UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF FLORIDA TAMPA DIVISION 3 C ID ._. ' . i u U .1 C ~F1_'.. ,IDA In re Sykes Enterprises , Inc . Securities Case No . 8:00-CV-2 lj26EORittA Litigation CONSOLIDATED AMENDED CLASS ACTION COMPLAINT This Matters Pertains to All Cases JURY TRIAL DEMANDED
Lead Plaintiffs , the Florida State Board of Administration ("FSBA") and the Louisiana State
Employees' Retirement System ("LASERS"), by and through their respective undersigned counsel, based on the investigation of their counsel, allege, for their complaint, as follows:
SUMMARY OF THE ACTION
Lead Plaintiffs FSBA and LASERS bring this action as a class action on behalf of themselves and all other persons who purchased the common stock of Sykes Enterprises,
Inc. ("Sykes" or the "Company") on the open market during the period commencing July 27, 1998 through and including September 18, 2000 (the "Class Period") .
2. This action arises out of a series of false statements of revenue and earning s by Defendant Sykes that materially misled the investing public regarding the success of its business operations. As described more fully below, the Defendants in this case were enamored with Sykes'
"unbroken streak" of meeting or exceeding the consensus expectations of Wall Street analysts in each reporting period since the Company's initial public offering ("IPO") in 1996 -- a boast that pervaded the Company's public statements, contributed significantly to the steadily rising price of
Sykes' common stock throughout the Class Period, and helped fuel a series of corporate acquisitions for which Sykes' inflated stock was the consideration. By mid-1998, however, when the Defendants began to face the prospect of failing to meet those Wall Street estimates -- and the concomitant likelihood that the Company's stock price would be punished for that failure -- they began to emplo y G]~ a variety of improper means intended to ensure that Sykes would match analyst estimates b y
materially inflating revenue, earnings, and earnings per share . Among other things, the Defendants
a. backdated the Company's receipt of millions of dollars in revenue in order to ensure that a previous quarter -- which would have otherwise been the first reporting period since Sykes' IPO to disappoint Wall Street expectations -- appeared to match those expectations to the penny;
b. despite clear Generally Accepted Accounting P rinciples ("GAAP") rules to the contrary, improperly booked millions of dollars in revenue that was expressly contingent on the occurrence of future events that might not (and, in fact, did not) occur when compli ance with GAAP would have resulted in an earnings shortfall ;
c. concealed the contingent nature of certain revenues in a side agreement to a sales contract that made no reference to the side agreement or the contingency ;
d. filed statements of operations with the Securities and Exchange Commission ("SEC") that failed to disclose the existence of a contingency to the repo rting of all revenue purpo rtedly received in the pertinent transaction ; and
e. recognized in the first reporting period all revenues anticipated from certain contracts for services, even though, pursu ant to GAAP, recognition of much of such revenue should have been deferred to subsequent periods over the life ofthe contract.
3 . Using these and other accounting gimmicks, Sykes was able to extend its vaunted unbroken streak of meeting or exceeding Wall Street for almost two additional years. In the market place, where the true basis for the Company' s continuing "success" was kept hidden from unsuspecting investors , Sykes' stock steadily rose from approximately $17 per share at the beginning of the Class Period to as high as $52.25 just days before the first corrective disclosures . Using its artificially inflated stock as currency for acquisitions , Sykes continued to expand its operations by completing three acquisitions during the Class Period using over almost 1 .6 million shares of stock .
The individual Defendants either knew or were extremely reckless in not knowing , that the maneuvers undertaken to "meet the Street" were in violation of GAAP and served to deceive the investing public .
4. The Defendants' scheme to artificially maintain Sykes' stock price began to unravel in February 2000, when Sykes announced that it was required to restate two reportin g periods (the second and third quarters of 1999) due to improper revenue recognition practices . The full extent of Sykes' overstated revenue and earnings was not revealed until September 18, 2000 ,
2 however, when the Company acknowledged that it would also have to restate year end 1998 results .
Following that disclosure, the common stock of Sykes, which traded as high as $52 .25 per share during the Class Period, fell to a low of less than $4 .50 per share.
5 . Under GAAP, restatement of previously issued financial statements is the
most serious step, reserved only for situations in which no lesser remedy is available . Indeed, under
Statement of Financial Accounting Standard No. 16, Prior Period Adjustments, and Accounting
Principles Board Opinion No . 20, Accounting Changes, restatements are only permitted -- and are required -- for material accounting errors or irregularities that existed at the time the financial
statements were prepared. By virtue of the conduct described more fully below, these errors and
irregularities were not mere oversights, but rather part of a scheme to deceive Lead Plaintiffs, the
Class and the investing public about the true state of Sykes' growth in revenue and earnings .
JURISDICTION AND VENUE
6. The claims alleged herein arise under Sections 10(b) and 20 of the Securities
Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §§ 78j(b) and 78t, and Rule lOb-5, 17 C.F.R. §
240.1 Ob-5 promulgated thereunder.
7. The jurisdiction of this Court is based on Section 27 of the Exchange Act, 1 5
U.S.C. § 78aa and 28 U .S.C. § 1331 (federal question jurisdiction).
Venue is proper in this District pursuant to Section 27 of the Exchange Act and
28 U.S.C. § 1391(b). Many of the acts alleged herein, including dissemination of the misleading statements at issue to the investing public, occurred in substantial part in this District. Sykes maintains its principal place of business in the Middle District of Florida .
9. In connection with the acts and conduct alleged herein, Defendants, directly o r indirectly, used the means and instrumentalities of interstate commerce, including the United States mails, interstate telephone communications and the facilities of national securities exchanges and markets .
3 THE PARTIES
Plaintiffs
10. Plaintiff FSBA is a public pension fund established for the benefit of the employees of the State of Florida, with constitutional and statutory authority under Florida law for the investment and reinvestment of the Florida Retirement System Trust Funds . During the Class Period,
FSBA purchased shares of common stock of Sykes, and suffered damages as a result of the violations of the federal securities laws alleged herein.
11 . Plaintiff LASERS is a public pension fund established for the benefit o f employees of the State of Louisiana. During the Class Period, LASERS purchased shares of Sykes' common stock, and suffered damages as a result of the violations of the federal securities laws alleged herein.
12. By Order dated September 14, 2000, the Court appointed FSBA and LASER S as Lead Plaintiffs to prosecute this action .
13. The following additional non-lead Plaintiffs purchased Sykes' common stock on the open market, suffered damages as a result of the violations of the federal securities laws alleged herein, and have filed complaints against Defendants : Katherine Piven, James V . Biglan, Pond Equities,
Richard Miller, Charles J . Piven, Benjamin Piven, Ken Northcross, Kevin Feller, Clair A . Cardina, David
Ehrenfeld, Linda Decker, James McGrath, Thomas Kalkowski, John F. Wilkes and James Jacobs.
Defendants
14. Defendant Sykes is a publicly-traded corporation organized under the laws ofth e
State of Florida, with its principal executive offices at 100 North Tampa Street, Suite 3900, Tampa,
Florida. Founded in 1977, Sykes describes itself as a "diverse information technologies company" that provides "a variety of computer-related outsourcing services to Fortune 500 fins ." Among those services are "third party hardware and software technical support, helpdesk services, systems consulting, systems integration, diagnostic software, e-commerce solutions, documentation development and foreign language translation and localization." As of September 2000, Sykes operated 39 technical call centers ,
4 9 e-commerce centers, and 25 branch offices located in 15 countries . In 1996, Sykes, pursuant to an
initial public offering of common stock, began publicly trading on the NASDAQ National Market under
the symbol "SYKE ." As of December 31,1999, Sykes had approximately 42,734,000 shares of common
stock outstanding.
15 . Defendant John L. Sykes ("John Sykes") is the Company's founder and Chairman
who, until recently, also served as Chief Executive Officer . He controls approximately 40% of the
publicly-held shares of the Company. John Sykes signed the Annual Reports on Forms 10-K for the
fiscal years ending December 31, 1998 (the "1998 Form 10-K") and December 31, 1999 (the "1999 Form
10-K") filed by Sykes with the SEC on March 29, 1999 and March 24, 2000, respectively .
16. Defendant David L . Grimes ("Grimes") joined Sykes in December 1998 as
President and Chief Operating Officer, after approximately fourteen years in various management
positions at a major publicly-held telecommunications company . On July 27, 2000, Grimes replaced
John Sykes as the Company's Chief Executive Officer . Grimes signed the 1998 and 1999 Forms 10-K
filed by Sykes with the SEC in March 1999 and 2000, respectively . Defendant Grimes is named as a
Defendant herein only for damages arising from the period from February 8, 1999 through September
18, 2000.
17. Defendant Scott J. Bendert ("Bendert") was, at all times relevant to this complaint ,
Senior Vice President and Chief Financial Officer of Sykes. Bendert joined Sykes in 1993 after
approximately a decade in various management positions (including Corporate Controller) at a publicly- held computer company. In his capacity as Sykes' Chief Financial Officer, Bendert signed each of the quarterly reports on Form 10-Q and Form 10-K filed by the Company with the SEC during the Class
Period.
18. Defendants John Sykes, Grimes (as qualified in ¶ 16) and Bendert (collectively , the "Individual Defendants") each reviewed or was aware of the false and misleading SEC filings, press releases, and other statements complained of herein at or about the time they were issued or circulated; knew or recklessly disregarded their false and misleading nature ; and was in a position to control or
5 influence their contents or otherwise cause corrective or accurate disclosures to have been made . (For
any allegations relating to the period prior to February 8, 1999, Defendant Grimes is not included in the
definition of "Individual Defendants .") By virtue of his Board and committee memberships or executive
and managerial positions with Sykes, each Individual Defendant had access to adverse non-public
information about Sykes' finances, accounting and customers through access to internal corporate
documents, conversations and connections with other corporate officers and employees; attendance at
management and Board meetings and committees thereof ; and through reports and other information provided to him . In addition, each of the Individual Defendants is responsible for the false and
misleading statements in the above-described documents because such documents were "group published" documents.
CLASS ACTION ALLEGATION S
19 . Pursuant to the Court's September 14, 2000 Order appointing them as Lea d
Plaintiffs, and pursuant to Rule 23(a) and (b)(3) of the Federal Rules of Civil Procedure, FSBA and
LASERS bring this class action on behalf of all persons who purchased the common stock of Sykes between July 27, 1998 and September 18, 2000 (the "Class Period"), and who suffered damages as a result of the violations of the federal securities laws alleged herein . Excluded from the Class are Sykes,
its subsidiaries and affiliates, the Individual Defendants and members of their immediate families, any entity in which any Defendant has a controlling interest, Sykes' officers and directors, and the legal representatives, heirs, predecessors, successors or assigns of any of the foregoing excluded persons or entities.
20. Throughout the Class Period, shares of Sykes' common stock were actively traded on the NASDAQ National Market System, which is an efficient market. The members of the Cl ass, as purchasers on that market, are so numerous that joinder of all members is impracticable. There are approximately 10,000 beneficial owners (street name holders ) of its common stock , of which over 42 million shares were outst anding during the Class Period.
6 21 . Common questions of law and fact exist as to all members of the Class and
predominate over any questions affecting individual Class Members . Among the common questions of
law and fact common the Class are:
a. Whether the federal securities laws were violated by Defendants' acts as alleged
herein;
b. Whether the documents, releases, reports and/or other public statements
disseminated to the investing public during the Class Period omitted o r
misrepresented material facts about the revenue, earnings and general financial
condition, of Sykes;
c. Whether Defendants acted with knowledge or with reckless disregard for the
truth in materially misrepresenting the reported revenue, earnings and general
financial condition of Sykes during the Class Period ;
d. Whether Defendants participated in and pursued the common course of conduct
complained of herein; and
e. Whether, during the Class Period, the market price of Sykes' common stock wa s
artificially inflated due to the material misrepresentations of Sykes' results o f
operations complained of herein;
f. Whether the members of the Class have suffered damages and, if so, the
appropriate measure thereof.
22. The claims of Lead Plaintiffs FSBA and LASERS are typical of the claims of members of the Class . Lead Plaintiffs and other members of the Class have sustained damage arising ou t of the Defendants' wrongful conduct alleged herein in violation of federal law .
23. Lead Plaintiffs FSBA and LASERS will fairly and adequately protect the interests of the members of the Class, and have retained counsel competent and experienced in class and securitie s litigation. FSBA and LASERS are institutional investors with a substantial and ongoing interest in the integrity and accuracy of public companies' filings with the SEC, reports to shareholders, and public pres s
7 releases. FSBA and LASERS have no interests that are antagonistic to or in conflict with those of the other members of the Class.
24. A class action is superior to other available methods for a fair and efficient adjudication of this controversy . Since joinder of all members of the Class is impracticable, and because the damages suffered by individual Class Members may be relatively small, the expense and burden of individual litigation renders it virtually impossible for Class Members individually to seek redress for the wrongful conduct alleged .
25. Lead Plaintiffs know of no difficulty that will be encountered in the management of this action which would preclude its maintenance as a class action .
26. The names and addresses of the record owners of Sykes' common stock purchased during the Class Period are available from the Company's transfer agent(s) . Notice can be provided to such record owners via first class mail using techniques and a form of notice similar to those customarily used in class actions .
FACTUAL ALLEGATION S
General Background
27. Sykes provides information technology ("IT") outsourcing services to other companies. Outsourcing means that an entity, such as IBM, contracts with a party such as Sykes to provide IT support services to IBM (or consumers of IBM products) rather than performing such services in-house. Thus, for example, a consumer who had purchased a personal computer from a computer manufacturer who had a contract with Sykes would, in placing a call to the toll-free helpline provided by the manufacturer, have his/her query handled by a Sykes call center employee who, pursuant to Sykes' contract with the computer company, handles such inquiries on the manufacturer's behalf .
28. The outsourcing services provided by Sykes include IT support services, IT development services and solutions, on-line clinical managed care services, medical protocol products, employee benefit administration and support services, and customer product services . Sykes provides these services through call centers located throughout the world .
8 29 . Sykes has experienced significant growth in its IT outsourcing business, growin g
from three IT call centers in 1994 to twenty-nine IT call centers as of March 1999 to thirty-nine IT cal l
centers as of September 2000. These call centers are generally stand-alone facilities with the ability (i n
the aggregate) to respond to up to 200,000 telephone calls per day .
30. The growth of Sykes' outsourcing business appeared to translate into financial
success for the Company. In every quarter from the Company's IPO in April 1996 through the beginning of the Class Period (and beyond, albeit based in large part on the improper practices described below), the Company had reported earnings that either met or exceeded the consensus expectations of Wall Street analysts. As a result of its reporting of such positive financial results -- and Sykes' emphasis on its unbroken streak of "beating the Street" in Company press releases -- the price of Sykes' common stock
steadily rose throughout this time period .
31 . In or about 1998, however, based in part on concerns that the Company might not be able to sustain the same level of growth bestowed by its call center business, Defendants decided to expand beyond standard IT outsourcing arena by offering to sell or license to its customers software technologies that it had developed or acquired . By bundling these software packages, termed "bundled
services," with its more traditional IT call center services, Sykes hoped to create a new revenue source derived from the licensing fees for these software programs . In addition, because the margins associated with the software licensing fees were so relatively high, an extraordinarily large percentage of these licensing related fees flowed directly to Sykes' bottom line.
32. For example, Sykes began offering customers certain sophisticated diagnostic proprietary software, including Sykes' AnswerTeamTM software, bundled with access to Sykes' technical support centers . AnswerTeamTM, a software program installed on the hard drive of a consumer's personal computer, enables a consumer to connect to a technical support technician located in a Sykes IT center by the click of a mouse, so that a Sykes technician could provide more immediate technical support for the consumer. During the Class Period, Sykes began recording significant revenues from its
AnswerTeamTM business, in addition to that derived from Sykes' more basic outsourcing functions .
9 33. Sykes also expanded its business to include an e-commerce service platform.
Indeed, a major emphasis of Sykes in the late 1990s was to transform itself from simply a traditional call center operation with person-to-person customer support to an "e-commerce solution company" offering internet-based support to its existing line of customers . In this regard, Sykes created an e-commerce service platform that provides for a single source provider of services for its customers, including web design software and fulfillment services . Sykes' e-commerce service platform also worked in conjunction with its AnswerTeamTM bundled offerings .
Sykes' Use of Stock to Fund Acquisitions
34. Fueled by Sykes' perceived growth, earnings strength, and unbroken streak of meeting or beating Wall Street expectations, the Company's steadily rising stock price allowed Sykes to complete several significant acquisitions during the Class Period utilizing its stock as consideration . If the seller did not want an all stock transaction, Sykes would commit to a public offering of a portion of the Sykes' stock used for the acquisition immediately following the acquisition.
35. On November 27, 1998, the Company acquired all of the stock of TAS Gmbh
Nord Telemarketing and Vertriebsberatung ("TAS III") of Hanover, Germany, in exchange for 587,000 shares of the Company's common stock. In accordance with the Registration Rights Agreement entered into between Sykes and TAS III, Sykes filed a registration statement for the registration of 293,500 of those shares with the SEC on or about April 8, 1999, representing, at the time, approximately $8.8 million in stock.
36. On December 29, 1998, the Company acquired all of the stock of Oracle Servic e
Networks Corporation ("Oracle") in exchange for 1 .4 million shares of the Company's common stock .
In accordance with the Registration Rights Agreement entered into between Sykes and Oracle, Sykes filed a registration statement for the registration of 983,332 shares of its common stock with the SEC on or about May 4, 1999, representing, at the time, approximately $21 .1 million in stock .
10 37. On August 20, 1999, Sykes completed an acquisition of CompuHelpline, Inc .
(d/b/a PC Answer) for approximately $340,000 consisting of $40,000 of cash and 11,594 shares of the
Company's common stock .
Controlling Accounting Principles Relating To Software Revenue Recognitio n
38. The SEC requires that publicly traded companies present their financial statements in accordance with GAAP. 17 C.F.R. § 210.4-01 (a)(1). GAAP incorporates the consensus among accountants at a particular time concerning , among other things, when revenue should be recorded. Financial statements filed with the SEC that are not prepared in accord ance with GAAP "will be presumed to be misleading or inaccurate, despite footnote or other disclosures , unless the Commission has otherwise provided." 17 C.F.R. § 210.4-01(a)(1).
Revenue Contingent On Re-sale Or Sub -licensing
39. Under GAAP, recognition ofrevenue involving software is subject to Ame rican
Institute of Certified Public Accountants ("AICPA") Statement of Position 97-2, Software Revenue
Recognition ("SOP 97-2"), which was issued by AICPA's Accounting Standards Executive Committee in 1997. SOP 97-2 .08 sets forth the standard as to when revenue should be recognized for software transactions entered into in fiscal years beginning after December 15, 1997. Thus, it applied at all times relevant to this complaint.
40. SOP 97-2.08 states, in pertinent part, that revenue should be recognized when all of the following criteria are met:
a. Persuasive evidence of an arrangement exists.
b. Delivery has occurred.
c. The vendor's fee is fixed or determinable.
d. Collectability is probable.
(Emphasis added.)
41 . Factors to consider in determining whether a fee is "fixed or determinable" for revenue recognition pursuant to SOP 97-2.08 are set forth in SOP 97-2.26 : "A software licensing fee i s
11 not fixed or determinable if the amount is based on the number of units distributed or copied, or the expected number of users of the product." Further, pursuant to SOP 97-2 .30, for reseller arrangements, if payment is substantially contingent on the reseller's success in distributing individual units this is an indication that the fee is not fixed or determinable .
42. Put another way, the foregoing paragraph provides that if the price paid to a software vendor is subject to later adjustment based on the success (or lack of success) of the re-sale or sub-licensing of the software product, the vendor cannot recognize that part of the price which is subject to the contingency unless and until the contingency is satisfied .
Revenue Tied To Services To Be Performed Over Time
43 . As for recognition of revenue involving bundled software contracts (that is , multiple element arrangements), SOP 97-2 .57 provides that if post-contract customer support services are contemplated, the revenue attributable to post-contract support services must be recognized ratably over the term of the arrangement . Similarly, if there are other service elements associated with software licensing, SOP 97-2 .66 provides that revenue allocated to these service elements must be recognized as the services are performed or, if no pattern of performance is discemable, on a straight-line basis over the period of the arrangement during which the services are performed .
44. Put another way, the foregoing standards provide that if a software vendor sell s a bundled package whereby it must provide support services to the purchaser over a period of years, the vendor cannot recognize revenue attributable to those services immediately, but rather must defer such recognition until subsequent reporting periods in which the services are actually performed, or on a pro rata basis over the life of the contract.
The Kyrus Transaction
45. On July 17, 1998, Sykes entered into a software license agreement with Kyrus
Corporation ("Kyrus"), a privately-held company based in South Carolina (the "Kyrus Transaction") .
Kyrus' primary business is re-selling point-of-sale software systems .
12 46. Most, but not all, of the terms of the Kyrus Transaction were set forth in a
Software License And Software Contracts Assignment Agreement, dated July 17,1998, between Sykes
and Kyrus (the "Kyrus License Agreement") . Pursuant to the Kyrus License Agreement, Sykes assigned
to Kyrus certain end user agreements and other license rights to certain Sykes' software . Kyrus, in turn,
planned to market software based on or derived from the software licensed from Sykes .
47. The consideration to be paid to Sykes by Kyrus in return (the "Royalty Payment")
was purportedly described in ¶4 .1 of the Kyrus License Agreement, which reads in its entirety as follows :
Royalty Payment of Preferred Stock . Simultaneously with the execution hereof, Kyrus shall pay Sykes a one-time lump sum royalty payment (the "Royalty Payment") equal to one million (1,000,000) shares of $10 par value Series A Cumulative Convertible Preferred Stock (the "Series A Preferred Stock") of KYRUS.
Sykes Backdates Receipt of Consideration to The Second Quarte r
48 . Pursuant to ¶4.1 of the Kyrus License Agreement, Kyrus delivered one million
shares of $10 par value preferred stock of Kyrus ("Kyrus Preferred Stock") was conveyed to Sykes
"[s]imultaneously" with execution of the agreement, that is, on July 17, 1998 .
49. Although the contract was entered into and the Royalty Payment was made to
Sykes on July 17, 1998 -- over two weeks into the third quarter of 1998 -- Sykes booked the $10 million
as though it had been received on June 30, 1998 -- the final day of the second quarter
50. Pursuant to SOP 97-2 .08, Sykes' recognition of revenue from the Kyru s
Transaction in the second quarter was improper because, among other things, as of the date that quarter
ended, there was not "persuasive evidence of an arrangement" with Kyrus and because (as explained
below) delivery of the Sykes' software Kyrus had not yet occurred . Under SOP 97-2.16, where a vendor
of software has a customary practice of utilizing written contracts (as Sykes did), evidence of an arrangement "is provided only by a contract signed by both parties ." (Emphasis added) . Here, the Kyrus
License Agreement was not signed until July 17. 1998 . In addition, under SOP 97-2.16, "delivery is considered to have occurred upon the transfer of the product master or, if the product master is not
delivered, upon the transfer of the first copy ." Pursuant to ¶2 .3 of the Kyrus License Agreement, Sykes
13 granted the source and object codes, which are, on information and belief, akin to the product master,
"[s]imultaneously with the execution of 'the Software License Agreement . Thus, delivery did not occur until July 17, 1998, and recognition of this revenue for the quarter that had closed almost three weeks earlier was improper. The fact that the Kyrus License Agreement stated that it was made "effective as of the 301h day of June, 1998" does not legitimize or cure the fact that, at the time Sykes' 1998 second quarter had closed, under GAAP, the agreement did not exist and delivery of the software had not occurred.
51 . As explained more fully in ¶ 73(e) below, calculating its financial results a s though the Kyrus Preferred Stock had been received on June 30, 1998, provided Sykes with the revenue it needed in the second quarter to announce results that precisely matched the estimates of Wall Street analysts. But for this improper backdating, Sykes would have missed analysts' estimates for the first time
in its tenure as a public company .
Sykes Recognizes All $10 Million As Revenu e
52. In addition to improperly backdating the revenue generated by the Kyrus
Transaction into the second quarter, Sykes further manipulated its accounting by improperly recognizing all of the Royalty Payment when, in fact, 45% of it was contingent on certain future sales by Kyrus.
53 . As part of the Kyrus Transaction, Sykes and Kyrus entered into a separat e
Consideration Adjustment Agreement which provided that the Royalty Payment would be adjusted upward or downward "based on the realization or non-realization of certain targets for the combined net revenues" derived by Kyrus as a result of the consummation of the Kyrus License Agreement (the
"Consideration Adjustment Term") .
54. Specifically, the Consideration Adjustment Term provided, in relevant part, that
"based on Combined Net Revenues [as defined elsewhere] during the eighteen (18) month period following the date hereof (the `Measurement Period')," the Royalty Payment would be adjusted as follows:
(iii) If the Combined Net Revenues du ring the Measurement Period are less than $12.2 million SYKES shall pay to KYRUS $4. 5 million.
14 (iv) If Combined Net Revenues during the Measurement Period are equal to or exceed $12.2 million but are less than $18.4 million, SYKES shall pay to KYRUS the following amount:
(($18.4 million - Combined Net Revenues) / $6 .2 million) x $4.5 million
(Emphasis added.)
55 . Pursuant to SOP 97-2.08, SOP 97-2 .26, and SOP 97-2 .30, the Consideration
Adjustment Term precluded Sykes from recognizing at least $4 .5 million of the Royalty Payment at the time of the transaction . Under GAAP, the tential $4 .5 million Consideration Adjustment could not have been considered fixed or determinable and thus capable of recognition .
56. By disregarding the contingent nature of the $4.5 million and thereby recognizing the entire Royalty Payment in violation of GAAP, Sykes was able to match the estimates of Wall Street analysts. Thus, even if the Kyrus Transaction had taken place in the second quarter (which it did not), recognition of the entire $10 million in revenue was improper under GAAP . As with the backdating described above, if Sykes had not engaged in this improper revenue recognition, it would have missed analyst estimates for the first time as a public company .
Sykes Concealed The Consideration Adjustment Term In A Side Agreement
57. In addition to the issues raised by Sykes' backdating and premature recognition of all of the Royalty Payment in the second quarter of 1998, Sykes concealed the Consideration
Adjustment Term . As noted in ¶ 53 above, the Consideration Adjustment Term was not included in the
Kyrus License Agreement, but rather set forth in a separate writing in a side agreement, entered into by the parties on the same date as the Kyrus License Agreement, called the "Consideration Adjustment
Agreement."
58. Nothing in ¶4.1 of the Kyrus License Agreement -- or anywhere else in tha t agreement -- disclosed or suggested that the Royalty Payment of one million shares of Kyrus Preferred
Stock to Sykes was qualified or contingent in any way . On its face, the license agreement appeared to be a stand alone agreement. Although reference was occasionally made to other contracts whose contents were germane to the Kyrus Transaction (for example, the "Assigned Software Contracts" that were bein g
15 assigned to Kyrus), no reference was made to any other agreement that might modify the terms of the
Kyrus License Agreement, in particular, the term setting forth the Royalty Payment. Indeed, the Kyrus
License Agreement contains a provision expressly stating that it was the "complete and exclusive"
statement of the agreement between the parties .
59 . Accordingly, a person reading the Kyrus License Agreement would not be made
aware of the fact that almost half of the revenue that seemed non-contingent by virtue of J 4 .1 was in fact
contingent on future sales by Kyrus that might not occur . Although the Consideration Adjustment
Agreement is not mentioned anywhere in the Kyrus License Agreement, the former writing makes
explicit reference to the latter. The Consideration Adjustment Term described in part in ¶ 54 above is
the pRly operative provision of the Consideration Adjustment Agreement.
60. Nothing in the Kyrus License Agreement or the Consideration Adjustment
Agreement explains why the potential adjustment to the Royalty Payment was not included in the
consideration terms (or anywhere else) in the Kyrus License Agreement, but rather set forth in a separate writing.
61 . There was no colorable purpose for setting forth the Consideration Adjustment
Term in a separate writing other than the improper purpose of concealing from someone reviewing the
Kyrus License Agreement the contingent nature of $4 .5 million in revenue.
Sykes' Recognition of a Privately Held Company's Preferred Stock At Par Value Was Imprope r
62. Finally, even if the Kyrus Transaction had, in fact, occurred in the second quarter of 1998, and even if almost half of the Royalty Payment had not been subject to the Consideration
Adjustment Term in the side agreement, Sykes' recording of the Kyrus Preferred Stock as having a "fair market value" of $10 million was improper .
63. The $10 million valuation for the stock of Kyrus that Sykes received in this transaction was not a true "market value," as there was no readily available market for these securities .
Accounting Principles Board Opinion No . 29, issued in 1973, requires that the accounting for
16 nonmonetary transaction be based on the fair values of the assets involved . Specifically, paragraph 29
states:
Fair value of a nonmonetary asset transferred to or from an enterprise in a nonmonetary transaction should be determined by referring to estimated realizable values in cash transactions of the same or similar assets, quoted market prices, independent appraisals, estimated fair values of assets or services received in exchange, and other available evidence.
Par value is not a determinative factor in determining market value of preferred stock. Thus, even
recognition of the balance of $5.5 million of the Royalty Payment not subject to the Consideratio n
Adjustment Term was questionable.
64. Because Kyrus was, and remains, a privately-held company, there is no public
market for the Kyrus Preferred Stock obtained by Sykes as part of this transaction . Notwithstanding the
fact that there was no public market for the stock, Sykes booked its "fair market value" as $10 million .
The Toshiba Transactio n
65 . During the second quarter of 1999, Sykes entered into a bundled service licens e
agreement with Toshiba which called for Sykes to provide software and technical services to Toshiba
through the third quarter of 2002 (the "Toshiba Transaction") . This agreement, part of Sykes'
AnswerTeamTM initiative, was a bundled service offering that provided Toshiba with the AnswerTeamTM
software and combined it with continuing web and technical support, customer service and other e-
services over the three year term of the agreement .
66. Pursuant to SOP 97-2.57, because the Toshiba Transaction involved bundled
services, the $12 million in revenue attributable from technical support services should have bee n
recognized ratably over the term of the arrangement or when the services were in fact performed .
67. Rather than comply with GAAP, Sykes booked the entire $12 million from the
Toshiba Transaction in the second quarter of 1999 . The $12 million of revenue recognized by Sykes wa s part of a $50 .8 million increase in technical support service revenues reported by Sykes in the secon d
quarter of 1999.
17 The Perot Transaction
68. During the third quarter of 1999, Sykes entered into a bundled service agreement with Perot Systems, which called for Sykes to provide software and additional multiple elements such
as technical support and customer service to Perot for five years (the "Perot Transaction") . In addition, the Perot Transaction included a "strategic alliance" regarding the licensing of Sykes AnswerTeamTM
software. The software license fee for this strategic alliance was $20 million .
69. Sykes recorded the entire $20 million from the Perot Transaction as revenue in
its results for the third quarter of 1999.
70. However, Sykes never received a $20 million payment from Perot in the third quarter. Instead, the "strategic alliance" agreement with Perot contained a contingency provision, whereby the $20 million license fee was to be paid at a later date and then was subject to Sykes meeting certain annual performance objectives . In January 2000, when Perot paid the $20 million license fee,
Sykes was required under the agreement to post a $30 million bank letter of credit to secure its obligation to meet those performance objectives . Under the terms of the Perot Transaction, a failure to satisfy the performance objectives would result in a draw down on the letter of credit or a payment by Sykes in lieu of a draw down.
71 . In light of the foregoing, under SOP 97-2 .08, the $20 million from the license fee should not have been recognized because, as a result of the performance contingency in the agreement, the license fee was not fixed or determinable under SOP 97-2 .26. Additionally, under SOP 97-2 .57, the recognition of revenue was improper because the contract contained bundled service offerings, and should have been recognized ratably over the term of the arrangement or when the services were in fact performed.
DEFENDANTS' MATERIALLY FALSE AND MISLEADING STATEMENTS DURING THE CLASS PERIO D
Sykes Announces Inflated 1998 Second Quarter Results
72. On July 27, 1998, the first day of the Class Period, Sykes issued a press release announcing its financial results for the second quarter ending June 30, 1998 . The press release reported 18 "record net income and revenue of $7 .9 million, or $0.20 per diluted share, and $100.8 million,
respectively for the second quarter ended June 30, 1998 ."
73. For the reasons as set forth in ¶¶ 45-64 above, however, the Company's reported
revenues, net income and net income per share were materially overstated in violation of GAAP as a
result of the Company's improper recognition of revenue in connection with the Kyrus Transaction .
Specifically, the financial results announced in the Company's July 27, 1998 press release were materially
misstated and misleading in, among other ways, the following respects:
a. Sykes failed to disclose that its financial results were artificially inflated by virtue
of its improper recognition of revenue in the Kyrus Transaction, which, according to the Company's
September 18, 2000 press release, was recognized "[d]uring the second quarter of 1998 ."
b. Under SOP 97-2 .08, Sykes should not have recognized any revenue from th e
Kyrus Transaction in the second quarter of 1998 because the Kyrus software agreement was not entered
into until July 17, 1998, seventeen days after the 1998 second quarter had been completed, and, therefore,
delivery of the software license and consideration in return for such license had not occurred in the
second quarter.
Irrespective of whether the Kyrus Transaction should have been recorded in th e
second or third quarter of 1998, pursuant to SOP 97-2 .08, Sykes should not have recognized revenue with
respect to $4.5 million of its Royalty Payment from Kyrus because this portion of the payment was not
fixed or determinable as defined under SOP 97-2 .26. Thus, as of December 31, 1998, at least $4 .5
million in revenue remained subject to future adjustments based on the revenues actually generated by
Kyrus from the resale of Sykes' software .
d. Pursuant to Accounting Principles Board Opinion No . 29, issued in 1973, Sykes
should not have recognized the $10 million in revenue received in the Kyrus Transaction because this was not a true "market value," as there was no readily available market for these securities . Thus, even
recognition of the balance of $5 .5 million of the Royalty Payment as revenue was questionable .
19 e. The improper recognition of $10 million in revenue from the Kyrus Transaction
resulted in Sykes' reported earnings being materially overstated for the 1998 Second Quarter . Sykes
reported net earnings of $7 .9 million, or $0.20 per diluted share, in the 1998 Second Quarter. The $0.20
per diluted share in earnings reported by Sykes was just in line with the estimates of Wall Street analysts
for that period. At a minimum, $4.5 million of revenue was improperly recorded in the 1998 Second
Quarter, because that amount of Sykes' licensing fee was not fixed or determinable, and was subject to
adjustment. Reducing net earnings by $2 .8 million (the amount of earnings attributed to the $4.5 million
in improper revenue after the Company acknowledged the impropriety and attributed $1 .7 million to
expenses associated with the $4 .5 million of revenue) would have given Sykes net earnings (before
adjustments) of $5 .1 million and earnings per diluted share of $0 .12. Thus, under GAAP, Sykes'
earnings per diluted share were really $0 .08 less than the $0 .20 estimated by Wall Street analysts and
reported by the Company. If Sykes had, in fact, reported financial results calculated in accordance with
GAAP, Sykes would have failed to meet Wall Street analysts' expectations, and its stock price would
have been severely impacted . This would, in turn, have adversely affected the Company's ability to use
its stock as currency for acquisitions .
74. On or about July 28, 1998, the Company filed its Form 10-Q for the second
quarter ending June 30, 1998 with the SEC (the "1998 Second Quarter Form 10-Q") . The 1998 Second
Quarter Form 10-Q, which was signed by Defendant Bendert, confirmed the revenues and earnings
results announced in the Company's July 27, 1998 press release .
75. For the reasons stated above in ¶ 73 (a) - (e), the financial results reported in the
1998 Second Quarter Form 10-Q were materially false and misleading .
Sykes Announces Inflated Year End 1998 Result s
76. On February 8, 1999, Sykes issued a press release announcing its financial results
for the fiscal year ending December 31, 1998 . Specifically, Sykes reported net income of $35 .8 million, or $0.85 per diluted share, "exclusive of special charges," and annual revenues of $469 .5 million. The
20 Company did not mention in this release what the "special charges" were or what their dollar impact
would be. Commenting on the results, Defendant John Sykes stated:
We continue to recognize strong operating performance as reflected in our record results for the fourth quarter. Earnings per share growth of 56% year-over-year and 33% sequentially from 1998's this quarter is yet another indication that our value-added strategies and business model continues to work.
77. As set forth in ¶ 73(c)-(e) above, however, the Company's reported revenues, ne t
income and net income per share were materially overstated in violation of GAAP as a result of the
Company's improper recognition of revenue from the Kyrus Transaction. Specifically, the results of
operations announced in the Company's February 8, 1999 press release were materially overstated and
misleading in, among other ways, the following respects :
Pursuant to SOP 97-2.08, Sykes should have recognized no more than $5 .5
million of the $10 million in revenue from the Kyrus Transaction because the actual sales price of the
software licensing fee was not fixed or determinable as defined under SOP 97-2 .26. Pursuant to the
Consideration Adjustment Agreement, Sykes' fee on the licensing of this software would not be fixed or determinable until the expiration of a 18-month consideration adjustment period . Thus, as of December
31, 1998, at least $4.5 million in revenue was subject to future adjustments based on the revenues actually generated by Kyrus from the resale of Sykes' software and should not have been recognized in fiscal year
1998.
b. Pursuant to Accounting Principles Board Opinion No . 29, issued in 1973, Sykes
should not have recognized the Royalty Payment received in the Kyrus Transaction as $10 million in revenue because this was not a true "market value," as there was no readily available market for these
securities.
c . The improper recognition of $10 million in revenue from the Kyrus Transaction resulted in Sykes' reported earnings being materially overstated for the year ending December 31, 1998 .
Sykes' press release reported net earnings prior to adjustments of $35 .8 million, or $0.85 per diluted share, for the year ending December 31, 1998 . The $0.85 per diluted share in earnings reported by Syke s
21 was just in line with the estimates of Wall Street analysts for that pe riod. At a minimum, $4.5 million of revenue was improperly recorded in the year ending December 31, 1998 , because that amount of Sykes' licensing fee w as not fixed or determinable , and was subject to adjustment. Reducing net earnings by $2 .8 million ($4.5 million net of $ 1 .7 million in expenses) would have resulted in earnings for 1998 (before adjustments ) of $33 million and earnings per diluted share of $0 .79. Thus, under GAAP, Sykes' earnings per diluted share were actually $0.06 less than the $0.85 estimated by Wall Street analysts and fraudulently reported by the Company. If Sykes had, in fact , reported financial results calculated in accordance with GAAP, Sykes would have failed to meet Wall Street expectations for 1998 .
78. On March 29, 1999, Sykes filed its 1998 Form 10-K. For the fiscal year ending
December 31, 1998, the Company reported net income, prior to adjustments, of $35 .8 million. After adjustments for loss from a joint venture, writedowns of marketable securities and provisions for income taxes, the Company's consolidated income statement reported net income of $8 .27 million or about $0.20 per share. (Thus, the unidentified adjustments referred to in the February 8, 1998 press release wiped out
$0.65 of the previously reported $0.85 earnings per share .) The $0.20 in earnings per share reported in the Form 10-K report was an increase of $0 .01 per share over net income for 1997 . The 1998 Form 10-K was signed by Defendant Bendert on behalf of the Company and as Chief Financial Officer, by Defendant
John Sykes as Chairman of the Board and Chief Executive Officer, and by Defendant Grimes as
President and Chief Operating Officer .
79. The 1998 Form 10-K was audited by the public auditing firm of Ernst & Youn g
LLP ("Ernst & Young"), which had replaced PriceWaterhouseCoopers LLP ("PWC") as Sykes' auditor in January 1999. PWC had begun its audit work in connection with the audit of the 1998 fiscal year financial statements for Sykes, but had been replaced as a result of the SEC's determination that PWC executives in the Tampa, Florida, office had purchased Sykes' common stock and thus violated independence standards promulgated by the SEC for public auditors . The 1998 Form 10-K included a report from Ernst & Young which represented that the financial statements contained in the 1998 For m
22 10-K were prepared in conformity with GAAP. According to the Company, Ernst & Young had been hired on January 14, 1999, to complete the 1998 year-end audit.
80. However, the Company's reported revenues, earnings and net earnings per share were materially overstated in violation of GAAP as a result of the Company's improper recognition of revenue in connection with the Kyrus Transaction . Specifically, the financial results announced in the
Company's 1998 Form 10-K were materially misstated and misleading for the reasons set forth above in ¶¶ 73(c)-(e) and 77 .
81 . In addition, the 1998 Form 10-K was false and misleading because the imprope r recognition of $10 million in revenue from the Kyrus Transaction resulted in Sykes' earnings being materially overstated in the 1998 Form 10-K. Sykes reported net earnings of $8 .3 million, or $0 .20 per share, in the 1998 Form 10-K. At a minimum, $4 .5 million of revenue was improperly recorded in the year ended December 31, 1998, because that amount of Sykes' licensing fee was not fixed or determinable, and was subject to adjustment . In September 2000, Sykes admitted that it would be restating its year end December 31, 1998 results to reflect a reduction of $4 .5 million in reported revenues
($465 million from $469 .5 million) and net income of $5 .5 million (from $8 .3 million), or earnings per share of $0.13 per share (from $0.20 per share) . The Company attributed $1 .7 million in expenses to the reversed revenue of $4.5 million. Thus, accepting as true Sykes' calculation of the expenses attributable to this $4.5 million in improperly recognized revenue, net earnings for the 1998 fiscal year were overstated by $2 . 8 million; an increase of over 50% above what should have been reported had GAAP been followed.
82. Footnote 1 to the Company's financial statements in the 1998 Form 10-K, entitled "Summary of Accounting Policies," referenced what is presumably, the Kyrus Transaction . The section of the footnote, entitled "Non-monetary Transaction," states :
During 1998, the Company sold a software license in exchange for convertible preferred stock in a privately held corporation. The convertible preferred stock has a fair market value of $10 million which represents the sales price recorded by the Company . This amount is included in the consolidated balance sheet under the caption "Deferred charges and other assets" at December 31, 1998 . 23 83. Footnote 1 of the 1998 Form 10-K was materially false and misleading at the tim e it was published because it omitted to mention that the $10 million license fee was subject to the separate
Consideration Adjustment Term that could and, in fact, did materially reduce the consideration paid to
Sykes under the Kyrus License Agreement .
Sykes jects Criticism Of Its Accounting Treatment Of The Kyrus Transaction
84. On April 19, 1999, the Center for Financial Research and Analysis, Inc.
("CFRA") issued a research report challenging Sykes' revenue recognition practices . Specifically, the report stated that Sykes obtained an "artificial boost" to reported earnings in 1998 by recording revenue in an improper manner. Citing to the footnote in the 1998 Form 10-K described in ¶ 82 above, the report specifically challenged the Company's recognition of $10 million in revenue from a licensing fee to reflect the estimated value of Kyrus preferred stock.
85. The Company was aware of the foregoing challenge to its revenue recognition in the Kyrus Transaction because it issued a response to CFRA's April 19, 1999 report three days later, on April 22, 1999 . In defending its accounting treatment of the Kyrus Transaction, Sykes specifically cited the very accounting standard it had violated :
With respect to its accounting treatment for revenue recognition from the sale of a software license in exchange for convertible preferred stock, Sykes followed Generally Accepted Accounting Principles ("GAAP"), pursuant to Statement of Position 97-2, "Software Revenue Recognition," and accordingly, properly recorded the sale upon delivery of the software.
(Emphasis added.)
86. For the reasons stated above, the Company's statement that it followed SOP 97- 2 is materially false and misleading . CFRA's criticism, which, albeit, was based on the limited information disclosed by Sykes in its 1998 Form 10-K, put Sykes and the Individual Defendants (who were aware of not only the Kyrus License Agreement, but also the Consideration Adjustment Term contained in the side agreement) on actual notice of the problems with recognition of the revenue from the Kyrus
Transaction. To the extent that any of the Individual Defendants could somehow contend that they did not have personal knowledge of the impropriety of revenue recognition on the Kyrus Transaction prio r 24 to April 19, 1999 (such as Grimes who joined the Company in December 1998), each Individual
Defendant had an affirmative obligation to investigate the Kyrus Transaction before responding publicly
to CFRA, and affirmatively representing that the transaction had been properly recorded under SOP 97-2 .
Having done such an investigation (or recklessly failed to do one), the Individual Defendants knew that
the Company's accounting for the Kyrus Transaction violated GAAP, and that Sykes' concomitant
statements to the investing public had been materially false .
Sykes Announces Inflated Second Quarter 1999 Results
87. On July 29, 1999, Sykes issued a press release reporting results of operations for
the second quarter ending June 30, 1999. The Company reported net income of $11 .5 million, or $0.27
per share (diluted). This was at or above most analysts' expectations for the quarter . It wasalso a 39%
increase in net income over the same quarter of the prior year .
88 . In the same press release, Defendant John Sykes was quoted as stating :
The second quarter of 1999 reflected numerous achievements for Sykes . Utilizing our e-commerce platform, we have signed our first two e- commerce initiatives which included virtual internet services as well as technical support and distribution services ... . In addition, the second quarter will mark the fourteenth consecutive period that Sykes has either met or exceeded analysts' consensus estimates for both revenues and earnings per share.
89 . On or about August 13, 1999, Sykes filed its Form 10-Q for the second quarte r
ending June 30, 1999 (the "1999 Second Quarter Form 10-Q"). For the quarter ending June 30, 1999,
Sykes reported revenues of $146,107,625 . Net income for the quarter was reported, consistent with the prior announcement, at $11 .5 million, or $0 .27 per share (basic and diluted) consistent with the July 29 earnings announcement. According to the Management Discussion and Analysis of quarterly results of operations contained in the 1999 Second Quarter Form 10-Q, the Company's revenue growth in the quarter was the result of a $50 .8 million increase in technical support services .
90. The results of operations announced in the Company's July 29, 1999 press release and the 1999 Form 10-Q were materially misstated and misleading because Sykes had improperly recognized $12 million in the Toshiba Transaction . As specifically alleged in ¶¶ 65-67 above, Sykes'
25 recognition of $12 million in revenue from support services under its AnswerTeamTM license agreement with Toshiba at the time the agreement was entered into was improper under SOP 97-2 .57.
91 . By reason of the improper revenue recognition of services associated with the
Toshiba Transaction described above, the July 29,1999 press release and the August 13,1999 Form 10-Q report were materially false and misleading.
Sykes Announces Inflated Third Quarter 1999 Result s
92. On October 25, 1999, Sykes issued a press release announcing its results o f operations for the third quarter ending September 30, 1999 . The Company's release reported earnings of $14.1 million, or $0 .33 per share, an increase of 61% from the same quarter of the prior year . The
Company attributed the earnings increase to "continued strong growth in [the Company's] core business of technical support." The Company's press release quoted Defendant John Sykes as stating:
The third quarter of 1999 marks the fifteenth consecutive quarter, and every quarter that Sykes has been public, that we have delivered earnings that have either met or exceeded the consensus expectations . These results were achieved based on our considerable strength and growth in technical support, including our internet and e-commerce services which now totals thirty-eight customers, and were achieved despite weaker foreign currencies.
93 . The reaction of the investment community to the third quarter announcement wa s extremely favorable. On October 27, 1999, U.S. Bancorp Piper Jaffray issued a report which reiterated a "strong buy" recommendation . The report noted that "Sykes is beginning to see results from leveraging its core competencies and call center services to the Internet . .. . Along with traditional person-to-person customer support, Sykes now provides a total e-commerce solution including web hosting, e-mail support, internal e-commerce solutions, external solutions and research service to a variety of e-commerce players." The report concluded, "We believe Sykes' e-commerce solutions will drive growth in 2000 and beyond, as more companies increase business offerings on the web and as the company continues to leverage its existing client base offering a'one-stop' service solution." The report further noted that the
$0.33 per share was $0.02 above U .S. Bancorp Piper Jaffray's estimate of $0 .31 per share for the quarter.
26 94. Similarly, George K . Baum & Co. analyst, Stephen Toomey, issued a report reiterating a "strong buy" recommendation . The October 27, 1999 report noted that in addition to beating their earnings' estimate of $0 .31 per share, the Company's conference call with analysts was particularly
"upbeat," causing Toomey to increase the estimated earnings for 1999 to $1 .20 per share.
95. However, the Company's October 25, 1999press release was materially misstated and misleading in, among other ways, the following respects :
a. Sykes recognition of $20 million in revenue from licensing technical suppor t services associated with the Perot Transaction violated SOP 97-2.08. Sykes was required to meet certain performance objectives before it could recognize revenue from the Perot Transaction. The contingency represented by these performance objectives secured by the $30 million letter of credit prevented the immediate recognition of any part of the $20 million license fee until the exposure under the letter of credit had been reduced to less than $20 million. Even then, recognition of revenue could only occur as
Sykes achieved these performance objectives . Thus, pursuant to SOP 97-2 .08, Sykes should not have recognized y revenues relating to the $20 million licensing fee because the fee was not fixed or determinable as defined by SOP 97-2 .26.
b. Further, even if there had been no contingency in the Perot Transaction tied to performance, revenues could be recognized by Sykes from technical support services associated with the
Perot contract only in accordance with SOP 97-2 .57 . The accounting rule provides that if there are post- contract customer support services in a multiple or "bundled" software arrangement, post-contract support services must be recognized as revenue ratably over the term of the five years of that arrangement . Thus,
Sykes' recognition of all of the $20 million in revenue under the agreement in the third quarter of 1999 with respect to its AnswerTeamTM licensing and technical support agreement with Perot was also improper under SOP 97-2 .57 relating to post contract support service . Accordingly, by recognizing this
$20 million in revenues, Sykes improperly overstated revenue and earnings in the third quarter .
27 c. Because there was little in the way of costs associated with the software licensing fee for AnswerTeamTM, the $20 million in revenue booked on the Perot Transaction had a direct and material impact on the Company's earnings in the second quarter .
96. On November 15, 1999, Sykes filed its Form 10-Q for the third quarter ending
September 30,1999 (the "1999 Third Quarter Form l0-Q") . For the quarter ending September 30,1999, the Company reported net income of $14.10 million, or $0.33 per share (basic and diluted), consistent with the October 29 earnings announcement . As in the second quarter, the increase in revenue and earnings was attributed primarily to an increase in information technology support service revenues .
97. By reason ofthe improper revenue recognition on the Perot Transaction described in ¶ 95 above, the November 15, 1999 Form 10-Q report was materially false and misleading .
Sykes' Assures The Market Of Its Financial Health
98 . On December 6 and 7, 1999, Sykes hosted a conference for securities analyst s in Tampa, Florida. The event was attended by numerous securities analysts that followed the Company .
The impression conveyed by the Company at this conference was that Sykes' track record of reporting consistent increases in earnings and revenue would continue . U.S . Bancorp Piper Jaffray analyst, T . Brett
Manderfeld, characterized the conference as "extremely upbeat ." Steve Toomey of George K . Baum &
Co. characterized the conference as "bullish," and raised his 12-month target in the stock from $45 per share to $54 per share. While retaining his $1 .50 estimate for year 2000 earnings, Toomey added, "We actually think the potential to earn $1 .55 to $1 .60 is real ." All of the analysts cited the Company's concentration on "e-commerce solutions" as a significant factor in their analysis of projected revenue and earnings growth.
Some, But Not All, Of The Truth Begins To Emerge
99. On January 25, 2000, the Company issued a press release announcing that, for the first time since it had become a public company, Sykes would not meet analysts' expectations for a reporting period. Sykes announced that it expected fourth quarter revenues to be in the range of $160 to
$162 million, and earnings per share in the range of $0.20 to $0.22 per share, well below the averag e
28 earnings' estimate of $0.37 per share by the securities analysts that followed Sykes. Defendant John
Sykes was quoted in the Company's release as attributing the revenue and earnings shortfall to
"anomalies," and further stated that "it does not signal a trend in our business operations , as we continue to experience a strong reception from the marketplace for our bundled service offering." Defendant John
Sykes, in discussing the earnings shortfall, also noted that "several signific ant customer contracts were committed" during the quarter but revenue was not recognized on these agreements . He explained: "In accordance with Sykes' accounting policy, revenues were not recognized on such agreements, as the formal contracts have not been executed."
100 . As Sykes had expected, the consequences of its failure to meet Wall Stree t analysts' estimates were realized as the stock price was cut in half in one day. The Company's stock price, which had closed on January 24, 2000 at $47 .25 per share, opened for trading at approximately
$23.75 per share on January 25, and fell to a low of $20 .375 per share before closing at $23.00 per share.
Nearly 11 million shares (about twenty-five times the daily average) were traded on January 25, 2000 .
101 . The announcement of the fourth quarter shortfall in earnings was simply the first of a series of announcements which showed that the Company's revenue and earnings for 1999 had been overstated through the use of improper revenue recognition practices .
102 . On February 1, 2000, Sykes announced that it was cancelling a previousl y scheduled conference call to discuss fourth quarter and year end results for 1999 because results were not available. The February 1 announcement was made before the market opened for trading . Sykes' stock which had closed the previous day, J anuary 31, at approximately $27.70 per share, opened for trading on the morning of February 1 at $20.75 per share and closed at $18.56 per share . More th an 11 .5 million shares traded on February 1 .
103 . On the morning ofFebruary 7, 2000, Sykes issued a press rele ase announcing that its earnings from operations in the fourth quarter would be about $0 .17 per share. But Sykes also announced that it would be forced to restate previously reported net earnings for the second and third quarters of 1999 . Second quarter income, the Company disclosed, was actually about $4 million, o r
29 about one-third of the $11 .5 million originally reported . In the third quarter, net income was
approximately $4.3 million, or less than one-third of the $14 .1 million originally reported . The Company
also announced that the restatement "stems from the application of software revenue recognition
accounting rules as they have been applied to fees associated with Sykes' AnswerTeamTM, the diagnostic
desktop tool bundled with Sykes award-winning technical support services ." The Company further noted
that:
[t]he "restatement relates to delaying the recognition of revenues in connection with certain software and service contracts.
Certain of Sykes 1999 Strategic alliance agreements incorporate the availability and use of Sykes' diagnostic suite of services, the receipt of non-refundable fees, as well as the provision of several layers of service and support, both related to, and in some case unrelated to, the diagnostic services . Even though binding contracts are in place, non- refundable payments have been received and the intent of the parties clearly stated, such important factors do not control the timing of revenue recognition.
104. While the February 7, 2000 press release was corrective in some respects it was
nonetheless materially false and misleading for the following reasons :
a. While disclosing restatements relating to the recognition of revenue on certain
software contracts entered into in the second and third quarters of 1999, the press release failed to fully
and accurately disclose the nature and extent of the Company's accounting improprieties . In particular,
the restatement of the revenue and earnings from the Perot Transaction was not due simply to "delaying
the recognition of revenues." The performance contingencies in that transaction were such that there was
no assurance that any of the $20 million in revenue could ever be recognized. In fact, because the
contingencies were not met, none of the $20 million on the Perot Transaction would ever be recognized .
b. In addition, the Defendants knew or recklessly disregarded the fact that the Kyru s
Transaction had to be restated, and omitted this fact from the February 7, 2000 press release . Defendants had repeatedly been put on notice of the accounting improprieties relating to the Kyrus Transaction. The
Individual Defendants were aware that the Royalty Payment from Kyrus was subject to adjustment, but had never properly accounted for that contingency . Kyrus had by February 7, 2000, provided Sykes wit h
30 periodic reports showing revenue generated as a result of the Kyrus software license agreement . On
October 4, 1999, for example, Kyrus forwarded a revenue report to Sykes for the period ending July 31,
1999. These revenue reports made clear that an adjustment in Kyrus' favor would have to be made, and
that Sykes would, in fact, have an obligation to repay a portion of the Royalty Payment as required under
the Consideration Adjustment Agreement . On December 31, 1999, Kyrus presented Sykes with a
similarly negative revenue report for the period ending October 31, 1999 . These reports, established that
it was extraordinarily unlikely that the Combined Net Revenues for the eighteen-month period would
meet the $18 .4 million threshold necessary for Sykes to avoid repaying a portion of the Royalty Payment .
In addition, the Individual Defendants knew or were reckless in not knowing that the Kyrus Transaction
had not been properly recorded as a result of their response to the CFRA report on April 22, 1999.
Sykes Fails To Disclose Kyrus' Demand And Lawsuit
105. In addition to the Kyrus reports referred to in the preceding paragraph, o n
February 24, 2000, Kyrus sent Sykes a final revenue report for the period ending December 31, 1999, as
well as a demand letter from its lawyers for a $4 .5 million refund under the Consideration Adjustment
Agreement.
106. On March 14, 2000, Kyrus sued Sykes in the Court of Common Pleas for th e
State of South Carolina, County of Greenville, seeking payment of $4 .5 million owed to Kyrus under the
Consideration Adjustment Agreement, and more than $1 .6 million in direct costs for providing support
services that Sykes had allegedly failed to pay Kyrus. Kyrus further complained that the software was
defective, and that it was "not functional and did not conform to its specifications ."
107. Notwithstanding the foregoing, and despite the fact that analysts, shareholders ,
and the investing public were entitled to know whether Sykes had identified all of its accounting
improprieties, Sykes failed to disclose the contingent nature of the revenue from the Kyrus Transaction prior to September 18, 2000 .
31 Sykes Files Amended Forms 10-Q For the 1999 Second And Third Quarter s
108. On March 29, 2000, Sykes filed its Amended Form 10-Q filings for the secon d and third quarters of 1999 . Sykes reversed the $12 million and $20 million of software licensing and service revenue for the second and third quarters of 1999, respectively, that had come from the Toshiba and Perot Transactions . For the second quarter of 1999, as a result of the premature revenue recognition, the percentage by which actual net earnings had been overstated was approximately 200% . Second quarter earnings were actually $0 .10 per share, rather than the $0 .27 per share originally reported . For the third quarter of 1999, actual net income per share was overstated by 230%, as the actual earnings had been $0.10 per share rather than the $0 .33 per share originally reported. The following chart details the magnitude of the misstatements:
($000's) Q2 99 Q3 99
% Over- % Over- Reported Restated stated Reported Restated stated
Revenue 146,108 134,108 8.9% 160,967 140,967 14.2% Operating expenses 126,489 126,704 -0.2% 136,857 132,873 3 .0% Income from operations 19,619 3 165.0% -24,110 197.9% Net income 11,498 4,009 186.8% 14,148 4,347 225.5%
Net income per share : Basic $0.27 $0.10 170.0% $0.33 $0.10 230.0% Diluted $0.27 $0.09 200.0% $0.33 $0.10 230.0%
109. The Amended Form 10-Q for the second quarter ending June 30,1999, filed wit h the SEC on or about March 29, 2000, also confirmed that the $12 million in revenue that had been improperly recognized in the second quarter ending June 30, 1999, had all been for "technical suppor t services." related specifically to AnswerTeamTM license agreements .
110. The Amended Form 10-Q for the third quarter ending September 30, 1999, filed on or about March 29, 2000, confirmed that $20 million of revenue that had been improperly recognize d
32 in the third quarter ending March 30, 1999 had also been for "technical support services," related specifically to licensing of the AnswerTeamTM software .
Sykes Files Its 1999 Form 10-K Which Reiterates The Inflated 1998 Revenue and Earnings
111 . On March 29, 2000, Sykes filed with the SEC its Annual Report on Form 10- K for the year ending December 31, 1999 (the "1999 Form 10-K") . The 1999 Form 10-K was signed by
Defendant Bendert on behalf of the Company, by Defendant John Sykes in his capacity as Chairman and
Chief Executive Officer, and by Defendant Grimes, as President and Chief Operating Officer. The Form
10-K contained financial statements for both 1998 and 1999 . Notwithstanding (a) the February 24, 2000 demand by Kyrus for a consideration adjustment on the licensing fee paid to Sykes, and for reimbursement of $1 .6 million in direct costs, and (b) the lawsuit filed by Kyrus on March 14, 2000, the
1998 financial statements continued to reflect the full $10 million attributable to the Kyrus Transaction and its effect on earnings in 1998.
112. As a result of Kyrus' demand and lawsuit, the Individual Defendants knew at th e time Sykes filed the Company's1999 Form 10-K that a restatement of 1998 revenue would have to be made to reverse much of the revenue recognized in the Kyrus Transaction and the earnings generated by that revenue. Nevertheless, Sykes republished its 1998 financial statements, including 1998 results of operations, reflecting the revenue and earnings from the Kyrus Transaction that it knew would have to be restated. The Defendants knew that a restatement of the Kyrus Transaction was necessary not only because there had been a contingency for 45% of that revenue, but also because they knew from communications with Kyrus that the contingency had not been satisfied and that Sykes was obligated to repay $4.5 million back to Kyrus.
113 . Further, notwithstanding the knowledge of Kyrus' claim that the consideration on the Kyrus Transaction was due to be adjusted, no reserve was taken in the 1999 financial statements to account for what clearly would be a material adjustment .
33 Sykes' April 25, 2000 Press Release
114. On April 25, 2000, the Company issued a press release which shed further light
on the nature of the second and third quarter 1999 restatements. The release acknowledged that the
restatements resulted from improper revenue recognition on "two speci fic bundled service offering
arrangements" in connection with its AnswerTeamTM, but did not identify the customers involved. The
release also stated that "Sykes diagnostic bundled service offering contracts are multiple element
arrangements, as defined within the AICPA 's Statement of Position 97-2, . . . and generally include a
Sykes' diagnostic service offering, web and telephonic technical support, customer service, and other
professional consulting and e-services. With respect to the first restated arrangement, the Company
stated that:
Sykes will recognize $12 .0 million of revenue associated with the Sykes AnswerTeamTM bundled service offering on a ratable basis at approximately $1 .2 million per quarter. Revenue recognition will begin in the second quarter of 2000 and end in the third quarter of 2002 . Revenues from the remaining elements of this arrangement, including e- support, technical support, e-warranty claims, customer service and professional services, will be recognized as these services are provided and the criteria for revenue recognition are met, and will be in addition to the $12 million license fee .
115. With respect to the second restated arrangement, the Perot Transaction, the
Company stated that "in addition to the multiple elements described above, the second arrangement
includes a strategic alliance . The strategic alliance contains a contingency tied to certain annual performance objectives to be achieved by Sykes ... .The timing and amount of any revenue ultimately recognized will be affected by variations in the achievement of those performance objectives." The release stated that these performance contingencies precluded the revenue recognition of any portion of the $20 million in license fees on the AnswerTeamTM license agreement until the performance contingencies had been satisfied . The release also disclosed for the first time that revenue under this agreement could not be recognized until the year ending December 31, 2001, and then only in the amount of $2.7 million.
34 116. While the April 25, 2000 press release was corrective in some respects, including the fact that the $20 million third quarter revenue was not simply a timing issue (as the February 7, 2000 release had suggested), it was nonetheless incomplete and therefore materially misleading . While discussing the Company's restatements for the 1999 second and third quarters, it omitted to disclose that the Company knew that it should also restate its results for fiscal 1998 as a result of its improper recognition of revenue from the Kyrus Transaction . As stated above, based alone upon Kyrus' March
14, 2000 lawsuit, which sought payment of $4 .5 million owed to Kyrus under the Consideration
Adjustment Agreement, Defendants knew at the time of the April 25, 1999 press release that, in addition to the 1999 second and third quarter restatements, the fiscal 1998 results would have to be restated to reflect the true revenue and earnings from the Kyrus Transaction .
117. On July 27, 2000, the Company issued a press release announcing that Defendant
Grimes, the Company's President and Chief Operating Officer, would assume the position of Chief
Executive Officer, replacing Defendant John Sykes, the Company's founder, in that position .
Sykes Finally Discloses Accounting Improprieties Relating To The Kyrus Transactio n
118. On September 18, 2000, Sykes issued the release in which it disclosed for the firs t time that it would restate 1998 results of operations due to improper revenue recognition on the Kyrus
Transaction. Specifically, the Company stated :
that it is restating its previously reported financial results for the year ended December 31, 1998 to reflect a $4.5 million reduction in revenue from the Kyrus transaction . Accordingly, Sykes is restating its results for the year ended December 31, 1998 to reflect revenues of $465 million, net income of $5.5 million, and earnings per diluted share of $0 .13 compared to previously reported results of $469 .5 million in revenues, net income of $8 .3 million, and earnings per diluted share of $0.20 for the year ended December 31, 1998 .
In an effort to ensure complete and accurate accounting treatment, the Company is also reviewing other of Sykes' service contracts that were entered into during 1998. At this time, the Company has not determined whether additional restatements will be necessary as a result of the review.
119. The September 18, 2000 press release also disclosed that the Company woul d suffer a loss in the third quarter of fiscal 2000 of between $0.08 and $0.11 per share, and revenues for th e 35 fourth quarter of fiscal 2000 would be lower than expected, resulting in earnings of $0 .10 to $0.13 per share for the fourth quarter. The Company further announced that due to revenue and earnings' shortfalls in the third and fourth quarters of fiscal 2000, 2001 earnings would likely fall short of all published analysts' estimates . Finally, the September 18, 2000, release disclosed that the strategic alliance with
Perot was being "modified" to the point that the $20 million license fee was being returned to Perot together, with $700,000 interest. It was now finally apparent to the investing public that the $20 million in revenue that had been recorded in the third quarter of 1999 from the Perot Transaction, would, in fact, never be recognized.
120. Even as it disclosed the need to restate 1998 results of operations due to improper treatment of the Kyrus Transaction, Sykes' September 18, 2000 press release was less than completely candid with investors . For example, according to the press release, "The company announced today that
Kyrus Corporation has filed a lawsuit against Sykes concerning the license of certain software by Sykes to Kyrus ." The release went on to state that "as a result of the litigation," the Company had "re-evaluated the previous accounting treatment for the Kyrus Transaction," thus necessitating the 1998 restatement .
What the Company failed to disclose was that the Kyrus lawsuit which had triggered this re-evaluation had been filed on March 14, 2000 -- more than six months earlier and two weeks prior to the filing of the
1999 Form 10-K that had republished the artificially inflated 1998 results .
121 . In response to the September 18 announcement, Sykes' stock price, which had declined over $2.50 per share on September 14 and 15, declined even further on September 18 and 19 .
Sykes' stock price fell from a high of $9.43 per share on September 18 to below $5 per share on Tuesday,
September 19 . As of the filing of this complaint, Sykes' common stock is trading below $5 per share -- less than 10% of its Class Period high.
36 COUNT I
Against Sykes And The Individual Defendants For Violations Of Section 10(b) Of The Exchange Act And Rule lOb-5 Promulgated Thereunder
122. Lead Plaintiffs repeat and reallege each of the allegations set forth in the foregoin g paragraphs. This Count is brought pursuant to Section 10(b) of the Exchange Act and Rule lOb-5 promulgated thereunder on behalf of the Class against Defendant Sykes and the Individual Defendants .
123. Throughout the Class Period, Sykes and Defendants John Sykes, Bendert, and from February 8, 1999, Defendant Grimes, individually and in concert, directly and indirectly, by the use and means of instrumentalities of interstate commerce and of the mails, engaged and participated in a continuous course of conduct to conceal adverse material information about Sykes, including its true financial results, as specified herein. Defendants employed devices, schemes, and artifices to defraud while in possession of material, adverse non-public information and engaged in acts, practices, and a course of conduct that included the making of, or participation in the making of, untrue and misleading statements of material facts and omitting to state material facts necessary in order to make the statements made about Sykes not misleading. Specifically, each of these Defendants knew or were reckless in not knowing that Sykes' results of operations reported throughout the Class Period, and filed with the SEC and disseminated to the investing public, as well as in press releases, were materially overstated and were not presented in accordance with GAAP .
124. Sykes and the Individual Defendants, as either directors or among the to p executive officers of Sykes, are liable as direct participants in the wrongs complained of herein . Through their positions of control and authority as officers and/or directors of Sykes, the Individual Defendants were able to and did control the content ofthe public statements disseminated by Sykes . With knowledge of the falsity and misleading nature of the statements contained therein and in reckless disregard of the true financial results of Sykes, the Individual Defendants caused the heretofore complained of public statements to contain misstatements and omissions of material facts as alleged herein .
37 125. The Defendants acted with scienter throughout the Class Period, in that they either had actual knowledge of the misrepresentations and omissions of material facts set forth herein, or acted with reckless disregard for the truth in that they failed to ascertain and to disclose the true facts, even though such facts were available to them . Indeed, as set forth above, Defendants' recognition of revenue from software licensing agreements associated with the Kyrus, Toshiba and Perot Transactions was a blatant violation of applicable revenue recognition provisions pertaining to software and was, thus, improper. The Individual Defendants constituted the senior management of Sykes and, therefore, were directly responsible for the false and misleading statements and omissions disseminated to the public through press releases, news reports, and filings with the SEC .
126. In addition to their actual knowledge and/or reckless disregard for the truth,
Defendants had the motive and opportunity to commit fraud . Defendants' motive is demonstrated by the several acquisitions the Company completed during the Class Period . Specifically, on November 27,
1998, the Company acquired all of the stock of TAS Gmbh Nord Telemarketing and Vertriebsberatung of Hanover, Germany, in exchange for 587,000 shares of the Company's common stock . The registration statement for this offering was filed with the SEC on April 8, 1999 . On December 29, 1998, the
Company acquired all of the stock of Oracle Service Networks Corporation in exchange for 1 .4 million shares of the Company's common stock . The registration statement for this offering was filed with the
SEC on or about May 4, 1999. On August 20, 1999, Sykes completed an acquisition of CompuHelpline,
Inc. (d/b/a PC Answer) for approximately $340,000 consisting of $40,000 of cash and 11,594 shares of the Company's common stock. Further, Defendants' desire to maintain the Company's "unbroken streak" of meeting or exceeding Wall Street analysts' expectations was likewise a motivating force in their committing this fraud. Opportunity is demonstrated by Defendants' control over Sykes' public statements and their own public statements about Sykes and their knowledge of the true state of affairs concerning Sykes' finances, accounting and customer relationships.
127. As a result of those deceptive practices and false and misleading statements and omissions, the market price of Sykes' common stock was artificially inflated throughout the Class Period.
38 In ignorance of the false and misleading nature of the representations and omissions described above and the deceptive and manipulative devices employed by Defendants, Lead Plaintiffs and the other members of the Class, in reliance on either the integrity of the market or directly on the statements and reports of those Defendants, purchased Sykes' common stock at artificially inflated prices and were damaged thereby.
128. Had Lead Plaintiffs and the other members of the Class known ofthe material adverse information not disclosed by Defendants, or been aware of the truth behind those Defendants' material misstatements, they would not have purchased Sykes' common stock, at artificially inflated prices, if at all.
129. By virtue of the foregoing, each of the Defendants named in this Count ha s violated Section 10(b) of the Exchange Act and Rule I Ob-5 promulgated thereunder .
COUNT H
Against The Individual Defendants For Violations Of Section 20(a) Of The Exchange Ac t
130. Lead Plaintiffs repeat and reallege each of the allegations set forth in the foregoin g paragraphs. This Count is brought pursuant to Section 20(a) of the Exchange Act on behalf of the Class against the Individual Defendants .
131 . Each of the Individual Defendants was a controlling person of the Compan y within the meaning of Section 20(a) of the Exchange Act during the Class Period . (Defendant Grimes was a controlling person since his beginning at the Company in December 1998 .) Throughout the Class
Period, each of the Individual Defendants had the power and authority to cause the Company to engage in the wrongful conduct complained of herein by reason of the following :
a. Defendant John Sykes had the power and authority to cause Sykes to engage in the wrongful conduct complained of herein by virtue of his position as Chairman of the Board and Chief
Executive Officer, as well as his control over 40 percent of the Company's publicly held shares .
b. Defendant Grimes (as of the February 8, 1999 release of 1998 results of operations) had the power and authority to cause Sykes to engage in the wrongful conduct complaine d 39 of herein by virtue of his position as President, ChiefOperating Officer, an d, ultimately , Defendant John
Sykes' replacement as Chief Executive Officer.
c. Defendant Bendert had the power and authority to cause Sykes to engage in th e wrongful conduct complained of herein by virtue of his position as Senior Vice President and Chie f
Financial Officer of the Company.
132. None of the Individual Defendants possessed reasonable grounds for the belief that the statements contained in the SEC filings, press releases and statements complained of herein were true and devoid of any misstatements or omissions of material fact . Therefore, by reason of his position of control over the Company, as alleged herein, each of the Individual Defendants is liable pursuant to
Section 20(a) of the Exchange Act to the same extent as the controlled entity, Sykes . As a direct and proximate result of their wrongful conduct, Lead Plaintiffs and the other members of the Class suffered damages in connection with their purchases of Sykes common stock during the Class Period .
PRAYER FOR RELIEF
WHEREFORE, Lead Plaintiffs, on their own behalf and on behalf of the other members of th e
Class, pray for judgment as follows :
Declaring this action to be a proper class action maintainable pursuant to Rule 23 of th e
Federal Rules of Civil Procedure and declaring Lead Plaintiffs to be proper Class representatives ;
2. Awarding Lead Plaintiffs and the other members of the Class compensatory damages as a result of the wrongs complained of herein, including interest thereon ;
3 . Awarding Lead Plaintiffs and the other members of the Class their costs and expense s in this litigation, including reasonable attorneys' fees and experts' fees and other costs and disbursements ; and
4. Awarding Lead Plaintiffs and the other members of the Class such other and further relie f as the Court may deem just and proper.
40 JURY TRIAL DEMANDED
Lead Plaintiffs demand a trial by jury of all issues so triable.
Dated: November 3, 2000
LAW OFFICES OF MICHAEL C. ADDISON Michael C. Addison Florida Bar No. 145579 P.O. Box 2175 Tampa, FL 33601-2175 Tel: 813/223-2000 Fax: 813/228-6000
Liaison Counsel for the Cl ass
and
BURT U LO, LLP
By:
Florida ar No. Z6f033 Wendy . Zoberman Floridatar No. 434670 515 N. Flagler Drive Northbridge Centre, Suite 1701 West Palm Beach, FL 33401 Tel: (561 ) 835-9400 Fax: (561 ) 835-0322 e-mail: lawQburt-oucillo.com
Co-Lead Counsel for the Clas s
BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP John P. Coffey Gerald H. Silk 1285 Avenue of the Americas New York, New York 10019 Tel : (212) 554-1400 Fax: (212) 554-1444 E-mail: seanC@@blbglaw.com
Co-Lead Counsel for the Class
41 CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and accurate copy of the foregoing has been furnished to al l counsel on the attached Service List this 3rd day of N
H : Vudy\63282\Complamts\SykesAmComp.rev
42 SYKES ENTERPRISES LITIGATION SERVICE LIST
Burt & Pucillo, LLP Law Offices of Michael C . Addison Michael J . Pucillo, Esq . Michael C. Addison, Esquire Wendy H . Zoberman, Esq. 400 North Tampa Street, Suite 1100 Northbridge Centre, Suite 1701 Tampa, FL 33602 515 North Flagler Drive Tel : 813/223-2000 West Palm Beach, FL 33401 Fax : 813/228-6000 Tel : 561/835-9400 [Plaintiffs' Liaison Counsel] Fax: 561/835-0322 E-Mail: law@burt-pucillo .com [Plaintiffs' Co-Lead Counsel]
Bernstein Litowitz Berger & Grossmann LLP Horace Schow II, Esq. John P . Coffey Florida State Board of Administration Gerald H . Silk Office of the General Counsel 1285 Avenue of the Americas 1801 Hermitage Blvd ., Suite 100 New York, New York 10019 Tallahassee, FL 32308 Tel : 212/554-1400 Fax: 212/554-1444 [Plaintiffs' Co-Lead Counsel ]
Lite DePalma Greenberg & Rivas, LLC Schiffrin & Barroway, LLP Allyn Z . Lite, Esq. Marc A . Topaz, Esq. Joseph J. De Palma, Esq. Three Bala Plaza East Two Gateway Center, 12th Floor Suite 400 Newark, NJ 07102-5003 Bala Cynwyd, PA 19004 Tel : 973/623-3000 Tel : 610/667-7706 Fax : 973/623-0858 Fax: 610/667-7056 [Attorneys for Plaintiff Ehrenfeld] [Attorneys for Plaintiff Biglan]
Berman DeValerio & Pease, LLP Wolf Popper, LLP Jeffrey C . Block, Esq. Robert M. Kornreich, Esq . Michael Lange, Esq . Lawrence D . Levit, Esq . One Liberty Square 845 Third Avenue Boston, MA 02109 New York, NY 10022 Tel : 617/542-8300 Tel : 212/759-4600 Fax : 617/542-1194 Fax: 212/486-2093 [Attorneys for Plaintiffs K . Piven, Decker] [Attorneys for Plaintiff McGrath] Berger & Montague, P.C. Levy and Levy, P .C . Sherrie R. Savett, Esq. Stephen G. Levy, Esq. Stuart J . Guber, Esq. 245 Park Avenue 39th Floor 1622 Locust Street New York, NY 10167 Philadelphia, PA 19103 Tel: 212/792-4343 Tel : 215/875-3000 Fax: 212/792-4001 Fax: 215/875-571 5 [Attorneys for Plaintiff Kalkowski] [Attorneys for Plaintiff Kalkowski]
Donovan & Miller, LLC Pomerantz Haudek Block Grossman & Michael Donovan, Esq . Gross, LLP 1608 Walnut Street, Suite 1400 Marc I . Gross, Esq. Philadelphia, PA 19103 Murielle J. Steven Walsh, Esq . Tel : 215/732-6020 100 Park Avenue 26th Fl . Fax: 215/732-8060 New York, NY 1001 7 [Attorneys for Plaintiff Feller] Tel : 212/661-1100 Fax: 212/661-8665 [Attorneys for Plaintiff Decker ]
Schatz & Nobel, P .C. Wolf Haldenstein Adler Freeman & Herz Andrew Schatz, Esq. Fred T. Isquith 216 Main Street Shane T. Rowley Hartford Ct 06106 270 Madison Avenue Tel : 860/493-6392 New York, NY 10016 Fax : 860/493-6290 Tel : 212/545-4600 [Attorneys for Plaintiff Decker] Fax: 212/545-4653 [Attorneys for Plaintiff Jacobs]
Law Office of Leo W . Desmond Abbey Gardy & Squitieri, LLP Leo W . Desmond Mark C . Gardy 2161 Palm Beach Lakes Blvd . Karin E. Fisch Suite 204 Nicholas H . Gilbo West Palm Beach, FL 33409 212 E . 39th Street Tel: 561/712-8000 New York, NY 10016 Fax : 561/712-8002 Tel : 212/889-3700 [Attorneys for Plaintiff Wilkes, Jacobs] Fax: 212/684-5191 [Attorneys for Plaintiff B . Piven]
-2- Alpert, Barker & Rodems, P .A . Rabin & Peckel, LLP Jonathan L. Alpert Brian Murray 100 S . Ashley Drive 275 Madison Avenue P .O. Box 3270 New York, NY 10016 Tampa, FL 33602-4131 Tel : 212/682-1818 Tel : 813/223-4131 Fax: 212/682-1892 Fax: 813/228-9612 [Attorneys for Plaintiff Wilkes ] [Attorneys for Plaintiff B . Piven]
Cohen, Milstein, Hausfeld & Toll, PLLC Cohen, Milstein, Hausfeld & Toll, PLLC Daniel S . Sommers Steven J . Toll 1100 New York Avenue, N .W . 999 Third Avenue West Tower - Suite 500 The First Interstate Building Washington, DC 20005-3964 Suite 3600 Tel : 202/408-4600 Seattle, WA 98104 Fax : 202/408-4699 Tel : 206/521-0080 [Attorneys for Plaintiff Miller] Fax: 206/521-0166 [Attorneys for Plaintiff Miller]
Cauley & Geller, LLP Milberg Weiss Bershad Hynes & Paul J. Geller Lerach, LLP One Boca Place, Suite 421A Samuel H . Rudman 2255 Glades Road One Pennsylvania Plaza Boca Raton, FL 33431 49th Floor Tel : 561/750-3000 New York, NY 10119-0165 Fax : 561/750-3364 Tel : 212/584-5300 [Attorneys for Plaintiff Miller ] Fax: 212/868-1229 [Attorneys for Plaintiff Pond Equities, Northcross]
Milberg Weiss Bershad Hynes & Finkelstein & Krinsk Lerach, LLP Jeffrey R . Krinsk Maya Saxena 501 West Broadway Kenneth J. Vianale Suite 1250 5355 Town Center Road San Diego, CA 92101-3579 Suite 900 Tel : 619/238-1333 Boca Raton, FL 33486 Fax : 619/238-5425 Tel: 561/361-5000 [Plaintiff Northcross] Fax: 561/367-8400 [Attorneys for Plaintiff Pond Equities, Northcross]
-3- Lowey & Dannenberg , Bemporad & Gilman and Pastor, LLP Selinger, P .C . Peter Lagorio David C . Harrison 999 Broadway, Suite 500 1 N . Lexington Avenue Saugus, MA 01906 White Plains, NY 10601 Tel : 781/231-7850 Tel : 914/997-0500 Fax: 781/231-7840 Fax 914/997-0035 [Attorneys for Plaintiff Cardina] [Attorneys for Plaintiff Cardina]
Robert Feagin Holland & Knight LLP Tracy Nichols Frederick Schrils Frederick Schrils P.O . Box 128 8 Holland & Knight LLP 400 N. Ashley Drive 701 Brickell Avenue, Suite 3000 Tampa, FL 33601 Miami, FL 33131 ; Tel : 813/227-8500 P.O . Box 015441 Fax: 813/229-0134 Miami, FL 33101 [Attorneys for Defendants] Tel: 305/374-8500 Fax: 305/789-7799 [Attorneys for Defendants]
William E. Whitley Rt. 2, Box 945 High Springs, FL 32643 Tel: 904/755-6743 [Class Member]
-4-