UNITED STATES SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
þ | Annual Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934 |
Or
o | Transition Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934 |
Commission File Number 0-28274
Sykes Enterprises, Incorporated
Florida | 56-1383460 | |
(State or other jurisdiction of | (IRS Employer | |
incorporation or organization) | Identification No.) | |
400 N. Ashley Drive, Tampa, Florida | 33602 | |
(Address of principal executive offices) | (Zip Code) |
(813) 274-1000
(Registrants 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
Voting Common Stock $.01 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 þ No o
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 registrants 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. þ
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes þ No o
The aggregate market value of the shares of voting common stock held by non-affiliates of the Registrant computed by reference to the closing sales price of such shares on the NASDAQ National Market on June 30, 2004, the last business day of the Registrants most recently completed second fiscal quarter, was $297,417,725.
As of March 2, 2005, there were 39,187,157 outstanding shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Form 10-K Reference
Part III Items 1014
TABLE OF CONTENTS
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Item 11 Executive Compensation
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Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
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Item 13 Certain Relationships and Related Transactions
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Item 14 Principal Accountant Fees and Services
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Ex-2.6 Share Purchase Agreement | ||||||||
Ex-3.3 Bylaws of Sykes Enterprises | ||||||||
Ex-10.13 Deferred Compensation Plan | ||||||||
Ex-10.20 Charles E. Sykes Employment Agreement | ||||||||
Ex-10.32 Gerry L. Rogers Independent Subcontractor Agreement | ||||||||
Ex-10.33 First Amendment to Gerry L. Rogers Agreement | ||||||||
Ex-10.53 Amendment No. 1 to Credit Agreement | ||||||||
Ex-21.1 List of Subsidiaries | ||||||||
Ex-23.1 Consent of Independent Registered Public Accounting Firm | ||||||||
Ex-31.1 Section 302 CEO Certification | ||||||||
Ex-31.2 Section 302 CFO Certification | ||||||||
Ex-32.1 Section 906 CEO Certification | ||||||||
Ex-32.2 Section 906 CFO Certification |
2
PART I
Item 1. Business
General
Sykes Enterprises, Incorporated and consolidated subsidiaries (Sykes, our, us or we)
is a global leader in providing outsourced customer contact management solutions and services in
the business process outsourcing (BPO) arena. We provide an array of sophisticated customer
contact management solutions to Fortune 1000 companies and medium sized businesses around the world
primarily in the communications, technology/consumer, financial services, healthcare and
transportation and leisure industries. We serve our clients through two geographic operating
regions: the Americas (United States, Canada, Latin America, India and the Asia Pacific Rim) and
EMEA (Europe, Middle East and Africa). Our Americas and EMEA groups primarily provide customer
contact outsourcing services with an emphasis on inbound technical support and customer service.
These services are delivered through multiple communications channels encompassing phone, e-mail,
Web and chat. We also provide various enterprise support services in the United States that
encompass services for our clients internal support operations, from technical staffing services
to outsourced corporate help desk services. In Europe, we also provide fulfillment services
including multilingual sales order processing via the Internet and phone, inventory control,
product delivery and product returns handling. Our complete service offering helps our clients
acquire, serve, retain and grow relationships with their customers. We have developed an extensive
global reach with state-of-the-art customer contact management centers throughout the United
States, Canada, Europe, Latin America, Asia and Africa.
Sykes was founded in 1977 in North Carolina and we moved our headquarters to Florida in 1993.
In March 1996, we changed our state of incorporation from North Carolina to Florida. Our
headquarters are located at 400 North Ashley Drive, 28th Floor, Tampa, Florida 33602, and our
telephone number is (813) 274-1000.
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,
and amendments to those reports, as well as our proxy statements and other materials which are
filed with or furnished to the Securities and Exchange Commission (SEC) are made available, free
of charge, on or through our Internet website at www.sykes.com/investors.asp under the heading
Financial Reports SEC Filings, as soon as reasonably practicable after they are filed with, or
furnished to, the SEC.
Industry Overview
According to industry analysts, the outsourced customer contact management solutions market
worldwide is estimated to be approximately $51 billion in 2005. Also, the five primary verticals in
which we participate communications, technology/consumer, financial services, healthcare and
transportation and leisure constitute approximately 80% of the total worldwide market. We believe
that growth for outsourced customer contact management solutions and services will be fueled by the
trend of global Fortune 1000 companies and medium sized businesses turning to outsourcers to
provide high quality, cost-effective, value added customer contact management solutions.
Increasingly they are moving towards balanced solutions that consist of a combination of onshore
and offshore support.
In todays ever-changing marketplace, companies require innovative customer contact management
solutions that allow them to enhance the end users experience with their products and services,
strengthen and enhance company brands, maximize the lifetime value of customers, turn cost centers
into profit centers, efficiently and effectively deliver human interaction when customers value it
most, and deploy best in-class customer management strategies, processes and technologies.
Global competition, pricing pressures, softness in the global economy and rapid changes in
technology are making it increasingly difficult for companies to cost effectively maintain the
in-house personnel necessary to handle all of their customer contact management needs. As a result,
companies are increasingly turning to outsourcers to perform specialized functions and services in
the customer contact management arena. By working in a partnership with outsourcers, companies can
ensure that the crucial task of retaining and growing their customer base is addressed without
detracting from their competencies. Factors that are influencing companies to outsource customer
contact management solutions include the following:
3
To address these market factors, we offer a full, global customer contact management solution
that focuses on proactively identifying and solving our clients business problems through
understanding our clients industries and challenges and recommending solutions. We then can
provide consistent support for our clients customers across the globe in most languages leveraging
our dynamic, secure communications infrastructure and a global footprint that reaches across 17
countries. This global footprint includes established operations in both onshore and highly
strategic offshore geographic markets where companies have access to high quality customer contact
management solutions at lower costs compared to other markets.
Business Strategy
Our goal is to provide enhanced customer contact management solutions and
services in a proactive and responsive manner, acting as a partner in our clients business. Sykes
anticipates trends and delivers new ways of growing clients customer satisfaction and retention
rates, thus profit, through timely, insightful and proven solutions.
Our business strategy encompasses building long-term client relationships, capitalizing on our
expert worldwide response team, leveraging our depth of relevant experience, expanding both
organically and through acquisitions and diversifying our market reach. The principles of this
strategy include the following:
Build Long-term Client Relationships Through Service Excellence.
We believe that providing
superior, quality service is critical in our clients decisions to outsource and in building
long-term relationships with our clients. To ensure service excellence and consistency across each
of our centers globally, we implemented an internally developed quality program titled Sykes
Standard of Excellence (SSE). This quality certification standard is a compilation of more than 25
years of experience and best practices from industry standards such as the Malcom Baldridge
National Quality Award and COPC (Customer Operations Performance Center Inc.). Every customer
contact management center strives to meet or exceed the criteria set forth by SSE,
which address leadership, hiring and training, performance management down to the agent level,
forecasting and scheduling, and the client relationship including continuous improvement, disaster
recovery plans and feedback.
Capitalize on an Expert Worldwide Response Team.
Companies are demanding a customer contact
management solution that is global in nature one of our key strengths. In addition to our network
of customer contact management centers throughout North America and Europe, we continue to develop
our global delivery model with operations in the Philippines, The Peoples Republic of China, Costa
Rica and El Salvador, offering our clients a secure, high quality solution tailored to the needs of
their diverse and global markets. These customer contact management centers were added to support
the increasing demand for our worldwide customer contact management solutions and are fully
integrated through our internally developed digital private Asynchronous Transfer Mode (ATM)
communications network, which allows for effective call volume management and disaster recovery
backup. Our converged voice and data ATM communications network provides a high quality, fault tolerant global network for the transport of Voice
Over Internet Protocol communications and fully integrates with
emerging Internet Protocol telephony systems as well as
traditional Time Domain Multiplexing telephony systems. We continued to expand our global footprint, adding centers in El Salvador in 2004 and
Slovakia in 2005. We also expanded our global market reach with the addition of client accounts
based in The Peoples Republic of China, South Africa, and Latin America.
4
Maintain a Competitive Advantage Through Our Depth of Relevant Experience in Technology
Solutions.
For more than 25 years, Sykes has been an innovative pioneer in delivering customer
contact management solutions. Through this experience, we have become a benchmark for innovation
and excellent global solution delivery. We seek to maintain a competitive advantage and
differentiation by utilizing technology in new and creative ways to consistently deliver innovative
service solutions, ultimately enhancing the clients relationship with its customers and generating
revenue growth. This includes knowledge solutions for agents and end customers, automatic call
distributors, intelligent call routing and workforce management capabilities based on agent skill
and availability, call tracking software, quality management systems and computer-telephony
integration (CTI) that enable our customer contact management centers to serve as transparent
extensions for our clients, receive telephone calls and data directly from our clients systems,
and report detailed information concerning the status and results of our services on a daily basis.
We are also continuing to capitalize on sophisticated and specialized technological capabilities,
including our current private ATM network that provides us the ability to manage call volumes more
efficiently by load balancing calls and data between customer contact
management centers over the same network. Our flexible, secure and scalable
network infrastructure allows us to rapidly respond to changes in client voice and data traffic and
quickly establish support operations for new and existing clients. Through strategic technology
relationships, we are able to provide fully integrated communication services encompassing e-mail,
chat and Web self-service platforms. In addition, the European deployment of Global Direct, our
customer relationship management (CRM)/ e-commerce application utilized within the fulfillment
operations, establishes a platform whereby our clients can manage all customer profile and contact
information from every communication channel, making it a viable customer-facing infrastructure
solution to support their CRM initiatives.
Continue to Grow Our Business Organically and through Acquisitions.
We have grown our customer
contact management outsourcing operations utilizing a strategy of both internal growth and external
acquisitions. This plan has resulted in an increase from three U.S. customer contact management
centers in 1994 to 35 customer contact management centers worldwide as of the end of 2004. Given
the fragmented nature of the customer contact management industry, there may be other companies
that could bring us certain complementary competencies. Acquisition candidates that can, among
other competencies, expand our service offerings, broaden our geographic footprint, allow us access
to new technology and are synergistic in nature, will be given consideration. We have and will
continue to explore these options upon identification of strategic opportunities.
Diversify Our Market Reach.
We market our services on a worldwide basis to Fortune 1000 and
medium sized businesses primarily in the communications, technology/consumer, financial services,
healthcare, and transportation and leisure industries. We built our industry knowledge by initially
focusing on software publishers, personal computer manufacturers and peripheral hardware
manufacturers within the technology/consumer vertical market, providing us with a competitive
advantage in technical support. In 2004, the technology/consumer vertical market represented 36% of
our consolidated revenues. Beginning in 1999, our growth strategy targeted the communications
vertical market, where we leveraged our technical support capabilities to capitalize on dial-up
Internet, broadband Internet, wireless services and related opportunities. Revenues from the
communications vertical market represented 32% of our consolidated revenues in 2004, compared to 9%
in 1999. In 2001, we began targeting the financial services vertical market recognizing the
potential growth this market offered and the added stability this market would provide our revenue
mix. We entered into several new relationships with financial services companies in late 2001 and
2002, for which we provide an array of services from credit card inquiries to brokerage account
assistance. For 2004, revenues from this vertical market represented 8% of our consolidated
revenues, an increase from 6% in 2003, and we expect this market to continue to increase in the
future. The healthcare vertical, which is primarily generated from our Canadian operations,
represented 7% of our consolidated revenues in 2004 compared to 6% in 2003. While the
transportation and leisure vertical market represented 6% of our consolidated revenues in 2004,
compared to 5% in 2003, other vertical markets represented 11% of our consolidated revenues in
2004, compared to 7% in 2003. We believe the diversification of our business into focused vertical
markets allows for a more predictable, steady revenue stream.
Services
We specialize in providing inbound outsourced customer contact management solutions in the BPO
arena on a global basis. Our customer contact management services are provided through two
operating segments the Americas and EMEA. The Americas region, representing 60.7% of consolidated
revenues in 2004, includes the United States, Canada, Latin America and the Asia Pacific Rim. The
sites within Latin America and the Asia Pacific Rim are included in the Americas region as they
provide a significant service delivery vehicle for U.S. based companies that are utilizing our
customer contact management solutions in these locations to support their customer care needs. The
EMEA region, representing 39.3% of consolidated revenues in 2004, includes Europe, the Middle
5
East and Africa. The following is a description of our customer contact management solutions:
Outsourced Customer Contact Management Services.
Our outsourced customer contact management
services represented approximately 93.9% of total 2004 consolidated revenues. Every year, we handle
over 100 million customer contacts including phone, e-mail, Web and chat throughout the Americas
and EMEA regions. We provide these services utilizing our advanced technology infrastructure, human
resource management skills and industry experience. These services include:
We provide these services, primarily inbound customer calls, through our extensive global network
of customer contact management centers, where our customer contact agents provide support in over
30 languages. Our technology infrastructure and managed service solutions allow for effective
distribution of calls to one or more centers. These technology offerings provide our clients and us
with the leading edge tools needed to maximize quality and customer satisfaction while controlling
and minimizing costs.
Fulfillment Services.
In Europe, we offer fulfillment services that are fully integrated with
our customer care and technical support services. Our fulfillment solutions include multilingual
sales order processing via the Internet and phone, payment processing, inventory control, product
delivery and product returns handling.
Enterprise Support Services.
In the United States, we provide a range of enterprise support
services including technical staffing services and outsourced corporate help desk solutions.
Operations
Customer Contact Management Centers.
We operate seventeen stand-alone customer contact
management centers in Europe and South Africa, seven centers in the United States, one center in
Canada and ten centers offshore, including The Peoples Republic of China, the Philippines, India,
Costa Rica and El Salvador.
In an effort to stay ahead of industry off-shoring trends, we opened our first customer
contact management centers in the Philippines and Costa Rica over seven years ago. By 2004, we
expanded to five centers in the Philippines, two in Costa Rica, one in The Peoples Republic of
China, one in India and one in El Salvador.
Due to shifts in business demand for offshore customer contact management centers, we closed
several under-utilized customer contact management centers in the United States in 2004 and 2003.
In addition, related to our efforts to reduce costs, we closed two centers in Europe and one center
in the Middle East in 2004 and plan to close the center in India in 2005.
We utilize a sophisticated workforce management system to provide efficient scheduling of
personnel. Our internally developed digital private communications network complements our
workforce by allowing for effective call volume management and disaster recovery backup. Through
this network and our dynamic intelligent call routing capabilities, we can rapidly respond to
changes in client call volumes and move call volume traffic based on agent availability and skill
throughout our network of centers, improving the responsiveness and productivity of our agents. We
also can offer cost competitive solutions for taking calls to our offshore locations.
Our sophisticated data warehouse captures and downloads customer contact information for
reporting on a daily, real time and historical basis. This data provides our clients with direct
visibility into the services that we are providing for them. The data
warehouse supplies information for our performance management systems
such as our agent scorecarding application, which
provides management with
the information required for effective management of our operations.
6
Our customer contact management centers are protected by a fire extinguishing system, backup
generators with significant capacity and 24 hour refueling contracts and short-term battery backups
in the event of a power outage, reduced voltage or a power surge. Rerouting of call volumes to
other customer contact management centers is also available in the event of a telecommunications
failure, natural disaster or other emergency. Security measures are imposed to prevent unauthorized
physical access. Software and related data files are backed up daily and stored off site at
multiple locations. We carry business interruption insurance covering interruptions that might
occur as a result of damage to our business.
Fulfillment Centers.
We currently have three fulfillment centers located in Europe. We provide
our fulfillment services primarily to certain clients operating in Europe who desire this
complementary service in connection with outsourced customer contact management services.
Enterprise Support Services Offices.
Our three enterprise support services offices are located
in metropolitan areas in the United States to provide a strong recruiting platform for high-end
knowledge workers and to establish a local presence to service major accounts.
Quality Assurance
We believe that providing consistent high quality service is critical in our clients
decisions to outsource and in building long-term relationships with our clients. It is also our
belief and commitment that quality is the responsibility of each individual at every level of the
organization. To ensure service excellence and continuity across our organization, we have
developed an integrated Quality Assurance program consisting of three major components:
The SSE program is a quality certification standard that was developed based on
our more than 25 years of experience, and best practices from industry standards such as the COPC
and Support Center Practices (SCP). It defines the requirements across all aspects of the business,
and has a well-defined auditing process to ensure compliance and to gain certification.
The application of continuous improvement is established by SSE and is based upon the
five-step Six Sigma cycle, which we have tuned to apply specifically to our service industry. All
managers are responsible for continuous improvement in their operations.
Process audits are used to verify that client processes and procedures are consistently
executed as required by established documentation. Process audits are applicable to all services
being provided for the client. Quality monitoring and coaching are also core components of our
approach to quality. We utilize industry best practices to ensure that our employees handle
customer interactions with the care, accuracy and timeliness needed.
Sales and Marketing
Our sales and marketing objective is to leverage our expertise and global presence to develop
long-term relationships with existing and potential clients. Our customer contact solutions have
been developed to help our clients acquire, retain, and increase the value of their customer
relationships. We are implementing marketing and business development plans to increase visibility
of our solutions in the vertical markets we serve. We believe that our client base provides
excellent opportunities for further marketing and cross-selling of our customer contact management
services. Our plans for increasing our visibility include market focused advertising, consultative
personal visits with potential and existing clients, participation in market specific trade shows
and seminars, speaking engagements, articles and white papers and our website.
Our sales force is composed of business development managers who pursue new business
opportunities and strategic account managers that manage and grow relationships with existing
accounts. We also have inside customer sales representatives who receive customer inquiries and
provide outbound lead generation for the business development managers.
7
As part of our marketing efforts, we invite potential and existing clients to visit our
customer contact management centers, where we can demonstrate the expertise of our skilled staff in
partnering to deliver new ways of growing clients customer satisfaction and retention rates, thus
profit, through timely, insightful and proven solutions. During these visits, we demonstrate our
ability to quickly and effectively support a new client or scale business from an existing client
by emphasizing our systematic approach to implementing customer contact solutions throughout the
world.
We emphasize account development to strengthen relationships with existing clients. Business
development and strategic account managers are generally assigned to markets in their area of
expertise in order to develop a complete understanding of each clients particular needs, to form
strong client relationships and encourage cross-selling of our other service offerings. We utilize
our marketing and sales visibility in the markets to lead our product development efforts to
further meet growing market needs.
Clients
In 2004, we provided service to hundreds of clients from our locations in the United States,
Canada, Latin America, Europe, the Philippines, The Peoples Republic of China, India and South
Africa. We market to Fortune 1000 corporations and medium sized businesses primarily within the
communications, technology/consumer, financial services, healthcare, and transportation and leisure
industries. Revenue by vertical market for 2004, as a percentage of our consolidated revenues, was
36% for technology/consumer, 32% for communications, 8% for financial services, 7% for healthcare,
7% for retail, 6% for transportation and leisure, and 4% for all other vertical markets, including,
government-related and utilities. We believe our globally recognized client base presents
opportunities for further cross marketing of our services.
For the years ended December 31, 2004 and 2003, total revenues included $36.6 million, or 7.8%
of consolidated revenues, and $81.2 million, or 16.9% of consolidated revenues, respectively, from
Accenture, a leading systems integrator that represents a major provider of communication services
to whom we provide various outsourced customer contact management services. Effective May 1, 2003,
we entered into a subcontractor services agreement (the Agreement) with Accenture following the
execution of a primary services agreement between the major provider of communication services and
Accenture. The revenues for the year ended December 31, 2002, as it relates to this relationship
were $71.6 million, or 15.8% of consolidated revenues. Under the terms of this three-year
Agreement, which contains penalty provisions for failure to meet minimum service levels and is
cancelable with 6 months written notice, we will continue to provide the products and services
necessary to support and assist Accenture in the management and performance of its primary services
agreement.
In addition, for the years ended December 31, 2004, 2003 and 2002, total revenues included
$33.8 million, or 7.3% of consolidated revenues, $58.5 million, or 12.2% of consolidated revenues,
and $54.6 million, or 12.1% of consolidated revenues, respectively, from Microsoft Corporation, a
major provider of software and related services.
Although no client represented 10% or more of 2004 consolidated revenues, our top ten clients
accounted for approximately 45% of our consolidated revenues in 2004. The loss of (or the failure
to retain a significant amount of business with) Accenture, Microsoft or any of our other key
clients could have a material adverse effect on our performance. Many of our contracts contain
penalty provisions for failure to meet minimum service levels and are cancelable by the client at
any time or on short-term notice. Also, clients may unilaterally reduce their use of our services
under our contracts without penalty.
Competition
The industry in which we operate is extremely competitive and highly fragmented. While many
companies provide customer contact management solutions and services, we believe no one company is
dominant in the industry.
In most cases, our principal competition stems from our existing and potential clients
in-house customer contact management operations. When it is not the in-house operations of a
client, our direct competition includes TeleTech, Sitel, APAC Customer Services, ICT Group, Client
Logic, Convergys, West Corporation, Stream, PeopleSupport, EDS, IBM and NCO Group as well as the
customer care arm of such companies as Accenture, WIPRO, 24/7, Infosys and SR Teleperformance.
There are other numerous and varied providers of such services, including firms specializing in
various CRM consulting, other customer management solutions providers niche or large market
companies, as well as product distribution companies that provide fulfillment services. Some of
these companies
8
possess substantially greater resources, greater name recognition and a more established customer
base than we.
We believe that the most significant competitive factors in the sale of outsourced customer
contact management services include service quality, tailored value added service offering,
industry experience, advanced technology capabilities, global coverage, reliability, scalability,
security and price. As a result of intense competition, outsourced customer contact management
solutions and services frequently are subject to pricing pressure. Clients also require outsourcers
to be able to provide services in multiple locations. Competition for contracts for many of our
services takes the form of competitive bidding in response to requests for proposals.
Intellectual Property
We rely upon a combination of contract provisions and trade secret laws to protect the
proprietary technology we use at our customer contact management centers and facilities. We also
rely on a combination of copyright, trademark and trade secret laws to protect our proprietary
software. We attempt to further protect our trade secrets and other proprietary information through
agreements with employees and consultants. We do not hold any patents and do not have any patent
applications pending. There can be no assurance that the steps we have taken to protect our
proprietary technology will be adequate to deter misappropriation of our proprietary rights or
third-party development of similar proprietary software. Sykes
®
, REAL PEOPLE. REAL
SOLUTIONS.
®
and Sykes Answerteam
®
are our registered service marks. We hold
a number of registered trademarks, including ETSC
®
, FS PRO
®
and FS PRO
MARKETPLACE
®
.
Employees
At January 31, 2005, we had approximately 17,130 employees worldwide, consisting
of 15,400 customer contact agents handling technical and customer support inquiries at our centers,
1,440 in management, administration and finance, 120 in enterprise support services, 150 in
fulfillment services and 20 in sales and marketing. Our employees, with the exception of
approximately 500 employees in Europe, are not represented by a labor union and we have never
suffered an interruption of business as a result of a labor dispute. We consider our relations with
our employees to be good.
We employ personnel through a continually updated recruiting network. This network includes a
seasoned team of recruiters, a company-wide candidate database, Internet/newspaper advertising,
candidate referral programs and job fairs. However, demand for qualified professionals with the
required language and technical skills may exceed 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.
Factors Influencing Future Results and Accuracy of Forward Looking Statements
This report contains forward-looking statements (within the meaning of the Private Securities
Litigation Reform Act of 1995) that are based on current expectations, estimates, forecasts, and
projections about us, our beliefs, and assumptions made by us. In addition, we may make other
written or oral statements, which constitute forward-looking statements, from time to time. Words
such as may, expects, projects, anticipates, intends, plans, believes, seeks,
estimates, variations of such words, and similar expressions are intended to identify such
forward-looking statements. Similarly, statements that describe our future plans, objectives or
goals also are forward-looking statements. These statements are not guarantees of future
performance and are subject to a number of risks and uncertainties, including those discussed below
and elsewhere in this report. Our actual results may differ materially from what is expressed or
forecasted in such forward-looking statements, and undue reliance should not be placed on such
statements. All forward-looking statements are made as of the date hereof, and we undertake no
obligation to update any forward-looking statements, whether as a result of new information, future
events or otherwise.
Factors that could cause actual results to differ materially from what is expressed or
forecasted in such forward-looking statements include, but are not limited to: the marketplaces
continued receptivity to our terms and elements of services offered under our standardized contract
for future bundled service offerings; our ability to continue the growth of our service revenues
through additional customer contact management centers; our ability to further penetrate into
vertically integrated markets; our ability to expand revenues within the global markets; our
ability to continue to establish a competitive advantage through sophisticated technological
capabilities, and the following risk factors:
9
Dependence on Key Clients
We derive a substantial portion of our revenues from a few key clients. For the years ended
December 31, 2004 and 2003, total revenues included $36.6 million, or 7.8% of consolidated
revenues, and $81.2 million, or 16.9% of consolidated revenues, respectively, from Accenture, a
leading systems integrator that represents a major provider of communication services to whom we
provide various outsourced customer contact management services. Effective May 1, 2003, we entered
into a subcontractor services agreement (the Agreement) with Accenture following the execution of
a primary services agreement between the major provider of communication services and Accenture.
The revenues for the year ended December 31, 2002, as it relates to this relationship were $71.6
million, or 15.8% of consolidated revenues. Under the terms of this three-year Agreement, which
contains penalty provisions for failure to meet minimum service levels and is cancelable with 6
months written notice, we will continue to provide the products and services necessary to support
and assist Accenture in the management and performance of its primary services agreement.
In addition, total revenue for the years ended December 31, 2004, 2003 and 2002, includes
$33.8 million, or 7.3% of consolidated revenues, $58.5 million, or 12.2% of consolidated revenues
and $54.6 million, or 12.1% of consolidated revenues, respectively, from Microsoft Corporation, a
major provider of software and related services. Our top ten clients accounted for approximately
45%, 59% and 60%, of consolidated revenue for the years ended December 31, 2004, 2003, and 2002,
respectively.
Our loss of, or the failure to retain a significant amount of business with Accenture,
Microsoft or any of our other key clients could have a material adverse effect on our business,
financial condition and results of operations. Many of our contracts contain penalty provisions for
failure to meet minimum service levels and are cancelable by the client at any time or on
short-term notice. Also, clients may unilaterally reduce their use of our services under these
contracts without penalty. Thus, our contracts with our clients do not ensure that we will generate
a minimum level of revenues.
Risks Associated With International Operations and Expansion
We intend to continue to pursue growth opportunities in markets outside the United States. At
December 31, 2004, our international operations were conducted from 24 customer contact management
centers located in Sweden, the Netherlands, Finland, Germany, South Africa, Scotland, India,
Ireland, Italy, Hungary, Spain, The Peoples Republic of China and the Philippines. Revenues from
these operations for the years ended December 31, 2004, 2003, and 2002, were 59%, 44%, and 39% of
consolidated revenues, respectively. We also conduct business from
four customer contact management
centers located in Canada, Costa Rica and El Salvador. International operations are subject to
certain risks common to international activities, such as changes in foreign governmental
regulations, tariffs and taxes, import/export license requirements, the imposition of trade
barriers, difficulties in staffing and managing international operations, political uncertainties,
longer payment cycles, foreign exchange restrictions that could limit the repatriation of earnings,
possible greater difficulties in accounts receivable collection, potentially adverse tax
consequences, and economic instability. As of December 31, 2004, we had cash balances of
approximately $79.0 million held in international operations, which may be subject to additional
taxes if repatriated to the United States.
We conduct business in various foreign currencies and are therefore exposed to market risk
from changes in foreign currency exchange rates and interest rates, which could impact our results
of operations and financial condition. We are also subject to certain exposures arising from the
translation and consolidation of the financial results of our foreign subsidiaries. We have, from
time to time, taken limited actions, such as using foreign currency forward contracts, to attempt
to mitigate our currency exchange exposure. However, there can be no assurance that we will take
any actions to mitigate such exposure in the future, and if taken, that such actions will be
successful or that future changes in currency exchange rates will not have a material impact on our
future operating results. A significant change in the value of the dollar against the currency of
one or more countries where we operate may have a material adverse effect on our results.
Fundamental Shift Towards Global Service Delivery Markets
Clients are increasingly requiring blended delivery models using a combination of onshore and
offshore support. Our offshore delivery locations include The Peoples Republic of China, the
Philippines, Costa Rica and El Salvador, and while we have operated in global delivery markets
since 1996, there can be no assurance that we will be able to successfully conduct and expand such
operations, and a failure to do so could have a material adverse effect on our
10
business, financial condition, and results of operations. The success of our offshore operations
will be subject to numerous contingencies, some of which are beyond our control, including general
and regional economic conditions, prices for our services, competition, changes in regulation and
other risks. In addition, as with all of our operations outside of the United States, we are
subject to various additional political, economic, and market uncertainties (See Risks Associated
with International Operations and Expansion.). Additionally, a change in the political environment
in the United States or the adoption and enforcement of legislation and regulations curbing the use
of offshore customer contact management solutions and services could effectively have a material
adverse effect on our business, financial condition and results of operations.
Existence of Substantial Competition
The markets for our services on a commoditized basis are highly competitive and subject to
rapid change. While many companies provide outsourced customer contact management services, we
believe no one company is dominant in the industry. There are numerous and varied providers of our
services, including firms specializing in call center operations, temporary staffing and personnel
placement, consulting and integration firms, and niche providers of outsourced customer contact
management services, many of whom compete in only certain markets. Our competitors include both
companies who possess greater resources and name recognition than we do, as well as small niche
providers that have few assets and regionalized (local) name recognition instead of global name
recognition. In addition to our competitors, many companies who might utilize our services or the
services of one of our competitors may utilize in-house personnel to perform such services.
Increased competition, our failure to compete successfully, pricing pressures, loss of market share
and loss of clients could have a material adverse effect on our business, financial condition and
results of operations.
Many of our large clients purchase outsourced customer contact management services from
multiple preferred vendors. We have experienced and continue to anticipate significant pricing
pressure from these clients in order to remain a preferred vendor. These companies also require
vendors to be able to provide services in multiple locations. Although we believe we can
effectively meet our clients demands, there can be no assurance that we will be able to compete
effectively with other outsourced customer contact management services companies on price. We
believe that the most significant competitive factors in the sale of our core services include the
standard requirements of quality, tailored value added service offerings, industry experience,
global coverage, reliability, scalability, security and price.
Inability to Attract and Retain Experienced Personnel May Adversely Impact Our Business
Our business is labor intensive and places significant importance on our ability to recruit,
train, and retain qualified technical and consultative professional personnel. We generally
experience high turnover of our personnel and are continuously required to recruit and train
replacement personnel as a result of a changing and expanding work force. Additionally, demand for
qualified technical professionals conversant with the English language and/or certain technologies
may exceed supply, as new and additional skills are required to keep pace with evolving computer
technology. Our ability to locate and train employees is critical to achieving our growth
objective. Our inability to attract and retain qualified personnel or an increase in wages or other
costs of attracting, training, or retaining qualified personnel could have a material adverse
effect on our business, financial condition and results of operations.
Dependence on Senior Management
Our success is largely dependent upon the efforts, direction and guidance of our senior
management. Our growth and success also depend in part on our ability to attract and retain skilled
employees and managers and on the ability of our executive officers and key employees to manage our
operations successfully. We have entered into employment and non-competition agreements with our
executive officers. The loss of any of our senior management or key personnel, or the inability to
attract, retain or replace key management personnel in the future, could have a material adverse
effect on our business, financial condition and results of operations.
Dependence on Trend Toward Outsourcing
Our business and growth depend in large part on the industry trend toward outsourced customer
contact management services. Outsourcing means that an entity contracts with a third party, such as
us, to provide customer contact services rather than perform such services in-house. There can be
no assurance that this trend will continue, as organizations may elect to perform such services
themselves. A significant change in this trend could have a
11
material adverse effect on our business, financial condition and results of operations.
Additionally, there can be no assurance that our cross-selling efforts will cause clients to
purchase additional services from us or adopt a single-source outsourcing approach.
Our Strategy of Growing Through Selective Acquisitions and Mergers Involves Potential Risks
We evaluate opportunities to expand the scope of our services through acquisitions and
mergers. We may be unable to identify companies that complement our strategies, and even if we
identify a company that complements our strategies, we may be unable to acquire or merge with the
company. In addition, a decrease in the price of our common stock could hinder our growth strategy
by limiting growth through stock acquisitions.
Our acquisition strategy involves other potential risks. These risks include:
Uncertainties Relating to Future Litigation
We cannot predict whether any material suits, claims, or investigations may arise in the
future. Regardless of the outcome of any future actions, claims, or investigations, we may incur
substantial defense costs and such actions may cause a diversion of management time and attention.
Also, it is possible that we may be required to pay substantial damages or settlement costs which
could have a material adverse effect on our financial condition and results of operations.
Rapid Technological Change
Rapid technological advances, frequent new product introductions and enhancements, and changes
in client requirements characterize the market for outsourced customer contact management services.
Our future success will depend in large part on our ability to service new products, platforms and
rapidly changing technology. These factors will require us to provide adequately trained personnel
to address the increasingly sophisticated, complex and evolving needs of our clients. In addition,
our ability to capitalize on our acquisitions will depend on our ability to continually enhance
software and services and adapt such software to new hardware and operating system requirements.
Any failure by us to anticipate or respond rapidly to technological advances, new products and
enhancements, or changes in client requirements could have a material adverse effect on our
business, financial condition and results of operations.
Reliance on Technology and Computer Systems
We have invested significantly in sophisticated and specialized communications and computer
technology and have focused on the application of this technology to meet our clients needs. We
anticipate that it will be necessary to continue to invest in and develop new and enhanced
technology on a timely basis to maintain our competitiveness. Significant capital expenditures may
be required to keep our technology up-to-date. There can be no assurance that any of our
information systems will be adequate to meet our future needs or that we will be able to
incorporate new technology to enhance and develop our existing services. Moreover, investments in
technology, including future investments in upgrades and enhancements to software, may not
necessarily maintain our competitiveness. Our future success will also depend in part on our
ability to anticipate and develop information technology solutions that keep pace with evolving
industry standards and changing client demands.
12
Risk of Emergency Interruption of Customer Contact Management Center Operations
Our operations are dependent upon our ability to protect our customer contact management
centers and our information databases against damage that may be caused by fire and other
disasters, power failure, telecommunications failures, unauthorized intrusion, computer viruses and
other emergencies. The temporary or permanent loss of such systems could have a material adverse
effect on our business, financial condition and results of operations. Notwithstanding precautions
taken to protect us and our clients from events that could interrupt delivery of services, there
can be no assurance that a fire, natural disaster, human error, equipment malfunction or
inadequacy, or other event would not result in a prolonged interruption in our ability to provide
services to our clients. Such an event could have a material adverse effect on our business,
financial condition and results of operations.
Control By Principal Shareholder and Anti-Takeover Considerations
As of March 2, 2005, John H. Sykes, our founder and former Chairman of the Board and Chief
Executive Officer, beneficially owned approximately 35.0% of our outstanding common stock. As a
result, Mr. Sykes will have substantial influence in the election of our directors and in
determining the outcome of other matters requiring shareholder approval.
Our Board of Directors is divided into three classes serving staggered three-year terms. The
staggered Board of Directors and the anti-takeover effects of certain provisions contained in the
Florida Business Corporation Act and in our Articles of Incorporation and Bylaws, including the
ability of the Board of Directors to issue shares of preferred stock and to fix the rights and
preferences of those shares without shareholder approval, may have the effect of delaying,
deferring or preventing an unsolicited change in control. This may adversely affect the market
price of our common stock or the ability of shareholders to participate in a transaction in which
they might otherwise receive a premium for their shares.
Volatility of Stock Price May Result in Loss of Investment
The trading price of our common stock has been and may continue to be subject to wide
fluctuations over short and long periods of time. We believe that market prices of outsourced
customer contact management services stocks in general have experienced volatility, which could
affect the market price of our common stock regardless of our financial results or performance. We
further believe that various factors such as general economic conditions, changes or volatility in
the financial markets, changing market conditions in the outsourced customer contact management
services industry, quarterly variations in our financial results, the announcement of acquisitions,
strategic partnerships, or new product offerings, and changes in financial estimates and
recommendations by securities analysts could cause the market price of our common stock to
fluctuate substantially in the future.
Executive Officers
The following table provides the names and ages of our executive officers, and the positions
and offices currently held by each of them:
13
Charles E. Sykes
joined Sykes in 1986 and was named President and Chief Executive Officer in
August 2004. From July 2003 to August 2004, Mr. Sykes was the Chief Operating Officer. From March
2000 to June 2001, Mr. Sykes was Senior Vice President, Marketing and in June 2001 he was appointed
to the position of General Manager, Senior Vice President the Americas. From December 1996 to
March 2000, he served as Vice President, Sales and held the position of Regional Manager of the
Midwest Region for Professional Services from 1992 until 1996. Mr. Charles E. Sykes is the son of
Mr. John H. Sykes.
W. Michael Kipphut, C.P.A.
, joined Sykes in March 2000 as Vice President and Chief Financial
Officer and was named Senior Vice President and Chief Financial officer in June 2001. From
September 1998 to February 2000, Mr. Kipphut held the position of Vice President and Chief
Financial Officer for USA Floral Products, Inc., a publicly held worldwide perishable products
distributor. From September 1994 until September 1998, Mr. Kipphut held the position of Vice
President and Treasurer for Spalding & Evenflo Companies, Inc., a global manufacturer of consumer
products. Previously, Mr. Kipphut held various financial positions including Vice President and
Treasurer in his 17 years at Tyler Corporation, a publicly held diversified holding company.
James C. Hobby
joined Sykes in August 2003 as Senior Vice President, the Americas, overseeing
the daily operations, administration and development of Sykes customer care and enterprise support
operations throughout North America, Latin America, the Asia Pacific Rim and India and was named
Senior Vice President, Global Operations in January 2005. Prior to joining Sykes, Mr. Hobby held
several positions at Gateway, Inc., most recently serving as President of Consumer Customer Care
since August 1999. From January 1999 to August 1999, Mr. Hobby served as Vice President of European
Customer Care for Gateway, Inc. From January 1996 to January 1999, Mr. Hobby served as the Vice
President of European Customer Service Centers at American Express. Prior to January 1996, Mr.
Hobby held various senior management positions in customer care at FedEx Corporation since 1983,
mostly recently serving as Managing Director, European Customer Service Operations.
Jenna R. Nelson
joined Sykes in August 1993 and was named Senior Vice President, Human
Resources in July 2001. From January 2001 until July 2001, Ms. Nelson held the position of Vice
President, Human Resources. In August 1998, Ms. Nelson was appointed Vice President, Human
Resources and held the position of Director, Human Resources and Administration from August 1996 to
July 1998. From August 1993 until July 1996, Ms. Nelson served in various management positions
within Sykes, including Director of Administration.
Daniel L. Hernandez
joined Sykes in October 2003 as Senior Vice President, Global Strategy
overseeing marketing, operations strategy and client relations worldwide. Prior to joining Sykes,
Mr. Hernandez served as President and CEO of SBC Internet Services, a division of SBC
Communications Inc., since March 2000. From February 1998 to March 2000, Mr. Hernandez held the
position of Vice President/General Manager, Internet and System Operations at Ameritech Interactive
Media Services. Prior to February 1998, Mr. Hernandez held various management positions at U S West
Communications since joining the telecommunications provider in 1990.
David L. Pearson
joined Sykes in February 1997 as Vice President, Engineering and was named
Vice President, Technology Systems Management in 2000 and Senior Vice
President and Information Officer in August 2004. Prior to
Sykes, Mr. Pearson held various engineering and technical
management roles over a fifteen year period, including eight years at
Compaq Computer Corporation and five years at Texas Instruments.
William N. Rocktoff, C.P.A
., joined Sykes in August 1997 as Corporate Controller and was named
Treasurer and Corporate Controller in December 1999 and Vice President and Corporate Controller in
March 2002. From November 1989 to August 1997, Mr. Rocktoff held various financial positions,
including Corporate Controller at Kimmins Corporation, a publicly held contracting company.
James T. Holder, J.D., C.P.A
joined Sykes in December 2000 as General Counsel and was named
Corporate Secretary in January 2001 and Vice President in January 2004. From November 1999 until
November 2000, Mr. Holder served in a consulting capacity as Special Counsel to Checkers Drive-In
Restaurants, Inc., a publicly held restaurant operator and franchisor. From November 1993 until
November 1999, Mr. Holder served in various capacities at Checkers including Corporate Secretary,
Chief Financial Officer and Senior Vice President and General Counsel.
14
Item 2. Properties
Our principal executive offices are located in Tampa, Florida. This facility currently serves
as the headquarters for senior management and the financial, information technology and
administrative departments. We believe our existing facilities are adequate to meet current
requirements, and that suitable additional or substitute space will be available as needed to
accommodate any physical expansion. We operate from time to time in temporary facilities to
accommodate growth before new customer contact management centers are available. The following
table sets forth additional information concerning our facilities:
15
16
Item 3. Legal Proceedings
From time to time we are involved in legal actions arising in the ordinary course of business.
With respect to these matters, we believe we have adequate legal defenses and/or provided adequate
accruals for related costs such that the ultimate outcome will not have a material adverse effect
on our future financial position or results of operations.
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.
17
Table of Contents
§
Increasing importance for companies to focus on customer-facing activities and retain and grow client relationships;
§
Growing capital requirements for entrance into new geographic markets offering a lower cost solution;
§
Increasing need for companies to focus on core competencies;
§
Increasing need for better utilization of internal customer contact management assets and time-to-market response;
§
Growing need for consistent multi-site and multi-region support;
§
Rapid changes in technology requiring personnel with specialized technical expertise;
§
Growing capital requirements for sophisticated technology needed to maintain the necessary infrastructure to provide
timely support;
§
Increasing need to integrate and continually update complex systems incorporating a variety of hardware and software
components spanning a number of technology generations; and
§
Extensive and ongoing staff training and associated costs required for maintaining responsive, up-to-date, in-house
technical support and customer service solutions.
Table of Contents
Table of Contents
§
Customer care Customer care contacts primarily include product
information requests, describing product features, activating
customer accounts, resolving complaints, handling billing
inquiries, changing addresses, claims handling,
ordering/reservations, prequalification and warranty management,
providing health information and roadside assistance;
§
Technical support Technical support contacts primarily include
handling inquiries regarding hardware, software, communications
services, communications equipment, Internet access technology and
Internet portal usage; and
§
Acquisition Our acquisition services are primarily focused on
inbound up-selling/cross-selling of our clients products and
services.
Table of Contents
§
The certification of client accounts and customer contact management centers to the SSE program;
§
The application of continuous improvement to all business processes through application of Six Sigma techniques; and
§
The application of process audits to all work procedures.
Table of Contents
Table of Contents
Table of Contents
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Table of Contents
§
The inability to obtain the capital required to finance potential acquisitions on satisfactory terms;
§
The diversion of our attention to the integration of the businesses to be acquired;
§
The risk that the acquired businesses will fail to maintain the quality of services that we have historically provided;
§
The need to implement financial and other systems and add management resources;
§
The risk that key employees of the acquired business will leave after the acquisition;
§
Potential liabilities of the acquired business;
§
Unforeseen difficulties in the acquired operations;
§
Adverse short-term effects on our operating results;
§
Lack of success in assimilating or integrating the operations of acquired businesses within our business;
§
The dilutive effect of the issuance of additional equity securities;
§
The impairment of goodwill and other intangible assets involved in any acquisitions;
§
The businesses we acquire not proving profitable; and
§
Potentially incurring additional indebtedness.
Table of Contents
Name
Age
Principal Position
41
President and Chief Executive Officer
51
Senior Vice President and Chief Financial Officer
54
Senior Vice President, Global Operations
41
Senior Vice President, Human Resources
38
Senior Vice President, Global Strategy
46
Senior Vice President and Chief Information Officer
42
Vice President and Corporate Controller
46
Vice President, General Counsel and Corporate Secretary
Table of Contents
Table of Contents
Square
Properties
General Usage
Feet
Lease Expiration
Corporate headquarters
67,645
June 2010
Customer contact management center
(1)
42,000
Company owned
Customer contact management center
42,000
Company owned
Customer contact management center
(1)
42,000
Company owned
Customer contact management center
42,000
Company owned
Customer contact management center
(1)
42,000
Company owned
Customer contact management center
(2)
42,000
Company owned
Customer contact management center
42,000
Company owned
Customer contact management center
42,000
Company owned
Customer contact management center
(1)
42,000
Company owned
Customer contact management center
42,000
Company owned
Customer contact management center
(2)
42,000
Company owned
Customer contact management center
42,000
Company owned
Customer contact management center
34,000
Company owned
Office
3,400
March 2006
Office
1,000
January 2006
Office
3,751
September 2024
(1)
Closed and held for sale.
(2)
Closed and leased.
Table of Contents
Square
Properties
General Usage
Feet
Lease Expiration
Customer contact management center
33,000
September 2009
Customer contact management center/Headquarters
50,000
Company owned
Customer contact management center
22,819
August 2023
Customer contact management center
23,895
June 2005
Customer contact management
center/Office/Headquarters
35,870
17,830
October 2019
March 2006
Customer contact management centers
131,890
September 2023
Customer contact management center
32,600
November 2023
Customer contact management center
14,600
December 2006
Customer contact management center
(3)
5,571
March 2005
Customer contact management center
(3)
2,048
December 2007
Customer contact management center
(3)
11,331
February 2009
Customer contact management center
(3)
1,856
December 2007
Customer contact management center
12,500
February 2006
Customer contact management center
43,226
July 2006
Customer contact management center
41,900
March 2007
Customer contact management centers
86,205
March 2009
Customer contact management center
(4)
94,727
May 2005
Customer contact management center
101,254
December 2005
136,895
March 2023
Customer contact management center
67,742
February 2023
Customer contact management center
98,967
March 2025
Customer contact management center
127,448
December 2023
Customer contact management center
80,137
May 2024
Customer contact management center
44,000
October 2009
Customer contact management center
35,100
November 2019
Customer contact management center
33,000
October 2005
Customer contact management center
10,000
October 2022
Customer contact management center
66,000
April 2013
Customer contact management center
27,703
June 2005
Customer contact management center
32,290
December 2024
Customer contact management center
11,193
December 2024
Fulfillment center
126,700
Company owned
Fulfillment center and Sales office
23,498
October 2007
Fulfillment center
26,000
March 2006
Sales office
1,700
September 2005
Technology development services
1,500
January 2006
(3)
Considered part of the Toronto, Ontario, Canada customer contact management center.
(4)
Lease assigned effective May 2005.
Table of Contents
Table of Contents
PART II
Item 5. Market for the Registrants Common Equity, Related Shareholder Matters and Issuer Purchases
of Securities
Our common stock is quoted on the NASDAQ National Market under the symbol SYKE. The following
table sets forth, for the periods indicated, certain information as to the high and low sale prices
per share of our common stock as quoted on the NASDAQ National Market.
Holders of our common stock are entitled to receive dividends out of the funds legally
available when and if declared by the Board of Directors. We have not declared or paid any cash
dividends on our common stock in the past and do not anticipate paying any cash dividends in the
foreseeable future.
As of March 3, 2005, there were 1,320 holders of record of the common stock. We believe that
there were 6,111 beneficial owners of our common stock.
Below is a summary of stock repurchases for the quarter ended December 31, 2004 (in thousands,
except average price per share). See Note 16, Earnings Per Share, to the Consolidated Financial
Statements for information regarding our stock repurchase program.
18
Item 6. Selected Financial Data
Selected Financial Data
The following selected financial data has been derived from our consolidated financial
statements. The information below should be read in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations, and our Consolidated Financial
Statements and related notes.
19
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following should be read in conjunction with the Consolidated Financial Statements and the
notes thereto that appear elsewhere in this document. The following discussion and analysis
compares the year ended December 31, 2004 (2004) to the year ended December 31, 2003 (2003),
and 2003 to the year ended December 31, 2002 (2002).
The following discussion and analysis and other sections of this document contain
forward-looking statements that involve risks and uncertainties. Words such as may, expects,
projects, anticipates, intends, plans, believes, seeks, estimates, variations of such
words, and similar expressions are intended to identify such forward-looking statements. Similarly,
statements that describe our future plans, objectives, or goals also are forward-looking
statements. Future events and 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 and in this
Form 10-K
for the year ended December 31, 2004 in Item 1 in
the section entitled Factors Influencing Future Results and Accuracy of Forward-Looking
Statements.
Overview
We provide outsourced customer contact management solutions and services with an emphasis on
inbound technical support and customer service, which represented 93.9% of consolidated revenues in
2004, delivered through multiple communication channels encompassing phone, e-mail, Web and chat.
Revenue from technical support and customer service, provided through our customer contact
management centers, is recognized as services are rendered. These services are billed on an amount
per e-mail, a fee per call, a rate per minute or on a time and material basis. Revenue from
fulfillment services is generally billed on a per unit basis.
We also provide a range of enterprise support services for our clients internal support
operations, from technical staffing services to outsourced corporate help desk services. Revenues
usually are billed on a time and material basis, generally by the minute or hour, and revenues
generally are recognized as the services are provided. Revenues from fixed price contracts,
generally with terms of less than one year, are recognized using the percentage-of-completion
method. A significant majority of our revenue is derived from non-fixed price contracts. We have
not experienced material losses due to fixed price contracts and do 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, depreciation and amortization, and other costs.
Recognition of income associated with grants from local or state governments of land and the
acquisition of property, buildings and equipment is deferred and recognized as a reduction of
depreciation expense included within general and administrative costs over the corresponding useful
lives of the related assets. Amounts received in excess of the cost of the building are allocated
to equipment and, only after the grants are released from escrow, recognized as a reduction of
depreciation expense over the weighted average useful life of the related equipment, which
approximates five years. Deferred property and equipment grants, net of amortization, totaled $20.6
million and $27.4 million at December 31, 2004 and 2003, respectively.
The net (gain) loss on disposal of property and equipment includes the net gain on the sale of
various facilities in 2004 and 2003 offset by the net loss on the disposal of property and
equipment.
The net gain on insurance settlement includes the insurance proceeds received for damage to
our Marianna, Florida customer contact management center in September 2004.
Restructuring and other charges (reversals) consist of the following: 2004 and 2003 reversals
of certain accruals related to the 2002, 2001 and 2000 restructuring plans; and 2002 charges of
$20.8 million related to the closure and consolidation of two U.S. and three European customer
contact management centers, capacity reductions within the European fulfillment operations, the
write-off of certain assets, lease termination and severance and related costs.
Impairment of long-lived assets charges of $0.7 million in 2004 relate to certain property and
equipment in Bangalore, India as a result of our plans to migrate the call volumes of the customer
contact management services
20
and related operations in India to other facilities in the Asia Pacific region in 2005. As a result
of this plan of migration, the Company estimates that during the first quarter of 2005 it will
incur charges of approximately $0.3 million as a result of severance and related costs and $0.3
million related to other exit costs. In connection with this migration, the Company expects to
redeploy property and equipment located in India totaling approximately $1.9 million to other more
strategically-aligned offshore facilities in the Asia Pacific region. The total charges related to
the plan of migration are anticipated to be approximately $1.3 million. In 2002, impairment of long-lived
assets charges of $1.5 million include the write-off of certain intangible assets
associated with a customer contact management agreement for which the level of call volumes fell
below anticipated levels.
Other income (expense) consists primarily of interest income, net of interest expense, foreign
currency transaction gains and losses, and a $13.8 million charge for the uninsured portion of a
litigation settlement and associated legal costs in September 2002. Foreign currency transaction
gains and losses generally result from exchange rate fluctuations on intercompany transactions and
the revaluation of cash and other current assets that are settled in a currency other than
functional currency.
The Companys effective tax rate for the periods presented reflects the effects of foreign
taxes, net of foreign income not taxed in the United States, and nondeductible expenses for income
tax purposes.
21
Results of Operations
The following table sets forth, for the periods indicated, the percentage of revenues
represented by certain items reflected in our Statements of Operations:
The following table sets forth, for the periods indicated, certain data derived from our
Consolidated Statements of Operations (in thousands):
The following table summarizes our revenues, for the periods indicated, by geographic region
(in thousands):
22
2004 Compared to 2003
Revenues
During 2004, we recognized consolidated revenues of $466.7 million, a decrease of $13.7
million or 2.9% from $480.4 million of consolidated revenues for 2003.
On a geographic segmentation, revenues from the Americas region, including the United States,
Canada, Latin America, India and the Asia Pacific Rim, represented 60.7%, or $ 283.3 million for
2004 compared to 66.9%, or $321.2 million for 2003. Revenues from the EMEA region, including
Europe, the Middle East and Africa, represented 39.3 %, or $ 183.4 million for 2004 compared to
33.1% or $159.2 million for 2003.
The decrease in Americas revenue of $ 37.9 million, or 11.8%, for 2004, compared to 2003,
reflected the client-driven migration of call volumes from the United States to comparable or
higher margin offshore operations, including Latin America and the Asia Pacific Rim, the resulting
mix-shift in revenues from the United States to offshore (each offshore seat generates roughly half
the revenue dollar equivalence of a U.S. seat) and the ramp down of a technology client late in the
first quarter of 2003. In addition to the revenue mix-shift, the revenue decline reflected an
overall reduction in U.S. customer call volumes primarily attributable to the decision by certain
communications and technology clients to exit dial-up Internet service customer support programs in
early 2004. This decrease was partially offset by an increase in revenues from our offshore
operations, which represented 27.6% of consolidated revenues for 2004 compared to 16.9% for 2003.
We expect this trend of generating more of our revenues from offshore operations to continue in
2005. We anticipate that as our offshore operations grow and become a larger percentage of
revenues, the total revenue and revenue growth rate may decline since each offshore seat generates
less average revenue per seat than in the United States. While the average offshore revenue per
seat is less, the operating margins generated offshore are generally comparable or higher than
those in the United States. However, our ability to maintain these offshore operating margins
longer term is difficult to predict due to potential increased competition for the available
workforce in offshore markets.
The increase in EMEAs revenue of $24.2 million, or 15.3%, for 2004 was primarily related to
the strengthening Euro, which positively impacted revenues for 2004 by approximately $16.5 million
compared to the Euro in 2003. Excluding this foreign currency benefit, EMEAs revenues would have
increased $7.7 million compared with last year reflecting an improvement in certain customer call
volumes and higher incentive payments related to quality operating performance. However, the
persistent economic sluggishness in our key European markets continues to present challenges for
us. The increase in revenue in 2004, compared to the same period in 2003, also included the
recognition of deferred revenues of $0.8 million related to a former client.
Direct Salaries and Related Costs
Direct salaries and related costs decreased $8.9 million or 2.9% to $300.6 million for 2004,
from $309.5 million in 2003. Excluding the negative foreign currency impact of $11.0 million
related to the strengthening Euro in 2004 compared to the Euro in 2003, direct salaries and related
costs decreased $19.9 million compared with last year. This decrease was due to lower direct and
indirect salaries and related benefits primarily attributable to an overall reduction in U.S.
customer call volumes. This decrease was offset by 1) higher telephone costs related to transporting
calls offshore, 2) higher staffing and training costs associated with the ramp-up offshore and certain
duplicative costs as we simultaneously ramped-down U.S. customer contact management centers,
3) termination costs related to the consolidation of two European customer contact management centers
and 4) higher claim costs associated with our automotive program in Canada related to higher fuel
costs and the severe Canada winter. The migration offshore was substantially complete at the end of
the third quarter of 2004. As a percentage of revenues, direct salaries and related costs was
64.4% in both 2004 and 2003.
General and Administrative
General and administrative expenses increased $3.5 million or 2.2% to $165.2 million for 2004,
from $161.7 million in 2003. Excluding the negative foreign currency impact of $4.6 million related
to the strengthening Euro in 2004 compared to the Euro in 2003, general and administrative expenses
decreased $1.1 million compared with last year. This decrease was principally attributable to a
decrease in depreciation expense of $1.0 million related to the 2003 expiration of two technology
client contracts, lower insurance costs, technology related costs and bad debts. This decrease was partially offset by 1) higher compliance costs of $3.3 million related to the Sarbanes-Oxley Act, 2) compensation costs of
$1.7 million related to the former chairmans retirement and 3) lease and utilities costs
23
associated with expansion of offshore facilities. As a percentage of revenues, general and administrative expenses increased to
35.4% in 2004 from 33.7% in 2003.
Net Gain on Disposal of Property and Equipment
The net gain on disposal of property and equipment of $6.9 million for 2004 includes a $2.8
million net gain on the sale of our Hays, Kansas facility, a $2.7 million net gain on the sale of
our Klamath Falls, Oregon facility, a $0.1 million net gain on the sale of a parcel of land at our
Pikeville, Kentucky facility and a $1.5 million net gain on the sale of our Eveleth, Minnesota
facility, offset by a $0.2 million loss on disposal of property and equipment. This compares to a
$1.6 million net gain on disposal of property and equipment, which includes a $1.9 million net gain
on the sale of our Scottsbluff, Nebraska facility (closed in connection with the 2002 restructuring
plan) and a $0.2 million portion of the net gain related to the installment sale of our Eveleth,
Minnesota facility offset by a $0.5 million loss on disposal of property and equipment.
Net Gain on Insurance Settlement
In September 2004, the building and contents of our customer contact management center located
in Marianna, Florida was severely damaged by Hurricane Ivan. Upon settlement with the insurer in
December 2004, we recognized a net gain of $5.4 million after write-off of the property and
equipment, which had a net book value of $3.4 million, net of the related deferred grants of $2.2
million. We also received an insurance recovery for business interruption during 2004 and
recognized $0.1 million and $0.2 million, respectively, as a reduction to Direct salaries and
related costs and General and administrative costs in the accompanying Consolidated Statement
of Operations for the year ended December 31, 2004. In December 2004, we reached an agreement with
the City of Marianna to donate the underlying land to the city with $0.1 million to assist with the
site demolition and clean up of the property with no further obligation of the Company.
Reversal of Restructuring and Other Charges
In 2004, restructuring and other charges included a $0.1 million reversal of certain charges
related to the remaining lease termination and closure costs for two European customer contact
management centers and one European fulfillment center.
In 2003, restructuring and other charges included a $0.6 million reversal of certain charges
related to the final termination settlements for the closure of two of our European customer
contact management centers and one European fulfillment center, the remaining site closure costs
for our Galashiels, Scotland print facility and our Scottsbluff, Nebraska facility, which were both
sold in 2003, offset by additional accruals related to the final settlement of certain lease
termination and site closure costs.
Impairment of Long-Lived Assets
During 2004, we recorded a charge for impairment of long-lived assets of $0.7 million related
to certain property and equipment in Bangalore, India as a result of our plans to migrate the call
volumes of the customer contact management services and related operations in India to other
facilities in the Asia Pacific region in 2005.
Other Income and Expense
Other income increased $0.7 million to $3.3 million for 2004, from $2.6 million in 2003. This
increase was primarily attributable to a $0.4 million increase in interest earned on cash and cash
equivalents, net of interest expense including $0.8 million of interest received on a foreign
income tax refund, and a $0.6 million increase in other miscellaneous income offset by a $0.3
million decrease in foreign currency translation gains, net of losses including $0.7 million
related to the liquidation of a foreign entity. Other income excludes the effects of cumulative
translation effects included in Accumulated Other Comprehensive Loss in shareholders equity in the
accompanying Consolidated Balance Sheets.
Provision (Benefit) for Income Taxes
The 2004 provision for income taxes of $5.1 million was based upon pre-tax book income of
$15.9 million, compared to the 2003 provision for income taxes of $4.7 million based upon a pre-tax
book income of $14.0 million. The $0.4 million change was primarily attributable to the $1.9
million change in pre-tax book income.
24
The effective tax rate was 31.8% for 2004 and 33.3% for 2003. This decrease in the effective tax
rate resulted from a shift in our mix of earnings within tax jurisdictions and the related effects
of permanent differences, state income taxes and foreign income tax rate differentials (including
tax holiday jurisdictions) offset by a requisite valuation allowance for the year-to-date United
States tax loss benefit provided during the second, third and fourth quarters of 2004 (partially
reduced by the reversal of certain specific tax contingency reserves).
Net Income (Loss)
As a result of the foregoing, we reported income from operations for 2004 of $12.6 million, an
increase of $1.2 million from 2003. This increase was principally attributable to an $8.9 million
decrease in direct salaries and related costs, a $5.3 million increase in net gain on disposal of
property and equipment and a $5.4 million net gain on insurance settlement offset by a $13.7
million decrease in revenues, a $3.5 million increase in general and administrative costs, a $0.7
million increase in impairment of long-lived assets and a $0.5 million decrease in reversals of
restructuring and other charges, as previously discussed. The $1.2 million increase in income from
operations and an increase in other income of $0.7 million were offset by a $0.4 million higher tax
provision, resulting in net income of $10.8 million for 2004, an increase of $1.5 million compared
to 2003.
2003 Compared to 2002
Revenues
During 2003, we recorded consolidated revenues of $480.4 million, an increase of $27.7 million
or 6.1% from $452.7 million of consolidated revenues for 2002.
On a geographic segmentation basis, revenues from the Americas region, including the United
States, Canada, Latin America, India and the Asia Pacific Rim, represented 66.9%, or $321.2 million
for 2003 compared to 66.1%, or $299.2 million for 2002. Revenues from the EMEA region, including
Europe, the Middle East and Africa, represented 33.1%, or $159.2 million for 2003 compared to 33.9%
or $153.5 million for 2002.
The increase in Americas revenue of $22.0 million, or 7.4%, for 2003 was primarily
attributable to an increase in revenues from our offshore operations, including Latin America,
India and the Asia Pacific Rim, resulting from the continued acceleration in demand for a lower
cost customer contact management solution as well as further diversification into new vertical
markets. These offshore operations represented 16.9% of consolidated revenues for 2003 compared to
9.7% for 2002. We expect this trend of generating more of our revenues from offshore operations to
continue into 2004. The increase in the Americas revenue was partially offset by the overall
reduction in customer call volumes resulting from the economic downturn and the phasing out of two
U.S. based original equipment manufacturer (OEM) technology clients. We anticipate that as our
offshore operations grow and become a larger percentage of revenues, the total revenue and revenue
growth rate may decline since the average revenue per seat generated offshore is less than it is in
North America and Europe. While the average offshore revenue per seat is less, the operating
margins generated offshore are generally comparable or higher than those in North America and
Europe. However, our ability to maintain these offshore operating margins longer term is difficult
to predict due to potential increased competition for the available workforce in offshore markets.
The increase in EMEAs revenue of $5.7 million, or 3.7%, for 2003 was primarily related to the
strengthening Euro, which positively impacted revenues for 2003 by approximately $26.2 million
compared to the Euro in 2002. Without this foreign currency benefit, EMEAs revenues would have
declined $20.5 million compared with last year due to the continued softness in customer call
volumes resulting from the weak European economy.
Direct Salaries and Related Costs
Direct salaries and related costs increased $22.4 million or 7.8% to $309.5 million for 2003,
from $287.1 million in 2002. As a percentage of revenues, direct salaries and related costs
increased to 64.4% in 2003 from 63.4% for 2002. This increase was primarily attributable to an
increase in staffing and training costs associated with the ramp-up of new business in our offshore
operations, lower call volumes in the United States and Europe and lower margin European centers
that were closed in the first quarter of 2003 in connection with our 2002 restructuring plan. Although the strengthening Euro positively impacted
revenues, it increased direct salaries and related costs for 2003 by approximately $17.1 million
compared to the Euro in 2002.
25
General and Administrative
General and administrative expenses increased $6.2 million or 4.0% to $161.8 million for 2003,
from $155.6 million in 2002. As a percentage of revenues, general and administrative expenses
decreased to 33.7% in 2003 from 34.4% in 2002. This decrease was principally attributable to lower
depreciation and bad debt expense partially offset by higher insurance and compliance costs as well
as higher lease, travel, training, utilities and maintenance costs associated with the expansion of
offshore facilities and certain duplicative operating costs related to the call volumes migrating
offshore. Similar to the negative effect on direct salaries and
related costs, the strengthening Euro also increased general and administrative expenses for 2003
by approximately $8.7 million compared to the Euro in 2002.
Net Gain on Disposal of Property and Equipment
The net gain on disposal of property and equipment of $1.6 million for 2003 included a $1.9
million net gain on the sale of our Scottsbluff, Nebraska facility (which was closed in connection
with the 2002 restructuring plan) and a $0.2 million portion of the net gain related to the
installment sale of our Eveleth, Minnesota facility offset by a $0.5 million loss on disposal of
property and equipment. This compares to a $1.0 million net gain on disposal of property and
equipment for 2002, which included a $1.8 million net gain on the sale of one of our Bismarck,
North Dakota facilities offset by a $0.2 million net loss on the sale of certain assets of the
print facility in Galashiels, Scotland and a $0.6 million loss on disposal of property and
equipment.
Restructuring and Other Charges (Reversals)
In 2003, restructuring and other charges included a $0.6 million reversal of certain charges
related to the final termination settlements for the closure of two of our European customer
contact management centers and one European fulfillment center, the remaining site closure costs
for our Galashiels, Scotland print facility and our Scottsbluff, Nebraska facility, which were both
sold in 2003, offset by additional accruals related to the final settlement of certain lease
termination and site closure costs.
In 2002, restructuring and other charges included a $20.8 million charge related to the
write-off of certain assets, lease terminations and severance costs, related to the closure and
consolidation of two U.S. and three European customer contact management centers, capacity
reductions within the European fulfillment operations and the elimination of specialized e-commerce
assets primarily in response to the October 2002 notification of the contractual expiration of two
technology client programs in March 2003 with approximate annual revenues of $25.0 million. The
restructuring plan was designed to reduce costs and bring our infrastructure in-line with the
current business environment.
Impairment of Long-Lived Assets
During 2002, we recorded a charge for impairment of long-lived assets of $1.5 million related
to the write-off of certain intangible assets associated with a customer contact management
agreement for which the level of call volumes fell below anticipated levels.
Other Income and Expense
Other income was $2.6 million for 2003, compared to other expense of $13.2 million for 2002.
This change of $15.8 million was primarily attributable to a $13.8 million charge for the uninsured
portion of a class action settlement in 2002, a $0.8 million increase in interest earned on cash
and cash equivalents net of interest expense and a $1.2 increase in foreign currency translation
gains net of losses and other miscellaneous income.
Provision (Benefit) for Income Taxes
The 2003 tax provision of $4.7 million was based upon pre-tax book income of $14.0 million,
whereas the 2002 tax benefit of $5.8 million was based upon a pretax book loss of $24.4 million.
The $10.5 million change was primarily attributable to the $38.4 million change in pre-tax book
income. The increase in the effective tax rate for 2003 resulted from a shift in our mix of
earnings within tax jurisdictions and the related effects of permanent differences, state income
taxes, varying foreign income tax rates (including tax holiday jurisdictions) and requisite
valuation allowances.
26
Net Income (Loss)
As a result of the foregoing, income from operations for 2003 was $11.4 million, an increase
of $22.6 million from 2002. As previously discussed, this increase was principally attributable to
a $27.7 million increase in revenues, a $0.6 million increase in net gain on disposal of property
and equipment, a $21.4 million decrease in restructuring and other charges and a $1.5 million
decrease in impairment of long-lived assets offset by a $22.4 million increase in direct salaries
and related costs and a $6.2 million increase in general and administrative costs. The $22.6
million increase in income from operations and an increase in other income of $15.8 million were
offset by a $10.5 million higher tax provision resulting in net income of $9.3 million for 2003, an
increase of $27.9 million compared to 2002.
27
Quarterly Results
The following information presents our unaudited quarterly operating results for 2004 and
2003. The data has been prepared 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 we consider necessary for a fair presentation thereof.
28
Liquidity and Capital Resources
Our primary sources of liquidity are generally cash flows generated by operating activities
and from available borrowings under our revolving credit facilities.
We utilize these capital
resources to make capital expenditures associated primarily with our customer contact management
services, invest in technology applications and tools to further develop our service offerings and
for working capital and other general corporate purposes, including repurchase of our common stock
in the open market and to fund possible acquisitions. In future periods, we intend similar uses of
these funds.
On August 5, 2002, the Companys Board of Directors authorized the purchase of up to three
million shares of its outstanding common stock. A total of 1.6 million shares have been repurchased
under this program since inception. The shares are purchased, from time to time, through open
market purchases or in negotiated private transactions, and the purchases are based on factors,
including but not limited to, the stock price and general market conditions. For the year ended
December 31, 2004, the Company had repurchased approximately 1.1 million common shares under the
2002 repurchase program at prices ranging between $5.55 and $7.58 per share for a total cost of
$7.1 million.
During the year ended December 31, 2004, we generated $13.7 million in cash from operating
activities and received $0.4 million in cash from issuance of stock, $9.8 million in cash from the
sale of facilities, property and equipment and $6.9 million in cash from an insurance settlement
and insurance payment for business interruption. Further, we used $25.7 million in funds for
capital expenditures and $7.1 million to repurchase stock in the
open market resulting in
a $1.8 million increase in available cash (including the favorable effects of international
currency exchange rates on cash of $3.8 million).
Net cash flows provided by operating activities for the year ended December 31, 2004 were
$13.7 million, compared to net cash flows provided by operating activities of $34.2 million for the
year ended December 31, 2003. The $20.5 million decrease in net cash flows from operating
activities was due to a net decrease in non-cash reconciling items of $7.0 million such as deferred
income taxes, net gain on disposal of property and equipment, gain on a property insurance
settlement and foreign exchange gain, a net change in assets and liabilities of $15.0 million,
offset by an increase in net income of $1.5 million. This $15.0 million net change in assets and
liabilities was principally a result of a $5.8 million increase in receivables, a $7.6 million
decrease in income taxes payable and $4.7 million decrease in deferred revenue and other
liabilities offset by a $3.1 million increase in other assets.
Capital expenditures, which are generally funded by cash generated from operating activities
and borrowings available under our credit facilities, were $25.7 million for the year ended
December 31, 2004, compared to $29.3 million for the year ended December 31, 2003, a decrease of
$3.6 million, which was driven primarily by declining investments in offshore facilities. During
the year ended December 31, 2004, approximately 93% of the capital expenditures were the result of
investing in new and existing customer contact management centers, primarily offshore, and 7% was
expended primarily for maintenance and systems infrastructure. In 2005, we anticipate capital
expenditures in the range of $10.0 million to $15.0 million.
One primary source of future cash flows from financing activities is from borrowings under our
$50.0 million revolving credit facility (the Credit Facility), which amount is subject to certain
borrowing limitations. Pursuant to the terms of the Credit Facility, the amount of $50.0 million
may be increased up to a maximum of $100.0 million with the prior written consent of the lenders.
The $50.0 million Credit Facility includes a $10.0 million swingline subfacility, a $15.0 million
letter of credit subfacility and a $40.0 million multi-currency subfacility.
The Credit Facility, which includes certain financial covenants, may be used for general
corporate purposes including acquisitions, share repurchases, working capital support,
and letters of credit, subject to certain limitations. The Credit Facility, including the
multi-currency subfacility, accrues interest, at our option, at (a) the Base Rate (defined as the
higher of the lenders prime rate or the Federal Funds rate plus 0.50%) plus an applicable margin
up to 0.50%, or (b) the London Interbank Offered Rate (LIBOR) plus an applicable margin up to
2.25%. Borrowings under the swingline subfacility accrue interest at the prime rate plus an
applicable margin up to 0.50% and borrowings under the letter of credit subfacility accrue interest
at the LIBOR plus an applicable margin up to 2.25%. In addition, a commitment fee of up to 0.50%
is charged on the unused portion of the Credit Facility on a quarterly basis. The borrowings under
the Credit Facility, which will terminate on March 14, 2007, are secured by a pledge of 65% of the
stock of each of our direct foreign subsidiaries. The Credit Facility prohibits us from incurring
additional indebtedness, subject to certain specific exclusions. There were no borrowings in 2004 and no outstanding
balances
29
as of December 31, 2004
with $50.0 million availability under the Credit Facility. At December 31, 2004, we
were in compliance with all loan requirements of the Credit Facility.
At December 31, 2004, we had $93.9 million in cash, of which approximately $79.0 million was
held in international operations and may be subject to additional taxes if repatriated to the
United States. On October 22, 2004 the President signed the American Jobs Creation Act of 2004 (the
Act). The Act creates a temporary incentive for U.S. corporations to repatriate accumulated
income earned abroad by providing an 85 percent dividends received deduction for certain dividends
from controlled foreign corporations. The deduction is subject to a number of limitations and, as
of today, uncertainty remains as to how to interpret numerous provisions in the Act. As such, we
are not yet in a position to decide on whether, and to what extent, we might repatriate foreign
earnings that have not yet been remitted to the U.S. Based on our analysis to date, however, it is
reasonably possible that we may repatriate some amount up to $50.0 million. The related range of
income tax effects of such repatriation cannot reasonably be estimated. We expect to be in a
position to finalize our assessment by December 31, 2005.
We believe that our current cash levels, accessible funds under our credit facilities and cash
flows from future operations will be adequate to meet anticipated working capital needs, future
debt repayment requirements (if any), continued expansion objectives, anticipated levels of capital
expenditures for the foreseeable future and stock repurchases.
Off-Balance Sheet Arrangements and Other
At December 31, 2004, we did not have any material commercial commitments, including
guarantees or standby repurchase obligations, or any relationships with unconsolidated entities or
financial partnerships, including entities often referred to as structured finance or special
purpose entities or variable interest entities, which would have been established for the purpose
of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
From time to time, during the normal course of business, we may make certain indemnities,
commitments and guarantees under which we may be required to make payments in relation to certain
transactions. These include: (i) indemnities to vendors and service providers pertaining to claims
based on our negligence or willful misconduct and (ii) indemnities involving the accuracy of
representations and warranties in certain contracts. In addition, we have agreements whereby we
indemnify certain officers and directors for certain events or occurrences while the officer or
director is, or was, serving at our request in such capacity. The indemnification period covers all
pertinent events and occurrences during the officers or directors lifetime. The maximum potential
amount of future payments we could be required to make under these indemnification agreements is
unlimited; however, we have director and officer insurance coverage that limits our exposure and
enables us to recover a portion of any future amounts paid. We believe the applicable insurance
coverage is generally adequate to cover any estimated potential liability under these
indemnification agreements. The majority of these indemnities, commitments and guarantees do not
provide for any limitation of the maximum potential for future payments we could be obligated to
make. We have not recorded any liability for these indemnities, commitments and other guarantees in
the accompanying Consolidated Balance Sheets.
30
Contractual Obligations
The following table summarizes our contractual cash obligations at December 31, 2004, and the
effect these obligations are expected to have on liquidity and cash flow in future periods (in
thousands):
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States requires estimations and assumptions that affect the
reported amounts of assets and liabilities and the 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. These estimates and assumptions are based on historical experience and
various other factors that are believed to be reasonable under the circumstances. Actual results
could differ from these estimates under different assumptions or conditions.
We believe the following accounting policies are the most critical since these policies
require significant judgment or involve complex estimations that are important to the portrayal of
our financial condition and operating results:
31
32
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123R,
Share-Based Payment
(SFAS No. 123R), which requires, among other things, that all share-based
payments to employees, including grants of stock options, be measured at their grant-date fair
value and expensed in the consolidated financial statements. The accounting provisions of SFAS No.
123R are effective for reporting periods beginning after June 15, 2005; therefore, we are required
to adopt SFAS No. 123R in the third quarter of 2005. The pro forma disclosures previously permitted
under SFAS No. 123 will no longer be an alternative to financial statement recognition. See
Stock-Based Compensation in Note 1 to the accompanying Consolidated Financial Statements for the
pro forma net income (loss) and net income (loss) per share amounts for 2002 through 2004, as if
the fair-value-based method had been used, similar to the methods required under SFAS No. 123R to
measure compensation expense for employee stock awards. We have not yet determined whether the
adoption of SFAS No. 123R will result in amounts that are materially different from those currently
provided under the pro forma disclosures under SFAS No. 123 in Note 1 to the accompanying
Consolidated Financial Statements. The adoption of SFAS No. 123R is not expected to have a
material effect on our financial condition, results of operations, or cash flows.
In June 2004, the EITF reached a consensus on Issue No. 02-14,
Whether an Investor Should
Apply the Equity Method of Accounting to Investments Other Than Common Stock
. EITF 02-14 addresses
whether the equity method of accounting should be applied to investments when an investor does not
have an investment in voting common stock of an investee but exercises significant influence
through other means. EITF 02-14 states that an investor should only apply the equity method of
accounting when it has investments in either common stock or in-substance common stock of a
corporation, provided that the investor has the ability to exercise significant influence over the
operating and financial policies of the investee. The effective date of EITF 02-14 is the first
reporting period beginning after September 15, 2004. The adoption of EITF No. 02-14 did not have a
material impact on our financial condition, results of operations or cash flows.
In March 2004, the EITF reached a consensus on Issue No. 03-1,
The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments
. EITF 03-1 provides
guidance on other-than-temporary impairment evaluations for securities accounted for under SFAS No.
115,
Accounting for Certain Investments in Debt and Equity Securities
, and SFAS No. 124,
"
Accounting for Certain Investments Held by Not-for-Profit Organizations
, and non-marketable
equity securities accounted for under the cost method. The EITF developed a basic three-step test
to evaluate whether an investment is other-than-temporarily impaired. In September 2004, the FASB
delayed the effective date of the recognition and measurement provisions of EITF No. 03-1. However,
the disclosure provisions remain effective for fiscal years ending after June 15, 2004. The
adoption of the recognition and measurement provisions of EITF No. 03-1 is not expected to have a
material impact on our financial condition, results of operations or cash flows.
In January 2003, the FASB issued FIN No. 46,
Consolidation of Variable Interest Entities
,
and a revised interpretation of FIN No. 46 (FIN No. 46-R) in December 2003, in an effort to expand
upon existing accounting guidance that addresses when a company should consolidate the financial
results of another entity. FIN No. 46 requires variable interest entities, as defined, to be
consolidated by a company if that company is subject to a majority of expected losses of the entity
or is entitled to receive a majority of expected residual returns of the entity, or both. A company
that is required to consolidate a variable interest entity is referred to as the entitys primary
beneficiary. The interpretation also requires certain disclosures about variable interest entities
that a company is not required to consolidate, but in which it has a significant variable interest.
The consolidation and disclosure requirements apply immediately to variable interest entities
created after January 31, 2003. We are not the primary beneficiary of any variable interest entity
created after January 31, 2003 nor do we have a significant variable interest in a variable
interest entity created after January 31, 2003.
33
For variable interest entities that existed before February 1, 2003, the consolidation
requirements of FIN No. 46-R are effective as of March 31, 2004. The adoption of FIN No. 46-R did
not have a material impact on our financial condition, results of operations or cash flows.
In December 2004, the FASB issued FASB Staff Position No. FAS 109-1 (FAS 109-1),
Application of FASB Statement No. 109,
Accounting for Income Taxes
, to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs Creation Act of 2004. The Act
introduces a special 9% tax deduction on qualified production activities. FAS 109-1 clarifies that
this tax deduction should be accounted for as a special tax deduction in accordance with SFAS No.
109. The adoption of these new tax provisions is not expected to have a material impact on our
financial condition, results of operations or cash flows.
In December 2004, the FASB issued FASB Staff Position No. FAS 109-2 (FAS 109-2),
Accounting
and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs
Creations Act of 2004
. The Act introduces a limited time 85% dividends received deduction on the
repatriation of certain foreign earnings to a U.S. taxpayer (repatriation provision), provided
certain criteria are met. FAS 109-2 provides accounting and disclosure guidance for the
repatriation provision. Although FAS 109-2 is effective immediately, we do not expect to be able to
complete the evaluation of the repatriation provision until after Congress or the Treasury
Department provides additional clarifying language on key elements of the provision. In January
2005, the Treasury Department began to issue the first of a series of clarifying guidance documents
related to this provision. The range of possible amounts that we are considering for repatriation
under this provision is between zero and $50.0 million. The related range of income tax effects of
such repatriation cannot reasonably be estimated. We expect to complete an evaluation of the
effects of the repatriation provision by the end of 2005.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency and Interest Rate Risk
Our earnings and cash flows are subject to fluctuations due to changes in non-U.S. currency
exchange rates. We are exposed to non-U.S. exchange rate fluctuations as the financial results of
non-U.S. subsidiaries are translated into U.S. dollars in consolidation. As exchange rates vary,
those results, when translated, may vary from expectations and adversely impact overall expected
profitability. The cumulative translation effects for subsidiaries using functional currencies
other than the U.S. dollar are included in accumulated other comprehensive loss in shareholders
equity. Movements in non-U.S. currency exchange rates may affect our competitive position, as
exchange rate changes may affect business practices and/or pricing strategies of non-U.S. based
competitors. Periodically, we use foreign currency forward contracts to hedge intercompany
receivables and payables, and transactions initiated in the United States that are denominated in
foreign currency. The principal foreign currency hedged is the Euro using foreign currency forward
contracts ranging in periods from one to three months. Foreign exchange forward contracts are
accounted for on a mark-to-market basis, with realized and unrealized gains or losses recognized in
the current period, as we do not designate our foreign exchange forward contracts as accounting
hedges. Unrealized and realized gains or losses related to foreign exchange forward contracts for
the years ended December 31, 2004, 2003 and 2002 were immaterial.
Our exposure to interest rate risk results from variable debt outstanding under our revolving
credit facility. Based on our level of variable rate debt outstanding during the year ended
December 31, 2004, a one-point increase in the weighted average interest rate, which generally
equals the LIBOR rate plus an applicable margin, would not have had a material impact on our annual
interest expense.
At December 31, 2004, we had no debt outstanding at variable interest rates. We have not
historically used derivative instruments to manage exposure to changes in interest rates.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data required by this item are located beginning on
page 44 and page 28 of this report, respectively.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
None.
34
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
As of December 31, 2004, under the direction of our Chief Executive Officer and Chief
Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rules 13a 15(e) and 15d 15(e) under the Securities
Exchange Act of 1934, as amended). We concluded that our disclosure controls and procedures were
effective as of December 31, 2004, such that the information required to be disclosed in our SEC
reports is recorded, processed, summarized and reported within the time periods specified by the
SECs rules and forms, and is accumulated and communicated to management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure.
Managements Report On Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of
1934, as amended). Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
We assessed the effectiveness of our internal control over financial reporting as of December
31, 2004. In making this assessment, we used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
Based on our assessment, management believes that, as of December 31, 2004, our internal
control over financial reporting was effective.
Our independent auditors, an independent registered public accounting firm, have issued their attestation report on our assessment of our internal control
over financial reporting. This report appears on page 36.
35
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
We have audited managements assessment, included in the accompanying Managements Report on
Internal Control over Financial Reporting, as included in Item 9A,
Controls and Procedures
, that Sykes Enterprises, Incorporated and subsidiaries (the Company)
maintained effective internal control over financial reporting as of December 31, 2004, based on
criteria established in
Internal ControlIntegrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Companys management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is to express an opinion on
managements assessment and an opinion on the effectiveness of the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinions.
A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys Board of Directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that the Company maintained effective internal control over
financial reporting as of December 31, 2004, is fairly stated, in all material respects, based
on the criteria established in
Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2004, based on the criteria established in
Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated financial statements and financial statement schedule as of
and for the year ended December 31, 2004 of the Company and our report dated March 22, 2005
expressed an unqualified opinion on those financial statements and financial statement schedule.
/s/ Deloitte & Touche LLP
Certified Public Accountants
Tampa, Florida
36
Changes In Internal Control Over Financial Reporting
There have been no significant changes to our internal controls over financial reporting during the
quarter ended December 31, 2004 that have materially affected, or are reasonably likely to
materially affect, our internal controls over financial reporting.
Item 9B. Other Information
None.
PART III
Items 10. through 14.
All information required by Items 10 through 14, with the exception of information on
Executive Officers which appears in this report in Item 1 under the caption Executive Officers,
is incorporated by reference to Sykes Proxy Statement for the 2005 Annual Meeting of Shareholders.
37
PART IV
Item 15. Exhibits and Financial Statement Schedule
The following documents are filed as part of this report:
38
39
40
41
42
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 22nd day of March 2005.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the
dates indicated. Each person whose signature appears below constitutes and appoints W. Michael
Kipphut 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
attorney-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 should do in person, thereby 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.
43
Table of Contents
44
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
We have audited the accompanying consolidated balance sheets of Sykes Enterprises, Incorporated and
subsidiaries (the Company) as of December 31, 2004 and 2003, and the related consolidated
statements of operations, changes in stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2004. Our audits also included the financial statement
schedule listed in the Index at Item 15. These financial statements and financial statement
schedule are the responsibility of the Companys management. Our responsibility is to express an
opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of Sykes Enterprises, Incorporated and subsidiaries as of December 31, 2004
and 2003, and the results of their operations and their cash flows for each of the three years in
the period ended December 31, 2004, in conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of the Companys internal control over financial reporting
as of December 31, 2004, based on the criteria established in
Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 22, 2005 expressed an unqualified opinion on managements assessment of
the effectiveness of the Companys internal control over financial reporting and an unqualified
opinion on the effectiveness of the Companys internal control over financial reporting.
/s/ Deloitte & Touche LLP
Certified Public Accountants
Tampa, Florida
45
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
See accompanying notes to Consolidated Financial Statements.
46
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
See accompanying notes to Consolidated Financial Statements.
47
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
See accompanying notes to Consolidated Financial Statements.
48
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
See accompanying notes to Consolidated Financial Statements.
49
SYKES ENTERPRISES, INCORPORATED AND SUBSIDIARIES
Sykes Enterprises, Incorporated and consolidated subsidiaries (Sykes or the Company)
provides outsourced customer contact management solutions and services in the business process
outsourcing (BPO) arena to companies, primarily within the communications, technology/consumer,
financial services, healthcare, and transportation and leisure industries. Sykes provides flexible,
high quality outsourced customer contact management services with an emphasis on inbound technical
support and customer service. Utilizing Sykes integrated onshore/offshore global delivery model,
Sykes provides its services through multiple communications channels encompassing phone, e-mail,
Web and chat. Sykes complements its outsourced customer contact management services with various
enterprise support services in the United States that encompass services for a companys internal
support operations, from technical staffing services to outsourced corporate help desk services. In
Europe, Sykes also provides fulfillment services including multilingual sales order processing via
the Internet and phone, inventory control, product delivery and product returns handling. The
Company has operations in two geographic regions entitled (1) the Americas, which includes the
United States, Canada, Latin America, India and the Asia Pacific Rim, in which the client base is
primarily companies in the United States that are using the Companys services to support their
customer management needs; and (2) EMEA, which includes Europe, the Middle East, and Africa.
Note 1. Summary of Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of
Sykes and its wholly-owned subsidiaries and controlled majority-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires the Company 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.
Recognition of Revenue
Revenue is recognized pursuant to applicable accounting standards,
including Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) No. 101 (SAB
101),
Revenue Recognition in Financial Statements
, SAB 104
, Revenue Recognition
, and the
Emerging Issues Task Force (EITF) No. 00-21,
Revenue Arrangements with Multiple Deliverables
.
SAB 101, as amended, and SAB 104 summarize certain of the SEC staffs views in applying generally
accepted accounting principles to revenue recognition in financial statements and provides guidance
on revenue recognition issues in the absence of authoritative literature addressing a specific
arrangement or a specific industry. EITF No. 00-21 provides further guidance on how to account for
multiple element contracts.
The Company primarily recognizes its revenue from services as those services are performed
under a fully executed contractual agreement and records estimated reductions to revenue for
penalties and holdbacks for failure to meet specified minimum service levels and other performance
based contingencies. 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. Product sales are recognized upon shipment to
the customer and satisfaction of all obligations.
The Company recognizes revenue from software and contractually provided rights in accordance
with the American Institute of Certified Public Accountants (AICPA) Statement of Position 97-2,
Software Revenue Recognition
(SOP 97-2), as amended by Statement of Position 98-4,
Deferral of
the Effective Date of a Provision of SOP 97-2
(SOP 98-4), Statement of Position 98-9,
Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions
(SOP 98-9), SAB 101, SAB 104 and EITF No. 00-21. Revenue is recognized from licenses of the
Companys software products and rights when the agreement has been executed, the product or right
has been delivered or provided, collectibility is probable and the software license fees or rights
are fixed and determinable. If any portion of the license fees or rights is subject to forfeiture,
refund or other contractual contingencies, the Company postpones revenue recognition until these
contingencies have been removed. Sykes generally accounts for consulting services separate from
software license fees for those multi-element arrangements where consulting services are a separate
element and are not essential to the customers
50
functionality requirements and there is vendor-specific objective evidence of fair value for these
services. Revenue from support and maintenance activities is recognized ratably over the term of
the maintenance period and the unrecognized portion is recorded as deferred revenue.
Revenue from contracts with multiple-deliverables to include hardware, software, consulting
and other services, or related contracts with the same client, are allocated to separate units of
accounting based on their relative fair value, if the deliverables in the contract(s) meet the
criteria for such treatment. Fair value is the price of a deliverable when it is regularly sold on
a standalone basis, which generally consists of vendor-specific objective evidence of fair value.
If there is no evidence of the fair value for a delivered product or service, revenue is allocated
first to the fair value of the undelivered product or service and then the residual revenue is
allocated to the delivered product or service. If there is no evidence of the fair value for an
undelivered product or service, the contract(s) is accounted for as a single unit of accounting,
resulting in delay of revenue recognition for the delivered product or service until the
undelivered product or service portion of the contract is complete. Revenue recognition is limited
to the amount that is not contingent upon delivery of any future product or service or meeting
other specified performance conditions.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid short-term
investments. Cash in the amount of $86.7 million and $82.6 million at December 31, 2004 and 2003, respectively,
was held in taxable interest bearing investments, which have an average maturity of less than 60 days. Cash and cash equivalents of $79.0 million and $67.5
million at December 31, 2004 and 2003, respectively, were held in international operations and may
be subject to additional taxes if repatriated to the United States.
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 estimated 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 $32.3 million, $33.0 million and $36.8 million for the
years ended December 31, 2004, 2003 and 2002, respectively (See
Note 1, Deferred Grants, for amortization, which is shown net of depreciation). Property and equipment includes $0.1
million, $3.5 million and $0.7 million of additions included in accounts payable at December 31,
2004, 2003 and 2002, respectively. Accordingly, non-cash transactions have been excluded from the
accompanying Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and
2002, respectively.
The Company capitalizes 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, net of accumulated amortization, were $0.7 million and $0.6 million at December 31, 2004 and
2003, respectively.
The carrying value of property and equipment to be held and used is evaluated for impairment
whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of
Long-Lived Assets
. An asset is considered to be impaired when the sum of the undiscounted future
net cash flows expected to result from the use of the asset and its eventual disposition does not
exceed its carrying amount. The amount of the impairment loss, if any, is measured as the
difference between the net book value of the asset and its estimated fair value, which is generally
determined based on appraisals or sales prices of comparable assets. Occasionally, the Company
redeploys property and equipment from under-utilized centers to other locations to improve capacity
utilization if it is determined that the related undiscounted future cash flows in the
under-utilized centers would not be sufficient to recover the carrying amount of these assets.
Currently, the Company has closed several customer contact management centers, which are held
for sale, and expects it may close additional centers in the future as a result of the client
migration of call volumes from the U.S. to the Companys offshore operations, including Latin
America and the Asia Pacific Rim, and the overall reduction in customer call volumes in the United
States and Europe. As of December 31, 2004, the Company determined that its property and equipment,
including those at the previously referenced customer contact management centers, were not
impaired, except for certain property and equipment located in India as discussed below. Certain
assets of the closed centers in the U.S., with a carrying value of $9.7 million as of December 31,
2004, are included in Assets Held for Sale in the accompanying Consolidated Balance Sheet. The
carrying value of these assets is offset by the related deferred grants of $6.7 million as of
December 31, 2004 and included in Deferred grants related to assets held for sale in the
accompanying Consolidated Balance Sheet. Upon reclassification as held for sale, the Company
51
discontinued depreciating these assets and amortizing the related deferred grants. Property and
equipment is classified as held for sale in the period in which management commits to a plan to
sell the asset, the asset is available for immediate sale in its present condition, an active
program to locate a buyer and other actions required to complete the plan to sell the asset have
been initiated, the asset is being actively marketed for sale at a price that is reasonable in
relation to its current fair value, it is probable that the asset will be sold in a reasonable
period of time, and it is unlikely that significant changes to the plan to sell the asset will be
made or that the plan will be withdrawn.
In connection with the plan to migrate the call volumes of the customer contact management
services and related operations in Bangalore, India, the Company has determined that certain of its
property and equipment in India was impaired as of December 31, 2004. Accordingly, the Company
recorded a pre-tax impairment charge as of December 31, 2004 of $0.7 million, to adjust the
respective asset carrying amounts to their estimated fair market values.
Investment in SHPS
The Company has a 6.5% remaining ownership interest in SHPS, Incorporated
(SHPS) that is accounted for at cost. At December 31, 2004 and 2003, the carrying value of this
investment was $2.1 million and is included in Deferred charges and other assets in the accompanying Consolidated
Balance Sheets. (See Note 8.) Fair value is not estimated if there are no identified events or
changes in circumstances that may have a significant adverse effect on the fair value of the
investment and it is not practicable to estimate the fair value of the investment without incurring
excessive costs. We will record an impairment charge or loss if we believe the investment has
experienced a decline in value that is other than temporary. Future adverse changes in market
conditions or poor operating results of the underlying investment could result in losses or an
inability to recover the carrying value of the investment and, therefore, might require an
impairment charge in the future.
Goodwill
On January 1, 2002, the Company adopted SFAS No. 142,
Goodwill and Other
Intangible Assets.
According to this statement, goodwill and other intangible assets with
indefinite lives are no longer subject to amortization, but instead must be reviewed at least
annually, and more frequently in the presence of certain circumstances, for impairment by applying
a fair value based test. Fair value for goodwill is based on discounted cash flows, market
multiples and/or appraised values as appropriate. Under SFAS No. 142, the carrying value of assets
is calculated at the lowest levels for which there are identifiable cash flows (the reporting
unit). If the fair value of the reporting unit is less than its carrying value, an impairment loss
is recorded to the extent that the fair value of the goodwill within the reporting unit is less
than its carrying value. Based on the results of the Companys initial transition impairment review
as of January 1, 2002 and annual impairment reviews in the third quarter of each year in accordance
with SFAS No. 142, the Company determined that there has been no impairment of goodwill. The
Company expects to receive future benefits from previously acquired goodwill over an indefinite
period of time. Accordingly, beginning January 1, 2002, the Company has foregone all related
amortization expense. Prior to the adoption of this statement, the amortization of goodwill as it
was reported on December 31, 2001 would have reduced 2004 and 2003 net income by approximately $0.4
million, or $0.01 per diluted share, and increased the 2002 net loss by approximately $0.4 million,
or $0.01 per diluted share. Prior to January 1, 2002, the Company amortized goodwill over an
estimated useful life of 10 to 20 years using the straight-line method. Accumulated amortization of
goodwill was $3.2 million as of December 31, 2001.
Intangible Assets
Intangible assets, primarily existing technologies and covenants not to
compete, are amortized using the straight-line method over their estimated period of benefit,
generally ranging from two to five years. The Company periodically evaluates the recoverability of
intangible assets and takes into account events or changes in circumstances that warrant revised
estimates of useful lives or that indicate that an impairment exists. Amortization expense related
to these intangible assets was $0.5 million for the year ended December 31, 2002. As of December
31, 2004, 2003 and 2002, the intangible assets were fully amortized and had a carrying value of
zero.
Income Taxes
The Company accounts for income taxes under SFAS No. 109,
Accounting for
Income Taxes.
Deferred income tax assets and liabilities are provided to reflect tax consequences
of differences between the tax bases of assets and liabilities and their reported amounts in the
accompanying Consolidated Financial Statements.
Self-Insurance Programs
The Company self-insures for certain levels of workers compensation
and employee health insurance. Estimated costs of these self-insurance programs are accrued at the
projected settlements for known and anticipated claims. Self-insurance liabilities of the Company
amounted to $1.7 million at December 31, 2004 and 2003.
52
Deferred Grants
Recognition of income associated with grants of land and the acquisition of
property, buildings and equipment is deferred until after the completion and occupancy of the
building and title has passed to the Company, and the funds have been released from escrow. The
deferred amounts for both land and building are amortized and recognized as a reduction of
depreciation expense included within general and administrative costs over the corresponding useful
lives of the related assets. Amounts received in excess of the cost of the building are allocated
to the cost of equipment and, only after the grants are released from escrow, recognized as a
reduction of depreciation expense over the weighted average useful life of the related equipment,
which approximates five years. Amortization of the deferred grants that is included in income was
approximately $2.1 million, $2.9 million and $3.0 million for the years ended December 31, 2004,
2003 and 2002, respectively.
Deferred grants of $6.7 million related to Assets Held for Sale is classified as current in
the accompanying Consolidated Balance Sheet as of December 31, 2004.
Deferred Revenue
The Company invoices certain contracts in advance. The deferred revenue is
earned over the lives of the respective contracts, which range from six months to five years.
Deferred revenue also includes estimated penalties and holdbacks for failure to meet specified
minimum service levels in certain contracts and other performance based contingencies.
Stock-Based Compensation
The Company has adopted the disclosure only provisions of SFAS No.
123,
Accounting for Stock-Based Compensation.
Under SFAS No. 123, companies have the option to
measure compensation costs for stock options using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
(APB No.
25). Under APB No. 25, compensation expense is generally not recognized when both the exercise
price is the same as the market price and the number of shares to be issued is set on the date the
employee stock option is granted. Since employee stock options are granted on this basis and the
Company has chosen to use the intrinsic value method, no compensation expense is recognized for
stock option grants.
If the Company had elected to recognize compensation expense for the issuance of options to
employees of the Company based on the fair value method of accounting prescribed by SFAS No. 123,
net income (loss) and earnings (loss) per share would have been reduced to the pro forma amounts as
follows (in thousands except per share amounts):
The pro forma amounts were determined using the Black-Scholes valuation model with the
following key assumptions: (i) a discount rate of 2.0% for 2003 and discount rates ranging from
3.0% to 3.82% for 2002 (no options were issued in 2004); (ii) a volatility factor of 83.91% for
2003 and 85.1% for 2002 based upon the average trading price of the Companys common stock since it
began trading on the NASDAQ National Market; (iii) no dividend yield; and (iv) an average expected
option life of three years in 2003 and five years in 2002 (three years for the Employee Stock
Purchase Plan). In addition, the pro forma amount for 2004, 2003 and 2002 includes approximately
$0.1 million, $0.1 million and $0.2 million, respectively, related to purchase discounts offered
under the Employee Stock Purchase Plan.
In accordance with APB No. 25, as discussed in Note 19, Stock Options and Common Stock Units,
the Company applies variable plan accounting for grants of common stock units issued under the 2004
Non-Employee Director Fee Plan and recognizes compensation cost over the vesting period.
53
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:
Foreign Currency Translation
The assets and liabilities of the Companys 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 included in accumulated other comprehensive income
(loss), which is reflected as a separate component of shareholders equity until the sale or until
the complete or substantially complete liquidation of the net investment in the foreign subsidiary.
Foreign currency transactional gains and losses are included in determining net income. Such gains
and losses are included in other income (expense) in the accompanying Consolidated Statements of
Operations.
Foreign Currency and Derivative Instruments
Periodically, the Company
enters into foreign currency forward exchange contracts with financial institutions to protect
against currency exchange risks associated with existing assets and liabilities denominated in a
foreign currency. These contracts require the Company to exchange currencies in the future at rates
agreed upon at the contracts inception. The forward exchange contracts entered into by the Company
have been primarily related to the Euro. A foreign currency forward exchange contract acts as an
economic hedge as the gains and losses on these contracts typically offset or partially offset
gains and losses on the assets, liabilities, and transactions being hedged. The Company does not
designate its foreign exchange forward contracts as accounting hedges and does not hold or issue
financial instruments for speculative or trading purposes. Foreign exchange forward contracts are
accounted for on a mark-to-market basis, with unrealized gains or losses recognized as a component
of income in the current period.
Unrealized and realized gains or losses related to foreign exchange forward contracts for the three
years ended December 31, 2004 were immaterial.
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board
(FASB) issued SFAS No. 123R,
Share-Based Payment
(SFAS No. 123R), which requires, among other
things, that all share-based payments to employees, including grants of stock options, be measured
at their grant-date fair value and expensed in the consolidated financial statements. The
accounting provisions of SFAS No. 123R are effective for reporting periods beginning after June 15,
2005; therefore, the Company is required to adopt SFAS No. 123R in the third quarter of 2005. The
pro forma disclosures previously permitted under SFAS No. 123 will no longer be an alternative to
financial statement recognition. See Stock-Based Compensation in Note 1 to the Consolidated
Financial Statements for the pro forma net income (loss) and net income (loss) per share amounts
for 2002 through 2004, as if the fair-value-based method had been used, similar to the methods
required under SFAS No. 123R to measure compensation expense for employee stock awards. Management
has not yet determined whether the adoption of SFAS No. 123R will result in amounts that are
materially different from those currently provided under the pro forma disclosures under SFAS No.
123 in Note 1 to the Consolidated Financial Statements. The adoption of SFAS No. 123R is not
expected to have a material effect on the financial condition, results of operations, or cash flows
of the Company.
In June 2004, the EITF reached a consensus on Issue No. 02-14,
Whether an Investor Should
Apply the Equity Method of Accounting to Investments Other Than Common Stock
. EITF 02-14 addresses
whether the equity method of accounting should be applied to investments when an investor does not
have an investment in voting common stock of an investee but exercises significant influence
through other means. EITF 02-14 states that an investor should only apply the equity method of
accounting when it has investments in either common stock or in-substance common stock of a
corporation, provided that the investor has the ability to exercise significant influence over the
operating and financial policies of the investee. The effective date of EITF 02-14 is the first
reporting period beginning after September 15, 2004. The adoption of EITF No. 02-14 did not have a
material impact on the financial condition, results of operations or cash flows of the Company.
In March 2004, the EITF reached a consensus on Issue No. 03-1,
The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments
. EITF 03-1 provides
guidance on other-than-temporary
54
impairment evaluations for securities accounted for under SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, and SFAS No. 124, Accounting for Certain Investments
Held by Not-for-Profit Organizations, and non-marketable equity securities accounted for under the
cost method. The EITF developed a basic three-step test to evaluate whether an investment is
other-than-temporarily impaired. In September 2004, the FASB delayed the effective date of the
recognition and measurement provisions of EITF No. 03-1. However, the disclosure provisions remain
effective for fiscal years ending after June 15, 2004. The adoption of the recognition and
measurement provisions of EITF No. 03-1 is not expected to have a material impact on the financial
condition, results of operations or cash flows of the Company.
In January 2003, the FASB issued FIN No. 46,
Consolidation of Variable Interest Entities
,
and a revised interpretation of FIN No. 46 (FIN No. 46-R) in December 2003, in an effort to expand
upon existing accounting guidance that addresses when a company should consolidate the financial
results of another entity. FIN No. 46 requires variable interest entities, as defined, to be
consolidated by a company if that company is subject to a majority of expected losses of the entity
or is entitled to receive a majority of expected residual returns of the entity, or both. A company
that is required to consolidate a variable interest entity is referred to as the entitys primary
beneficiary. The interpretation also requires certain disclosures about variable interest entities
that a company is not required to consolidate, but in which it has a significant variable interest.
The consolidation and disclosure requirements apply immediately to variable interest entities
created after January 31, 2003. The Company is not the primary beneficiary of any variable interest
entity created after January 31, 2003 nor does the Company have a significant variable interest in
a variable interest entity created after January 31, 2003.
For variable interest entities that existed before February 1, 2003, the consolidation
requirements of FIN No. 46-R are effective as of March 31, 2004. The adoption of FIN No. 46-R did
not have a material impact on the financial condition, results of operations or cash flows of the
Company.
In December 2004, the FASB issued FASB Staff Position No. FAS 109-1 (FAS 109-1),
Application of FASB Statement No. 109,
Accounting for Income Taxes
, to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs Creation Act of 2004. The Act
introduces a special 9% tax deduction on qualified production activities. FAS 109-1 clarifies that
this tax deduction should be accounted for as a special tax deduction in accordance with SFAS No.
109. The adoption of these new tax provisions is not expected to have a material impact on the
financial condition, results of operations or cash flows of the Company.
In December 2004, the FASB issued FASB Staff Position No. FAS 109-2 (FAS 109-2),
Accounting
and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs
Creations Act of 2004.
The Act introduces a limited time 85% dividends received deduction on the
repatriation of certain foreign earnings to a U.S. taxpayer (repatriation provision), provided
certain criteria are met. FAS 109-2 provides accounting and disclosure guidance for the
repatriation provision. Although FAS 109-2 is effective immediately, management does not expect to
be able to complete the evaluation of the repatriation provision until after Congress or the
Treasury Department provides additional clarifying language on key elements of the provision. In
January 2005, the Treasury Department began to issue the first of a series of clarifying guidance
documents related to this provision. The range of possible amounts that we are considering for
repatriation under this provision is between zero and $50.0 million. The related range of income
tax effects of such repatriation cannot reasonably be estimated. Management expects to complete an
evaluation of the effects of the repatriation provision by the end of 2005.
Reclassifications
Certain amounts from prior years have been reclassified to conform to the
current years presentation.
Note 2. Acquisitions and Dispositions
In April 2002, the Company acquired the rights to a multi-year customer service and technical
support agreement and the net assets of a call center in Bocholt, Germany for $1.9 million in cash.
In connection with the purchase, the Company recognized identifiable intangible assets of $1.8
million related to the underlying customer support agreement and recorded net assets of $0.1
million. During the fourth quarter of 2002, call volumes fell below anticipated levels and, after
the Company evaluated the Bocholt assets for recoverability, the remaining balance of the
intangible asset was written off and a $1.5 million impairment charge was recorded in 2002.
55
On July 1, 2002, the Company sold the land and building related to one of its Bismarck, North
Dakota facilities for $2.0 million cash, resulting in a net gain of $1.8 million. The net book
value of the facilities of $1.7 million was offset by the related deferred grants of $1.5 million.
In addition, on September 30, 2002, the Company sold certain assets of its print facilities in
Galashiels, Scotland having a net book value of $1.1 million for $0.9 million for which the Company
received $0.2 million cash and a $0.7 million note receivable, resulting in a net loss of $0.2
million. The balance due under the note was paid in varying monthly installments over a two-year
period. The net gain on the sale of the Bismarck facility of $1.8 million less the net loss on the
sale of the print facilities in Galashiels of $0.2 million is included in Net gain on disposal of
property and equipment in the accompanying 2002 Consolidated Statement of Operations.
On September 30, 2003, the Company sold the land and building related to its Scottsbluff,
Nebraska facility, which was closed in connection with the 2002 restructuring plan, for $2.0
million cash, resulting in a net gain of $1.9 million. The net book value of the facilities of $1.9
million was offset by the related deferred grants of $1.8 million. The net gain on the sale of the
Scottsbluff facility of $1.9 million is included in Net gain on disposal of property and
equipment in the accompanying 2003 Consolidated Statement of Operations.
On December 31, 2003, the Company sold the land and building related to its Eveleth, Minnesota
facility for $2.3 million, for which the Company received $0.3 million cash and a $2.0 million note
receivable, resulting in a net gain of $1.7 million recognized over the term of the note using the
installment sales method of accounting. The net book value of the facilities of $3.5 million was
offset by the related deferred grants of $2.9 million. The Company recognized $0.2 million of the
$1.7 million net gain on the sale of the Eveleth facility in 2003, which is included in Net gain
on disposal of property and equipment in the accompanying 2003 Consolidated Statement of
Operations. The remaining $1.5 million net gain was recognized in 2004 when the note receivable
balance was paid in full and is included in Net gain on disposal of property and equipment in the
accompanying 2004 Consolidated Statement of Operations.
On January 15, 2004, the Company sold the land, building and its contents related to its
Klamath Falls, Oregon facility for $4.0 million in cash, resulting in a net gain of $2.7 million in
the first quarter of 2004. The net book value of the facilities of $2.3 million was offset by the
related deferred grants of $1.0 million. On March 31, 2004, the Company sold a parcel of land at
its Pikeville, Kentucky facility for $0.2 million in cash, resulting in a net gain of $0.1 million
in the first quarter of 2004. On July 9, 2004, the Company sold the land, building and its contents
related to its Hays, Kansas facility for $3.0 million cash, resulting in a net gain of $2.8
million in the third quarter of 2004. The net book value of the facilities of $1.5 million was
offset by the related deferred grants of $1.3 million.
Accordingly, the net gains on the sale of these facilities of $7.1 million
related to the Eveleth, Klamath Falls, Pikeville and Hays facilities are included in Net gain on
disposal of property and equipment in the accompanying 2004 Consolidated Statement of Operations.
In April 2004, related to the Companys efforts to realign the EMEA cost structure with
current business levels, the Company proposed a liquidation plan to close its operations in Turkey.
Accordingly, the Company transferred one remaining contract to other Sykes subsidiaries and
shutdown the operations. In May 2004, the Company substantially completed the liquidation of its
net investment in Turkey. As a result, the net effect of the translation gains and losses of $0.7
million was recognized as a gain on liquidation of a foreign entity and included in Other income
in the accompanying 2004 Consolidated Statement of Operations. Due to the immaterial amounts, the
financial data related to the Companys net investment in Turkey has not been classified as
discontinued operations.
The Company reported net income or net loss from Turkeys operations, excluding the $0.7
million previously mentioned foreign translation gain, of $0.3 million net loss for 2004, breakeven
for 2003 and net income of $0.1 million for 2002. Turkeys net assets included in the accompanying
Consolidated Balance Sheets as of December 31, 2004 and December 31, 2003, were $0.2 million and
$0.8 million, respectively.
Subsequent to year end, on March 1, 2005, the Company purchased the shares of
Kelly, Luttmer & Associates Limited (KLA) located in Calgary, Alberta, Canada which included net
assets of approximately $0.1 million. KLA is a customer contact management center specializing in
organizational health, employee assistance, occupational health, and disability management
services. The Company acquired these operations in an effort to broaden its operations in the
healthcare sector. Total cash consideration paid was approximately $3.0 million. Pro-forma results
of operations, in respect to this acquisition have not been presented because the effect of this
acquisition was not material.
56
Note 3. Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk
consist principally of trade receivables. The Companys credit concentrations are limited due to
the wide variety of customers and markets in which the Companys services are sold, with the
exception of two major customers as discussed in Note 20.
Note 4. Receivables
Receivables consist of the following (in thousands):
Note 5. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
Note 6. Assets Held for Sale
Assets held for sale at four customer contact management centers in the United States consist
of the following (in thousands):
The carrying value of these assets is offset by the related deferred grants of $6.7 million
as of December 31, 2004 and included in Deferred grants related to assets held for sale in the
accompanying Consolidated Balance Sheet.
57
Note 7. Property and Equipment
Property and equipment consist of the following (in thousands):
On June 8, 2004, the Company leased the land, building and its contents related to its
Manhattan, Kansas facility to an unrelated third party effective August 1, 2004 for a period of 5
years, cancelable by the lessee at the end of each year for varying penalties not exceeding one
years rent. As of December 31, 2004, the leased property consists of the following (in thousands):
As of December 31, 2004, future minimum rental payments, including penalties for failure to
renew, to be received on non-cancelable operating leases are contractually due in the amount of
$0.8 million in 2005.
In January 2005, the Company leased the Pikeville, Kentucky facility to a third party. As a result, the net carrying value of $2.6 million of Land, Building and Equipment related to this
site was reclassified from Assets Held for Sale to Property and Equipment as of December 31, 2004. The carrying
value of $2.6 million is offset by a related deferred grant in the amount of $1.8 million as of
December 31, 2004.
In September 2004, the building and contents of the customer contact management center located
in Marianna, Florida was severely damaged by Hurricane Ivan. After settlement with the insurer in
December 2004, the Company recognized a net gain of $5.4 million after write-off of the property
and equipment, which had a net book value of $3.4 million, net of the related deferred grants of
$2.2 million. The Company also received an insurance recovery for business interruption during 2004
and recognized $0.1 million and $0.2 million, respectively, as a reduction to Direct salaries and
related costs and General and administrative costs in the accompanying Consolidated Statement
of Operations for the year ended December 31, 2004. In December 2004, the Company reached an
agreement with the City of Marianna to donate the underlying land to the city with $0.1 million in
cash to assist with the site demolition and clean up of the property with no further obligation of
the Company.
Note 8. Deferred Charges and Other Assets
Deferred charges and other assets consist of the following (in thousands):
58
Note 9. Accrued Employee Compensation and Benefits
Accrued employee compensation and benefits consist of the following (in thousands):
Note 10. Other Accrued Expenses and Current Liabilities
Other accrued expenses and current liabilities consist of the following (in thousands):
Note 11. Long-Term Debt
Long-term debt consists of the following (in thousands):
As of December 31, 2003, the Company elected to cancel its then existing revolving credit
facility. As a result, the Company charged off the remaining deferred loan costs of $0.2 million,
which is included as a component of other income (expense) in the accompanying in 2003
Consolidated Statement of Operations.
On March 15, 2004, the Company entered into a new $50.0 million revolving credit facility with
a group of lenders (the Credit Facility), which amount is subject to certain borrowing
limitations. Pursuant to the terms of the Credit Facility, the amount of $50.0 million may be
increased up to a maximum of $100.0 million with the prior written consent of the lenders. The
$50.0 million Credit Facility includes a $10.0 million swingline subfacility, a $15.0 million
letter of credit subfacility and a $40.0 million multi-currency subfacility.
The Credit Facility, which includes certain financial covenants, may be used for general
corporate purposes including acquisitions, share repurchases, working capital support,
and letters of credit, subject to certain limitations. The Credit Facility, including the
multi-currency subfacility, accrues interest, at the Companys option, at (a) the Base Rate
(defined as the higher of the lenders prime rate or the Federal Funds rate plus 0.50%) plus an applicable
59
margin up to 0.50%, or (b) the London Interbank Offered Rate (LIBOR) plus an
applicable margin up to 2.25%. Borrowings under the swingline subfacility accrue interest at the
prime rate plus an applicable margin up to 0.50% and borrowings under the letter of credit
subfacility accrue interest at the LIBOR plus an applicable margin up to 2.25%. In addition, a
commitment fee of up to 0.50% is charged on the unused portion of the Credit Facility on a
quarterly basis. The borrowings under the Credit Facility, which will terminate on March 14, 2007,
are secured by a pledge of 65% of the stock of each of the Companys direct foreign subsidiaries.
The Credit Facility prohibits the Company from incurring additional indebtedness, subject to
certain specific exclusions. There were no borrowings in 2004 and no outstanding balances as of December 31, 2004 with $50.0 million availability
under the Credit Facility.
Note 12. Accumulated Other Comprehensive Income (Loss )
The Company presents data in the Consolidated Statements of Changes in Shareholders Equity in
accordance with SFAS No. 130,
Reporting Comprehensive Income.
SFAS No. 130 establishes rules for
the reporting of comprehensive income (loss) and its components. The components of other
accumulated comprehensive income (loss) include foreign currency translation adjustments as follows
(in thousands):
Earnings associated with the Companys investments in its international 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.
Note 13. Income Taxes
The income (loss) before provision (benefit) for income taxes includes the following
components (in thousands):
60
Significant components of the income tax provision (benefit) are as follows (in thousands):
The temporary differences that give rise to significant portions of the deferred income tax
provision (benefit) are as follows (in thousands):
The reconciliation of income tax provision (benefit) computed at the U.S. federal statutory
tax rate to the Companys effective income tax provision (benefit) is as follows (in thousands):
Deferred income taxes reflect the net tax effects of temporary differences between the
carrying amount of assets and liabilities for financial reporting purposes and the amounts used for
income taxes. A provision for income taxes has not been made for the undistributed earnings of
foreign subsidiaries of approximately $179.0 million at December 31, 2004, that are permanently
reinvested in foreign business operations. Determination of any unrecognized deferred tax liability
for temporary differences related to investments in foreign subsidiaries that are essentially
permanent in nature is not practicable.
The Company has been granted tax holidays in the Philippines, El Salvador, India and Costa
Rica. These holidays have various expiration dates from 2005 through 2013. Upon expiration, the Company intends to seek renewals of these tax holidays.
61
The temporary differences that give rise to significant portions of the deferred tax assets
and liabilities as of December 31, 2004 and 2003, respectively, are presented below (in thousands):
SFAS No. 109,
Accounting for Income Taxes,
requires a valuation allowance to reduce the
deferred tax assets reported if, based on the weight of the available evidence, both positive and
negative, for each respective tax jurisdiction, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. At December 31, 2004, management has determined
that a valuation allowance of approximately $30.4 million is necessary to reduce U.S. deferred tax
assets by $10.4 million and foreign deferred tax assets by $20.0 million.
Approximately $75.0 million of the income tax loss carryforward at December 31, 2004 relates
to foreign entities with various expiration dates. For U.S. purposes, a net operating loss
carryforward of approximately $52.0 million and $3.9 million of tax credits are available for
carryforward expiring through the year ending December 31, 2024. Of this U.S. $52.0 million
carryforward, only $10.1 million can be offset against the future earnings of an acquired
subsidiary.
The Company is currently under examination in the U.S. by several states for sales and use
taxes and franchise taxes for periods covering 1999 through 2003. The U.S. Internal Revenue
Service has completed audits of the Companys U.S. tax returns through July 31, 1999 and recently
began an audit for tax year ending July 31, 2002. Certain German subsidiaries of the Company are
under examination by the German tax authorities for periods covering 1997 through 2000.
Additionally, certain Canadian subsidiaries are under examination by Canadian tax authorities for
the periods covering 1993 through 2003. In the opinion of management, any liability that may arise
from the prior periods as a result of these examinations is not expected to have a material effect
on the Companys financial condition, results of operations or cash flows. The Company has a
contingent income tax liability of $2.9 million as of December 31, 2004.
On October 22, 2004 the President signed the American Jobs Creation Act of 2004 (the Act).
The Act creates a temporary incentive for U.S. corporations to repatriate accumulated income earned
abroad by providing an 85 percent dividends received deduction for certain dividends from
controlled foreign corporations. The deduction is subject to a number of limitations and, as of
today, uncertainty remains as to how to interpret numerous provisions in the Act. As such,
management is not yet in a position to decide on whether, and to what extent, it might repatriate
foreign earnings that have not yet been remitted to the U.S. Based on the analysis to date,
however, it is reasonably possible that the Company may repatriate some amount up to $50.0 million.
The related range of income tax effects
62
of such repatriation cannot reasonably be estimated. Management expects to be in a position to
finalize its assessment by December 31, 2005.
Note 14. Termination Costs Associated With Exit Activities
During the first quarter of 2004, the Company determined to reduce costs by consolidating and
closing two European customer contact management centers in Germany. The plan was substantially
completed by the end of the second quarter of 2004. In connection with these closures, the Company
terminated 240 employees and accrued over their remaining service period, an estimated liability for termination costs of $1.7 million based on the fair value as of
the termination date, in accordance with SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal Activities
.
Termination costs of $1.7 million are included in Direct salaries and related costs in the
accompanying 2004 Consolidated Statement of Operations. Cash payments totaled $1.7 million during
the year ended December 31, 2004.
On January 19, 2005, the Company announced to its workforce that, as part of its continued
efforts to optimize assets and improve operating performance, it plans to migrate the call volumes
of the customer contact management services and related operations from its Bangalore, India
facility, a component of the Companys Americas segment, to other more strategically-aligned
offshore facilities in the Asia Pacific region. The Companys Bangalore facility generated
approximately $1.0 million in revenue in the fourth quarter of 2004 and $5.7 million in the year of
2004. The Company anticipates that approximately 50% of the annualized fourth quarter revenue will be captured and migrated
to its offshore facilities within the Asia Pacific region. The Company expects to complete the plan
of migration, including the redeployment of site infrastructure and the recruiting, training and
ramping-up of agents associated with the migration of Bangalore call volumes to other offshore
facilities, by the early part of the second quarter of 2005. The Companys decision to migrate the
Bangalore operations was based on inadequate rates of return at the Bangalore facility, the
marginal competitive advantage of Bangalore operations and Bangalore-based customer contact
management transactions being better suited for other offshore facilities.
As a result of this plan of migration, the Company estimates that during the first quarter of
2005 it will incur charges of approximately $0.3 million as a result of severance and related costs
and $0.3 million related to other exit costs. In connection with this migration, the Company
expects to redeploy property and equipment located in India totaling approximately $1.9 million to
other more strategically-aligned offshore facilities in the Asia Pacific region. As a result, the
Company recorded an asset impairment charge of $0.7 million for certain property and equipment in
India as of December 31, 2004. The total charges related to the plan of migration are anticipated
to be approximately $1.3 million. The severance and other exit costs require the outlay of cash
during 2005, while the charges related to property and equipment represent non-cash charges.
Note 15. Restructuring and Other Charges
2002 Charges
In October 2002, the Company approved a restructuring plan to close and consolidate two U.S.
and three European customer contact management centers, to reduce capacity within the European
fulfillment operations and to write-off certain specialized e-commerce assets primarily in response
to the October 2002 notification of the contractual expiration of two technology client programs in
March 2003 with approximate annual revenues of $25.0 million. The restructuring plan was designed
to reduce costs and bring the Companys infrastructure in-line with the current business
environment. Related to these actions, the Company recorded restructuring and other charges in the
fourth quarter of 2002 of $20.8 million primarily for the write-off of certain assets, lease
termination and severance costs. In connection with the 2002 restructuring, the Company reduced the
number of employees by 470 during 2002 and 330 during 2003. The plan was substantially completed by
the end of 2003.
In connection with the contractual expiration of the two technology client contracts
previously mentioned, the Company also recorded additional depreciation expense of $1.2 million in
the fourth quarter of 2002 and $1.3 million in the first quarter of 2003 primarily related to a
specialized technology platform, which was no longer utilized upon the expiration of the contracts
in March 2003.
63
The following tables summarize the 2002 plan accrued liability for restructuring and other
charges and related activity in 2004, 2003 and 2002 (in thousands):
2001 Charges
In December 2001, in response to the economic slowdown and increasing demand for the Companys
offshore capabilities, the Company approved a cost reduction plan designed to improve efficiencies
in its core business. As a result of the Companys cost reduction plan, the Company recorded $16.1
million in restructuring, other and impairment charges during the fourth quarter of 2001. This
included $14.6 million in charges related to the closure and consolidation of two U.S. customer
contact management centers, two U.S. technical staffing offices, one European fulfillment center;
the elimination of redundant property, leasehold improvements and equipment; lease termination
costs associated with vacated properties and equipment and severance and related costs. In
connection
64
with the fourth quarter 2001 restructuring, the Company reduced the number of employees by 230
during the first quarter of 2002. The restructuring charge also included $1.4 million for future
lease obligations related to closed facilities. In connection with this restructuring, the Company
also recorded a $1.5 million impairment charge related to the write-off of certain nonperforming
assets, including software and equipment no longer used by the Company.
The following tables summarize the 2001 plan accrued liability for restructuring and other
charges and related activity in 2003, 2002 and 2001 (in thousands):
2000 Charges
The Company recorded restructuring and other charges during the second and fourth quarters of
2000 approximating $30.5 million. The second quarter restructuring and other charges approximating
$9.6 million resulted from the Companys consolidation of several European and one U.S. fulfillment
center and the closing or consolidation of six technical staffing offices. Included in the second
quarter 2000 restructuring and other charges was a $3.5 million lease termination payment to the
founder and former Chairman of the Company related to the termination of a ten-year operating lease
agreement for use of his private jet. As a result of the second quarter 2000 restructuring, the
Company reduced the number of employees by 157 during 2000 and satisfied the remaining lease
obligations related to the closed facilities during 2001.
65
The Company also announced, after a comprehensive review of operations, its decision to exit
certain non-core, lower margin businesses to reduce costs, improve operating efficiencies and focus
on its core competencies of technical support, customer service and consulting solutions. As a
result, the Company recorded $20.9 million in restructuring and other charges during the fourth
quarter of 2000 related to the closure of its U.S. fulfillment operations, the consolidation of its
Tampa, Florida technical support center and the exit of its worldwide localization operations.
Included in the fourth quarter 2000 restructuring and other charges is a $2.4 million severance
payment related to the employment contract of the Companys former President. In connection with
the fourth quarter 2000 restructuring, the Company reduced the number of employees by 245 during
the first half of 2001 and satisfied a significant portion of the remaining lease obligations
related to the closed facilities during 2001.
The following tables summarize the 2000 plan accrued liability for restructuring and other
charges and related activity in 2004, 2003, 2002, 2001 and 2000 (in thousands):
66
Note 16. 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 respective periods and the further dilutive effect, if any, from
stock options using the treasury stock method. For the years ended December 31, 2004, 2003 and
2002, options to purchase shares of common stock of 2.4 million, 2.9 million and 3.2 million,
respectively, at various prices were antidilutive and were excluded from the calculation of diluted
earnings per share.
The numbers of shares used in the earnings per share computation are as follows (in
thousands):
On August 5, 2002, the Companys Board of Directors authorized the purchase of up to three
million shares of its outstanding common stock. A total of 1.6 million shares have been repurchased
under this program since inception. The shares are purchased, from time to time, through open
market purchases or in negotiated private transactions, and the purchases are based on factors such
as, including but not limited to, the stock price and general market conditions. For the year ended
December 31, 2004, the Company repurchased 1.1 million common shares under the 2002 repurchase
program at prices ranging between $5.55 to $7.58 per share for a total cost of $7.1 million.
Note 17. Commitments and Contingencies
The Company leases certain equipment and buildings under operating leases having original
terms ranging from one to twenty-two years, some with options to cancel at varying points during
the lease. The building leases contain up to two five-year renewal options. Rental expense under
operating leases for the years ended December 31, 2004, 2003 and 2002 was approximately $18.4
million, $13.4 million, and $13.7 million, respectively.
67
The following is a schedule of future minimum rental payments under operating leases having a
remaining non-cancelable term in excess of one year subsequent to December 31, 2004 (in thousands):
A lease agreement, relating to the Companys customer contact management center in Ireland,
contains a cancellation clause which requires the Company, in the event of cancellation, to restore
the facility to its original state at an estimated cost of $1.1 million as of December 31, 2004 and
pay a cancellation fee of $0.5 million, which approximates two annual rental payments under the
lease agreement. In addition, under certain circumstances (including cancellation of the lease and
cessation of the centers operations in the facility), the Company is contingently liable until
June 16, 2005 to repay any proceeds received in association with the facilitys grant agreement. As
of December 31, 2004, the grant proceeds subject to repayment approximated $1.1 million. As of
December 31, 2004, the Company had no plans to cancel this lease agreement.
The Company enters into agreements with third-party vendors in the ordinary course of business
whereby the Company commits to purchase goods and services used in its normal operations. These
agreements, which are not cancelable, generally range from one to five year periods and contain
fixed or minimum annual commitments. Certain of these agreements allow for renegotiation of the
minimum annual commitments based on certain conditions.
The following is a schedule of future minimum purchases remaining under the agreements as of
December 31, 2004 (in thousands):
From time to time, during the normal course of business, the Company may make certain
indemnities, commitments and guarantees under which it may be required to make payments in relation
to certain transactions. These include: (i) indemnities to vendors and service providers pertaining
to claims based on negligence or willful misconduct of the Company and (ii) indemnities involving
the accuracy of representations and warranties of the Company in certain contracts. In addition,
the Company has agreements whereby it will indemnify certain officers and directors for certain
events or occurrences while the officer or director is, or was, serving at the Companys request in
such capacity. The indemnification period covers all pertinent events and occurrences during the
officers or directors lifetime. The maximum potential amount of future payments the Company could
be required to make under these indemnification agreements is unlimited; however, the Company has
director and officer insurance coverage that limits its exposure and enables it to recover a
portion of any future amounts paid. The Company believes the applicable insurance coverage is
generally adequate to cover any estimated potential liability under these indemnification
agreements. The majority of these indemnities, commitments and guarantees do not provide for any
limitation of the maximum potential for future payments the Company could be obligated to make. The
Company has not recorded any liability for these indemnities, commitments and other guarantees in
the accompanying Consolidated Balance Sheets.
The Company is monitoring certain state laws regarding taxes associated with its business
operations. Although the Company has not been notified of a claim by a governmental agency, it is
believed to be reasonably possible a liability may have been incurred before December 31, 2004.
However, management estimates this amount to be
68
immaterial based on the available facts and circumstances.
The Company from time to time is involved in other 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 Companys financial position or results of operations.
Note 18. Employee Benefit Plan
The Company maintains a 401(k) plan covering defined employees who meet established
eligibility requirements. Under the plan provisions, the Company matched 50% of participant
contributions to a maximum matching amount of 2% of participant compensation. The Company
contribution was $0.5 million, $0.8 million (including $0.2 million to reimburse the 401(k) plan
for commissions previously paid to a member of the Companys Board of Directors as discussed in
Note 21), and $0.8 million for the years ended December 31, 2004, 2003 and 2002, respectively.
Note 19. Stock Options and Common Stock Units
The Company maintains various stock option plans for its employees. Options to employees are
granted at not less than fair market value on the date of the grant and generally vest over one to
four years. All options granted to employees under the Companys stock option plans expire if not
exercised by the tenth anniversary of their grant date.
Until May 2004, the Company maintained a stock option plan that provided for the
automatic grant of non-qualified stock options to members of the Board of Directors who were not
employees of the Company. Under the plan, each new non-employee director was granted an option to
purchase 25,000 shares of common stock upon his or her election to the Board. Each continuing
non-employee director was granted an option to purchase an additional 10,000 shares of common stock
on the day after each annual shareholders meeting. All of the options have an exercise price equal
to the fair market value on the date of grant, and become exercisable ratably over one to three
years. All options granted to non-employee directors expire if not exercised by the tenth
anniversary of their grant date. No options were granted at or after the May 2004 Annual Meeting of
Shareholders.
At December 31, 2004, there were 7.0 million shares of common stock reserved for
issuance under all of the Companys stock option plans. For all plans, options of 2.5 million, 2.4
million, and 2.3 million were exercisable at December 31, 2004, 2003 and 2002 with a weighted
average exercise price of $10.35, $11.50 and $11.39, respectively. There were 4.7 million, 4.5
million and 4.4 million shares available for grant under the plans at December 31, 2004, 2003, and
2002, respectively.
The following table summarizes stock option activity for each of the three years ended
December 31:
69
The following table further summarizes significant ranges of outstanding and exercisable
options at December 31, 2004:
Employee Stock Purchase Plan
-
The Companys Employee Stock Purchase Plan (the ESPP), which
qualifies under Section 423 of the Internal Revenue Code of 1986, allowed eligible employees to
purchase the Companys common stock through payroll deductions at 87.5% of the market price on the
last day of the offering period, subject to certain maximum limitations. Effective June 30, 2003,
the Companys Board of Directors decided to terminate the ESPP due to limited employee
participation and costs associated with administrating it. Accordingly, the remaining 0.8 million
shares of the Companys common stock previously reserved are no longer available for future
issuance under the ESPP as of June 30, 2003, the termination date.
The weighted average fair value share price of the purchase rights granted under the ESPP
during the years ended December 31, 2003 (before the termination date) and 2002 were $3.80 and
$5.35, respectively. For the years ended December 31, 2003 and 2002, 0.03 million and 0.07 million,
respectively, of such shares were purchased by eligible employees.
Non-Employee Director Fee Plan
-
In May 2004, the Board of Directors approved a new
Non-Employee Director Fee Plan (the Plan), subject to shareholder approval at the 2005 Annual
Shareholders Meeting. The Board of Directors determined that this Plan would replace and supercede
the 1996 Non-Employee Director Fee Plan and would be used in lieu of the 2004 Nonemployee Director
Stock Option Plan (the Stock Option Plan). No options have been awarded under the Stock Option
Plan, and none will be awarded if the new Plan is approved by the shareholders at the 2005 annual
meeting. The Plan provides that all new non-employee Directors joining the Board receive an initial
grant of common stock units (CSUs) on the date the new Director is appointed or elected, the
number of which will be determined by dividing a dollar amount to be determined from time to time
by the Board (initially set at $30,000) by an amount equal to 110% of the average closing prices of
the Companys common stock for the five trading days prior to the date the new Director is
appointed or elected. The initial grant of CSUs will vest in three equal installments, one-third
on the date of each of the following three annual shareholders meetings.
A CSU is a bookkeeping entry on the Companys books that records the equivalent of one share
of common stock. On the date each CSU vests, the Director will become entitled to receive a share
of the Companys common stock and the CSU will be canceled. For federal income tax purposes, the
Director will not be deemed to have received income with respect to the CSUs until the CSUs vest.
Additionally, the Plan provides that each non-employee Director who was serving as a
Director immediately prior to each annual shareholders meeting will receive, on the day after the
annual meeting, an annual retainer for service as a non-employee Director, the amount of which
shall be determined from time to time by the Board. The Board increased the amount of the annual
retainer from $25,000 under the 1996 Fee Plan to $50,000 under the Plan. Under the Plan, the annual retainer will be paid 75% in CSUs and 25% in cash. Previously, the annual
retainer was payable one-half in cash and one-half in CSUs. The number of CSUs to be granted under
the Plan will be determined by dividing the amount of the annual retainer by an amount equal to 105% of the average of the closing
70
prices for the Companys common stock on the five
trading days preceding the award date (the day after the annual meeting). The annual grant of CSUs
will vest in two equal installments, one-half on the date of each of the following two annual
shareholders meetings.
All CSUs will automatically vest upon the termination of a Directors service as a Director,
whether by reason of death, retirement, resignation, removal or failure to be reelected at the end
of his or her term. Until a CSU vests, the Director has none of the rights of a shareholder with
respect to the CSU or the common stock underlying the CSU. CSUs are not transferable.
The Company applies variable plan accounting, in accordance with APB No. 25, for grants of
CSUs issued under the Plan and recognizes compensation cost over the vesting period. During the
year ended December 31, 2004, the Board awarded an aggregate of 55.6 thousand CSUs to the
non-employee directors totaling $0.3 million with a weighted average fair value of $5.94. Since the
new Plan is subject to shareholder approval, the CSUs are not considered to be granted and
therefore no compensation cost will be recognized until the shareholders approve the Plan at the
2005 Annual Shareholders Meeting. At that time, the Company will recognize compensation cost for
the CSUs over the vesting periods at the then current market price.
Note 20. Segments and Geographic Information
The Company operates within two regions, the Americas and EMEA which represented 60.7% and
39.3%, respectively, of consolidated revenues for 2004. The Americas and EMEA regions represented
66.9% and 33.1%, respectively, of consolidated revenues for 2003, and 66.1% and 33.9%,
respectively, of consolidated revenues for 2002. Each region represents a reportable segment
comprised of aggregated regional operating segments, which portray similar economic
characteristics. The Company aligns its business into two segments to effectively manage the
business and support the customer care needs of every client and to respond to the demands of the
Companys global customers.
The reportable segments consist of (1) the Americas, which includes the United States, Canada,
Latin America, India and the Asia Pacific Rim, and provides outsourced customer contact management
solutions (with an emphasis on technical support and customer service) and technical staffing and
(2) EMEA, which includes Europe, the Middle East and Africa, and provides outsourced customer
contact management solutions (with an emphasis on technical support and customer service) and
fulfillment services. The sites within Latin America, India and the Asia Pacific Rim are included
in the Americas region given the nature of the business and client profile, which is primarily made
up of U.S. based companies that are using the Companys services in these locations to support
their customer contact management needs.
71
Information about the Companys reportable segments for the years ended December 31, 2004,
2003 and 2002 is as follows:
72
The Americas revenues included $36.6 million and $81.2 million, or 7.8% and 16.9% of consolidated
revenues for the years ended December 31, 2004 and 2003, respectively, from a leading systems
integrator that represents a major provider of communication services to whom the Company provides
various outsourced customer contact management services. Effective May 1, 2003, the Company entered
into a subcontractor services agreement (the Agreement) with the systems integrator following the execution of
a primary services agreement between the major provider of communication services and the systems integrator.
The revenues for comparable periods as it relates to this relationship were $71.6 million, or 15.8%
of consolidated revenues for the year ended December 31, 2002. Under the terms of this three-year
Agreement, which contains penalty provisions for failure to meet minimum service levels and is
cancelable with 6 months written notice, the Company will continue to provide the products and
services necessary to support and assist the systems integrator in the management and performance of its primary
services agreement.
In addition, revenues included $33.8 million, or 7.3% of consolidated revenues, $58.5 million,
or 12.2% of consolidated revenues, and $54.6 million, or 12.1% of consolidated revenues, for the
years ended December 31, 2004, 2003 and 2002, respectively, from a leading software and services
provider. This includes $33.8 million, $58.0 million and $52.3 million in revenue from the Americas
for the years ended December 31, 2004, 2003 and 2002, respectively, and $0.5 million and $2.3
million in revenue from EMEA for the years ended December 31, 2003 and 2002, respectively.
73
Information about the Companys operations by geographic location is as follows (in
thousands):
Revenues for the Companys products and services are as follows (in thousands):
74
Note 21. Related Party Transactions
The Company paid John H. Sykes, the founder and former Chairman of the Company, $0.6 million
for the use of his private jet in each of the years 2004, 2003 and 2002 which is based on two times
fuel costs and other actual costs incurred for each trip.
A member of the Board of Directors of the Company received broker commissions from the
Companys 401(k) investment firm of $0.05 million for the year ended December 31, 2002 and
insurance commissions for the placement of the Companys various corporate insurance programs of
approximately $0.1 million for the year ended December 31, 2002. This arrangement was terminated in
2002. During 2003, the Company determined that the payment of broker commissions was a prohibited
transaction under Federal regulations. As a result, during 2003, the Company reimbursed the 401(k)
plan $0.2 million for previously paid broker commissions and paid a penalty to the U.S. government
of $0.1 million.
Note 22. Retirement of Founder and Chairman
On August 2, 2004, John H. Sykes publicly announced his resignation and
retirement as Chairman and Chief Executive Officer of the Company. Mr. Sykes was employed by the
Company pursuant to the Amended and Restated Executive Employment Agreement (the Employment
Agreement) dated as of October 1, 2001. The Employment Agreement had an initial term of five
years, expiring on October 1, 2006, and included automatic one-year extensions unless there was
appropriate notice of termination.
As a result of Mr. Sykes resignation prior to the end of the initial term of the Employment
Agreement, the Company and Mr. Sykes terminated the Employment Agreement and entered into a
retirement and consulting agreement (the Retirement and Consulting Agreement) dated December 10,
2004. Under the terms of the Retirement and Consulting Agreement, Mr. Sykes employment with the
Company was terminated effective as of December 31, 2004, and the Company paid all compensation and
benefits due under the Employment Agreement through December 31, 2004. In addition, the Company
paid Mr. Sykes $1.7 million in base severance pay and unused vacation benefits, including a lump
sum of $0.3 million related to the relinquishment of any rights to an office and a secretary and
the right to continue to be covered as an employee under the Companys group health insurance
policy. The $1.7 million payment to Mr. Sykes is included in General and administrative costs in
the accompanying Consolidated Statement of Operations for the year ended December 31, 2004.
Additionally, the Company will pay Hyde Park Equity, LLC, a limited liability company owned by
Mr. Sykes, fees of $150,000, that will be paid in seven equal quarterly installments of $21,428,
for consulting services to be provided by Mr. Sykes through Hyde Park Equity during the period from
December 31, 2004, through October 1, 2006. In the event of Mr. Sykes death prior to October 1,
2006, the Company shall pay only a pro rata amount for the quarter in which the services are no
longer provided, and nothing further shall be owed for consulting services. For such amount, Hyde
Park Equity will cause Mr. Sykes to provide up to 37.5 days of consulting services per year at the
request of the Board of Directors or its Chairman. Such services will include advice dealing with
significant business issues and an orderly management transition. Additional days of service will
be billed at the rate of $2,000 per day. The Company will also reimburse Hyde Park Equity for out
of pocket business expenses incurred in connection with providing services to the Company.
75
Schedule II Valuation and Qualifying Accounts
Years ended December 31, 2004, 2003 and 2002
76
High
Low
$
7.20
$
4.51
7.66
4.43
7.71
5.34
10.07
5.22
$
10.50
$
6.70
8.29
4.57
5.30
3.75
4.34
2.85
Maximum
Total Number of
Number Of
Shares Purchased
Shares That May
Average
as Part of
Yet Be
Total Number
Price
Publicly
Purchased
of Shares
Paid Per
Announced Plans
Under Plans or
Period
Purchased (1)
Share
or Programs
Programs
1,644
1,356
1,644
1,356
1,644
1,356
(1)
All shares purchased as part of a repurchase plan publicly announced on August 5, 2002.
Total number of shares approved for repurchase under the plan was 3 million with no
expiration date.
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(1)
Effective January 1, 2000, we changed our policy regarding the recognition of revenue based on
criteria established by Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements (SAB 101).
(2)
The amounts for 2004 include a $7.1 million net gain on the sale of facilities, a $5.4 million net
gain on insurance settlement, a $0.1 million reversal of restructuring and other charges and $0.7
million of charges associated with the impairment of long-lived
assets.
(3)
The amounts for 2003 include a $2.1 million net gain on the sale of facilities and a $0.6 million
reversal of restructuring and other charges.
(4)
The amounts for 2002 include $20.8 million of restructuring and other charges, $1.5 million of
charges associated with the impairment of long-lived assets and a $1.6 million net gain on the sale
of facilities.
(5)
The amounts for 2002 include $13.8 million of charges associated with the litigation settlement.
(6)
The amounts for 2001 include
$14.6 million of restructuring and other charges and $1.5 million of charges associated with the impairment of long-lived assets.
(7)
The amounts for 2000 include $7.8 million of compensation expense related to payments made to certain
SHPS, Incorporated (SHPS) option holders as part of the sale of a 93.5% ownership interest in SHPS
that occurred on June 30, 2000 and $30.5 million of restructuring and other charges.
(8)
The amounts for 2000 include an $84.0 million gain from the sale of a 93.5% ownership interest in
SHPS that occurred on June 30, 2000 and a gain of $0.7 million related to the sale of a small
Canadian operation that sold roadside assistance memberships for which we provide customer support.
(9)
Certain amounts from prior years have been reclassified to conform to the current years presentation.
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Years Ended December 31,
2004
2003
2002
PERCENTAGES OF REVENUES:
100.0
%
100.0
%
100.0
%
64.4
64.4
63.4
35.4
33.7
34.4
(1.5
)
(0.3
)
(0.2
)
(1.2
)
0.0
(0.1
)
4.6
0.2
0.3
2.7
2.3
(2.5
)
0.7
0.6
(2.9
)
3.4
2.9
(5.4
)
1.1
1.0
(1.3
)
2.3
%
1.9
%
(4.1
)%
(1)
Includes litigation settlement of 3.1% in 2002.
Years Ended December 31,
2004
2003
2002
$
466,713
$
480,359
$
452,737
300,600
309,489
287,141
165,232
161,743
155,547
(6,915
)
(1,595
)
(945
)
(5,378
)
(113
)
(646
)
20,814
690
1,475
12,597
11,368
(11,295
)
3,264
2,588
(13,151
)
15,861
13,956
(24,446
)
5,047
4,651
(5,815
)
$
10,814
$
9,305
$
(18,631
)
(2)
Includes litigation settlement of $13.8 million in 2002.
Years Ended December 31,
2004
2003
2002
$
283,253
$
321,195
$
299,185
183,460
159,164
153,552
$
466,713
$
480,359
$
452,737
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(In thousands, except per share data)
12/31/04
9/30/04
06/30/04
03/31/04
12/31/03
9/30/03
06/30/03
03/31/03
$
120,713
$
111,507
$
113,450
$
121,043
$
124,212
$
119,912
$
118,949
$
117,286
72,766
70,578
73,867
83,389
79,119
76,506
76,508
77,356
41,303
41,338
41,315
41,276
43,099
39,862
38,875
39,907
94
(2,874
)
(1,394
)
(2,741
)
(47
)
(1,736
)
107
81
(5,378
)
(113
)
(446
)
(200
)
690
11,351
2,465
(338
)
(881
)
2,487
5,480
3,459
(58
)
157
5
1,893
1,209
1,347
490
408
343
11,508
2,470
1,555
328
3,834
5,970
3,867
285
3,084
1,398
481
84
1,201
2,039
1,314
97
$
8,424
$
1,072
$
1,074
$
244
$
2,633
$
3,931
$
2,553
$
188
$
0.21
$
0.03
$
0.03
$
0.01
$
0.07
$
0.10
$
0.06
$
0.00
39,197
39,189
39,882
40,216
40,184
40,307
40,350
40,368
$
0.21
$
0.03
$
0.03
$
0.01
$
0.07
$
0.10
$
0.06
$
0.00
39,304
39,259
39,998
40,388
40,445
40,491
40,424
40,371
(1)
The quarter ended September 30, 2004 includes a $2.3 million estimated compensation accrual
related to the Chairmans retirement and the quarter ended December 31, 2004 includes a $0.6
million reversal of part of this accrual related to life insurance premiums to be paid directly
to the insurer over the policy period rather than to the insured in a lump sum.
(2)
The quarters ended December 31, 2003 and September 30, 2003 include a net gain of $0.2 million
and $1.9 million related to the partial recognition of the sale of the Eveleth, Minnesota and
Scottsbluff, Nebraska facilities, respectively. In addition, the quarters ended September 30,
2004, June 30, 2004 and March 31, 2004 include a net gain of $2.8 million related to the sale
of the Hays, Kansas facility, $1.6 million related to the sales of the Eveleth, Minnesota
facility and the parcel of land at our Pikeville, Kentucky facility; and $2.7 million related
to the sale of the Klamath Falls, Oregon facility, respectively.
(3)
The Net (gain) loss on disposal of property and equipment of $0.1 million and $0.1 million were
previously reported in Other income (expense) in our quarterly reports on Form 10-Q for the
quarters ended June 30, 2003 and March 31, 2003, respectively.
(4)
The quarter ended December 31, 2004 includes a net gain on insurance settlement of $5.4 million.
(5)
The quarters ended December 31, 2004, December 31, 2003 and September 30, 2003 include
reversals of restructuring and other charges of $0.1 million, $0.4 million and $0.2 million,
respectively.
(6)
The quarter ended December 31, 2004 includes a $0.7 million charge associated with the
impairment of long-lived assets.
(7)
Net income (loss) per basic and diluted share are computed independently for each of the
quarters presented and therefore may not sum to the total for the year.
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Payments Due By Period
Less Than 1
Total
Year
1 - 3 Years
4 - 5 Years
After 5 Years
$
51,546
$
14,375
$
14,271
$
7,331
$
15,569
478
478
26,819
14,315
12,504
21
21
$
78,864
$
29,189
$
26,775
$
7,331
$
15,569
(1)
Amounts represent the expected cash payments of our operating leases as discussed in Note 17
to the Consolidated Financial Statements.
(2)
Amounts represent the expected cash payments in connection with the 2002 and 2000
restructuring plans as discussed in Note 15 to the Consolidated Financial Statements.
(3)
Purchase obligations include agreements to purchase goods or services that are enforceable
and legally binding on us and that specify all significant terms, including: fixed or minimum
quantities to be purchased; fixed, minimum or variable price provisions; and the approximate
timing of the transaction. Purchase obligations exclude agreements that are cancelable without
penalty.
(4)
Other long-term liabilities, which exclude deferred income taxes, represent the expected cash
payments due minority shareholders of certain subsidiaries and others.
§
We recognize revenue pursuant to applicable accounting standards, including SEC Staff
Accounting Bulletin (SAB) No. 101 (SAB 101),
Revenue Recognition in Financial Statements,
SAB 104,
Revenue Recognition
and the Emerging Issues Task force (EITF) No. 00-21,
Revenue
Arrangements with Multiple Deliverables.
SAB 101, as amended, and SAB 104 summarize certain
of the SEC staffs views in applying generally accepted accounting principles to revenue
recognition in financial statements and provides guidance on revenue recognition issues in the
absence of authoritative literature addressing a specific arrangement or a specific industry.
EITF No. 00-21 provides further guidance on how to account for multiple element contracts.
We recognize revenue from services as the services are performed under a fully executed
contractual agreement and record estimated reductions to revenue for penalties and holdbacks for
failure to meet specified minimum service levels and other performance based contingencies.
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,
which relies on estimates of total expected revenue and related costs. Revisions to these
estimates, which could result in adjustments to fixed price contracts and estimated losses, are
recorded in the period when such adjustments or losses are known. Product sales are recognized
upon shipment to the customer and satisfaction of all obligations.
We recognize revenue from licenses of our software products and rights when the agreement has
been executed, the product or right has been delivered or provided, collectibility is probable
and the software license fees or
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rights are fixed and determinable. If any portion of the license fees or rights is subject to
forfeiture, refund or other contractual contingencies, we postpone revenue recognition until
these contingencies have been removed. Revenue from support and maintenance activities is
recognized ratably over the term of the maintenance period and the unrecognized portion is
recorded as deferred revenue.
Certain contracts to sell our products and services contain multiple elements or non-standard
terms and conditions. As a result, we evaluate each contract and a thorough contract
interpretation is sometimes required to determine the appropriate accounting, including whether
the deliverables specified in a multiple element arrangement should be treated as separate units
of accounting for revenue recognition purposes, and if so, how the price should be allocated
among the deliverable elements and the timing of revenue recognition for each element. We
recognize revenue for delivered elements only when the fair values of undelivered elements are
known, uncertainties regarding client acceptance are resolved, and there are no
client-negotiated refund or return rights affecting the revenue recognized for delivered
elements. Changes in the allocation of the sales price between deliverable elements might impact
the timing of revenue recognition, but would not change the total revenue recognized on the
contract.
We recognize revenue associated with the grants of land and the cash grants for the acquisition
of property, buildings and equipment for customer contact management centers over the
corresponding useful lives of the related assets. Should the useful lives of these assets change
for reasons such as the sale or disposal of the property, the amount of revenue recognized would
be adjusted accordingly. Deferred grants totaled $20.6 million as of December 31, 2004. Of the
$20.6 million, $6.7 million is classified as current and the remaining $13.9 million is
classified as non-current. Income from operations included amortization of the deferred grants
of $2.1 million for the year ended December 31, 2004.
§
We maintain allowances for doubtful
accounts of $4.3 million as of December 31,
2004, or 4.8% of receivables, for estimated
losses arising from the inability of our
customers to make required payments. If the
financial condition of our customers were
to deteriorate, resulting in a reduced
ability to make payments, additional
allowances may be required which would
reduce income from operations.
§
As of December 31, 2004, we had net
deferred tax assets of $16.1 million, which
is net of a valuation allowance of $30.4
million. We maintain a valuation allowance
to reduce our deferred tax assets to the
amount that is more likely than not to be
realized. Deferred tax assets are reduced
by a valuation allowance if, based on the
weight of available evidence, both positive
and negative, for each respective tax
jurisdiction, it is more likely than not
that some portion or all of such deferred
tax assets will not be realized. Available
evidence which is considered in determining
the amount of valuation allowance required
includes, but is not limited to, our
estimate of future taxable income and any
applicable tax-planning strategies. As of
December 31, 2004, we determined the
valuation allowance of $30.4 million was
necessary to reduce foreign deferred tax
assets approximately $20.0 million and US
deferred tax assets approximately $10.4
million, where it was more likely than not
that some portion or all of such deferred
tax assets will not be realized. The
recoverability of the remaining net
deferred tax assets of $16.1 million is
dependent upon future profitability within
each tax jurisdiction. As of December 31,
2004, based on our estimates of future
taxable income and any applicable
tax-planning strategies within these tax
jurisdictions, we believe that it is more
likely than not that all of these deferred
tax assets will be realized. (See Note 13
in the accompanying Consolidated Financial
Statements).
§
We hold a minority interest in SHPS,
Incorporated as a result of the sale of a
93.5% ownership interest in June 2000. We
account for the remaining interest at cost,
which was $2.1 million as of December 31,
2004. Fair value is not estimated if there
are no identified events or changes in
circumstances that may have a significant
adverse effect on the fair value of the
investment and it is not practicable to
estimate the fair value of the investment
without incurring excessive costs. We will
record an impairment charge or loss if we
believe the investment has experienced a
decline in value that is other than
temporary. Future adverse changes in market
conditions or poor operating results of the
underlying investment could result in
losses or an inability to recover the
carrying value of the investment and,
therefore, might require an impairment
charge in the future.
§
We review long-lived assets, which had a
carrying value of $88.1 million as of
December 31, 2004, including goodwill and
property and equipment, for impairment
whenever events or changes in circumstances
indicate that the carrying value of an
asset may not be recoverable and at least
annually for impairment testing of
goodwill. An asset is considered to be
impaired when the carrying amount exceeds
the fair value. Upon determination that the
carrying value of the asset is impaired, we
would record an impairment charge or loss
to reduce the asset to its fair value.
Future adverse changes in market conditions
or poor operating results of the underlying
investment could result in losses or an
inability to recover the carrying value of
the investment and, therefore, might require an impairment charge in the future.
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§
Self-insurance related liabilities of $1.7
million as of December 31, 2004 include
estimates for, among other things,
projected settlements for known and
anticipated claims for workers
compensation and employee health insurance.
Key variables in determining such estimates
include past claims history, number of
covered employees and projected future
claims. We periodically evaluate and, if
necessary, adjust the estimates based on
information currently available. Revisions
to these estimates, which could result in
adjustments to the liability and additional
charges, would be recorded in the period
when such adjustments or charges are known.
Table of Contents
Table of Contents
Table of Contents
Sykes Enterprises, Incorporated
Tampa, Florida
March 22, 2005
Table of Contents
Table of Contents
(1)
Consolidated Financial Statements
The Index to Consolidated Financial Statements is set forth on page 44 of this report.
(2)
Financial Statements Schedule
Schedule II Valuation and Qualifying Accounts is set forth on page 76 of this report.
(3)
Exhibits:
Exhibit
Number
Exhibit Description
Articles of Merger between Sykes Enterprises, Incorporated, a North Carolina Corporation, and Sykes
Enterprises, Incorporated, a Florida Corporation, dated March 1, 1996.
(1)
Articles of Merger between Sykes Enterprises, Incorporated and Sykes Realty, Inc.
(1)
Shareholder Agreement dated December 11, 1997, by and among Sykes Enterprises, Incorporated and
HealthPlan Services Corporation.
(2)
Stock Purchase Agreement, dated September 1, 1998, between Sykes Enterprises, Incorporated and
HealthPlan Services
Corporation.
(4)
Merger Agreement, dated as of June 9, 2000, among Sykes Enterprises, Incorporated, SHPS, Incorporated,
Welsh Carson Anderson and Stowe, VIII, LP (WCAS) and Slugger Acquisition Corp.
(11)
Share Purchase Agreement, dated as of March 1, 2005, among Sykes Canada Corporation and the
shareholders of Kelly, Luttmer & Associates Ltd and 765448 Alberta Limited.
Articles of Incorporation of Sykes Enterprises, Incorporated, as amended.
(5)
Articles of Amendment to Articles of Incorporation of Sykes Enterprises, Incorporated, as amended.
(6)
Bylaws of Sykes Enterprises, Incorporated, as amended.
Specimen certificate for the Common Stock of Sykes Enterprises, Incorporated.
(1)
1996 Employee Stock Option Plan.
(1)*
Amended and Restated 1996 Non-Employee Director Stock Option Plan.
(12)*
1996 Non-Employee Directors Fee Plan.
(1)*
2004 Non-Employee Directors Fee Plan.
(23)*
Form of Split Dollar Plan Documents.
(1)*
Form of Split Dollar Agreement.
(1)*
Form of Indemnity Agreement between Sykes Enterprises, Incorporated and directors & executive officers.
(1)
Tax Indemnification Agreement between Sykes Enterprises, Incorporated and John H. Sykes.
(1)*
1997 Management Stock Incentive Plan.
(3)*
Table of Contents
Exhibit
Number
Exhibit Description
1999 Employees Stock Purchase Plan.
(7)*
2000 Stock Option Plan.
(8)*
2001 Equity Incentive Plan.
(13)*
Deferred Compensation Plan
*
2004 Non-Employee Director Stock Option Plan
(21)*
Amended and Restated Executive Employment Agreement dated as of October 1, 2001 between Sykes
Enterprises, Incorporated and John H. Sykes.
(15)*
Founders Retirement and Consulting Agreement dated December 10, 2004 between Sykes Enterprises,
Incorporated and John H. Sykes.
(24)*
Stock Option Agreement dated as of January 8, 2002, between Sykes Enterprises, Incorporated and John H.
Sykes.
(15)*
Employment Agreement dated as of January 1, 2004, between Sykes Enterprises, Incorporated and Charles
E. Sykes.
(20)*
Amendment Number 1 to Exhibit A of the Employment Agreement between Sykes Enterprises, Incorporated
and Charles E. Sykes dated January 1, 2004.
(23)*
Employment Agreement dated as of August 1, 2004 between Sykes Enterprises, Incorporated and Charles E.
Sykes.
*
Stock Option Agreement dated as of March 15, 2002 between Sykes Enterprises, Incorporated and Charles
E. Sykes.
(16)*
Stock Option Agreement (Performance
Accelerated Option) dated as of March 15, 2002 between Sykes Enterprises, Incorporated and Charles
E. Sykes.
(16)*
Employment Agreement dated as of March 6, 2000 between Sykes Enterprises, Incorporated and David L.
Grimes.
(9)*
Employment Separation Agreement dated November 10, 2000 between Sykes Enterprises, Incorporated and
David L. Grimes.
(10)*
Amended and Restated Employment Agreement dated as of October 1, 2001, between Sykes Enterprises,
Incorporated and W. Michael Kipphut.
(15) *
Employment Agreement dated as of March 6, 2004, between Sykes Enterprises, Incorporated and W. Michael
Kipphut.
(23)*
Employment Agreement dated as of March 6, 2005, between Sykes Enterprises, Incorporated and W. Michael
Kipphut.
(26)*
Stock Option Agreement dated as of October 1, 2001, between Sykes Enterprises, Incorporated and W.
Michael Kipphut.
(15)*
Employment Agreement dated as of March 5, 2004, between Sykes Enterprises, Incorporated and Jenna R.
Nelson.
(20)*
Stock Option Agreement dated as of March 11, 2002 between Sykes Enterprises, Incorporated and Jenna R.
Nelson.
(16)*
Employment Agreement dated as of March 5, 2004, between Sykes Enterprises, Incorporated and Gerry L.
Rogers.
(20)*
Table of Contents
Exhibit
Number
Exhibit Description
Independent Subcontractor Agreement dated as of July 27, 2004 between Sykes Enterprises, Incorporated
and Gerry L. Rogers. *
First Amendment to Independent Subcontractor Agreement dated as of July 27, 2004 between Sykes
Enterprises, Incorporated and Gerry L. Rogers. *
Stock Option Agreement dated as of March 11, 2002 between Sykes Enterprises, Incorporated and Gerry
Rogers.
(16)*
Employment Agreement dated as of April 1, 2003, between Sykes Enterprises, Incorporated and James T.
Holder.
(20)*
Stock Option Agreement dated as of October 1, 2001, between Sykes Enterprises, Incorporated and James
T. Holder.
(15)*
Amended and Restated Employment Agreement dated as of March 6, 2002, between Sykes Enterprises,
Incorporated and Harry A. Jackson, Jr.
(15)*
Employment Separation Agreement, Waiver and Release dated as of June 9, 2003 between Sykes Enterprises,
Incorporated and Harry A. Jackson, Jr.
(19)*
Stock Option Agreement dated as of March 6, 2002 between Sykes Enterprises, Incorporated and Harry A.
Jackson, Jr.
(16)*
Stock Option Agreement dated as of December 23, 2002 between Sykes Enterprises, Incorporated and Harry
A. Jackson, Jr.
(18)*
Employment Agreement dated as of April 1, 2003, between Sykes Enterprises, Incorporated and William N.
Rocktoff.
(20)*
Stock Option Agreement dated as of March 18, 2002 between Sykes Enterprises, Incorporated and William
Rocktoff.
(16)*
Stock Option Agreement dated as of March 18, 2002 between Sykes Enterprises, Incorporated and William
Rocktoff.
(16)*
Employment Separation Agreement dated as of November 5, 2001, between Sykes Enterprises, Incorporated
and Mitchell Nelson.
(15)*
Employment Agreement dated as of September 2, 2003, between Sykes Enterprises, Incorporated and James
C. Hobby.
(20)*
Employment Agreement dated as of January 3, 2005 between Sykes Enterprises, Incorporated and James
Hobby, Jr.
(25)*
Employment Agreement dated as of October 6, 2003, between Sykes Enterprises, Incorporated and Daniel L.
Hernandez.
(20)*
Employment Agreement dated as of June 15, 2004 between Sykes Enterprises, Incorporated and David L.
Pearson.
(23)*
Senior Revolving Credit Facility between SunTrust, Wachovia and BNP Paribas and Sykes Enterprises,
Incorporated dated as of April 5, 2002 and Schedule I-1.
(16)
Amendment No. 1 to Revolving Credit Agreement without exhibits between Sun Trust, Wachovia and BNP
Paribas and Sykes Enterprises, Incorporated dated as of September 30, 2002.
(17)
Amendment No. 2 to Revolving Credit Agreement between SunTrust Bank, Wachovia Bank and BNP Paribas and
Sykes Enterprises, Incorporated dated as of June 30, 2003.
(19)
Table of Contents
Exhibit
Number
Exhibit Description
Credit Agreement Among Sykes Enterprises, Incorporated and Keybank National Association and BNP Paribas
dated March 15, 2004.
(22)
Amendment No. 1 to Credit Agreement Among Sykes Enterprises, Incorporated and Keybank National
Association and BNP Paribas dated October 18, 2004.
Code of Ethics
(21)
List of subsidiaries of Sykes Enterprises, Incorporated.
Consent of Independent Registered Public Accounting Firm.
Power of Attorney relating to subsequent amendments (included on the signature page of this report).
Certification of Chief Executive Officer, pursuant to Rule 13a-14(a).
Certification of Chief Financial Officer, pursuant to Rule 13a-14(a).
Certification of Chief Executive Officer, pursuant to Section 1350.
Certification of Chief Financial Officer, pursuant to Section 1350.
*
Indicates management contract or compensatory plan or arrangement
(1)
Filed as an Exhibit to the Registrants Registration Statement on
Form S-1 (Registration No. 333-2324) and incorporated herein by
reference.
(2)
Filed as Exhibit 2.12 to the Registrants Form 10-K filed with the
Commission on March 16, 1998, and incorporated herein by reference.
(3)
Filed as Exhibit 10 to the Registrants Form 10-Q filed with the
Commission on July 28, 1998, and incorporated herein by reference.
(4)
Filed as Exhibit 2.1 to the Registrants Current Report on Form 8-K
filed with the Commission on September 25, 1998, and incorporated
herein by reference.
(5)
Filed as Exhibit 3.1 to the Registrants Registration Statement on
Form S-3 filed with the Commission on October 23, 1997, and
incorporated herein by reference.
(6)
Filed as Exhibit 3.2 to the Registrants Form 10-K filed with the
Commission on March 29, 1999, and incorporated herein by reference.
(7)
Filed as Exhibit 10.19 to the Registrants Form 10-K filed with the
Commission on March 29, 1999, and incorporated herein by reference.
(8)
Filed as Exhibit 10.23 to the Registrants Form 10-K filed with the
Commission on March 29, 2000, and incorporated herein by reference.
(9)
Filed as Exhibit 10.3 to the Registrants Form 10-K filed with the
Commission on March 29, 2000, and incorporated herein by reference.
(10)
Filed as Exhibit 10.29 to the Registrants Form 10-K filed with the
Commission on March 27, 2001, and incorporated herein by reference.
(11)
Filed as Exhibit 2.1 to the Registrants Current Report on Form 8-K
filed with the Commission on July 17, 2000, and incorporated herein
by reference.
(12)
Filed as Exhibit 10.12 to Registrants Form 10-Q filed with the
Commission on May 7, 2001, and incorporated herein by reference.
(13)
Filed as Exhibit 10.32 to Registrants Form 10-Q filed with the
Commission on May 7, 2001, and incorporated herein by reference.
(14)
Filed as Exhibit 10.33 to Registrants Form 10-Q filed with the
Commission on August 14, 2001, and incorporated herein by reference.
(15)
Filed as an Exhibit to Registrants Form 10-K filed with the
Commission on March 15, 2002, and incorporated herein by reference
(16)
Filed as an Exhibit to Registrants Form 10-Q filed with the
Commission on May 10, 2002, and incorporated herein by reference.
(17)
Filed as an Exhibit to Registrants Form 10-Q filed with the
Commission on November 14, 2002, and incorporated herein by
reference.
Table of Contents
(18)
Filed as an Exhibit to Registrants Form 10-K filed with the
Commission on March 24, 2003, and incorporated herein by reference.
(19)
Filed as an Exhibit to Registrants Form 10-Q filed with the
Commission on August 11, 2003, and incorporated herein by reference.
(20)
Filed as an Exhibit to Registrants Form 10-K filed with the
Commission on March 10, 2004, and incorporated herein by reference.
(21)
Filed as an Exhibit to Registrants Proxy Statement for the 2004
annual meeting of shareholders filed with the Commission April 6,
2004.
(22)
Filed as an Exhibit to the Registrants Current Report on Form 8-K
filed with the Commission on March 29, 2004, and incorporated herein by reference.
(23)
Filed as an Exhibit to Registrants Form 10-Q filed with the
Commission on August 9, 2004, and incorporated herein by reference.
(24)
Filed as an Exhibit to the Registrants Current Report on Form 8-K
filed with the Commission on December 16, 2004, and incorporated
herein by reference.
(25)
Filed as an Exhibit to the Registrants Current Report on Form 8-K
filed with the Commission on January 7, 2005, and incorporated herein
by reference.
(26)
Filed as an Exhibit to the Registrants Current Report on Form 8-K
filed with the Commission on March 8, 2005, and incorporated herein
by reference.
Table of Contents
SYKES ENTERPRISES, INCORPORATED
(Registrant)
By:
/s/ W. Michael Kipphut
W. Michael Kipphut,
Senior Vice President and Chief Financial Officer
Signature
Title
Date
Chairman of the Board
March 22, 2005
Vice Chairman of the Board
March 22, 2005
President and Chief Executive Officer and
March 22, 2005
Director (Principal Executive Officer)
Director
March 22, 2005
Director
March 22, 2005
Director
March 22, 2005
Director
March 22, 2005
H. Parks Helms
Director
March 22, 2005
Director
March 22, 2005
Director
March 22, 2005
Director
March 22, 2005
Table of Contents
Page No.
45
46
47
48
49
50
Table of Contents
Sykes Enterprises, Incorporated
Tampa, Florida
March 22, 2005
Table of Contents
December 31,
(In thousands, except per share data)
2004
2003
$
93,868
$
92,085
90,661
82,415
9,126
11,813
9,742
203,397
186,313
82,891
107,194
5,224
5,085
21,014
19,583
$
312,526
$
318,175
$
$
87
13,693
17,706
30,316
30,869
6,740
2,965
4,921
13,284
14,226
66,998
67,809
13,921
27,369
19,054
19,835
2,518
2,330
102,491
117,343
438
438
163,885
163,511
92,327
81,513
4,871
(208
)
261,521
245,254
(51,486
)
(44,422
)
210,035
200,832
$
312,526
$
318,175
Table of Contents
Years Ended December 31,
(In thousands, except per share data)
2004
2003
2002
$
466,713
$
480,359
$
452,737
300,600
309,489
287,141
165,232
161,743
155,547
(6,915
)
(1,595
)
(945
)
(5,378
)
(113
)
(646
)
20,814
690
1,475
454,116
468,991
464,032
12,597
11,368
(11,295
)
(13,800
)
1,672
1,266
517
1,592
1,322
132
3,264
2,588
(13,151
)
15,861
13,956
(24,446
)
4,399
5,707
2,790
648
(1,056
)
(8,605
)
5,047
4,651
(5,815
)
$
10,814
$
9,305
$
(18,631
)
$
0.27
$
0.23
$
(0.46
)
$
0.27
$
0.23
$
(0.46
)
39,607
40,300
40,405
39,722
40,441
40,405
Table of Contents
Accumulated
Common Stock
Additional
Other
Shares
Paid-in
Retained
Comprehensive
Treasury
(In thousands)
Issued
Amount
Capital
Earnings
Income (Loss)
Stock
Total
43,300
$
433
$
160,907
$
90,839
$
(20,212
)
$
(40,755
)
$
191,212
191
2
984
986
226
226
(559
)
(559
)
(18,631
)
9,111
(9,520
)
43,491
435
162,117
72,208
(11,101
)
(41,314
)
182,345
280
3
1,166
1,169
228
228
(3,108
)
(3,108
)
9,305
10,893
20,198
43,771
438
163,511
81,513
(208
)
(44,422
)
200,832
61
342
342
32
32
(7,064
)
(7,064
)
10,814
5,079
15,893
43,832
$
438
$
163,885
$
92,327
$
4,871
$
(51,486
)
$
210,035
Table of Contents
Years Ended December 31,
(In thousands)
2004
2003
2002
$
10,814
$
9,305
$
(18,631
)
30,237
30,125
34,338
690
1,475
(113
)
(646
)
20,814
13,800
648
(1,056
)
(8,605
)
32
228
226
(6,915
)
(1,595
)
(945
)
(5,378
)
1,684
267
441
1,472
(680
)
(8,699
)
(2,939
)
20,891
835
(1,520
)
2,758
13
(729
)
(113
)
(4,797
)
1,940
(2,134
)
1,446
9,057
2,122
(1,698
)
(5,141
)
(2,038
)
(1,372
)
(3,113
)
(18,052
)
(2,931
)
(136
)
(3,946
)
(348
)
3
(121
)
13,735
34,224
43,311
(25,665
)
(29,273
)
(20,203
)
(1,901
)
9,663
2,411
2,000
99
212
244
6,940
(8,963
)
(26,650
)
(19,860
)
(1,600
)
1,600
(86
)
(45
)
(42
)
71
342
1,169
986
(7,064
)
(3,108
)
(559
)
(6,808
)
(1,913
)
385
3,819
6,944
5,642
1,783
12,605
29,478
92,085
79,480
50,002
$
93,868
$
92,085
$
79,480
$
430
$
460
$
1,155
$
11,216
$
9,708
$
10,531
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Years Ended December 31,
2004
2003
2002
$
10,814
$
9,305
$
(18,631
)
(404
)
(1,887
)
(11,163
)
$
10,410
$
7,418
$
(29,794
)
$
0.27
$
0.23
$
(0.46
)
$
0.26
$
0.18
$
(0.74
)
$
0.27
$
0.23
$
(0.46
)
$
0.26
$
0.18
$
(0.74
)
Table of Contents
Cash, Accounts Receivable and Accounts Payable. The carrying amounts reported in the
balance sheet for cash, accounts receivable and accounts payable approximates their fair
values.
Long-Term Debt. The fair value of the Companys 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 Companys long-term debt
approximates fair value.
Table of Contents
Table of Contents
Table of Contents
December 31,
2004
2003
$
89,950
$
77,190
3,255
6,396
1,749
3,071
94,954
86,657
4,293
4,242
$
90,661
$
82,415
December 31,
2004
2003
$
2,326
$
4,312
2,080
2,775
1,334
1,089
1,086
1,273
560
588
499
132
1,241
1,644
$
9,126
$
11,813
December 31,
2004
2003
$
1,352
$
9,124
7,931
114
18,521
8,779
$
9,742
$
Table of Contents
December 31,
2004
2003
$
2,578
$
6,244
48,872
59,901
173,281
179,331
9,442
8,322
464
365
1,749
737
236,386
254,900
153,495
147,706
$
82,891
$
107,194
Amount
$
78
3,893
3,971
(3,791
)
$
180
December 31,
2004
2003
$
16,318
$
14,949
2,089
2,089
2,607
2,545
$
21,014
$
19,583
Table of Contents
December 31,
2004
2003
$
14,582
$
12,768
6,754
7,676
5,498
5,874
3,482
4,551
$
30,316
$
30,869
December 31,
2004
2003
$
3,898
$
4,508
2,981
2,307
1,417
1,182
1,088
1,179
610
501
285
887
209
552
2,796
3,110
$
13,284
$
14,226
December 31,
2004
2003
$
$
87
87
87
$
$
Table of Contents
Accumulated
Other
Comprehensive
Income (Loss)
$
(20,212
)
9,111
(11,101
)
10,893
(208
)
5,713
(634
)
$
4,871
Years Ended December 31,
2004
2003
2002
$
(14,585
)
$
(14,013
)
$
(35,662
)
30,446
27,969
11,216
$
15,861
$
13,956
$
(24,446
)
Table of Contents
Years Ended December 31,
2004
2003
2002
$
(1,777
)
$
(1,279
)
$
(4,628
)
(295
)
(212
)
(569
)
6,471
7,198
7,987
4,399
5,707
2,790
1,093
(1,532
)
(5,126
)
280
(692
)
(452
)
(725
)
1,168
(3,027
)
648
(1,056
)
(8,605
)
$
5,047
$
4,651
$
(5,815
)
Years Ended December 31,
2004
2003
2002
$
3,110
$
(2,163
)
$
(1,609
)
(8,337
)
(8,765
)
(16,164
)
5,302
(1,775
)
974
(832
)
1,942
2,978
237
966
202
(191
)
10,668
4,612
1,359
(1,929
)
402
$
648
$
(1,056
)
$
(8,605
)
Years Ended December 31,
2004
2003
2002
$
5,551
$
4,885
$
(8,556
)
(350
)
(438
)
(980
)
(1,918
)
(2,763
)
(1,393
)
1,189
5,595
4,615
(1,654
)
(2.529
)
(181
)
1,789
143
680
(391
)
879
520
(439
)
(371
)
$
5,047
$
4,651
$
(5,815
)
Table of Contents
December 31,
2004
2003
$
3,223
$
5,705
44,029
35,692
10,198
19,471
2,393
1,561
(30,391
)
(30,582
)
1,620
29,452
33,467
(2,073
)
(1,445
)
(8,774
)
(12,745
)
(2,500
)
(2,263
)
(98
)
(13,347
)
(16,551
)
$
16,105
$
16,916
$
2,326
$
4,312
16,318
14,949
(42
)
(18
)
(2,497
)
(2,327
)
$
16,105
$
16,916
Table of Contents
Table of Contents
Balance at
Other
Balance at
January 1,
Cash
Non-Cash
December 31,
2004
Outlays
Changes
(2)
2004
(1)
$
106
$
$
$
106
342
(301
)
(41
)
545
(188
)
(72
)
285
$
993
$
(489
)
$
(113
)
$
391
Balance at
Other
Balance at
January 1,
Cash
Non-Cash
December 31,
2003
Outlays
Changes
2003
(1)
$
4,696
$
(3,816
)
$
(774
)
(3)
$
106
1,827
(1,585
)
100
(4)
342
1,852
(1,512
)
205
(5)
545
$
8,375
$
(6,913
)
$
(469
)
$
993
Balance at
Other
Balance at
January 1,
2002
Cash
Non-Cash
December 31,
2002
Charges
Outlays
Changes
2002
$
$
5,012
$
(316
)
$
$
4,696
1,827
1,827
12,017
(12,017
)
1,958
(106
)
1,852
$
$
20,814
$
(422
)
$
(12,017
)
$
8,375
(1)
Included in Other accrued expenses and current liabilities in the
accompanying Consolidated Balance Sheets, except $0.1 million of
severance and related costs which is included in Accrued employee
compensation and benefits.
(2)
During 2004, the Company reversed $0.1 million related to the
remaining lease termination and closing costs for two of its European
customer contact management centers and one European fulfillment
center.
(3)
During 2003, the Company reversed $0.8 million of the severance
accrual related to the final termination settlement for the closure of
two of its European customer contact management centers and one
European fulfillment center.
(4)
During 2003, the Company recorded $0.1 million in additional lease
termination costs primarily related to the final settlement of the
lease for one of its European customer contact management centers.
(5)
During 2003, the Company recorded $0.3 million in additional site
closure costs related to one of its European customer contact
management centers offset by $0.1 million for the reversal of the
remaining site closure costs for its Galashiels, Scotland print
facility and its Scottsbluff, Nebraska facility, which were both sold
in 2003.
Table of Contents
Balance at
Other
Balance at
January 1,
Cash
Non-Cash
December 31,
2003
Outlays
Changes
(1)
2003
$
153
$
(153
)
$
$
161
(121
)
(40
)
32
(15
)
(17
)
$
346
$
(289
)
$
(57
)
$
Balance at
Other
Balance at
January 1,
Cash
Non-Cash
December 31,
2002
Outlays
Changes
2002
$
1,423
$
(1,270
)
$
$
153
1,355
(1,397
)
203
(2)
161
3,220
(3,220
)
292
(260
)
32
$
6,290
$
(2,927
)
$
(3,017
)
$
346
Balance at
Other
Balance at
January 1,
2001
Cash
Non-Cash
December 31,
2001
Charges
Outlays
Changes
2001
$
$
1,456
$
(33
)
$
$
1,423
1,426
(71
)
1,355
8,826
(5,606
)
3,220
2,600
(2,600
)
292
292
14,600
(104
)
(8,206
)
6,290
1,480
(1,480
)
$
$
16,080
$
(104
)
$
(9,686
)
$
6,290
(1)
During 2003, the Company reversed accruals related to the final
settlement of lease termination and other costs.
(2)
During 2002, the Company recorded $0.2 million in additional lease
termination costs related to one of the European customer contact
management centers.
Table of Contents
Balance at
Other
Balance at
January 1,
Cash
Non-Cash
December 31,
2004
Outlays
Changes
2004
(1)
$
588
$
(501
)
$
$
87
$
588
$
(501
)
$
$
87
Balance at
Other
Balance at
January 1,
Cash
Non-Cash
December 31,
2003
Outlays
Changes
2003
(1)
$
1,053
$
(465
)
$
$
588
120
(120
)
(2)
$
1,173
$
(465
)
$
(120
)
$
588
Balance at
Other
Balance at
January 1,
Cash
Non-Cash
December 31,
2002
Outlays
Changes
2002
$
1,485
$
(646
)
$
214
(3)
$
1,053
143
(23
)
120
$
1,628
$
(669
)
$
214
$
1,173
Balance at
Other
Balance at
January 1,
Cash
Non-Cash
December 31,
2001
Outlays
Changes
2001
$
3,062
$
(1,288
)
$
(289
)
(4)
$
1,485
1,288
(1,145
)
143
718
(718
)
$
5,068
$
(3,151
)
$
(289
)
$
1,628
Table of Contents
Balance at
Other
Balance at
January 1,
2000
Cash
Non-Cash
December 31,
2000
Charges
Outlays
Changes
2000
$
$
3,974
$
(912
)
$
$
3,062
5,404
(4,116
)
1,288
14,191
(14,191
)
6,086
(6,086
)
813
(95
)
718
$
$
30,468
$
(5,123
)
$
(20,277
)
$
5,068
(1)
Included in Accrued employee
compensation and benefits in the accompanying Consolidated Balance
Sheets.
(2)
During 2003, the Company reversed accruals related to the final settlement of lease termination costs.
(3)
During 2002, the Company recorded $0.2 million in additional severance and related costs primarily
due to delays in closing its U.S. fulfillment center, which increased the cash outlay requirements
for severance.
(4)
During 2001, the Company reduced the original severance accrual by $0.3 million for severance
payments due to the Companys former president.
Years Ended December 31,
2004
2003
2002
39,607
40,300
40,405
115
141
39,722
40,441
40,405
Table of Contents
Total
Year
Amount
$
14,375
9,230
5,041
3,664
3,667
15,569
$
51,546
Total
Year
Amount
$
14,315
12,504
$
26,819
Table of Contents
Weighted
Average
Shares
Exercise
(In thousands)
Price
2,740
$
14.35
2,052
$
8.76
(124
)
$
4.15
(1,168
)
$
17.57
3,500
$
10.39
163
$
5.80
(195
)
$
4.23
(307
)
$
10.40
3,161
$
10.54
$
(36
)
$
4.56
(348
)
$
14.53
2,777
$
10.12
Table of Contents
Number
Weighted
Weighted
Number
Weighted
Outstanding at
Average
Average
Exercisable at
Average
Range of
Dec. 31, 2004
Remaining
Exercise
Dec. 31, 2004
Exercise
Exercise Prices
(In thousands)
Life (Years)
Price
(In thousands)
Price
71
8.0
$
3.17
35
$
3.17
449
6.7
$
4.94
419
$
4.88
226
6.8
$
8.40
126
$
8.41
1,600
7.0
$
9.31
1,485
$
9.26
199
5.3
$
16.37
199
$
16.37
232
3.2
$
24.22
232
$
24.22
2,777
6.6
$
10.12
2,496
$
10.35
Table of Contents
Table of Contents
Consolidated
Americas
EMEA
Other
(1)
Total
$
283,253
$
183,460
$
466,713
22,042
8,195
30,237
$
30,960
$
10,478
$
(28,264
)
$
13,174
113
113
(690
)
(690
)
12,597
3,264
3,264
(5,047
)
(5,047
)
$
10,814
$
321,195
$
159,164
$
480,359
21,184
8,941
30,125
$
31,607
$
2,497
$
(23,382
)
$
10,722
646
646
11,368
2,588
2,588
(4,651
)
(4,651
)
$
9,305
$
299,185
$
153,552
$
452,737
23,145
11,193
34,338
$
29,627
$
2,401
$
(21,034
)
$
10,994
(20,814
)
(20,814
)
(1,475
)
(1,475
)
(11,295
)
(13,151
)
(13,151
)
5,815
5,815
$
(18,631
)
(1)
Other items (including corporate costs, restructuring and
impairment costs, other income and expense, and income taxes) are
shown for purposes of reconciling to the Companys consolidated
totals as shown in the table above for the three years in the
period ended December 31, 2004. The accounting policies of the
reportable segments are the same as those described in Note 1,
Summary of Accounting Policies, to the accompanying consolidated
financial statements. Inter-segment revenues are not material to
the Americas and EMEA segment results. The Company evaluates the
performance of its geographic segments based on revenue and income
(loss) from operations, and does not include segment assets or
other income and expense items for management reporting purposes.
Table of Contents
Table of Contents
Years Ended December 31,
2004
2003
2002
$
85,556
$
173,984
$
197,914
69,045
66,147
57,297
36,595
28,017
19,992
79,060
45,550
21,534
12,997
7,497
2,448
283,253
321,195
299,185
59,941
59,706
57,191
52,073
40,500
48,976
24,704
23,814
24,682
11,912
4,579
427
9,406
10,683
9,089
10,722
7,469
4,340
14,702
12,413
8,847
183,460
159,164
153,552
$
466,713
$
480,359
$
452,737
$
29,572
$
56,172
$
71,667
10,286
10,340
8,831
4,816
6,813
3,966
18,102
13,181
4,857
5,734
4,776
1,716
68,510
91,282
91,037
5,043
6,119
6,604
7,137
7,767
9,537
639
1,112
1,428
1,775
1,471
1,339
353
602
1,671
2,741
2,310
1,039
1,917
1,616
1,797
19,605
20,997
23,415
$
88,115
$
112,279
$
114,452
(1)
Revenues are attributed to countries based on location of customer,
except for Costa Rica, Philippines, China and India which is primarily
based on customers located in the U.S.
(2)
Long-lived assets include property and equipment, net and goodwill, net.
Years Ended December 31,
2004
2003
2002
$
455,468
$
465,678
$
428,081
11,245
14,681
24,656
$
466,713
$
480,359
$
452,737
Table of Contents
Table of Contents
Additions
Balance at
Charged to
Balance at
Beginning
Costs and
End of
of Period
Expenses
Deductions
Period
$
4,242
$
267
$
216
(1)
$
4,293
5,102
441
1,301
(1)
4,242
4,183
1,472
553
(1)
5,102
$
30,582
$
$
191
$
30,391
19,914
10,668
30,582
15,302
4,612
19,914
(1)
Net write-offs and recoveries.
EXECUTION COPY
Exhibit 2.6
SHARE PURCHASE AGREEMENT
THIS AGREEMENT made the 1st day of March, 2005.
BETWEEN:
SYKES CANADA CORPORATION, a company amalgamated under the laws of the province of Nova Scotia company (hereinafter referred to as the "Purchaser")
OF THE FIRST PART
- and -
THE PERSONS LISTED IN SCHEDULE A ATTACHED HERETO, being the vendors of shares in the capital of the Company (as defined below) (hereinafter collectively referred to as the "KLA Vendors")
OF THE SECOND PART
- and -
THE PERSONS LISTED IN SCHEDULE A ATTACHED HERETO, being the vendors of shares in the capital of 765448 (as defined below) (hereinafter collectively referred to as the "765448 Vendors")
OF THE THIRD PART
- and -
KELLY, LUTTMER & ASSOCIATES LTD., a corporation incorporated under the laws of the Province of Alberta, (hereinafter referred to as the "Company")
OF THE FOURTH PART
- and -
765448 ALBERTA LIMITED, a corporation incorporated under the laws of the Province of Alberta, (hereinafter referred to as "765448")
OF THE FIFTH PART
RECITALS:
A. Pursuant to a letter of intent dated November 24, 2004, and accepted as of December 16, 2004, the Purchaser indicated its intention to purchase, and the Vendors
-Page 2- EXECUTION COPY
indicated their intention to sell or procure the sale of, all of the issued and outstanding shares of the Company;
B. At the Closing Date, the issued and outstanding share capital of the Company shall consist of 62,001 common shares;
C. At the Closing Date, the issued and outstanding share capital of 765448 shall consist of 100 Class A, 10 Class B and 10 Class C common shares;
D. At the Closing Date, 765448 and the KLA Vendors will be the legal and beneficial owners of the issued and outstanding shares in the capital of the Company in the numbers set out opposite their respective names in Schedule A hereto;
E. At the Closing Date, the 765448 Vendors will be the legal and beneficial owners of all of the issued and outstanding shares in the capital of 765448 in the numbers set out opposite their respective names in Schedule A hereto;
F. The KLA Vendors and the 765448 Vendors have agreed to sell to the Purchaser and the Purchaser has agreed to purchase from them all of the shares in the capital of the Company and all of the shares in the capital of 765448 held by them upon and subject to the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the premises and mutual agreements herein contained and of other good and valuable consideration (the receipt and sufficiency of which are acknowledged by each Party hereto), the Parties agree with one another as follows:
1. INTERPRETATION
1.1. DEFINITIONS
Whenever used in this Agreement, unless there is something in the subject matter or context inconsistent therewith, the following words and terms shall have the respective meanings ascribed to them in this Section 1.1:
1.1.1. "765448 SHARES" means all of the issued and outstanding shares or other securities in the capital of 765448, to be sold to the Purchaser by the 765448 Vendors as described herein and in Schedule A hereto;
1.1.2. "ACT" means the Business Corporations Act (Alberta) as in effect from time to time;
1.1.3. "ACCOUNTS RECEIVABLE" means any and all accounts receivable, bills receivable, trade accounts, book debts and insurance claims recorded as receivable in the books and records of the Company, and any amount due from third parties to the Company in connection with the Business, including any refunds and rebates receivable in connection with the Business, and the benefit of all security (including cash
-Page 3- EXECUTION COPY
deposits), guarantees and other collateral held by the Company in connection with the Business;
1.1.4. "AGREEMENT" means this agreement and all schedules attached to this agreement, in each case as they may be amended or supplemented from time to time, and the expressions "hereof", "herein", "hereto", "hereunder", "hereby" and similar expressions refer to this agreement and unless otherwise indicated, references to Articles and Sections are to Articles and Sections in this agreement;
1.1.5. "ANCILLARY AGREEMENTS" means collectively, the Non-Competition Agreements, the Employment Agreements and the Holdback Agreement;
1.1.6. "ARM'S LENGTH" will have the meaning ascribed to such term under the Income Tax Act (Canada);
1.1.7. "ARTICLES" means the articles of amalgamation of the Company dated October 1, 2003;
1.1.8. "AUDITORS" means collectively, the Company's Auditors and the Purchaser's Auditors;
1.1.9. "BENEFIT PLAN" has the meaning ascribed in Section 4.1.27;
1.1.10. "BUSINESS" means the business and operations of the Company in North America;
1.1.11. "BUSINESS DAY" means any day, other than a Saturday, Sunday or any other day on which the principal chartered banks located in the City of Calgary are not open for business during normal banking hours;
1.1.12. "CLAIM" means any claim, demand, action, suit, litigation, charge, complaint, prosecution or other proceeding for which one Party can seek indemnification from another Party pursuant to Sections 6.1 or 6.2;
1.1.13. "CLOSING" means the completion of the sale to, and the purchase by the Purchaser of, the Shares and the 765448 Shares and the completion of the transactions contemplated by this Agreement, including the transfer and delivery of all documents of title to the Shares and the 765448 Shares and the payment of the Purchase Price;
1.1.14. "CLOSING BALANCE SHEET" means the balance sheet of the Company as
at the day prior to the Closing Date, prepared in accordance with
Section 3.2;
-Page 4- EXECUTION COPY
1.1.15. "CLOSING DATE" means March 1, 2005 or such other date as otherwise agreed in writing by the Purchaser and the Company as the date upon which the closing of the purchase and sale of the Shares and the 765448 Shares shall take place;
1.1.16. "CLOSING DATE WORKING CAPITAL" means the excess of (A) the aggregate of (i) the current assets of the Company and (ii) the costs of the audit of the Financial Statements paid as audit fees to the Company's Auditors and (iii) 50% of the costs of preparation of the Closing Date Balance Sheet over (B) the aggregate of (i) the current liabilities of the Company and (ii) the remaining balance payable on the Demand Note, all as reflected in the Closing Date Balance Sheet;
1.1.17. "CLOSING DOCUMENTS" has the meaning ascribed in Section 7.1.3;
1.1.18. "CLOSING TIME" means 11:00 a.m. (Calgary time) on the Closing Date or such other time on such date as the Parties may agree as the time at which the Closing shall take place;
1.1.19. "COMPANY" means Kelly Luttmer & Associates Limited;
1.1.20. "CONSENT OF THE VENDORS" means the consent in writing of Vendors holding at least 66 2/3% of the Shares and Other Shares (as determined solely in accordance with the information contained in Schedule A);
1.1.21. "CONTRACTS" means those contracts, agreements, commitments, entitlements and engagements of the Company relating to the Business and the assets of the Company (and, for greater certainty, including quotations which are binding on the Company at the Time of Closing, and Equipment Leases) whether with bankers, suppliers, customers or otherwise and including all unfilled orders from customers; all forward commitments for supplies or materials; all orders for new machinery and equipment as yet undelivered; all equipment and construction guarantees and warranties; and negative covenants with employees, all of which are described in Schedule 1.1.21;
1.1.22. "DEMAND NOTE" means the demand promissory note dated June 3, 2003 issued by the Company in favour of TD Canada Trust in the principal amount of $142,000;
1.1.23. "EMPLOYEES" has the meaning ascribed in Section 4.1.17;
1.1.24. "EMPLOYMENT AGREEMENTS" means the employment agreements to be entered into between the Company and each of Glenys Schick and any other Key Employee agreeing to enter into such agreement in accordance with Section 5.6 in the form attached hereto as Schedule 1.1.24;
-Page 5- EXECUTION COPY
1.1.25. "EQUIPMENT LEASES" means those equipment leases, conditional sales contracts, title retention agreements and other agreements between the Company and third persons relating to equipment used by the Company all of which are listed in Schedule 1.1.25;
1.1.26. "ENVIRONMENTAL PERMITS" shall include all orders, permits, certificates, approvals, consents, registrations and licenses issued by any Governmental Authority in relation to Environmental Requirements;
1.1.27. "ENVIRONMENTAL REQUIREMENTS" means all applicable laws, statutes, ordinances, rules, regulations, policies, guidelines, orders, decisions, directives, directions or the like, all having the force of law and specific Licences relating to environmental or related occupational health and safety matters, or transportation matters relating to dangerous goods and waste, all that exist and are in force at the Closing;
1.1.28. "FINANCIAL STATEMENTS" means the financial statements of the Company for the fiscal period ended on September 30, 2004, prepared in accordance with GAAP consistently applied, consisting of a balance sheet as at such date, and statements of earnings and retained earnings and of cash flow for such period, together with notes thereto as at such date;
1.1.29. "GAAP" means Canadian generally accepted accounting principles consistently applied; "generally accepted accounting principles" means the accounting principles stated in the Handbook of the Canadian Institute of Chartered Accountants, applicable as at the date on which any calculation made hereunder is to be effective;
1.1.30. "GOVERNMENTAL AUTHORITY" means any government, whether federal, provincial, state, regional or municipal and any agency, instrumentality or other entity thereof exercising lawful executive, legislative, judicial, regulatory or administrative functions of or pertaining to government;
1.1.31. "HAZARDOUS SUBSTANCE" means any material or substance that is controlled or regulated by any Governmental Authority pursuant to Environmental Requirements including, without limitation, any contaminant, pollutant, dangerous substance, toxic substance, designated substance, controlled product, hazardous waste, subject waste, hazardous material, dangerous goods or petroleum or any of its derivatives, by-products, or other hydrocarbons, all as defined in or pursuant to any Environmental Requirement;
1.1.32. "HOLDBACK AGREEMENT" means the holdback agreement to be entered into among the Purchaser, the Purchaser's Solicitors and the Vendors as to the holding of the Holdback Amount in the form attached as Schedule 1.1.32;
-Page 6- EXECUTION COPY
1.1.33. "HOLDBACK AMOUNT" has the meaning ascribed to it in Section 3.1.2;
1.1.34. "INTELLECTUAL PROPERTY RIGHTS" means all patents and inventions, trade marks, including those described in Schedule 1.1.34, all trade names and styles, logos and designs, trade secrets, technical information, engineering procedures, designs, knowhow and processes (whether confidential or otherwise), software, and other industrial property (including applications for any of these) in each case used or reasonably necessary to permit satisfactory operation of the Business as presently constituted;
1.1.35. "INTERIM PERIOD" means the period from and including the date of this Agreement to and including the Closing Date;
1.1.36. "INVENTORIES" means all inventories of every kind and nature and wheresoever situate owned by the Company and pertaining to the Business;
1.1.37. "KEY EMPLOYEES" has the meaning ascribed thereto in Section 5.6;
1.1.38. "LEASES" means those leases of Real Properties used by the Company in the Business and identified in Schedule 1.1.38;
1.1.39. "LICENCES" means all licences, registrations, qualifications, permits and approvals, issued by any Governmental Authority relating to the Business, including those listed in Schedule 1.1.39, together with all applications for such licenses or permits;
1.1.40. "NON-COMPETITION AGREEMENT" has the meaning ascribed thereto in
Section 5.5;
1.1.41. "OTHER SHARES" means the shares of the Company held by 765448 as at the Closing Time and as described herein and in Schedule A hereto;
1.1.42. "PARTIES" means the Vendors, the Purchaser, the Company and 765448, collectively, and "Party" means any one of them;
1.1.43. "PERMITS" means permits, licenses, approvals and franchises which the Company holds and which are required by the Company to carry on the Business;
1.1.44. "PERMITTED ENCUMBRANCES" means in respect of the Business of the Company:
(a) undetermined or inchoate liens, charges and privileges incidental to current operations, and statutory liens, charges, adverse claims, security interests or encumbrances of any nature whatsoever claimed or held by any Governmental
-Page 7- EXECUTION COPY
Authority that have not, at the Closing Time, been served upon the Company pursuant to law, or that relate to obligations not due or delinquent;
(b) security given in the ordinary course of the Company's Business to any public utility or Governmental Authority in connection with the operations of the Company's Business, other than security for borrowed money; and
(c) liens, charges, encumbrances or security interests that are specifically accounted for in the Financial Statements and fully described (including the amount of the underlying indebtedness) in Schedule 1.1.44;
1.1.45. "PERSON" includes an individual, corporation, partnership, joint venture, trust, unincorporated organization, Government Authority or any agency or instrumentality thereof or any other juridical entity;
1.1.46. "PRICE PER SHARE" has the meaning ascribed to it in Section 3.1;
1.1.47. "PURCHASE PRICE" means the purchase price to be paid by the Purchaser to the Vendors for the Shares and the 765448 Shares, all as provided in Section 3.1;
1.1.48. "PURCHASED SHARES" means the Shares and the 765448 Shares to be sold by the Vendors to the Purchaser pursuant to the terms of this Agreement;
1.1.49. "PURCHASER'S SOLICITORS" means Miller Thomson LLP, 20 Queen Street West, Suite 2500, Toronto, Ontario M5H 3S1, Attention: Robert M. Stewart;
1.1.50. "REAL PROPERTIES" means all real and immoveable properties owned, occupied or used by the Company in connection with the Business, including, without limitation, any real and immoveable properties leased to the Company or used by the Company and all fixtures and improvements attached or affixed to such properties and owned by the Company;
1.1.51. "REASSESSMENT AMOUNT" has the meaning ascribed in Section 6.1.1(b);
1.1.52. "RELATED PERSON" means with respect to a particular Person a Person who is related to the particular Person for the purposes of the Income Tax Act (Canada);
1.1.53. "SETTLEMENT AMOUNT" has the meaning ascribed in Section 6.3.5;
-Page 8- EXECUTION COPY
1.1.54. "SHARES" means all of the issued and outstanding shares or other securities in the capital of the Company (except the Other Shares) as at the Closing Time, as described herein and in Schedule A hereto;
1.1.55. "TAXES" means all taxes, duties, levies, assessments, reassessments, or governmental charges including without limitation income, real or personal property, capital, excise, payroll, franchise, and goods and services taxes imposed by any jurisdiction applicable to the Company and shall include any interest, penalties, and fines;
1.1.56. "THIRD PARTY CLAIM" means, for the purposes of Section 6.3, any demand which has been made on, or communicated to the Vendors or the Purchaser or the Company by or on behalf of any Person other than the Purchaser in the case of the KLA Vendors and the KLA Vendors in the case of the Purchaser, and which, if maintained or enforced, might result in a loss, liability or expense of the nature described in either Section 6.1 or Section 6.2; and
1.1.57. "VENDORS" means collectively the KLA Vendors and the 765448 Vendors; and
1.1.58. "VENDORS' SOLICITORS" means Eeson & Woolstencroft LLP, Suite 500, 603 - 7th Avenue, S.W., Calgary, Alberta T2P 2T5, Attention: Douglas T. McCartney.
1.2. GENDER AND NUMBER
In this Agreement, words importing the singular include the plural and vice versa and words importing gender include all genders.
1.3. ENTIRE AGREEMENT
This Agreement, including all of the schedules hereto, together with the agreements and other documents to be delivered under this Agreement constitute the entire agreement between the Parties pertaining to the subject matter of this Agreement and supersede all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties and there are no warranties, representations or other agreements between the Parties in connection with the subject matter of this Agreement except as specifically set forth in this Agreement.
1.4. NO WAIVER, ETC.
No supplement, modification or amendment to this Agreement and no waiver of any provision of this Agreement shall be binding on the Purchaser unless executed by the Purchaser in writing. No supplement, modification or amendment to this Agreement and no waiver of any provision of this Agreement shall be binding on the Vendors unless provided by Consent of the Vendors. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision (whether
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or not similar) nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.
1.5. SCHEDULES
The following is a list of the schedules attached hereto which are deemed to be incorporated by reference and form an integral part of this Agreement:
SCHEDULE DESCRIPTION -------- ----------- Schedule A List of Vendors Schedule 1.1.21 Contracts Schedule 1.1.24 Employment Agreement Schedule 1.1.25 Equipment Leases Schedule 1.1.32 Holdback Agreement Schedule 1.1.34 Intellectual Property Schedule 1.1.38 Leases Schedule 1.1.39 Licenses Schedule 1.1.44 Encumbrances Schedule 4.1.14 Absence of Changes Schedule 4.1.15 Normal Course Schedule 4.1.17 Employees, Consultants, etc. Schedule 4.1.21(f) Disability Disclosure Schedule 4.1.24 Insurance Schedule 4.1.27 Benefit Plans Schedule 4.1.29 Litigation-Company Schedule 4.1.32 Accounts Receivable Schedule 4.1.33 Environmental Matters Schedule 4.1.34 Consents Schedule 4.1.36 Banks-Company Schedule 4.1.48 Assets Schedule 4.1.52 Powers of Attorney |
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1.6. ARTICLE AND SECTION HEADINGS
Article and Section headings contained in this Agreement are included solely for convenience, are not intended to be full or accurate descriptions of the content of any Article or Section and shall not be considered to be part of this Agreement.
1.7. APPLICABLE LAW
This Agreement shall be governed by and construed in accordance with the laws of the Province of Alberta and the federal laws of Canada applicable in the Province of Alberta and shall be treated, in all respects, as an Alberta contract. Notwithstanding the governing law of this Agreement, each Party to this Agreement irrevocably attorns to and submits to the jurisdiction of the Courts of Alberta with respect to any matter arising under or relating to this Agreement.
1.8. CURRENCY
Unless otherwise indicated, all dollar amounts referred to in this Agreement are in Canadian funds.
1.9. ACCOUNTING TERMS
All accounting terms not otherwise defined have the meanings assigned to them, and all calculations are to be made and all financial data to be submitted are to be prepared, in accordance with Canadian generally accepted accounting principles ("GAAP")
1.10. BUSINESS DAYS
Whenever any action or payment to be taken or made under this Agreement shall be stated to be required to be taken or made on a day other than a Business Day, any payment shall be made or such action shall be taken on the next succeeding Business Day.
1.11. STATUTORY INSTRUMENTS
Unless otherwise specifically provided in this Agreement any reference in this Agreement to any law, by-law, rule, regulation, order, act or statute of any Government Authority shall be construed as a reference to those as amended or re-enacted from time to time or as a reference to any successor to those.
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1.12. KNOWLEDGE
Where any representation and warranty refers to the awareness or the knowledge, information or belief of a Party, the applicable Party undertakes that he, she or it has made full enquiry into the subject matter of that representation and warranty.
2. PURCHASE AND SALE OF SHARES
2.1. PURCHASE AND SALE OF SHARES
Upon and subject to the terms and conditions of this Agreement, the Vendors shall sell, transfer, assign and set over to the Purchaser and the Purchaser shall purchase and acquire from the Vendors at the Closing Time, the Purchased Shares for the Purchase Price payable as provided in Section 3.1.
2.2. NON-ASSIGNABLE CONTRACTS
On or before the Closing Date, the Vendors shall obtain the consents and assignments from third parties as may be necessary under the Contracts, the Leases, the Licenses and the Permits, in connection with the change of control of the Company hereunder. To the extent that any of the foregoing consents or assignments are not obtained as provided in this Section 2.2 for the Contracts, Leases, Licenses and Permits listed in Schedule 1.1.40, the Parties agree that the Purchase Price shall be adjusted to account to the Purchaser for the net overall value of the benefits of those items lost to the Company. In the event that the Purchaser and the Vendors cannot agree on the amount of the adjustment to the Purchase Price, the amount of the adjustment shall be determined by the auditor selected by the Purchaser, and the fees and expenses of such auditor shall be borne equally by the Purchaser, as to 50%, and the Vendors, as to 50%.
2.3. ANCILLARY AGREEMENTS
On Closing, the Parties hereto covenant and agree to enter into the Ancillary Agreements applicable to them.
3. PURCHASE PRICE AND PAYMENT
3.1. PAYMENT OF PURCHASE PRICE
The Parties agree that the Purchase Price shall be an aggregate of $3,720,060, subject to the adjustments provided for in this Agreement. The price for each of the Shares (the "Price Per Share") shall be the result obtained by dividing (A) the Purchase Price by (B) the aggregate of the Shares and the Other Shares. The price for each 765448 Share shall be the result obtained by dividing (A) the product obtained by multiplying the number of Other Shares times the Price Per Share, by (B) the number of 765448 Shares. The Purchase Price will be satisfied:
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3.1.1. by the delivery by the Purchaser of $3,551,436 by wire transferred funds to the Vendors' Solicitors;
3.1.2. by the delivery by the Purchaser to the Purchaser's Solicitors of the balance of the Purchase Price, being the sum of $168,624 (the "Holdback Amount");
3.2. CALCULATION OF WORKING CAPITAL ADJUSTMENT
3.2.1. Immediately following the Closing Date, the Purchaser shall instruct the Company's management and/or the Company's Auditors to prepare in accordance with GAAP and deliver, on or before the 45th day following the Closing Date, the Closing Date Balance Sheet. Before issuing the Closing Date Balance Sheet in final form, the Company's management and/or the Company's Auditors shall submit a final draft to the parties to this Agreement for consideration and comment. The parties to this Agreement agree to comment promptly on the final draft balance sheet, and, in any event, within five (5) days of receiving them. The Purchaser shall be entitled to review the working papers created in connection with the preparation of the Closing Date Balance Sheet within such 5-day period. The Company's management and/or the Company's Auditors shall amend the final draft balance sheet to the extent they consider appropriate in light of the comments of the parties. In making their determination, the Company's Auditors shall act as an expert and not as an arbitrator. The resulting Closing Date Balance Sheet shall be binding on the Purchaser and the Vendors and all other interested Persons.
3.2.2. Notwithstanding anything provided for above the following accounting principles will be applied in preparing the Closing Date Balance Sheet:
(a) all tangible assets of the Company will be valued at actual cost less accumulative depreciation thereon in accordance with general practice with respect to assets of that nature;
(b) the accounts receivable of the Company will be net of an allowance for doubtful accounts established on a basis consistent with the prior practice of the Company;
(c) the value of any benefits lost to the Company resulting from the inability to effectively assign any Contract, Equipment Lease, Lease, or License will be determined and deducted from the Assets of the Company for the purposes of determining the Closing Date Working Capital;
(d) the Closing Date Balance Sheet shall include accrual for employee vacation entitlement; and
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(e) the Closing Date Balance Sheet shall include an accrual for the costs of preparation of the Closing Date Balance Sheet (notwithstanding that such costs may be incurred subsequent to the Closing Date).
3.2.3. Following receipt of the Closing Date Balance Sheet as provided for above, the Purchaser shall calculate the Closing Date Working Capital. In the event that the Closing Date Working Capital is less than the amount of the Holdback then such difference shall be referred to herein as the "Adjusted Amount", and the Purchased Price shall be reduced by an amount equal to the Adjusted Amount and such amount shall be payable by the Vendors to the Purchaser.
3.2.4. In the event that an Adjusted Amount is payable by the Vendors to the Purchaser pursuant to Section 3.2.3, then the Adjusted Amount shall be satisfied from the Holdback and any actual accumulated interest earned thereon, and the balance of the Holdback and any actual accumulated interest earned thereon, outstanding after payment of the Adjusted Amount, will be paid to the Vendors' Solicitors. In the event that the Adjusted Amount exceeds the amount of the Holdback and any actual accumulated interest earned thereon, then the Vendors shall forthwith make payment of such excess amount to the Purchaser.
3.3. DELIVERY OF CERTIFICATES, ETC.
The Vendors shall transfer and deliver to the Purchaser at the Closing Time, share certificates representing the Shares and the 765448 Shares duly endorsed in blank for transfer, or accompanied by irrevocable security transfer powers of attorney duly executed in blank, and shall cause the Company and 765448 to enter the Purchaser or its nominee(s) on the books of the Company and 765448 as the holder of the Shares and the 765448 Shares and to issue one or more share certificates to the Purchaser or its nominee(s) representing the Shares and the 765448 Shares. The Vendors shall also deliver to the Purchaser at the Closing Time, share certificates representing the Other Shares registered in the name of 765448.
3.4. TENDER
Any tender of documents or money hereunder may be made upon the Parties or their respective counsel and money shall be tendered by certified cheque payable in Canadian funds, or by confirmation of the Purchaser's Solicitors that such funds are readily available for withdrawal in such solicitors' trust account.
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4. REPRESENTATIONS AND WARRANTIES
4.1. REPRESENTATIONS AND WARRANTIES OF THE KLA VENDORS
The Vendors hereby jointly and severally (unless expressly stated otherwise) represent and warrant to and covenant with the Purchaser as follows and acknowledge that the Purchaser is relying on these representations and warranties and covenants in entering into this Agreement and the transactions contemplated under this Agreement.
4.1.1. ORGANIZATION AND GOOD STANDING - The Company is a corporation duly incorporated, organized and validly existing in good standing under the laws of the Province of Alberta. The Company is not a partner in any partnership, has not entered into any joint venture and does not hold an interest or security in any other Person.
4.1.2. BANKRUPTCY, ETC. - No bankruptcy, insolvency or receivership proceedings have been instituted or are pending against the Company.
4.1.3. PREVIOUS NAMES - The Corporation was amalgamated with effect as of October 1, 2003 and its corporate predecessors were Kelly Luttmer & Associates Ltd. ("Predecessor KLA") and 1023251 Alberta Ltd. The Company has no other corporate predecessors, previous corporate names or present business name registrations, save and except that, from 1986 to 1990, Predecessor KLA was named "Kelly, Luttmer, Schram & Associates Ltd."
4.1.4. CAPACITY TO CARRY ON BUSINESS - The Company has all necessary corporate power, authority and capacity to own its property and assets and to carry on the Business as presently owned and carried on by it, and the Company is duly licenced, registered and qualified as a corporation to do business in the province of Alberta and all such licences, registrations and qualifications are valid and subsisting and in good standing and none of them contains any burdensome term, provision, condition or limitation which has or may have an adverse effect on the Company.
4.1.5. DUE AUTHORIZATION - The Company has all necessary power, authority and capacity to enter into this Agreement and to perform its obligations under this Agreement; the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary action on the part of the Company. Each of the Vendors, represents on his, her or its own behalf only that each has the capacity to enter into this Agreement and to perform his, her or its respective obligations under this Agreement.
4.1.6. AUTHORIZED AND ISSUED CAPITAL OF THE COMPANY - As at the Closing Time, the authorized capital of the Company consists of an unlimited number each of Class A shares through to Class D shares, inclusive,
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of which the total number of issued and outstanding is 62,001 Class A shares all of which will have been validly issued and will be outstanding as fully paid and non-assessable shares held by the KLA Vendors and 765448. The KLA Vendors and 765448 hold the number of Shares and Other Shares set out opposite their respective names in Schedule A. No options, warrants or other rights for the purchase, subscription or issuance of shares or other securities of the Company or securities convertible into or exchangeable for shares of the Company have been authorized or agreed to be issued or are outstanding. Other than the restrictions contained in the unanimous shareholder agreement of the Corporate dated as of November 1, 2004 and in the articles of amalgamation of the Company, there are no restrictions on the transfer of the Shares or the Other Shares.
4.1.7. TITLE TO SHARES - Each of the KLA Vendors represents on his or her own behalf only that at the Closing Time, he or she will be the legal and beneficial owner of the Shares set forth opposite his or her name in Schedule A. Each of the KLA Vendors represents on his or her own behalf only that on Closing, the Purchaser shall acquire good and marketable title to the respective KLA Vendor's Shares, free and clear of all agreements, mortgages, pledges, charges, hypothecs, claims, liens, security interests, encumbrances and rights of other Persons.
4.1.8. ABSENCE OF CONFLICTING AGREEMENTS - Each of the Vendors on his or her own behalf respectively represent that they are not and the Company is not a party to, bound or affected by or subject to any indenture, mortgage, lease, agreement, instrument, statute, regulation, arbitration award, charter or by-law provisions, order or judgment which would be violated, contravened, breached by, or under which any default would occur as a result of the execution and delivery of this Agreement or the consummation of any of the transactions contemplated under this Agreement.
4.1.9. ABSENCE OF GUARANTEES - The Company has not given or agreed to give, nor is it a party to or bound by, any guarantee of indebtedness or other obligations of third parties nor any other commitment by which the Company is, or is contingently, responsible for such indebtedness or other obligations.
4.1.10. ENFORCEABILITY OF OBLIGATIONS - COMPANY - This Agreement constitutes a valid and binding obligation of the Company enforceable against it in accordance with its terms, provided that enforcement may be limited by bankruptcy, insolvency, liquidation, reorganization, reconstruction and other similar laws generally affecting enforceability of creditors' rights and that equitable remedies such as specific performance and injunction are in the discretion of the court from which they are sought.
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4.1.11. ENFORCEABILITY OF OBLIGATIONS - VENDORS - Each of the Vendors represents that this Agreement constitutes a valid and binding obligation of each Vendor, respectively, enforceable against each in accordance with its terms, provided that enforcement may be limited by bankruptcy, insolvency, liquidation, reorganization, reconstruction and other similar laws generally affecting enforceability of creditors' rights and that equitable remedies such as specific performance and injunction are in the discretion of the court from which they are sought.
4.1.12. BOOKS AND RECORDS - All the books, records and accounts of the Company are in all material respects accurate and complete, accurately reflect all matters normally entered into the books, records or accounts maintained by similar businesses, are in all material respects in accordance with all laws, regulations and rules applicable to the Company and accurately present and reflect in all material respects all of the transactions described therein. The Company has accounting controls sufficient to ensure that its transactions are (i) in all material respects executed in accordance with its management's general or specific authorization and (ii) recorded in conformity with GAAP. At the Closing Date, the minute books will accurately reflect all material actions taken by the directors and shareholders of the Company since the date of its incorporation and the share certificate books, share register, register of shareholders and register of directors and officers will be, at Closing, complete and accurate.
4.1.13. FINANCIAL STATEMENTS AND FINANCIAL POSITION - To the best of the Vendor's knowledge:
(a) the Financial Statements are true, complete and correct in all material respects, consistent with the books and records of the Company and are in accordance with GAAP consistently applied and fairly present the Company's financial condition, assets, liabilities, earnings and retained earnings as of the date thereof and the statements of earnings and retained earnings and cash flow for the periods related thereto;
(b) the statement of earnings and retained earnings included in the Financial Statements does not contain any material items of special or non-recurring income or other income not earned in the ordinary course of business; and
(c) the financial position of the Company is now at least as good as shown or reflected in the Financial Statements, and subject to the changes specifically described in Section 4.1.14, the financial position of the Company as disclosed in the Financial Statements will not be materially and adversely different from the financial position of the Company on the Closing Date.
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4.1.14. ABSENCE OF CHANGES - Except as disclosed in Schedule 4.1.14, since September 30, 2004, there has not been:
(a) any material change in the condition, financial or otherwise or operations of the Company other than non-material changes in the ordinary and normal course of business; or
(b) any damage, destruction or loss, labour trouble or other event, development or condition of any character (whether or not covered by insurance) materially and adversely affecting the Company.
4.1.15. ABSENCE OF UNUSUAL TRANSACTIONS - Except as listed in Schedule 4.1.15, and except in connection with the services of the Company's Auditors relating to the audit of the Financial Statements since September 30, 2004, the Company has carried on the Business in its usual and ordinary course, and in particular the Company has not:
(a) transferred, assigned, sold or otherwise disposed of any of the assets shown in the balance sheet to the Financial Statements except in the ordinary and usual course of business;
(b) discharged or satisfied any lien or encumbrance, or paid any obligation or liability (fixed or contingent) other than liabilities included in the balance sheet to the Financial Statements and liabilities incurred since the date of the Financial Statements in the ordinary and normal course of business;
(c) suffered an extraordinary loss, or waived any rights of material value, or entered into any material commitment or transaction;
(d) declared or paid any dividends or declared or made any other distribution on any of its securities or shares of any class or paid or committed to pay bonuses to employees, which in the aggregate would adversely effect the business, financial position of the Company, or the available working capital of the Company, and has not directly or indirectly, redeemed, purchased or otherwise acquired any of its securities or shares of any class or has agreed to do so;
(e) made any capital expenditure other than for assets listed in Schedule 4.1.48 that were acquired in the ordinary course of business and no capital expenditure will be made or authorized after the date of this Agreement by the Company with respect to the Business without the prior written consent of the Purchaser;
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(f) mortgaged, pledged, subjected to lien, granted a security interest in or otherwise encumbered any of the assets of the Company;
(g) incurred or assumed any obligation or liability (fixed or contingent), except secured and unsecured current obligations and liabilities incurred in the ordinary and normal course of business, particulars of which, including the maximum liabilities of the Company thereunder, are disclosed in Schedule 4.1.15;
(h) other than as disclosed to the Purchaser, issued or sold any shares in its capital or any warrants, bonds, debentures or other securities of the Company or issued, granted or delivered any right, option or other commitment for the issuance of any such securities;
(i) amended or changed or taken any action to amend or change its Articles or by-laws; or
(j) authorized or agreed or otherwise become committed to do any of the foregoing.
4.1.16. LOCATION OF ASSETS AND OPERATION OF BUSINESS - All assets of the Company used by it in or in connection with the Business are situate only in the Province of Alberta and all of the operations of the Business carried on directly by the Company are carried on in the Province of Alberta. All of the employees of the Company carry on their employment in Alberta, except for two employees who perform their duties at a place of business of Petro-Canada in Ontario.
4.1.17. EMPLOYEES, CONSULTANTS, ETC. - There are set forth in Schedule 4.1.17:
(a) the names of all salaried personnel and employees paid on an hourly basis, employed or engaged by the Company on a full or part-time basis and including, without limitation, all individuals who may be considered to be employees of the Company pursuant to applicable law or equity, notwithstanding that they may have been laid off or terminated (the "Employees");
(b) the date each such Employee was hired by the Company or its predecessor corporations;
(c) the hourly rate or rate of annual remuneration of each Employee as at the date hereof;
(d) the address at which each such Employee is employed;
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(e) particulars of all other material terms and conditions of employment or engagement of such Employees, including benefits, and positions held; and
(f) the names, addresses, terms of retainer, compensation arrangements, termination or notice provisions and any other obligations of the Company to any Persons on retainer or under contract to the Company.
4.1.18. EMPLOYMENT CONTRACTS AND GOVERNMENT WITHHOLDINGS - Subject to applicable statutory rights, the Company is not a party to any written contracts of employment with any of its Employees or any oral contracts of employment which are not terminable on the giving of reasonable notice and/or severance pay in accordance with applicable law and no inducements to accept employment with the Company were offered to any Employees which have the effect of increasing the period of notice of termination to which any Employee is entitled.
4.1.19. EMPLOYMENT PAYMENTS BY THE COMPANY - As of September 30, 2004, the Company had paid or provided for in the Financial Statements all amounts payable up to that date on account of wages, salary, bonus payments, commission and other remuneration to or on behalf of any and all Employees and consultants and advisers; save and except that the Financial Statements contain no accrual for employee vacation entitlement.
4.1.20. WORKER'S COMPENSATION - The Company has prepared and duly filed all estimates of payroll and other documentation and related information, required pursuant to applicable worker's compensation legislation which are required to be filed by it up to and including the date hereof and up to and including the Closing Date, and has paid all premiums, penalties, interest, charges, fines and other monies which have become due pursuant to any assessment which has been issued. Such estimates of payroll and all other documentation and information required to be filed before the Closing Time are or will be true in all material respects. The amounts reflected in the Financial Statements will be sufficient for the payment of all such premiums, penalties, interest, charges and fines, whether payable by installments or otherwise. As at the date hereof, there are no proceedings or actions pending against the Company for the assessment or collection of premiums or penalties and there are no material questions or assessments which are the subject of dispute with any worker's compensation board or related authority. There are not now any outstanding appeals, actions or claims under applicable worker's compensation legislation. The Vendors shall cause the Company to execute and deliver to the Purchaser such consent or consents as may be required to permit the Purchaser to obtain such information and
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materials from the worker's compensation board or related authority as the Purchaser may reasonably require.
4.1.21. LABOUR MATTERS - There is no:
(a) complaint, grievance, claim, work order, investigation made or proceeding commenced, or threatened, against the Company pursuant to any human rights code or any occupational health and safety, worker's compensation, employment standards, privacy, or pay equity legislation or similar employment or labour legislation;
(b) labour strike threatened against or involving the Company;
(c) certification application outstanding respecting the Employees and none of the Company or the Vendors is aware of any contemplated or threatened action or proceeding in this regard or any other action to organize the Employees;
(d) grievance or arbitration proceeding or governmental proceeding relating to the Employees pending, nor is there any such proceeding threatened against the Company which might have a material adverse effect on the Company or on the conduct of the Business;
(e) collective bargaining agreement currently being negotiated by the Company; and
(f) except as disclosed in Schedule 4.1.21(f), Employee in receipt of or who within the 12 months preceding the date hereof claimed benefits under any weekly indemnity, short or long term disability or workers' compensation plan or arrangement or any other form of disability benefit programme.
4.1.22. MATERIAL CONTRACTS - Except for the Contracts and the Leases, the Company is not a party to or bound by any material contract or commitment relating to the Business whether oral or written. Except as provided in Schedule 1.1.21, the Contracts and the Leases are all in good standing and in full force and effect unamended and no material default or breach exists in respect of them on the part of any of the parties to them and no event has occurred which, after the giving of notice or the lapse of time or both, would constitute such a default or breach; the foregoing includes all the presently outstanding material contracts entered into by the Company in the course of carrying on the Business.
4.1.23. RESIDENCE - None of the Vendors is a non-resident of Canada within the meaning of the Income Tax Act (Canada).
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4.1.24. INSURANCE - The Company maintains such policies of insurance, issued by responsible insurers, as are appropriate to the Business and its property and assets, in such amounts and against such risks as are customarily carried and insured against by owners of comparable businesses, properties and assets; all such policies of insurance are in full force and effect, and will continue to be so until the Closing Date, and the Company is not in default, whether as to the payment of premium or otherwise, under the terms of any such policy, nor has the Company failed to give any notice or present any claim under any such insurance policy in due and timely fashion. Such insurance policies are listed in Schedule 4.1.24.
4.1.25. COMPLIANCE WITH APPLICABLE LAWS - The Company has conducted and is conducting the Business in compliance in all material respects with all applicable laws, rules and regulations of each jurisdiction in which the Business is carried on and is not in breach of any such laws, rules or regulations, except for breaches which are not material.
4.1.26. PENSION PLAN - The Company does not maintain a pension plan for the Employees and does not have any agreement, obligation or arrangement to contribute to a pension plan or retirement savings plan or any other such plan for any Employee.
4.1.27. BENEFIT PLANS - The Company is not a party to any management
agreement, pay equity plan, vacation or vacation pay policy, employee
health, medical or life insurance plan, hospital or medical expense
programme or pension, retirement, profit sharing, stock bonus or other
employee benefit plan, programme or arrangement or to any executive or
key personnel incentive or other special compensation arrangement or
to other contracts or agreements with or with respect to officers,
employees or agents other than those listed and described in Schedule
4.1.27 (the "Benefit Plans").
4.1.28. HEALTH AND SAFETY - The business premises located on the Real Properties are in compliance with applicable health and safety legislation and regulations and are not subject to any orders or directions of an occupational health and safety authority or similar body.
4.1.29. LITIGATION - COMPANY - Except as disclosed in Schedule 4.1.29, there is no suit, action, litigation, arbitration proceeding or governmental proceeding, including appeals and applications for review, in progress, pending or, to the knowledge of the Vendors, threatened against or relating to the Company, affecting its properties or Business which if determined adversely to the Company might materially and adversely affect the properties, business, future prospects or financial condition of the Company and, except as shown in Schedule 4.1.29, there is not
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presently outstanding against the Company any judgment, decree, injunction, rule or order of any court, governmental department, commission, agency, instrumentality or arbitrator. The amounts referred to in Schedule 4.1.29 as the amounts claimed in respect of the matters specified are correct and the amounts referred to as being reserved in respect of the matters specified have been reserved in the Financial Statements. Except as disclosed in Schedule 4.1.29, the Company has not received any notices to the effect that the operations or the assets of the Company are (i) not in full compliance with all of the requirements of applicable federal, provincial or local environmental, health and safety statutes and regulations, or (ii) the subject of any federal or provincial remedial or control action or order, or any investigation or evaluation as to whether any remedial action is needed to respond to a release or threatened release of any Hazardous Substance into the environment or any facility or structure.
4.1.30. LITIGATION - SHARES - Except as disclosed in Schedule 4.1.29 there is no suit, action, litigation, arbitration proceeding or governmental proceeding, including appeals and applications for review, in progress, pending or, to the knowledge of the Vendors, threatened against or relating to the Shares and/or the Other Shares and there is not presently outstanding against any Vendor any judgment, decree, injunction, rule or order of any court, governmental department, commission, agency, instrumentality or arbitrator which would affect a Vendor's ability to sell their Shares and/or the Other Shares. There is no suit, action, litigation or arbitration proceeding in progress, pending or, to the knowledge of the Vendors, threatened that will require the issue or transfer of Shares and/or Other Shares or any other shares or securities in the capital of the Company or, after the sale of the Company, any shares of the Purchaser.
4.1.31. REAL PROPERTIES - The Company does not presently own and has never owned any Real Properties. The Real Properties leased by the Company and their existing uses comply with, and the Company is not in violation of, in connection with the occupation, use, maintenance or operation of such Real Properties, any applicable federal, state, provincial or municipal laws, regulations or by-laws or orders of any Governmental Authority which exists as of the date of this Agreement. There are no currently outstanding active files, work orders or directions requiring any work, repairs, construction or capital expenditures with respect to such Real Properties by any Governmental Authority and no such orders or directions are pending or threatened.
4.1.32. ACCOUNTS RECEIVABLE - Except as disclosed in Schedule 4.1.32 all Accounts Receivable are bona fide and good, are collectible without
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set-off or counterclaim in the ordinary course of business and in any event not later than 90 days after the Closing Date.
4.1.33. ENVIRONMENTAL MATTERS - Without limiting the generality of any other representation or warranty provided herein that may also apply to Environmental Requirements, in connection with the Business and the Company and except as otherwise disclosed in Schedule 4.1.33;
(a) the Company has not imported, received, treated, handled, used, stored, labeled, transported, shipped or disposed of any Hazardous Substances;
(b) other than in substantial compliance with Environmental Requirements, the Company has not released into the natural environment, or discharged, added to, deposited, placed or otherwise disposed of any Hazardous Substances at, or on, or near the Real Properties as a result of the conduct of the Business and neither the Company nor the Vendors are aware of any other Person, including former owners and occupiers of the Real Properties and of the neighbouring lands, doing any of the foregoing other than in substantial compliance with Environmental Requirements;
(c) the Real Properties have not been used by the Company as a landfill or waste disposal site and neither the Company nor the Vendors are aware of the Real Properties being used at any time by any person as a landfill or waste disposal site nor, are the Real Properties located within any environmentally sensitive area, as determined by any Environmental Requirements;
(d) there are no adverse conditions that, directly or indirectly, relate to or may materially affect the Real Properties and the conduct of the Business related thereto or any other use thereof (whether on, above or below the Real Properties, now or formerly, operated or used by the Company or its predecessors and neither the Company nor the Vendors are aware of such in connection with adjoining properties or businesses);
(e) there are no orders, decisions, directions, or the like, relating to Environmental Requirements of the Real Properties or the Business that are still in full force and effect on the date hereof and Schedule 4.1.33 lists all such orders that have been issued within the last five years against the Real Properties, the Business or the Company. The Company has received no written notice, and neither the Company nor the Vendors aware of any facts which could give rise to any notice, that any such
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orders will be issued against the Business, the Real Properties or the Company in the near future;
(f) the Company has not defaulted in reporting on the happening of an occurrence relating to the Real Properties which it is or was required by Environmental Requirements to do so and no such reporting has occurred during the last five years;
(g) there have been no investigations by a Governmental Authority relating to the Company in respect of the Real Properties, or the Business and no prosecutions of the Company relating to the Real Properties or the Business for an offence for non-compliance with any Environmental Requirements and no convictions, settlements or other disposition of such investigations or prosecutions short of conviction;
(h) the Company has received no written notice, and neither the Company nor the Vendors are aware of any facts which could give rise to any notice that the Company is a party potentially responsible for the clean up of the Real Properties or other corrective action under any Environmental Requirements. The Company has not received any written requests for information in connection with any inquiry by any Governmental Authority concerning environmental matters relating to the Real Properties;
(i) the Company has never had an audit conducted relating to any environmental or health and safety matters relating to the Real Properties or the Business. For the purposes of this subsection, audit shall mean any inspection, investigation, assessment, study or test performed at the request of, or on the behalf of, a Governmental Authority, including, without limitation, a member of a joint health and safety committee, but does not include normal or routine inspections, assessments, studies or tests which do not relate to a threatened or pending charge, order, revocation of any Licence or any work stoppage issues;
(j) all the Company's environmental and occupational health and safety and transportation operating records and reports relating to the Business or the Real Properties, including all monitoring or reporting records have been maintained in accordance with all applicable Environmental Requirements;
(k) there have been no health or safety occurrences affecting the Real Properties (during the Company's occupation thereof) or the Business of any nature or type, including, without limitation, the presence of any industrial disease or any long term
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occupational illness in the workplace or among any of the Employees, which could or did result in an action or claim against the Company by any of its employees, former employees or their respective dependants, heirs or legal personal representatives or under any applicable insurance programs, workers' compensation laws or other Environmental Requirements.
4.1.34. CONSENTS - Except for Contracts, Leases, Licences and Permits requiring the consent to the change of control of the Company, all of which are listed in Schedule 4.1.34, there are no consents, assignments, authorizations, licences, franchise agreements, permits, approvals or orders of any Person or Governmental Authority required to permit the Vendors to complete the transactions contemplated hereby.
4.1.35. LICENSES AND PERMITS - All of the Licences and Permits, (including environmental licences or permits) issued by any Governmental Authority related to the Company or necessary for the conduct of the Business are listed on Schedule 1.1.39.
4.1.36. BANKS - Schedule 4.1.36 contains a true and complete list (including address and account number) of each bank, trust company or similar institution in which the Company has an account or a safety deposit box and the names of all persons, including any person or firm holding a power of attorney, authorized to draw thereon or to have access thereto and a description of all credit facilities, lines of credit, loan agreements and the like which the Company has with any financial institution. All of the bank accounts operated in connection with the Business are maintained and operated solely in the name of the Company. There are no bank accounts operated in the name of any division or business or trade name or style of the Company.
4.1.37. INTELLECTUAL PROPERTY - All patents, trademarks, trade names, brand names, trade designs, trade secrets, service marks and copyrights and all licences and similar rights and property which are necessary or incidental to the conduct of the Business as the same is presently being carried on are listed in Schedule 1.1.34, are valid and subsisting and held by the Company with good and marketable title and are in good standing free and clear of all security interests, claims, liens, objections and infringements of every nature and kind and all registrations therefor have been kept renewed and are in full force and effect. Except as disclosed in Schedule 4.1.29, the operations of the Business, and the sale by it of its products and the provision by it of its services do not involve infringements or claimed infringement of any patent, trademark, trade name or copyright. No Employee owns, directly or indirectly in whole or in part, any patent, trademark, trade
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name, brand name, copyright, invention, process, know-how, formula or trade secret which the Company is presently using or the use of which is necessary for the Business. The Company is entitled to the use of all software presently used by it in the manner and at the number of workstations and computers as presently used with proper licencses that are in good standing not in default.
4.1.38. EXPROPRIATION - No part of the assets of the Company have been taken or expropriated by any Governmental Authority nor has any notice or proceeding in respect thereof been given or commenced nor is the Company or any Vendor aware of any intention or proposal to give such notice or commence any such proceedings.
4.1.39. TAX MATTERS -
(a) Except to the extent reflected in or reserved against in the Financial Statements, the Company is not liable for any Taxes, unpaid at the date hereof or for the payment of any instalment of Taxes due in respect of its current taxation year and, except as aforesaid, no such Taxes are required to be reserved against. If any such reservation has been made or taken, it is adequate to provide for Taxes payable by the Company for its current period for which tax returns are not yet required to be filed.
(b) The Company is not in default in filing any returns or reports covering any Taxes or other reports in respect of its income, business or property. The Company has filed all reports or returns with respect to Taxes which are required to be filed by it up to the date of this Agreement (and all such returns and reports are correct and complete in all material respects) and has paid, or where permitted by law, provided security for, all Taxes as shown on such reports or returns to the extent such Taxes are payable or have or may become due and has paid, or where permitted by law, provided security for, all assessments received by it.
(c) The Company has withheld from each payment made to any of its present or former officers, shareholders, employees and from non-residents, the amount of all Taxes and other deductions required to be withheld therefrom and has paid the same to the proper taxing authorities within the time required under applicable tax legislation.
(d) Canadian federal and provincial income tax assessments have been issued to the Company covering all past periods through the fiscal year ended September 30, 2004 (and such assessments, if any amounts were owing in respect thereof,
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have been paid or, where permitted by law, security therefor has been provided). There are no currently outstanding reassessments, suits, actions, proceedings, investigations, claims or questions which are pending or threatened by any governmental authority relating to any such reports or tax returns except for those provided in the Financial Statements and the Company does not have any negotiations or discussions in progress with respect to any eventual assessment or reassessment with any such authority. The Company has not executed or filed with any taxing authority any waiver or agreement extending the period for assessment or collection of any income or other taxes.
(e) Without limiting the generality of the foregoing, the Company is in absolute compliance with all registration, timely reporting and remittance, collection and recordkeeping obligations in respect of all provincial and federal sales tax legislation and the Goods and Services Tax.
4.1.40. UNDISCLOSED LIABILITIES - The Company has no liabilities (whether accrued, absolute, contingent or otherwise) of any kind except liabilities disclosed on the Financial Statements and except liabilities incurred in the ordinary course of business since September 30, 2004 which are not inconsistent with past practice, are not material and adverse to the business, assets, financial condition or results of operations of the Company, and do not materially violate any covenant contained in this Agreement or constitute a material misrepresentation or breach of warranty made in or pursuant to this Agreement.
4.1.41. NON-ARM'S LENGTH TRANSACTIONS - The Company has not entered into any contracts, agreements, options, or arrangements or incurred or assumed any obligation or liability (whether fixed or contingent) with, on behalf of, or with respect to the Vendors or any other person with whom the Company does not deal at Arm's Length or a Related Person, whether jointly or severally.
4.1.42. ACCOUNTANTS - Effective from June 30, 2003 to the present, the Company's Auditors have been the accountants of the Company.
4.1.43. NO CHANGE IN REMUNERATION - Except as specifically described in
Section 5.1.7, since September 30, 2004, there have been no increases
in remuneration whether in the form of salary, dividends, bonus or
commission paid by the Company, or paid on behalf of the Company, to
Employees or Consultants other than normal merit increases or rewards
which are properly reflected in the books and records of the Company.
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4.1.44. RESTRICTIONS ON BUSINESS - The Company is not a party to any agreement, indenture, mortgage, debenture, security agreement, lease, agreement or instrument, or subject to any restriction in the Articles or its by-laws or subject to any restriction imposed by Governmental Authority having jurisdiction over it or subject to any statute, order, regulation or rule or to any writ, judgment, injunction or decree of any court or Governmental Authority which might prevent or interfere with the use of the assets of the Company or which may limit or restrict or otherwise adversely affect the Business, properties, assets or financial condition, other than statutory provisions and restrictions of general application to its particular business. The Business is the only business carried on by the Company on the date hereof.
4.1.45. ENCUMBRANCES - Except for the Permitted Encumbrances, the Company has good and marketable title to all its Leases, properties, interests in properties and assets, real and personal, including without limitation those reflected in the Financial Statements or acquired since September 30, 2004 (except as otherwise permitted in this Agreement or as since transferred, sold or otherwise disposed of in the ordinary and usual course of business), free and clear of all mortgages, pledges, charges, hypothecs, liens, title retention agreements, security interests, encumbrances or rights of other Persons, of any kind or character.
4.1.46. REAL PROPERTY - The Company is not a party to or bound by any leases of real property other than the Leases. Where applicable, all rental and other payments required to be paid by the Company pursuant to the Leases have been duly paid and the Company is not in default or in breach of any material term or provision of the Leases.
4.1.47. LEASED EQUIPMENT - Schedule 1.1.25 sets forth a true and complete list of all equipment, other personal property and fixtures in the possession or custody of the Company which, as of the date hereof, is leased or held under licence or similar arrangement and of the leases, licences, agreements or other documentation relating thereto.
4.1.48. CONDITION OF ASSETS - All material tangible assets of the Company used in or in connection with the Business are in good condition, repair and working order and have been properly maintained, having regard to the use and age thereof. A list of all material fixed assets, machinery and equipment and all vehicles of the Company is shown in Schedule 4.1.48.
4.1.49. SALE COMMITMENTS - No commitment of the Company to sell its products or services is for an amount less than the cost of such product plus normal gross profit margins thereon.
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4.1.50. COPIES OF AGREEMENTS, ETC. - True, correct and complete copies of all mortgages, debentures, security agreements, leases, agreements, instruments and other documents to which 765448 and the Company are a party to and which are listed in the Schedules hereto and of the policies of insurance referred to in Schedule 4.1.24 have been delivered to the Purchaser.
4.1.51. POWERS OF ATTORNEY - Except as disclosed in Schedule 4.1.52 hereto, no person has any power of attorney from the Company with respect to any matter.
4.1.52. PRODUCT LIABILITY CLAIMS - There is no pending or threatened product liability or similar claim which relates to the products created, distributed or sold by the Company, or services provided by the Company.
4.1.53. DISCLOSURE - To the best of the Vendor's knowledge, none of the foregoing representations, warranties and statements of fact contains any untrue statement of fact or omits to state any fact that would reasonably be expected to have a significant effect on the market price or value of the Shares or Other Shares.
4.2. REPRESENTATIONS AND WARRANTIES OF THE 765548 VENDORS
The 765448 Vendors hereby represent and warrant to and covenant with the Purchaser as follows and acknowledge that the Purchaser is relying on these representations and warranties and covenants in entering into this Agreement and the transactions contemplated under this Agreement.
4.2.1. ORGANIZATION AND GOOD STANDING - 765448 is a corporation duly incorporated, organized and validly existing in good standing under the laws of the Province of Alberta. 765448 is not a partner in any partnership, has not entered into any joint venture and does not hold an interest or security in any other Person (except its ownership interest in the Company as described in Section 4.2.4.)
4.2.2. BANKRUPTCY, ETC. - No bankruptcy, insolvency or receivership proceedings have been instituted or are pending against 765448.
4.2.3. PREVIOUS NAMES - 765448 has no corporate predecessors, previous corporate names or present business name registrations.
4.2.4. HOLDING CORPORATION - 765448 has all necessary corporate power, authority and capacity to own its property and assets. The Company has no material assets other than the Other Shares and has no liabilities. The Company does not now carry on any business, has no subsidiaries and is not a party to any agreement to acquire any subsidiary or any interest in any joint venture, partnership or other
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entity. 765448 has carried on one business prior to the date hereof, which consisted of the ownership and leasing to tenants from time to time of one residential condominium unit located in the City of Calgary prior to February 29, 2004.
4.2.5. DUE AUTHORIZATION - 765448 has all necessary power, authority and capacity to enter into this Agreement and to perform its obligations under this Agreement; the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary action on the part of 765448.
4.2.6. AUTHORIZED AND ISSUED CAPITAL OF 765448 - As at Closing the authorized capital of 765448 shall consist of an unlimited amount of each of Class A shares through to Class H shares, inclusive, of which the total number of issued and outstanding is 100 Class A shares, 10 Class B shares and 10 Class C shares all of which will have been validly issued and will be outstanding as fully paid and non-assessable shares held by the 765448 Vendors in the numbers set out opposite their respective names in Schedule A. No options, warrants or other rights for the purchase, subscription or issuance of shares or other securities of 765448 or securities convertible into or exchangeable for shares of 765448 have been authorized or agreed to be issued or are outstanding. Other than the restrictions contained in the articles of incorporation of 765448, there are no restrictions on the transfer of the 765448 Shares.
4.2.7. TITLE TO SHARES - As at Closing, the 765448 Vendors will be the legal and beneficial owner of the 765448 Shares. The 765448 Vendors represent that on Closing, the Purchaser shall acquire good and marketable title to the 765448 Shares, free and clear of all agreements, mortgages, pledges, charges, hypothecs, claims, liens, security interests, encumbrances and rights of other Persons.
4.2.8. ABSENCE OF CONFLICTING AGREEMENTS - 765448 is not a party to, bound or affected by or subject to any indenture, mortgage, lease, agreement, instrument, statute, regulation, arbitration award, charter or by-law provisions, order or judgment which would be violated, contravened, breached by, or under which any default would occur as a result of the execution and delivery of this Agreement or the consummation of any of the transactions contemplated under this Agreement.
4.2.9. ABSENCE OF GUARANTEES - 765448 has not given or agreed to give, nor is it a party to or bound by, any guarantee of indebtedness or other obligations of third parties nor any other commitment by which 765448 is, or is contingently, responsible for such indebtedness or other obligations.
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4.2.10. ENFORCEABILITY OF OBLIGATIONS - 765448 - This Agreement constitutes a valid and binding obligation of 765448 enforceable against it in accordance with its terms, provided that enforcement may be limited by bankruptcy, insolvency, liquidation, reorganization, reconstruction and other similar laws generally affecting enforceability of creditors' rights and that equitable remedies such as specific performance and injunction are in the discretion of the court from which they are sought.
4.2.11. BOOKS AND RECORDS - All the books, records and accounts of 765448 are in all material respects accurate and complete, accurately reflect all matters normally entered into the books, records or accounts maintained by similar businesses, are in all material respects in accordance with all laws, regulations and rules applicable to 765448 and accurately present and reflect in all material respects all of the transactions described therein. 765448 has accounting controls sufficient to ensure that its transactions are (i) in all material respects executed in accordance with its management's general or specific authorization and (ii) recorded in conformity with GAAP. At the Closing Date, the minute books will accurately reflect all material actions taken by the directors and shareholders of 765448 since the date of its incorporation and the share certificate books, register of shareholders and register of directors and officers will be, at Closing, complete and accurate.
4.2.12. NO LIABILITIES - No liabilities or obligations, whether accrued, absolute, contingent, direct or indirect, perfected, inchoate, unliquidated or otherwise and whether due or to become due, exist as of the date hereof or will exist as of the Closing.
4.2.13. ASSETS - The Other Shares shall at Closing comprise the only asset of 765448. For greater certainty, the Parties agree that 765448 shall be permitted, prior to Closing, to declare a dividend of any surplus cash residing in 765448, so that the foregoing sentence will be true and accurate.
4.2.14. EMPLOYMENT CONTRACTS - 765448 is not a party to any written or oral contracts of employment with any person.
4.2.15. WORKER'S COMPENSATION - 765448 is not and has not been under any obligations to make any filing or payments pursuant to applicable worker's compensation legislation, and there are not now any outstanding appeals, actions or claims under such legislation. The 765448 Vendors shall cause 765448 to execute and deliver to the Purchaser such consent or consents as may be required to permit the Purchaser to obtain such information and materials from the worker's compensation board or related authority as the Purchaser may reasonably require.
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4.2.16. MATERIAL CONTRACTS - 765448 is not a party to or bound by any material contract or commitment whether oral or written, other than this Agreement.
4.2.17. LITIGATION - There is no suit, action, litigation, arbitration proceeding or governmental proceeding, including appeals and applications for review, in progress, pending or, to the knowledge of the 765448 Vendors, threatened against or relating to 765448, or affecting its properties or the 765448 Shares and there is not presently outstanding against 765448, or any 765448 Vendor, any judgment, decree, injunction, rule or order of any court, governmental department, commission, agency, instrumentality or arbitrator.
4.2.18. REAL PROPERTIES - 765448 does not presently own any Real Property, and is not a party to or bound by any leases of Real Property.
4.2.19. BANKS - As of the Closing Time, 765448 shall have no account or safety deposit box with any bank, trust company, or similar institution, nor any credit facilities, lines of credit, loan agreements and the like with any financial institution.
4.2.20. EXPROPRIATION - No part of the assets of 765448 have been taken or expropriated by any Governmental Authority nor has any notice or proceeding in respect thereof been given or commenced nor is 765448 or the 765448 Vendors aware of any intent or proposal to give such notice or commence any such proceedings.
4.2.21. TAX MATTERS -
(a) 765448 is not liable for any Taxes, unpaid at the date hereof or for the payment of any instalment of Taxes due in respect of its current taxation year and no such Taxes are required to be reserved against.
(b) 765448 is not in default in filing any returns or reports covering any Taxes or other reports in respect of its income, business or property. 765448 has filed all reports or returns with respect to Taxes which are required to be filed by it up to the date of this Agreement (and all such returns and reports are correct and complete in all material respects) and has paid, or where permitted by law, provided security for, all Taxes as shown on such reports or returns to the extent such Taxes are payable or have or may become due and has paid, or where permitted by law, provided security for, all assessments received by it.
(c) 765448 has withheld from each payment made to any of its present or former officers, directors, shareholders, employees and from non-residents, the amount of all Taxes and other
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deductions required to be withheld therefrom and has paid the same to the proper taxing authorities within the time required under applicable tax legislation.
(d) Canadian federal and provincial income tax assessments have been issued to 765448 covering all past periods through the fiscal year ended December 31, 2003, (and such assessments, if any amounts were owing in respect thereof, have been paid). There are no currently outstanding reassessments, suits, actions, proceedings, investigations, claims or questions which are pending or threatened by any governmental authority relating to any such reports or tax returns and 765448 does not have any negotiations or discussions in progress with respect to any eventual assessment or reassessment with any such authority. 765448 has not executed or filed with any taxing authority any waiver or agreement extending the period for assessment or collection of any income or other taxes.
(e) Without limiting the generality of the foregoing, 765448 is in absolute compliance with all registration, timely reporting and remittance, collection and recordkeeping obligations in respect of all provincial and federal sales tax legislation and the Goods and Services Tax.
4.2.22. UNDISCLOSED LIABILITIES - 765448 has no liabilities (whether accrued, absolute, contingent or otherwise) of any kind.
4.2.23. NON-ARM'S LENGTH TRANSACTIONS - 765448 has not entered into any contracts, agreements, options, or arrangements or incurred or assumed any obligation or liability (whether fixed or contingent) with, on behalf of, or with respect to the 765448 Vendors or any other person with whom 765448 does not deal at Arm's Length or a Related Person, whether jointly or severally.
4.2.24. ENCUMBRANCES - 765448 has good and marketable title to all its properties, interests in properties and assets, real and personal free and clear of all mortgages, pledges, charges, hypothecs, liens, title retention agreements, security interests, encumbrances or rights of other Persons, of any kind or character.
4.2.25. LEASED EQUIPMENT - 765448 holds no equipment, other personal property or fixtures which is leased or held under license or similar arrangement.
4.2.26. POWERS OF ATTORNEY - No person has any power of attorney from 765448 with respect to any matter.
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4.2.27. DISCLOSURE - To the best of the 765448 Vendor's knowledge, none of the foregoing representations, warranties and statements of fact contains any untrue statement of fact or omits to state any fact that would reasonably be expected to have a significant affect on the market price or value of the 765448 Shares.
4.3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Vendors as follows:
4.3.1. ORGANIZATION AND GOOD STANDING - The Purchaser is a company duly incorporated, organized, and validly existing and in good standing under the laws of the Province of Nova Scotia.
4.3.2. DUE AUTHORIZATION - The Purchaser has all necessary corporate power, authority and capacity to enter into this Agreement and to perform its obligations hereunder; the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been or will be duly authorized by all necessary corporate action on the part of the Purchaser.
4.3.3. ABSENCE OF CONFLICTING AGREEMENTS - The Purchaser is not a party to, bound or affected by or subject to any indenture, mortgage, lease, agreement, instrument, charter or by-law provision, statute, regulation, order, judgment, decree or law which would be violated, contravened or breached by, or under which any default would occur as a result of the execution and delivery by it of this Agreement or the consummation of the transactions contemplated herein, except as disclosed in this Agreement.
4.3.4. ENFORCEABILITY OF OBLIGATIONS - This Agreement constitutes a valid and binding obligation of the Purchaser enforceable against it in accordance with its terms provided that enforcement may be limited by bankruptcy, insolvency, liquidation, reorganization, reconstruction and other similar laws generally affecting enforceability of creditors' rights and that equitable remedies such as specific performance and injunction are in the discretion of the court from which they are sought.
4.3.5. DISCLOSURE - To the best of the Purchaser's knowledge, none of the foregoing representations, warranties and statements of fact contains any untrue statement of fact or omits to state any fact that would reasonably be expected to have a significant affect on the Vendors' decision to complete the transaction contemplated by this Agreement or the Purchaser's capacity to purchase the Purchased Shares.
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4.4. COMMISSION
The Vendors represent and warrant to the Purchaser that, to their knowledge, no Person is entitled to a brokerage commission, finder's fee or other like payment in connection with the purchase and sale contemplated hereby.
4.5. NON-WAIVER
No investigations made by or on behalf of the Purchaser at any time shall have the effect of waiving, diminishing the scope of or otherwise affecting any representation or warranty made by the Vendors herein or pursuant hereto. No waiver by the Purchaser of any condition, in whole or in part, shall operate as a waiver of any other condition. No investigations made by or on behalf of the Vendors at any time shall have the effect of waiving, diminishing the scope of or otherwise affecting any representation or warranty made by the Purchaser herein or pursuant hereto. No waiver by the Vendors of any condition, in whole or in part, shall operate as a waiver of any other condition.
4.6. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All statements contained in any certificate or other instrument delivered by or on behalf of a Party pursuant to or in connection with the transactions contemplated by this Agreement shall be deemed to be made by that Party under this Agreement. All representations, warranties, covenants and agreements contained in this Agreement on the part of each of the Parties shall survive the Closing, the execution and delivery hereunder of any instruments of conveyance, assignments or other instruments of transfer of title to any of the Purchased Shares and the payment of the consideration contemplated under this Agreement, but the representations and warranties contained in this Article shall survive for a period of two (2) years following the Closing, except for:
4.6.1. the representations and warranties as to the authorized and issued capital of the Company and 765448 and the ownership of and title to the Shares, the Other Shares and the 765448 Shares free and clear of encumbrances which shall continue forever; and
4.6.2. the Vendors' representations and warranties relating to tax matters which shall survive until ninety days after the last date on which a notice of assessment or reassessment or other similar document determining liability for Taxes may be issued, unless there has been any misrepresentation or fraud committed in filing a return in respect of Taxes or in supplying information to any Governmental Authority, in which case, such representations and warranties shall survive forever,
after which period of time, if no Claim shall, prior to the expiry of such period, have been made under this Agreement against a Party with respect to any incorrectness in or breach of any representation or warranty made herein by such Party, such Party shall have no further liability under this Agreement with respect to such representation or warranty.
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5. COVENANTS OF THE PARTIES
5.1. CONDUCT OF BUSINESS PRIOR TO CLOSING
During the Interim Period the KLA Vendors shall do or cause the Company and 765448 to do the following:
5.1.1. CONDUCT BUSINESS IN ORDINARY COURSE - Except as otherwise contemplated or permitted by this Agreement, the Company shall conduct the Business in the ordinary and normal course and shall not, without the prior written consent of Purchaser, enter into any transaction which, if entered into before the date of this Agreement, would cause any representations or warranties of the Vendors contained in this Agreement to be incorrect or constitute a breach of any covenant or agreement of the Vendors contained in this Agreement. The Vendors shall use their best efforts to preserve intact the Company and 765448 and the Business and the relationship existing with the customers of the Company.
5.1.2. CONTINUE INSURANCE - The Company shall continue in force and in good standing all existing insurance maintained by it.
5.1.3. PERFORM OBLIGATIONS - The Company shall comply with all applicable laws, regulations, by-laws and other governmental requirements of each jurisdiction in which the Business is carried on, perform all of its obligations under and comply with the Contracts, Leases, Environmental Permits, Licenses and Permits and pay all trade accounts payable and other debts and liabilities in accordance with the terms thereof and withhold and remit all Taxes.
5.1.4. MATERIAL CHANGES - The Company shall not take any action which would result in any material adverse change, which shall be deemed to include the circumstances specified in Section 4.1.15, in or to the Business or sell, transfer or dispose of any of the assets of the Company, other than in the ordinary course of business.
5.1.5. LIENS, VENDOR - The Vendors shall not suffer or permit any mortgages, pledges, hypothecs, security interests, deemed trusts, liens, charges, rights or claims of other Persons, or any other encumbrances whatsoever, to attach to or affect the Purchased Shares or the Other Shares.
5.1.6. LIENS, COMPANY - Neither the Company nor 765448 shall suffer or permit any mortgages, pledges, hypothecs, security interests, deemed trusts, liens, charges, rights or claims of other Persons, or any other encumbrances whatsoever, to attach to or affect their respective assets.
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5.1.7. WAGE INCREASES, HIRING AND FIRING - The Company shall pay all remuneration, wages and salaries and make and remit all withholdings therefrom and shall not make or commit to make any wage increases or grant any bonuses to any of the Employees, nor employ any new management employees in the Company without the Purchaser's prior written consent nor terminate the employment of any management Employees, without the Purchaser's prior written consent.
5.1.8. ACCOUNTS RECEIVABLE - The Company shall provide to the Purchaser on the third Business Day prior to the Closing Date, an up-to-date list (accurate to within 15 days of the Closing Date) of all outstanding Accounts Receivable and not settle any existing Account Receivable for less than its face amount without the prior written consent of the Purchaser.
5.1.9. CONSENTS TO ASSIGNMENT OF CONTRACTS AND LEASES - The Company shall obtain the consents or the assignments as required by the Purchaser under all Contracts, Leases, Environmental Permits, Licenses and Permits.
5.2. ACCESS FOR INVESTIGATION
The Vendors, the Company and 765448 shall permit the Purchaser and its employees, agents, counsel and accountants or other representatives, prior to the Closing Time, without interference to the ordinary conduct of the Business, to have access during normal business hours to the premises and to all books, accounts, records and other data of the Company and 765448, including, without limitation, all corporate and accounting records of the Vendors relating exclusively to the Company and 765448 and to furnish to the Purchaser such financial and operating data and other information with respect to the Company and 765448, as the Purchaser shall from time to time reasonably request to enable confirmation of the matters represented and warranted in Sections 4.1 and 4.2.
5.3. DELIVERY OF BOOKS AND RECORDS
At the Closing Time, the Vendors and the Company shall deliver to the Purchaser at the Company's offices the following: (i) lists of suppliers and customers of the Company; (ii) records with respect to the Employees; (iii) the minute books and corporate seals of the Company and 765448; (iv) advertising, promotional and marketing materials which relate to the Company; (v) files relating to the assets of the Company including, without limitation, the maintenance records for each item of equipment or machinery owned or leased by the Company; and (vi) the Contracts, Leases, Environmental Permits, Licenses and Permits.
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5.4. ACTIONS TO SATISFY CLOSING CONDITIONS
Each Party agrees to take all such actions as are within its power to control, and to use its best efforts to cause other actions to be taken which are not within its power to control, so as to ensure compliance with any conditions set forth in Article 7 which are for the benefit of the other Party to complete the Closing.
5.5. NON-COMPETITION
Each of the Vendors covenants and agrees that he or she will not, from and
after the date hereof until the second anniversary of the Closing Date, (a)
carry on (either directly or as an officer, director, shareholder, employee or
consultant of any corporation, partnership, joint venture or other entity) in
Canada any business in competition with the Business (as at the Closing Date);
(b) solicit any clients or prospective clients of the Company (as at the Closing
Date) in respect of any business which is in competition with the Business; or
(c) employ or solicit the employment of any employees or consultants of the
Company. Each of the Vendors covenants and agrees that he shall not use any
confidential information or technology of the Company for any purpose
whatsoever. At Closing, each of the foregoing Parties and, in respect of any
Vendor that is a body corporate their principal shareholders shall enter into a
non-competition agreement in support of the covenant under this Section covering
the matters specified herein in a form satisfactory to the Purchaser (the
"Non-Competition Agreement").
5.6. KEY EMPLOYEES
Sykes Canada may at any time prior to the Closing Time identify employees of the Company who are key to the Business (the "Key Employees"). In the event that Sykes Canada determines that it will offer employment to identified Key Employees, the Vendors agree to use their reasonable best efforts to have each of the Key Employees continue as a full-time employee of the Company on substantially the same terms as such employees are employed by the Company as of the date hereof. The parties acknowledge and agree that Glenys Schick has been identified as a Key Employee and shall enter into an Employment Agreement with effect as of the Closing Time.
5.7. PROVISION OF INFORMATION AFTER CLOSING
The Vendors will, during the period of three years (3) following the Closing Date, supply the Purchaser with any information which is required for the business of the Company and/or 765448 and which is in the possession of the Vendors but not in the possession of or easily obtainable by the Purchaser.
5.8. BANK CREDIT FACILITIES
5.8.1. The Purchaser shall, within ninety (90) days following the Closing Date, obtain from TD Canada Trust and deliver to the Vendors a release with respect to all personal guarantees provided by the Vendors so such bank in respect of the Corporation.
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5.8.2. The Vendors shall at the Closing Time deliver to the Purchaser a discharge statement of TD Canada Trust dated as of the Closing Date and setting out the amount of principal and interest then owing under any bank credit facility, including without limitation the Demand Note, and confirming the applicable credit limit.
6. INDEMNIFICATION AND SETOFF
6.1. INDEMNIFICATION BY VENDORS
6.1.1. Subject to this Article 6, if the transactions contemplated by this Agreement are consummated, the Vendors agree to indemnify and hold the Purchaser, the Company and 765448 harmless from and against and in respect of any loss, damage, claim, cost or expense whatsoever, including any and all incremental out-of-pocket costs, which includes, without limitation, all reasonable legal and accounting fees, which the Purchaser or the Company or 765448, as the case may be, may incur, suffer or be required to pay (collectively, a "Claim") that may be made or asserted against or affect the Purchaser or the Company or 765448, provided, however, that the subject matter of any such Claim relates to or arises out of or in connection with the following matters:
(a) any misrepresentation or breach of any representation, warranty, agreement, covenant or obligation of the Vendors contained in this Agreement or in any agreement, schedule, certificate or other document required to be entered into or delivered by the Vendors;
(b) any assessment or reassessment, determination of loss or redetermination of loss in respect of Taxes for periods ending on or before the Closing Date (a "Reassessment Amount");
(c) any environmental matters referred to in Section 4.1.33 hereof.
6.1.2. The obligation of the Vendors to indemnify the Purchaser, the
Company and 765448, as the case may be, as set forth in Section
6.1.1(a) for a misrepresentation or breach of any representation and
warranty shall be subject to the limitation period referred to in
Section 4.6 with respect to survival of representations and
warranties.
6.2. INDEMNIFICATION BY PURCHASER
6.2.1. Subject to this Article 6, if the transactions contemplated by this Agreement are consummated, the Purchaser agrees to indemnify and hold the Vendors harmless against and in respect of any loss, damage, claim, cost or expense whatsoever, including any and all incremental
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out-of-pocket costs, including, without limitation, all reasonable legal and accounting fees, which the Vendors may incur, suffer or be required to pay (collectively, a "Claim") that may be made or asserted against or affect a Vendor, provided, however, that the subject matter of any such Claim relates to or arises out of or in connection with a misrepresentation or breach of any representation, warranty, agreement, covenant or obligation of the Purchaser contained in this Agreement or in any agreement, schedule, certificate or other document required to be entered into or delivered by the Purchaser.
6.2.2. The obligation of the Purchaser to indemnify the KLA Vendors as set forth in Section 6.2.1 for a misrepresentation or breach of any representation and warranty shall be subject to the limitation period referred to in Section 4.6 with respect to survival of representations and warranties.
6.3. CLAIMS BY THIRD PARTIES
6.3.1. Promptly upon receipt by the Purchaser or a Vendor (herein referred to as the "Indemnitee") of notice of any Third Party Claim in respect of which the Indemnitee proposes to demand indemnification from the other applicable party to this Agreement (the "Indemnitor"), the Indemnitee shall forthwith give notice to that effect to the Indemnitor.
6.3.2. The Indemnitor shall have the right, exercisable by giving notice to the Indemnitee not later than 30 days after receipt of the notice described in Section 6.3.1, to assume the control of the defence, compromise or settlement of the Third Party Claim, provided that the Indemnitor shall at the Indemnitee's request furnish it with reasonable security against the amount of such Third Party Claim and any costs or other liabilities to which it may be or become exposed by reason of such defence, compromise or settlement.
6.3.3. Upon the assumption of control by the Indemnitor as aforesaid, the Indemnitor shall, at its expense, diligently proceed with the defence, compromise or settlement of the Third Party Claim at the Indemnitor's sole expense, including employment of counsel satisfactory to the Indemnitee, and in connection with such proceedings, the Indemnitee shall co-operate fully, but at the expense of the Indemnitor, to make available to the Indemnitor all pertinent information and witnesses under the Indemnitee's control and to make such assignments and take such other steps as in the opinion of counsel for the Indemnitor are necessary to enable the Indemnitor to conduct such defence, provided always that the Indemnitee shall be entitled to reasonable security from the Indemnitor for any expense, costs or other liabilities to which it maybe or may become exposed by reason of such co-operation.
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6.3.4. The final determination of any such Third Party Claim, including all related costs and expense, will be binding and conclusive upon the Parties as to the validity or invalidity, as the case may be, of such Third Party Claim against the Indemnitor.
6.3.5. Should the Indemnitor fail to give notice to the Indemnitee as provided in Section 6.3.2, the Indemnitee shall have the exclusive right to contest, settle or pay the amount claimed. Whether or not the Indemnitor assumes control of the negotiation, settlement or defence or any Third Party Claim, the Indemnitor shall not settle any Third Party Claim without the written consent of the Indemnitee, which consent shall not be unreasonably withheld or delayed.
6.4. DETAILS OF CLAIMS
With respect to any Claim provided for under this Article 6, no indemnity under this Agreement shall be sought unless written notice providing reasonable details of the reasons for which the indemnity is sought is provided to the Vendors or the Purchaser, as the case may be, before the expiration of the limitation dates provided for in this Article 6.
7. CONDITIONS PRECEDENT TO THE PERFORMANCE BY THE PURCHASER AND THE VENDORS OF THEIR OBLIGATIONS UNDER THIS AGREEMENT
7.1. PURCHASER'S CONDITIONS
The obligation of the Purchaser to complete the transactions contemplated by this Agreement shall be subject to the satisfaction of, or compliance with, at or before the Closing Time, of each of the following conditions (each of which is hereby acknowledged to be inserted for the exclusive benefit of the Purchaser and may be waived by it in whole or in part):
7.1.1. TRUTH AND ACCURACY OF REPRESENTATIONS OF THE VENDORS AT THE CLOSING
TIME - All of the representations and warranties of the Vendors made
in or under this Agreement, including, without limitation, the
representations and warranties made by the Vendors as set forth in
Section 4.1 and by the 765448 Vendors as set forth in Section 4.2,
shall be true and correct in all material respects as at the Closing
Time and with the same effect as if made at and as of the Closing Time
(except as such representations and warranties may be affected by the
occurrence of events or transactions expressly contemplated and
permitted by this Agreement) and the Purchaser shall have received a
certificate from each of the Vendors confirming the truth and
correctness in all material respects of the representations and
warranties of the Vendors.
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7.1.2. PERFORMANCE OF OBLIGATIONS - The Vendors shall have performed or complied with, in all material respects, all their obligations, covenants and agreements under this Agreement.
7.1.3. RECEIPT OF CLOSING DOCUMENTATION - All instruments of conveyance and other documentation and assurances relating to the sale and purchase of the Purchased Shares including, without limitation, share certificates duly endorsed for transfer (the "Closing Documents") and all actions and proceedings taken on or prior to the Closing in connection with performance by the Vendors of their obligations under this Agreement shall be satisfactory to the Purchaser and its counsel, acting reasonably, and the Purchaser shall have received copies of all such documentation or other evidence as it may reasonably request in order to establish the consummation of the transactions contemplated under this Agreement and the taking of all corporate proceedings in connection with those transactions in compliance with this Section 7.1, in form (as to certification and otherwise) and substance satisfactory to the Purchaser and its counsel.
7.1.4. CLOSING DOCUMENTS - Without limiting the generality of Section 7.1.3, the Purchaser shall have received at or before the Closing Time sufficient duly executed original copies of the following:
(a) certified copies of resolutions of (i) the board of directors of the Company, (ii) the board of directors of 765448, and (iii) the board of directors and shareholders of any Vendor that is a corporation, approving the transfer of the Purchased Shares as applicable and this Agreement and the transactions contemplated under this Agreement;
(b) statutory declaration of each Vendor concerning residence of the Vendor;
(c) certificate of each Vendor confirming the matters contemplated in
Section 7.1.1 and confirming that all conditions under this
Agreement in favour of the Vendor have been either fulfilled or
waived;
(d) certificates of incumbency of the Company and 765448;
(e) certificates of status of the Company and 765448;
(f) share certificates representing the Purchased Shares duly endorsed for transfer;
(g) share certificates representing the Other Shares registered in the name of 765448;
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(h) the Holdback Agreement executed by the Vendors;
(i) Non-Competition Agreement for each Vendor and, if applicable, its principal shareholders;
(j) Employment Agreements with Glenys Schick and any other Key Employee.
7.1.5. OPINION OF COUNSEL FOR THE VENDORS - The Purchaser shall have
received an opinion dated the Closing Date from counsel for the
Vendors, confirming the matters warranted in subsections 4.1.1 and
4.2.1 Organization and Good Standing, 4.1.5 and 4.2.5 Due
Authorization, 4.1.6, 4.2.6 Authorized Capital, and 4.1.10, 4.1.11 and
4.2.10 Enforceability of Obligations, and such other matters as
Purchaser's counsel may require.
7.1.6. CONSENTS TO ASSIGNMENT - All consents, approvals or assignments from or notifications to any Person required under the terms of any of the Contracts, Leases (which shall include a landlord's consent and an estoppel certificate), Environmental Permits, Licenses or Permits with respect to the acquisition of control of the Company by the Purchaser, or otherwise in connection with the consummation of the transactions contemplated under this Agreement, that are listed in Schedule 4.1.40 shall have been duly obtained or given, as the case may be, on or before the Closing Time.
7.1.7. CONSENTS, AUTHORIZATIONS AND REGISTRATIONS - All consents, approvals, orders and authorizations of or from Governmental Authority required in connection with the completion of the transactions contemplated in this Agreement shall have been obtained on or prior to the Closing Time.
7.1.8. CERTIFICATE AS TO STATUS OF ASSETS - A senior officer of the Company shall have executed and delivered to the Purchaser, in a form satisfactory to the Purchaser, acting reasonably, a certificate stating that, as of the Closing Date, there has been no material damage to or adverse change in the condition of the assets of the Company or to the nature of the Business from the date hereof.
7.1.9. CERTIFICATE AS TO ENCUMBRANCES - A senior officer of the Company shall have executed and delivered to the Purchaser in a form satisfactory to the Purchaser, acting reasonably, a certificate stating that as of the Closing Date, there are no liens, charges, encumbrances or adverse claims recorded against the Company or its assets, other than as disclosed in the audited financial statements of the Company for the most recent fiscal year.
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7.1.10. NO ACTIONS TAKEN RESTRICTING SALE - No action or proceeding by law or in equity shall be pending or threatened by any Person to enjoin, restrict or prohibit the purchase and sale of any of the Purchased Shares contemplated under this Agreement.
7.1.11. OFFICERS AND DIRECTORS OF COMPANY - There shall have been delivered to the Purchaser on or before the Closing Time, the resignation of each director of the Company and 765448, effective as and from Closing, together with a comprehensive release from such person of all his or her claims respectively.
7.1.12. RESIDENCE STATUS OF VENDORs - Each of the Vendors shall have delivered to the Purchaser evidence satisfactory to the Purchaser, acting reasonably, that it is a resident of Canada within the meaning of the Income Tax Act (Canada) at the Closing Date.
7.1.13. NUMBER OF SHARES - The Shares and the Other Shares shall constitute not less than 100% of the issued and outstanding shares of the Company. The 765448 Shares shall constitute not less than 100% of the issues and outstanding shares of 765448.
7.2. VENDORS' CONDITIONS
The obligations of the Vendors to complete the transactions contemplated by this Agreement shall be subject to the satisfaction of, or compliance with, at or before the Closing Time, each of the following conditions precedent (each of which is hereby acknowledged to be inserted for the exclusive benefit of the Vendors and may be waived by the Vendors in whole or in part);
7.2.1. TRUTH AND ACCURACY OF REPRESENTATIONS OF THE PURCHASER AT CLOSING
TIME - All of the representations and warranties of the Purchaser made
in or under this Agreement, including, without limitation, the
representations and warranties made by the Purchaser and set forth in
Section 4.3, shall be true and correct in all material respects as at
the Closing Time and with the same effect as if made at and as of the
Closing Time (except as such representations and warranties may be
affected by the occurrence of events or transactions contemplated and
permitted hereby) and the Vendors shall have received a certificate
from a senior officer of the Purchaser confirming the truth and
correctness in all material respects of such representations and
warranties of the Purchaser.
7.2.2. PERFORMANCE OF AGREEMENTS - The Purchaser shall have performed or complied with, in all respects, all of its other obligations, covenants and agreements under this Agreement.
7.2.3. RECEIPT OF CLOSING DOCUMENTATION - All documentation and assurances relating to the performance by the Purchaser of its
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obligations under this Agreement shall be satisfactory to the Vendors and their counsel, acting reasonably, and the Vendors shall have received copies of all such documentation or other evidence as they may reasonably request in order to establish the consummation of the transactions contemplated under this Agreement and the taking of all corporate proceedings in connection with those transactions in compliance with this Section 7.2, in form (as to certification and otherwise) and substance satisfactory to the Vendors and their counsel.
7.2.4. CLOSING DOCUMENTATION - Without limiting the generality of Section 7.2.3, the Vendors shall have received at or before the Closing Time sufficient duly executed original copies of the following:
(a) certified copy of a resolution of the board of directors of the Purchaser approving this Agreement and the transactions contemplated under this Agreement;
(b) certificate of the Purchaser confirming the matters contemplated in Section 7.2.1 and that all conditions under this Agreement in favour of the Purchaser have either been fulfilled or waived;
(c) certificate of incumbency of the Purchaser;
(d) certificate of status of the Purchaser;
(e) the Holdback Agreement executed by the Purchaser and Purchaser's Solicitors.
7.2.5. NO ACTIONS TAKEN RESTRICTING SALE - No action or proceeding by law or in equity shall be pending or threatened by any Person to enjoin, restrict or prohibit the purchase and sale of any of the Purchased Shares contemplated under this Agreement.
7.2.6. PAYMENT OF PURCHASE PRICE - The Purchaser shall have tendered payment of the Purchased Price in accordance with the terms hereof.
7.3. FAILURE TO SATISFY CONDITIONS
If any condition set forth in Sections 7.1 or 7.2 is not satisfied on or before the Closing Time, the Party entitled to the benefit of such condition (the "First Party") may terminate this Agreement by notice in writing to the other Parties and in such event the First Party shall be released from all obligations under this Agreement, and unless the First Party can show that the condition or conditions which have not been satisfied and for which the First Party has terminated this Agreement are reasonably capable of being performed or caused to be performed by a Party then the other Parties shall also be released from all obligations under this Agreement, except that the First Party shall be entitled to waive compliance with any such conditions, obligations or covenants in whole
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or in part if it sees fit to do so without prejudice to any of its rights of termination in the event of non-performance of any other condition, obligation or covenant, or whole or in part.
7.4. DESTRUCTION, EXPROPRIATION, ETC.
If, prior to the Closing Time, there occurs any material destruction or damage by fire or other cause or hazard to any of the properties or assets of the Company, or if such properties or assets or any material part of them are expropriated or forcefully taken by any Governmental Authority or if notice of intention to expropriate a material part of such properties or assets has been filed in accordance with applicable legislation, or if there shall have been a material adverse change in the Company, its condition (including its financial condition), assets or Business or there shall have been a material increase in its liabilities, then the Purchaser may, at its option, but shall not be obliged to, terminate this Agreement by notice to the other Parties.
8. CLOSING ARRANGEMENTS
8.1. TIME AND PLACE OF CLOSING
The completion of the transactions contemplated by this Agreement shall take place at the Closing Time on the Closing Date at the offices of Miller Thomson LLP, 3000, 700 - 9th Avenue S.W., Calgary, Alberta T2P 3V4, or at such other place as may be agreed upon between the Parties.
8.2. CLOSING ARRANGEMENTS
At the Closing Time, upon fulfilment of all the conditions under this Agreement which have not been waived in writing by the Purchaser or the Vendors respectively:
8.2.1. PURCHASE AND SALE OF SHARES - The Vendors shall sell and the Purchaser shall purchase the Purchased Shares for the Purchase Price.
8.2.2. DELIVERY OF CLOSING DOCUMENTS - The Parties shall respectively deliver the Closing Documents.
8.2.3. ACTUAL POSSESSION - The Vendors shall deliver actual possession to the Purchaser of certificates representing the Purchased Shares.
8.2.4. PAYMENT - On the fulfillment of the foregoing terms of this Article 8, the Purchaser shall pay and satisfy the Purchase Price in accordance with the terms hereof.
8.3. TENDER
Any tender of documents or money hereunder may be made upon the Parties or their respective counsel.
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9. NOTICES
9.1. DELIVERY OF NOTICE
Any notice, direction or other instrument required or permitted to be given by a Party under this Agreement shall be in writing and shall be sufficiently given if delivered personally, or transmitted by telecopier or other form of electronic communication during the transmission of which no indication of failure of receipt is communicated to the sender:
9.1.1. in the case of a notice to all or any of the Vendors at:
c/o Glenys Schick
Kelly, Luttmer & Associates Ltd.
Suite 700, 910 - 7th Avenue SW
Calgary, AB T2P 3N8
Fax No.: (403) 237-8969
9.1.2. in the case of a notice to the Purchaser at:
Sykes Canada Corporation
248 Pall Mall Street
London ON N6A 4T4
Attention: Bruce Woods, President
Fax No.: (519) 435-5892
Any such notice, direction or other instrument, if delivered personally, shall be deemed to have been given and received on the date on which it was received at such address, provided that if such day is not a Business Day, then the notice shall be deemed to have been given and received on the Business Day next following such day. Any notice transmitted by telecopier or other form of electronic communication shall be deemed to have been given and received on the date of its transmission provided that if such day is not a Business Day or if it is received after the end of normal business hours on the date of its transmission at the place of receipt, then it shall be deemed to have been given and received at the opening of business in the office of the recipient on the first Business Day next following the transmission thereof. If normal telecopier or other form of electronic communication is interrupted by strike, slowdown, force majeure or other cause, a notice, direction or other instrument sent by the impaired means of communication will not be deemed to be received until actually received, and the party sending the notice shall utilize any other such service which has not been so interrupted to deliver such notice.
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10. GENERAL
10.1. TIME
Time shall be of the essence hereof.
10.2. ASSIGNMENT/SUCCESSORS AND ASSIGNS
Neither this Agreement nor any rights or obligations under this Agreement shall be assignable by the Company or a Vendor. The Purchaser may assign this Agreement upon the Consent of the Vendors. Subject to the foregoing, this Agreement shall enure to the benefit of and be binding upon the Parties and their respective heirs, executors, administrators, successors (including any successor by reason of amalgamation of any Party) and permitted assigns.
10.3. FURTHER ASSURANCES
Each Party agrees that upon the written request of any other Party, it will do all such acts and execute all such further documents, conveyances, deeds, assignments, transfers and the like, and will cause the doing of all such acts and will cause the execution of all such further documents as are within its power to cause the doing or execution of, as the other Party may from time to time reasonably request be done and/or executed as may be required to consummate the transactions contemplated under this Agreement or as may be necessary or desirable to effect the purpose of this Agreement or any document, agreement or instrument delivered under this Agreement and to carry out their provisions or to better or more properly or fully evidence or give effect to the transactions contemplated under this Agreement, whether before or after the Closing.
10.4. CONFIDENTIALITY AND PRESS RELEASE
The Company and each Vendor agree to keep confidential the existence and terms of this Agreement and the fact that discussions between the Parties with respect to the transactions contemplated by this Agreement have taken place. In the event that the Purchaser determines in its sole discretion that it is necessary to issue a press release with respect to the proposed purchase, the Purchaser will provide Vendors' Solicitors with a copy of the press release prior to the time that it is distributed provided that the names of customers of the Company shall not be mentioned in any such press release without the prior written approval of such customer.
10.5. COUNTERPARTS
This Agreement may be executed by the Parties in separate facsimile or original counterparts each of which when so executed and delivered (including by facsimile) shall be an original, and all such facsimile or original counterparts shall together constitute one and the same instrument.
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10.6. INDEPENDENT LEGAL ADVICE
EACH VENDOR AGREES THAT SUCH VENDOR AND PRINCIPAL HAS BEEN GIVEN THE OPPORTUNITY TO OBTAIN INDEPENDENT LEGAL ADVICE IN CONNECTION WITH THE EXECUTION OF THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY.
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IN WITNESS WHEREOF the Parties have duly executed this Agreement as of the date and year first above written.
BRENDAN D. ADAMS PROFESSIONAL
CORPORATION
By: /s/ Brendan D. Adams ------------------------------------ Name: Brendan D. Adams Title: |
I/we have authority to bind the Corporation
HINTON, BERNIER CONSULTING LTD.
By: /s/ M. Hinton ------------------------------------ Name: M. Hinton Title: |
I/we have authority to bind the Corporation
/s/ Martin Law ------------------------------------- ---------------------------------------- Witness MARTIN LAW /s/ Terry Lindberg ------------------------------------- ---------------------------------------- Witness TERRY LINDBERG /s/ Yvon LaCour ------------------------------------- ---------------------------------------- Witness YVON LaCOUR /s/ Joan Schafer ------------------------------------- ---------------------------------------- Witness JOAN SCHAFER /s/ Lee Hogan ------------------------------------- ---------------------------------------- Witness LEE HOGAN /s/ Glenys Schick ------------------------------------- ---------------------------------------- Witness GLENYS SCHICK /s/ Andrea Smith ------------------------------------- ---------------------------------------- Witness ANDREA SMITH /s/ Eileen Shegelman ------------------------------------- ---------------------------------------- Witness EILEEN SHEGELMAN |
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765448 ALBERTA LIMITED
By: /s/ Glenys Schick ------------------------------------ Name: Glenys Schick Title: President |
I/we have authority to bind the Corporation
KELLY, LUTTMER & ASSOCIATES LIMITED
By: /s/ Glenys Schick ------------------------------------ Name: Glenys Schick Title: President |
I/we have authority to bind the Corporation
SYKES CANADA CORPORATION
By: /s/ Bruce Woods ------------------------------------ Name: Bruce Woods Title: President |
I/we have authority to bind the Corporation
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SCHEDULE A
TO THE SHARE PURCHASE AGREEMENT FOR
KELLY, LUTTMER & ASSOCIATES LIMITED
LIST OF HOLDERS OF SHARES, OTHER SHARES AND 765448 SHARES,
AND PURCHASE PRICE PAYABLE
(2) (3) (4) (5) (6) (1) Number of Number of Number of Portion of Consideration Name Shares Other Shares 765448 Shares Purchase Price Paid in Holdback ------------------- -------------- -------------- ------------- -------------- ---------------- Brendan Adams 4000 Class A N/A N/A 240,000 $10,878.79 Professional Corporation Hinton Bernier 11,000 Class A N/A N/A 660,000 $29,916.68 Consulting Ltd. Martin Law 5000 Class A N/A N/A 300,000 $13,598.49 Terry Lindberg 3000 Class A N/A N/A 180,000 $ 8,159.09 Yvon LaCour 10,000 Class A N/A N/A 600,000 $27,196.98 Joan Schafer 11,000 Class A N/A N/A 660,000 $29,916.68 Lee Hogan 7,000 Class A N/A N/A 420,000 $19,037.89 Glenys Schick N/A N/A 100 Class A $550,050 $24,932.84 Andrea Smith N/A N/A 10 Class B $ 55,005 $ 2,493.28 Eileen Shegelman N/A N/A 10 Class C $ 55,005 $ 2,493.28 765448 Alberta Ltd. N/A 11,001 Class A N/A N/A N/A |
Exhibit 3.3
BYLAWS
OF
SYKES ENTERPRISES, INCORPORATED
(A FLORIDA CORPORATION)
AMENDED AND RESTATED AS OF APRIL 2, 2004
TABLE OF CONTENTS
Page ---- ARTICLE 1 DEFINITIONS Section 1.1 Definitions............................................... 1 ARTICLE 2 OFFICES Section 2.1 Principal and Business Offices............................ 1 Section 2.2 Registered Office......................................... 1 ARTICLE 3 SHAREHOLDERS Section 3.1 Annual Meeting............................................ 1 Section 3.2 Special Meetings.......................................... 2 Section 3.3 Place of Meeting.......................................... 3 Section 3.4 Notice of Meeting......................................... 3 Section 3.5 Waiver of Notice.......................................... 3 Section 3.6 Fixing of Record Date..................................... 4 Section 3.7 Shareholders' List for Meetings........................... 5 Section 3.8 Quorum.................................................... 5 Section 3.9 Voting of Shares.......................................... 6 Section 3.10 Vote Required............................................. 6 Section 3.11 Conduct of Meeting........................................ 6 Section 3.12 Inspectors of Election.................................... 6 Section 3.13 Proxies................................................... 7 Section 3.14 Action by Shareholders Without Meeting.................... 7 Section 3.15 Acceptance of Instruments Showing Shareholder Action...... 8 ARTICLE 4 BOARD OF DIRECTORS Section 4.1 General Powers and Number................................. 9 Section 4.2 Qualifications............................................ 9 Section 4.3 Term of Office............................................ 9 Section 4.4 Nominations of Directors.................................. 9 Section 4.5 Removal................................................... 10 Section 4.6 Resignation............................................... 11 Section 4.7 Vacancies................................................. 11 |
Section 4.8 Compensation.............................................. 11 Section 4.9 Regular Meetings.......................................... 11 Section 4.10 Special Meetings.......................................... 11 Section 4.11 Notice.................................................... 12 Section 4.12 Waiver of Notice.......................................... 12 Section 4.13 Quorum and Voting......................................... 12 Section 4.14 Conduct of Meetings....................................... 12 Section 4.15 Committees................................................ 13 Section 4.16 Action Without Meeting.................................... 13 ARTICLE 5 OFFICERS Section 5.1 Number.................................................... 14 Section 5.2 Election and Term of Office............................... 14 Section 5.3 Removal................................................... 14 Section 5.4 Resignation............................................... 14 Section 5.5 Vacancies................................................. 14 Section 5.6 Chairman of the Board..................................... 14 Section 5.7 President................................................. 15 Section 5.8 Vice Presidents........................................... 15 Section 5.9 Secretary................................................. 16 Section 5.10 Treasurer................................................. 16 Section 5.11 Assistant Secretaries and Assistant Treasurers............ 16 Section 5.12 Other Assistants and Acting Officers...................... 16 Section 5.13 Salaries.................................................. 16 ARTICLE 6 CONTRACTS, CHECKS AND DEPOSITS; SPECIAL CORPORATE ACTS Section 6.1 Contracts................................................. 17 Section 6.2 Checks, Drafts, etc....................................... 17 Section 6.3 Deposits.................................................. 17 Section 6.4 Voting of Securities Owned by Corporation................. 17 ARTICLE 7 CERTIFICATES FOR SHARES; TRANSFER OF SHARES Section 7.1 Consideration for Shares.................................. 17 Section 7.2 Certificates for Shares................................... 18 Section 7.3 Transfer of Shares........................................ 18 Section 7.4 Restrictions on Transfer.................................. 19 Section 7.5 Lost, Destroyed, or Stolen Certificates................... 19 Section 7.6 Stock Regulations......................................... 19 |
ARTICLE 8 SEAL Section 8.1 Seal...................................................... 19 ARTICLE 9 BOOKS AND RECORDS Section 9.1 Books and Records......................................... 19 Section 9.2 Shareholders' Inspection Rights........................... 19 Section 9.3 Distribution of Financial Information..................... 20 Section 9.4 Other Reports............................................. 20 ARTICLE 10 INDEMNIFICATION Section 10.1 Provision of Indemnification.............................. 20 ARTICLE 11 AMENDMENTS Section 11.1 Power to Amend............................................ 20 |
ARTICLE 1
DEFINITIONS
Section 1.1 Definitions. The following terms shall have the following meanings for purposes of these bylaws:
"Act" means the Florida Business Corporation Act, as it may be amended from time to time, or any successor legislation thereto.
"Corporation" means Sykes Enterprises, Incorporated, a Florida corporation.
"Deliver" or "delivery" includes delivery by hand; United States mail; facsimile, telegraph, teletype or other form of electronic transmission, with written confirmation or other acknowledgment of receipt; and private mail carriers handling nationwide mail services.
"Principal office" means the office (within or without the State of Florida) where the Corporation's principal executive offices are located, as designated in the Articles of Incorporation until an annual report has been filed with the Florida Department of State, and thereafter as designated in the annual report.
ARTICLE 2
OFFICES
Section 2.1 Principal and Business Offices. The Corporation may have such principal and other business offices, either within or without the State of Florida, as the Board of Directors may designate or as the business of the Corporation may require from time to time.
Section 2.2 Registered Office. The registered office of the Corporation required by the Act to be maintained in the State of Florida may but need not be identical with the principal office if located in the State of Florida, and the address of the registered office may be changed from time to time by the Board of Directors or by the registered agent. The business office of the registered agent of the Corporation shall be identical to such registered office.
ARTICLE 3
SHAREHOLDERS
Section 3.1 Annual Meeting.
(a) Call by Directors. The annual meeting of shareholders shall be held within six months after the close of each fiscal year of the Corporation on a date and at a time and place designated by the Board of Directors, for the purpose of electing directors and for the transaction of such other business as may come before the meeting.
(b) Business At Annual Meeting. At an annual meeting of the
shareholders of the Corporation, only such business shall be conducted as shall
have been properly brought before the meeting. To be properly brought before an
annual meeting, business must be (1) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (2)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (3) otherwise properly brought before the meeting by a
shareholder. For business to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a shareholder's notice shall be
received at the principal business office of the Corporation no later than the
date designated for receipt of shareholders' proposals in a prior public
disclosure made by the Corporation. If there has been no such prior public
disclosure, then to be timely, a shareholder's notice must be delivered to or
mailed and received at the principal business office of the Corporation not less
than sixty (60) days nor more than ninety (90) days prior to the annual meeting
of shareholders; provided, however, that in the event that less than seventy
(70) days' notice of the date of the meeting is given to shareholders by notice
or prior public disclosure, notice by the shareholders, to be timely, must be
received by the Corporation not later than the close of business on the tenth
day following the day on which the Corporation gave notice or made a public
disclosure of the date of the annual meeting of the shareholders. A
shareholder's notice to the Secretary shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (a) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (b) the name and address, as
they appear on the Corporation's stock books, of the shareholders proposing such
business, (c) the class and number of shares of the Corporation which are
beneficially owned by the shareholder, (d) any material interest of the
shareholder in such business, and (e) the same information required by clauses
(b), (c) and (d) above with respect to any other shareholder that, to the
knowledge of the shareholder proposing such business, supports such proposal.
Notwithstanding anything in these bylaws to the contrary, no business shall be
conducted at an annual meeting except in accordance with the procedures set
forth in this Section 0. The Chairman of an annual meeting shall, if the facts
warrant, determine and declare to the annual meeting that a matter of business
was not properly brought before the meeting in accordance with the provisions of
this Section 0, and if the Chairman shall so determine, the Chairman shall so
declare at the meeting and any such business not properly brought before the
meeting shall not be transacted.
Section 3.2 Special Meetings.
(a) Call by Directors or President. Special meetings of shareholders of the Corporation, for any purpose or purposes, may be called by the Board of Directors, the Chairman of the Board (if any) or the President.
(b) Call by Shareholders. The Corporation shall call a special meeting of the shareholders in the event that the holders of at least fifty percent (50%) of all of the votes entitled to be cast on any issue proposed to be considered at a proposed special meeting sign, date, and deliver to the Secretary, one or more demands for the meeting describing one or
more purposes for which it is to be held. The Corporation shall give notice of such a special meeting within sixty (60) days after the date that the demand is delivered to the Corporation.
Section 3.3 Place of Meeting. The Board of Directors may designate any place, either within or without the State of Florida, as the place of meeting for any annual or special meeting of shareholders. If no designation is made, the place of meeting shall be the principal office of the Corporation.
Section 3.4 Notice of Meeting.
(a) Content and Delivery. Written notice stating the date, time, and place of any meeting of shareholders and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten days nor more than sixty days before the date of the meeting by or at the direction of the President or the Secretary, or the officer or persons duly calling the meeting, to each shareholder of record entitled to vote at such meeting and to such other persons as required by the Act. Unless the Act requires otherwise, notice of an annual meeting need not include a description of the purpose or purposes for which the meeting is called. If mailed, notice of a meeting of shareholders shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at his or her address as it appears on the stock record books of the Corporation, with postage thereon prepaid.
(b) Notice of Adjourned Meetings. If an annual or special meeting of shareholders is adjourned to a different date, time, or place, the Corporation shall not be required to give notice of the new date, time, or place if the new date, time, or place is announced at the meeting before adjournment; provided, however, that if a new record date for an adjourned meeting is or must be fixed, the Corporation shall give notice of the adjourned meeting to persons who are shareholders as of the new record date who are entitled to notice of the meeting.
(c) No Notice Under Certain Circumstances. Notwithstanding the other provisions of this Section, no notice of a meeting of shareholders need be given to a shareholder if: (1) an annual report and proxy statement for two consecutive annual meetings of shareholders, or (2) all, and at least two, checks in payment of dividends or interest on securities during a twelve-month period have been sent by first-class, United States mail, addressed to the shareholder at his or her address as it appears on the share transfer books of the Corporation, and returned undeliverable. The obligation of the Corporation to give notice of a shareholders' meeting to any such shareholder shall be reinstated once the Corporation has received a new address for such shareholder for entry on its share transfer books.
Section 3.5 Waiver of Notice.
(a) Written Waiver. A shareholder may waive any notice required by the Act or these bylaws before or after the date and time stated for the meeting in the notice. The
waiver shall be in writing and signed by the shareholder entitled to the notice, and be delivered to the Corporation for inclusion in the minutes or filing with the corporate records. Neither the business to be transacted at nor the purpose of any regular or special meeting of shareholders need be specified in any written waiver of notice.
(b) Waiver by Attendance. A shareholder's attendance at a meeting, in person or by proxy, waives objection to all of the following: (1) lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting; and (2) consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented.
Section 3.6 Fixing of Record Date.
(a) General. The Board of Directors may fix in advance a date as the record date for the purpose of determining shareholders entitled to notice of a shareholders' meeting, entitled to vote, or take any other action. In no event may a record date fixed by the Board of Directors be a date preceding the date upon which the resolution fixing the record date is adopted or a date more than seventy days before the date of meeting or action requiring a determination of shareholders.
(b) Special Meeting. The record date for determining shareholders entitled to demand a special meeting shall be the close of business on the date the first shareholder delivers his or her demand to the Corporation.
(c) Shareholder Action by Unanimous Written Consent. If no prior action is required by the Board of Directors pursuant to the Act, the record date for determining shareholders entitled to take action without a meeting shall be the close of business on the date the first signed written consent with respect to the action in question is delivered to the Corporation, but if prior action is required by the Board of Directors pursuant to the Act, such record date shall be the close of business on the date on which the Board of Directors adopts the resolution taking such prior action unless the Board of Directors otherwise fixes a record date. Any action of the shareholders of the Corporation taken without a meeting shall be effected only upon the unanimous written consent of all shareholders entitled to take such action.
(d) Absence of Board Determination for Shareholders' Meeting. If the Board of Directors does not determine the record date for determining shareholders entitled to notice of and to vote at an annual or special shareholders' meeting, such record date shall be the close of business on the day before the first notice with respect thereto is delivered to shareholders.
(e) Adjourned Meeting. A record date for determining shareholders entitled to notice of or to vote at a shareholders' meeting is effective for any adjournment of the meeting unless the Board of Directors fixes a new record date, which it must do if the meeting
is adjourned to a date more than 120 days after the date fixed for the original meeting.
Section 3.7 Shareholders' List for Meetings.
(a) Preparation and Availability. After a record date for a meeting of shareholders has been fixed, the Corporation shall prepare an alphabetical list of the names of all of the shareholders entitled to notice of the meeting. The list shall be arranged by class or series of shares, if any, and show the address of and number of shares held by each shareholder. Such list shall be available for inspection by any shareholder for a period of ten days prior to the meeting or such shorter time as exists between the record date and the meeting date, and continuing through the meeting, at the Corporation's principal office, at a place identified in the meeting notice in the city where the meeting will be held, or at the office of the Corporation's transfer agent or registrar, if any. A shareholder or his or her agent may, on written demand, inspect the list, subject to the requirements of the Act, during regular business hours and at his or her expense, during the period that it is available for inspection pursuant to this Section. A shareholder's written demand to inspect the list shall describe with reasonable particularity the purpose for inspection of the list, and the Corporation may deny the demand to inspect the list if the Secretary determines that the demand was not made in good faith and for a proper purpose or if the list is not directly connected with the purpose stated in the shareholder's demand, all subject to the requirements of Section 607.1602(3) of the Act. Notwithstanding anything herein to the contrary, the Corporation shall make the shareholders' list available at any annual meeting or special meeting of shareholders and any shareholder or his or her agent or attorney may inspect the list at any time during the meeting or any adjournment thereof.
(b) Prima Facie Evidence. The shareholders' list is prima facie evidence of the identity of shareholders entitled to examine the shareholders' list or to vote at a meeting of shareholders.
(c) Failure to Comply. If the requirements of this Section have not been substantially complied with, or if the Corporation refuses to allow a shareholder or his or her agent or attorney to inspect the shareholders' list before or at the meeting, on the demand of any shareholder, in person or by proxy, who failed to get such access, the meeting shall be adjourned until such requirements are complied with.
(d) Validity of Action Not Affected. Refusal or failure to prepare or make available the shareholders' list shall not affect the validity of any action taken at a meeting of shareholders.
Section 3.8 Quorum.
(a) What Constitutes a Quorum. Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. If the Corporation has only one class of stock outstanding, such class shall constitute a separate voting group for purposes of this Section. Except as otherwise provided in the Act, a majority of the votes entitled to be cast on the matter shall constitute a quorum of the voting group for action on that matter.
(b) Presence of Shares. Once a share is represented for any purpose at a meeting, other than for the purpose of objecting to holding the meeting or transacting business at the meeting, it is considered present for purposes of determining whether a quorum exists for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for the adjourned meeting.
(c) Adjournment in Absence of Quorum. Where a quorum is not present, the holders of a majority of the shares represented and who would be entitled to vote at the meeting if a quorum were present may adjourn such meeting from time to time.
Section 3.9 Voting of Shares. Except as provided in the Articles of Incorporation or the Act, each outstanding share, regardless of class, is entitled to one vote on each matter voted on at a meeting of shareholders.
Section 3.10 Vote Required.
(a) Matters Other Than Election of Directors. If a quorum exists, except in the case of the election of directors, action on a matter shall be approved by a majority of the votes cast at such meeting, unless the Act or the Articles of Incorporation require a greater number of affirmative votes.
(b) Election of Directors. Each director shall be elected by a plurality of the votes cast by the shares entitled to vote in the election of directors at a meeting at which a quorum is present. Each shareholder who is entitled to vote at an election of directors has the right to vote the number of shares owned by him or her for as many persons as there are directors to be elected. Shareholders do not have a right to cumulate their votes for directors.
Section 3.11 Conduct of Meeting. The Chairman of the Board of Directors, and if there be none, or in his or her absence, the President, and in his or her absence, a Vice President in the order provided under the Section of these bylaws titled "Vice Presidents," and in their absence, any person chosen by the shareholders present shall call a shareholders' meeting to order and shall act as presiding officer of the meeting, and the Secretary of the Corporation shall act as secretary of all meetings of the shareholders, but, in the absence of the Secretary, the presiding officer may appoint any other person to act as secretary of the meeting. The presiding officer of the meeting shall have broad discretion in determining the order of business at a shareholders' meeting. The presiding officer's authority to conduct the
meeting shall include, but in no way be limited to, recognizing shareholders entitled to speak, calling for the necessary reports, stating questions and putting them to a vote, calling for nominations, and announcing the results of voting. The presiding officer also shall take such actions as are necessary and appropriate to preserve order at the meeting. The rules of parliamentary procedure need not be observed in the conduct of shareholders' meetings.
Section 3.12 Inspectors of Election. Inspectors of election may be appointed by the Board of Directors to act at any meeting of shareholders at which any vote is taken. If inspectors of election are not so appointed, the presiding officer of the meeting may, and on the request of any shareholder shall, make such appointment. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his or her ability. The inspectors of election shall determine the number of shares outstanding, the voting rights with respect to each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; receive votes, ballots, consents, and waivers; hear and determine all challenges and questions arising in connection with the vote; count and tabulate all votes, consents, and waivers; determine and announce the result; and do such acts as are proper to conduct the election or vote with fairness to all shareholders. No inspector, whether appointed by the Board of Directors or by the person acting as presiding officer of the meeting, need be a shareholder. The inspectors may appoint and retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. On request of the person presiding at the meeting, the inspectors shall make a report in writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them.
Section 3.13 Proxies.
(a) Appointment. At all meetings of shareholders, a shareholder may vote his or her shares in person or by proxy. A shareholder may appoint a proxy to vote or otherwise act for the shareholder by signing an appointment form, either personally or by his or her attorney-in-fact. If an appointment form expressly provides, any proxy holder may appoint, in writing, a substitute to act in his or her place. A telegraph, telex, or a cablegram, a facsimile transmission of a signed appointment form, or a photographic, photostatic, or equivalent reproduction of a signed appointment form is a sufficient appointment form.
(b) When Effective. An appointment of a proxy is effective when received by the Secretary or other officer or agent of the Corporation authorized to tabulate votes. An appointment is valid for up to eleven (11) months unless a longer period is expressly provided in the appointment form. An appointment of a proxy is revocable by the shareholder unless the appointment form conspicuously states that it is irrevocable and the appointment is coupled with an interest.
Section 3.14 Action by Shareholders Without Meeting.
(a) Requirements for Unanimous Written Consent. Any action required or
permitted by the Act to be taken at any annual or special meeting of shareholders may be taken without a meeting, without prior notice, and without a vote if one or more written consents describing the action taken shall be signed and dated by the holders of all (and not less than all) of the outstanding capital stock of the Corporation entitled to vote thereon. Such consents must be delivered to the principal office of the Corporation in Florida, the Corporation's principal place of business, the Secretary, or another officer or agent of the Corporation having custody of the books in which proceedings of meetings of shareholders are recorded. No written consent shall be effective to take the corporate action referred to therein unless, within sixty days of the date of the earliest dated consent delivered in the manner required herein, written consents signed by the number of holders required to take action are delivered to the Corporation by delivery as set forth in this Section.
(b) Revocation of Written Consents. Any written consent may be revoked prior to the date that the Corporation receives the required number of consents to authorize the proposed action. No revocation is effective unless in writing and until received by the Corporation at its principal office in Florida or its principal place of business, or received by the Secretary or other officer or agent having custody of the books in which proceedings of meetings of shareholders are recorded.
(c) Same Effect as Vote at Meeting. A consent signed under this
Section has the effect of a meeting vote and may be described as such in any
document. Whenever action is taken by written consent pursuant to this Section,
the written consent of the shareholders consenting thereto or the written
reports of inspectors appointed to tabulate such consents shall be filed with
the minutes of proceedings of shareholders.
Section 3.15 Acceptance of Instruments Showing Shareholder Action. If the name signed on a vote, consent, waiver, or proxy appointment corresponds to the name of a shareholder, the Corporation, if acting in good faith, may accept the vote, consent, waiver, or proxy appointment and give it effect as the act of a shareholder. If the name signed on a vote, consent, waiver, or proxy appointment does not correspond to the name of a shareholder, the Corporation, if acting in good faith, may accept the vote, consent, waiver, or proxy appointment and give it effect as the act of the shareholder if any of the following apply:
(a) The shareholder is an entity and the name signed purports to be that of an officer or agent of the entity;
(b) The name signed purports to be that of a administrator, executor, guardian, personal representative, or conservator representing the shareholder and, if the Corporation requests, evidence of fiduciary status acceptable to the Corporation is presented with respect to the vote, consent, waiver, or proxy appointment;
(c) The name signed purports to be that of a receiver or trustee in bankruptcy, or assignee for the benefit of creditors of the shareholder and, if the Corporation requests, evidence of this status acceptable to the Corporation is presented with respect to the vote, consent, waiver, or proxy appointment;
(d) The name signed purports to be that of a pledgee, beneficial owner, or attorney-in-fact of the shareholder and, if the Corporation requests, evidence acceptable to the Corporation of the signatory's authority to sign for the shareholder is presented with respect to the vote, consent, waiver, or proxy appointment; or
(e) Two or more persons are the shareholder as cotenants or fiduciaries and the name signed purports to be the name of at least one of the co-owners and the person signing appears to be acting on behalf of all co-owners.
The Corporation may reject a vote, consent, waiver, or proxy appointment if the Secretary or other officer or agent of the Corporation who is authorized to tabulate votes, acting in good faith, has reasonable basis for doubt about the validity of the signature on it or about the signatory's authority to sign for the shareholder.
ARTICLE 4
BOARD OF DIRECTORS
Section 4.1 General Powers and Number. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation managed under the direction of, the Board of Directors. The Corporation shall have seven (7) directors initially. The number of directors may be increased or decreased from time to time by vote of a majority of the Board of Directors, but shall never be less than three (3) nor more than fifteen (15).
Section 4.2 Qualifications. Directors must be natural persons who are eighteen years of age or older but need not be residents of the State of Florida or shareholders of the Corporation.
Section 4.3 Term of Office. The directors shall be classified, with respect
to the time for which they severally hold office, into three (3) classes, Class
I, Class II and Class III, each of which shall be as nearly equal in number as
possible. Class I shall be established for a term expiring at the annual meeting
of shareholders to be held in 1999 and shall consist initially of three (3)
directors. Class II shall be established for a term expiring at the annual
meeting of shareholders to be held in 1998 and shall consist initially of two
(2) directors. Class III shall be established for a term expiring at the annual
meeting of shareholders to be held in 1997 and shall consist initially of two
(2) directors. Each director shall hold office until his or her successors are
elected and qualified, or until such director's earlier death, resignation or
removal as hereinafter provided. At each annual meeting of the shareholders of
the Corporation, the successors of the class of directors whose terms expire at
that meeting shall be elected to hold office for a term expiring at the annual
meeting of shareholders held in the third year following the year of their
election. Unless otherwise provided in the Articles of Incorporation, when the
number of directors of the Corporation is changed, the Board of Directors shall
determine the class or classes to which the increased or decreased number of
directors shall be apportioned; provided, however, that no decrease in the
number of directors shall affect the term of any director then in office.
Section 4.4 Nominations of Directors. Except as otherwise provided pursuant
to the provision of the Articles of Incorporation or Articles of Amendment
relating to the rights of the holders of any class or series of Preferred Stock,
voting separately by class or series, to elect directors under specified
circumstances, nominations of persons for election to the Board of Directors may
be made by the Chairman of the Board on behalf of the Board of Directors or by
any shareholder of the Corporation entitled to vote for the election of
directors at the annual meeting of the shareholders who complies with the notice
provisions set forth in this Section 4.4. To be timely, a shareholder's notice
shall be received at the principal business office of the Corporation no later
than the date designated for receipt of shareholders' proposals in a prior
public disclosure made by the Corporation. If there has been no such prior
public disclosure, then to be timely, a shareholder's nomination must be
delivered to or mailed and received at the principal business office of the
Corporation not less than sixty (60) days no more than ninety (90) days prior to
the annual meeting of shareholders; provided, however, that in the event that
less than seventy (70) days' notice of the date of the meeting is given to the
shareholders or prior public disclosure of the date of the meeting is made,
notice by the shareholder to be timely must be so received not later than the
close of business on the tenth day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure was made. A
shareholder's notice to the Secretary shall set forth (a) as to each person the
shareholder proposes to nominate for election or re-election as a director, (i)
the name, age, business address and residence address of such proposed nominee,
(ii) the principal occupation or employment of such person, (iii) the class and
number of shares of capital stock of the Corporation which are beneficially
owned by such person, and (iv) any other information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (including without
limitation such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); and (b) as to the
shareholder giving notice (i) the name and address, as they appear on the
Corporation's books, of the shareholder proposing such nomination, together with
the name and address, as they appear on the Corporation's books, of any other
shareholder known to be supporting the nominee, and (ii) the class and number of
shares of stock of the Corporation which are beneficially owned by the
shareholder and by any other supporting shareholder. No person shall be eligible
for election as a director of the Corporation unless nominated in accordance
with the procedures set forth in this Section 4.4. The Chairman of the meeting
shall, if the facts warrant, determine and declare to the annual meeting that a
nomination was not made in accordance with the provisions of this Section 4.4,
and if the Chairman shall so determine, the Chairman shall so declare at the
meeting and the defective nomination shall be disregarded.
Section 4.5 Removal.
(a) Generally. Except as otherwise provided pursuant to the provisions of the Articles of Incorporation or Articles of Amendment relating to the rights of the holders of any class or series of Preferred Stock, voting separately by class or series, to elect directors under specified circumstances, any director or directors may be removed from office at any
time, but only for cause (as defined in Section 0 hereof) and only by the affirmative vote, at a special meeting of the shareholders called for such a purpose, of not less than sixty-six and two-thirds percent (66 2/3%) of the total number of votes of the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, but only if notice of such proposed removal was contained in the notice of such meeting. At least thirty (30) days prior to such special meeting of shareholders, written notice shall be sent to the director or directors whose removal will be considered at such meeting. Any vacancy on the Board of Directors resulting from such removal or otherwise shall be filled only by vote of a majority of the directors then in office, although less than a quorum, and any director so chosen shall hold office until the next election of the class for which such directors shall have been chosen and until his or her successor shall have been elected and qualified or until any such director's earlier death, resignation or removal.
(b) "Cause" Defined. For the purposes of this Section 0, "cause" shall mean (i) misconduct as a director of the Corporation or any subsidiary of the Corporation which involves dishonesty with respect to a substantial or material corporate activity or corporate assets, or (ii) conviction of an offense punishable by one (1) or more years of imprisonment (other than minor regulatory infractions and traffic violations which do not materially and adversely affect the Corporation).
Section 4.6 Resignation. A director may resign at any time by delivering written notice to the Board of Directors or its Chairman (if any) or to the Corporation. A director's resignation is effective when the notice is delivered unless the notice specifies a later effective date.
Section 4.7 Vacancies.
(a) Who May Fill Vacancies. Except as provided below, whenever any vacancy occurs on the Board of Directors, including a vacancy resulting from an increase in the number of directors, it may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office until his or her successor is duly elected and qualified, and such successor shall complete such director's remaining term.
(b) Directors Electing by Voting Groups. Whenever the holders of shares of any voting group are entitled to elect a class of one or more directors by the provisions of the Articles of Incorporation, vacancies in such class may be filled by holders of shares of that voting group or by a majority of the directors then in office elected by such voting group or by a sole remaining director so elected. If no director elected by such voting group remains in office, unless the Articles of Incorporation provide otherwise, directors not elected by such voting group may fill vacancies.
(c) Prospective Vacancies. A vacancy that will occur at a specific later date, because of a resignation effective at a later date or otherwise, may be filled before the vacancy occurs, but the new director may not take office until the vacancy occurs.
Section 4.8 Compensation. The Board of Directors, irrespective of any personal interest of any of its members, may establish reasonable compensation of all directors for services to the Corporation as directors, officers, or otherwise, or may delegate such authority to an appropriate committee. The Board of Directors also shall have authority to provide for or delegate authority to an appropriate committee to provide for reasonable pensions, disability or death benefits, and other benefits or payments, to directors, officers, and employees and to their families, dependents, estates, or beneficiaries on account of prior services rendered to the Corporation by such directors, officers, and employees.
Section 4.9 Regular Meetings. A regular meeting of the Board of Directors shall be held without other notice than this bylaw immediately after the annual meeting of shareholders and each adjourned session thereof. The place of such regular meeting shall be the same as the place of the meeting of shareholders which precedes it, or such other suitable place as may be announced at such meeting of shareholders. The Board of Directors may provide, by resolution, the date, time, and place, either within or without the State of Florida, for the holding of additional regular meetings of the Board of Directors without notice other than such resolution.
Section 4.10 Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board (if any), the President or not less than one-third (1/3) of the members of the Board of Directors. The person or persons calling the meeting may fix any place, either within or without the State of Florida, as the place for holding any special meeting of the Board of Directors, and if no other place is fixed, the place of the meeting shall be the principal office of the Corporation in the State of Florida.
Section 4.11 Notice. Special meetings of the Board of Directors must be preceded by at least two days' notice of the date, time, and place of the meeting. The notice need not describe the purpose of the special meeting.
Section 4.12 Waiver of Notice. Notice of a meeting of the Board of Directors need not be given to any director who signs a waiver of notice either before or after the meeting. Attendance of a director at a meeting shall constitute a waiver of notice of such meeting and waiver of any and all objections to the place of the meeting, the time of the meeting, or the manner in which it has been called or convened, except when a director states, at the beginning of the meeting or promptly upon arrival at the meeting, any objection to the transaction of business because the meeting is not lawfully called or convened.
Section 4.13 Quorum and Voting. A quorum of the Board of Directors consists of a majority of the number of directors prescribed by these bylaws (or if no number is prescribed, the number of directors in office immediately before the meeting begins). If a quorum is present when a vote is taken, the affirmative vote of a majority of directors present is the act of the Board of Directors. A director who is present at a meeting of the Board of Directors or a committee of the Board of Directors when corporate action is taken is deemed to have assented to the action taken unless: (a) he or she objects at the beginning of the meeting (or
promptly upon his or her arrival) to holding it or transacting specified business at the meeting; or (b) he or she votes against or abstains from the action taken.
Section 4.14 Conduct of Meetings.
(a) Presiding Officer. The Board of Directors may elect from among its members a Chairman of the Board of Directors, who shall preside at meetings of the Board of Directors. The Chairman, and if there be none, or in his or her absence, the President, and in his or her absence, a Vice President in the order provided under the Section of these bylaws titled "Vice Presidents," and in his or her absence, any director chosen by the directors present, shall call meetings of the Board of Directors to order and shall act as presiding officer of the meeting.
(b) Minutes. The Secretary of the Corporation shall act as secretary of all meetings of the Board of Directors but in the absence of the Secretary, the presiding officer may appoint any other person present to act as secretary of the meeting. Minutes of any regular or special meeting of the Board of Directors shall be prepared and distributed to each director.
(c) Adjournments. A majority of the directors present, whether or not a quorum exists, may adjourn any meeting of the Board of Directors to another time and place. Notice of any such adjourned meeting shall be given to the directors who are not present at the time of the adjournment and, unless the time and place of the adjourned meeting are announced at the time of the adjournment, to the other directors.
(d) Participation by Conference Call or Similar Means. The Board of Directors may permit any or all directors to participate in a regular or a special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting.
Section 4.15 Committees. The Board of Directors, by resolution adopted by a majority of the full Board of Directors, may designate from among its members an Executive Committee and one or more other committees, which may include, by way of example and not as a limitation, a Compensation Committee (for the purpose of establishing and implementing an executive compensation policy) and an Audit Committee (for the purpose of examining and considering matters relating to the financial affairs of the Corporation). Each committee shall have two or more members, who serve at the pleasure of the Board of Directors, provided that the Compensation Committee and the Audit Committee shall consist of at least two Independent Directors. For purposes of this section, "Independent Director" shall mean a person other than an officer or employee of the Corporation or any subsidiary of the Corporation or any other individual having a relationship which, in the opinion of the Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. To the extent provided in the resolution of the Board of Directors establishing and constituting such committees, such committees shall have and may exercise
all the authority of the Board of Directors, except that no such committee shall have the authority to:
(a) approve or recommend to shareholders actions or proposals required by the Act to be approved by shareholders;
(b) fill vacancies on the Board of Directors or any committee thereof;
(c) adopt, amend, or repeal these bylaws;
(d) authorize or approve the reacquisition of shares unless pursuant to a general formula or method specified by the Board of Directors; or
(e) authorize or approve the issuance or sale or contract for the sale of shares, or determine the designation and relative rights, preferences, and limitations of a voting group except that the Board of Directors may authorize a committee (or a senior executive officer of the Corporation) to do so within limits specifically prescribed by the Board of Directors.
The Board of Directors, by resolution adopted in accordance with this Section, may designate one or more directors as alternate members of any such committee, who may act in the place and stead of any absent member or members at any meeting of such committee. The provisions of these bylaws which govern meetings, notice and waiver of notice, and quorum and voting requirements of the Board of Directors apply to committees and their members as well.
Section 4.16 Action Without Meeting. Any action required or permitted by the Act to be taken at a meeting of the Board of Directors or a committee thereof may be taken without a meeting if the action is taken by all members of the Board or of the committee. The action shall be evidenced by one or more written consents describing the action taken, signed by each director or committee member and retained by the Corporation. Such action shall be effective when the last director or committee member signs the consent, unless the consent specifies a different effective date. A consent signed under this Section has the effect of a vote at a meeting and may be described as such in any document.
ARTICLE 5
OFFICERS
Section 5.1 Number. The principal officers of the Corporation shall be a Chairman, a President, the number of Vice Presidents, if any, as authorized from time to time by the Board of Directors, a Secretary, and a Treasurer, each of whom shall be elected by the Board of Directors. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the Board of Directors. The Board of Directors may also authorize any duly appointed officer to appoint one or more officers or assistant officers. The same individual may simultaneously hold more than one office.
Section 5.2 Election and Term of Office. The officers of the Corporation to be elected by the Board of Directors shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of the shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as is practicable. Each officer shall hold office until his or her successor shall have been duly elected or until his or her prior death, resignation, or removal.
Section 5.3 Removal. The Board of Directors may remove any officer and, unless restricted by the Board of Directors, an officer may remove any officer or assistant officer appointed by that officer, at any time, with or without cause and notwithstanding the contract rights, if any, of the officer removed. The appointment of an officer does not of itself create contract rights.
Section 5.4 Resignation. An officer may resign at any time by delivering notice to the Corporation. The resignation shall be effective when the notice is delivered, unless the notice specifies a later effective date and the Corporation accepts the later effective date. If a resignation is made effective at a later date and the Corporation accepts the future effective date, the pending vacancy may be filled before the effective date but the successor may not take office until the effective date.
Section 5.5 Vacancies. A vacancy in any principal office because of death, resignation, removal, disqualification, or otherwise, shall be filled as soon thereafter as practicable by the Board of Directors for the unexpired portion of the term.
Section 5.6 Chairman of the Board. The Chairman of the Board (the "Chairman") shall be a member of the Board of Directors of the Corporation and shall preside over all meetings of the Board of Directors and shareholders of the Corporation. The Chairman shall have authority, subject to such rules as may be prescribed by the Board of Directors, to appoint such agents and employees of the Corporation as he or she shall deem necessary, to prescribe their powers, duties and compensation, and to delegate authority to them. Such agents and employees shall hold office at the direction of the Chairman. The Chairman shall have authority to sign certificates for shares of the Corporation the issuance of which shall have been authorized by resolution of the Board of Directors, and to execute and acknowledge, on behalf of the Corporation, all deeds, mortgages, bonds, contracts, leases, reports, and all other documents or instruments necessary or proper to be executed in the course of the Corporation's regular business, or which shall be authorized by resolution of the Board of Directors; and, except as otherwise provided by law or the Board of Directors, the Chairman may authorize the President or any Vice President or other officer or agent of the Corporation to execute and acknowledge such documents or instruments in his or her place and stead. In general, he or she shall perform all duties as may be prescribed by the Board of Directors from time to time.
Section 5.7 President. The President shall be the chief executive officer of the Corporation and, subject to the direction of the Board of Directors, shall in general supervise
and control all of the business and affairs of the Corporation. If the Chairman of the Board is not present, the President shall preside at all meetings of the Board of Directors and shareholders. The President shall have authority, subject to such rules as may be prescribed by the Board of Directors, to appoint such agents and employees of the Corporation as he or she shall deem necessary, to prescribe their powers, duties and compensation, and to delegate authority to them. Such agents and employees shall hold office at the discretion of the President. The President shall have authority to sign certificates for shares of the Corporation the issuance of which shall have been authorized by resolution of the Board of Directors, and to execute and acknowledge, on behalf of the Corporation, all deeds, mortgages, bonds, contracts, leases, reports, and all other documents or instruments necessary or proper to be executed in the course of the Corporation's regular business, or which shall be authorized by resolution of the Board of Directors; and, except as otherwise provided by law or the Board of Directors, the President may authorize any Vice President or other officer or agent of the Corporation to execute and acknowledge such documents or instruments in his or her place and stead. In general he or she shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time.
Section 5.8 Vice Presidents. In the absence of the President or in the event of the President's death, inability or refusal to act, or in the event for any reason it shall be impracticable for the President to act personally, the Vice President, if any (or in the event there be more than one Vice President, the Vice Presidents in the order designated by the Board of Directors, or in the absence of any designation, then in the order of their election), shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Any Vice President may sign certificates for shares of the Corporation the issuance of which shall have been authorized by resolution of the Board of Directors; and shall perform such other duties and have such authority as from time to time may be delegated or assigned to him or her by the President or by the Board of Directors. The execution of any instrument of the Corporation by any Vice President shall be conclusive evidence, as to third parties, of his or her authority to act in the stead of the President. The Corporation may have one or more Executive Vice Presidents and one or more Senior Vice Presidents, who shall be Vice Presidents for purposes hereof.
Section 5.9 Secretary. The Secretary shall: (a) keep, or cause to be kept, minutes of the meetings of the shareholders and of the Board of Directors (and of committees thereof) in one or more books provided for that purpose (including records of actions taken by the shareholders or the Board of Directors (or committees thereof) without a meeting); (b) be custodian of the corporate records and of the seal of the Corporation, if any, and if the Corporation has a seal, see that it is affixed to all documents the execution of which on behalf of the Corporation under its seal is duly authorized; (c) authenticate the records of the Corporation; (d) maintain a record of the shareholders of the Corporation, in a form that permits preparation of a list of the names and addresses of all shareholders, by class or series of shares and showing the number and class or series of shares held by each shareholder; (e) have general charge of the stock transfer books of the Corporation; and (f) in general perform all duties incident to the office of Secretary and have such other duties and exercise
such authority as from time to time may be delegated or assigned by the President or by the Board of Directors.
Section 5.10 Treasurer. The Treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the Corporation; (b) maintain appropriate accounting records; (c) receive and give receipts for moneys due and payable to the Corporation from any source whatsoever, and deposit all such moneys in the name of the Corporation in such banks, trust companies, or other depositaries as shall be selected in accordance with the provisions of these bylaws; and (d) in general perform all of the duties incident to the office of Treasurer and have such other duties and exercise such other authority as from time to time may be delegated or assigned by the President or by the Board of Directors. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his or her duties in such sum and with such surety or sureties as the Board of Directors shall determine.
Section 5.11 Assistant Secretaries and Assistant Treasurers. There shall be such number of Assistant Secretaries and Assistant Treasurers as the Board of Directors may from time to time authorize. The Assistant Treasurers shall respectively, if required by the Board of Directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the Board of Directors shall determine. The Assistant Secretaries and Assistant Treasurers, in general, shall perform such duties and have such authority as shall from time to time be delegated or assigned to them by the Secretary or the Treasurer, respectively, or by the President or the Board of Directors.
Section 5.12 Other Assistants and Acting Officers. The Board of Directors shall have the power to appoint, or to authorize any duly appointed officer of the Corporation to appoint, any person to act as assistant to any officer, or as agent for the Corporation in his or her stead, or to perform the duties of such officer whenever for any reason it is impracticable for such officer to act personally, and such assistant or acting officer or other agent so appointed by the Board of Directors or an authorized officer shall have the power to perform all the duties of the office to which he or she is so appointed to be an assistant, or as to which he or she is so appointed to act, except as such power may be otherwise defined or restricted by the Board of Directors or the appointing officer.
Section 5.13 Salaries. The salaries of the principal officers shall be fixed from time to time by the Board of Directors or by a duly authorized committee thereof, and no officer shall be prevented from receiving such salary by reason of the fact that he or she is also a director of the Corporation.
ARTICLE 6
CONTRACTS, CHECKS AND DEPOSITS; SPECIAL CORPORATE ACTS
Section 6.1 Contracts. The Board of Directors may authorize any officer or officers, or any agent or agents to enter into any contract or execute or deliver any instrument in the name of and on behalf of the Corporation, and such authorization may be general or confined to specific instances. In the absence of other designation, all deeds, mortgages, and instruments of assignment or pledge made by the Corporation shall be executed in the name of the Corporation by the President or one of the Vice Presidents; the Secretary or an Assistant Secretary, when necessary or required, shall attest and affix the corporate seal, if any, thereto; and when so executed no other party to such instrument or any third party shall be required to make any inquiry into the authority of the signing officer or officers.
Section 6.2 Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, notes, or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by or under the authority of a resolution of the Board of Directors.
Section 6.3 Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies, or other depositaries as may be selected by or under the authority of a resolution of the Board of Directors.
Section 6.4 Voting of Securities Owned by Corporation. Subject always to the specific directions of the Board of Directors, (a) any shares or other securities issued by any other corporation and owned or controlled by the Corporation may be voted at any meeting of security holders of such other corporation by the President of the Corporation if he or she be present, or in his or her absence by any Vice President of the Corporation who may be present, and (b) whenever, in the judgment of the President, or in his or her absence, of any Vice President, it is desirable for the Corporation to execute a proxy or written consent in respect of any such shares or other securities, such proxy or consent shall be executed in the name of the Corporation by the President or one of the Vice Presidents of the Corporation, without necessity of any authorization by the Board of Directors, affixation of corporate seal, if any, or countersignature or attestation by another officer. Any person or persons designated in the manner above stated as the proxy or proxies of the Corporation shall have full right, power, and authority to vote the shares or other securities issued by such other corporation and owned or controlled by the Corporation the same as such shares or other securities might be voted by the Corporation.
ARTICLE 7
CERTIFICATES FOR SHARES; TRANSFER OF SHARES
Section 7.1 Consideration for Shares. The Board of Directors may authorize shares to be issued for consideration consisting of any tangible or intangible property or benefit to the Corporation, including cash, promissory notes, services performed, promises to perform services evidenced by a written contract, or other securities of the Corporation. Before the Corporation issues shares, the Board of Directors shall determine that the consideration received or to be received for the shares to be issued is adequate. The determination of the Board of Directors is conclusive insofar as the adequacy of consideration for the issuance of shares relates to whether the shares are validly issued, fully paid, and nonassessable. The Corporation may place in escrow shares issued for future services or benefits or a promissory note, or make other arrangements to restrict the transfer of the shares, and may credit distributions in respect of the shares against their purchase price, until the services are performed, the note is paid, or the benefits are received. If the services are not performed, the note is not paid, or the benefits are not received, the Corporation may cancel, in whole or in part, the shares escrowed or restricted and the distributions credited.
Section 7.2 Certificates for Shares. Every holder of shares in the Corporation shall be entitled to have a certificate representing all shares to which he or she is entitled unless the Board of Directors authorizes the issuance of some or all shares without certificates. Any such authorization shall not affect shares already represented by certificates until the certificates are surrendered to the Corporation. If the Board of Directors authorizes the issuance of any shares without certificates, within a reasonable time after the issue or transfer of any such shares, the Corporation shall send the shareholder a written statement of the information required by the Act or the Articles of Incorporation to be set forth on certificates, including any restrictions on transfer. Certificates representing shares of the Corporation shall be in such form, consistent with the Act, as shall be determined by the Board of Directors. Such certificates shall be signed (either manually or in facsimile) by the President or any Vice President or any other persons designated by the Board of Directors and may be sealed with the seal of the Corporation or a facsimile thereof. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the Corporation. Unless the Board of Directors authorizes shares without certificates, all certificates surrendered to the Corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except as provided in these bylaws with respect to lost, destroyed, or stolen certificates. The validity of a share certificate is not affected if a person who signed the certificate (either manually or in facsimile) no longer holds office when the certificate is issued.
Section 7.3 Transfer of Shares. Prior to due presentment of a certificate for shares for registration of transfer, the Corporation may treat the registered owner of such shares as the person exclusively entitled to vote, to receive notifications, and otherwise to have and exercise all the rights and power of an owner. Where a certificate for shares is presented to
the Corporation with a request to register a transfer, the Corporation shall not be liable to the owner or any other person suffering loss as a result of such registration of transfer if (a) there were on or with the certificate the necessary endorsements, and (b) the Corporation had no duty to inquire into adverse claims or has discharged any such duty. The Corporation may require reasonable assurance that such endorsements are genuine and effective and compliance with such other regulations as may be prescribed by or under the authority of the Board of Directors.
Section 7.4 Restrictions on Transfer. The face or reverse side of each certificate representing shares shall bear a conspicuous notation as required by the Act or the Articles of Incorporation of the restrictions imposed by the Corporation upon the transfer of such shares.
Section 7.5 Lost, Destroyed, or Stolen Certificates. Unless the Board of Directors authorizes shares without certificates, where the owner claims that certificates for shares have been lost, destroyed, or wrongfully taken, a new certificate shall be issued in place thereof if the owner (a) so requests before the Corporation has notice that such shares have been acquired by a bona fide purchaser, (b) files with the Corporation a sufficient indemnity bond if required by the Board of Directors or any principal officer, and (c) satisfies such other reasonable requirements as may be prescribed by or under the authority of the Board of Directors.
Section 7.6 Stock Regulations. The Board of Directors shall have the power and authority to make all such further rules and regulations not inconsistent with law as they may deem expedient concerning the issue, transfer, and registration of shares of the Corporation.
ARTICLE 8
SEAL
Section 8.1 Seal. The Board of Directors may provide for a corporate seal for the Corporation.
ARTICLE 9
BOOKS AND RECORDS
Section 9.1 Books and Records.
(a) The Corporation shall keep as permanent records minutes of all meetings of the shareholders and Board of Directors, a record of all actions taken by the shareholders or Board of Directors without a meeting, and a record of all actions taken by a committee of the Board of Directors in place of the Board of Directors on behalf of the Corporation.
(b) The Corporation shall maintain accurate accounting records.
(c) The Corporation or its agent shall maintain a record of the shareholders in a form that permits preparation of a list of the names and addresses of all shareholders in
alphabetical order by class of shares showing the number and series of shares held by each.
(d) The Corporation shall keep a copy of all written communications within the preceding three years to all shareholders generally or to all shareholders of a class or series, including the financial statements required to be furnished by the Act, and a copy of its most recent annual report delivered to the Department of State.
Section 9.2 Shareholders' Inspection Rights. Shareholders are entitled to inspect and copy records of the Corporation as permitted by the Act.
Section 9.3 Distribution of Financial Information. The Corporation shall prepare and disseminate financial statements to shareholders as required by the Act.
Section 9.4 Other Reports. The Corporation shall disseminate such other reports to shareholders as are required by the Act, including reports regarding indemnification in certain circumstances and reports regarding the issuance or authorization for issuance of shares in exchange for promises to render services in the future.
ARTICLE 10
INDEMNIFICATION
Section 10.1
Provision of Indemnification. The Corporation shall, to the fullest extent permitted or required by the Act, including any amendments thereto (but in the case of any such amendment, only to the extent such amendment permits or requires the Corporation to provide broader indemnification rights than prior to such amendment), indemnify all of the Corporation's officers and directors, all of the officers and directors of all of the Corporation's domestic subsidiaries and all persons rendering services to the Corporation's foreign subsidiaries in capacities as officers and directors or in equivalent, identical or similar capacities (hereinafter, collectively the "Officers" and "Directors" of the Corporation), against any and all liabilities, and advance any and all reasonable Expenses, incurred thereby in any Proceeding to which any such Director or Officer is a Party or in which such Director or Officer is deposed or called to testify as a witness because he or she is or was a Director or Officer of the Corporation or any of the Corporation's domestic or foreign subsidiaries. The rights to indemnification granted hereunder shall not be deemed exclusive of any other rights to indemnification against Liabilities or the advancement of Expenses which a Director or Officer may be entitled under any written agreement, Board of Directors' resolution, vote of shareholders, the Act, or otherwise. The Corporation may, but shall not be required to, supplement the foregoing rights to indemnification against Liabilities and advancement of Expenses by the purchase of insurance on behalf of any one or more of its Directors or Officers whether or not the Corporation would be obligated to indemnify or advance Expenses to such Director or Officer under this Article. For purposes of this Article, the term "Directors" includes former directors of the Corporation or any of the Corporation's domestic or foreign subsidiaries and any director who is or was serving at the request of the Corporation or any of the Corporation's domestic or foreign subsidiaries as a director, officer, employee, or agent of another Corporation,
partnership, joint venture, trust, or other enterprise, including, without limitation, any employee benefit plan (other than in the capacity as an agent separately retained and compensated for the provision of goods or services to the enterprise, including, without limitation, attorneys-at-law, accountants, and financial consultants). The term "Officers" includes all those individuals who are or were at any time officers of the Corporation or any of the Corporation's domestic or foreign subsidiaries and not merely those individuals who are or were at any time "executive officers" of the Corporation or any of the Corporation's domestic or foreign subsidiaries as defined in Securities and Exchange Commission Rule 3b-7 promulgated under the Securities Exchange Act of 1934, as amended. All other capitalized terms used in this Article 10 and not otherwise defined herein have the meaning set forth in Section 607.0850, Florida Statutes (1995). The provisions of this Article 10 are intended solely for the benefit of the indemnified parties described herein, their heirs and personal representatives and shall not create any rights in favor of third parties. No amendment to or repeal of this Article 10 shall diminish the rights of indemnification provided for herein prior to such amendment or repeal.
ARTICLE 11
AMENDMENTS
Section 11.1
Power to Amend. These bylaws may be amended or repealed by either the Board of Directors or the shareholders, unless the Act reserves the power to amend these bylaws generally or any particular bylaw provision, as the case may be, exclusively to the shareholders or unless the shareholders, in amending or repealing these bylaws generally or any particular bylaw provision, provide expressly that the Board of Directors may not amend or repeal these bylaws or such bylaw provision, as the case may be. The affirmative vote of 66 2/3% of the total number of votes of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend these bylaws. The shareholders of the Corporation may adopt or amend a bylaw provision which fixes a greater quorum or voting requirement for shareholders (or voting groups of shareholders), with respect to this or any other section of these bylaws, than is required herein or by the Act. The adoption or amendment of a bylaw provision that adds, changes or deletes a greater quorum or voting requirement for shareholders must meet the same quorum or voting requirement and be adopted by the same vote and voting groups required to take action under the quorum or voting requirement then in effect or proposed to be adopted, whichever is greater.
Exhibit 10.13
SYKES ENTERPRISES, INCORPORATED
DEFERRED COMPENSATION PLAN
This Plan is established effective December 17, 1998, as an unfunded deferred compensation arrangement for a select group of management or highly compensated personnel and all rights thereunder shall be governed by and construed in accordance with the laws of the State of Florida.
ARTICLE I. DEFINITIONS.
1.01 "Administrator" means Sykes, or such individual or individuals designated by the Chief Executive Officer of Sykes.
"Board" means the Board of Directors of Sykes.
"Change in Control" means (i) the date the majority of the Board has approved a definitive agreement to merge or consolidate Sykes with or into another corporation in which Sykes does not control the continuing or surviving corporation or (ii) the date the Board approves a definitive agreement to sell or otherwise dispose of substantially all the assets of Sykes.
"Chief Executive Officer" means the Chief Executive Officer of Sykes or his designee.
"Contingent Deferred Obligation" means the total amount of Sykes' contingent liability for payment of deferred benefits under the Plan.
"Deferred Compensation Account" means the account maintained for each Participant composed of deferred income and earnings thereon.
"Disability" means mental or physical disability of at least six
(6) months which prevents a Participant from engaging in the principal duties of
his employment.
"Fiscal Year" or "Year" (unless otherwise specified) means the twelve-month period ending on December 31.
"Participant" means an employee of Sykes, or of a subsidiary, designated by the Chief Executive Officer for participation in the Plan, or a person who was such at the time of his retirement, death, disability or resignation and who retains, or whose beneficiaries obtain, benefits under the Plan in accordance with its terms.
"Plan" means this Deferred Compensation Plan as it may be amended from time to time.
"Retirement" means retirement at or after a Participant attains age sixty-five (65), or accepts an early retirement offer from Sykes.
"Subsidiary" means a company of which Sykes owns, directly or indirectly, at least a majority of the shares having voting power in the election of directors.
"Sykes" means Sykes Enterprises, Incorporated, a Florida corporation, and its corporate successors.
"Valuation Date" means March 31, June 30, September 30 and December 31 of each year.
ARTICLE II. DESIGNATION OF PARTICIPANTS AND INCOME DEFERRAL.
2.01 The Chief Executive Officer shall have the sole and exclusive discretion to designate Participants in the Plan from among the senior management and highly compensated personnel of Sykes. Such designation shall be made each year prior to the end of Sykes' fiscal year.
2.02 A designated employee may become eligible to participate in the Plan as of the first day of a calendar year and may defer income earned during such calendar year provided that prior to the beginning of the calendar year the Participant has made an election to defer all or a portion of his income on a form provided by the Plan for that purpose. Such election is irrevocable. Any amounts deferred under this provision will be subject to the provisions of this Deferred Compensation Plan regarding distribution of a Participant's Deferred Compensation Account. An election made prior to a calendar year shall be binding for future calendar years unless and until the Participant changes or revokes the election prior to the beginning of a future calendar year.
2.03 Compensation deferred by a Participant while he is a Participant in the Plan shall be deferred until such Participant's retirement, termination, disability or death and in such event shall be paid out to the Participant or his beneficiary as hereinafter provided.
2.04 In the event of a Change in Control, a Participant will be entitled to a distribution of the balance of his Deferred Compensation Account, notwithstanding the provisions of Section 2.03. For purposes of Section 4.01, a Participant will be treated as if he had retired as of the effective date of the Change in Control. In the event of a distribution of benefits as a result of a Change in Control, Sykes will increase the benefit by an amount sufficient to offset the income tax obligations created by the distribution of benefits.
2.05 A Participant may elect to defer any amount of base compensation and bonus; provided, however, that a Participant may not defer any payroll advances, advance payments of bonuses, or any other similar advance of compensation.
2.06 Sykes will match a portion of amounts deferred by a Participant on a quarterly basis as follows: 50% match on salary deferred, up to a total match of $12,000.00 per year for senior vice presidents and $7,500.00 per year for vice presidents and other Participants. The total amount of the matching contribution made to this Plan will be made in the form of Sykes common stock, valued as of the last day of the quarter to which the matching contribution is applicable.
ARTICLE III. CONTINGENCY PAYMENTS, INVESTMENTS AND FORFEITURES.
3.01 Sykes shall cause an account to be kept in the name of each Participant (the Deferred Compensation Account) established for this purpose. Such amounts deferred by a Participant shall be credited to the Participant's Deferred Compensation Account on a pro rata basis after each payroll period during the Fiscal Year. Matching contributions will be made at the end of each quarter. Earnings on the deferred compensation and the matching contribution shall be credited to the Participant's Deferred Compensation Account on a quarterly basis and statements reflecting the balance of each Participant's Deferred Compensation Account shall be prepared on a quarterly basis as soon as is practicable after the end of each quarter. A Deferred Compensation Account shall be kept in the name of each Participant and each beneficiary of a deceased Participant which shall reflect the value of the deferred contingent benefits, or in the event that the Participant's benefit has become vested as provided herein, the value of any vested benefits, payable to such Participant or beneficiary under the Plan.
(a) Investment earnings on the deferred compensation and the matching contribution accounts maintained for each participant shall be credited at the end of each calendar quarter (3/31, 6/30, 9/30, and 12/31), in accordance with the following procedure:
(1) Payments - The total amount of any payments made from the accounts since the last valuation date shall be subtracted from the account balance that existed at the beginning of the quarter.
(2) Deferred Compensation Contributions - Fifty percent of any deferred compensation contributions made by the Participant since the last valuation date shall be added to the account balance that existed at the beginning of the quarter.
(3) Net Gain or Loss - Each Participant's Deferred Compensation Account shall be increased or decreased to reflect a proportionate share of the net increase or net decrease for each investment fund held in the Deferred Compensation Account, since the beginning of the quarter.
(4) Deferred Compensation Contributions - The remaining fifty percent of any deferred compensation contributions made by the participant since the last valuation date shall be added to the account balance that existed at the beginning of the quarter.
(5) Matching Contributions - The entire amount of any matching contributions made by the Company shall be added to the account balance that existed at the beginning of the quarter.
(6) Investment Transfers - The amount(s) necessary in order to effect an investment transfer requested by the participant shall be added to or subtracted from each investment fund as required. Such transfers shall be made as soon as is practicable.
3.02 Until and except to the extent that deferred benefits hereunder are distributed to or vested in a Participant or beneficiary from time to time in accordance with the provisions of the Plan, the interest of each Participant and beneficiary therein is contingent only and is subject to forfeiture as provided in this Plan. Title to and beneficial ownership of any assets, whether cash or investments, which Sykes may set aside or earmark to meet its contingent deferred obligation hereunder, shall at all times remain in Sykes; and no Participant or beneficiary shall under any circumstances acquire any property interest and any specific assets of Sykes.
3.03 Any such funds credited to the Deferred Compensation Account of a
Participant shall be invested and reinvested in mutual funds, stocks, bonds,
securities or any other assets that may be selected by the Administrator in its
discretion, provided that it is the intention of the Board in establishing this
Plan that the Administrator will select investment vehicles which are
substantially identical to those investment vehicles provided under the Sykes
401(k) Savings Plan and Trust. In selecting investment vehicles, the Board may
engage investment counsel, and may delegate to such counsel authority to
recommend investment choices be made available for investment within the Plan.
Any such service shall be charged as an expense of administering the Plan.
Participants may request that the Administrator allocate deferred compensation
among investment vehicles selected by the Administrator on a quarterly basis;
and may request reallocation of amounts already deferred and earnings
attributable thereto on the same basis.
3.04 As a condition of participation in this Plan, the Participant agrees that on behalf of himself and his designated beneficiary to assume all risk in connection with any decrease in value of the funds which are invested and which continue to be invested in accordance with the provisions of this Plan.
ARTICLE IV. DISTRIBUTION OF BENEFITS.
4.01 The benefits to be distributed by the Plan (unless they are
forfeited by the occurrence of any of the events of forfeiture specified in
Section 4.04 below) are as follows: The normal form of benefit is a lump sum of
amounts deferred by the Participant and earnings attributable thereto payable
upon retirement or termination of employment.
(a) With respect to the distribution of the Participant's matching contribution, a Participant may elect a distribution of Sykes common stock in the Participant's Deferred Compensation Account, or a distribution of the cash value of the Sykes common stock in the
Participant's Deferred compensation Account, valued as of
the Valuation Date coincident with or next following the
first anniversary date of the Participant's last day of
active employment. The distribution of any matching
contribution made by Sykes and earnings attributable thereto
will be paid as soon as administratively feasible twelve
(12) months after retirement or termination of employment,
subject to the provisions of this Section 4.01, and provided
that the Participant maintains full compliance with the
terms of any confidentiality or non-compete agreement to
which he is subject.
(b) In the event the Participant terminates employment (for reasons other than death, disability or retirement) without participating in the plan for three (3) years, the matching contributions and earnings attributable thereto will be forfeited. In the event that a Participant terminates employment after three (3) years, but less than six (6) years of participation in the Plan, the Participant shall forfeit 75% of the matching contribution and earnings theron. In the event that a Participant terminates employment after six (6) years but less than ten (10) years of participation in the Plan, the Participant shall forfeit 50% of the matching contribution and earnings thereon. Forfeitures shall be deducted from the Participant's account upon distribution of the vested account balance. Forfeitures shall be utilized to offset future matching contributions made by the Company.
(c) In the event of death of the Participant while still an employee, a lump sum of both Participant's deferrals and a lump sum cash value of the Sykes common stock (valued as of the Valuation Date coincident with or next following the date of the Participant's death) constituting the matching contribution, will be paid to the Participant's named beneficiary as soon as administratively feasible.
(d) In the event of the Participant's disability as defined in the Plan, both the Participant's deferrals and the lump sum cash value of the Sykes common stock (valued as of the Valuation Date coincident with or next following the date of the Participant's last day of active employment) constituting the matching contribution will be paid to the Participant in a lump sum as soon as administratively feasible.
4.02 A Participant may, at the time of initial participation in the Plan, elect to receive benefits under the Plan in the event of retirement or disability in one hundred twenty (120) monthly installments of an amount equal to the fair market value of the assets in the Participant's Deferred Compensation Account as of the effective date of his retirement or termination of employment due to disability. In the event that the Participant elects the distribution of benefits in monthly installments, the total amount payable to the Participant shall be appropriately increased or decreased as the case may be, but not more than semi-annually, to reflect the appreciation or depreciation in value and the net income or loss on the funds which remain invested in the Participant's Deferred Compensation Account. If the Participant should die before the one hundred twenty (120) monthly installments are made, the unpaid balance will continue to be paid in installments for the unexpired portion due to the Participant's designated
beneficiary in the same manner as set forth above.
4.03 A Participant shall have the right to designate one or more beneficiaries who are to succeed to his contingent right to receive future payments under the Plan in the event of his death. In case of a failure to designate or the death of a designated beneficiary without a designated successor, distribution shall be made to the Participant's estate. No designation of beneficiaries shall be valid unless in writing signed by the Participant, dated and filed with the Administrator. Beneficiaries may be changed without the consent of any prior beneficiaries.
4.04 Notwithstanding anything herein contained to the contrary, no payment of any then unpaid distribution of Company matching contributions shall be made and all rights of the Participant, his designated beneficiary, executors or administrators, or any other person to receive payments of such matching contribution shall be forfeited if any of the following events shall occur:
(a) The Participant is terminated for "Cause." For the purposes of this Plan, the Company shall have "Cause" to terminate a Participant's employment hereunder: (i) if the Participant engages in conduct which has caused or is reasonably likely to cause demonstrable and serious injury to Company; (ii) if the Participant is convicted of a felony as evidenced by a binding and final judgment, order, or decree of a court of competent jurisdiction; (iii) for the Participant's neglect of his duties hereunder or the Participant's refusal to perform his duties or responsibilities hereunder as determined by the Company's Board of Directors in good faith; (iv) for the Participant's chronic absenteeism; (v) for the Participant's use of illegal drugs; (vi) for the Participant's insobriety while performing his or her duties hereunder; or(vii) for any act of dishonesty, embezzlement or falsification of reports, records, or information submitted by the Participant to the Company.
(b) The Participant enters into a business or employment which the Chief Executive Officer determines to be in violation of any non-compete agreement signed by the Participant in favor of Sykes or a subsidiary.
4.05 The Administrator may at any time and from time to time order all or any part of the value of the contingent right of a Participant or beneficiary to receive future payments without forfeiture.
ARTICLE V. GENERAL PROVISIONS.
5.01 Nothing contained in this Plan and no actions taken pursuant to the provisions of this Plan shall create or be construed to create a trust of any kind, or a fiduciary relationship between Sykes and a Participant, his designated beneficiary or any other person. Any funds, which may be invested under the provisions of this Plan, shall continue for all purposes to be part of the general funds of Sykes and no person other than Sykes shall by virtue of the provisions of this Plan have any interest in such funds. To the extent that any person acquires a right to receive payments from Sykes under this Plan, such right shall be no greater than the right of any unsecured general creditor of Sykes.
5.02 The right of a Participant or any other person to the payment of deferred compensation or other benefits under this Plan shall not be assigned, transferred, pledged or encumbered except by will or by the laws of descent and distribution.
5.03 If the Administrator shall find that any person to whom any payment is payable under this Plan is unable to care for his affairs because of illness or accident, or is a minor, any payment due (unless a prior claim therefor shall have been made by a duly appointed guardian or other legal representative) may be paid to the spouse, a child, a parent, or a brother or sister, or to any person deemed by the Administrator to have incurred expense for such person otherwise entitled to payment, in such manner and proportions as the Administrator may determine. Any such payment shall be in a complete discharge of the liabilities of Sykes to the Participant or person under this Plan.
5.04 Nothing contained in this Plan shall be construed as conferring upon a Participant the right to continue in the employ of Sykes as an Executive or in any other capacity.
5.05 The Administrator shall have full power and authority to interpret, construe and administer this Plan; and the Administrator's interpretations and construction thereof, and actions thereunder, including an valuation of a Deferred Compensation Account, or the amount or recipient of the payment to be made therefrom, shall be binding and conclusive upon all persons for all purposes. No member of the Board of Sykes shall be liable to any person for any action taken or omitted in connection with the interpretation and administration of this Plan, unless attributable to his own willful misconduct or lack of good faith.
5.06 This Plan shall be binding upon and inure to the benefit of Sykes, its successors and assigns, and the Participant and his heirs, executors, administrators and legal representatives.
SYKES ENTERPRISES, INCORPORATED
By: /s/ Margery Bass ------------------------------------ Margery Bass Secretary of the Corporation |
(SYKES LOGO)
Exhibit 10.20
EMPLOYMENT AGREEMENT
PLEASE READ THIS AGREEMENT CAREFULLY. THIS AGREEMENT DESCRIBES THE BASIC LEGAL AND ETHICAL RESPONSIBILITIES THAT YOU ARE REQUIRED TO OBSERVE AS AN EXECUTIVE EXPOSED TO HIGHLY SENSITIVE TECHNOLOGY AND STRATEGIC INFORMATION. CONSULT WITH YOUR LEGAL COUNSEL IF ALL THE TERM OR RENEWAL PERIOD AND PROVISIONS OF THIS AGREEMENT ARE NOT FULLY UNDERSTOOD BY YOU.
THIS AGREEMENT is made as of the 1st day of August, 2004, by and between SYKES ENTERPRISES, INCORPORATED, a Florida corporation (the "Company"), and CHARLES E. SYKES (the "Executive").
WITNESSETH:
WHEREAS, the Executive currently serves as President and Chief Operating Officer of the Company, and the Company has offered to promote the Executive to the positions of President and Chief Executive Officer; and
WHEREAS, the Executive desires to accept the Company's offer and to continue his employment with the Company, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto covenant and agree as follows:
1. EMPLOYMENT AND DUTIES. Subject to the terms and conditions of this Agreement, the Company shall employ the Executive during the Term or Renewal Period(s) (as hereinafter defined) in the positions of President and Chief Executive Officer ("CEO"). As President and CEO, the Executive shall report directly to the Company's Board of Directors and shall render to the Company such management and policy-making services of the type customarily performed by persons serving in similar capacities with other employers that are similar to the Company, together with such other duties with which he is charged by the Company's By-laws and subject to the overall direction and control of the Company's Board of Directors. The Executive accepts such employment and agrees to devote his best efforts and entire business time, skill, labor, and attention to the performance of such duties. The Executive agrees to promptly provide a description of any other commercial duties or pursuits engaged in by the Executive to the Company's Board of Directors. If the Board of Directors determines in good faith that such activities conflict with the Executive's performance of his duties hereunder, the Board of Directors shall notify Executive within thirty (30) days and the Executive shall promptly cease such activities to the extent as directed by the Board of Directors. If the Board of Directors does not provide such notice, Executive shall be free to engage in such commercial duties or pursuits. It is acknowledged and agreed that such description shall be made regarding any such activities in which the Executive owns more than 5% of the ownership of the organization or which may be in violation of Section 5 hereof, and that the failure of the Executive to provide any such description shall enable the Company to terminate the Executive for Cause (as provided in Section 6(c) hereof). The Company agrees to hold any such information provided by the Executive confidential and not disclose the same to any person other than a person to whom disclosure is reasonably necessary or appropriate in light of the circumstances. In addition, the Executive agrees to serve without additional compensation if elected or appointed to any office or position, including as a director, of the Company or any subsidiary or affiliate of the Company; provided, however, that the Executive shall be entitled to receive such benefits and additional compensation, if any, that is paid to executive officers of the Company in connection with such service.
2. TERM OR RENEWAL PERIOD. Subject to the Term or Renewal Period(s) and conditions of this Agreement, including, but not limited to, the provisions for termination set forth in Section 6 hereof, the employment of the Executive under this Agreement shall commence on the effective date hereof and shall continue for the term of employment stated in Exhibit A attached hereto and incorporated herein (such Term shall herein be defined as the "Term"). Provided, however, that this Agreement shall renew automatically for successive one (1) year periods ("Renewal Periods") unless either party gives written notice of termination at least that number of days set forth on Exhibit A before the end of the Term or Renewal Period, as applicable (the "Renewal Notice Period"). The Executive agrees that some portions of this Agreement, including Sections 4, 5, 6 and 10 hereof, will remain in force after the termination of this Agreement.
3. COMPENSATION.
(a) Base Salary and Bonus. As compensation for the Executive's services under this Agreement, the Executive shall receive and the Company shall pay a weekly base salary set forth on Exhibit A. Such base salary may be increased but not decreased during the Term or Renewal Period in the Company's discretion based upon the Executive's performance and any other factors the Company deems relevant. Such base salary shall be payable in accordance with the policy then prevailing for the Company's executives. In addition to such base salary, the Executive shall be entitled during the Term or Renewal Period to a performance bonus and shall be eligible to participate in and receive payments or awards from all other bonus and other incentive compensation, stock option and restricted stock plans as may be adopted by the Company, all as determined by the Compensation Committee of the Board of Directors in its sole discretion.
(b) Payments. All amounts paid pursuant to this Agreement shall be subject to withholding or deduction by reason of the Federal Insurance Contribution Act, federal income tax, state and local income tax, if any, and comparable laws and regulations.
(c) Other Benefits. The Executive shall be reimbursed by the Company for all reasonable and customary travel and other business expenses incurred by the Executive in the performance of the Executive's duties hereunder in accordance with the Company's standard policy regarding expense verification practices. The Executive shall be entitled to that number of weeks paid vacation per year that is available to other executive officers of the Company in accordance with the Company's standard policy regarding vacations and such other fringe benefits as may be set forth on Exhibit A and shall be eligible to participate in such pension, life insurance, health insurance, disability insurance, and other executive benefits plans, if any, which the Company may from time to time make available to its executive officers generally.
4. CONFIDENTIAL INFORMATION.
(a) The Executive has acquired and will acquire information and knowledge respecting the intimate and confidential affairs of the Company, including, without limitation, confidential information with respect to the Company's technical data, research and development projects, methods, products, software, financial data, business plans, financial plans, customer lists, business methodology, processes, production methods and techniques, promotional materials and information, and other similar matters treated by the Company as confidential (the "Confidential Information"). Accordingly, the Executive covenants and agrees that during the Executive's employment by the Company (whether during the Term or Renewal Period hereof or otherwise) and thereafter, the Executive shall not, without the prior written consent of the Company, disclose to any person, other than a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of the Executive's duties hereunder, any Confidential Information obtained by the Executive while in the employ of the Company.
(b) The Executive agrees that all memoranda; notes; records; papers or other documents; computer disks; computer, video or audio tapes; CD-ROMs; all other media and all copies thereof relating to the Company's operations or business, some of which may be prepared by the Executive; and all objects associated therewith in any way obtained by the Executive shall be the Company's property. This shall include, but is not limited to, documents; computer disks; computer, video and audio tapes; CD-ROMs; all other media and objects concerning any technical data, methods, products, software, research and development projects, financial data, financial plans, business plans, customer lists, contracts, price lists, manuals, mailing lists, advertising materials; and all other materials and records of any kind that may be in the Executive's possession or under the Executive's control. The Executive shall not, except for the Company's use, copy or duplicate any of the aforementioned documents or objects, nor remove them from the Company's facilities, nor use any information concerning them except for the Company's benefit, either during the Executive's employment or thereafter. The Executive covenants and agrees that the Executive will deliver all of the aforementioned documents and objects, if any, that may be in the Executive's possession to the Company upon termination of the Executive's employment, or at any other time at the Company's request.
(c) In any action to enforce or challenge these Confidential Information provisions, the prevailing party is entitled to recover its attorney's fees and costs.
5. COVENANT NOT-TO-COMPETE AND NO SOLICITATION. Executive recognizes that the Company is in the business of employing individuals to provide specialized and technical services to the Company's Clients. The purpose of these Covenant Not-to-Compete and No Solicitation provisions are to protect the relationship which exists between the Company and its Client while Executive is employed and after Executive leaves the employ of the Company. The consideration for these Covenant Not-to-Compete and No Solicitation provisions is the Executive's employment with the Company.
(a) Executive acknowledges the following:
(1) The Company expended considerable resources in obtaining contracts with its Clients;
(2) The Company expended considerable resources to recruit and hire employees who could perform services for its Clients;
(3) Through his employ with the Company, Executive will develop a substantial relationship with the Company's existing or potential Clients, including, but not limited to, being the sole or primary contact between the Client and the Company;
(4) Executive will be exposed to valuable confidential business information about the Company, its Clients, and the Company's relationship with its Client;
(5) By providing services on behalf of the Company, Executive will develop and enhance the valuable business relationship between the Company and its Client;
(6) The relationship between the Company and its Client depends on the quality and quantity of the services Executive performs;
(7) Through employment with the Company, Executive will increase his opportunity to work directly for the Client or for a competitor of the Company; and
(8) The Company will suffer irreparable harm if Executive breaches these Covenant Not-to-Compete and No Solicitation provisions of this Agreement.
(b) Executive agrees that:
(1) The relationship between the Company and its Client (developed and enhanced when the Executive performs services on behalf of the Company) is a legitimate business interest for the Company to protect;
(2) The Company's legitimate business interest is protected by the existence and enforcement of these Covenant Not-to-Compete and No Solicitation provisions;
(3) The business relationship which is created or exists between the Company and its Client, or the goodwill resulting from it, is a business asset of the Company and not the Executive; and
(4) Executive will not seek to take advantage of opportunities which result from his employment with the Company and that entering into the Agreement containing Covenant Not-to-Compete and No Solicitation provisions is reasonable to protect the Company's business relationship with its Clients.
(c) Restrictions on Executive. During the Term or Renewal Period(s) of this Agreement and for a period of one (1) year after the termination of this Agreement, for whatever reason, whether such termination was by the Company or the Executive, voluntarily or involuntarily, and whether with or without cause, Executive agrees that he/she shall not, as a principal, employer, stockholder, partner, agent, consultant, independent contractor, employee, or in any other individual or representative capacity:
(1) Directly or indirectly engage in, continue in, or carry on the business of the Company or any business substantially similar thereto, including owning or controlling any financial interest in any corporation, partnership, firm, or other form of business organization which competes with or is engaged in or carries on any aspect of such business or any business substantially similar thereto;
(2) Consult with, advise, or assist in any way, whether or not for consideration of any kind, any corporation, partnership, firm, or other business organization which is now, becomes, or may become a competitor of the Company in any aspect of the Company's business during the Executive's employment with the Company, including, but not limited to, advertising or otherwise endorsing the products of any such competitor or loaning money or rendering any other form of financial assistance to or engaging in any form of transaction whether or not on an arm's length basis with any such competitor;
(3) Provide or attempt to provide or solicit the opportunity to provide or advise others of the opportunity to provide any services of the type Executive performed for the Company or the Company's Clients (regardless of whether and how such services are to be compensated, whether on a salaried, time and materials, contingent compensation, or other basis) to or for the benefit of any Client (i) to which Executive has provided services in any capacity on behalf of the Company, or (ii) to which Executive has been introduced to or about which the Executive has received information through the Company or through any Client from which Executive has performed services in any capacity on behalf of the Company;
(4) Retain or attempt to retain, directly or indirectly, for itself or any other party, the services of any person, including any of the Company's employees, who were providing services to or on behalf of the Company while Executive was employed by the Company and to whom Executive has been introduced or about whom Executive has received information through the
Company or through any Client for which Executive has performed services in any capacity on behalf of the Company;
(5) Engage in any practice, the purpose of which is to evade the
provisions of this Agreement or to commit any act which is detrimental
to the successful continuation of or which adversely affects the
business or the Company; provided, however, that the foregoing shall
not preclude the Executive's ownership of not more than 2% of the
equity securities of a company whose securities are registered under
Section 12 of the Securities Exchange Act of 1934, as amended;
(6) For purpose of these Covenant Not-to-Compete and No Solicitation provisions, Client includes any subsidiaries, affiliates, customers, and clients of the Company's Clients. The Executive agrees that the geographic scope of this Covenant Not-to-Compete shall extend to the geographic area where the Company's Clients conduct business at any time during the Term or Renewal Period(s) of this Agreement. For purposes of this Agreement, "Clients" means any person or entity to which the Company provides or has provided within a period of one (1) year prior to the Executive's termination of employment, labor, materials or services for the furtherance of such entity's or person's business or any person or entity that within such period of one (1) year the Company has pursued or communicated with for the purpose of obtaining business for the Company.
(d) Enforcement. These Covenant Not-to-Compete and No Solicitation provisions shall be construed and enforced under the laws of the State of Florida. In the event of any breach of this Covenant Not-to-Compete, the Executive recognizes that the remedies at law will be inadequate, and that in addition to any relief at law which may be available to the Company for such violation or breach and regardless of any other provision contained in this Agreement, the Company shall be entitled to equitable remedies (including an injunction) and such other relief as a court may grant after considering the intent of this Section 5. It is further acknowledged and agreed that the existence of any claim or cause of action on the part of the Executive against the Company, whether arising from this Agreement or otherwise, shall in no way constitute a defense to the enforcement of this Covenant Not-to-Compete, and the duration of this Covenant Not-to-Compete shall be extended in an amount which equals the time period during which the Executive is or has been in violation of this Covenant Not-to-Compete. In the event a court of competent jurisdiction determines that the provisions of this Covenant Not-to-Compete are excessively broad as to duration, geographic scope, prohibited activities or otherwise, the parties agree that this covenant shall be reduced or curtailed only to the extent necessary to render it enforceable.
e) In an action to enforce or challenge these Covenant Not-to-Compete and No Solicitation provisions, the prevailing party is entitled to recover its attorney's fees and costs.
f) By signing this Agreement, the Executive acknowledges that he/she understands the effects of these Covenant Not-to-Compete and No Solicitation provisions and agrees to abide by them.
6. TERMINATION
(a) Death. The Executive's employment hereunder shall terminate upon his death.
(b) Disability. If during the Term or Renewal Period(s) the Executive becomes physically or mentally disabled in accordance with the terms and conditions of any disability insurance policy covering the Executive, or, if due to such physical or mental disability the Executive becomes unable for a period of more than six (6) consecutive months to perform his duties hereunder on substantially a full-time basis as determined by the Company in its sole reasonable discretion, the Company may, at its option, terminate the Executive's employment
hereunder upon not less than thirty (30) days' written notice so long as the terms of any disability insurance policy, then in effect provide for Executive to receive disability payments from that date forward.
(c) Cause. The Company may terminate the Executive's employment hereunder
for Cause effective immediately upon notice. For purposes of this Agreement, the
Company shall have "Cause" to terminate the Executive's employment hereunder:
(i) if the Executive engages in conduct which has caused or is reasonably likely
to cause demonstrable and serious injury to Company; (ii) if the Executive is
convicted of a felony as evidenced by a binding and final judgment, order, or
decree of a court of competent jurisdiction; (iii) for the Executive's failure
or refusal to perform his duties or responsibilities hereunder as determined by
the Company's Board of Directors in good faith, if such failure or refusal
continues for a period of ten (10) days after written notice of the same to the
Executive; provided, however, that the Executive also shall be given an
opportunity to explain such failure or refusal to the Board of Directors (but
not the right to address the Board of Directors more than once for any
particular action (or series of actions) or omission (or series of omissions);
(iv) for gross incompetence; (v) for the Executive's violation of this
Agreement, including, without limitation, Section 5 hereof; (vi) for chronic
absenteeism; (vii) for use of illegal drugs; (viii) for insobriety by the
Executive while performing his or her duties hereunder; and (ix) for any act of
dishonesty or falsification of reports, records, or information submitted by the
Executive to the Company.
(d) Termination by the Executive. The Executive may terminate his
employment hereunder at any time and for any reason by delivering written notice
of termination to the Company. However, if the Executive terminates his
employment for Good Reason (as defined below), such termination shall be deemed
to be a termination by the Company without Cause and, therefore, a breach of
this Agreement by the Company. For purposes of this Agreement, the term "Good
Reason" shall mean (i) a Change of Control of the Company (as defined in Section
7 hereof), (ii) a good faith determination by the Executive that there has been
a breach of this Agreement by the Company, (iii) a material adverse change in
the Executive's working conditions or status, (iv) the deletion of, or change
in, either of the following titles of Executive: CEO or President, (v) a
significant relocation of the Executive's principal office, (vi) a significant
increase in travel requirements, or (vii) an impairment of the Executive's
health to an extent that makes the continued performance of his duties hereunder
hazardous to his physical or mental health or his life. If the Executive desires
to terminate his employment for Good Reason, he shall deliver written notice of
termination to the Board of Directors indicating in reasonable detail the facts
and circumstances alleged to provide a basis for such termination and shall
cease performing the Executive's duties hereunder on the date which is thirty
(30) days after delivery of the notice, which date also shall be the date of
termination of the Executive's employment.
(e) Payments Upon Termination. In the event of a termination of the
Executive's employment pursuant to Section 6 or by the Executive, all payments
and Company benefits to the Executive hereunder, except the payments (if any)
provided below, shall immediately cease and terminate. In the event of an early
termination by the Company of the Executive's employment with the Company for
any reason other than pursuant to Section 6(A)(B)(C) or Executive's termination
pursuant to Section 6(D), the Company shall pay the Executive an amount equal to
the Liquidated Damages defined in (f) below (in lieu of actual damages) for the
early termination of his employment. In the event of a termination of the
Executive's employment for any reason other than pursuant to Section 6(A)(B)(C)
or Executive's termination pursuant to Section 6(D), the Covenant Not-to-Compete
set forth in Section 5 hereof shall remain in full force and effect for the
period set forth in (f) below. If the Company terminates the Executive's
employment pursuant to Section 6(A)(B)(C) or the Executive terminates such
employment other than pursuant to Section 6(D), the Executive shall not be
entitled to any Liquidated Damages and the Covenant Not-to-Compete set forth in
Section 5 hereof shall remain in full force and effect as set forth in (g)
below. Notwithstanding anything to the contrary herein contained, and in
addition to any other compensation to which the Executive may be entitled to
receive pursuant to this Agreement, the Executive shall receive all compensation
and other benefits to which he or she was entitled under this Agreement or
otherwise as an executive of the Company through the termination date. The
Executive shall not be entitled to any Liquidated Damages in
the event the Company does not terminate this Agreement but elects not to renew this Agreement as permitted by Section 2 hereof.
(f) Liquidated Damages and Non-Competition/Solicitation. The Liquidated Damages ("Liquidated Damages") amount, if due as provided above, shall be equal to the weekly amount stated as Base Salary on Exhibit A, through the end of the Term or Renewal Period of the Agreement or for one hundred and four (104) weeks, whichever is greater. The provisions of Section 5 (the "Non-Competition/Solicitation Provisions") shall survive the early termination of this Agreement, by either party, and for any reason, through the end of the Term or Renewal Period of the Agreement or for one hundred and four (104) weeks, whichever is greater.
Notwithstanding anything herein to the contrary:
(i) The amount of Liquidated Damages shall not be less than the weekly amount stated as Base Salary on Exhibit A, times the number of weeks remaining between the early termination date and the end of the Term or Renewal Period. The amount of Liquidated Damages shall be paid biweekly in equal installments over such period.
(ii) In the event of termination of the Executive's employment pursuant to Section 6(d)(i), Liquidated Damages shall be payable for a period of one hundred fifty six (156) full weeks following such termination.
In addition, there shall be added to the Liquidated Damages, payable during such one hundred and fifty-six full weeks, an amount determined by multiplying the annual Target Bonus designated or otherwise indicated for the Executive in the year such change of control occurs by a factor of three. Such amount shall be payable in addition to and as a part of the Liquidated Damages payable over such one hundred and fifty-six full weeks.
Finally, in the event of termination of the Executive's employment pursuant to Section 6(d)(i), all vesting periods relating to stock options, stock grants or any other similar type of equity incentive and/or compensation program shall immediately accelerate and be fully vested and exercisable at the option of the Executive upon the event of termination.
(iii) The Non-Solicitation restrictions set forth in Section 5(c)(4) shall survive the termination of this Agreement and remain in effect for the greater of one hundred and four (104) full weeks following termination or the full stated Term or Renewal Period of this Agreement.
(g) Condition Precedent to Receipt of Liquidated Damages. The Executive expressly agrees that in the event of a termination of this Agreement prior to the expiration of the Term or Renewal Period, Executive will execute an agreement containing the waiver and release provisions set forth on Exhibit "B." The Executive agrees and acknowledges that the execution of such an agreement upon termination prior to the expiration of the Term or Renewal Period, is a condition precedent to the obligation of the Company to pay any Liquidated Damages hereunder. The provisions set forth in Exhibit "B" provide for the release and waiver of important rights and/or claims that the Executive might have against the Company at the time of any early termination of this Agreement. The Executive hereby represents and warrants that he /she has read the attached Exhibit "B" and fully and completely understands the provisions thereof.
7. CHANGE IN CONTROL. For purposes of Section 6(d) of this Agreement, a Change of Control shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred:
(i) any person or entity, or group thereof acting in concert (a "Person") (other than (A) the Company or any of its subsidiaries, (B) a trustee or other fiduciary holding securities under any employee benefit plan of the Company or any of its subsidiaries, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, or (D) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock in the Company), being or becoming the "beneficial owner" (as such term is defined in Securities and Exchange Commission ("SEC") Rule 13d-3 under the Exchange Act) of securities of the Company which, together with securities previously owned, confer upon such person, entity or group the combined voting power, on
any matters brought to a vote of shareholders, of twenty percent (20%) or more of the then outstanding shares of voting securities of the Company; or
(ii) the sale, assignment or transfer of assets of the Company or any subsidiary or subsidiaries, in a transaction or series of transactions, if the aggregate consideration received or to be received by the Company or any such subsidiary in connection with such sale, assignment or transfer is greater than fifty-one percent (51%) of the book value, determined by the Company in accordance with generally accepted accounting principles, of the Company's assets determined on a consolidated basis immediately before such transaction or the first of such transactions; or
(iii) the merger, consolidation, share exchange or reorganization of the Company (or one or more direct or indirect subsidiaries of the Company) as a result of which the holders of all of the shares of capital stock of the Company as a group would receive less than fifty-one percent (51%) of the combined voting power of the voting securities of the Company or such surviving or resulting entity or any parent thereof immediately after such merger, consolidation, share exchange or reorganization; or
(iv) the adoption of a plan of complete liquidation or the approval of the dissolution of the Company; or
(v) the commencement (within the meaning of SEC Rule 13e-4 under the Exchange Act) of a tender or exchange offer which, if successful, would result in a Change of Control of the Company; or
(vi) a determination by the Board of Directors of the Company, in view of the then current circumstances or impending events, that a Change of Control of the Company has occurred or is imminent, which determination shall be made for the specific purpose of triggering the operative provisions of this Agreement.
8. NOTICE. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when hand-delivered, sent by telecopier, facsimile transmission, or other electronic means of transmitting written documents (as long as receipt is acknowledged) or mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive, to the address set forth on the signature page.
If to the Company: Sykes Enterprises, Incorporated 400 North Ashley Drive, Suite 2800 Tampa, Florida 33602 Attention: Chairman of the Board of Directors
with a copy to:
Sykes Enterprises, Incorporated 400 North Ashley Drive, Suite 2800 Tampa, Florida 33602 Attention: General Counsel
or to such other address as either party may have furnished to the other in writing in accordance herewith, except that a notice of change of address shall be effective only upon receipt.
9. ENFORCEMENT AND GOVERNING LAW. It is stipulated that a breach by Executive of the restrictive covenants set forth in Sections 4 and 5 of this Agreement will cause irreparable damage to Company or its Clients, and that in the event of any breach of those provisions, Company is entitled to injunctive relief restraining Executive from violating or continuing a violation of the restrictive covenants as well as other remedies it may have. Additionally, such covenants shall be enforceable against the Executive's successors or assigns or by successor assigns.
The validity, interpretation, construction, and performance of this Agreement shall be governed by the internal laws of the State of Florida. Any litigation to enforce this Agreement shall be brought in the state or federal courts of Hillsborough County, Florida, which is the principal place of business for Company and which is considered to be the place where this Agreement is made. Both parties hereby consent to such courts' exercise of personal jurisdiction over them.
10. ARBITRATION OF DISPUTES.
(a) Duty to Arbitrate. Except for any claim by the Company to enforce the restrictive covenants set forth in Sections 4 and 5 above, Company and Executive agree to resolve by binding arbitration any claim or controversy arising out of or related to Executive's employment by Company or this Agreement, to include all matters directly or indirectly related to your recruitment, employment or termination of employment by the Company including, but not limited to claims involving laws against discrimination whether brought under federal and /or state law, and/or claims involving co-employees but excluding workers compensation claims, whether such claim is based in contract, tort, statute, or any other legal theory, including any claim for damages, equitable relief, or both. The duty to arbitrate under this Section extends to any claim by or against any officer, director, shareholder, employee, agent, representative, parent, subsidiary, affiliate, heir, trustee, legal representative, successor, or assign of either party making or defending any claim that would otherwise be arbitrable under this Section. However, this Section shall not be interpreted to preclude either party from petitioning a court of competent jurisdiction for temporary injunctive relief, solely to preserve the status quo pending arbitration of the claim or controversy, upon a proper showing of the need for such relief.
(b) The Arbitrator. A single arbitrator will conduct the arbitration in Tampa, Florida, U.S.A., in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the "Rules"), and judgment upon the written award rendered by the arbitrator may be entered in any court of competent jurisdiction. Notwithstanding the application of the Rules, however, discovery in the arbitration, including interrogatories, requests for production, requests for admission, and depositions, will be fully available and governed by the Federal Rules of Civil Procedure and Local Rules of the United States District Court for the Middle District of Florida. The parties may agree upon a person to act as sole arbitrator within thirty (30) days after submission of any claim or controversy to arbitration pursuant to this Section. If the parties are unable to agree upon such a person within such time period, an arbitrator shall be selected in accordance with the Rules. The arbitrator will not have the power to award punitive or exemplary damages.
(c) Limitations Period. The parties agree that any claim or controversy that would be arbitrable under this Section must be submitted to arbitration within one (1) year after the claim or controversy arises and that a failure to institute arbitration proceedings within such time period shall constitute an absolute bar to the institution of any proceedings, in arbitration or in any court, and a waiver of all such claims. This Section will survive the expiration or early termination of this Agreement.
(d) Governing Law. This Agreement shall be governed in its construction, interpretation, and performance by the laws of the State of Florida, without reference to law pertaining to conflict of laws. However, the Federal Arbitration Act, as amended, will govern the interpretation and enforcement of this Section.
(e) Attorneys' Fees. The prevailing party in any arbitration or dispute, or in any litigation, arising out of or related to Executive's employment by Company or this Agreement, shall be entitled to recover all costs and reasonable attorneys' fees incurred on all levels and in all proceedings, including, but not limited to, arbitration, filing, hearing, processing, and witness fees, and any other costs and fees incurred, in any investigations, arbitrations, trials, bankruptcies, and appeals.
(f) Severability. Each part of this Section 10 is severable. A holding that any part of this Section 10 is unenforceable will not affect the duty to arbitrate under this Section 10.
11. MISCELLANEOUS. No provision of this Agreement may be modified or waived unless such waiver or modification is agreed to in writing signed by the parties hereto; provided, however, that the terms of the performance bonus and fringe benefits set forth or Exhibit A may be amended by the Company in its discretion without the Executive's consent to the extent provided therein. No waiver by any party hereto of any breach by any other party hereto shall be deemed a waiver of any similar or dissimilar term or condition at the same or at any prior or subsequent time. This Agreement is the entire agreement between the parties hereto with respect to the Executive's employment by the Company and there are no agreements or representations, oral or otherwise, expressed or implied, with respect to or related to the employment of the Executive which are not set forth in this Agreement. Any prior agreement relating to the Executive's employment with the Company is hereby superseded and void, and is no longer in effect. This Agreement shall be binding upon and inure to the benefit of the Company, its respective successors and assigns, and the Executive and his heirs, executors, administrators and legal representatives. Except as expressly set forth herein, no party shall assign any of his or its rights under this Agreement without the prior written consent of the other party and any attempted assignment without such prior written consent shall be null and void and without legal effect. The parties agree that if any provision of this Agreement shall under any circumstances be deemed invalid or inoperative, the Agreement shall be construed with the invalid or inoperative provision deleted and the rights and obligations of the parties shall be construed and enforced accordingly. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute but one and the same instrument. This Agreement has been negotiated and no party shall be considered as being responsible for such drafting for the purpose of applying any rule construing ambiguities against the drafter or otherwise.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.
SYKES ENTERPRISES, INCORPORATED EXECUTIVE By: /s/ James T. Holder /s/ Charles E. Sykes --------------------------------- ---------------------------------------- JAMES T. HOLDER CHARLES E. SYKES Address: ---------------------------------------- ---------------------------------------- |
CHARLES E. SYKES
EXHIBIT "A" TO EMPLOYMENT AGREEMENT
TERM: 3 years - August 1, 2004 to July 31, 2007 BASE SALARY: $7,211.54 per week payable bi-weekly. On August 1, 2005, will be eligible for a compensation review with a contemplated minimum increase of 15%. On August 1, 2006, will be eligible for a compensation review with a contemplated minimum increase of 10%. The salary increase will be dependent upon Executive satisfying certain performance goals established by joint agreement with the Board of Directors. PERFORMANCE BONUS: Eligible to participate in a performance based bonus plan (bonus to be up to 60% of base salary) and other bonus and incentive compensation, stock option and restricted stock plans available to other executives. The specific performance objectives will be determined by joint agreement between the Board of Directors and Executive within 60 days of the date hereof. FRINGE BENEFITS: Eligible for standard executive benefits RENEWAL NOTICE PERIOD: One hundred and eighty (180) days |
THE COMPANY RESERVES THE RIGHT, AT ITS DISCRETION, AT SUCH TIME OR TIMES AS IT ELECTS, TO CHANGE OR ELIMINATE INCENTIVES OR OTHER BENEFITS.
IN WITNESS WHEREOF, the parties have executed this Exhibit A as of the 1st day of August 2004.
SYKES ENTERPRISES, INCORPORATED EXECUTIVE By: /s/ James T. Holder /s/ Charles E. Sykes --------------------------------- ---------------------------------------- JAMES T. HOLDER CHARLES E. SYKES |
Exhibit 10.32
(SYKES(SM) LOGO)
INDEPENDENT SUBCONTRACTOR AGREEMENT
THIS AGREEMENT is made by and between Sykes Enterprises, Incorporated ("Sykes"), a Florida corporation, with offices at 400 North Ashley Drive, Tampa, Florida 33602 and Gerry L. Rogers ("Subcontractor"), with offices at _________________________________________________________________.
WHEREAS, the parties wish to enter into an agreement whereby Subcontractor will provide services to Sykes as an independent contractor.
NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows:
1. SERVICES. Subcontractor will provide all services under this Agreement as an independent contractor. Sykes may retain Subcontractor to provide services on a project-by-project basis as assigned by the President and COO. Subcontractor will perform all services necessary to complete each project assigned to him/her in a professional manner, including performing those duties customarily performed by one providing similar services. Subcontractor will accept only that work which Subcontractor is qualified and able to perform. Wherever practicable, the specific requirements and terms of each work project shall be set forth in writing on a work order or statement of work signed by both parties.
2. STANDARDS. All services provided by Subcontractor will be under his/her own direction and control. Subcontractor will perform services in accordance with the standards and parameters established by Sykes, including, but not limited to, the time for completing each project, the format of the product produced or services performed, and the standards of quality set by Sykes. Subcontractor will perform all work hereunder in accordance with the highest applicable standards for the relevant industry. All services will be performed to the satisfaction of Sykes and its clients.
3. RESPONSIBILITIES.
a. Subcontractor shall comply with all of Sykes' and Sykes' clients' rules, procedures and policies relating to or affecting the services to be provided hereunder (including clients' standards of quality). Subcontractor will comply with clients' rules and policies with respect to security of and access to clients' premises and telephone and electronic mail facilities.
b. In its performance of this Agreement, Subcontractor will comply with all applicable federal, state and local laws.
c. Subcontractor will maintain in effect during the term of this Agreement any and all federal, state and local licenses and permits that may be required.
4. INVOICING. Subcontractor will be paid a retained fee of Ten Thousand
Dollars ($10,000.00) per month for which Subcontractor will perform 100
hours of work, as mutually agreed between the parties. Any hours of work
above 100 hours per month will first be approved by the President and COO,
and will be billed by Subcontractor at the rate of one hundred dollars
($100.00) per hour worked. Subject to the satisfactory completion of the
services, as determined by Sykes in its reasonable discretion, Sykes will
pay Subcontractor within thirty (30) days following receipt of invoice,
less any portion thereof in dispute. In the event of any disputed invoice
(including disputes over whether work was performed in a satisfactory
manner), Sykes and Subcontractor agree to negotiate in good faith toward a
quick resolution of the dispute and payment of the mutually agreed upon
amount. If the parties cannot resolve their payment dispute within ninety
(90) days from the date Subcontractor presents the invoice to Sykes, such
dispute shall be referred to binding arbitration in accordance with Section
14 below.
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5. NON-SOLICITATION. During the term of this Agreement and through March 5, 2006, Subcontractor covenants and agrees not to directly or indirectly solicit business from any client of Sykes, or solicit the services of any employee of Sykes who was providing services or work to Sykes or to any client of Sykes.
6. OWNERSHIP OF MATERIALS.
a. All materials provided to Subcontractor by Sykes or Sykes' clients, or produced by Subcontractor for Sykes or Sykes' clients, including, but not limited to, all information and materials relating to products, services, customers, business methods, strategies and practices, internal operations, pricing and billing, financial data, costs, personnel information, customer and supplier contacts, sales lists, technology, software, computer programs, computer systems, inventions, developments, trade secrets of every kind, information designated by Sykes or any of its clients as confidential and all other information or documents that might reasonably be deemed confidential, shall belong exclusively to and remain the property of Sykes or Sykes' clients, as the case may be. All materials and property of Sykes must be returned to Sykes upon completion of the assignment or project or termination of this Agreement. All materials and property of Sykes' client must be returned to such client upon completion of the assignment or project for such client.
b. Subcontractor hereby irrevocably transfers and assigns to Sykes or Sykes' designee any and all of his/her right, title, and interest in and to all work product, inventions, discoveries and materials produced in connection with this Agreement, including, but not limited to, all copyrights, patent rights, trade secrets and trademarks in such work product and materials. Subcontractor agrees: (a) to promptly disclose in writing to Sykes all work product, inventions, discoveries and materials developed or conceived by Subcontractor in performing services hereunder; (b) to cooperate with and assist Sykes or its clients in applying for, and to execute any applications or assignments reasonably necessary to obtain, any patent, copyright, trademark or other statutory protection; and (c) to otherwise treat all work product, inventions, discoveries and materials as confidential. Subcontractor's obligations under this section shall survive any termination of this Agreement.
7. CONFIDENTIALITY. Subcontractor will, during the course of providing services to Sykes, have access to and acquire knowledge from material, data, systems and other information of or with respect to Sykes and any of its clients which may not be accessible or known to the general public, including information concerning its hardware, software, business plans or opportunities, business strategies, finances or employees and third-party proprietary or confidential information that Sykes or its clients treat as confidential. Any knowledge, material, or information acquired while performing services for Sykes shall not be used, published or divulged by Subcontractor in connection with any services rendered by Subcontractor to any other person, firm or company, or in any advertising or promotion regarding Subcontractor or his/her services, or in any other manner or connection whatsoever without first having obtained the written permission of Sykes, which permission Sykes may withhold in its sole discretion. Subcontractor shall not disclose the terms and conditions of this Agreement to any third party, including other independent contractors or employees working for Sykes.
8. COVENANT NOT-TO-COMPETE. During the term of this Agreement and through March 5, 2006, Subcontractor shall not, directly or indirectly, either for his own account, or as a partner, shareholder, officer, director, employee, agent or otherwise, own, manage, operate, control, be employed by, participate in, consult with, perform services for, or otherwise be connected with any business the same as or similar to the business being conducted by Sykes. In the event any of the provisions of this paragraph 8 are determined to be invalid by reason of their scope or duration, this paragraph 8 shall be deemed modified to the extent required to cure the invalidity. In the event of a breach, or a threatened breach, of this paragraph 8, Sykes shall be entitled to obtain an injunction restraining the commitments or continuance of the breach, as well as any other legal or equitable remedies permitted by law. Because of the worldwide nature of Sykes' business activities, the parties agree that the reasonable scope of this Covenant Not-to-Compete is worldwide.
9. INDEPENDENT CONTRACTOR. Subcontractor will perform services as an independent contractor and not as an employee of Sykes. Sykes will not withhold any amount for taxes, and will provide Subcontractor with a Form 1099 in January of each year indicating compensation paid over the previous year. Subcontractor will pay and accepts full responsibility for payment of any and all federal, state, and local taxes (including FICA and FUTA), penalties and interest that may be lawfully due to any government unit, and to indemnify and hold Sykes
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harmless from any liability from the non-payment of taxes, penalties, and interest due from any other party to any governmental unit. Subcontractor represents and warrants that he/she meets all requirements of Section 1706 of the Tax Reform Act of 1986, as amended. Subcontractor acknowledges that he/she is not covered by Sykes for any form of worker's compensation insurance coverage, unemployment compensation insurance coverage, compensation provided under federal, state, or local compulsion or compulsory legislation which affects contractors and employers, or insurance for injury, sickness or retirement, whether in the form of Social Security or otherwise as a result of providing services to Sykes. Subcontractor waives all such claims relating to the items in this section. In no event shall Subcontractor be deemed to be the agent or legal representative of Sykes, and Subcontractor shall have no authority to assume or create any obligations, or make any representations, on behalf of Sykes. All activities and work performed by Subcontractor under this Agreement shall be at its own risk.
10. NO BENEFITS. Subcontractor agrees and acknowledges that he/she is not entitled to any of the benefits made available to employees of Sykes or Sykes' clients. Subcontractor waives, discharges and releases any claim for any benefit offered to the employees of Sykes or Sykes' clients. Subcontractor understands and agrees that this specifically includes, but is not limited to, pension coverage or benefits, savings and investment plan benefits, employee stock option participation, holiday pay, separation pay, or any other benefit of any type or description. In the event Subcontractor is retroactively determined by a court or administrative agency to be an employee of Sykes, Subcontractor shall continue to be classified as a leased employee or contract employee for purposes of all Sykes benefit plans and, notwithstanding such determination, shall not be eligible to participate in Sykes benefit plans.
11. INSURANCE.
a. Subcontractor shall maintain, at its sole cost and expense, commercial general liability and automobile liability insurance with limits of liability acceptable to Sykes.
b. Subcontractor shall provide Sykes with properly executed certificates of insurance prior to commencement of performance of this Agreement and shall provide Sykes with at least thirty (30) days' prior written notice of any reduction or cancellation of the above insurance coverage.
12. INDEMNIFICATION. Subcontractor shall indemnify, defend and hold harmless Sykes and its clients and all of their respective directors, officers, employees, agents, successors and assigns, from and against all claims, demands, actions, suits, judgments, losses, damages, costs and expenses, including court costs and reasonable attorneys' fees, incurred as a result of any of the following: (i) breach of or failure to perform any obligation, provision or condition of Subcontractor contained in this Agreement, (ii) Subcontractor's failure to comply with any applicable laws, regulations or orders, (iii) any negligent act or omission or intentional misconduct on the part of Subcontractor or his/her employees, (iv) the termination of Subcontractor under this Agreement or any project or assignment, (v) the alleged existence of any employer/employee relationship between Subcontractor and Sykes or its clients, (vi) any direct claim for workers' compensation benefits asserted against Sykes or its clients by Subcontractor or any employee thereof, and (vii) any claim or action that the services or products provided by Subcontractor under this Agreement infringe the patent, copyright, trademark, trade secret or other intellectual or proprietary right of a third party.
13. TERM; TERMINATION. The term of this Agreement shall be for one (1) year, beginning August 2, 2004. Either party may terminate this Agreement at any time, with or without cause, upon at least sixty (60) days' prior written notice to the other party. Sykes may terminate this Agreement immediately upon a material breach by Subcontractor.
14. ARBITRATION. Both parties agree that any action under this Agreement shall be submitted to arbitration administered by the American Arbitration Association (AAA) before a sole arbitrator in accordance with AAA's then-existing Commercial Arbitration Rules. The arbitrator shall be selected by AAA from a list of approved arbitrators for disputes of the type presented. The site of any arbitration shall be Hillsborough County, Florida, unless otherwise agreed by the parties in writing. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The arbitrator will not decide as amiable compositeur. The prevailing party will be awarded its costs, including legal fees, incurred in connection with the arbitration, and the arbitration proceedings will be confidential and will not be discussed by the parties or the arbitrator with third parties, with the exception of lawyers, consultants, and others engaged to assist the parties in the arbitration. All documents and other evidence exchanged in the arbitration and any copies thereof
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will be returned by the arbitrator and the other party to the party producing such documents or other evidence promptly after the final conclusion of any arbitration by award, stipulation, or continuance.
15. MISCELLANEOUS.
a. GOVERNING LAW. This Agreement shall be governed by the laws of the State of Florida, without regard to its conflict of law principles.
b. ASSIGNMENT. Neither this Agreement nor any rights or obligations hereunder may be assigned by either party without the other party's prior written consent, which shall not be unreasonably withheld or delayed.
c. SEVERABILITY. In the event any provision of this Agreement is found to be unenforceable, void, invalid or unreasonable in scope, such provision shall be modified to the extent necessary to make it enforceable, and, as so modified, this Agreement shall remain in full force and effect.
d. NO WAIVER. Failure by either party to exercise any rights contained in this Agreement shall not be construed as a waiver of such rights.
e. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original copy of this Agreement and all of which, when taken together, shall be deemed to constitute one and the same Agreement.
f. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the parties, supersedes any prior understandings relating to the subject matter hereof, and may be amended or supplemented only in a written agreement signed by both parties.
g. SECTION HEADINGS. Section headings are provided for convenience only. They do not modify or affect the meaning of any provision herein and will not serve as a basis for interpretation or construction of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the respective dates written below.
SYKES ENTERPRISES, INCORPORATED SUBCONTRACTOR Signature: /s/ James T. Holder Signature: /s/ Gerry L. Rogers -------------------------- ----------------------------- Name: James T. Holder Name: Gerry L. Rogers Title: Vice President Title: Principal Consultant Date: July 27, 2004 Date: July 27, 2004 |
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Exhibit 10.33
FIRST AMENDMENT TO INDEPENDENT SUBCONTRACTOR AGREEMENT
THIS FIRST AMENDMENT is made by and between Sykes Enterprises, Incorporated ("Sykes"), a Florida corporation, with offices at 400 North Ashley Drive, Tampa, Florida 33602 and Gerry L. Rogers ("Subcontractor"), with offices at ___________________________.
WHEREAS the parties entered into that certain Independent Subcontractor Agreement effective as the 27th day of July, 2004 (the "Agreement"); and
WHEREAS the parties desire to amend the Agreement;
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledge, the parties agree that the Agreement shall be amended as follows:
Paragraph 4 of the Agreement entitled "Invoicing" shall be deleted in its entirety and the following paragraph shall be substituted in place thereof.
Subcontractor will be paid a retained fee of Twenty Thousand ($20,000) per month for which Subcontractor will perform 180 hours of work, as mutually agreed between the parties. Any hours of work above 180 hours per month will be billed by Subcontractor at the rate of one hundred ten dollars ($110.00) per hour worked. Subject to the satisfactory completion of the services, as determined by Sykes in its reasonable discretion, Sykes will pay Subcontractor within thirty (30) days following receipt of invoice, less any portion thereof in dispute. In the event of any disputed invoice (including disputes over whether work was performed in a satisfactory manner), Sykes and Subcontractor agree to negotiate in good faith toward a quick resolution of the dispute and payment of the mutually agreed upon amount. If the parties cannot resolve their payment dispute within ninety (90) days from the date Subcontractor presents the invoice to Sykes, such dispute shall be referred to binding arbitration in accordance with Section 14 below.
Except as specifically set forth above, all terms and conditions of the Agreement remain unmodified and are hereby reaffirmed and restated.
First Amendment to Independent
Subcontractor Agreement
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment on the respective dates written below, which shall be effective as of the 1st day of February, 2005.
SYKES ENTERPRISES, INCORPORATED SUBCONTRACTOR Signature: /s/ James T. Holder Signature: /s/ Gerry L. Rogers -------------------------- ----------------------------- Name: James T. Holder Name: Gerry L. Rogers Title: Vice President Title: Principal Consultant Date: July 27, 2004 Date: July 27, 2004 |
Exhibit 10.53
FIRST AMENDMENT AGREEMENT
This FIRST AMENDMENT AGREEMENT (this "Amendment") is made as of the 18th day of October, 2004, by and among:
(a) SYKES ENTERPRISES, INCORPORATED, a Florida corporation ("Borrower");
(b) the lenders listed on Schedule 1 to the Credit Agreement (collectively, the "Lenders" and, individually, each a "Lender");
(c) KEYBANK NATIONAL ASSOCIATION, as lead arranger, book runner and administrative agent for the Lenders under this Agreement ("Agent"); and
(d) BNP PARIBAS, as documentation agent.
WHEREAS, Borrower, Agent and the Lenders are parties to that certain Credit Agreement, dated as of March 15, 2004, that provides, among other things, for loans and letters of credit aggregating Fifty Million Dollars ($50,000,000), all upon certain terms and conditions (as the same may from time to time be amended, restated or otherwise modified, the "Credit Agreement");
WHEREAS, Borrower, Agent and the Lenders desire to amend the Credit Agreement to modify certain provisions thereof and add certain provisions thereto; and
WHEREAS, each capitalized term used herein and defined in the Credit Agreement, but not otherwise defined herein, shall have the meaning given such term in the Credit Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein and for other valuable consideration, Borrower, Agent and the Lenders agree as follows:
1. Notice of Foreign Restructuring. Borrower has notified Agent and the Lenders that it plans to modify its organizational structure in order to simplify operations, reduce administrative costs and provide overall greater efficiencies among its Foreign Subsidiaries (the "Foreign Restructuring"). As part of the Foreign Restructuring, Borrower has notified Agent and the Lenders that:
(a) Creation of Foreign Subsidiaries. Borrower has created three new Foreign Subsidiaries, (i) Sykes (Bermuda) Holdings Limited, a company organized under the laws of Bermuda ("Bermuda Holding Co."), (ii) Sykes Offshore Holdings Limited, another company organized under the laws of Bermuda ("Bermuda Co."), and (iii) SEI International Services S.a.r.l., a company organized under the laws of Luxembourg ("Luxembourg Co."). As of the date hereof, (A) Bermuda Holding Co. is a wholly-owned first-tier Foreign Subsidiary of Sykes LP Holdings LLC, Bermuda Co. is a wholly-owned Foreign Subsidiary of Bermuda Holding Co., and Luxembourg Co. is a wholly-owned Foreign Subsidiary of Bermuda Co.
(b) Transfer of Assets to Luxembourg Co. On the date hereof, Sykes LP Holdings LLC will transfer its 99.99% ownership interest in Sykes Investments CV to Luxembourg Co. through a series of intercompany transfers. On October 19, 2004, Sykes Global Holdings LLC will sell its 0.01% ownership interest in Sykes Investments CV to Luxembourg Co. in return for a promissory note issued by Luxembourg Co., which note will be transferred to Bermuda Holding Co. in consideration for shares representing approximately 0.01% of its outstanding stock. Thereafter, prior to December 31, 2005, through a series of intercompany transfers, Borrower will transfer all of its ownership interests in McQueen International Limited and Sykes Latin America, S.A. to Luxembourg Co.
(c) Dissolution of Sykes Enterprises of Canada. Prior to December 31, 2005, Borrower will liquidate Sykes Enterprises of Canada, a Dormant Subsidiary.
2. Consent to Foreign Restructuring. Agent and the Lenders hereby consent to the Foreign Restructuring on the conditions that:
(a) Pledge of First-Tier Foreign Subsidiary Stock. Pursuant to Section
5.18 (Subsidiary Guaranties and Pledge of Stock) of the Credit Agreement,
any time a first-tier Foreign Subsidiary of a Domestic Subsidiary (other
than a Dormant Subsidiary) is created, such Domestic Subsidiary is
required, among other things, to pledge to Agent, for the benefit of the
Lenders, sixty-five percent (65%) of the outstanding shares of such Foreign
Subsidiary. In connection with the creation of Bermuda Holding Co.,
Borrower agrees to execute and deliver the documents required by Section
5.18 of the Credit Agreement on or before January 31, 2005.
(b) No Default. No Default or Event of Default exists, or, immediately after the completion of the Foreign Restructuring, will exist.
3. Amendment to Credit Agreement. The Credit Agreement is hereby amended to delete Schedule 3 (Pledged Securities) therefrom and to insert in place thereof a new Schedule 3 in the form of Schedule 3 hereto.
4. Return of Intercompany Note. Following the transfer of the stock of Sykes Investments C.V. to Luxembourg Co., Sykes Investments C.V. will no longer be a first-tier Foreign Subsidiary. Therefore, Agent, on behalf of the Lenders, will promptly return to Borrower, without recourse, the Intercompany Note issued by Sykes Investments C.V. that was pledged by Borrower to Agent, for the benefit of the Lenders, on the Closing Date as an alternative to the sixty-five percent (65%) pledge requirement set forth in Section 5.18 of the Credit Agreement.
5. Release of Security Interest Under Borrower Pledge Agreement. In connection with the Foreign Restructuring, effective as of October 18, 2004, Agent and the Lenders hereby release and terminate their security interest in the shares of McQueen International Limited, Sykes Enterprises of Canada and Sykes Latin America, S.A., under that certain Pledge Agreement, dated March 15, 2004, by Borrower in favor of Agent, for the benefit of the Lenders.
6. Closing Deliveries. Concurrently with the execution of this Amendment, Borrower shall:
(a) cause each Guarantor of Payment to execute the attached Acknowledgement and Agreement; and
(b) pay all legal fees and expenses of Agent in connection with this Amendment.
7. Post-Closing Deliveries. No later than January 31, 2005 (unless a longer period is agreed to in writing by Agent), Borrower shall deliver to Agent, for the benefit of the Lenders, a Pledge Agreement executed by Sykes LP Holdings LLC pledging to Agent, for the benefit of the Lenders, 65% of the shares of Bermuda Holding Co.
8. Representations and Warranties. Borrower hereby represents and warrants to Agent and the Lenders that (a) Borrower has the legal power and authority to execute and deliver this Amendment; (b) the officers executing this Amendment have been duly authorized to execute and deliver the same and bind Borrower with respect to the provisions hereof; (c) the execution and delivery hereof by Borrower and the performance and observance by Borrower of the provisions hereof do not violate or conflict with the organizational agreements of Borrower or any law applicable to Borrower or result in a breach of any provision of or constitute a default under any other agreement, instrument or document binding upon or enforceable against Borrower; (d) no Default or Event of Default exists under the Credit Agreement, nor will any occur immediately after the execution and delivery of this Amendment or by the performance or observance of any provision hereof; (e) Borrower is not aware of any claim or offset against, or defense or counterclaim to, Borrower's obligations or liabilities under the Credit Agreement or any Related Writing; and (f) this Amendment constitutes a valid and binding obligation of Borrower in every respect, enforceable in accordance with its terms.
9. References to Credit Agreement. Each reference that is made in the Credit Agreement or any Related Writing shall hereafter be construed as a reference to the Credit Agreement as amended hereby. Except as herein otherwise specifically provided, all terms and provisions of the Credit Agreement are confirmed and ratified and shall remain in full force and effect and be unaffected hereby. This Amendment is a Related Writing.
10. Waiver. Borrower, by signing below, hereby waives and releases Agent and each of the Lenders, and their respective directors, officers, employees, attorneys, affiliates and subsidiaries, from any and all claims, offsets, defenses and counterclaims of which Borrower is aware, such waiver and release being with full knowledge and understanding of the circumstances and effect thereof and after having consulted legal counsel with respect thereto.
11. Counterparts. This Amendment may be executed in any number of counterparts, by different parties hereto in separate counterparts and by facsimile signature, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement.
12. Headings. The headings, captions and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment.
13. Severability. Any term or provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the term or provision so held to be invalid or unenforceable.
14. Governing Law. The rights and obligations of all parties hereto shall be governed by the laws of the State of Ohio, without regard to principles of conflicts of laws.
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15. JURY TRIAL WAIVER. BORROWER, THE LENDERS AND AGENT, TO THE EXTENT PERMITTED BY LAW, EACH HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG BORROWER, THE LENDERS AND AGENT, OR ANY THEREOF, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AMENDMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO.
IN WITNESS WHEREOF, the parties have executed and delivered this Amendment as of the date first set forth above.
SYKES ENTERPRISES, INCORPORATED
By: /s/ W. Michael Kipphut ------------------------------------ W. Michael Kipphut, Group Executive, Senior Vice President - Finance |
KEYBANK NATIONAL ASSOCIATION,
as Agent and as a Lender
By: /s/ Jeff Kalinowski ------------------------------------ Jeff Kalinowski Vice President |
BNP PARIBAS,
as Documentation Agent and as a Lender
By: /s/ Craig Pierce ------------------------------------ Name: Craig Pierce Title: Vice President By: /s/ Jeff Tebeaux ------------------------------------ Name: Jeff Tebeaux Title: Vice President |
ACKNOWLEDGMENT AND AGREEMENT
The undersigned consent and agree to and acknowledge the terms of the foregoing First Amendment Agreement dated as of October 18, 2004. The undersigned further agree that the obligations of the undersigned pursuant to the Guaranty of Payment executed by the undersigned shall remain in full force and effect and be unaffected hereby.
The undersigned hereby waive and release Agent and the Lenders and their respective directors, officers, employees, attorneys, affiliates and subsidiaries from any and all claims, offsets, defenses and counterclaims of which the undersigned are aware, such waiver and release being with full knowledge and understanding of the circumstances and effect thereof and after having consulted legal counsel with respect thereto.
JURY TRIAL WAIVER. THE UNDERSIGNED, TO THE EXTENT PERMITTED BY LAW, HEREBY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG BORROWERS, AGENT, THE LENDERS AND THE UNDERSIGNED, OR ANY THEREOF, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AMENDMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO.
SYKES ENTERPRISES - SOUTH AFRICA, INC. FINANCIAL SERVICES WORLDWIDE, LLC By: /s/ Keith Brockman By: /s/ Charles E. Sykes ---------------------------------- ----------------------------------- Name: Keith Brockman Name: Charles E. Sykes Title: Vice President Title: Director SYKES REALTY, INC. MCQUEEN INTERNATIONAL INCORPORATED By: /s/ James T. Holder By: /s/ W. Michael Kipphut ---------------------------------- ----------------------------------- Name: James T. Holder Name: W. Michael Kipphut Title: Vice President Title: Director Sykes Global Holdings LLC Sykes LP Holdings LLC By: /s/ W. Michael Kipphut By: /s/ W. Michael Kipphut ---------------------------------- ----------------------------------- Name: W. Michael Kipphut Name: W. Michael Kipphut Title: Senior Vice President Title: Senior Vice President |
SYKES E-COMMERCE, INCORPORATED
By: /s/ James T. Holder ---------------------------------- Name: James T. Holder Title: Director |
SCHEDULE 3
PLEDGED SECURITIES
Pledged Name of Subsidiary Jurisdiction Pledgor Percentage ----------------------------------- ------------ ------------------------------- ---------- Sykes Enterprises Incorporated S.L. Spain Sykes Enterprises, Incorporated 65% Sykes (Bermuda) Holdings Limited Bermuda Sykes LP Holdings LLC 65% |
EXHIBIT 21.1
SYKES ENTERPRISES, INCORPORATED
LIST OF SUBSIDIARIES
As of December 31, 2004, the Registrant directly or indirectly owned the following subsidiaries. Certain subsidiaries, which in the aggregate do not constitute significant subsidiaries, may be omitted.
Sykes (Bermuda) Holdings Limited Bermuda Sykes Offshore Holdings Limited Bermuda 248 Pall Mall (London) Inc. Canada Clinidata Incorporated Canada Sykes Canada Corporation (f/k/a Oracle Service Networks Corporation) Canada Sykes Latin America, S.A. Costa Rica Sykes Central America Ltda El Salvador Sykes El Salvador, Ltda El Salvador Sykes Finland Oyin Finland Sykes France S.A. (f/k/a McQueen France S.A.) France Sykes Enterprises Esslingen GmbH & Co. KG Germany Sykes Enterprises Bochum GmbH & Co. KG Germany Sykes Enterprises GmbH Germany Sykes Enterprises Hamburg Hannover GmbH & Co. KG Germany Sykes Enterprises Management GmbH Germany Sykes Enterprises Support Services B.V. & Co. KG Germany Sykes Enterprises Verwaltungs und Beteiligungsgellschaft GmbH Germany Sykes Enterprises Verwaltungs und Management GmbH Germany Sykes Enterprises Wilhelmshaven GmbH & Co. KG Germany Sykes Verwaltungesellschaft GmbH Germany Sykes Central Europe Kft Hungary Sykes Enterprises (India) Pvt Ltd India Sykes Enterprises Italy S.r.L Italy SEI International Services S.a.r.l. Luxembourg Sykes India Holdings Corporation Mauritius Sykes (Shanghai) Co. Ltd The Peoples Republic of China Link Network Limited Scotland McQueen Europe Limited Scotland McQueen International Limited Scotland Sykes Global Services Limited (f/k/a Sykes Europe Limited) Scotland Sykes Slovakia Sro Slovakia Sykes Enterprises Incorporated, S.L. Spain Sykes Datasvar Support AB Sweden McQueen International B.V. The Netherlands Sykes Enterprises Incorporated BV The Netherlands Sykes Enterprises Incorporated Holdings B.V. The Netherlands Sykes International Holdings BV The Netherlands Sykes Netherlands B.V. The Netherlands Sykes Asia Inc. The Philippines Financial Services Worldwide, LLC United States McQueen International Incorporated United States Sykes E-Commerce, Incorporated United States Sykes Enterprises - South Africa, Inc. United States Sykes Global Holdings, LLC United States Sykes LP Holdings, LLC United States Sykes Realty, Inc. United States |
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements Nos. 333-23681, 333-76629, 333-88359, and 333-73260 on Form S-8 of our reports dated March 22, 2005, relating to the consolidated financial statements and financial statement schedule of Sykes Enterprises, Incorporated and management's report on the effectiveness of internal control over financial reporting appearing in this Annual Report on Form 10-K of Sykes Enterprises, Incorporated for the year ended December 31, 2004.
/s/ Deloitte & Touche LLP Tampa, Florida March 22, 2005 |
EXHIBIT 31.1
CERTIFICATION
I, Charles E. Sykes, certify that:
1. I have reviewed this annual report on Form 10-K of Sykes Enterprises, Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company's internal control over financial reporting that occurred during the company's most recent fiscal quarter (the company's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and
5. The company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.
Date: March 22, 2005 /s/ Charles E. Sykes ------------------------------------------------------- Charles E. Sykes, President and Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION
I, W. Michael Kipphut, certify that:
1. I have reviewed this annual report on Form 10-K of Sykes Enterprises, Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company's internal control over financial reporting that occurred during the company's most recent fiscal quarter (the company's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and
5. The company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.
Date: March 22, 2005 /s/ W. Michael Kipphut --------------------------------------------------------------------- W. Michael Kipphut, Senior Vice President and Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Annual Report of Sykes Enterprises, Incorporated (the "Company") on Form 10-K for the year ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Charles E. Sykes, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 22, 2005 By: /s/ Charles E. Sykes ------------------------------------- Charles E. Sykes President and Chief Executive Officer |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Annual Report of Sykes Enterprises, Incorporated (the "Company") on Form 10-K for the year ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, W. Michael Kipphut, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 22, 2005 By: /s/ W. Michael Kipphut ---------------------------------------- W. Michael Kipphut Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.