE SELLERS' CLOSING DELIVERIES. The Sellers
shall have delivered, or caused to be delivered, to Buyer and Sykes at or prior
to the Closing, unless specifically waived by Buyer and Sykes in their sole
discretion, each of the following:
<PAGE> 39
(a) the Registration Rights Agreement and the Pledge
and Escrow Agreement referenced in Section 6.8, in each case executed by the
Sellers and, in the case of the Pledge and Escrow Agreement, by the Escrow
Agent;
(b) the employment agreements referenced in Section
6.8 executed by the Company and each of Georg J. Stockmann and Michael Emmert;
(c) valid and binding consents of all Persons whose
consent or approval is required to be set forth in Sections 4.5 and 4.6 of the
Disclosure Schedule; in particular the DTM consent.
(d) with respect to each Seller, three separate
guaranteed stock powers duly endorsed in blank and a Certificate of Foreign
Status on Form W-8;
(e) the certificates referenced in Section 8.2 and
8.3;
(f) written modification of the Company's
Mortgage loans evidencing the lender's release of restrictions on dividend
payments; and
(e) evidence satisfactory to the Buyer that the
Silent Partnership has been terminated on a basis that does not involve the
incurrence or payment by the Company of any obligation or amount other than
payments of the principal amount thereof together with accrued interest thereon
until the earlier of termination or November 30, 1998 at the rate of nine
percent plus the Prepayment Amount, and that all such payments have been made.
(h) conclusion of a Real Estate Transfer Agreement
including a consent to transfer the title ("Auflassung"), between the
partnership composed of Messrs. Stockmann, Schoss and Grasserbauer and the
Company, the execution and delivery of a lease thereto, all as contemplated by
the term sheet attached hereto as Exhibit D, and release of the Company by
Stadtsparkasse Hannover of all of the obligations of two loans in the total
amount of DM 3 mio..
SECTION 8.2. REPRESENTATIONS AND WARRANTIES TRUE SECTION. The
representations and warranties of the Sellers contained in this Agreement, as
modified by the Disclosure Schedule, shall have been true on the date hereof in
all material respects, and shall be true on the Closing Date in all material
respects with the same effect as though such representations and warranties
were made on and as of such date and the Sellers shall have delivered to Buyer
and Sykes on the Closing Date a certificate, dated as of the Closing Date, to
such effect.
SECTION 8.3. PERFORMANCE. The Sellers shall have, in all
material respects, performed and complied with all covenants required by this
Agreement to be performed or complied with by them prior to or at the Closing
and the Sellers shall have delivered to Buyer and Sykes on the Closing Date a
certificate, dated as of the Closing Date, to such effect.
<PAGE> 40
SECTION 8.4. GOVERNMENTAL CONSENTS AND APPROVALS. All
necessary and appropriate governmental consents, approvals and filings shall
have been obtained or made and all applicable waiting periods (including any
extensions thereof) relating thereto shall have expired or otherwise
terminated.
SECTION 8.5. NO INJUNCTION OR PROCEEDING. No governmental or
regulatory authority, agency or commission, including courts of competent
jurisdiction, domestic or foreign, shall have issued an order, decree, or
ruling or taken other action, restraining, enjoining or otherwise prohibiting
the transactions contemplated hereby, which order, decree, ruling or other
action remains in effect.
ARTICLE IX
CONDITIONS TO THE SELLERS' OBLIGATIONS
Each and every obligation of the Sellers to consummate the
transactions described in this Agreement shall be subject to the fulfillment,
or the waiver by the Sellers, on or before the Closing Date, of the following
conditions precedent:
SECTION 9.1. DELIVERY OF PURCHASE PRICE SHARES. Buyer and
Sykes shall have delivered or caused to be delivered the Purchase Price Shares
in accordance with Article III hereof.
SECTION 9.2. BUYER'S AND SYKES' CLOSING DELIVERIES. Buyer and
Sykes shall deliver, or cause to be delivered, to the Sellers at the Closing,
unless specifically waived by the Sellers in their sole discretion, each of the
following:
(a) the Registration Rights Agreement and the Pledge
and Escrow Agreement referenced in Section 6.8, executed by Sykes and, in the
case of the Pledge and Escrow Agreement, the Buyer and the Escrow Agent;
(b) a certified copy of the resolutions of the Board
of Directors of Sykes authorizing the execution, delivery and performance of
this Agreement and the Related Agreements and the consummation of transactions
contemplated hereby and thereby; and
(c) the certificates referenced in Sections 9.3 and
9.4 hereof.
SECTION 9.3. REPRESENTATIONS AND WARRANTIES TRUE. The
representations and warranties of Buyer and Sykes contained in this Agreement,
as modified by the Disclosure Schedule, shall have been true on the date hereof
in all material respects and shall be true on the Closing Date in all material
respects, with the same effect as though such representations and warranties
were made on and as of such date, and Buyer and Sykes shall have delivered to
the Sellers on the Closing Date a certificate, dated as of the Closing Date, to
such effect.
<PAGE> 41
SECTION 9.4. PERFORMANCE. Buyer and Sykes shall have, in all
material respects, performed and complied with all covenants required by this
Agreement to be performed or complied with by them prior to or at the Closing
and Buyer and Sykes shall have delivered to the Sellers on the Closing Date a
certificate, dated as of the Closing Date, to such effect.
SECTION 9.5. GOVERNMENTAL CONSENTS AND APPROVALS. All
necessary and appropriate governmental consents, approvals and filings shall
have been obtained or made and all applicable waiting periods (including any
extensions thereof) relating thereto shall have expired or otherwise
terminated.
SECTION 9.6. NO INJUNCTION OR PROCEEDING. No governmental or
regulatory authority, agency or commission, including courts of competent
jurisdiction, domestic or foreign, shall have issued an order, decree, or
ruling or taken other action, restraining, enjoining or otherwise prohibiting
the transactions contemplated hereby, which order, decree, ruling or other
action remains in effect.
ARTICLE X
INDEMNIFICATION
SECTION 10.1. INDEMNIFICATION BY THE SELLERS.
(a) The Sellers jointly and severally agree (subject
to the provisions of Section 10.6), to reimburse, indemnify and hold Sykes, the
Buyer, the Company, and their respective officers, directors, shareholders,
employees and agents harmless from and against any and all demands, claims,
actions, suits, liabilities, damages, losses, judgments, costs and expenses
(including, without limitation, reasonable attorneys' fees but excluding any
claims for punitive damages or consequential damages) relating to, resulting
from or arising out of:
(i) any breach or inaccuracy of the
representations or warranties made hereunder by any of the Sellers;
(ii) any breach or violation of any
covenant or agreement made hereunder by any of the Sellers, or
(iii) the Silent Partnership, excluding the
Prepayment Amount, the principal and accrued interest thereon until the earlier
of termination or November 30, 1998, at the rate of 9% per annum.
<PAGE> 42
SECTION 10.2. INDEMNIFICATION BY BUYER AND SYKES.
(a) Buyer and Sykes jointly and severally agree to
reimburse, indemnify and hold each of the Sellers harmless from and against any
and all demands, claims, actions, suits, liabilities, damages, losses,
judgments, costs and expenses (including, without limitation, reasonable
attorneys' fees but excluding any claims for punitive damages or consequential
damages) relating to, resulting from or arising out of:
(i) any breach or inaccuracy of the
representations or warranties made hereunder by Buyer and Sykes; or
(ii) any breach or violation of any
covenant or agreement made hereunder by Buyer and Sykes.
SECTION 10.3. SURVIVAL OF REPRESENTATIONS. Except for the
representations and warranties contained in Sections 4.1, 4.2, 4.4, 4.9 and
4.25, the representations and warranties made pursuant to this Agreement
including, without limitation, all representations and warranties made in any
exhibit or schedule or certificate delivered thereunder, shall survive until
and through the second anniversary of the Closing Date at which time such
representations and warranties shall expire. The representations and warranties
set forth in Sections 4.1 and 4.2 of this Agreement shall survive until and
through the tenth anniversary of the Closing Date. The representations and
warranties set forth in Section 4.4 of this Agreement shall survive
indefinitely. The representations and warranties set forth in Sections 4.9 and
4.25 of this Agreement shall survive until and through six months after all
amounts for Taxes applicable to the Company, their respective employees and the
transactions contemplated by this Agreement, in the case of Section 4.9, and
all amounts for Grants from the government in the case of Section 4.25, become
final and non-appealable for all periods through or including the Closing Date,
at which time such representations and warranties shall expire.
SECTION 10.4. INDEMNIFICATION CLAIMS PROCEDURES. All claims
for indemnification by any party seeking indemnification (the "Indemnified
Party") from another party (the "Indemnifying Party") under Sections 10.1 and
10.2 shall be asserted and resolved as follows:
(a) In the event that any claim or demand for which
the Indemnifying Party would be liable to any Indemnified Party hereunder is
asserted against or sought to be collected from any Indemnified Party by a
third party, the Indemnified Party shall promptly notify the Indemnifying Party
(and any known pertinent insurance carrier) in reasonable detail of such claim
or demand and the amount or the estimated amount thereof to the extent then
feasible (which estimate shall not be conclusive of the final amount of such
claim and demand) (the "Claim Notice"). The Indemnifying Party shall have
thirty (30) days from the personal delivery or mailing of the Claim Notice (the
"Notice Period") to notify the Indemnified Party whether or not the
Indemnifying Party desires to defend the Indemnified Party against such claim
or demand.
<PAGE> 43
All costs and expenses incurred by the Indemnifying Party in
defending such claim or demand shall be a liability of, and shall be paid by,
the Indemnifying Party. In the event that the Indemnifying Party notifies the
Indemnified Party within the Notice Period that it desires to defend the
Indemnified Party against such claim or demand and except as hereinafter
provided, the Indemnifying Party shall have the right to defend the Indemnified
Party by counsel of the Indemnifying Party's own choosing, either in the
Indemnifying Party's name, or the Indemnified Party's name by appropriate
proceedings. If any Indemnified Party desires to participate in, but not
control, any such defense or settlement it may do so at its sole cost and
expense and, in any event, the Indemnified Party shall cooperate with the
Indemnifying Party and such counsel. To the extent the Indemnifying Party shall
control or participate in the defense or settlement of any third party claim or
demand, the Indemnified Party shall give to the Indemnifying Party and its
counsel access to, during normal business hours, the relevant business records
and other documents, and shall permit them to consult with the employees and
counsel of the Indemnified Party to the extent consistent with the application
of relevant evidentiary privileges. The Indemnifying Party shall keep the
Indemnified Party reasonably apprised of the course of any negotiations or
proceedings and the Indemnifying Party shall not settle any claim or demand
without the consent of the affected Indemnified Party, which consent shall not
be unreasonably withheld or unduly delayed. As soon as reasonably practicable
after the Indemnifying Party has reached a final decision as to whether or not
all or any portion of the obligations related to such claim or demand are
obligations for which the Indemnifying Party is required to indemnify such
Indemnified Party hereunder and, in any event, prior to entering into any such
settlement or other final resolution of any claim or demand, the Indemnifying
Party shall notify the Indemnified Party in writing of its position as to
whether or not all or any portion of the obligations related to such claim or
demand are obligations for which the Indemnifying Party is required to
indemnify such Indemnified Party in accordance with this Article X.
(b) If the Indemnifying Party elects or is deemed to
have elected not to take over the defense of any such claim or demand, the
Indemnified Party shall have the right to defend, compromise and settle such
claim or demand on such terms as the Indemnified Party in his, her or its
discretion may determine, subject to the prior consent of the Indemnifying
Party, which consent shall not be unreasonably withheld or unduly delayed, and
the Indemnifying Party shall continue to be bound to indemnify the Indemnified
Party in accordance with and to the extent provided under the terms of this
Article X. The Indemnified Party shall or shall direct in writing its counsel
to deliver to the Indemnifying Party copies of all correspondence and other
matters relating to such claim or demand. Notwithstanding the foregoing, to the
extent that the claim or demand involves or could result in claims against, or
potential liability of, the Indemnifying Party the extent or nature of which
were not known by the Indemnifying Party as of the date the Indemnifying Party
elects or is deemed to have elected not to take over the defense of such claim
or demand, the Indemnifying Party shall, by written notice to the Indemnified
Party, be entitled to take over the defense of such claim or demand.
(c) In the event an Indemnified Party should have a
claim against the Indemnifying Party hereunder which does not involve a claim
or demand being asserted against
<PAGE> 44
or sought to be collected from it by a third party, the Indemnified Party shall
promptly send a Claim Notice with respect to such claim to the Indemnifying
Party.
(d) The Indemnified Party's failure to give
reasonably prompt notice to the Indemnifying Party of any actual, threatened or
possible claim or demand which may give rise to a right of indemnification
hereunder shall not relieve the Indemnifying Party of any liability which it
may have to an Indemnified Party except to the extent the failure to give such
notice prejudiced the Indemnifying Party.
SECTION 10.5. RIGHT OF SET-OFF. In addition to any other
remedy available in equity or at law, the Indemnified Party shall be entitled
to set off the amount of any obligation for which it is entitled to be
indemnified under this Article X against any amounts payable to the
Indemnifying Party hereunder or under any other agreement contemplated hereby.
SECTION 10.6. LIMITATION OF LIABILITY.
(a) Notwithstanding any other provision of this
Agreement, neither the aggregate liability hereunder of the Buyer and Sykes on
the one hand, nor the aggregate liability hereunder of the Sellers on the other
hand, shall exceed DM19,824,000.
(b) Annette Stockmann's liability for any indemnity
claim shall be limited to the sum, determined as of the date of such claim, of
(i) any proceeds from the sale of her Seller's Shares and (ii) the value of
Seller's Shares still held by her, based upon the Sykes Stock Closing Price as
of the date of determination.
(c) The Sellers` aggregate liability hereunder for
any breach of the representation and warranty in Section 4.12 (f) shall be
limited to DM 1,982,400.
(d) Georg J. Stockmann's liability for an indemnity
claim shall be limited only as provided in Section 10.6(a) and Section 10.6
(c).
(e) The Sellers shall be liable to indemnify the
Buyer for claims on account of Taxes only to the extent additional Taxes
resulting from field audits are not compensated by lowered Tax burdens in
following years resulting from such additional Taxes. To the extent additional
capitalization of items originally treated as expenses entail additional
depreciations in future years, the liability of the Sellers on account of
additional Taxes shall be reduced by the discounted cash value of the
additional depreciation, discounted at a rate of 5% per year.
<PAGE> 45
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. GOVERNING LAW. This Agreement and
the rights and obligations of the parties hereunder shall be governed by and
construed in accordance with the laws of the Federal Republic of Germany. Any
disputes arising under this Agreement shall be resolved in accordance with the
provisions of the separate Arbitration Agreement which has been executed by the
parties as of the date hereof.
SECTION 11.2. ENTIRE UNDERSTANDING, WAIVER, ETC. This
Agreement sets forth the entire understanding of the parties and supersedes any
and all prior or contemporaneous agreements, arrangements and understandings
relating to the subject matter hereof, and the provisions hereof may not be
changed, modified, waived or altered except by an agreement in writing signed
by the party entitled to the benefit of the provision(s) to be waived hereto. A
waiver by any party of any of the terms or conditions of this Agreement, or of
any breach thereof, shall not be deemed a waiver of such term or condition for
the future, or of any other term or condition hereof, or of any subsequent
breach thereof.
SECTION 11.3. SEVERABILITY; GAPS. If any provision of this
Agreement or the application of such provision shall be held by a court of
competent jurisdiction to be unenforceable, or otherwise be or become invalid
or unenforceable, the remaining provisions of this Agreement shall remain in
full force and effect. In addition, any gap or omission in the terms of this
Agreement shall not prejudice its validity, and the remaining provisions of
this Agreement shall remain in full force and effect. Any gap in the terms of
this Agreement, whether caused by the invalidity or unenforceability of any
provision, or by an omission or otherwise, shall be filled by a provision which
legally and economically most closely matches the intent of the parties hereto
with respect to the gap. The parties hereto undertake to enter from time to
time into such amendments as are necessary or appropriate to document the
provisions filling such gaps.
SECTION 11.4. CAPTIONS. The captions herein are for
convenience only and shall not be considered a part of this Agreement for any
purpose, including, without limitation, the constructions or interpretation of
any provision hereof.
SECTION 11.5. NOTICES. All notices, requests, demands and
other communications (collectively, "Notices") that are required or may be
given under this Agreement shall be in writing. All Notices shall be deemed to
have been duly given or made: if by hand, immediately upon delivery; if by
telecopier or similar device, immediately upon sending, provided notice is sent
on a Business Day during the hours of 9:00 a.m. and 6:00 p.m. at the location
of the party receiving the Notice, but if not, then immediately upon the
beginning of the first Business Day after being sent; if by FedEx, Express Mail
or any other reputable overnight delivery service, three Business Days after
being placed in the exclusive custody and control of said courier; and if
mailed by certified mail, return receipt requested, ten Business Days after
mailing.
<PAGE> 46
Notwithstanding the foregoing, with respect to any Notice given or made by
telecopier or similar device, such Notice shall not be effective unless and
until (i) the telecopier or similar advice being used prints a written
confirmation of the successful completion of such communication by the party
sending the Notice, and (ii) a copy of such Notice is deposited in first class
mail to the appropriate address for the party to whom the Notice is sent. In
addition, notwithstanding the foregoing, a Notice of a change of address by a
party hereto shall not be effective until received by the party to whom such
Notice of a change of address is sent. All Notices are to be given or made to
the parties at the following addresses (or to such other address as either
party may designate by Notice in accordance with the provisions of this
Section):
(a) If to the Sellers:
Mr. and Mrs. Stockmann
Clydesdale 11
30966 Hemmingen
Federal Republic of Germany
Telephone: 011 49 510 192 8282
(b) If to Sykes:
Sykes Enterprises, Incorporated
100 North Tampa Street
Suite 3900
Tampa, Florida 33602
Attention: Scott J. Bendert,
Senior Vice President-Finance
Telephone: 001 (813) 274-1000
Facsimile: 001 (813) 273 0148
(c) If to Buyer:
Sykes Enterprises GmbH
c/o Sykes Enterprises, Incorporated
100 North Tampa Street
Suite 3900
Tampa, Florida 33602
Attention: Scott J. Bendert,
Senior Vice Director
Telephone: 001 (813) 274-1000
Facsimile: 001 (813) 273 0148
SECTION 11.6. SUCCESSORS AND ASSIGNS. Neither this Agreement
nor any of the rights or obligations arising hereunder shall be assignable by
any party without the prior written consent of the other parties hereto;
provided, however, that notwithstanding the foregoing Sykes
<PAGE> 47
may assign its rights and obligations under this Agreement to any wholly owned
subsidiary of Sykes which agrees in writing to be bound by and to perform fully
all of Sykes' obligations hereunder and, provided that in the event of any such
assignment by Sykes, Sykes shall remain liable hereunder for the performance of
Sykes' obligations hereunder notwithstanding such assignment.
SECTION 11.7. PARTIES IN INTEREST. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Nothing in this Agreement, express
or implied, shall confer upon any Person, other than the parties hereto, and
their successors and permitted assigns, any rights or remedies under or by
reason of this Agreement.
SECTION 11.8. COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which, together, shall constitute one and the same instrument.
SECTION 11.9. CONSTRUCTION OF TERMS. Any reference herein
to the masculine or neuter shall include the masculine, the feminine and
the neuter, and any reference herein to the singular or plural shall include
the opposite thereof. The parties to this Agreement acknowledge that each party
and counsel to each party has participated in the drafting of this Agreement
and agree that this Agreement shall not be interpreted against one party or the
other based upon who drafted it.
SECTION 11.10. SYKES GUARANTEE. Sykes hereby guarantees for
the benefit of the Sellers the full and prompt performance by the Buyer of all
of its obligations toward the Sellers under this Agreement.
<PAGE> 48
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the day and year first above written.
SELLERS:
-----------------------------------
Georg J. Stockmann
-----------------------------------
Annette Stockmann
SYKES:
SYKES ENTERPRISES, INCORPORATED
-----------------------------------
Scott J. Bendert, Senior Vice President - Finance
BUYER:
SYKES ENTERPRISES GMBH
-----------------------------------
Scott J. Bendert, Director
<PAGE> 1
Exhibit 3.2
SYKES ENTERPRISES, INCORPORATED
ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION
DESIGNATING THE PREFERENCES, RIGHTS AND LIMITATIONS OF ONE (1)
SHARE OF SPECIAL PREFERRED VOTING STOCK
$0.01 PAR VALUE
Pursuant to Sections 607.0602, 607.1002, and 607.1006 of the Florida
Business Corporation Act ("FBCA"), Sykes Enterprises, Incorporated, a Florida
corporation (the "Corporation"), does hereby certify that:
FIRST: Pursuant to the authority expressly vested in the Board of
Directors of the Corporation by Section 3.3(A) of the Articles of Incorporation
of the Corporation, as amended (the "Articles") and Section 607.0602 of the
FBCA, the Board of Directors of the Corporation, by resolutions duly adopted
effective as of December 17, 1998 has classified one share of the authorized but
unissued Preferred Stock, par value $.01 per share ("Special Preferred Voting
Stock"), as a separate class of Preferred Stock, authorized the issuance of a
maximum of one share of Special Preferred Voting Stock, and set the preferences,
conversion and other rights, voting powers, restrictions as to dividends,
qualifications, terms of redemption and other terms and conditions of the
Special Preferred Voting Stock. Shareholder approval was not required under the
Articles with respect to such designation.
SECOND: The class of Special Preferred Voting Stock of the Corporation
created by the resolutions duly adopted by the Board of Directors of the
Corporation shall have the following designation, number of shares, preferences,
conversion and other rights, voting powers, restrictions and limitation as to
dividends, qualifications, terms of redemption and other terms and conditions:
Section 1. Designation and Number of Shares. A class of Preferred
Stock, consisting of one share of such stock, is hereby designated as "Special
Preferred Voting Stock." So long as any "Exchangeable Shares" (as defined in the
Combination Agreement (the "Combination Agreement") dated December 9, 1998,
among the Corporation, Oracle Service Networks Corporation ("Oracle"), and the
shareholders of Oracle) shall be outstanding, the number of shares comprising
the Special Preferred Voting Stock shall not be increased or decreased and no
other term of the Special Preferred Voting Stock shall be amended, except upon
the approval of the holder of the outstanding share of Special Preferred Voting
Stock.
Section 2. Voting. The outstanding share of Special Preferred Voting
Stock shall be entitled at any relevant date to the number of votes (including
for purposes of determining the presence of a quorum) determined in accordance
with the terms and conditions of the Exchangeable Shares Provisions (as set
forth in the Combination Agreement) and the Voting Trust
<PAGE> 2
Agreement dated December 29, 1998, among the Corporation, Oracle, and Firstar
Bank Milwaukee, N.A. on all matters presented to the holders of Common Stock of
the Corporation, and, except as required by law, the Special Preferred Voting
Stock shall be voted together with the Common Stock as a single class. The
Special Preferred Voting Stock shall have no other voting rights except as
required by law.
Section 3. Record Holder. The Corporation and any transfer agent for
the Special Preferred Voting Stock may deem and treat the record holder of the
sole share of Special Preferred Voting Stock as the true and lawful owner
thereof for all purposes, and neither the Corporation nor any transfer agent
shall be affected by any notice to the contrary.
Section 4. Sinking Fund. The holder of the share of Special Preferred
Voting Stock shall not be entitled to the benefits of any retirement or sinking
fund.
Section 5. Dividends and Conversion Rights. The holder of the share of
Special Preferred Voting Stock shall not be entitled to any dividends or
distributions that may be declared by the corporation. The Special Preferred
Voting Stock is not convertible into any other class or series of the capital
stock of the Corporation or into cash, property or other rights.
Section 6. Liquidation, Dissolution or Winding-Up. The holder of the
share of Special Preferred Voting Stock shall be entitled to receive $20 on
liquidation of the Corporation before any amount shall be paid or any assets of
the Corporation distributed to the holders of Common Stock of the Corporation,
but only after the liquidation preference of any other shares of Preferred Stock
of the Corporation, if any, has been paid in full.
Section 7. Redemption. The share of Special Preferred Voting Stock
shall automatically be redeemed at such time as no Exchangeable Shares shall be
outstanding or upon the termination of the Voting Trust Agreement.
THIRD: The Special Preferred Voting Stock has been classified and
designated by the Board of Directors of the Corporation under the authority
contained in Section 3.3(A) of the Articles.
FOURTH: These Articles of Amendment have been approved by the Board of
Directors of the Corporation in the manner and by the vote required by law.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be executed in its name and on its behalf by the undersigned
officer of the Corporation and attested to by its Secretary effective as of the
29th day of December, 1998.
SYKES ENTERPRISES, INCORPORATED
By: /s/ Scott J. Bendert
-------------------------------------------
Scott J. Bendert
Senior Vice President - Finance, Treasurer
and Chief Financial Officer
2
<PAGE> 1
EXHIBIT 10.19
SYKES ENTERPRISES INCORPORATED
1999 EMPLOYEES' STOCK PURCHASE PLAN
1. Purpose. The Sykes Enterprises Incorporated 1999 Employees' Stock
Purchase Plan (the "Plan") has been established by Sykes Enterprises
Incorporated, a Delaware corporation (the "Company"), to allow employees of the
Company and its subsidiaries to purchase shares of Common Stock of the Company
("Company Shares") and thereby share in the ownership of the Company.
2. Company Shares Available for Purchase. Subject to adjustment in
accordance with Paragraph 12, the maximum number of Company Shares which may be
purchased pursuant to the Plan shall be 1,000,000 Company Shares.
3. Administration. The Plan shall be administered by a committee of the
Board of Directors of the Company consisting of not less than two (2) directors
appointed for such purpose (the "Committee"). A majority of the members of the
Committee shall constitute a quorum. All determinations of the Committee shall
be made by at least a majority of its members. Any decision or determination
reduced to writing and signed by all of the members of the Committee shall be
fully as effective as it if had been made by a unanimous vote at a meeting duly
called and held. If at any time the Committee shall not be in existence, the
Board of Directors of the Company (the "Board") shall administer the Plan and
all references to the Committee herein shall include the Board.
In accordance with the provisions of the Plan, the Committee shall
establish such terms and conditions for the grants of purchase rights as the
Committee may deem necessary or advisable, adopt such rules or regulations which
may become necessary or advisable for the operation of the Plan, and make such
determinations, and take such other actions, as are expressly authorized or
contemplated in the Plan or as may be required for the proper administration of
the Plan in accordance with its terms. The Committee, in its discretion, may
appoint an individual (the "Plan Administrator") to assist the Committee in
corresponding with employees, with record keeping and in performing other
administerial type functions in connection with the Plan; provided, however,
that the Plan Administrator shall exercise no discretion with respect to the
interpretation of the Plan or of the rights to purchase Company Shares pursuant
to the Plan. The interpretation of any provision of the Plan by the Committee
and any determination on the matters referred to in this paragraph shall be
final.
4. Eligibility. Any employee who is employed by the Company or one of its
participating subsidiaries on a given Grant Date (as defined below) shall be
eligible to participate in the Plan; provided, however, that no director or
"executive officer" (as defined below) or five percent (5%) or greater
shareholder of the Company or its subsidiaries shall be eligible to participate
in the Plan. The term "executive officer" shall mean those persons designated as
"officers" of the Company for purposes of reporting pursuant to Section 16(a) of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder. The Committee may specify which of the Company's
subsidiaries are eligible to participate. The Committee may also exclude from
the group of eligible employees those with less than two years of employment at
the Grant Date and those whose customary employment is for less than 20 hours
per week or 5 months per year, or may apply any lesser service requirement as a
condition of eligibility.
5. Grant of Purchase Rights. In the discretion of the Committee, each
calendar year, or more frequently if deemed appropriate, beginning on such date
as the Committee may specify (the "Grant Date"),
1
<PAGE> 2
each eligible employee of the Company and its subsidiaries shall automatically
be granted the right to purchase up to such maximum number of Company Shares as
the Committee, in its discretion, may determine. The maximum number of Company
Shares available for purchase shall be the same for all eligible employees and
all eligible employees shall have the same rights and privileges with respect to
the purchase of Company Shares under the Plan. In no event, however, may an
employee be granted an option in any one calendar year to purchase stock with a
value of more than $25,000 as of the Grant Date. Further, nothing contained
herein shall require the Committee to cause any purchase rights to be granted
hereunder during any calendar year and the Committee may, in connection with any
grant of rights, specify the maximum number of Company Shares in the aggregate
available for purchase by all eligible employees during any Purchase Period (the
"Maximum Number of Purchase Period Company Shares").
Each purchase right shall be exercisable during the period following the
Grant Date (such period is hereinafter referred to as the "Purchase Period")
established by the Committee, subject to the limitations provided in paragraph
2. A purchase period may not exceed two years. In the event the Committee
decides to cause any purchase rights to be granted under the Plan, the Company
shall send to each eligible employee a written notice specifying the Grant Date
and the terms and conditions of the right, including the purchase price per
share of Company Shares subject to such right. No Company Shares may be issued
pursuant to the exercise of purchase rights after the maximum number of Company
Shares provided for in paragraph 2 has been purchased. Each purchase right
granted pursuant to this paragraph 5 shall expire at 12:00 p.m., on the last day
of the Purchase Period, unless terminated earlier pursuant to paragraph 11.
In no event may the Committee issue purchase rights that may be exercised
more than ten years after shareholder approval of this plan.
6. Exercise of Purchase Rights. Subject to the limitations elsewhere in
the Plan, employees may exercise their rights to purchase Company Shares granted
under the Plan, in whole, or in part, at any time during the Purchase Period. An
employee wishing to exercise his or her rights to purchase Company Shares
granted under the Plan must complete an application on a form prescribed by the
Committee, which form shall be deemed to include the full terms and conditions
of the Plan. Each application to purchase Company Shares shall be accompanied by
payment in full to the Company, in cash or its equivalent, of the purchase price
for such Company Shares. An application on the prescribed form, properly
completed and accompanied by the required payment, shall be deemed to be
accepted as of the last day of the Purchase Period, subject to adjustment in the
number of Company Shares which may be purchased by participants as provided for
pursuant to this paragraph 6. Notwithstanding the foregoing, no application
shall be accepted unless received by the Plan Administrator or postmarked, if
delivered by mail, on or before the last day of the Purchase Period. Any
purchase rights that have been granted and which are not exercised or funded on
the last day of the Purchase Period shall immediately terminate. The Committee
may establish payroll deduction as a method of funding employee stock purchases,
but amounts deducted from pay will not be segregated from the Company's general
assets and will not be credited with interest.
If applications to purchase a number of Company Shares in excess of the
Maximum Number of Purchase Period Company Shares are received by the Plan
Administrator, each employee properly exercising purchase rights during such
Purchase Period shall be entitled to purchase the number of Company Shares
determined by the sum of:
a) the Applicable Minimum Number of Company Shares; and
b) a pro rata portion of the Company Shares available after satisfying
each employee's minimum purchase rights based on the number of shares with
respect to which such employee has exercised his
2
<PAGE> 3
purchase rights and the aggregate number of shares with respect to which
all employees have exercised purchase rights during the Purchase Period.
For purposes of this paragraph 6, the "Applicable Minimum Number of Company
Shares" which may be purchased during a Purchase Period shall be such number of
Company Shares as the Committee, in its discretion, may determine.
Notwithstanding any other provisions in this paragraph 6, the Committee may
adjust the number of Company Shares which may be purchased by an employee
according to such non-discriminatory rules and regulations as the Committee may
establish. Any monies held by the Company on behalf of a participant during the
Purchase Period but not used to exercise purchase rights shall be returned to
the participant. No interest will accrue on any monies held by the Company on
behalf of participants during a Purchase Period.
7. Purchase Price. The purchase price per share of each purchase right
granted under the Plan shall be the fair market value, as determined by the
Committee, of a Company Share on the date of exercise, less 12.5% of such market
value. Notwithstanding the foregoing, the purchase price per share of a Company
Share shall in no event be less than the par value of a Company Share.
8. Limitations on Exercise of Purchase Rights. Purchase rights granted
under the Plan shall not become exercisable until such time as the Company
Shares which may be issued pursuant to the Plan (i) have been registered under
the Securities Act of 1933, as amended (the "Act"), and any applicable state and
foreign securities laws; or (ii) in the opinion of the Company's counsel, may be
issued pursuant to an exemption from registration under the Act and in
compliance with any applicable state and foreign securities laws.
9. Stock Certificates. Certificates covering the Company Shares purchased
under the Plan shall be issued as soon as reasonably practicable after the last
day of the Purchase Period.
10. Nontransferability of Purchase Rights. An employee's right to exercise
purchase rights under the Plan shall not be transferable by such employee and
may be exercised only by the employee. An employee's right to exercise purchase
rights may not be sold, transferred, pledged, assigned or otherwise alienated or
hypothecated.
11. Termination of Employment. Participation in the Plan terminates
immediately when an employee ceases to be employed by the Company or a
subsidiary for any reason whatsoever, including by reason of death, discharge or
resignation, and such terminated employee's right to exercise purchase rights
under the Plan shall thereupon terminate. As soon as administratively feasible
after termination of participation, the Company shall pay to such employee or
his or her estate any amounts held by the Company on behalf of the employee at
the time of termination and not yet used to exercise purchase rights.
12. Adjustments. In order to prevent dilution or enlargement of purchase
rights, in the event of reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation or other change in
Company Shares, the Committee shall make appropriate changes in the number of
Company Shares which may be purchased pursuant to the Plan, and the number of
Company Shares covered by, and the purchase price under, each outstanding
purchase right, and such other changes in the Plan and outstanding purchase
rights as the Committee may deem appropriate under the circumstances. No rights
to purchase a fractional Company Share shall result from any such change.
13. Restrictions on Stock Transferability. The Committee shall impose such
non-discriminatory restrictions on the transfer of any shares of stock acquired
pursuant to the exercise of a purchase right under the Plan as it may deem
advisable, including, without limitation, restrictions under applicable Federal
3
<PAGE> 4
securities law, under the requirements of any stock exchange upon which such
shares of stock are then listed, if any, and under any state and foreign
securities laws applicable to such shares.
14. Amendment/Termination. The Board may amend or terminate the Plan at
any time, but any such amendment or termination (other than an adjustment
contemplated by paragraph 12) shall not affect purchase rights outstanding at
the time thereof.
15. Applicable Law. The Plan shall, to the extent not inconsistent with
applicable federal law, be construed under the laws of the State of Florida.
16. Effective Date. The Plan shall become effective as of the date of its
adoption by both the Board and the Company's shareholders.
4
<PAGE> 1
EXHIBIT 13.1
Selected Financial Data
The following selected financial data has been derived from the
Company's consolidated financial statements. The information below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the Company's Consolidated Financial
Statements and related notes.
<TABLE>
<CAPTION>
YEAR FIVE MONTHS YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
JULY 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1994 1994 1995 1996 1997 1998
-----------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues $129,127 $64,800 $197,334 $248,699 $351,593 $469,462
Income from operations(1)(2) 3,280 3,113 9,527 21,611 36,605 58,378
Net income(3)(4) 1,152 1,402 3,531 11,685 23,877 35,824
PER SHARE DATA:
Basic (1)(2)(3)(4)(5)(6) $ 0.04 $ 0.03 $ 0.09 $ 0.32 $ 0.58 $ 0.87
Diluted $ 0.04 $ 0.03 $ 0.09 $ 0.31 $ 0.56 $ 0.85
JULY 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1994 1994 1995 1996 1997 1998
-----------------------------------------------------------------------------
(in thousands)
BALANCE SHEET DATA:
Working capital $ 4,946 $ 9,093 $ 8,138 $116,687 $116,661 $ 85,204
Total assets 60,052 69,688 72,108 238,318 268,197 365,134
Long-term debt, less
current installments 9,779 13,153 9,584 8,571 35,990 75,448
Shareholders' equity 12,233 13,555 20,436 147,402 152,560 164,937
</TABLE>
(1) The balance for 1997 is exclusive of approximately $12.2 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 associated with an acquisition.
(2) The balance for 1998 is exclusive of approximately $0.5 million of
expense associated with accrued severance costs, approximately $1.4
million of one-time merger and related charges associated with
acquisitions and approximately $14.5 million of acquisition related
in-process research and development costs.
<PAGE> 2
(3) The balance for 1997 is exclusive of approximately $2.8 million of
expense associated with acquisition related in-process research and
development costs incurred by a joint venture entity, approximately
$1.2 million of one-time merger and related charges associated with an
acquisition and approximately $12.2 million of one-time charges as
identified in Item (1) above.
(4) The balance for 1998 is exclusive of approximately $3.9 million of
acquisition related in-process research and development costs incurred
by a joint venture entity, approximately $7.3 million of charges
associated with the write-down of marketable securities, and
approximately $16.3 million of one-time charges as identified in Item
(2) above.
(5) Adjusted as if an affiliate of the Company included in the
consolidated financial statements, which was a 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.
(6) The earnings per share amounts prior to 1997 have been restated as
required to comply with SFAS No. 128, Earnings Per Share.
<PAGE> 3
MARKET SHAREHOLDER DATA
Sykes common stock has been quoted on the Nasdaq National Market under the
symbol SYKE since Sykes' initial public offering in April 1996. The following
table sets forth, for the periods indicated, certain information as to the high
and low sale prices per share of Sykes common stock as quoted on the Nasdaq
National Market.
<TABLE>
<CAPTION>
Year ending December 31, 1998 High Low
<S> <C> <C>
First Quarter $25 1/4 $17
Second Quarter 22 1/2 17 1/8
Third Quarter 20 3/4 12 9/16
Fourth Quarter 30 1/2 13 1/2
Year ending December 31, 1997 High Low
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
</TABLE>
Holders of Sykes common stock are entitled to receive dividends out of the
funds legally available when and if declared by the Board of Directors. Sykes
has not declared or paid any cash dividends on its common stock in the past.
Sykes currently anticipates that all of its earnings will be retained for
development and expansion of the Company's business and does not anticipate
paying any cash dividends in the foreseeable future.
As of March 12, 1999, the last sale price of the registrant's common stock was
$30 3/4 on the Nasdaq National Market, and there were approximately 240 holders
of record of the common stock. The Company believes that there are
approximately 10,000 beneficial owners of its common stock.
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Consolidated
Financial Statements, including the notes thereto. The following discussion
compares the year ended December 31, 1998 ("1998") to the year ended December
31, 1997 ("1997"), and 1997 to the year ended December 31, 1996 ("1996"). The
following discussion and analysis contains forward-looking statements that
involve risks and uncertainties. Future events and the Company's actual results
could differ materially from the results reflected in these forward-looking
statements, as a result of certain of the factors set forth below and elsewhere
in this analysis.
OVERVIEW
The Company derives its revenue from providing information technology
("IT") support services, information technology development services and
solutions, on-line clinical managed care services, medical protocol products,
employee benefit administration and support services, and customer product
support solutions. Revenue from technical support services provided through the
IT call centers are recognized as services are rendered. These services are
billed on a fee per call, rate per minute or time and material basis.
Information technology development services and solutions usually are billed on
a time and material basis, generally by the hour, and revenues generally are
recognized as the services are provided. Revenues from on-line clinical managed
care services are generated on a per participant, per month rate basis.
Revenues from medical protocol products are generated from licensing the
Company's software products and from support and consulting services. Revenues
from employee benefit administration and support services are primarily derived
from (i) a recurring monthly fee per eligible employee or participant; (ii) a
one-time implementation fee to cover programming costs; (iii) a COBRA
administration fee of 2% of the participant's premium, as allowed under COBRA
regulations; and (iv) fees for interactive voice response services, optical
character recognition services, distribution services and other ancillary
services on a per job or per item basis. Software licenses are sold on a per
unit or site basis and revenue on such sales is recognized when the related
software is delivered. Customer product support services are generally billed
on a per unit basis. 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 revenue is 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 revenue derived
from such contracts in the future.
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 a joint venture and the results of this entity are included in the other
income (expense) section of the Consolidated Statements of Income for the time
period the entity operated as a 50% joint venture. Effective September 1, 1998,
the Company acquired the remaining portion of this joint venture.
Grants from local or state governments for the acquisition of property
and equipment
<PAGE> 5
are deferred and recognized as income over the corresponding useful lives of
the related property and equipment. Deferred grants, net of amortization,
totaled $14.1 million and $15.4 million at December 31, 1997 and 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 a provision for
potential additional income tax liability resulting from an Internal Revenue
Service examination currently being conducted. The Company believes its
reserves for any liability that may result from this examination are adequate.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the
percentage of revenues represented by certain items reflected in the Company's
statements of income:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
PERCENTAGE OF REVENUES 1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Direct salaries and related costs 61.2 62.5 61.7
General and administrative (1)(2) 30.1 30.6 26.2
Acquired in-process research
and development (3) -- -- 3.1
----- ----- -----
Income from operations 8.7 6.9 9.0
Other income (expense)(4)(5) 0.0 (1.0) (2.6)
----- ----- -----
Income before income taxes 8.7 5.9 6.4
Provision for income taxes(6) 4.0 3.7 4.6
----- ----- -----
Net income(1)(2)(3)(4)(5)(6) 4.7% 2.2% 1.8%
===== ===== =====
</TABLE>
(1) Includes charges associated with the impairment of long-lived assets
pursuant to SFAS No. 121 and one-time merger and related charges of
3.5% related to an acquisition completed in 1997.
(2) Includes charges associated with accrued severance pay and one-time
merger and related charges of 0.4% related to the acquisitions
completed in 1998.
(3) Includes expense associated with the write-off of acquisition related
in-process research and development costs of 3.1% related to the
Company's original ownership and subsequent acquisition of the
remaining outstanding shares of SHPS, Incorporated ("SHPS").
(4) Includes expense associated with the write-off of acquisition related,
in-process research and development costs of 0.8% and 0.8% related to
acquisitions completed by SHPS in 1997 and 1998, respectively.
(5) Includes expense associated with the write-down of marketable
securities of 1.6% in 1998.
(6) 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. See Note 19 of Notes to Consolidated Financial
Statements.
<PAGE> 6
1998 COMPARED TO 1997
Revenues. Revenues increased $117.9 million, or 33.5%, to $469.5
million in 1998 from $351.6 million in 1997. These results reflect an increase
in revenues of $106.2 million from technical support services provided through
IT call centers, an increase in revenues of $7.9 million from information
technology services and solutions, and an increase in revenues of $3.8 million
from customer product services. At the completion of 1998, information
technology support services, information technology services and solutions, and
customer product services accounted for 61.2%, 19.8%, and 19.0%, respectively,
of the Company's consolidated revenues, as compared to 51.5%, 24.2% and 24.3%,
respectively, in 1997.
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, and the inclusion of SHPS' revenue generated since the
date of acquisition. During 1997, the Company opened three new IT call centers
which were fully operational throughout 1998 and opened two additional centers
in 1998. The increase in revenues for information technology services and
solutions was primarily attributable to an increase in the average bill rate
and to an increase in hours billed to customers for professional services when
compared to 1997. The increase in customer product support services revenue is
primarily associated with an acquisition completed in 1997 by a company
subsequently acquired by Sykes which was accounted for under the purchase
method of accounting. Sykes acquired this entity in the fourth quarter of 1997
through a transaction accounted for as a pooling-of-interests.
Direct Salaries and Related Costs. Direct salaries and related costs
increased $70.2 million, or 32.0%, to $289.8 million in 1998 from $219.6
million in 1997. As a percentage of revenues, direct salaries and related costs
decreased to 61.7% in 1998 from 62.5% in the comparable 1997 year. The increase
in the amount of direct salaries and related costs was primarily attributable
to the addition of personnel to support revenue growth. The decrease as a
percentage of revenue 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 technical support services
as a percentage of consolidated results.
General and Administrative. General and administrative expenses
increased $25.9 million, or 26.7%, to $123.2 million in 1998, inclusive of
special one-time charges, from $97.2 million in 1997. As a percentage of
revenues, and inclusive of special one-time charges, general and administrative
expenses decreased to 26.2% in 1998 from 27.7% in the comparable 1997 year. The
increase in the amount of general and administrative expenses was attributable
to the addition of personnel to support the revenue growth. General and
administrative expenses exclusive of $1.9 million of charges associated with
accrued severance costs and one-time merger and related charges associated with
the Company's acquisitions, increased $24.1 million, or 24.8%, to $121.3
million, or 25.8% of revenue. The decrease as a percentage of revenues resulted
from economies of scale associated with spreading costs over a larger revenue
base.
As part of the original ownership and subsequent acquisition of the
remaining outstanding shares of SHPS, the Company determined that the technical
feasibility of SHPS' in-process technology had not been established and a
portion of the technology had no alternative use. Therefore, the Company
recorded a charge of approximately $14.5 million related to the write-off of
the acquired in-process research and development during 1998.
Other Income (Expense). Other expense increased to $12.3 million
during 1998 from $3.6 million during 1997. As a percentage of revenues, other
expense was 2.6% in 1998 compared to 1.0% in 1997. The increase in other
expense was primarily attributable to
<PAGE> 7
approximately $7.3 million of charges associated with the write-down of
marketable securities and an increase in the Company's debt position as a
result of the acquisition of SHPS completed during 1998.
Income Taxes. The provision for income taxes increased $8.3 million,
or 63.0%, to $21.5 million during 1998 from $13.2 million during 1997, and
increased as a percentage of revenues to 4.6% from 3.7%, respectively. This
increase was attributable to the increase of income before income taxes and to
an increase in income before income taxes as a percentage of revenues. However,
the Company's marginal tax rate increased to 72.2% during 1998 versus 63.3% for
1997, primarily as a result of nondeductible expenses which consisted primarily
of goodwill amortization and the write-off of in-process research and
development costs.
Net Income. As a result of the foregoing, net income inclusive of
special one-time charges increased to $8.3 million in 1998 from $7.6 million in
1997. Net income for 1998 exclusive of the $1.9 million of one-time merger and
related charges, exclusive of $7.3 million of charges associated with the
write-down of marketable securities, exclusive of the $14.5 million associated
with the acquisition and subsequent write-off of in-process research and
development and exclusive of the $3.8 million of acquired in-process research
and development charges incurred by the joint venture entity would have been
$35.8 million.
1997 COMPARED TO 1996
Revenues. Revenues increased $102.9 million, or 41.4%, to $351.6
million in 1997 from $248.7 million in 1996. These results reflect an increase
in revenues of $44.5 million from customer product support services, an
increase in revenues of $49.5 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, information technology
services and solutions, and customer product services accounted for 51.5%,
24.2% and 24.3%, respectively, of the Company's consolidated revenues, as
compared to 53.0%, 30.0% and 17.0%, respectively in 1996.
The increase in customer product support services revenue is primarily
associated with an acquisition completed in 1997 by a company subsequently
acquired by Sykes which was accounted for under the purchase method of
accounting. Sykes acquired this entity in the fourth quarter of 1997 in a
transaction accounted for as a pooling-of-interests. 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 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 $67.4 million, or 44.3%, to $219.6 million in 1997 from $152.2
million in 1996. As a percentage of revenues, direct salaries and related costs
increased to 62.5% in 1997 from 61.2% in the comparable 1996 year. 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 a 1997
acquisition referenced above and the addition of personnel to support revenue
growth.
General and Administrative. General and administrative expenses
increased $22.3 million, or 29.8%, to $97.2 million in 1997, inclusive of
special one-time charges, from
<PAGE> 8
$74.9 million in 1996. As a percentage of revenues, and inclusive of special
one-time charges, general and administrative expenses decreased to 27.7% in
1997 from 30.1% in 1996. The increase in the amount of general and
administrative expenses was attributable to the addition of personnel to
support the revenue growth. General and administrative expenses exclusive of
$1.8 million of one-time merger and related charges associated with the
Company's acquisition in late 1997, increased $20.5 million, or 27.4%, to $95.4
million, or 27.1% 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
$3.6 million during 1997 from interest and other income of less than $0.1
million during 1996. As a percentage of revenues, interest and other expense
was 1.0% in 1997 compared to less than 0.1% 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
incurred by the joint venture entity and hence its recording below income from
operations, and an increase in the Company's debt position as a result of an
acquisition completed during 1997, partially offset by interest income earned
on available funds realized from the Company's public offerings.
Income Taxes. Income taxes increased $3.3 million, or 33.3%, to $13.2
million during 1997 from $9.9 million during 1996, but decreased as a
percentage of revenues to 3.7% from 4.0%, respectively. This dollar increase
was attributable to the significant increase in the amount of income before
income taxes. However, the Company's marginal tax rate increased to 63.3%
during 1997 from 45.7% during 1996 primarily as a result of nondeductible
expenses which consisted primarily of goodwill amortization and the write-off
of in-process research and development costs.
Net Income. As a result of the foregoing, net income inclusive of
special one-time charges decreased to $7.6 million in 1997 from $11.8 million
in 1996. Net income for 1997 exclusive of the $12.2 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 $23.9 million for 1997.
<PAGE> 9
QUARTERLY RESULTS
The following information presents unaudited quarterly operating
results for the Company for 1997 and 1998. The data has been prepared by the
Company on a basis consistent with the Consolidated Financial Statements
included elsewhere in this Form 10-K, and include all adjustments, consisting
of normal recurring accruals, that the Company considers necessary for a fair
presentation thereof. The quarterly operating results for 1997 and for the
first three quarters of 1998 have been restated to reflect the results of two
acquisitions that were completed during the fourth quarter of 1998 utilizing
the pooling-of-interests method of accounting. These operating results are not
necessarily indicative of the Company's future performance.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------
3/30/97 6/29/97 9/28/97 12/31/97 3/31/98 6/30/98 9/30/98 12/31/98
-------- -------- -------- -------- -------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 76,983 $ 88,773 $ 89,443 $ 96,394 $ 98,088 $110,667 $ 118,316 $ 142,391
Direct salaries
and related costs 45,867 55,662 57,005 61,051 61,160 68,768 72,806 87,068
General and adminis-
trative(1)(2)(5)(6) 21,639 34,856 24,316 26,806 26,319 28,789 31,316 36,736
Acquired in-process
research and
development (5) -- -- -- -- -- -- 14,469 --
-------- -------- -------- -------- -------- --------- --------- ---------
Income (loss) from
operations(1)(2)
(5)(6) 9,477 (1,745) 8,122 8,537 10,609 13,110 (275) 18,587
Other income
(expense)(3)(4)(7) 198 167 (247) (3,697) (3,839) 188 (504) (8,115)
-------- -------- -------- -------- -------- -------- --------- ---------
Income (loss) before
income taxes(1)(2)
(5)(6) 9,675 (1,578) 7,875 4,840 6,770 13,298 (779) 10,472
Provision for
income taxes(8) 4,091 3,322 2,767 3,001 3,867 4,997 5,333 7,286
-------- -------- -------- -------- -------- -------- --------- ---------
Net income (loss)
(1)(2)(3)(4)(5)
(6)(7)(8) $ 5,584 $ (4,900) $ 5,108 $ 1,839 $ 2,903 $ 8,301 $ (6,112) $ 3,186
-------- -------- -------- -------- -------- -------- --------- ---------
Net income (loss) per
share(1)(2)(3)(4)
(5)(6)(7)(8) $ 0.13 $ (0.12) $ 0.12 $ 0.04 $ 0.07 $ 0.20 $ (0.15) $ 0.07
======== ======== ======== ======== ======== ======== ========= =========
Total diluted
shares 42,227 41,022 42,388 42,284 42,219 42,220 41,337 42,497
</TABLE>
(1) The quarter ended June 29, 1997 includes a $10.4 million charge
associated with the impairment of long-lived assets pursuant to SFAS
No. 121. Exclusive of such charge, income from operations, income
before income taxes, net income, and net income per diluted share
would have been approximately $8.7 million, $8.8 million, $5.5 million
and $0.13, respectively.
(2) The quarter ended December 31, 1997 includes approximately $1.8
million of one-time merger and related charges associated with an
acquisition. 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
$10.3 million, $10.7 million, $7.7 million and $0.18, respectively.
<PAGE> 10
(3) The quarter ended December 31, 1997 includes approximately $2.8
million of expense associated with acquisition related in-process
research and development cost and $1.2 million of one-time merger and
related charges.
(4) The quarter ended March 31, 1998, includes approximately $3.8 million
of expense associated with the write-off of acquisition related
in-process research and development by the joint venture entity.
Exclusive of such charge, income before income taxes, net income, and
net income per diluted share would have been approximately $10.6
million, $6.8 million and $0.16, respectively. The Company adjusted
the amount originally allocated to loss from joint venture to reflect
the new methodology set forth in the September 15, 1998 letter from
the SEC Staff to the American Institute of Certified Public
Accountants ("AICPA") regarding acquired in-process research and
development.
(5) The quarter ended September 30, 1998, includes approximately $0.5
million of expense associated with accrued severance costs and
approximately $14.5 million of expense associated with the write-off
of acquisition related in-process research and development cost.
Exclusive of such charges, income from operations, income before
income taxes, net income, and net income per diluted share would have
been approximately $14.6 million, $14.1 million, $8.8 million and
$0.21, respectively. The Company adjusted the amounts originally
allocated to acquired in-process research and development to reflect
the new methodology set forth in the September 15, 1998 letter from
the SEC Staff to the AICPA.
(6) The quarter ended December 31, 1998, includes approximately $1.4
million of one-time merger and related charges associated with
acquisitions. Exclusive of such charge and the expense referenced in
(7) below, income from operations, income before income taxes, net
income, and net income per diluted share would have been approximately
$20.0 million, $19.2 million, $11.9 million and $0.28, respectively.
(7) The quarter ended December 31, 1998, includes approximately $7.3
million of charges associated with the write-down of marketable
securities.
(8) 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. See Note 19 of Notes to Consolidated Financial
Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are equity offerings, cash
flows from operations and available borrowings under its credit facility. The
Company has completed two equity offerings since April 1996 and has utilized
these proceeds to make capital expenditures associated primarily with its
technical support services as identified above, to repay debt primarily
associated with entities it has acquired subsequent to the public offerings, to
acquire interest in and provide capitalization to its 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 of any such funds, including
possible additional acquisitions. Pending such use, the Company will invest the
balance of its available funds in short-term, investment grade securities or
money market instruments.
During February 1998, the Company entered into a $150.0 million
syndicated credit 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 ratios, leverage, coverage and capital
expenditures and acquisitions as defined by the agreement.
<PAGE> 11
During 1998, the Company generated approximately $41.1 million in
cash, net from operating activities. The combination of these funds with the
$1.1 million received from issuance of common stock, $2.6 million received from
grants associated with the construction of a domestic IT call center and
available cash and cash equivalents, were used in 1998 to fund $37.3 million of
capital expenditures, $89.7 million in repayment of debt, $10.7 million of
investments in a joint venture and $28.1 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
technical product support services. During 1998, the Company constructed its
ninth self-directed domestic IT call center, outfitted another and funded the
expansion and enhancing 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 acquisitions, it is
anticipated that 1999 capital expenditures will approximate $32.0 million. The
debt repayments were associated with assumed debt levels resulting primarily
from acquisitions the Company completed during 1997.
During 1998, the Company completed two business combinations for the
aggregate purchase price of 2,062,000 shares of the Company's common stock.
These business combinations were accounted for using the pooling-of-interests
method of accounting. In addition, the Company also acquired the stock of SHPS,
Incorporated ("SHPS") and related assets for approximately $30.6 million in
cash and accounted for the acquisition utilizing the purchase method of
accounting. In the aggregate, these acquisitions expanded the Company's
geographical presence in Europe, established operations in Canada and expanded
the vertical market service offerings that the Company provides. Pursuant to
the SHPS acquisition, the Company had approximately $79.4 million of debt
outstanding at December 31, 1998.
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 debt repayment requirements, continued expansion
objectives and anticipated levels of capital expenditures, including those that
may be required pursuant to the integration of its acquisitions, for the
foreseeable future.
QUANTITATIVE AND QUALITATIVE DISCLOSURE
The Company's earnings and cash flow are subject to fluctuations due
to changes in foreign currency exchange rates. Movements in foreign currency
exchange rates may affect the Company's competitive position, as exchange rate
changes may affect business practices and/or pricing strategies of non-United
States based competitors. Under its current policy, the Company does not use
foreign exchange derivative instruments to manage its exposure to changes in
foreign currency exchange rates.
The Company is also exposed to changes in interest rates primarily
from its long-term debt arrangements. Under its current policy, the Company
does not use interest rate derivative instruments to manage exposure to
interest rate changes.
YEAR 2000
The Year 2000 issue is the result of computer software programs being
written using two digits rather than four to define the applicable year. To the
extent the Company's software applications contain source codes that are unable
to appropriately interpret the calendar year 2000, some level of modification
or even possibly replacement of such
<PAGE> 12
applications may be necessary. During late 1997, the Company initiated the
process of reviewing its existing software programs to determine the potential
exposure and amount of resources that may be needed to become Year 2000
compliant. Based on this review, the Company has experienced very few problems
related to Year 2000 testing and those identified have been resolved in the
Company's day-to-day operations.
The Company has and will continue to utilize both internal and
external resources to reprogram, or replace, and test its internal use software
for Year 2000 modifications. The Company anticipates completing its Year 2000
testing and modifications no later than August 1999, which is prior to any
anticipated impact on its operating systems. The total cost of the Year 2000
project is estimated at approximately $1.2 million and is being funded through
operating cash flows. To date, the Company has incurred approximately $0.4
million related to this project. Such cost is not expected to have a material
effect on the Company's results of operations.
The remaining costs to become Year 2000 compliant and the date on
which the Company believes it will complete all Year 2000 modifications are
based on management's best estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability of certain
resources, third party modification plans and other factors. However, there can
be no assurance that these estimates will be achieved and actual results could
differ materially from those anticipated. Specific factors that might cause
such material differences include, but are not limited to, the availability and
cost of personnel trained in this area, availability of corrective software
provided by external suppliers, the ability to locate and correct all relevant
computer codes and similar uncertainties.
The Company has initiated formal communications with all of its
significant suppliers and large customers to determine the extent to which the
Company's interface systems are vulnerable to those third parties' failure to
remediate their own Year 2000 issues. In the event any third parties cannot
timely provide the Company with contents, products, services or systems that
meet Year 2000 requirements, the Company's services could be materially
adversely affected.
In a recent Securities and Exchange Commission release regarding Year
2000 disclosure, the Securities and Exchange Commission stated that public
companies must disclose the most reasonable likely worst case Year 2000
scenario. Although it is not possible to assess the likelihood of any of the
following events, each must be included in a consideration of worst case
scenarios: widespread failure of electrical and similar supplies serving the
Company; widespread disruption of the services provided by common
communications' carriers; similar disruption to the means and modes of
transportation for the Company and its employees, suppliers, and customers;
significant disruption to the Company's ability to gain access to, and remain
working in, office buildings and other facilities; the failure of substantial
numbers of the Company's, its customers' and its suppliers' critical computer
hardware and software systems, and the failure of outside entities' systems,
including systems related to banking and finance.
Although the Company expects its systems to be Year 2000 compliant on
or before December 31, 1999, it cannot predict the outcome or the success of
its efforts to become Year 2000 compliant, or that third party systems are or
will be Year 2000 compliant, or that the costs required to address the Year
2000 issue, or that the impact of a failure to achieve substantial Year 2000
compliance, will not have a material adverse effect on the Company's business,
financial condition or results of operations. The Company is in the process of
developing contingency plans to ensure continued operation to its systems.
<PAGE> 13
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Sykes Enterprises, Incorporated
We have audited the accompanying consolidated balance sheet of Sykes
Enterprises, Incorporated as of December 31, 1998, and the related consolidated
statement of income, changes in shareholders' equity and cash flows for the
year then ended. 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 as of December 31, 1998, and the consolidated results
of its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Tampa, Florida
March 5, 1999
<PAGE> 14
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
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 years ended December 31, 1996 and 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinions.
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, 1996 and 1997, in conformity with generally accepted
accounting principles.
PricewaterhouseCoopers LLP
Tampa, Florida
March 6, 1998
<PAGE> 15
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents .................................. $ 75,308,505 $ 36,348,863
Restricted cash ............................................ -- 11,090,890
Receivables ................................................ 79,187,795 113,840,262
Prepaid expenses and other current assets .................. 12,098,418 15,861,742
------------- -------------
Total current assets ...................................... 166,594,718 177,141,757
Property and equipment, net ................................. 79,466,290 99,176,512
Marketable securities ....................................... 7,800,002 199,875
Investment in joint venture ................................. 2,285,142 --
Intangible assets, net ...................................... 11,079,334 75,132,011
Deferred charges and other assets ........................... 971,254 13,484,146
------------- -------------
$ 268,196,740 $ 365,134,301
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current installments of long-term debt ..................... $ 4,497,393 $ 3,983,239
Accounts payable ........................................... 20,495,791 30,086,549
Income taxes payable ....................................... 3,351,996 10,549,623
Accrued employee compensation and benefits ................. 10,678,561 19,144,242
Customer deposits .......................................... -- 10,978,868
Other accrued expenses and current liabilities ............. 10,910,405 17,194,752
------------- -------------
Total current liabilities ................................. 49,934,146 91,937,273
Long-term debt .............................................. 35,989,735 75,448,202
Deferred income taxes ....................................... 4,374,963 --
Deferred grants ............................................. 14,083,691 15,434,676
Deferred revenue ............................................ 11,253,985 14,707,773
Other long-term liabilities ................................. -- 2,668,895
------------- -------------
Total liabilities ......................................... 115,636,520 200,196,819
------------- -------------
Commitments and contingencies (Notes 9 and 13)
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;
41,119,626 and 41,451,905 issued and outstanding .......... 411,196 414,519
Additional paid-in capital ................................. 133,592,337 136,199,748
Retained earnings .......................................... 22,151,352 29,730,975
Accumulated other comprehensive income ..................... (3,594,665) (1,407,760)
------------- -------------
Total shareholders' equity ................................ 152,560,220 164,937,482
------------- -------------
$ 268,196,740 $ 365,134,301
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 16
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Revenues .................................... $ 248,699,429 $ 351,593,110 $ 469,461,520
------------- ------------- -------------
Operating expenses
Direct salaries and related costs .......... 152,212,558 219,584,550 289,801,769
General and administrative ................. 74,875,628 97,216,636 123,159,492
Impairment of long-lived assets ............ -- 10,400,000 --
Acquired in-process research and development -- -- 14,468,907
------------- ------------- -------------
Total operating expenses .................. 227,088,186 327,201,186 427,430,168
------------- ------------- -------------
Income from operations ...................... 21,611,243 24,391,924 42,031,352
Other income (expense)
Interest, net .............................. (430,717) 518,968 (959,152)
Loss from joint venture .................... -- (2,828,000) (3,947,380)
Write-down of marketable securities ........ -- -- (7,334,645)
Other ...................................... 458,708 (1,270,450) (29,176)
------------- ------------- -------------
Total other income (expense) .............. 27,991 (3,579,482) (12,270,353)
------------- ------------- -------------
Income before income taxes .................. 21,639,234 20,812,442 29,760,999
Provision for income taxes
Current .................................... 10,283,057 13,492,156 25,592,000
Deferred ................................... (395,730) (311,160) (4,109,000)
------------- ------------- -------------
Total provision for income taxes .......... 9,887,327 13,180,996 21,483,000
------------- ------------- -------------
Net income .................................. 11,751,907 7,631,446 8,277,999
Preferred stock dividends ................... (47,343) -- --
------------- ------------- -------------
Net income applicable to
common shareholders ........................ $ 11,704,564 $ 7,631,446 $ 8,277,999
============= ============= =============
Pro forma income data (unaudited)
Income before income taxes .................. $ 21,639,234
Pro forma provision for income taxes
relating to S corporation .................. 67,000
Actual provision for income taxes ........... 9,887,327
-------------
Total provision and pro forma
provision for income taxes ............... 9,954,327
-------------
Pro forma net income ........................ 11,684,907
Preferred stock dividends ................... (47,343)
-------------
Pro forma net income
applicable to common shareholders .......... $ 11,637,564
=============
Basic net income per share
(pro forma for 1996) ....................... $ 0.32 $ 0.19 $ 0.20
============= ============= =============
Diluted net income per share
(pro forma for 1996) ....................... $ 0.31 $ 0.18 $ 0.20
============= ============= =============
Shares outstanding
Basic ...................................... 36,473,266 41,044,002 41,257,623
Diluted .................................... 38,016,323 42,315,046 42,288,425
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 17
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
------------------------ Paid-In Retained Unearned
Shares Amount Capital Earnings Compensation
---------- -------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 29,262,276 $292,623 $ 9,437,554 $ 11,576,587 $(1,338,041)
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
Net income -- -- -- 11,751,907 --
Foreign currency translation
adjustment -- -- -- -- --
Comprehensive income
Preferred stock dividends -- -- -- (47,343) --
---------- -------- ------------- ------------ -----------
Balance at December 31, 1996 40,920,274 409,203 131,027,020 16,091,230 --
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 -- --
Distributions -- -- -- (496,972) --
Net income -- -- -- 7,631,446 --
Unrealized loss on securities,
net of income taxes -- -- -- -- --
Foreign currency translation
adjustment -- -- -- -- --
Comprehensive income
Adjustments to conform
fiscal year of McQueen
International Limited (Note 2) -- -- -- (1,074,352) --
---------- -------- ------------- ------------ -----------
Balance at December 31, 1997 41,119,626 411,196 133,592,337 22,151,352 --
Issuance of stock 332,279 3,323 1,073,411 -- --
Tax effect of non-qualified
exercise of stock options -- -- 1,534,000 -- --
Distributions -- -- -- (698,376) --
Net income -- -- -- 8,277,999 --
Recognition of write-down
on marketable securities -- -- -- -- --
Foreign currency translation
adjustment -- -- -- -- --
Comprehensive income
---------- -------- ------------- ------------ -----------
Balance at December 31, 1998 41,451,905 $414,519 $ 136,199,748 $ 29,730,975 --
========== ======== ============= ============ ===========
<CAPTION>
Accumulated
Other
Comprehensive
Income Total
----------- -------------
<S> <C> <C>
Balance at January 1, 1996 $ 467,706 $ 20,436,429
Merger with Sykes Realty, Inc. -- (561,988)
Conversion of redeemable
preferred stock -- --
Issuance of common stock -- 112,340,344
Three-for-two stock split -- --
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
Net income -- 11,751,907
Foreign currency translation
adjustment (592,713) (592,713)
-------------
Comprehensive income 11,159,194
-------------
Preferred stock dividends -- (47,343)
------------ -------------
Balance at December 31, 1996 (125,007) 147,402,446
Issuance of common stock -- 3,039,961
Capital contribution -- 1,237,000
Repurchase of common
stock -- (2,623,651)
Tax effect of non-qualified
exercise of stock options -- 914,000
Distributions -- (496,972)
Net income -- 7,631,446
Unrealized loss on securities,
net of income taxes (734,518) (734,518)
Foreign currency translation
adjustment (2,735,140) (2,735,140)
------------
Comprehensive income 4,161,788
------------
Adjustments to conform
fiscal year of McQueen
International Limited (Note 2) -- (1,074,352)
------------ ------------
Balance at December 31, 1997 (3,594,665) 152,560,220
Issuance of stock -- 1,076,734
Tax effect of non-qualified
exercise of stock options -- 1,534,000
Distributions -- (698,376)
Net income -- 8,277,999
Recognition of write-down
on marketable securities 734,518 734,518
Foreign currency translation
adjustment 1,452,387 1,452,387
------------
Comprehensive income 10,464,904
------------ ------------
Balance at December 31, 1998 $ (1,407,760) $164,937,482
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 18
SYKES ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1996 1997 1998
------------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................................... $ 11,751,907 $ 7,631,446 $ 8,277,999
Depreciation and amortization ................................................ 8,871,944 15,245,917 21,831,091
Impairment of long-lived assets .............................................. -- 10,400,000 --
Acquired in-process research and development costs ........................... -- 2,795,000 14,468,907
Write-down of marketable securities .......................................... -- -- 7,334,645
Deferred income taxes ........................................................ (395,730) (311,160) (4,109,000)
ESOP allocation (unearned compensation) ...................................... 1,338,041 -- --
Gain on disposal of property and equipment ................................... (119,072) (105,416) (524,762)
Changes in assets and liabilities - net of
effects of acquisitions
Receivables ................................................................. (22,066,629) (6,073,933) (27,948,284)
Prepaid expenses and other current assets ................................... (3,446,020) (783,295) (2,911,635)
Intangible assets ........................................................... -- -- (737,708)
Deferred charges and other assets ........................................... (936,923) (1,035,841) (5,532,766)
Accounts payable ............................................................ (1,853,691) (714,315) 2,840,802
Income taxes payable ........................................................ 673,302 1,056,946 11,373,150
Accrued employee compensation and benefits .................................. 2,617,197 (355,586) 7,270,284
Other accrued expenses and current liabilities .............................. 6,395,250 (4,286,603) 6,090,194
Deferred revenue ............................................................ -- -- 3,453,788
Other long-term liabilities ................................................. -- -- (48,169)
------------- ------------ ------------
Net cash provided by operating activities ................................ 2,829,576 23,463,160 41,128,536
------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ......................................................... (23,836,838) (25,654,336) (37,292,551)
Investment in marketable securities........................................... -- (8,000,000) --
Investment in joint venture................................................... -- (5,080,142) (10,723,040)
Acquisition of business....................................................... -- (1,800,000) (28,131,282)
Proceeds from sale of marketable securities................................... -- -- 1,000,000
Proceeds from sale of property and equipment ................................. 201,425 208,351 3,462,149
------------- ------------ ------------
Net cash used for investing activities .................................... (23,635,413) (40,326,127) (71,684,724)
------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Paydowns under revolving line of credit
agreements .................................................................. (20,771,718) (72,441,000) (16,932,339)
Borrowings under revolving line of credit
agreements .................................................................. 19,916,835 72,441,000 93,809,851
Proceeds from issuance of stock .............................................. 112,340,344 3,039,961 1,076,734
Proceeds from grants ......................................................... 5,642,335 2,000,000 2,575,000
Proceeds from issuance of long-term debt ..................................... 6,668,403 350,467 --
Proceeds from issuance of convertible debenture .............................. -- 1,399,000 --
Capital contributions ........................................................ -- 1,237,000 --
Subsidiary stock redemption .................................................. (142,702) (2,623,651) --
Payment of long-term debt .................................................... (12,367,144) (6,238,862) (89,686,711)
Distributions ................................................................ (1,033,358) (496,972) (698,376)
------------- ------------ ------------
Net cash provided by (used for)
financing activities ..................................................... 110,252,995 (1,333,057) (9,855,841)
------------- ------------ ------------
Adjustment for foreign currency translation ................................... (592,713) (2,735,140) 1,452,387
------------- ------------ ------------
Net increase (decrease) in cash and
cash equivalents ............................................................. 88,854,445 (20,931,164) (38,959,642)
CASH AND CASH EQUIVALENTS - BEGINNING ......................................... 7,385,224 96,239,669 75,308,505
------------- ------------ ------------
CASH AND CASH EQUIVALENTS - ENDING ............................................ $ 96,239,669 $ 75,308,505 $ 36,348,863
============= ============ ============
Supplemental disclosures of cash flow
information
Cash paid during the year for:
Interest ................................................................... $ 1,745,556 $ 2,883,827 $ 1,553,386
Income taxes ............................................................... $ 8,798,919 $ 8,562,981 $ 13,401,881
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 19
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sykes Enterprises, Incorporated and consolidated subsidiaries (the "Company" or
"Sykes") provides integrated information technology outsourcing services
including information technology support services, information technology
development services and solutions, on-line clinical managed care services,
medical protocol products, employee benefit administration and support services,
and customer product services. The Company's services are provided to a wide
variety of industries.
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.
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
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." At December 31, 1998, cash in the
amount of approximately $8.1 million was held in taxable interest bearing
investments, which are classified as available for sale and have an average
maturity of approximately 30 days.
Restricted Cash - The financial statements include restricted cash which is held
in conjunction with deposits by customers at December 31, 1998. Included in
current liabilities at December 31, 1998 is the related payable.
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 $9.9
million, $14.8 million, and $21.0 million for the years ended December 31, 1996,
1997 and 1998, respectively. Property and equipment includes approximately $1.3
million and $0.9 million of additions included in accounts payable at December
31, 1997 and 1998, respectively. Accordingly, these non-cash transactions have
been excluded from the accompanying consolidated statements of cash flows for
the years ended December 31, 1997 and 1998, respectively.
During 1998, the Company capitalized certain costs incurred to internally
develop software upon the establishment of technological feasibility. Costs
incurred prior to the establishment of technological feasibility were expensed
as incurred. Capitalized internally developed software costs were approximately
$2.2 million at December 31, 1998.
<PAGE> 20
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES, continued
Land received from various governmental agencies under grants is recorded at
fair value at date of grant. During the years ended December 31, 1996, 1997 and
1998 the Company recorded approximately $317,000, $430,000, and $280,000
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, 1996,
1997 and 1998.
Investment in Joint Venture - The Company had a 50% interest in a joint venture
that was accounted for using the equity method of accounting. Accordingly, the
Company recorded its proportionate share of the gains and losses of the joint
venture in the consolidated statements of income for 1997 and the first eight
months of 1998. Effective September 1, 1998, the Company acquired the remaining
50% equity interest in this joint venture (See Note 2).
Intangible Assets - Intangible assets consist of the excess of costs over fair
market value of the net assets of the acquired business of $14.3 million and
$67.1 million at December 31, 1997 and 1998, respectively, net of accumulated
amortization of $3.2 million and $6.2 million, respectively. Also included in
intangible assets are existing technologies and covenants not to compete arising
from business acquisitions of $0.7 million and $15.7 million at December 31,
1997 and 1998, respectively, net of accumulated amortization of $0.6 million and
$1.5 million, respectively. The intangible assets are stated at cost and are
being amortized on a straight-line basis over periods ranging from 10 to 20
years for the excess of costs over fair value of the net assets of the acquired
business, and two to five years for the existing technologies and covenants not
to compete. Amortization expense was approximately $0.6 million, $0.9 million
and $1.7 million for the years ended December 31, 1996, 1997 and 1998,
respectively.
Deferred Charges and Other Assets - Deferred charges and other assets consist
primarily of an investment in preferred stock and long-term deposits.
Impairment of Long-Lived Assets - The Company reviews long-lived assets and
certain identifiable intangibles for impairment. Such assets are written down to
fair value whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. During 1997, the Company recorded an
impairment loss of $10.4 million related to an acquisition made during that
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.
One of the Company's affiliates was taxed as an S corporation prior to the
Company's initial public offering (See Note 19), and terminated its S
corporation election during 1996 and accordingly became subject to federal and
state income taxes.
Deferred Grants - Grants for land and the acquisition of buildings, property and
equipment are deferred and recognized in income over the corresponding useful
lives of the related assets. 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.
<PAGE> 21
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES, continued
Deferred Revenue - The Company invoices certain contracts in advance. The
deferred revenue is earned over the life of the respective contract, which range
from six months to two years.
Fair Value of Financial Instruments - The following methods and assumptions were
used to estimate the fair value of each class of financial instruments for which
it is practicable to estimate that value:
- Cash, accounts receivable and accounts payable. The carrying
amount reported in the balance sheet for cash, accounts
receivable and accounts payable approximates their fair value.
- Long-Term Debt. The fair value of the Company's long-term
debt, including the current portion thereof, is estimated
based on the quoted market price for the same or similar types
of borrowing arrangements. The carrying value of the Company's
long-term debt approximates fair value because the debt bears
variable interest rates.
Segment Reporting - In June 1997, the Financial Accounting Standards Board (the
FASB) issued Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" (SFAS 131). SFAS 131
uses a management approach to report financial and descriptive information about
a Company's operating segments. Operating segments are revenue-producing
components of the enterprise for which separate financial information is
produced internally for the Company's management. Under this definition, the
Company operated, for all periods presented, as a single segment.
Non-monetary Transaction - During 1998, the Company sold a software license in
exchange for convertible preferred stock in a privately held corporation. The
convertible preferred stock has a fair market value of $10.0 million which
represents the sales price recorded by the Company. This amount is included in
the consolidated balance sheet under the caption "Deferred charges and other
assets" at December 31, 1998.
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 consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates;
however, management does not believe these differences would have a material
effect on operating results.
NOTE 2 - ACQUISITIONS AND MERGERS
Effective September 1, 1998 the Company acquired the remaining 50% of
outstanding common stock of SHPS, Incorporated ("SHPS") (formerly known as Sykes
HealthPlan Services, Inc.) for approximately $28.1 million plus the assumption
of SHPS' debt. This purchase price
<PAGE> 22
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - ACQUISITIONS AND MERGERS, continued
was primarily financed through borrowings under the Company's credit facility.
This acquisition was accounted for using the purchase method of accounting and
accordingly, the results of operations for the period September 1, 1998, to
December 31, 1998, have been included in the accompanying financial statements.
The purchase price has been allocated to the assets and liabilities of SHPS
based upon fair values at the date of acquisition. The allocations were based on
appraisals, evaluations, estimations and other studies.
The Company adjusted the amounts originally allocated to acquired in-process
research and development to reflect the new methodology set forth in the
September 15, 1998 letter from the SEC Staff to the American Institute of
Certified Public Accountants. The revised allocation resulted in goodwill
recognized of approximately $11.9 million, representing the excess of the
purchase price over the fair value of net assets acquired, as follows:
<TABLE>
<S> <C>
Goodwill............................................................. $ 11,923,929
Fair value of assets acquired (inclusive of $38,588,462 of goodwill). 83,587,143
Acquired in-process research and development......................... 14,468,907
Liabilities assumed.................................................. (81,848,697)
------------
Cash paid, net of cash acquired...................................... $ 28,131,282
============
</TABLE>
Pursuant to acquisitions completed by SHPS, acquired in-process technology was
initially reviewed utilizing methodologies consistent with those stated below.
The Company determined that this analysis provided no establishment of
technological feasibility. As of the date of Sykes' acquisition of SHPS,
technological feasibility of the in-process technology was reviewed again and
had not been established. Further analysis by the Company has indicated the
technology has no alternative future use; therefore, the Company has recorded a
charge for the amount of the purchase price allocated to acquired in-process
research and development of approximately $14.5 million. This charge is
reflected in the accompanying consolidated statement of income for the year
ended December 31, 1998.
The amount of purchase price allocated to acquired in-process research and
development was determined by estimating the stage of development of each
in-process research and development project at the date of acquisition,
estimating cash flows resulting from the expected revenues generated from such
projects, and discounting the net cash flows back to their present value using a
discount rate of 15% for existing technology and 25% for in-process technology,
which represents a premium to the Company's cost of capital. The spread over the
existing technology discount rate reflects the inherently greater risk of the
research and development efforts. These projections were based on management's
estimates of market share and growth, expected trends in technology and the
expected timing of new product introductions. As a part of the transaction, the
Company recorded approximately $7.3 million in capitalized software costs and
rights, which are being amortized over five years, and approximately $50.5
million of goodwill, which is being amortized over 20 years.
The unaudited pro forma combined historical results, as if SHPS had been
acquired on January 1, 1997 are estimated to be revenues of $351.6 million, net
income of $6.6 million, and basic and diluted net income per share of $0.16 for
the year ended December 31, 1997, and revenues of $501.2 million, net loss of
$5.6 million, and basic and diluted loss per share of $0.14 for the year ended
December 31, 1998. 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
<PAGE> 23
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - ACQUISITIONS AND MERGERS, continued
what actually would have occurred if the acquisition had been completed as of
the beginning of 1997, nor are they indicative of future consolidated results.
On November 27, 1998, the Company acquired all of the stock of TAS GmbH Nord
Telemarketing und Vertriebsberatung ("TAS III") of Hannover, Germany in exchange
for 587,000 shares of the Company's common stock. The Company accounted for the
acquisition utilizing the pooling-of-interests method of accounting. TAS III
provides technical call center support and customer care services, database
development and consulting services to customers in Germany.
On December 29, 1998, the Company acquired all of the stock of Oracle Service
Networks Corporation ("Oracle") in exchange for 1,475,000 shares of the
Company's common stock. The Company accounted for the acquisition utilizing the
pooling-of-interests method of accounting. Oracle provides call center support
and customer care services to various customers in North America, as well as
demand management services for the Canadian provincial health care system.
The above transactions, excluding SHPS, 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 TAS III and
Oracle.
Separate results of operations for the periods prior to the mergers with TAS III
and Oracle are outlined below:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1996 1997
------------ ------------
<S> <C> <C>
Revenue:
Sykes ............................. $218,995,751 $313,184,554
TAS III ........................... 7,061,658 8,336,380
Oracle ............................ 22,642,020 30,072,176
------------ ------------
Combined .......................... $248,699,429 $351,593,110
============ ============
Net income:
Sykes ............................. $ 10,371,543 $ 5,747,206
TAS III ........................... 1,668,908 325,311
Oracle ............................ (288,544) 1,558,929
------------ ------------
Combined .......................... $ 11,751,907 $ 7,631,446
============ ============
Other changes in shareholders' equity:
Sykes ............................. $115,574,037 $ (2,103,123)
TAS III ........................... (341,456) (252,420)
Oracle ............................ (18,471) (118,129)
------------ ------------
Combined .......................... $115,214,110 $ (2,473,672)
============ ============
</TABLE>
During 1997, the Company acquired all of the stock of McQueen International,
Limited ("McQueen") of Galashiels, Scotland. The Company accounted for the
acquisition utilizing the pooling-of-interests method of accounting.
McQueen had a February 28 fiscal year end
<PAGE> 24
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - ACQUISITIONS AND MERGERS, continued
and, accordingly, the McQueen statement of income for the year ended February
28, 1997, has been combined with the Sykes' statement of income for the year
ended December 31, 1996. 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.
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 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 15 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 $315.0 million, net
income of $12.1 million and basic and diluted earnings per share of $0.33 and
$0.32, respectively, for 1996; and revenues of $368.2 million, income of $7.8
million, and basic and diluted earnings per share of $0.19 and $0.18,
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.
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
$10.0 million of convertible preferred stock held, the Company's credit
concentrations are limited due to the wide variety of customers and markets in
which the Company's services are sold.
NOTE 4 - RECEIVABLES
Receivables consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1997 1998
------------ ------------
<S> <C> <C>
Trade accounts receivable .......... $61,913,218 $100,966,473
Unbilled accounts receivable ....... 6,446,597 5,326,607
Notes from officers ................ 418,958 470,122
Other .............................. 10,946,417 7,873,231
----------- ------------
79,725,190 114,636,433
Less allowance for doubtful accounts 537,395 796,171
----------- ------------
$79,187,795 $113,840,262
=========== ============
</TABLE>
<PAGE> 25
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1997 1998
------------ ------------
<S> <C> <C>
Land ................................. $ 3,784,516 $ 4,014,119
Buildings and leasehold improvements . 30,633,764 30,661,019
Equipment, furniture and fixtures .... 86,992,441 130,956,959
Capitalized software development costs -- 2,217,529
Transportation equipment ............. 447,028 259,700
Construction in progress ............. 6,344,495 3,381,020
------------ ------------
128,202,244 171,490,346
Less accumulated depreciation ........ 48,735,954 72,313,834
------------ ------------
$ 79,466,290 $ 99,176,512
============ ============
</TABLE>
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. The Company's original cost basis in
this investment was $8.0 million. In accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," the investment was classified as available-for-sale
securities. During the fourth quarter of 1998, the Company wrote down its
investment in SystemSoft Corp. by approximately $7.3 million due to a
significant reduction in its market value which was determined to be other than
temporary. As such, the investment was carried at an aggregate market value of
approximately $0.2 million as of December 31, 1998.
NOTE 7 - ACCRUED EMPLOYEE COMPENSATION AND BENEFITS
Accrued employee compensation and benefits consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1998
----------- -----------
<S> <C> <C>
Accrued compensation $ 3,449,281 $10,907,243
Accrued vacation ... 1,866,545 2,224,829
Other .............. 5,362,735 6,012,170
----------- -----------
$10,678,561 $19,144,242
=========== ===========
</TABLE>
NOTE 8 - OTHER ACCRUED EXPENSES AND CURRENT LIABILITIES
Other accrued expenses and current liabilities consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1998
----------- -----------
<S> <C> <C>
Deferred revenue ........ $ 927,340 $ 5,961,591
Accrued telephone charges 2,231,644 2,349,844
Accrued interest ........ -- 1,329,586
Other ................... 7,751,421 7,553,731
----------- -----------
$10,910,405 $17,194,752
=========== ===========
</TABLE>
<PAGE> 26
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1998
----------- -----------
<S> <C> <C>
Syndicated credit facility, $150.0 million maximum, due February 2001, interest
payable quarterly at tiered levels between 75 and 175 basis points above
listed LIBOR, the facility is unsecured ..................................... $ -- $75,000,000
Syndicated credit facility, $15.0 million maximum, due February 2001, interest
payable monthly at tiered levels between 75 and 175 basis points above listed
LIBOR, the facility is unsecured ............................................ -- 2,659,850
Secured loan note, principal and interest payable in annual installments through
November 1999, interest at 8 percent, collateralized by certain assets,
repaid during 1998 .......................................................... 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, repaid
during 1998 ................................................................. 26,950,400 --
Notes payable and capital leases, principal and interest payable in monthly
installments through December 2003, interest at varying rates up to prime
plus 1 percent, collateralized by certain receivables and equipment ......... 12,681,053 1,771,591
----------- -----------
40,487,128 79,431,441
Less current portion ........................................................... 4,497,393 3,983,239
----------- -----------
$35,989,735 $75,448,202
=========== ===========
</TABLE>
Principal maturities subsequent to December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000.............................................. $ 292,751
2001.............................................. 75,076,626
2002.............................................. 70,284
2003.............................................. 8,541
-----------
$75,448,202
===========
</TABLE>
<PAGE> 27
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - LONG-TERM DEBT, continued
Effective February 1998, the Company entered into a $150.0 million syndicated
credit facility and a $15.0 million swingline facility which provides for
multi-currency lending. These facilities accrue interest at tiered levels
between 75 and 175 basis points above listed LIBOR pursuant to a defined ratio
calculation within the agreement, and accrues an unused commitment fee at tiered
levels between 15 and 37.5 basis points above listed LIBOR. The Company was also
contingently liable for letters of credit in the amount of approximately $5.0
million at December 31, 1998 (none at December 31, 1997). The $150.0 million
facility contains certain financial covenants associated with debt ratios,
leverage, coverage and capital expenditures and acquisitions as defined by the
agreement. At December 31, 1998, the Company was in compliance with all loan
covenants.
NOTE 10 - ACCUMULATED OTHER COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" which requires all items that
are required to be recognized under accounting standards as components of other
comprehensive income be reported in the financial statements. The components of
other comprehensive income are as follows:
<TABLE>
<CAPTION>
Accumulated
Unrealized Foreign Other
Loss Currency Comprehensive
on Securities Translation Income
------------- ----------- -------------
<S> <C> <C> <C>
Balance at January 1, 1996 ............ $ -- $ 467,706 $ 467,706
Foreign currency translation adjustment -- (592,713) (592,713)
----------- ----------- -----------
Balance at December 31, 1996 .......... -- (125,007) (125,007)
Foreign currency translation adjustment -- (2,735,140) (2,735,140)
Unrealized loss on securities, net of
income taxes ......................... (734,518) -- (734,518)
----------- ----------- -----------
Balance at December 31, 1997 .......... (734,518) (2,860,147) (3,594,665)
Foreign currency translation adjustment -- 1,452,387 1,452,387
Unrealized loss on securities ......... (6,600,127) -- (6,600,127)
Less: reclassification adjustment for
loss realized in net income .... 7,334,645 -- 7,334,645
----------- ----------- -----------
Balance at December 31, 1998 .......... $ -- $(1,407,760) $(1,407,760)
=========== =========== ===========
</TABLE>
Earnings associated with the Company's investment in its foreign subsidiaries
are considered to be permanently invested and no provision for United States
federal and state income taxes on those earnings or translation adjustments has
been provided.
<PAGE> 28
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - INCOME TAXES
The components of income before income taxes are as follows:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Domestic ........... $10,823,955 $ 8,551,740 $13,368,121
Foreign ............ 10,815,279 12,260,702 16,392,878
----------- ----------- -----------
Total income before
income taxes ..... $21,639,234 $20,812,442 $29,760,999
=========== =========== ===========
</TABLE>
Provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal ................................. $ 3,573,533 $ 6,906,000 $14,365,000
State ................................... 610,632 1,229,000 2,338,000
Foreign ................................. 6,098,892 5,357,156 8,889,000
----------- ----------- -----------
Total current provision for income taxes 10,283,057 13,492,156 25,592,000
----------- ----------- -----------
Deferred:
Federal ................................. (2,000) (99,000) (2,112,000)
State ................................... 56,250 (25,000) (340,000)
Foreign ................................. (449,980) (187,160) (1,657,000)
----------- ----------- -----------
Total deferred provision
for income taxes ...................... (395,730) (311,160) (4,109,000)
----------- ----------- -----------
Total provision for income taxes ...... $ 9,887,327 $13,180,996 $21,483,000
=========== =========== ===========
</TABLE>
<PAGE> 29
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - INCOME TAXES, continued
The components of the net deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1997 1997
----------- -----------
<S> <C> <C>
Domestic current:
Deferred tax asset:
Accrued expenses ....................................... $ 800,000 $ 889,000
Deferred compensation .................................. 246,000 244,000
Bad debt reserve ....................................... 119,000 346,000
Other .................................................. 7,000 6,000
----------- -----------
Total current deferred tax asset ...................... $ 1,172,000 $ 1,485,000
----------- -----------
Deferred tax liability:
Prepaid expenses ....................................... $ -- $ (462,000)
Cash to accrual-Section 481 adjustment ................. (488,000) (5,000)
Other .................................................. -- (798,904)
----------- -----------
Total current deferred tax liability .................. (488,000) (1,265,904)
----------- -----------
Net domestic current deferred tax asset .............. $ 684,000 $ 219,096
----------- -----------
Foreign current:
Deferred tax asset:
Deferred commissions ................................... $ -- $ 232,000
Net operating loss carry-forward ....................... 135,000 --
Valuation allowance .................................... (135,000) --
----------- -----------
Total foreign current deferred tax asset .............. $ -- $ 232,000
----------- -----------
Deferred tax liability:
Deferred commissions ................................... $ (72,291) $ --
----------- -----------
Total foreign current deferred tax liability .......... (72,291) --
----------- -----------
Net foreign current deferred tax asset (liability) ... $ (72,291) $ 232,000
----------- -----------
Net current deferred asset .............................. $ 611,709 $ 451,096
=========== ===========
Domestic non-current:
Deferred tax asset:
Unrealized loss on security ............................ $ 466,000 $ 3,009,000
Intangible assets ...................................... 40,000 3,457,000
Net operating loss carry forward ....................... -- 454,000
Valuation allowance .................................... -- (3,000,000)
Other .................................................. 3,000 --
----------- -----------
Total non-current deferred tax asset .................. $ 509,000 $ 3,920,000
----------- -----------
Deferred tax liability:
Property and equipment ................................. $ (504,000) $ (710,000)
Intangible assets ...................................... -- (2,155,000)
Cash to accrual-Section 481 adjustment ................. (2,437,000) --
Accrued liabilities .................................... (258,000) --
Other .................................................. (526,963) --
----------- -----------
Total non-current deferred tax liability .............. (3,725,963) (2,865,000)
----------- -----------
Net domestic non-current deferred tax asset(liability) $(3,216,963) $ 1,055,000
----------- -----------
</TABLE>
<PAGE> 30
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - INCOME TAXES, continued
<TABLE>
<CAPTION>
December 31,
-----------------------------
1997 1998
----------- -----------
<S> <C> <C>
Foreign non-current:
Deferred tax asset:
Intangible assets ...................................... -- $ 1,571,470
Net operating loss carry-forward ....................... -- 704,000
Valuation allowance .................................... -- (704,000)
----------- -----------
Total non-current deferred tax asset .................. -- $ 1,571,470
----------- -----------
Deferred tax liability:
Property and equipment ................................. $(1,158,000 $(1,377,000)
----------- -----------
Total non-current deferred tax liability .............. (1,158,000) (1,377,000)
----------- -----------
Net foreign non-current deferred tax asset (liability) $(1,158,000) $ 194,470
----------- -----------
Net non-current deferred tax asset(liability) ........... $(4,374,963) $ 1,249,470
=========== ===========
</TABLE>
The Company 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 $15.0 million at
December 31, 1998, 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 $2.0 million 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 has been included in taxable income over a
period not to exceed four years.
The following summarizes the principal differences between income taxes at the
federal statutory rate and the effective income tax amounts reflected in the
financial statements:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Statutory tax .......................... $7,405,664 $ 7,284,233 $10,416,000
State income taxes, net of federal
tax benefit ........................... 316,000 759,000 1,015,000
Effect of income not subject to federal
and state income tax .................. (284,000) (1,015,000) (162,000)
In-process research and development .... -- -- 5,064,000
Valuation on non-deductible write-off .. -- -- 3,000,000
Valuation on net operating loss
carry-forward ......................... -- -- 704,000
Non-deductible amortization ............ -- 3,640,000 63,000
Loss from joint venture ................ -- 990,000 1,382,000
Foreign taxes, net of foreign income not
taxed in the United States ............ 2,045,663 971,763 (565,000)
Permanent differences .................. 153,000 582,000 359,000
Other .................................. 251,000 (31,000) 207,000
---------- ----------- -----------
Total provision for income taxes ..... $9,887,327 $13,180,996 $21,483,000
========== =========== ===========
</TABLE>
<PAGE> 31
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - INCOME TAXES, continued
The Company is currently under examination by the Internal Revenue Service for
the six tax years ended July 31, 1996. 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, results of operations, or cash flows.
NOTE 12 - 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 that for the year ended December 31, 1996, (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>
Years ended December 31,
------------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Basic:
Weighted average common shares
outstanding .......................... 36,473,266 41,044,002 41,257,623
---------- ---------- ----------
Total basic shares outstanding ...... 36,473,266 41,044,002 41,257,623
Diluted:
Effect of conversion of preferred stock 227,151 -- --
Dilution of stock options ............. 1,315,906 1,271,044 1,030,802
---------- ---------- ----------
Total diluted shares outstanding .... 38,016,323 42,315,046 42,288,425
========== ========== ==========
</TABLE>
NOTE 13 - 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, 1996, 1997 and 1998 was approximately $6.4 million,
$6.1 million, and $11.2 million, respectively.
The Company has a ten-year operating lease agreement, signed in 1995, with the
Company's majority shareholder for its corporate aircraft. The lease expense for
the years ended December 31, 1996, 1997 and 1998 was approximately $615,000,
$618,000, and $618,000, respectively.
<PAGE> 32
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - COMMITMENTS AND CONTINGENCIES, continued
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, 1998:
<TABLE>
<CAPTION>
Related Non-Related Total
Year Party Party Amount
- ---- ----- ----- ------
<S> <C> <C> <C>
1999 ........................... $ 618,000 $ 8,432,000 $ 9,050,000
2000 ........................... 618,000 8,435,000 9,053,000
2001 ........................... 618,000 6,828,000 7,446,000
2002 ........................... 618,000 5,637,000 6,255,000
2003 ........................... 618,000 5,010,000 5,628,000
Thereafter ..................... 1,186,000 15,643,000 16,829,000
----------- ----------- -----------
Total minimum payments required $ 4,276,000 $49,985,000 $54,261,000
=========== =========== ===========
</TABLE>
The Company from time to time is involved in legal actions arising in the
ordinary course of business. With respect to these matters, management believes
that it has adequate legal defenses and/or provided adequate accruals for
related costs such that the ultimate outcome will not have a material adverse
effect on the Company's future financial position.
NOTE 14 - 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. The Company contribution was
approximately $170,000, $352,000, and $601,000 for the years ended December 31,
1996, 1997 and 1998, respectively. In addition, two of the Company's
subsidiaries maintained separate defined contribution plans, one of which was
merged into the Company's 401(k) plan effective January 1, 1998. The combined
contributions made to these plans were approximately $198,000, $244,000 and
$149,000 for the years ended December 31, 1996, 1997 and 1998, respectively.
NOTE 15 - PUBLIC OFFERINGS
In April 1996, the Company completed its initial public offering for the sale of
4,500,000 shares of common stock. Coincident with such offering, the
underwriters of the offering exercised their 15% over-allotment and accordingly
an additional 939,978 shares of the Company's common stock were sold by the
Company. The Company received approximately $39.7 million from the sale of the
shares, net of underwriting discounts and expenses associated with such
offering. The proceeds were used to repay all outstanding indebtedness and make
capital expenditures, with the remaining balance held for general corporate and
working capital purposes.
In November 1996, the Company completed an 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.
<PAGE> 33
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - STOCK OPTIONS
In 1995, the Company granted options to an executive officer to purchase
1,143,000 shares of common stock. The options became 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 a 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, $42,000 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, 1997 and 1998,
respectively.
<PAGE> 34
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - STOCK OPTIONS, continued
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 that 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 which are immediately exercisable. All options granted under the
Employee Plan expire if not exercised by the tenth anniversary of 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
(Exercisable: 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
(Exercisable: 390,966 at $11.02)
Granted ......................... 681,750 $21.46
Exercised ....................... (329,478) $ 3.14
Expired or terminated ........... (312,656) $23.91
---------
Outstanding at December 31, 1998 . 1,413,602 $20.05
=========
(Exercisable: 344,053 at $19.49)
Options available for future grant 149,860
=========
</TABLE>
The following table further summarizes information about the 1996 Employee Stock
Option Plan at December 1998:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Number Average Average Number Average
Range of Outstanding at Remaining Exercise Exercisable at Exercise
Exercise Prices Dec. 31, 1998 Life Price Dec. 31, 1998 Price
- -------------------------- -------------------- ----------------- -------------------- --------------------- ------------
<S> <C> <C> <C> <C> <C>
$ 0.03 to $ 1.24 20,436 4.0 $ 0.93 20,436 $ 0.93
$ 6.67 to $ 8.00 207,998 7.3 $ 7.55 53,151 $ 8.00
$13.91 to $31.27 1,185,168 9.1 $22.57 270,466 $23.15
--------- -------
Total 1,413,602 8.7 $20.05 344,053 $19.49
========= =======
</TABLE>
<PAGE> 35
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - STOCK OPTIONS, continued
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 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 automatically will 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. All options granted under the Non-Employee
Plan expire if not exercised by the tenth anniversary of their grant date.
Transactions related to the 1996 Non-Employee Director Stock Option Plan are
summarized as follows:
<TABLE>
<CAPTION>
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
(Exercisable: none)
Granted ......................... 42,500 $22.61
Exercised ....................... (26,250) $ 8.00
Expired or terminated ........... --
-------
Outstanding at December 31, 1997 . 72,500 $16.56
(Exercisable: none)
Granted ......................... 40,000 $20.44
Exercised ....................... (6,250) $ 8.00
Expired or terminated ........... --
-------
Outstanding at December 31, 1998 . 106,250 $18.53
=======
(Exercisable: 38,750 at $16.67)
Options available for future grant 301,250
=======
</TABLE>
The following table further summarizes information about the 1996 Non-Employee
Director Stock Option Plan at December 1998:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Number Average Average Number Average
Range of Outstanding at Remaining Exercise Exercisable at Exercise
Exercise Prices Dec. 31, 1998 Life Price Dec. 31, 1998 Price
- -------------------------- -------------------- ----------------- -------------------- --------------------- ------------
<S> <C> <C> <C> <C> <C>
$ 8.00 23,750 7.3 $ 8.00 16,250 $ 8.00
$18.39 5,000 9.2 $18.39 -- --
$20.74 35,000 9.3 $20.74 -- --
$22.23 37,500 8.4 $22.23 17,500 $22.23
$25.42 5,000 8.4 $25.42 5,000 $25.42
------- ------
Total 106,250 8.5 $18.53 38,750 $16.67
======= ======
</TABLE>
<PAGE> 36
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - STOCK OPTIONS, continued
1997 Management Incentive Stock Option Plan - The Company's 1997 Management
Incentive Stock Option Plan (the "Management Incentive Plan") permits the
granting of nonqualified stock options to purchase up to approximately 4,000,000
shares of the Company's common stock at not less than the fair value at the time
the options are granted. At December 31, 1998, no options granted were
exercisable. All options granted under the Management Incentive Plan expire if
not exercised by the tenth anniversary of their grant date.
Transactions related to the 1997 Management Incentive Stock Option Plan are
summarized as follows:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
------ --------------
<S> <C> <C>
Outstanding at December 31, 1997 . --
Granted ......................... 770,000 $21.19
Exercised ....................... --
Expired or terminated ........... --
---------
Outstanding at December 31, 1998 . 770,000 $21.19
=========
Options available for future grant 3,230,000
=========
</TABLE>
The following table further summarizes information about the 1997 Management
Incentive Stock Option Plan at December 1998:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Number Average Average Number Average
Range of Outstanding at Remaining Exercise Exercisable at Exercise
Exercise Prices Dec. 31, 1998 Life Price Dec. 31, 1998 Price
- -------------------------- -------------------- ----------------- -------------------- --------------------- ------------
<S> <C> <C> <C> <C> <C>
$18.93 20,000 9.7 $18.93 -- --
$20.00 625,000 9.3 $20.00 -- --
$27.49 125,000 10.0 $27.49 -- --
------- -------
Total 770,000 9.4 $21.19 -- --
======= =======
</TABLE>
<PAGE> 37
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - STOCK OPTIONS, continued
The Company has adopted the disclosure only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation", but
applies Accounting Principles Board Opinion No. 25 and related interpretations
in accounting for its plans. Therefore, no compensation expense has been
recognized for stock options granted at fair market value under its plans. If
the Company had elected to recognize compensation expense for stock options
based on the fair value at grant date, consistent with the method prescribed by
SFAS No. 123, net income and earnings per share would have been reduced to the
pro forma amounts as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------
1996 1997 1998
---- ---- ----
($ in thousands, except per share amounts)
<S> <C> <C> <C>
Net income as reported
(pro forma for 1996) $11,685 $7,631 $8,278
Pro forma net income
as prescribed by SFAS 123 $ 9,350 $1,584 $2,497
Net income per diluted share as reported
(pro forma for 1996) $ 0.31 $ 0.18 $ 0.20
Pro forma net income per diluted share
as prescribed by SFAS 123 $ 0.25 $ 0.04 $ 0.06
</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 1996,
a discount rate of 6.05 percent for 1997, and a discount rate of 6.0 percent for
1998; (ii) a volatility factor of 65.1% based upon the average trading price of
the Company's common stock since it began trading on the Nasdaq National Market;
(iii) no dividend yield; and (iv) an average expected option life of
approximately four years, for each year presented.
NOTE 17 - GEOGRAPHIC INFORMATION
Information about the Company's operations by geographic location are as
follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
North America ............ $153,295,686 $223,970,601 $304,588,695
International ............ 95,403,743 127,622,509 164,872,825
------------ ------------ ------------
$248,699,429 $351,593,110 $469,461,520
============ ============ ============
Income before income taxes:
North America ............ $ 13,309,571 $ 11,496,208 $ 15,365,353
International ............ 8,329,663 9,316,234 14,395,646
------------ ------------ ------------
$ 21,639,234 $ 20,812,442 $ 29,760,999
============ ============ ============
Total assets:
North America ............ $182,270,263 $198,328,992 $262,378,945
International ............ 56,047,254 69,867,748 102,755,356
------------ ------------ ------------
$238,317,517 $268,196,740 $365,134,301
============ ============ ============
</TABLE>
<PAGE> 38
SYKES ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - SIGNIFICANT CUSTOMER
Revenue from one customer amounted to 12% and 10% of revenues for the years
ended December 31, 1996 and 1997, respectively. No single customer accounted for
10% of revenues for the year ended December 31, 1998.
NOTE 19 - 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 Company's 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 income 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 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 12, consistent with FAS Statement No. 128. In addition, the
calculation includes certain preferred stock issued during 1996 that was
converted to common stock immediately prior to the closing of and sold in the
Company's initial public offering.
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.
<PAGE> 1
Exhibit Number--21.1
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 Financial Services, Inc. Florida
Sykes Enterprises-South Africa, Inc. Florida
Sykes Datasvar Support AB Sweden
Sykes Holdings of Belgium B.V.B.A Belgium
Translation, Fulfillment & Communication, N.V. (""Traffic'') Belgium
Sykes Enterprises GmbH Germany
Telcare Gesellschaft faur Telekommunikations-Mehrwertdieste
mbH (""Telcare'') Germany
TAS Telemarketing Gesellschaft faur Kommunikations und Dialog
mbH (""TAS I'') Germany
Sykes Verwaltungrgesellschaft mbH, f/k/a TAS Hedi Fabinyi
GmbH (""TAS II'') Germany
TAS GmbH Nord Telemarketing und Vertriebsberatung (""TAS III'') 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
Oracle Service Networks Corporation Canada
NAL Path Inc. Canada
248 Pall Mall Inc. Canada
Clinidata Corporate Canada
</TABLE>
<PAGE> 1
EXHIBIT NUMBER - 23.1
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Sykes Enterprises, Incorporated
We consent to the incorporation by reference in this Form 10-K of Sykes
Enterprises, Incorporated of our report dated March 5, 1999, included in the
1998 Annual Report to Shareholders of Sykes Enterprises, Incorporated.
Our audit also included the financial statement schedule of Sykes Enterprises,
Incorporated listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audit. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-23681) pertaining to the Sykes Enterprises, Incorporated,
1996 Employee Stock Option Plan of our report dated March 5, 1999, with respect
to the consolidated financial statements incorporated herein by reference, and
our report included in the preceding paragraph with respect to the financial
statement schedule included in this Form 10-K of Sykes Enterprises,
Incorporated.
Ernst & Young LLP
Tampa, Florida
March 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SYKES
ENTERPRISES, INCORPORATED FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 36,348,863
<SECURITIES> 0
<RECEIVABLES> 114,636,433
<ALLOWANCES> 796,171
<INVENTORY> 0
<CURRENT-ASSETS> 177,141,757
<PP&E> 171,490,346
<DEPRECIATION> 72,313,834
<TOTAL-ASSETS> 365,134,301
<CURRENT-LIABILITIES> 91,937,273
<BONDS> 0
0
0
<COMMON> 414,519
<OTHER-SE> 164,522,963
<TOTAL-LIABILITY-AND-EQUITY> 365,134,301
<SALES> 469,461,520
<TOTAL-REVENUES> 469,461,520
<CGS> 0
<TOTAL-COSTS> 289,801,769
<OTHER-EXPENSES> 137,628,399
<LOSS-PROVISION> (11,311,201)
<INTEREST-EXPENSE> 959,152
<INCOME-PRETAX> 29,760,999
<INCOME-TAX> 21,483,000
<INCOME-CONTINUING> 8,277,999
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,277,999
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
