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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
Commission File Number: 0-26970
CORESTAFF, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 76-0407849
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4400 POST OAK PARKWAY, SUITE 1130, HOUSTON, TEXAS 77027-3413
(Address of Principal Executive Offices) (Zip Code)
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Registrant's telephone number, including area code: (281) 602-3400
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR
VALUE $.01 PER SHARE
_______________________________
Indicate by check mark whether the Registrant (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
As of March 1, 1997, there were 31,283,825 shares of Common Stock and
707,232 shares of Class B Non-Voting Common Stock of the Registrant
outstanding. The aggregate market value on such date of the voting stock of
the Registrant held by non-affiliates was an estimated $442 million based upon
the closing price of $23 5/8 per share on February 28, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Items 11, 12 and 13 and certain parts of Item 10 of Part III have been
omitted from this Annual Report since the Registrant will file with the
Securities and Exchange Commission, not later than 120 days after the close of
its fiscal year, a definitive proxy statement, pursuant to Regulation 14A,
which involves the election of directors. The information required by Items
10, 11, 12 and 13 of Part III of this Annual Report, which will appear in the
definitive proxy statement, is incorporated by reference into this Annual
Report.
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CORESTAFF, INC.
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1996
TABLE OF CONTENTS
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PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Temporary Staffing Industry . . . . . . . . . . . . . . . . . . . . . . . . . 1
Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Branch Offices and Centralized Business Operations . . . . . . . . . . . . . . . . 8
Sales and Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Recruiting of Temporary Employees . . . . . . . . . . . . . . . . . . . . . . . . 8
Assessment and Training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Integration of Acquired Companies . . . . . . . . . . . . . . . . . . . . . . . . 9
Workers' Compensation Program; Safety Program . . . . . . . . . . . . . . . . . . 9
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . 13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . 14
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation . 16
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . 24
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . 24
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . 24
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . 24
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . 25
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PART I
ITEM 1. BUSINESS
GENERAL
CORESTAFF, Inc. ("CORESTAFF" or the "Company") is one of the largest
diversified staffing services firms in the United States. The Company provides
a broad range of information technology ("IT") and staffing services to a
diverse client base through its network of 130 branch offices in the United
States and the United Kingdom.
Since its inception in July 1993, the Company's growth has been through the
acquisition of businesses in the staffing industry and high internal growth.
As of December 31, 1996, the Company had acquired 26 businesses, including 12
IT services, 11 staffing services and three physical therapy staffing
businesses. In January 1997, the Company sold its physical therapy staffing
business, which accounted for less than two percent of its consolidated
revenues and gross profit, and thereby exited the health care staffing
industry. The Company plans to focus on the further expansion and development
of its two core businesses, which will include expansion into complementary
service lines and businesses.
The Company's services are provided through its two business units: COMSYS
Information Technology Services ("COMSYS") and CORESTAFF Services. COMSYS
provides highly-skilled computer professionals principally to FORTUNE 1000
companies and governmental agencies. COMSYS accounted for 48.2% and 54.8% of
the Company's pro forma revenues and gross profit, respectively, for the year
ended December 31, 1996. CORESTAFF Services provides office support, light
industrial and specialized services to local, regional and national customers.
CORESTAFF Services accounted for 50.6% and 44.0% of the Company's pro forma
revenues and gross profit, respectively, for the year ended December 31, 1996.
The Company's principal executive offices are located at 4400 Post Oak
Parkway, Suite 1130, Houston, Texas 77027-3413 (telephone: 281-602-3400).
THE TEMPORARY STAFFING INDUSTRY
According to Staffing Industry Report, a staffing services industry
publication, the temporary staffing industry was estimated to have 1996
revenues of approximately $45 billion and a compound annual growth rate of
approximately 17% over the past five years. The IT services sector was
estimated to have 1996 revenues of approximately $11 billion, which represents a
24% increase per year for the past three years. The Company believes that the
demand for traditional staffing services and information technology staffing
services will continue to increase due to changes in workforce lifestyles,
advances in technology and the increasing desire of many companies to shift
employee costs from a fixed to a variable expense and to outsource the support
functions.
The temporary staffing industry was once used predominately as a short-term
solution for peak production periods and to temporarily replace workers
absent due to illness, vacation, or abrupt termination. Since the mid-1980s,
the temporary services sector has evolved into a permanent and significant
component of the staffing plans of many corporations. Corporate restructuring,
downsizing, government regulations, advances in technology, and the desire by
many companies to shift employee costs from a fixed to a variable expense have
resulted in the use of a wide range of staffing alternatives by businesses. In
addition, the reluctance of corporations to risk exposure to wrongful discharge
claims has led to an increase in companies using temporary staffing as a means
of evaluating the qualifications of personnel before hiring them on a full-time
basis. Furthermore, many companies are adopting strategies that focus on their
core businesses and, as a result, are outsourcing the support functions of their
non-core businesses. The National Association of
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Temporary and Staffing Services estimates that more than 90% of all United
States businesses use staffing services.
Information technology staffing services has become one of the fastest
growing sectors of the temporary staffing industry. Over the last decade, the
increased use of technology has led to a dramatic rise in demand for technical
project support, software development, and other computer-related services.
Corporations have outsourced many of these departments and/or have used the
employees of staffing firms in an attempt to meet the increased demand for
computer-skilled personnel.
The Company believes that the temporary staffing industry is highly
fragmented and is currently experiencing a trend toward consolidation primarily
due to the increasing demand by large companies for centralized staffing
services and the difficulties faced by many smaller staffing companies in
today's staffing services market. The growth of national and regional accounts
resulting from the centralization of staffing decisions by national and larger
regional companies has increased the importance of staffing companies being
able to offer a wide range of services over a broad geographic area. In
addition, many smaller staffing companies are experiencing increased
difficulties due to factors such as significant working capital requirements,
limited management resources, and an increasingly competitive environment.
STRATEGY
The Company seeks to become the leading provider of a broad range of
high-quality IT and staffing services to a diverse, national client base. The
Company's strategy is focused on internal growth, strategic acquisitions, and
the continued development of additional complementary staffing services. The
Company believes that its business strategy will provide it with a competitive
advantage in pursuing and maintaining major national and regional accounts as
well as in serving local markets. The key elements of the Company's strategy
are presented below.
INCREASE REVENUES THROUGH INTERNAL GROWTH
Since its inception in July 1993, the Company has focused on the
establishment of a national branch network of staffing services operations.
The Company believes it can increase revenues through internal growth
due to its well-developed presence in key geographic and sector-specific
markets. The Company's existing branch office network has the infrastructure
and support systems in place to enable it to expand and enhance services with
limited incremental expense. The Company believes that it can achieve
significant economies of scale by opening and clustering branch offices in
new and existing markets through the allocation of management, advertising,
recruiting, and training costs over a larger revenue base. The Company is
also focused on increasing penetration of national accounts through the
cross-selling of services.
CONTINUE TO PURSUE STRATEGIC ACQUISITIONS
The Company's growth strategy includes the continued acquisition of
established, profitable regional staffing businesses in markets with attractive
growth opportunities. These businesses are intended to serve as a basis for
future growth and, therefore, must have the management infrastructure and other
operating characteristics necessary to significantly expand the Company's
presence within a specific sector and geographic area. The Company is also
focused on acquiring smaller companies, which can be integrated into its
existing platform companies to increase market share with minimal incremental
expense. The Company believes that its favorable reputation and management
style facilitate its efforts to make acquisitions of these smaller businesses
that are seeking alliances with larger staffing companies to more effectively
compete for national contracts.
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The Company's acquisitions team has extensive experience in identifying
and evaluating attractive acquisition targets. Since its formation, CORESTAFF
has acquired 26 businesses in the staffing industry. The following table
shows acquisition activity for each of the past three years.
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1994 1995 1996
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Acquisitions Completed:
Staffing Services 3 4 4
IT Services 1 1 10
Other -- 1 --
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Total 4 6 14
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Purchase Consideration
(in thousands) $ 58,102 $ 40,304 $ 174,393
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ENHANCE LEADERSHIP POSITION IN THE INFORMATION TECHNOLOGY SERVICES SECTOR
Recently there has been a dramatic increase in demand for technical project
support, software development, and other computer-related services resulting
from the increased use of technology. This high level of demand, coupled with
the higher value-added nature of such services, generally results in higher
profit margins than those earned by providing general support services.
The Company established its IT services group with the acquisition of two
major businesses in September 1994 and June 1995. Since that time, the Company
acquired ten additional IT services businesses, including one technical
communications outsourcing business. The Company believes that it is a leading
provider of IT staff augmentation services, with 1996 pro forma revenues
of $354 million. The Company has targeted the high-growth, high-margin IT
services sector as its primary growth area and intends to aggressively enhance
its existing leadership position in this sector. Pro forma revenues for 1996
from the IT services group increased 32% over 1995, reflecting high internal
growth, while maintaing high gross margins. The Company expects that revenues
contributed by COMSYS and its other IT services businesses will continue to
increase as a percentage of its total revenues.
The Company believes that it is well positioned to capitalize on the
anticipated continued growth in the IT sector due to its size, geographic
breadth, industry experience, and expertise in providing a wide range of
information technology staff augmentation services. The Company intends to grow
significantly in this area through (i) selective acquisitions, (ii) the opening
of offices in new and existing markets, (iii) aggressive recruiting, training,
and marketing of industry specialists with a wide range of technical expertise,
and (iv) active cross-selling of its information technology staffing services to
its existing support services customers. In 1997, the Company intends to pursue
businesses with specializations in custom software development, packaged
software implementation, critical computer code maintenance and network
implementation and integration. See "Recent Developments."
EXPAND GEOGRAPHIC AND SECTOR DIVERSITY
The Company seeks to increase revenues and enhance earnings stability by
continuing to expand its geographic and sector diversity. The Company
currently provides a wide variety of information technology and staffing
services in the Western, Southwestern, Southeastern and Eastern states. The
Company believes that this geographic and sector diversity helps protect it
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from adverse regional economic and business cycles. In addition, this diversity
provides the Company with an advantage when pursuing contracts with national
accounts, which generally have numerous locations and a wide variety of staffing
needs. The Company intends to package and market its services with the goal of
becoming the primary staffing provider to FORTUNE 1000 companies and other
national accounts.
CONTINUE DEVELOPMENT OF VENDOR-IN-PARTNERSHIP PROGRAM
The Company believes that its Vendor-in-Partnership ("VIP") program
provides an attractive opportunity to grow its operating revenues while
generating higher-than-average operating margins. While these VIP programs
tend to have lower gross margins than traditional temporary staffing services,
higher volumes and proportionately lower operating costs result in attractive
operating profits for the Company. In 1996, the Company had 50 VIP programs,
which generated combined pro forma revenues of approximately $103 million.
Under these programs, the Company assumes administrative responsibility for
coordinating all temporary personnel services throughout a client's
organization or location. The VIP program provides the Company with an
opportunity to establish long-term relationships with clients and a more
stable source of revenue, while providing clients with a dedicated,
on-site account manager who can more effectively meet the client's changing
staffing needs with high quality and consistent service. The Company is
using the VIP program in the staffing services sector to establish itself
as a leading VIP staffing provider in the information technology services
sector.
PROVIDE ENTREPRENEURIAL ENVIRONMENT
The Company believes that its entrepreneurial business environment rewards
performance. Each branch office is operated as a separate profit center with
local management having profit and loss responsibilities. The Company believes
that this management philosophy allows it to attract and retain highly talented
managers who have demonstrated the ability to operate independently and succeed
within a decentralized management structure. The Company has established
guidelines that offer its managers and field personnel latitude in operational
areas such as hiring, pricing, training, sales, and marketing. In addition,
the Company has a profit-based compensation program at the national, regional
and local levels and a broadly distributed stock option program to further
incentivize employees through ownership in the Company.
ACQUISITIONS
During 1996, the Company acquired 14 companies, which had combined 1996
revenues of more than $280 million. The material acquisitions during 1996
are briefly described below:
DATRONICS MANAGEMENT, INC. AND DATRONICS U.K. LIMITED. In January 1996,
the Company acquired Datronics for $19.2 million. Datronics is a New
York-based IT services business with 1996 revenues of approximately $15.1
million. Datronics has seven branch offices located in New York, Texas,
Georgia, Arizona, New Jersey and North Carolina. Datronics also has a
branch office in the United Kingdom.
REGAL DATA SYSTEMS, INC. In April 1996, the Company acquired Regal for
$21.6 million. Regal is a New Jersey-based IT services business with 1996
revenues of approximately $31.2 million. Regal has one office in New Jersey.
DATA AID, INC. In June 1996, the Company acquired Data Aid for $23.2
million. Data Aid is an Alabama-based IT services business with 1996 revenues
of approximately $25.7 million. Data Aid has three branch offices in
Alabama and Georgia.
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ON-LINE RESOURCES, INC. In September 1996, the Company acquired On-Line
for $17.9 million. On-Line is a Florida-based IT services business with 1996
revenues of approximately $20.2 million. On-Line has five branch offices
located in California, Oregon, Iowa, Mississippi and Washington.
TRANSWORLD SERVICES GROUP. In October 1996, the Company acquired
Transworld for $18.1 million. Transworld is a Florida-based staffing services
business with 1996 revenues of approximately $36.0 million. Transworld has six
branch offices in Florida, New Jersey and South Carolina.
TELOS CONSULTING SERVICES. In December 1996, the Company acquired Telos
for $31.4 million. Telos is a California-based IT services business with 1996
revenues of approximately $33.1 million. Telos has 11 branch offices in
California, Colorado, Florida, Idaho, Massachusetts, Nevada and Virginia.
The Company is continually seeking acquisition opportunities and believes
that there exists a substantial number of potentially attractive acquisition
opportunities in the information technology and staffing services industries.
The Company from time to time enters into discussions and non-binding letters
of intent that may lead to potential acquisitions but no assurances can be
given that future acquisitions will be consummated.
RECENT DEVELOPMENTS
In January 1997, the Company acquired Roberta Enterprises, Inc.
("Roberta"), which had approximately $36 million in revenues for 1996. Roberta
provides general support staffing services through seven branch offices in
California. Also in January, the Company sold its physical therapy staffing
business, a non-core business that accounted for less than two percent of the
Company's 1996 consolidated revenues and operating income.
In March 1997, the Company entered into a new line of business, Information
Technology Solutions, with the acquisition of Metamor Technologies, Ltd.
("Metamor"). Metamor, a Chicago-based firm, provides a broad range of
strategic IT services. Its primary focus is assisting clients transition from
older technologies to state of the art platforms and products. The Company
also entered into a definitive agreement to acquire Business Management Data,
Inc. and its India-based affiliate, Sriven Computer Solutions, Inc. These
companies provide various IT solutions, including system integration, computer
code maintenance, system reengineering and Year 2000 conversion services. The
Company plans to focus on developing this new line of business through
acquisitions and alliances with COMSYS, which can provide just-in-time staffing
to meet the requirements of this new line of business.
OPERATIONS
The Company's business is conducted through its two business units: COMSYS
Information Technology Services, which provides highly skilled computer
professionals principally to FORTUNE 1000 companies and governmental agencies,
and CORESTAFF Services, which provides office support, light industrial and
specialized services to local, regional and national customers.
COMSYS INFORMATION TECHNOLOGY SERVICES
COMSYS Information Technology Services provides personnel to meet the
growing need for employees with advanced computer-related skills. As of
December 31, 1996, COMSYS operated 46 branch offices located in Alabama,
Arizona, California, Colorado, Florida, Georgia, Idaho, Illinois, Maryland,
Massachusetts, Michigan, Missouri, Nevada, New Jersey, New York, North
Carolina, Ohio, Oklahoma, Oregon, Texas, Virginia, Washington and the
United Kingdom.
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COMSYS offers staff for a full spectrum of computer-related services
ranging from traditional systems analysis to high value-added information
technology consulting and project management. Depending upon the needs of the
client, four primary types of staffing services are offered: information and
systems development services, management services, advanced technology
services, and government services.
INFORMATION AND SYSTEMS DEVELOPMENT SERVICES. The Company provides
highly-skilled information systems personnel ("software engineers") to meet
clients' specific needs in the following areas:
Technical Services - designing, programming and evaluation of
operating systems, databases, networks,
and communications systems
Contract Programming programming of existing applications,
and Maintenance - development and implementation of new
applications and maintenance
Conversion Services - data, platform, language and application
conversions
Documentation Services - creation, maintenance or re-engineering of
various forms of documentation
Testing - systems and software testing and quality
assurance including support using proprietary
testing methodologies - S.M.A.R.T. Testing
Methods
MANAGEMENT SERVICES. As clients' technology needs have become more
complex, demand has increased for comprehensive information technology
solutions that involve not only providing temporary workers, but also
management of the underlying project. In a management services assignment, the
Company assumes greater responsibility for a project's success than it would in
a traditional information services assignment. These services are provided on
the following bases:
Consulting Services - development of solutions, usually delivered
in a report or recommendation, to a client's
specific information technology needs
Project Management staffing and management of a specific
and Project Outsourcing - information technology project within written
performance criteria and objectives including
project outsourcing, both onsite and offsite
ADVANCED TECHNOLOGY SERVICES. The Company provides leading-edge
information technology services to staff positions that require knowledge of
emerging technologies. Such advanced technology services include IT
architecture and engineering, systems consulting, network systems consulting,
complex internet enabled applications and client/server and object oriented
services. The Company supports all major computer technology platforms
(mainframe, mid-range, client server and network) and supports client projects
using a variety of software applications. The Company implements SAP's
client/server software, custom develops Oracle, Informix, DB2, VisualBasic and
C++ applications and implements and supports Windows NT, Norrell and UNIX based
environments.
GOVERNMENT SERVICES. The Company provides software engineers and technical
consultants to 84 government agencies in 20 states and believes that it is a
major provider of information technology services to state government agencies.
In the government services segment, the Company's personnel have technical
expertise and application knowledge primarily in health, welfare and human
services, transportation and highways, and environmental services.
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TECHNICAL COMMUNICATIONS OUTSOURCING. COREComm maintains a full-time staff
of writers, editors, graphic artists, and consultants to fulfill the technical
communication outsourcing needs of its clients through four branch offices
located in Texas and Oklahoma. In an effort to further develop this business,
COREComm has established alliances with companies that have ongoing technical
communication needs, including company magazines, ISO 9000 documentation,
maintenance manuals, newsletters, on-line documentation, technical articles,
books, brochures, papers, reports, and product specification sheets.
CORESTAFF SERVICES
CORESTAFF Services provides office/clerical, light industrial, and
electronic/technical services through 84 branch offices (including 4 franchise
offices) located in Arizona, California, Colorado, Connecticut, the District of
Columbia, Florida, Georgia, Illinois, Maryland, Nevada, New Jersey, New York,
North Carolina, Pennsylvania, South Carolina, Texas, Virginia and Wyoming.
CORESTAFF Services accounted for 50.6% and 53.8% of the Company's pro forma
revenues for the years ended December 31, 1996 and 1995, respectively.
Office/clerical staffing services include providing secretaries, word
processors, receptionists, general office support, telemarketers, data entry
personnel, bookkeepers, and collectors. Also included in the office/clerical
category are staffing services in the accounting, financial and library
services areas, all of which require specialized training. Light industrial
staffing includes the provision of unskilled and semi-skilled personnel in
light manufacturing and assembly, picking and packing, warehouse services,
equipment handling, inventory, and shipping and receiving.
Electronic/technical staffing includes the training and provision of skilled
personnel in electronic manufacturing.
CORESTAFF Services provides a wide range of staffing options to its
clients, including, but not limited to, supplemental and project staffing and
VIP programs. The appropriate staffing option depends on the nature and length
of the assignment and the degree of day-to-day management responsibility
delegated to the provider of the services.
SUPPLEMENTAL STAFFING. Often considered traditional or tactical temporary
help, supplemental staffing assignments generally range in duration from one
day to several months. Supplemental staffing provides clients with maximum
flexibility in meeting staffing requirements as clients may commence and
terminate assignments at any time and with short notice. In addition, because
clients generally only pay for the time actually worked by a supplemental
staffing employee, they can use supplemental staffing employees at any time and
on any day without paying a premium for shift, holiday, or weekend labor.
VENDOR-IN-PARTNERSHIP PROGRAMS. In response to increased client demand,
the Company provides, through its VIP program, coordination of temporary
personnel services by providing a dedicated on-site account manager to assist in
the procurement and management of the client's temporary workforce. Customized
to the needs of each client, the Company designs and implements programs that
include services such as specialized testing, drug screening, selection and
monitoring of back-up vendors, enforcement of the client's quality standards,
and orientation of each temporary employee to the client's work site, culture,
and job requirements. The Company had 50 VIP programs, which generated combined
pro forma revenues of approximately $103 million for the year ended December 31,
1996.
PROJECT STAFFING. The Company provides contract employees to clients who
require personnel to staff specific projects for a defined period of time.
Generally, project staffing involves a commitment of a team of employees who
remain at the site until completion of the project.
VARIABLE CAPACITY STRATEGIES ("VCS"). VCS is a staffing service program
that improves productivity and total quality output by reducing turnover
through proactive training and rotation of employees performing repetitive job
assignments. VCS, which was added to the Company's service offerings in 1996 as
a result of the acquisition of Transworld, generates significantly higher
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margins than most of the Company's other staffing services offerings. Currently,
this program is being used by only a few of the Company's customers and the
Company is developing a roll-out strategy and methodology to extend this
program throughout its branch network.
SPECIALIZED SOFTWARE TOOLS. During 1996, CORESTAFF Services added a number
of software tools, including COREtrack and COREskills, in an effort to give the
Company a competitive marketing advantage. COREtrack is a specialized software
program that assists clients in managing critical information related to
multiple staffing providers. This system tracks a wide-range of information,
including orders, activity assignments and invoices. COREskills is an
interactive computer training and certification program that trains and
qualifies temporary and client employees in the latest office software
products.
BRANCH OFFICES AND CENTRALIZED BUSINESS OPERATIONS
The Company provides temporary, contracting and outsourcing services
through 126 company-operated branch offices and four franchise-operated branch
offices located primarily in the Western, Southwestern, Southeastern and
Eastern states. While COMSYS Information Technology Services and CORESTAFF
Services currently maintain separate facilities, it is the Company's intention
to reduce costs as well as enhance cross-selling of services by opening
multi-sector service centers where appropriate. All of the Company's branch
offices are leased. The average lease term is three to five years. As of
December 31, 1996, the Company had 46 IT services branch offices and 84 staffing
services branch offices.
SALES AND MARKETING
The Company has developed a sales and marketing strategy that focuses on
national, regional and local accounts and is implemented through its branch
locations. Regional and local accounts are targeted by account managers at the
branch offices permitting the Company to capitalize on the local expertise and
established relationships of its branch office employees. Such accounts are
solicited through personal sales presentations, telephone marketing, direct
mail solicitation, referrals from clients, and advertising in a variety of
local and national media, including the Yellow Pages, newspapers, and trade
publications. The Company also conducts public relations activities designed
to enhance public recognition of the Company and its services. Local employees
are encouraged to be active in civic organizations and industry trade groups to
facilitate the development of new customer relationships.
The Company's national sales and marketing effort is coordinated by
management at the corporate level, which enables the Company to develop a
consistent, focused strategy to pursue national account opportunities. This
strategy allows the Company to capitalize on the desire of national clients to
work with a limited number of preferred vendors for their staffing
requirements.
RECRUITING OF TEMPORARY EMPLOYEES
The Company recruits its temporary and contract employees through a
recruiting program that primarily uses local and national advertisements and
job fairs. In addition, the Company has succeeded in recruiting qualified
employees through referrals from its existing labor force. As a result, the
Company has initiated a policy whereby it pays referral fees to employees
responsible for attracting new recruits. The Company believes this balanced
recruiting strategy will continue to provide it with sufficient high quality
temporary employees to meet its staffing demands.
In the information technology services sector, the demand for software
engineers and technology consultants significantly exceeds supply. In an
effort to attract a wide spectrum of employees, the Company offers diverse
employment options and training programs. The two primary approaches the
Company uses are full-time employee status with an annual salary
8
<PAGE> 11
irrespective of assignment, and hourly contingent worker status for which
compensation is tied to the duration of the assignment. In addition, COMSYS
operates and maintains ten regional learning centers to provide its employees
with access to and training in new software applications as well as a diversity
of mainframe, client/server, and personal computer technologies. The Company
believes that these learning centers have improved employee retention, increased
the technical skills of the Company's personnel, and resulted in better service
for the Company's clients.
ASSESSMENT AND TRAINING
To better meet the needs and requirements of its clients and to enhance the
marketability and job satisfaction of its employees, the Company uses a
comprehensive system to assess and train its employees. The Company conducts
extensive background, drug, and skills screening of potential temporary
employees and contract consultants and provides these employees with written
and video workplace orientation courses that are tailored to the practices and
policies of specific clients. Computerized tutorials are available in the
CORESTAFF Services branch offices for temporary employees wishing to upgrade
their typing, data entry, spreadsheet, office automation, desktop publishing,
or word processing skills. In addition, COMSYS maintains ten regional learning
centers covering a broad spectrum of courses concerning mainframe applications
development and maintenance, client/server technology, and desktop-user
support. These learning centers are located in Austin and Dallas, Texas;
Cleveland, Ohio; Raleigh, North Carolina; St. Louis, Missouri; Chicago and
Springfield, Illinois; Tallahassee, Florida; Atlanta, Georgia; and Rockville,
Maryland.
COMPETITION
The temporary services industry is fragmented and highly competitive, with
limited barriers to entry. Within local markets, smaller firms actively
compete with the Company for business, and in most of these markets, no single
company has a dominant share of the market. The Company also competes with
larger full-service and specialized competitors that have significantly greater
marketing, financial and other resources than the Company. The Company
believes that the primary competitive factors in obtaining and retaining
clients are the ability to provide a wide range of staffing services within an
expansive geographic area, to understand the client's specific job
requirements, to provide temporary personnel with the appropriate skills in a
timely manner, to monitor quality of job performance, and to properly price
services. The primary competitive factors in obtaining qualified candidates
for temporary employment assignments are wages, responsiveness to work
schedules, and the number of hours of work available. Management believes that
the Company is highly competitive in these areas.
INTEGRATION OF ACQUIRED COMPANIES
Management begins integrating newly acquired companies as soon as
practicable. This process involves formalizing and standardizing each acquired
company's marketing and sales programs and field operations procedures.
Standardized personnel manuals are distributed, and the acquired company is
brought under CORESTAFF's uniform risk management program. In some cases,
CORESTAFF closes certain of the acquired company's offices and merges its
operations and personnel, including field employees, into CORESTAFF's existing
business.
The Company is in the process of installing an integrated front- and
back-office information system. Once operational, the Company will transition
all its front- and back-office activities onto this new platform. This new
system will integrate the Company's two proprietary front-office systems with
the "PeopleSoft" system, which is a robust payroll, human resources, accounting
and reporting information system. The Company's front-office systems are MARS,
a proprietary management, administrative, recruiting and sales software system,
designed specifically for the COMSYS Information Technology Services group and
COREmatch, a staffing services front-office software system. Once implemented,
this integrated information system will dramatically improve the timeliness and
efficiency of data gathering and retrieval.
9
<PAGE> 12
WORKERS' COMPENSATION PROGRAM; SAFETY PROGRAM
The Company maintains workers' compensation insurance for all claims in
excess of a deductible of $250,000 per occurrence and an aggregate $5 million
limit of liability provision. The Company's insurance carrier currently
requires the Company to maintain irrevocable letters of credit of $3.9 million
to cover potential losses related to the self-insurance portion of its program.
Under its workers' compensation program, field personnel work in conjunction
with a designated risk manager and a third-party administrator to manage claims
and establish appropriate reserves for the deductible portion of claims. An
independent actuary provides advice on overall workers' compensation costs as
well as an actuarial valuation regarding the adequacy of the reserves for
payments relating to the uninsured portion of workers' compensation claims. The
reserve balances determined by the third-party administrator and Company
management are adjusted to the amounts recommended by the actuary.
The Company has a safety program in its branch offices to provide
appropriate safety training to employees prior to job assignment. The risk
manager and field personnel also perform safety inspections at customer
locations to help determine potential risks for employee injury and to assist
customers in making the workplace safer. Company policies prohibit staffing of
high-risk work. Behavioral testing is also used to help reduce
unnecessary claims.
EMPLOYEES
At December 31, 1996, the Company employed approximately 2,000 full-time
staff employees and had approximately 3,800 information technology consultants
on assignment. During 1996, the Company employed approximately 91,000
temporary and contract employees and had an average of approximately 23,000
employees on assignment per week. The Company is not a party to any collective
bargaining agreements and considers its relationships with its employees to be
satisfactory.
The Company is responsible for and pays the employer's share of Social
Security taxes (FICA), federal and state unemployment taxes, workers'
compensation insurance, and other costs relating to its temporary employees.
The Company makes health insurance benefits available to its temporary
employees. Generally, temporary employees with more than 1,000 hours of
service per year are eligible to participate in the Company's 401(k) Retirement
Savings Plan.
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Michael T. Willis . . . . . . . . . . . . . . . . 52 Chairman of the Board, Chief Executive
Officer and President
Rocco N. Aceto . . . . . . . . . . . . . . . . . 40 Executive Vice President - Staffing
Services
Joseph V. Amella . . . . . . . . . . . . . . . . 41 Executive Vice President - Eastern
Operations, Staffing Services
George W. Fink . . . . . . . . . . . . . . . . . 49 Executive Vice President - Information
Technology Services
Austin P. Young . . . . . . . . . . . . . . . . . 56 Executive Vice President - Finance and
Administration
Peter T. Dameris . . . . . . . . . . . . . . . . 37 Senior Vice President, General Counsel
and Secretary
Edward L. Pierce . . . . . . . . . . . . . . . . 40 Senior Vice President, Chief Financial
Officer and Assistant Secretary
</TABLE>
10
<PAGE> 13
MICHAEL T. WILLIS has served as Chairman of the Board, Chief Executive
Officer and President of the Company since its formation and has been in the
personnel and temporary services industry for more than 20 years. Mr. Willis
founded The Talent Tree Corporation ("Talent Tree") in 1976 and built it into
one of the largest temporary services companies in the United States. Mr.
Willis sold Talent Tree to Hestair plc in 1987 and then continued as President
and Chief Executive Officer until April, 1993. Mr. Willis is also a director
of the Southwest Bank of Texas, a publicly-traded financial institution.
ROCCO N. ACETO has served as Executive Vice President - Staffing Services
since September 1996 and President of CORESTAFF Support Services, Inc. (formerly
United Staffing Services, Inc.), a subsidiary of the Company, since August 1994.
Mr. Aceto serves as President of CORESTAFF Services. Prior to joining the
Company in August 1994, Mr. Aceto was a corporate Vice President and General
Manager of Pagenet of Orange County, California from March 1992 to August 1994.
From July 1980 until joining Pagenet, Mr. Aceto worked with Pitney Bowes where
he served as a division Vice President.
JOSEPH V. AMELLA has served as Executive Vice President - Eastern
Operations, Staffing Services since August 1994. Mr. Amella serves as
President of the Eastern Division of CORESTAFF Services and has over 14 years of
experience in the staffing industry. Prior to joining the Company, Mr. Amella
served in various capacities with Talent Tree including Vice President and
General Manager, and Senior Vice President - Mid-Atlantic Division from March
1984 to April 1993.
GEORGE W. FINK has served as Executive Vice President - Information
Technology Services and President of COMSYS Technical Services, Inc., a
subsidiary of the Company, since September 1995. Mr. Fink serves as President
of COMSYS Information Technology Services. Prior to joining the Company,
Mr. Fink was self-employed, managing a variety of personal investments. From
June 1986 until July 1993 and from August 1993 until March 1994, Mr. Fink
served as President and Chief Executive Officer of Remco America, Inc. and
Rent-A-Center, respectively. Prior to joining Remco, Mr. Fink was a partner
with Ernst & Young LLP and a director of the Houston Office Entrepreneurial
Services Group.
AUSTIN P. YOUNG has served as a Director and Executive Vice President -
Finance and Administration of the Company since September 1996. Prior to
joining the Company, Mr. Young served as Senior Vice President and Chief
Financial Officer of American General Corporation. Prior to joining American
General Corporation in 1987, Mr. Young was a partner with KPMG Peat Marwick
where his career spanned 22 years.
PETER T. DAMERIS has served as Senior Vice President, General Counsel and
Secretary of the Company since September 1996. Mr. Dameris previously served as
Vice President, General Counsel and Secretary since January 1995. Prior to
joining the Company in January 1995, Mr. Dameris was a partner with the law
firm of Cochran, Rooke and Craft, LLP and served as counsel to the Company
since its formation in July 1993. Mr. Dameris was associated with Cochran,
Rooke and Craft, LLP from June 1989 to January 1995.
EDWARD L. PIERCE has served as Senior Vice President, Chief Financial
Officer and Assistant Secretary of the Company since September 1996. Mr.
Pierce previously served as Vice President-Finance and prior thereto as Vice
President and Controller of the Company. Prior to joining the Company in
November 1994, Mr. Pierce served in various capacities with American Oil and
Gas Corporation, including Director of Accounting, Taxation, and Reporting,
Assistant Controller, and Corporate Controller, from January 1990 to November
1994 and as an Audit Manager for Arthur Andersen LLP prior thereto.
11
<PAGE> 14
RISK FACTORS
The Company's business operations and financial results are subject to
various uncertainties and future developments that cannot be predicted.
Certain of the principal risks and uncertainties that may affect the Company's
operations and financial results are identified below.
FORWARD-LOOKING INFORMATION. This Annual Report contains various
forward-looking statements and information that are based on management's
belief as well as assumptions made by and information currently available to
management. When used in this document, the words "anticipate," "estimate,"
"project," "expect," and similar expressions are intended to identify
forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
Such statements are subject to certain risks, uncertainties and assumptions.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated, projected or expected. Among the key factors
that may have a direct bearing on the Company's operating results are
fluctuations in the economy, the degree and nature of competition, demand for
the Company's services, and the Company's ability to integrate the operations
of acquired businesses, to recruit and place temporary professionals, to expand
into new markets, and to maintain profit margins in the face of pricing
pressures.
LIMITED OPERATING HISTORY. The Company was founded in July 1993 and has
subsequently grown primarily through the acquisition of information technology
and staffing services companies. Although certain of these acquired businesses
have been in operation for some time, the Company has only a limited operating
history. Future operating results will depend upon many factors, including
fluctuations in the economy, the degree and nature of competition, demand for
the Company's services, and the Company's ability to integrate the operations of
acquired businesses, to recruit and place temporary professionals, to expand
into new markets, and to maintain margins in the face of pricing pressures.
ABILITY TO CONTINUE COMPANY GROWTH. The Company has experienced
significant growth in the past, principally through acquisitions. There can be
no assurance that the Company will continue to be able to expand its market
presence in its current locations or to successfully enter other markets or
integrate acquired businesses into its operations. The ability of the Company
to continue its growth will depend on a number of factors, including existing
and emerging competition, the availability of attractive acquisition
opportunities and working capital to support such growth and the ability of the
Company to consummate such acquisition opportunities. The Company must also
manage costs in changing regulatory environments, adapt its infrastructure and
systems to accommodate growth, and recruit and train additional qualified
personnel.
LIABILITIES FOR CLIENT AND EMPLOYEE ACTIONS. Temporary service providers
are in the business of employing people and placing them in the workplace of
other businesses. An attendant risk of such activity includes possible claims
of discrimination and harassment, employment of illegal aliens, and other
similar claims. The Company has policies and guidelines in place to reduce its
exposure to these risks. However, a failure to follow these policies and
guidelines may result in negative publicity and the payment by the Company of
monetary damages or fines. Although the Company historically has not had any
significant problems in this area, there can be no assurance that the Company
will not experience such problems in the future.
The Company is also exposed to liability with respect to actions taken by
its employees while on assignment, such as damages caused by employee errors,
misuse of client proprietary information, or theft of client property. To
reduce such exposures, the Company maintains insurance policies covering
general liability, workers' compensation claims, errors and omissions, and
employee theft. Due to the nature of the Company's assignments, in particular,
access to client information systems and confidential information, and the
potential liability with respect
12
<PAGE> 15
thereto, there can be no assurance that insurance coverage will continue to be
available or that it will be adequate to cover any such liability.
RELIANCE ON KEY PERSONNEL. The Company is highly dependent on its
management. The Company believes that its continued success will depend to a
significant extent upon the efforts and abilities of its Chairman, President
and Chief Executive Officer, Michael T. Willis, and certain other key
executives. The loss of the services of Mr. Willis or the other key executives
could have a material adverse effect upon the Company.
HIGHLY COMPETITIVE MARKET. The temporary services industry is highly
competitive with limited barriers to entry. The Company competes in national,
regional and local markets with full service agencies and with specialized
temporary services agencies. Several competitors have greater marketing and
financial resources than does the Company. The Company expects that the level
of competition will remain high in the future.
FLUCTUATIONS IN THE GENERAL ECONOMY AFFECT DEMAND FOR TEMPORARY STAFFING
SERVICES. Demand for temporary staffing services is significantly affected by
the general level of economic activity. When economic activity increases,
temporary employees are often added before full-time employees are hired.
Similarly, as economic activity slows, many companies reduce their usage of
temporary employees before undertaking layoffs of full-time employees.
Further, in an economic downturn, the Company may face pricing pressure from
its customers and increased competition from other staffing companies that
could have a material adverse effect on the Company's business.
ITEM 2. PROPERTIES
Information on properties of the Company is included in Item 1. "Business."
ITEM 3. LEGAL PROCEEDINGS
The Company is, from time to time, a party to ordinary, routine litigation
incidental to the Company's business, including discrimination, wrongful
termination, harassment and other similar claims.
The principal risks that the Company insures against are workers'
compensation, personal injury, property damage, professional malpractice,
errors and omissions, and fidelity losses. The Company maintains insurance in
such amounts and with such coverages and deductibles as management believes are
reasonable and prudent. In the opinion of management, the ultimate resolution
of all pending legal proceedings will not have a material adverse effect on the
Company's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of the Company
during the fourth quarter of fiscal year 1996.
13
<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock has been quoted on the Nasdaq National Market under the
symbol "CSTF" since November 8, 1995. The Company effected two three-for-two
stock splits during 1996 by means of stock dividends of one share of Common
Stock and Class B non-voting common stock ("Non-Voting Common Stock"), par value
$0.01 per share, for every two shares of Common Stock and Non-Voting Common
Stock, respectively, held of record on March 14, 1996 and September 10, 1996,
respectively. The following table sets forth the range of the low and high
closing prices of the Common Stock as reported on the Nasdaq National Market for
the periods indicated and as adjusted for the two stock splits.
LOW HIGH
--------- --------
YEAR ENDED DECEMBER 31, 1995
Fourth Quarter (November 8 through December 31).. $10 39/64 $16 9/16
YEAR ENDED DECEMBER 31, 1996
First Quarter.................................... $15 $22 7/32
Second Quarter................................... $19 11/64 $32 11/64
Third Quarter.................................... $23 11/64 $31 21/64
Fourth Quarter................................... $19 7/8 $28 5/8
There were 72 holders of record of Common Stock and one holder of record of
Non-Voting Common Stock as of March 1, 1997.
The Company has not paid any cash dividends on its Common Stock or
Non-Voting Common Stock and does not anticipate doing so for the foreseeable
future. The Company currently intends to retain any earnings to fund the
expansion and development of its business. Any future determination as to the
payment of dividends will be made at the discretion of the Board of Directors of
the Company and will depend upon the Company's operating results, financial
condition, capital requirements, and such other factors as the Board of
Directors deems relevant. In addition, the Company's Credit Agreement dated as
of November 26, 1996 (the "Credit Agreement"), generally limits the payment
of cash dividends to 50 percent of its net income.
14
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
The selected historical consolidated financial data were derived from the
Company's Consolidated Financial Statements, which have been audited by Ernst &
Young LLP, independent auditors. The selected historical consolidated financial
data should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the Consolidated Financial
Statements of the Company included elsewhere herein. The pro forma consolidated
financial data give effect to all businesses acquired by the Company through
December 31, 1996 as if such acquisitions were consummated as of the beginning
of the period presented. The pro forma results of operations are not necessarily
indicative of the results that would have occurred had the acquisitions been
consummated as of the beginning of the period or that might be attained in the
future.
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------------------------------------------- --------------
Inception
(July 23,
1993) Year Ended
through December 31, Year Ended
December 31, ---------------------------------------------- December 31,
1993 1994 1995 1996 1996
--------------- ---------------------------------------------- ---------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues from services $ 3,093 $163,351 $344,548 $ 596,101 $ 734,186
Cost of services 2,345 129,543 262,092 451,505 555,085
-------- -------- -------- --------- ---------
Gross profit 748 33,808 82,456 144,596 179,101
Operating costs and expenses 1,136 28,932 64,649 107,871 130,781
-------- -------- -------- --------- ---------
Operating income (loss) (388) 4,876 17,807 36,725 48,320
Other income (expense) (1) (7) (2,165) (6,860) (5,722) (13,445)
-------- -------- -------- --------- ---------
Income (loss) before income taxes (395) 2,711 10,947 31,003 34,875
Provision (benefit) for income taxes (142) 1,162 4,590 13,609 15,236
-------- -------- -------- --------- ---------
Income (loss) before extraordinary loss (253) 1,549 6,357 17,394 19,639
Extraordinary loss (2) - - - (940) (940)
-------- -------- -------- --------- ---------
Net income (loss) $ (253) $ 1,549 $ 6,357 $ 16,454 $ 18,699
======== ======== ======== ========= =========
Earnings (loss) per common share: (3), (4)
Before extraordinary loss $ (0.01) $ 0.07 $ 0.29 $ 0.57 $ 0.65
Extraordinary loss (2) - - - (0.03) (0.03)
-------- -------- -------- --------- ---------
Net income (loss) $ (0.01) $ 0.07 $ 0.29 $ 0.54 $ 0.62
======== ======== ======== ========= =========
Number of shares used to compute
earnings per share 16,523 17,587 19,715 30,365 30,365
======== ======== ======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
Historical
---------------------------------------------------------------
December 31,
---------------------------------------------------------------
1993 1994 1995 1996
----------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 659 $ 24,318 $ 33,665 $ 94,315
Total assets 4,777 92,153 152,370 396,397
Long-term debt, net of current maturities 369 50,028 43,315 107,839
Stockholders' equity 3,604 19,485 75,165 230,917
</TABLE>
(1) Includes a one-time charge of $1.4 million in 1996 for the write-down of
the Company's physical therapy staffing business, a non-core business
that was sold in January 1997.
(2) Extraordinary loss of $1.4 million ($0.9 million after income taxes)
for the write-off of deferred loan costs of a $130 million
revolving credit facility that was extinguished in November 1996.
(3) Gives retroactive effect to the two three-for-two stock splits in 1996
and to the conversion of preferred stock into common stock in
connection with the Company's initial public offering of common
stock in November 1995. See Notes 1 and 5 to Consolidated
Financial Statements.
(4) Since inception, the Company has not declared or paid any cash dividends
on its common stock.
15
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The following discussion should be read in conjunction with the Selected
Financial Data and the Company's Consolidated Financial Statements included
elsewhere herein.
INTRODUCTION
Since its inception in July 1993, the Company's growth has been the result
of acquisitions of businesses in the staffing industry, coupled with high
internal growth. Through December 31, 1996, the Company had completed 26
acquisitions, including 12 information technology ("IT") services businesses and
11 staffing services businesses. The Company has integrated these acquisitions
into its two core businesses: IT Services under COMSYS Information Technology
Services and Staffing Services under CORESTAFF Services. The remaining three
acquisitions were of physical therapy staffing businesses, which accounted for
less than two percent of the Company's consolidated 1996 revenues and gross
profit. The Company sold its physical therapy business in January 1997.
The Company's IT Services group accounted for 48.2% and 54.8% of the
Company's pro forma consolidated revenues and gross profit, respectively, for
the year ended December 31, 1996. The Staffing Services group accounted for
50.6% and 44.0% of the Company's pro forma consolidated revenues and gross
profit, respectively, for the same period. Management believes that the IT
sector generally offers greater growth opportunities, higher bill rates and
higher gross margins than does traditional staffing services. As a result,
acquisitions in this sector were the focus of the Company's acquisition program
in 1996, accounting for ten of the 14 acquisitions.
All acquisitions completed by the Company have been accounted for under the
purchase method of accounting and have been accretive to earnings. The
historical Consolidated Financial Statements of the Company include the
operating results of the acquired businesses from the date of acquisition.
Because the Company's historical consolidated operating results have been
significantly affected by the number, timing and size of the acquisitions, pro
forma financial data are provided herein for a more meaningful period-to-period
comparison of the Company's operating results. The pro forma financial data have
been prepared assuming all acquisitions completed through December 31, 1996 were
consummated as of the beginning of the periods presented. The pro forma results
of operations are not necessarily indicative of the results that would have
occurred had the acquisitions been consummated as of the beginning of the
periods presented or that might be attained in the future.
16
<PAGE> 19
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
Selected historical and pro forma consolidated financial data follow:
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------------------------------- ------------------------------------------------
Year Ended December 31, Year Ended December 31,
------------------------------------------------- ------------------------------------------------
1995 1996 1995 1996
------------------------- ------------------------ ------------------------ --------------------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues from services:
Staffing Services $233,823 67.9% $ 329,142 55.2% $323,340 53.8% $371,755 50.6%
IT Services 101,065 29.3 258,581 43.4 268,289 44.6 354,053 48.2
Other 9,660 2.8 8,378 1.4 9,660 1.6 8,378 1.2
-------- ---- -------- ---- -------- ---- -------- ----
Total $344,548 100.0% $ 596,101 100.0% $601,289 100.0% $734,186 100.0%
Gross profit:
Staffing Services $ 52,076 63.2% $ 69,828 48.3% $ 69,427 47.7% $ 78,829 44.0%
IT Services 28,079 34.1 72,669 50.3 73,764 50.7 98,173 54.8
Other 2,301 2.7 2,099 1.4 2,301 1.6 2,099 1.2
-------- ---- -------- ---- -------- ---- -------- ----
Total $ 82,456 100.0% $ 144,596 100.0% $145,492 100.0% $179,101 100.0%
Operating income $ 17,807 $ 36,725 $ 34,758 $ 48,320
Income before
extraordinary loss $ 6,357 $ 17,394 $ 6,019 $ 19,639
Net income $ 6,357 $ 16,454 $ 6,019 $ 18,699
Earnings per common
share:
Income before
extraordinary loss $ 0.29 $ 0.57 $ 0.27 $ 0.65
Net income $ 0.29 $ 0.54 $ 0.27 $ 0.62
Margins:
Gross--
Staffing Services 22.3% 21.2% 21.5% 21.2%
IT Services 27.8 28.1 27.5 27.7
Other 23.8 25.1 23.8 25.1
Consolidated 23.9 24.3 24.2 24.4
Operating 5.2 6.2 5.8 6.6
EBITDA (1) 6.4 7.5 7.3 8.0
Net Income 1.8 2.8 1.0 2.5
</TABLE>
- --------------
(1) Before the effects of two one-time charges in 1996.
COMPARISON OF HISTORICAL OPERATING RESULTS
SUMMARY. Net income for 1996 increased 158.8% to $16.5 million compared
with net income of $6.4 million for 1995. Included in the 1996 results are the
after-tax effects of two one-time charges totaling $2.3 million, or $0.08 per
share, for the (i) write-down of $1.4 million, or $0.05 per share, of the
Company's physical therapy staffing business, a non-core business that was sold
in January 1997, and (ii) an extraordinary loss of $1.4 million ($0.9 million
after income taxes, or $0.03 per share) related to the write-off of deferred
loan costs of a $130 million credit facility that was extinguished in November
1996.
Income before these one-time charges was $18.8 million, an increase of
195.6% over 1995. Earnings per share before one-time charges increased 113.8% to
$0.62 per share from $0.29 per share in 1995. The average number of shares
outstanding during the year was 54.0% higher than 1995 as a result of the
Company's initial public offering (the "IPO") in November 1995 and a second
public offering in May 1996. All share and per share data have been
retroactively adjusted to give effect to two three-for-two stock splits in 1996.
17
<PAGE> 20
Revenues for 1996 increased 73.0% to $596.1 million from $344.5 million in
1995. Operating income rose 106.2% to $36.7 million from $17.8 million in 1995.
Gross margin for 1996 was 24.3%, or 40 basis points ("BPS") higher than 1995,
due to the increase in the percentage of revenues contributed by the IT Services
group, as well as higher margins from that group. Operating margin was 6.2%, or
100 BPS higher than 1995, due to the increase in gross margin and improved
operating leverage.
IT SERVICES GROUP. For 1996, the IT Services group accounted for 43.4% and
50.3% of the Company's consolidated revenues and gross profit, respectively, up
from 29.3% and 34.1%, respectively, in 1995. Revenues and gross profit were up
155.9% and 158.8%, respectively, over 1995. These increases reflect the high
internal growth rate of this group and the Company's focus on acquiring
businesses in the IT sector. Gross margin for 1996 was 28.1%, or 30 BPS above
that for 1995, primarily due to the acquisition of higher margin IT businesses
in the first half of 1996.
STAFFING SERVICES GROUP. For 1996, the Staffing Services group accounted
for 55.2% and 48.3% of the Company's consolidated revenues and gross profit,
respectively, down from 67.9% and 63.2%, respectively, in 1995. Revenues and
gross profit for 1996 were up 40.8% and 34.1%, respectively, over 1995. Gross
margin for 1996 was 21.2%, or 110 BPS lower than 1995, primarily due to (i) the
higher proportion of revenues being generated from the Company's large on-site
programs ("VIP programs"), (ii) lower internal growth rates of the higher-margin
businesses within the group, and (iii) acquisitions in 1996 of staffing services
businesses having lower margins than the gross margin for the group in 1995. VIP
programs have lower gross margins than the group's other staffing services
business, but higher operating leverage.
OPERATING COSTS AND EXPENSES. Selling, general and administrative ("SG&A")
expenses for 1996 totaled $100.3 million (16.8% of revenues), compared with
$60.4 million (17.5% of revenues) for 1995. The increase in SG&A expenses
primarily related to (i) the effects of the acquisitions, (ii) internal growth
of the operating companies post-acquisition and (iii) higher expenses at the
corporate level. SG&A expenses as a percentage of revenues (the "SG&A Margin")
for 1996 was 70 BPS lower than 1995 due to (i) higher operating leverage of the
operating groups and (ii) lower corporate level overhead as a percentage of
consolidated revenues.
Substantially all of the SG&A expenses were incurred by the operating
groups, which reflects the decentralized nature of the Company's operations. The
front office activities (e.g. recruiting, marketing, account management,
placement, etc.) and most of the accounting and administrative activities of the
operating groups are performed at the subsidiary level. SG&A expenses at the
corporate level totaled $6.4 million for 1996 compared with $3.9 million for
1995. Corporate SG&A expenses primarily related to salaries and benefits of
personnel responsible for corporate activities, including its acquisition
program, management and certain marketing, administrative and reporting
responsibilities. The increase in corporate SG&A expenses reflect personnel
additions necessary to accommodate the growth of the Company.
Depreciation and amortization totaled $7.5 million and $4.2 million for
1996 and 1995, respectively. Depreciation totaled $2.9 million and $1.8 million
for 1996 and 1995, respectively. The increase in depreciation primarily related
to the fixed assets of the businesses acquired and, to a lesser extent,
depreciation on capital expenditures made post-acquisition. Amortization of $4.6
million and $2.4 million for 1996 and 1995, respectively, related to
amortization of intangible assets (goodwill and non-compete agreements) related
to the businesses acquired.
NON-OPERATING COSTS AND EXPENSES. Interest expense for 1996 totaled $4.7
million compared with $7.0 million for 1995. The decrease primarily related to
the repayments of indebtedness with proceeds from the IPO in November 1995 and
from the second public offering in May 1996.
PROVISION FOR INCOME TAXES. The provision for income taxes for 1996 was
$13.6 million (an effective tax rate of 43.9%), compared with $4.6 million (an
effective tax rate of 41.9%) for 1995.
18
<PAGE> 21
The higher effective tax rate in 1996 related to effects of the write-down of
the Company's physical therapy staffing business and the increase in the
non-deductible portion of business meals and entertainment. Virtually all of the
$1.4 million write-down was not deductible for income tax purposes due to the
Company's low tax basis in the goodwill of certain of the physical therapy
businesses. The increase in the non-deductible portion of business meals and
entertainment related to per diem expenses of IT consultants on out-of-town
assignments.
NET INCOME. Due primarily to the factors described above, net income for
1996 was $16.5 million compared with $6.4 million for 1995. Net income as a
percentage of revenues ("Net Income Margin") increased to 2.8% for 1996, from
1.8% for 1995.
COMPARISON OF PRO FORMA OPERATING RESULTS
SUMMARY. Pro forma operating results, which assume all acquisitions were
made as of the beginning of the periods presented, reflect the high internal
growth rate of the Company's IT Services and Staffing Services groups. Pro forma
revenues for 1996 were $734.2 million, up 22.1% from $601.3 million in 1995.
Pro forma income before one-time charges for 1996 increased 249.5% to $21.0
million, or $0.70 per share, compared with pro forma net income of $6.0 million,
or $0.27 per share, for 1995.
IT SERVICES GROUP. Pro forma revenues and gross profit for 1996 increased
32.0% and 33.1%, respectively, from 1995. These improvements reflect the
continued strong demand for the Company's IT services. Pro forma gross margin
for 1996 was slightly higher than 1995 due primarily to margin expansion in 1996
in certain lower-margin businesses that were acquired in 1996.
STAFFING SERVICES GROUP. Pro forma revenues and gross profit for 1996
increased 15.0% and 13.5%, respectively, from 1995. These improvements primarily
reflect the increase in revenues from VIP programs, including programs that were
added in 1996. Pro forma gross margin for 1996 was 21.2%, or 30 BPS lower than
1995, reflecting the change in business mix related to higher revenues from VIP
programs, which have lower gross margins but higher operating leverage compared
with the group's other staffing services business.
OPERATING COSTS AND EXPENSES. Pro forma SG&A expenses for 1996 totaled
$120.9 million (16.5% of pro forma revenues), compared with $101.7 million
(16.9% of pro forma revenues) for 1995. The increase in SG&A expenses primarily
related to the internal growth of the operating groups and higher expenses at
the corporate level. The pro forma SG&A Margin for 1996 was 40 BPS lower than
1995 due to (i) higher operating leverage of the operating groups and (ii) lower
corporate level overhead as a percentage of consolidated revenues. The pro forma
SG&A expenses reflect historical SG&A expenses at the corporate level and
therefore do not include the pro forma effects of personnel additions made
subsequent to the beginning of each period to accommodate the growth of the
Company.
Depreciation of $3.2 million and $2.6 million for 1996 and 1995,
respectively, related primarily to the fixed assets of the acquired companies.
Amortization of $6.7 million and $6.5 million for 1996 and 1995, respectively,
related to amortization of intangible assets (goodwill and non-compete
agreements) related to the businesses acquired.
NON-OPERATING COSTS AND EXPENSES. Pro forma interest expense for 1996
totaled $12.6 million compared with $24.2 million for 1995. The decrease
primarily related to the repayments of indebtedness with proceeds from the IPO
and from the second public offering in May 1996.
PROVISION FOR INCOME TAXES. The pro forma provision for income taxes for
1996 was $15.2 million (an effective tax rate of 43.7%), compared with $4.5
million (an effective tax rate of 42.8%) for 1995. The higher effective tax rate
in 1996 related to effects of the write-down of the
19
<PAGE> 22
Company's physical therapy staffing business and the increase in the
non-deductible portion of business meals and entertainment. Virtually all of the
$1.4 million write-down was not deductible for income tax purposes due to the
Company's low tax basis in the goodwill of certain of the physical therapy
businesses sold. The increase in the non-deductible portion of business meals
and entertainment related to per diem expenses of IT consultants on out-of-town
assignments.
NET INCOME. Due primarily to the factors described above, pro forma net
income for 1996 was $18.7 million compared with $6.0 million for 1995. Pro forma
Net Income Margin was 2.5% for 1996 compared with 1.0% for 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1994 1995
----------------------------- ------------------------------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues from services:
Staffing Services $ 135,551 83.0% $ 233,823 67.9%
IT Services 19,159 11.7 101,065 29.3
Other 8,641 5.3 9,660 2.8
--------- ----- --------- -----
Total $ 163,351 100.0% $ 344,548 100.0%
Gross profit:
Staffing Services $ 26,669 78.9% $ 52,076 63.2%
IT Services 5,021 14.9 28,079 34.1
Other 2,118 6.2 2,301 2.7
--------- ----- --------- -----
Total $ 33,808 100.0% $ 82,456 100.0%
Operating income $ 4,876 $ 17,807
Net income $ 1,549 $ 6,357
Earnings per common share $ 0.07 $ 0.29
Margins:
Gross margin--
Staffing Services 19.7% 22.3%
IT Services 26.2 27.8
Other 24.5 23.8
Consolidated 20.7 23.9
Operating 3.0 5.2
EBITDA 4.2 6.4
Net income 0.9 1.8
</TABLE>
COMPARISON OF HISTORICAL OPERATING RESULTS
SUMMARY. Revenues, gross profit and net income of the Company for 1995
increased 110.9% to $181.2 million, 143.9% to $48.6 million and 310.4% to $4.8
million, respectively, compared with 1994. This improvement was primarily due
to the effects of acquisitions.
IT SERVICES GROUP. Prior to 1996, the Company's IT Services group consisted
of two companies, COMSYS Technical Services, Inc. ("COMSYS"), which was acquired
in August 1994, and Cutler-Williams, Incorporated ("Cutler"), which was acquired
in June 1995. Revenues and gross profit for 1995 were $101.1 million and $28.1
million, respectively, compared with $19.2 million and $5.0 million,
respectively, for 1994. This improvement was primarily due to the inclusion of
(i) a full year of operating results for 1995 from COMSYS and (ii) six months of
operating results for 1995 from Cutler. The gross margin of this group increased
to 27.8% for 1995 compared with 26.2% for 1994 primarily due to the higher gross
margin of Cutler as compared with COMSYS.
20
<PAGE> 23
STAFFING SERVICES GROUP. Revenues and gross profit for 1995 increased by
$98.3 million (72.5%) and $25.4 million (95.3%), respectively, compared with
1994. This improvement was primarily due to the inclusion of (i) a full year of
operating results for 1995 from the three staffing services businesses acquired
in 1994 (the "1994 Acquisitions"), and (ii) the operating results from the date
of acquisition of the four staffing services companies acquired in 1995 (the
"1995 Acquisitions"). Revenues for the 1994 Acquisitions were $135.6 million
from their respective acquisition dates through December 31, 1994, compared with
$204.1 million for the year ended December 31, 1995. Revenues for the 1995
Acquisitions were $29.7 million from their respective acquisition dates through
December 31, 1995. Operating results for 1995 also benefited from a higher gross
margin of 22.3% compared with 19.7% for 1994. This improvement related to (i)
the inclusion of a full year of operating results for one of the 1994
Acquisitions and a partial year for 1995 Acquisitions, all three of which had
higher gross margins than the average for the Staffing Services group for 1994,
and (ii) improvements in overall cost performance due to the implementation of
risk management initiatives and the termination of certain low margin accounts.
OPERATING COSTS AND EXPENSES. SG&A expenses for 1995 totaled $60.4
million (17.5% of revenues), compared with $27.0 million (16.5% of revenues)
for 1994. The increase in SG&A expenses primarily related to (i) the
acquisitions, (ii) internal growth of the operating companies, (iii) higher
expenses at the corporate level and (iv) a $0.7 million non-recurring charge
for payments incurred in connection with the departure in August 1995 of two
officers of an acquired company.
Substantially all of the SG&A expenses for 1995 were incurred by the
operating groups, which reflects the current decentralized nature of the
Company's operations. The front office activities (e.g. recruiting, marketing,
account management, placement, etc.) and most of the accounting and
administrative activities of the operating companies are performed at the
subsidiary level. SG&A expenses at the corporate level totaled $3.9 million for
1995 compared with $2.1 million for 1994 and related primarily to salaries and
benefits of personnel responsible for corporate activities, including its
acquisition program, management and certain marketing, administrative and
reporting responsibilities. The increase in corporate level SG&A expenses
reflects personnel additions necessary to accommodate the growth of the Company.
Depreciation and amortization totaled $4.2 million and $1.9 million for
1995 and 1994, respectively. Depreciation of $1.8 million and $0.8 million for
1995 and 1994, respectively, related primarily to the fixed assets of the
acquired companies and, to a lesser extent, capital expenditures subsequent to
the acquisition. Amortization of $2.4 million and $1.1 million for 1995 and
1994, respectively, related to amortization of intangible assets (goodwill and
non-compete agreements) related to the businesses acquired.
NON-OPERATING COSTS AND EXPENSES. Interest expense for 1995 totaled $7.0
million compared with $2.3 million for 1994. The $4.7 million increase was a
result of increased borrowings for acquisitions.
PROVISION FOR INCOME TAXES. The provision for income taxes for 1995 was
$4.6 million (an effective tax rate of 41.9%), as compared with $1.2 million (an
effective tax rate of 42.9%) for 1994. The lower effective rate was due to an
increase in income before income taxes that substantially exceeded the increase
in permanent non-deductible expenses.
NET INCOME. Due primarily to the factors described above, net income for
1995 was $6.4 million compared with $1.5 million for 1994. The Net Income Margin
increased to 1.8% for 1995, from 0.9% for 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company has met its cash requirements through a combination of bank
debt, issuances of
21
<PAGE> 24
securities and internally generated funds. In November 1995, the Company
completed its IPO, netting proceeds to the Company of $58.9 million, which were
used to repay bank debt and redeem preferred stock. In May 1996, the Company
completed its second public offering, netting proceeds to the Company of $137.5
million, of which $111.5 million was used to repay bank debt.
At December 31, 1996, the Company had a $200 million Senior Credit
Agreement with a syndicate of 12 banks (the "Credit Agreement"). Under terms of
the Credit Agreement, the Company may borrow under a revolving credit facility
up to the lesser of $200 million or 3.5 times Pro Forma Adjusted EBITDA
(earnings before interest, income taxes, depreciation and amortization of all
acquired companies for the preceding twelve-month period). The Company may
request that the commitment be increased to $250 million. Borrowings under the
Credit Agreement bear interest, at the Company's option, at LIBOR plus a margin
of 0.625% to 1.375%, which depends upon the leverage ratio, or the bank's base
rate. A commitment fee of 0.18% to 0.25%, depending on the leverage ratio, is
payable on the unused portion of the facility. The Credit Agreement contains
certain covenants which, among other things, limit the payment of dividends
and require the maintenance of certain financial ratios. As of December 31,
1996, the Company had outstanding borrowings under the Credit Agreement of
$107.5 million and remaining availability (after deducting outstanding letters
of credit of $4.9 million) of $87.6 million. The weighted average interest rate
on the Company's outstanding borrowings under the Credit Agreement was 6.64% at
December 31, 1996. In March 1997, the Company notified the agent bank of its
request to increase the commitment to $250 million.
The Company's primary use of cash has been for the acquisition of
businesses in the staffing industry. During 1996 and 1995, the Company made cash
payments for acquisitions of $168.1 million and $39.7 million, respectively. The
Company's acquisition program will continue to require significant additional
capital resources. The Company intends to seek additional capital as necessary
to fund acquisitions through one or more funding sources that may include
borrowings under the Credit Agreement or the issuance of debt or equity
securities or both. Cash flows from operations, to the extent available, may
also be used to fund acquisitions. Although management believes that the Company
will be able to obtain sufficient capital to fund acquisitions, there can be no
assurance that such capital will be available to the Company at the time it is
required or on terms acceptable to the Company.
Capital expenditures totaled $11.7 million and $3.0 million for the years
ended December 31, 1996 and 1995, respectively. The capital expenditures in 1996
primarily related to (i) costs incurred in connection with the installation and
development of an integrated front and back office information system, which is
expected to be operational in late 1997 or early 1998, (ii) computer equipment
to upgrade the systems of the acquired businesses, and (iii) furniture, fixtures
and equipment of new branches. The Company estimates its capital expenditures
for 1997 to be approximately $27.5 million. The majority of these expenditures
will relate to (i) the installation of the integrated information system, (ii)
the roll-out of the Company's COREtrack and COREskills software to its staffing
services branches, (iii) up-grading computer hardware of the branches to
facilitate the new information system and new software tools and (iv) furniture,
fixtures and equipment for new branches. The Company expects to fund these
expenditures with cash flows from operations and to the extent necessary
borrowings under its Credit Agreement.
The Company had working capital of $94.3 million and $33.7 million at
December 31, 1996 and 1995, respectively. The Company had cash and cash
equivalents of $6.5 million and $4.1 million at December 31, 1996 and 1995,
respectively. The Company's operating cash flows and working capital
requirements are significantly affected by the timing of payment of payroll and
the receipt of payment from customers. Generally, the Company pays the temporary
employees of its Staffing Services group weekly and the employees of its IT
Services group semi-monthly. Payments from customers are generally received
within 30 to 65 days from the date of invoice. Cash flows provided by (used in)
operating activities were $(18.2) million and $6.1 million for the years ended
December 31, 1996 and 1995, respectively. The decrease in operating cash flows
for 1996
22
<PAGE> 25
reflected an increase in net accounts receivable between the periods. The
increase in accounts receivable reflected the significant growth in revenues in
the fourth quarter of 1996 from a number of the Company's larger accounts, which
generally have a longer billing and collection cycle.
Cash flows used in investing activities were $181.2 million and $42.9
million for the years ended December 31, 1996 and 1995, respectively. Cash used
in investing activities consisted primarily of payments for acquisitions.
Proceeds from the issuance of long-term debt ($252.5 million and $84.7 million
for 1996 and 1995, respectively) and from the sale of common and preferred stock
($139.1 million and $61.1 million for 1996 and 1995, respectively) were used to
fund the Company's investing activities.
SEASONALITY
The Company's quarterly operating results are affected primarily by the
number of billing days in the quarter and the seasonality of its customers'
businesses. Demand for services in the Staffing Services group has historically
been lower during the year-end holidays through February of the following year,
showing gradual improvement over the remainder of the year. Although less
pronounced than in the Staffing Services group, the demand for services of the
IT Services group is typically lower during the first quarter until customers'
operating budgets are finalized. The Company believes that the effects of
seasonality will be less severe in the future as revenues contributed by the IT
Services group continue to increase as a percentage of the Company's
consolidated revenues.
INFLATION
The effects of inflation on the Company's operations were not significant
during the periods presented in the financial statements.
23
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Supplementary Data required hereunder are
included in this Annual Report as set forth in Item 14(a) hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Items 10, 11, 12 and 13 of Part III are incorporated by reference from the
Company's Proxy Statement for its 1997 Annual Meeting of the Stockholders, which
is expected to be filed with the Commission no later than April 30, 1997.
24
<PAGE> 27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report or
incorporated by reference:
1. Financial Statements
As to financial statements, reference is made to the Index to Financial
Statements on page F-1 of this Annual Report.
2. Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have
been omitted.
3. Exhibits
The following exhibits are filed as part of this Registration
Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<S> <C>
3.1 -- First Amended and Restated Certificate of Incorporation of the Registrant
(incorporated by reference from exhibit number 4.1 to the Company's Registration
Statement on Form S-8, file number 33-80325)
3.2 -- Amended and Restated Bylaws of the Registrant (incorporated by reference from
exhibit number 4.2 to the Company's Registration Statement on Form S-8, file
number 33-80325)
10.1 -- Employment Agreement dated November 7, 1995 between the Company and
Michael T. Willis (incorporated by reference from exhibit number 10.17 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995)
10.2* -- Employment Agreement dated September 1, 1996 between the Company and
Joseph V. Amella
10.3 -- Employment Agreement dated January 10, 1995 between the Company and Peter
T. Dameris (incorporated by reference from exhibit number 10.21 to the
Company's Registration Statement on Form S-1, file number 33-96718)
10.4 -- Employment Agreement dated January 24, 1995 between the Company and
Rocco N. Aceto (incorporated by reference from exhibit number 10.22 to the
Company's Registration Statement on Form S-1, file number 33-96718)
10.5* -- Employment Agreement dated September 6, 1995 between the Company and
George W. Fink
10.6* -- Employment Agreement dated July 21, 1996 between the Company and Austin P.
Young
10.7 -- Asset Purchase Agreement dated January 4, 1996 among Taylor Temporary
Services, Inc., CORESTAFF Acquisition Sub #4, Inc. and Barbara R. Taylor
(incorporated by reference from exhibit number 10.28 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995)
10.8 -- Stock Purchase Agreement dated January 17, 1996 among the Company and
Datronics Management, Inc., Datronics U.K., Limited, Irwin Kaplan, Myra
Goodman, Les Patron, Michael Holt, Neil Paulsen, Chris Wheeler, Marie
L'Esperance and Cynthia O'Lear (incorporated by reference from exhibit number
10.29 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995)
</TABLE>
25
<PAGE> 28
<TABLE>
<S> <C>
10.9 -- Asset Purchase Agreement dated February 8, 1996 among Richard Keith
Enterprises, Inc., Provincial Staffing Services, Inc., CORESTAFF Acquisition Sub
#5, Inc. and Richard V. Keith, Jr. (incorporated by reference from exhibit number
10.30 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995)
10.10 -- Stock Purchase Agreement dated June 12, 1996, among CORESTAFF, Data Aid,
Inc., Richard L. Reid, Jerry L. Chafin and Jimmy H. Wyrosdick (incorporated by
reference from exhibit number 10.1 to the Company's Current Report on Form 8-
K dated June 24, 1996)
10.11 -- Stock Purchase Agreement dated September 10, 1996,
among CORESTAFF, On-Line Resources, Inc., Nalluru C.
Murthy and Canan Gurman (incorporated by reference
from exhibit number 10.1 to the Company's Current
Report on Form 8- K dated September 10, 1996)
10.12 -- Asset Purchase Agreement dated September 25, 1996,
among Transworld Services Group, Ltd., Transworld
Services Group I, LLC, Transworld Services Group II,
LLC, CORESTAFF Acquisition Sub #6, Inc., Gulf Coast
Corporate Ventures, Inc., John A. Riley and Joseph
Raymond (incorporated by reference from exhibit number
10.1 to the Company's Current Report on Form 8-K dated
October 28, 1996)
10.13 -- Asset Purchase Agreement dated as of December 13,
1996, among COMSYS Technical Services, Inc., a
Maryland corporation, Telos Corporation, a California
corporation, and Telos Corporation, a Maryland
corporation (incorporated by reference from exhibit
number 10.1 to the Company's Current Report on Form 8-
K dated January 9, 1997)
21.1* -- Subsidiaries of the Registrant
23.1* -- Consent of Independent Auditors
24.1 -- Power of Attorney (included on the signature pages to this Annual Report)
27.1* -- Financial Data Schedule
</TABLE>
- -------------------
* Filed herewith
(b) Reports on Form 8-K.
A Form 8-K Current Report ("Form 8-K") was filed with the
Commission on October 28, 1996. The Form 8-K reported the
acquisition of Transworld Services Group, Ltd. ("Transworld")
on October 15, 1996.
26
<PAGE> 29
CORESTAFF, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
Report of Independent Auditors.................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996...... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1995 and 1996................................ F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1994, 1995 and 1996.................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996................................ F-6
Notes to Consolidated Financial Statements........................ F-7
F-1
<PAGE> 30
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
CORESTAFF, Inc.
We have audited the accompanying consolidated balance sheets of CORESTAFF, Inc.
and subsidiaries (the "Company") as of December 31, 1995 and 1996 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of CORESTAFF, Inc.
and subsidiaries at December 31, 1995 and 1996 and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Houston, Texas
February 5, 1997
F-2
<PAGE> 31
CORESTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1996
--------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,091 $ 6,521
Accounts receivable, net of allowance of $891 and $1,637 54,453 126,302
Prepaid expenses and other 2,583 10,450
Deferred income taxes 1,740 2,817
----- -----
Total current assets 62,867 146,090
Fixed Assets, net 6,005 16,503
Intangible Assets, net of accumulated amortization of $2,906 and $8,106 81,277 231,475
Other Assets 2,221 2,329
----- -----
Total Assets $152,370 $396,397
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 2,063 $ 456
Accounts payable 8,682 17,089
Payroll and related taxes 9,955 21,045
Self-insurance reserve 2,026 2,374
Amounts due sellers of acquired businesses 5,972 9,615
Other 504 1,196
-------- --------
Total current liabilities 29,202 51,775
Non-current Self-insurance Reserve 3,461 2,279
Long-term Debt, net of current maturities 43,315 107,839
Deferred Income Taxes and Other 1,227 3,587
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, par value $.01; 5,000,000 shares authorized; none
outstanding
Common stock, par value $.01
Common stock - 40,000,000 shares authorized, 26,243,144 and
31,944,657 shares issued 175 319
Class B (non-voting) - 3,000,000 shares authorized, 1,679,584 and
707,232 shares issued 11 7
Additional paid-in capital 70,637 210,034
Retained earnings 5,420 21,767
-------- --------
76,243 232,127
-------- --------
Less - 684,000 shares of common stock held in treasury, at cost (188) (188)
Less - notes receivable from stockholders (890) (787)
Less - deferred compensation - (235)
-------- --------
Total stockholders' equity 75,165 230,917
-------- --------
Total Liabilities and Stockholders' Equity $152,370 $396,397
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 32
CORESTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues from Services $ 163,351 $ 344,548 $596,101
Cost of Services 129,543 262,092 451,505
-------- --------- --------
Gross Profit 33,808 82,456 144,596
Operating Costs and Expenses:
Selling, general and administrative 26,999 60,434 100,349
Depreciation and amortization 1,933 4,215 7,522
-------- -------- --------
28,932 64,649 107,871
-------- -------- --------
Operating Income 4,876 17,807 36,725
Other Income (Expense):
Interest expense (2,276) (6,978) (4,656)
Write-down of business held for sale - - (1,400)
Other, net 111 118 334
-------- -------- --------
(2,165) (6,860) (5,722)
-------- -------- --------
Income before Income Taxes and Extraordinary Loss 2,711 10,947 31,003
Provision for Income Taxes 1,162 4,590 13,609
-------- -------- --------
Income Before Extraordinary Loss 1,549 6,357 17,394
Extraordinary Loss on Early Extinguishment of Debt,
net of income tax benefit of $547 - - (940)
-------- -------- --------
Net Income $ 1,549 $ 6,357 16,454
======== ======== ========
Earnings per Common Share:
Before extraordinary loss $ 0.07 $ 0.29 $ 0.57
Extraordinary loss - - (0.03)
-------- -------- --------
Net income $ 0.07 $ 0.29 $ 0.54
======== ======== ========
Number of Shares Used to Compute
Earnings per Common Share 17,587 19,715 30,365
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 33
CORESTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in thousands)
<TABLE>
<CAPTION>
Notes Total
Additional Receivable Deferred Stock-
PREFERRED Common Stock Paid-In Retained Treasury from Compen- holders'
STOCK Common Class B Capital Earnings Stock Stockholders sation Equity
--------- ------ ------- ------- -------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $- $ 71 $- $ 3,826 $ (253) $ - $ (40) $ - $ 3,604
Repurchase of 684,000 shares
of common stock (188) (188)
Sale of 684,000 shares of Class B
common stock (non-voting) 7 181 188
Sale of 380,000 shares of common
stock, net 4 96 (100)
Sale of 145,000 shares of
preferred stock, net 2 14,330 14,332
Net income 1,549 1,549
-- ----- --- ------- ------ ------- ----- ------ -------
Balance at December 31, 1994 2 75 7 18,433 1,296 (188) (140) - 19,485
Sale of 20,679.794 shares of
preferred stock, net 2,047 2,047
Repurchase of 152,000 shares
of common stock (371) 40 (331)
Sale of 4,037,560 shares of
common stock 40 59,417 371 (790) 59,038
Conversion of 87,014.6089 shares
of preferred stock into 482,075
shares of common stock (1) 4 (3)
Conversion of 5,560.2425 shares
of preferred stock into 62,482
shares of Class B common stock
(non-voting)
Redemption of 92,573.8504
shares of preferred stock (1) (9,257) (9,258)
Preferred stock dividends (2,173) (2,173)
Net income 6,357 6,357
Three-for-two stock split (issuance
of 5,603,809 and 373,241 shares
of common stock and Class B
common stock (non-voting),
respectively) 56 4 (60)
-- ----- --- ------- ------ ------- ----- ------ -------
Balance at December 31, 1995 - 175 11 70,637 5,420 (188) (890) - 75,165
Sale of 3,395,696 shares of
common stock 33 139,077 139,110
Issuance of 10,482 shares of
restricted common stock, net 320 (235) 85
Repayment of stockholders' notes 103 103
Conversion of 648,235 shares of
Class B common stock (non-voting)
into 648,235 shares of common stock 6 (6)
Net income 16,454 16,454
Three-for-two stock split (issuance
of 10,394,800 and 235,744
shares of common stock and
Class B common stock (non-
voting), respectively) 105 2 (107)
-- ----- --- ------- ------ ------- ----- ------ -------
Balance at December 31, 1996 $- $ 319 $7 $210,034 $21,767 $ (188) $(787) $ (235) $230,917
== ===== === ======= ====== ======= ===== ====== =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 34
CORESTAFF, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1994 1995 1996
-------- ------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 1,549 $ 6,357 $ 16,454
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,933 4,215 7,522
Amortization of deferred loan costs 102 546 304
Deferred income tax benefit (provision) (1,800) (1,108) 673
Self-insurance reserve 2,502 (776) (1,009)
Write-down of business held for sale - - 1,400
Loss on extinguishment of debt - - 1,487
Provision for doubtful accounts 308 476 641
Loss (gain) on disposal of assets 8 69 (27)
Changes in assets and liabilities net of effects of acquisitions:
Accounts receivable (8,099) (5,619) (39,289)
Prepaid expenses and other 208 (607) (5,223)
Accounts payable 1,736 1,433 2,706
Accrued liabilities 1,059 1,071 (3,800)
-------- -------- --------
Net cash provided by (used in) operating activities (494) 6,057 (18,161)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions, net of cash acquired (55,836) (39,733) (168,058)
Capital expenditures (1,941) (3,005) (11,735)
Payments received on stockholders' notes - - 103
Proceeds from sale of assets - - 116
Other 1,203 (207) (1,605)
-------- -------- --------
Net cash used in investing activities (56,574) (42,945) (181,179)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 68,255 84,684 252,538
Payments on long-term debt (21,388) (97,665) (189,878)
Net proceeds from sale of preferred stock 14,356 2,047 -
Net proceeds from sale of common stock 188 59,038 139,110
Repurchase of common stock (188) (331) -
Redemption of preferred stock - (9,258) -
Payment of dividends on preferred stock - (2,173) -
-------- -------- --------
Net cash provided by financing activities 61,223 36,342 201,770
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 4,155 (546) 2,430
Cash and cash equivalents at beginning of year 482 4,637 4,091
-------- -------- --------
Cash and cash equivalents at end of year $ 4,637 $ 4,091 $ 6,521
======== ======== ========
Cash paid during the year for:
Interest, net of capitalized amounts $ 1,625 $ 6,518 $ 4,002
Income taxes $ 2,391 $ 5,717 $ 11,313
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 35
CORESTAFF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
CORESTAFF, Inc. (the "Company"), and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Cash and Cash Equivalents
All short-term investments with an original maturity of 90 days or less are
considered cash equivalents.
Fixed Assets
Fixed assets are recorded at cost. Depreciation is computed on a
straight-line basis over the estimated useful lives of the assets. Amortization
of leasehold improvements is computed on a straight-line basis over the useful
life of the asset or lease term, whichever is shorter. Accumulated depreciation
and amortization was $2.6 million and $5.5 million at December 31, 1995 and
1996, respectively.
Intangible Assets
Intangible assets primarily consist of goodwill associated with the
acquired businesses. Goodwill is amortized on a straight-line basis over 40
years. Other intangible assets consist of non-compete agreements, which are
amortized over the term of the agreement. In the event that facts and
circumstances indicate intangible or other long-lived assets may be impaired,
the Company evaluates the recoverability of such assets. The estimated future
undiscounted cash flows associated with the asset are compared to the asset's
carrying amount to determine if a write-down to market value or discounted cash
flow value is necessary.
In the fourth quarter of 1996, the Company recognized a one-time charge to
earnings of $1.4 million for the write-down of goodwill associated with its
physical therapy staffing business, a non-core business that was sold in January
1997. After reflecting this write-down, the Company believes all intangible or
other long-lived assets are fully realizable as of December 31, 1996.
Revenue Recognition
Revenue is recognized at the time the services are provided.
Income Taxes
The Company follows the liability method of accounting for income taxes.
Under this method, deferred income tax assets and liabilities are determined
based on differences between the financial statement and income tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse.
F-7
<PAGE> 36
CORESTAFF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Self-Insurance
The Company self-insures most of its workers' compensation exposure.
Consulting actuaries are used by the Company to assist in the determination of
its liability, which is calculated using a claims-incurred method.
Earnings per Common Share
Earnings per common share were computed by dividing net income applicable
to common stock (net income less preferred stock dividends in arrears applicable
to the period) by the weighted average number of shares of common stock and
common stock equivalents outstanding during the period giving effect to the
dilutive effect of common stock issued within one year prior to the Company's
initial public offering in November 1995 (the "IPO"). Common stock equivalents
consisted of the number of shares issuable on exercise of the outstanding stock
options less the number of shares that could have been purchased with the
proceeds from the exercise of the options based on the average price of the
common stock during the period. The dilutive effect of common stock issued
within one year prior to the IPO for the periods prior to issuance was
determined in the same manner except that the IPO price of $7.55 per share
(which has been adjusted for the two three-for-two stock splits discussed in
Note 5) was used for the repurchase price.
Earnings per common share for 1994 and 1995 as shown in the accompanying
statements of operations were determined in the same manner as described above,
except that the conversion of one-half of the preferred stock into common stock
(See Note 5) was assumed to have occurred as of the beginning of the periods.
Net income applicable to common stock was increased by the dividends in arrears
applicable to the preferred stock converted. Historical earnings per common
share were $0.04 and $0.26 for the years ended December 31, 1994 and 1995,
respectively. Net income applicable to common stock was $748,000 and $5,041,000
for the years ended December 31, 1994 and 1995, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Stock Options
The Company follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" and related interpretations ("APB 25") in
accounting for its employee stock options. The pro forma disclosures required by
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS 123"), which established a fair-value based method of
accounting for stock-based compensation plans, are set forth in Note 6.
Reclassifications
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform with the current year presentation.
F-8
<PAGE> 37
CORESTAFF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. ACQUISITIONS
Through December 31, 1996, the Company had acquired 26 businesses in the
staffing industry. The Company's acquisition activity and a brief description of
the material acquisitions follow:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
-------- ------- --------
<S> <C> <C> <C>
Acquisitions completed:
Information Technology ("IT") Services 1 1 10
Staffing Services 3 4 4
Other - 1 -
------- ------- ------
Total 4 6 14
======== ======== =========
Purchase consideration (in thousands):
Cash paid $ 58,102 $ 40,304 $ 174,393
Amounts due sellers of acquired businesses - - 9,615
Liabilities assumed 21,935 15,093 16,067
------- ------- -------
Fair value of assets acquired (including intangibles) $ 80,037 $ 55,397 $ 200,075
======== ======== =========
</TABLE>
In April 1994, the Company acquired United Temporary Services, Incorporated
and United Personnel Systems, a California-based staffing services business, for
$19.9 million in cash. In August 1994, the Company acquired TSTP Corp., a
Maryland-based staffing services business, for $17.3 million in cash. In
September 1994, the Company acquired COMSYS Technical Services, Inc., a
Maryland-based IT services business, for $20.9 million in cash.
In June 1995, the Company acquired Cutler-Williams Incorporated, a
Texas-based IT services business, for $28.3 million in cash.
In January 1996, the Company acquired Datronics Management, Inc., a New
York-based IT services business, and its United Kingdom affiliate, Datronics
U.K. Limited, for $19.2 million in cash. In April 1996, the Company acquired
Regal Data Systems, Inc., a New Jersey-based IT services business, for $21.7
million in cash and a note payable for $0.1 million. In June 1996, the Company
acquired Data Aid, Inc., an Alabama-based IT services business, for $23.2
million in cash. In September 1996, the Company acquired On-Line Resources,
Inc., a Florida-based IT services business, for $17.9 million in cash. In
October 1996, the Company acquired substantially all of the assets of Transworld
Services Group, Inc., a Florida-based staffing services business, for $18.1
million in cash. In December 1996, the Company acquired substantially all of the
assets of Telos Consulting Services, a California-based IT services business,
for $31.4 million in cash.
All the acquisitions made by the Company have been accounted for using the
purchase method of accounting. Accordingly, the results of operations of the
acquired companies are included in the Company's consolidated results of
operations from the date of acquisition. In certain transactions, the sellers
are also entitled to contingent consideration based on the increase in earnings
before interest and taxes ("EBIT"), as defined. As of December 31, 1996, the
Company had accrued $9.6 million for additional purchase consideration due
sellers based on the increase in the acquired companys' EBIT for 1996. The
aggregate contingent consideration due sellers based on increases in EBIT for
future years is capped at $4.5 million. The payment of any contingent
consideration will increase the amount of goodwill related to the acquisition.
F-9
<PAGE> 38
CORESTAFF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following unaudited results of operations have been prepared assuming
the acquisitions described above and the conversion of one-half of the preferred
stock into common stock in November 1995 had occurred as of the beginning of the
periods presented. These results are not necessarily indicative of results
of future operations nor of results that would have occurred had the
acquisitions been consummated as of the beginning of the periods presented:
YEAR ENDED DECEMBER 31,
----------------------------
1995 1996
-------- ---------
(in thousands,
except per share amounts)
Revenues from services $601,289 $ 734,186
Income before extraordinary loss $ 6,019 $ 19,639
Net income $ 6,019 $ 18,699
Earnings per common share:
Income before extraordinary loss $ 0.27 $ 0.65
Extraordinary loss - (0.03)
-------- ---------
Net income $ 0.27 $ 0.62
======== =========
3. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1996
-------- ---------
(in thousands)
<S> <C> <C>
Borrowings under Senior Credit Agreement:
$200 million revolving credit facility, interest at bank's base
rate or London Interbank Offered Rate ("LIBOR") plus the
applicable margin of 0.625% to 1.375%, depending on the
leverage ratio (weighted rate of 6.64% at December 31,
1996), due November 2001 $ - $ 107,500
$130 million revolving credit facility, interest at bank's base
rate or LIBOR plus 1.25% to 2.50% (weighted rate of 7.36%
at December 31, 1995), repaid in November 1996 43,122 -
Other 2,256 795
---------- ---------
45,378 108,295
Less current maturities 2,063 456
---------- ---------
$ 43,315 $ 107,839
========== =========
</TABLE>
In November 1996, the Company entered into a new Senior Credit Agreement
(the "Agreement"), which provides for borrowings under a revolving credit
facility of up to the lesser of $200 million or 3.5 times Pro Forma Adjusted
EBITDA (earnings before interest, income taxes, depreciation and amortization of
all acquired companies for the preceding twelve-month period). The Company may
request that the commitment be raised to $250 million. A commitment fee of 0.18%
to 0.25%, depending on the leverage ratio, is payable on the unused portion of
the commitment. The Agreement contains certain covenants which, among other
things, limit the payment of dividends and require the maintenance of certain
financial ratios. The Agreement is secured by a pledge of the
F-10
<PAGE> 39
CORESTAFF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
stock of the material subsidiaries of the Company. As of December 31, 1996, the
Company had remaining availability under the Agreement (after deducting
outstanding letters of credit of $4.9 million) of $87.6 million.
In the fourth quarter of 1996, the Company recorded an extraordinary loss
of $1.4 million ($0.9 million after income taxes, or $0.03 per share) in
connection with the early extinguishment of its $130 million revolving credit
facility. This loss related to the write-off of the deferred loan costs of this
facility.
During 1995, a financial institution, which owns all the Company's Class B
(non-voting) common stock, provided the Company with a $10 million senior
subordinated note. Borrowings under this note accrued interest at LIBOR, plus
4.5 percent. The Company paid an up-front fee of $0.3 million to the institution
for arranging the financing. This note, plus accrued interest, was repaid out of
the proceeds of the IPO.
4. INCOME TAXES
The provision for income taxes consisted of the following:
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- --------
(in thousands)
Current:
Federal $ 2,582 $ 5,098 $ 11,626
State 380 600 1,310
-------- -------- --------
2,962 5,698 12,936
-------- -------- --------
Deferred:
Federal (1,530) (967) 788
State (270) (141) (115)
-------- -------- --------
(1,800) (1,108) 673
-------- -------- --------
$ 1,162 $ 4,590 $ 13,609
======== ======== ========
The differences between income taxes computed at the federal statutory
income tax rate and the provision for income taxes are as follows:
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995 1996
------- ------- -------
(in thousands)
Income taxes computed at federal statutory
income tax rate $ 922 $ 3,731 $10,850
State income taxes, net of federal benefit 103 498 1,282
Non-deductible portion of business meals,
entertainment and other 67 184 669
Amortization of non-deductible goodwill 70 177 436
Write-down of business held for sale - - 372
------- ------- -------
Provision for income taxes $ 1,162 $ 4,590 $13,609
======= ======= =======
F-11
<PAGE> 40
CORESTAFF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The net current and non-current components of deferred income taxes
reflected in the consolidated balance sheets are as follows:
DECEMBER 31,
-----------------
1995 1996
------- -------
(in thousands)
Net current assets $ 1,740 $ 2,817
Net non-current liabilities 755 3,417
------- -------
Net asset (liability) $ 985 $ (600)
======= =======
Deferred tax assets and liabilities were comprised of the following:
DECEMBER 31,
------------------
1995 1996
------- -------
(in thousands)
Deferred tax assets:
Self-insurance reserve $ 2,439 $ 2,008
Non-compete agreements 453 713
Bad debt allowances 297 567
Vacation pay 144 426
Other 46 264
------- -------
Total deferred tax assets 3,379 3,978
------- -------
Deferred tax liabilities:
Goodwill (880) (2,658)
Excess financial over tax basis of acquisitions (1,443) (1,621)
Other (71) (299)
------- -------
Total deferred tax liabilities (2,394) (4,578)
------- -------
Net deferred tax asset (liability) $ 985 $ (600)
======= =======
5. STOCKHOLDERS' EQUITY
Preferred stock. The Company's preferred stock, which was outstanding prior
to the IPO, had a liquidation value of $100 per share and entitled the holders
to receive cumulative dividends at 8% per annum of the sum of the liquidation
value plus all accumulated and unpaid dividends. In November 1995, one-half of
the outstanding shares of preferred stock was converted into common stock at the
IPO price of $7.55 per share and the remainder of the outstanding shares were
redeemed out of the proceeds from the IPO. Dividends in arrears of $2.2 million
were also paid out of the proceeds from the IPO.
Common stock. During 1996, the Board of Directors authorized two
three-for-two stock splits, effected in the form of stock dividends. All
references in the financial statements to number of shares outstanding and
related prices, per share amounts and stock option plan data have been restated
to reflect the stock splits. The stock splits resulted in the issuance of
approximately 16.6 million new shares of common stock and a reclassification of
approximately $0.2 million from retained earnings to common stock representing
the par value of the shares issued.
Under terms of an agreement, 3,420,000 shares of the Company's common stock
were issued to key executives and management. In connection with certain of
these issuances, the Company received notes from the executives as
consideration. These notes, which total $0.9 million and $0.8 million at
December 31, 1995 and 1996, respectively, are secured by the common stock, bear
interest at 8% per year and are due on demand. These shares became fully vested
in connection with the IPO.
F-12
<PAGE> 41
CORESTAFF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In November 1995, the Company completed its IPO of 8,538,750 shares of its
common stock at $7.55 per share. Net proceeds from the IPO were approximately
$59 million. The proceeds were used to (i) redeem the outstanding preferred
stock, plus accrued dividends, (ii) repay the $10 million senior subordinated
note, plus accrued interest, and (iii) pay down of borrowings by approximately
$38 million.
In May 1996, the Company completed a second public offering of 8,259,030
shares (4,950,000 shares sold by the Company and the remainder by certain
selling stockholders) at $29.17 per share. Net proceeds to the Company were
approximately $137.5 million, of which $111.5 million were used to repay
borrowings under the Senior Credit Agreement.
Supplemental earnings per common share reflect adjustments to the earnings
per common share to give effect to the use of proceeds described above as if the
public offering in May 1996 had occurred at the beginning of 1996. Supplemental
earnings per common share for the year ended December 31, 1996 were $0.57.
6. STOCK PLANS
Long-Term Incentive Plan. In August 1995, the Company adopted the 1995
Long-Term Incentive Plan (the "Plan") that provides for the issuance of stock
options, stock appreciation rights, restricted stock, performance share awards,
stock value equivalent awards and cash awards. All full time employees and
directors of the Company or its affiliates are eligible to participate. An
aggregate of 2.7 million shares of common stock has been reserved for issuance
under the Plan. Generally, options granted have ten year terms and vest and
become fully exercisable in three to five years. Stock options issued under the
Plan can be either incentive stock options or non-qualified stock options. The
exercise price of an incentive stock option will not be less than the fair
market value of the common stock on the date the option is granted.
The Company applies APB 25 in accounting for the Plan. Accordingly, no
compensation cost has been recognized for its fixed stock option plan. Pro forma
information regarding net income and earnings per common share is required by
SFAS 123 as if the Company had accounted for its employee stock options under
the fair value method of that statement. The fair value of these options was
estimated at the date of grant using a Black-Scholes option pricing
("Black-Scholes") model with the following weighted average assumptions for 1995
and 1996, respectively: (i) risk-free interest rates of 5.81% and 6.12%, (ii) a
dividend yield of 0%, (iii) volatility factors of the expected market price of
the Company's common stock of 27.5% and (iv) a weighted average expected life of
3 years and 3.75 years.
The Black-Scholes model was developed for use in estimating the fair value
of traded options that have no vesting restrictions and are fully transferable.
In addition, option valuation models require the input of highly subjective
assumptions, including the expected volatility. Because the Company's employee
stock options have characteristics significantly different from those of traded
options and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
F-13
<PAGE> 42
CORESTAFF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period. Had
compensation for the Company's stock-based compensation plan been determined
based on the fair value at the grant dates for awards under the Plan consistent
with the method of SFAS 123, the Company's net income and earnings per common
share would have been adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1995 1996
---------------------------------------------------------
AS REPORTED PRO FORMA AS REPORTED Pro Forma
---------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Income before extraordinary loss $ 6,357 $ 6,297 $ 17,394 $ 16,373
Net income $ 6,357 $ 6,297 $ 16,454 $ 15,433
Earnings per common share:
Income before extraordinary loss $ 0.29 $ 0.29 $ 0.57 $ 0.54
Net income $ 0.29 $ 0.29 $ 0.54 $ 0.51
</TABLE>
During 1995 and 1996, the Company issued non-qualified stock options under
the Plan, which had exercise prices equal to the fair market value of the common
stock at the date of grant. A summary of the Company's stock option activity and
related information follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1995 1996
--------------------------- -----------------------------
Weighted Weighted
Average Average
OPTIONS Exercise Price Options Exercise Price
------- -------------- ------- --------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Outstanding - beginning of year - $ - 1,189 $ 7.12
Granted 1,215 7.09 1,514 24.11
Exercised (23) 4.98 (77) 7.10
Forfeited (3) 7.56 (314) 17.60
------ -------
Outstanding - end of year 1,189 $ 7.12 2,312 $ 16.83
====== =======
Options exercisable at year-end 94 374
Weighted average fair value of
options granted during the year $1.86 $ 8.15
</TABLE>
F-14
<PAGE> 43
CORESTAFF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following summarizes information related to stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
Options outstanding OPTIONS EXERCISABLE
-------------------------------------------- ------------------------
Weighted
Weighted average Weighted
RANGE OF average remaining average
EXERCISE exercise contractual exercise
PRICES Options price life Options price
--------------- ------- -------- ----------- ------- ---------
(options in thousands)
<S> <C> <C> <C> <C> <C>
$4.98 to $11.45 986 $ 7.08 8.3 Years 374 $6.89
17.45 to 30.50 1,326 24.08 9.4 -- --
----- ----
$4.98 to $30.50 2,312 $16.83 9.1 374 $6.89
===== ===
</TABLE>
Employee Stock Purchase Plan. In 1996, the Company implemented an employee
stock purchase plan whereby eligible employees may purchase shares of the
Company's common stock at a price equal to 85 percent of the lower of the
closing market price on the first or last trading day of a quarter. A total of
450,000 shares of common stock have been reserved for issuance under the plan.
During 1996, employees purchased 33,312 shares for aggregate proceeds to the
Company of $0.7 million.
7. COMMITMENTS AND CONTINGENCIES
The Company leases various office space and equipment under noncancelable
operating leases. Rent expense was $1,631,897, $3,335,158 and $5,754,752 for
1994, 1995 and 1996, respectively. The related future minimum lease payments as
of December 31, 1996 are as follows (in thousands):
1997 $ 6,427
1998 5,325
1999 4,117
2000 2,772
2001 1,180
Thereafter 51
-------
$19,872
=======
The Company self-insures most of its workers' compensation exposure.
Consulting actuaries are used by the Company in the determination of its
liability, which is calculated using a claims-incurred method. Using this
method, the present value (using a 5% discount factor) of the estimated
liability for claims incurred but unpaid as of December 31, 1996 was
approximately $4.7 million ($5.0 million undiscounted), of which approximately
$2.4 million was classified as a current liability. As of December 31, 1996, the
Company had irrevocable stand-by letters of credit of approximately $3.9
million, as required by its insurance programs.
F-15
<PAGE> 44
CORESTAFF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Certain of the Company's executives are covered by employment agreements
covering, among other things, base compensation, incentive-bonus determinations
and payments in the event of termination or change in control of the Company.
Under terms of certain acquisitions, the Company is required to make
additional payments to sellers generally to the extent future earnings, as
defined, exceed certain stipulated levels. The provisions of these contingent
payments are described in Note 2.
The Company is a defendant in various lawsuits and claims arising in the
normal course of business. Management believes it has valid defenses in these
cases and is defending them vigorously. While the results of litigation cannot
be predicted with certainty, management believes the final outcome of such
litigation will not have a material effect on the Company.
8. RELATED PARTY TRANSACTIONS
Under terms of a professional services agreement, which terminated in
November 1995 following the Company's initial public offering, the general
partner of the Company's largest stockholder provided certain financial and
management consulting services to the Company. Fees paid under this agreement
totaled $85,000 and $127,000 during 1994 and 1995, respectively.
The CEO of the Company owns a minority interest in a firm that provided
investment banking services on certain acquisitions or acquisition targets. Fees
for services rendered were based on rates stipulated in an agreement, which in
the opinion of management, are equivalent to rates charged by unrelated
investment banking firms. Fees paid to this firm during 1994, 1995 and 1996 were
approximately $550,000, $31,000 and $129,000, respectively. The CEO also owns a
50 percent interest in a firm that provided certain charter aircraft services to
the Company. Fees for these services totaled $55,143 in 1996. In the opinion of
management, these fees are based on rates that are comparable to those charged
by third parties.
A bank, which is an affiliate of the financial institution that owns all
the Company's Class B common stock (non-voting), serves as the agent bank for
the Company's Senior Credit Agreement. This bank also provided the Company with
cash management services under terms of a separate agreement.
9. CREDIT RISK
The Company provides staffing services to customers in numerous states. A
substantial portion of these sales are in California, Texas and the greater
Washington D.C. area. This concentration could impact the Company's overall
exposure to credit risk inasmuch as these customers could be affected by similar
economic or other conditions. The Company believes its portfolio of accounts
receivable is well diversified and, as a result, its credit risks are minimal.
The Company continually evaluates the creditworthiness of its customers and
monitors accounts on a periodic basis, but typically does not require
collateral.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has determined, based on available market information and
appropriate valuation methodologies, that the fair value of its financial
instruments approximates carrying value. The carrying amounts of cash and cash
equivalents, accounts receivable and accounts payable
F-16
<PAGE> 45
CORESTAFF, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
approximate fair value due to the short-term maturity of the instruments. The
carrying amount of long-term debt approximates fair value because the interest
rates under the credit agreement are variable, based on current market.
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited summarized financial data by quarter for 1995 and 1996 follow (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1995
-------------------------------------
Revenues $ 69,471 $ 76,775 $ 97,644 $ 100,658
Operating income 2,397 3,590 5,215 6,605
Net income 685 1,190 1,705 2,777
Earnings per common share (1) 0.03 0.05 0.08 0.11
1996
-------------------------------------
Revenues $ 103,386 $ 134,159 $ 163,284 $ 195,272
Operating income 5,826 8,360 10,232 12,307
Income before extraordinary loss 2,669 4,038 5,669 5,018
Net income 2,669 4,038 5,669 4,078
Earnings per common share:
Income before extraordinary loss $ 0.10 $ O.14 $ 0.18 $ 0.15
Extraordinary loss - - - (0.03)
Net income $ 0.10 $ 0.14 $ 0.18 $ 0.12
</TABLE>
(1) Adjusted to give effect to the conversion of preferred stock into
common stock (See Note 5).
F-17
<PAGE> 46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
CORESTAFF, INC.
(Registrant)
By: /s/ MICHAEL T. WILLIS
-------------------------------------
Michael T. Willis
Chief Executive Officer and President
March 26, 1997
The undersigned directors and officers of CORESTAFF, Inc. hereby constitute
and appoint Michael T. Willis, Edward L. Pierce and Peter T. Dameris, and each
of them, with full power to act without the other and with full power of
substitution and resubstitution, our true and lawful attorneys-in-fact and
agents, for him and in his name, place, and stead, in any and all capacities, to
sign on his behalf any and all amendments to this Annual Report, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Commission granting unto said attorney-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully as to all
intents and purposes as he or she might or could do in person, and hereby ratify
and confirm that all such attorneys-in-fact or agents, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ MICHAEL T. WILLIS
- ------------------------------------------
Michael T. Willis
Chairman of the Board, Chief Executive
Officer and President (Principal Executive
Officer)
March 26, 1997
/s/ AUSTIN P. YOUNG
- ----------------------------------------
Austin P. Young
Director and Executive Vice President
March 26, 1997
/s/ EDWARD L. PIERCE
- ----------------------------------------
Edward L. Pierce
Senior Vice President, Chief Financial
Officer and Assistant Secretary (Principal
Financial Officer and Principal Accounting
Officer)
March 26, 1997
/s/ NUALA BECK
- ----------------------------------------
Nuala Beck
Director
March 26, 1997
<PAGE> 47
/s/ CHARLES H. COTROS
- ----------------------------------------
Charles H. Cotros
Director
March 26, 1997
/s/ DONALD J. EDWARDS
- ----------------------------------------
Donald J. Edwards
Director
March 26, 1997
/s/ CHARLES R. SCHNEIDER
- ----------------------------------------
Charles R. Schneider
Director
March 26, 1997
/s/ BRUCE V. RAUNER
- ----------------------------------------
Bruce V. Rauner
Director
March 26, 1997
/s/ JOHN T. TURNER
- ----------------------------------------
John T. Turner
Director
March 26, 1997
<PAGE> 48
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<S> <C>
3.1 -- First Amended and Restated Certificate of Incorporation of the Registrant
(incorporated by reference from exhibit number 4.1 to the Company's Registration
Statement on Form S-8, file number 33-80325)
3.2 -- Amended and Restated Bylaws of the Registrant (incorporated by reference from
exhibit number 4.2 to the Company's Registration Statement on Form S-8, file
number 33-80325)
10.1 -- Employment Agreement dated November 7, 1995 between the Company and
Michael T. Willis (incorporated by reference from exhibit number 10.17 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995)
10.2* -- Employment Agreement dated September 1, 1996 between the Company and
Joseph V. Amella
10.3 -- Employment Agreement dated January 10, 1995 between the Company and Peter
T. Dameris (incorporated by reference from exhibit number 10.21 to the
Company's Registration Statement on Form S-1, file number 33-96718)
10.4 -- Employment Agreement dated January 24, 1995 between the Company and
Rocco N. Aceto (incorporated by reference from exhibit number 10.22 to the
Company's Registration Statement on Form S-1, file number 33-96718)
10.5* -- Employment Agreement dated September 6, 1995 between the Company and
George W. Fink
10.6* -- Employment Agreement dated July 21, 1996 between the Company and Austin P.
Young
10.7 -- Asset Purchase Agreement dated January 4, 1996 among Taylor Temporary
Services, Inc., CORESTAFF Acquisition Sub #4, Inc. and Barbara R. Taylor
(incorporated by reference from exhibit number 10.28 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995)
10.8 -- Stock Purchase Agreement dated January 17, 1996 among the Company and
Datronics Management, Inc., Datronics U.K., Limited, Irwin Kaplan, Myra
Goodman, Les Patron, Michael Holt, Neil Paulsen, Chris Wheeler, Marie
L'Esperance and Cynthia O'Lear (incorporated by reference from exhibit number
10.29 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995)
10.9 -- Asset Purchase Agreement dated February 8, 1996 among Richard Keith
Enterprises, Inc., Provincial Staffing Services, Inc., CORESTAFF Acquisition Sub
#5, Inc. and Richard V. Keith, Jr. (incorporated by reference from exhibit number
10.30 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995)
10.10 -- Stock Purchase Agreement dated June 12, 1996, among CORESTAFF, Data Aid,
Inc., Richard L. Reid, Jerry L. Chafin and Jimmy H. Wyrosdick (incorporated by
reference from exhibit number 10.1 to the Company's Current Report on Form 8-K
dated June 24, 1996)
10.11 -- Stock Purchase Agreement dated September 10, 1996, among CORESTAFF,
On-Line Resources, Inc., Nalluru C. Murthy and Canan Gurman (incorporated by
reference from exhibit number 10.1 to the Company's Current Report on Form 8-K
dated September 10, 1996)
10.12 -- Asset Purchase Agreement dated September 25, 1996, among Transworld Services
Group, Ltd., Transworld Services Group I, LLC, Transworld Services Group II,
LLC, CORESTAFF Acquisition Sub #6, Inc., Gulf Coast Corporate Ventures, Inc.,
John A. Riley and Joseph Raymond (incorporated by reference from exhibit number
10.1 to the Company's Current Report on Form 8-K dated October 28, 1996)
10.13 -- Asset Purchase Agreement dated as of December 13, 1996, among COMSYS Technical
Services, Inc., a Maryland corporation, Telos Corporation, a California
corporation, and Telos Corporation, a Maryland corporation (incorporated by
reference from exhibit number 10.1 to the Company's Current Report on Form 8-K
dated January 9, 1997)
21.1* -- Subsidiaries of the Registrant
23.1* -- Consent of Independent Auditors
24.1 -- Power of Attorney (included on the signature pages to this Annual Report)
27.1* -- Financial Data Schedule
</TABLE>
- -------------------
* Filed herewith
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of September 1, 1996 by and between CORESTAFF, INC., a Delaware corporation
(hereinafter referred to as the "Company"), and JOSEPH V. AMELLA (hereinafter
referred to as the "Employee").
RECITALS:
WHEREAS, Employee is currently employed by the Company as President of
the Eastern Division of the Company's Support Services Group pursuant to an
Employment Agreement effective August 8, 1994 (the "Original Agreement"); and
WHEREAS, the Company and Employee have agreed to certain modifications
in the terms and conditions of Employee's employment, and the Company wishes to
continue to employ Employee and Employee wishes to continue in the employ of
the Company on the terms herein set forth; and
WHEREAS, in the course of his employment with the Company, Employee
will gain knowledge of the business, affairs, finances, and technology,
management, marketing programs and philosophy, confidential product
information, customers and methods of operation of the Company, will be trained
in the operation and management of the business of the Company and the
marketing and sale of the Company's services through the use of techniques,
technology, systems, forms and methods used and devised by the Company, will
have access to lists of the Company's customers and suppliers and their needs,
pricing and capabilities; and
WHEREAS, the confidential information and trade secrets of the Company
are unique and valuable to the Company and the Company would suffer irreparable
harm if Employee were to
<PAGE> 2
divulge such confidential information or trade secrets to those in competition
with the Company or Employee were to use such knowledge or information in
competition with the Company;
NOW, THEREFORE, in consideration of the above promises and the mutual
agreements hereinafter set forth, the parties hereby agree as follows:
1. Definitions.
(a) "Adjusted EBIT" shall mean EBIT adjusted to (a)
include in expense the Incentive Bonus attributable to the period and (b)
exclude the (i) benefit of (1) any reduction in state unemployment taxes
resulting from the reorganization of the support services companies and (2) any
non-recurring or unusual items included in EBIT, which benefit was not derived
from the direct efforts of the Employee, and (ii) expense related to the
accrual for the Guaranteed Bonus set forth in 3.(l).
(b) "Adjusted EBIT Increase" shall mean Adjusted EBIT for
the Bonus Period less actual Adjusted EBIT for the preceding fiscal year.
(c) "Affiliate" means any corporation or business entity
that either controls or is controlled by the Company or is controlled by the
shareholders that control the Company. For the purposes of this definition,
"control" means the ownership, either directly or through an unbroken chain of
control, of more than fifty percent (50%) of the equity interest or combined
voting or management rights of an entity.
(d) "Bonus Period" shall mean each calendar year covered
by this Agreement commencing with calendar year 1997.
(e) "Budget Adjustment Factor" shall mean the lesser of
1.0 or the sum of (i) the lesser of (a) 0.50 or (b) 50% times the ratio of the
actual Revenue Increase to the Budgeted
-2-
<PAGE> 3
Period Revenue Increase (the "Revenue Factor") and (ii) 50% times the ratio of
actual Adjusted EBIT Increase to Budgeted Period Adjusted EBIT Increase (the
"Adjusted EBIT Factor").
(f) "Budgeted Period Adjusted EBIT" shall mean EBIT as
set forth in the Budget approved by the Company's Board of Directors and
adjusted for the items set forth in "Adjusted EBIT" above.
(g) "Budget Period Adjusted EBIT Increase" shall mean
Budgeted Period Adjusted EBIT for the Bonus Period less actual Adjusted EBIT
for the preceding fiscal year.
(h) "Budgeted Period Revenue Increase" shall mean
operating revenues for the Bonus Period as set forth in the Budget approved by
the Company's Board of Directors less actual operating revenues for the
preceding fiscal year.
(i) "Cause" shall mean conduct on the part of Employee
amounting to fraud, dishonesty or willful misconduct of Employee, or
unsatisfactory performance of duties.
For purposes of this Agreement, "unsatisfactory performance of
duties" shall mean Employee's continued and willful failure to adhere to the
Company's written policies and procedures, failure to comply with the Company's
reasonable requests for accountings, failure to perform reasonable additional
duties of a similar nature assigned to Employee by the Company, or failure to
comply with reasonable requests from the Company's Board of Directors, so long
as such requests do not require Employee to perform any duties inconsistent
with this Employment Agreement. In no event may Employee be terminated for
unsatisfactory performance of duties prior to the Company's written
notification to Employee of Employee's unsatisfactory performance thereof,
citing specific instances of such unsatisfactory performance, and allowing
Employee sixty (60) days to correct any such unsatisfactory performance of
Employee's duties.
-3-
<PAGE> 4
(j) "Confidential Information" shall include, but not be
limited to, all processes, technology, formulae, product information, plans,
devises, compilations of information, technical data, distribution methods,
supplier and customer lists, sales and marketing information, customer account
records, training and operations materials, memoranda, personnel records, code
books, pricing information, and any financial information concerning or
relating to the business, accounts, customers, employees and affairs of the
Company obtained by and furnished, disclosed or disseminated to Employee, or
obtained, assembled or compiled by Employee or under his supervision, during
the course of his employment by the Company, including all trade secrets,
intellectual property and any techniques, systems, forms and methods which have
been used and/or devised by the Company with respect to the business of the
Company or which have been used and/or devised by customers of the Company and
disclosed to the Company and all physical embodiments (including copies) of the
foregoing, to the extent such information is not generally available to the
public.
(k) "Disability" shall mean, in the good faith judgment
of the Board of Directors of the Company, the inability of Employee to perform
his duties under this Agreement for a period of at least one hundred eight
(180) consecutive days as a result of physical or mental illness or incapacity.
(l) "EBIT" shall mean earnings before interest and
income taxes for the Employee's Area of Responsibility determined in accordance
with generally accepted accounting principles.
(m) "Employee's Area of Responsibility" means any branch
operation or other operations in the Eastern United States mutually agreed upon
by Employee and the Company,
-4-
<PAGE> 5
which initially shall include the operations of Leafstone, Inc., TSTP Corp.,
Regency Staffing, Inc., COREStaff Acquisition Sub #4, Inc., MPQ Corporation,
TUV Corporation, and the Atlanta, Georgia operations of Superior Temporaries,
Inc., and, through December 31, 1996 only, Tri-Starr Services, Inc., Tri-Starr
Personnel, Inc. and the Texas operations of Superior Temporaries, Inc.
(n) "Pre-tax Profits" from Employee's Area of
Responsibility shall mean the excess of the net income, if any, earned from
Employee's Area of Responsibility for a specified fiscal year over the net
loss, if any, incurred from Employee's Area of Responsibility for such fiscal
year. "Net Income" and "net loss" for purposes of this Agreement shall be
computed on an accrual basis of accounting, without effect of federal income
taxation (i.e., pre-tax), and shall be in accordance with books and records
and in accordance with generally accepted accounting principles consistently
applied.
(o) "Revenue Increase" shall mean actual operating
revenues for the Bonus Period less actual operating revenues for the preceding
fiscal year.
2. Terms of Employment and Employee Duties.
(a) The Company agrees to employ Employee as President of
the Eastern Division of the Company's Support Services Group, and Employee
accepts such employment with the Company in that capacity subject to the terms
and conditions hereof.
(b) Employee will be responsible for the performance of
all duties normally performed by a President of the Eastern Division of the
Company's Support Services Group, for a similar business, including, but not
limited to, such additional similar or compatible duties as may be assigned to
Employee from time to time by the President and Chief Executive Officer or the
Board of Directors of the Company.
-5-
<PAGE> 6
(c) As specified duties of his employment, Employee
shall: (i) devote his full time, energy and skill during regular business hours
to the performance of the duties of his employment (holidays, vacations and
absences due to illness permitted hereunder excepted), and faithfully perform
such duties; (ii) follow and implement management policies and decisions
communicated to him by the President of the Company's Support Services Group,
the President and Chief Executive Officer of the Company, or the Board of
Directors of the Company or their respective designees, so long as such
policies and decisions do not materially change Employee's duties,
responsibilities or title, without Employee's express consent; (iii) timely
prepare and forward to the Board of Directors of the Company or its designee
all reports and accountings as may be reasonably requested of Employee.
(d) All funds and property received by Employee on behalf
of the Company, or any parent or affiliated corporation, shall be received and
held by Employee in trust, and Employee shall account for and remit all such
funds to the Company.
3. Compensation and Benefits..
(a) For his service hereunder, the Company shall pay to
Employee a base salary of Two Hundred Forty Thousand and No/100 Dollars
($240,000) per year, payable in arrears in equal semi-monthly installments
through December 31, 1996. Thereafter, effective January 1, 1997, Employee may
receive an increase in his base salary at the discretion of the Company's
Compensation Committee of the Board of Directors.
(b) For the fiscal year ending December 31, 1996,
Employee shall receive, if earned, a bonus equal to 10% of the incremental
increase in Pre-Tax Profits derived from Employee's Area of Responsibility over
the prior completed fiscal year. For the fiscal year ending
-6-
<PAGE> 7
December 31, 1997, Employee shall be eligible for an annual incentive bonus
(the "Incentive Bonus") for a Bonus Period equal to 10% of Adjusted EBIT
Increase for the Bonus Period over Adjusted EBIT for the preceding fiscal year
(the "10% Bonus") multiplied by the Budget Adjustment Factor. An example of
the calculation of the 1997 Incentive Bonus is set forth in Annex I.
(c) Employee shall be entitled to take vacation, at
Employee's discretion, each fiscal year in accordance with policies established
from time to time by the Company; provided, however, that no more than fourteen
(14) days of vacation shall be consecutive without the prior approval of
Michael T. Willis, and provided further that Employee agrees that during any
such vacation Employee shall be reasonably available for contact by the
Company. Employee understands that Employee may be required to spend
appropriate time during no more than one week of any said vacation dealing with
the business of the Company.
(d) Employee shall be entitled to be reimbursed in
accordance with the policies of the Company, as adopted and amended from time
to time, for all reasonable and necessary expenses incurred in connection with
the performance of his duties of employment hereunder; provided, Employee
shall, as a condition of such reimbursement, submit reasonable verification of
the nature and amount of such expenses in accordance with the reimbursement
policies from time to time adopted by the Company.
(e) Employee shall not be required to work on any holiday
on which other employees of the Company in comparable positions are not
required to work. In no event shall Employee be required to work on: New
Year's Day, Labor Day, Independence Day, Memorial Day, Thanksgiving Day, or
Christmas Day.
-7-
<PAGE> 8
(f) Employee shall be entitled to participate in any
additional benefits which may be offered from time to time to Company employees
generally on the same basis and subject to the same qualification requirements
as apply to employees holding positions comparable to Employee.
(g) Employee shall be covered by dental and health plans
paid for or offered by the Company.
(h) Employee shall be entitled to an auto allowance of
$1,000 per month and a car phone allowance of up to $750 per month for
business related usage only.
(i) In accordance with the Company's benefit plans, as
the same may be amended from time to time, Employee shall be covered by one or
more policies of life insurance, as to which Employee shall have the right to
designate the beneficiary, in at least the amount(s) of such life insurance
currently provided for the Employee by the Company.
(j) Employee shall be entitled to reimbursement for
monthly dues and business related expenses at club to be determined by the
Company and Employee.
(k) Employee shall be entitled to be reimbursed up to
$3,500 for the fees of any attorney, accountant other professional advisor
consulted in connection with the negotiation and preparation of this Agreement.
(l) Employee shall be entitled to receive a one-time
bonus of $215,000 (the "Guaranteed Bonus") to be paid on or before December 31,
1997. If Employee has not fully satisfied his $355,000 note payable to the
Company, including accrued interest, this bonus will be applied against this
outstanding obligation and any amount remaining will be paid to Employee.
4. Term of this Agreement.
-8-
<PAGE> 9
(a) The employment of Employee by the Company shall
continue from the date hereof until December 31, 1997 (the "Term"), unless
sooner terminated by the Company for Cause.
(b) Upon the termination of the Employee's employment
with the Company for Cause or upon the death or Disability of Employee, the
Company shall have no further liability to the Employee or his personal
representatives with respect to this Agreement, except for compensation accrued
and unpaid on the date of such termination, death or Disability (which shall
include unused vacation and bonuses, if applicable).
(c) In the event that, during the Term, the Company
terminates Employee's employment without Cause, the Company shall pay all
compensation and continue all benefits payable to Employee hereunder for the
balance of the Term. In addition, in the event that (i) during the Term the
Company terminates Employee's employment without Cause, or (ii) as of the end
of the Term Employee's employment has not sooner terminated for Cause, Employee
shall be entitled to receive as severance compensation, in addition to all
other amounts payable hereunder, (x) in a lump sum payable on or before March
31, 1998 an amount equal to Employee's Base Compensation for 1997 (the
"Severance Payment"), (y) benefits provided to the Employee pursuant to
Sections 3(g) through (i) above (but not including the car phone allowance
provided for in Section 3(h) through December 31, 1998 (the "Severance Term")
at the same cost to Employee as of the date of termination of employment, and
(z) all options granted to Employee pursuant to Option Agreements between the
Company and Employee dated April 19, 1996 and May 28, 1996, shall be deemed
fully vested. At the end of the Severance Term, the Company shall issue
Employee a COBRA Notice, pursuant to which he may elect continuing medical and
hospitalization coverage at his own cost, and shall, at Employee's option and
to the extent
-9-
<PAGE> 10
permissible under the Company's life insurance policy for Employee, transfer to
Employee, at Employee's expense, ownership of any insurance on his life, which
Employee may thereafter continue in force at his own expense.
(d) The covenants of the Employee in Sections 5 and 6
shall survive the expiration or termination of this Agreement and the
Employee's employment hereunder and shall not be extinguished thereby.
5. Noncompetition Agreement.
As a part of the consideration for the employment of Employee
by the Company and the payment to Employee of the compensation referenced
above, and the other consideration described herein, Employee agrees, during
his employment and, without the prior written consent of the Company, for a
period equal to one (1) year following the later of (i) the termination of his
employment or (ii) December 31, 1998, provided Employee received the Severance
Payment, directly or indirectly, as owner, employee, agent, trustee, partner,
officer, director, stockholder or consultant, not to (i) employ any person who
was an employee, partner, officer, director or shareholder of the Company
("Solicited Employee") at any time within six (6) months before termination of
Employee's employment with the Company, unless Solicited Employee was
terminated by the Company, (ii) contract or solicit any person or entity which
was a customer of the Company at any time within six (6) months before the
termination of Employee's employment with the Company in connection with any
matters similar in nature or related to any core business conducted between or
contemplated by the Company and such customer within five (5) miles of any city
or county in which the Company conducts business or performs services ("Area")
at any time during Employee's employment with the Company; or (iii) engage in
any business competing
-10-
<PAGE> 11
with the core business of the Company, its subsidiaries or affiliates within
the Area. For the purpose of this Section, "core business" shall mean any
business from which the Company or any of its subsidiaries derives in excess of
ten percent (10%) of the Company's or such subsidiary's annual revenues.
Nothing in this Agreement shall be construed to prevent Employee from
purchasing any stock or securities listed on the New York Stock Exchange or any
other recognized Stock Exchange or any other recognized Stock Exchange or any
over the counter stock or securities traded through the National Association of
Securities Dealers.
6. Ownership and Non-Disclosure and Non-Use of Confidential
Information.
(a) Employee acknowledges and agrees that all Confidential
Information, including all physical embodiments thereof, are confidential to
and shall be and remain the sole and exclusive property of the Company. Upon
request by the Company, and in any event, upon termination of his employment
with the Company for any reason, Employee shall promptly deliver to the Company
all property belonging to the Company including, without limitation, all
Confidential Information (and all embodiments thereof) then in his custody,
control and procession.
(b) Employee agrees that he will not, either during the
terms of his employment by the Company or at any time thereafter, without the
prior written consent of the Company, divulge, disclose or make available any
Confidential Information to any person or entity, either directly or
indirectly, nor shall he make or cause to be make, either on his own behalf or
on behalf of others, any use of any such Confidential Information other than in
the proper performance of his duties hereunder.
(c) During the term of this Agreement, Employee agrees not
to engage in any activity which conflicts with the interest of the Company
or with Employee's duties as an
-11-
<PAGE> 12
employee. Furthermore, during the term of this Agreement Employee agrees not
to initiate or engage in any business, research or other activity which is
identical, or similar to that which Employee performs for the Company nor will
Employee directly or indirectly serve, advise or be employed by any individual
or firm engaged in the same or a similar line of business as that carried on by
the Company.
7. Severability and Remedies.
Employee agrees that the covenants and agreements contained in
Sections 5, 6 and 8 of this Agreement, and the Subsections of these Sections,
are of the essence of this Agreement and the Company agrees that the covenants
and agreements contained in Sections 2, 3 and 4 of this Agreement, and the
Subsections of these Sections, are of the essence of this Agreement; that each
of such covenants is reasonable and necessary to protect and preserve the
interests and properties of the Employee and the Company; that irreparable loss
and damage will be suffered by the Company should Employee breach any of such
covenants and agreements; that irreparable loss and damage will be suffered by
Employee should the Company breach any of such covenants and agreements; that
each of such covenants and agreements in separate, distinct and severable not
only from the other of such covenants and agreements but also from the other
and remaining provisions of this Agreement; that such covenants and agreements
shall not be held invalid or unenforceable because of the scope of the
territory or actions subject thereto or restricted thereby, or the period of
item within such covenant or agreement is operative, but any court of competent
jurisdiction may define the maximum territory subject to and restricted by such
covenants and agreements and the period of time during which such covenant is
enforceable; that the unenforceability of any such covenant or agreement shall
not affect the validity or enforceability of any other such covenant or
agreement, or
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<PAGE> 13
any other provision or provisions of this Agreement; and that, in addition to
other remedies available to them, the Company and/or Employee shall be entitled
to both temporary and permanent injunctions to prevent a breach or contemplated
breach by the other party of any such covenants or agreements.
8. Assignment and Entirety Clause.
This Agreement may be assigned by the Company with the consent of
Employee, which consent will not be unreasonably withheld and shall inure to
the benefit of any such assignee provided that such assignment does not
materially alter Employee's rights, duties, position, prestige or anticipated
benefits from this Agreement. The waiver by the Company or the waiver by
Employee of any breach of the Agreement by the other party shall not be
effective unless in writing, and no such waiver shall operate or be construed
as the waiver of the same or another breach on a subsequent occasion. This
Agreement embodies the entire agreement of the parties hereto relating to the
employment by the Company of Employee in the capacity herein stated, any
modifications to this Agreement shall be ineffective unless contained in a
writing signed by all of the parties hereto. All prior understandings and
agreements relating to the employment by the Company, or its affiliates, of the
Employee, in whatever capacity, are hereby expressly terminated. Anything
herein to the contrary notwithstanding, the Option Agreements between the
Company and Employee dated April 19, 1996 and May 28, 1996 shall be deemed
modified to the extent necessary to provide Employee full vesting of his
options in accordance with Section 4(c) above.
9. Attorneys' Fees.
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<PAGE> 14
In the event of a dispute arising out of this Agreement, the
prevailing party shall be entitled to recover his or its reasonable attorneys'
fees and costs, including the costs of experts, and any appeals.
10. Law Governing. THIS AGREEMENT AND ALL ISSUES RELATING TO ITS
VALIDITY, INTERPRETATION, AND PERFORMANCE SHALL BE GOVERNED BY AND INTERPRETED
UNDER THE LAWS OF THE STATE OF TEXAS (OTHER THAN THE CONFLICT OF LAWS
PROVISIONS THEREOF).
IMPORTANT; THIS AGREEMENT CONTAINS VERY IMPORTANT TERMS
GOVERNING YOUR EMPLOYMENT WITH CORESTAFF, INC. PARAGRAPHS FIVE (5) AND SIX (6)
CONTAIN PROVISIONS WHICH AFFECT YOUR ABILITY TO TAKE CERTAIN ACTIONS FOLLOWING
THE TERMINATION OF THIS AGREEMENT. YOU SHOULD FEEL FREE TO SEEK ADVICE FROM
YOUR ATTORNEY REGARDING ANY MATTER RELATING TO THIS AGREEMENT.
BY EXECUTING THIS AGREEMENT, YOU ARE AFFIRMING THAT YOU HAVE HAD THE
OPPORTUNITY TO REVIEW THIS AGREEMENT AND TO CONSULT WITH YOUR ATTORNEY IF YOU
SO DESIRED, THAT YOU UNDERSTAND THE MEANING AND SIGNIFICANCE OF ALL OF ITS
PROVISIONS, THAT NO REPRESENTATIONS OR PROMISES HAVE BEEN MADE TO YOU REGARDING
YOUR EMPLOYMENT WHICH ARE NOT SET FORTH IN THIS AGREEMENT AND THAT YOU ARE
FREELY SIGNING THIS AGREEMENT TO OBTAIN EMPLOYMENT WITH CORESTAFF, INC.
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<PAGE> 15
IN WITNESS WHEREOF, the Company and Employee have executed and
delivered this Agreement as of the date above.
"COMPANY"
CORESTAFF, INC.
By: /s/ MICHAEL T. WILLIS
--------------------------------------
Michael T. Willis
President and Chief Executive Officer
"EMPLOYEE"
/s/ JOSEPH V. AMELLA
--------------------------------------------
JOSEPH V. AMELLA
-15-
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This AGREEMENT is made as of September 6, 1995, by and between
CORESTAFF, INC., a Delaware corporation (the "Company") and GEORGE W. FINK
(the "Employee").
The parties desire to enter into an agreement pursuant to which
Employee shall be employed by the Company as the Chief Operating Officer of the
Company's Information Technology and Niche Services Groups, President of
COREStaff Information Services Division, and Executive Vice President of the
Company.
The parties hereto agree as follows:
1. Employment. The Company agrees to employ Employee and
Employee accepts such employment for the period beginning as of the date hereof
and ending upon termination pursuant to Section 3 hereof (the "Employment
Period"). During the Employment Period, Employee shall serve as the Chief
Operating Officer of the Company's Information Technology and Niche Services
Groups, President of COREStaff Information Services Division, and Executive
Vice President of the Company and shall have the normal duties,
responsibilities and authority of the Chief Operating Officer of the Company's
Information Technology and Niche Services Groups, the President of COREStaff
Information Services Division, and the Executive Vice President of the Company,
subject to the power of the President and Chief Executive Officer and the
Company's board of directors (the "Board") to expand or limit such duties,
responsibilities and authority and to override actions of the Employee.
2. Salary, Bonus and Benefits.
(a) Salary. During the Employment Period, the Company
will pay Employee a base salary (the "Annual Base Salary") as the Board may
designate from time to time, at the rate of not less than $285,000.00 per
annum, which amount shall be reviewed annually and shall be subject to an
annual increase, as determined by the Board in its sole discretion. Employee's
Annual Base Salary for any partial year will be prorated based upon the number
of days elapsed in such year.
(b) Annual Bonus. Following the first anniversary date
hereof and each anniversary date thereafter, the Board may, in its
sole discretion, and upon the attainment of objectives mutually agreed
upon by the Board and Employee, award a bonus to Employee in an amount
not to exceed fifty percent (50%) of Employee's Annual Base Salary for
such year (the "Annual Bonus"). Employee's Annual Bonus for a partial
year will be pro-rated based upon the number of days elapsed in such
year.
(c) Benefits. Employee shall be entitled to such
perquisites as may be agreed to by Employee and the Board, and, in addition,
shall be entitled to participate in any plan established by the Company to
provide benefits to its employees at the time Employee meets the eligibility
<PAGE> 2
criteria established for each plan. In addition, Employee shall be eligible to
the following benefits regarding common stock of the Company:
(i) Stock Options: At the commencement of Employee's
employment with Company, Employee shall receive options to purchase a
sufficient number of shares on a "pre-split" basis to equal 100,000
shares of the Company's common stock after the Stock Split (as such
term is defined in the Company's Form S-1 Registration Statement) at a
price equal to $11.20 per share. All share amounts listed below
reflect the proposed 76 for 1 stock split of the Company's common
stock. Vesting for such stock options will occur as follows:
(A) 10,000 shares (i.e., 131.578947 shares on a
pre-split basis) immediately, subject to
expiration if the same is not exercised on or
before December 6, 1995;
(B) 30,000 shares (i.e., 394.736842 shares on a
pre-split basis) immediately; subject
however, to forfeiture in the event Employee
voluntarily resigns prior to September 6,
1996; and
(C) 60,000 shares (i.e., 787.473682 shares on a
pre-split basis) vesting over a three (3)
year period, with one-third vesting on the
first anniversary of employment, 1/3 vesting
on the second anniversary of employment, and
the final 1/3 vesting on the third
anniversary of employment.
The exact terms and conditions of the stock options referenced
above shall be set forth in stock option agreements by and between the
Employee and the Company.
(ii) $1,000 monthly automobile allowance;
(iii) Three (3) weeks' paid vacation, in addition to
holidays declared by the Company;
(iv) Reimbursement for monthly country club dues;
(v) Reasonable business expenses incurred in the
performance of Employee's duties, including expenditures for
entertainment, gifts and travel provided the expenditures are properly
deductible for income tax purposes as a business expense and proper
substantiation records as required by tax law are furnished; and
(vi) Annual membership dues to remain a member of the
"Young Presidents' Organization."
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<PAGE> 3
3. Term.
(a) The term of the Employment Period shall commence on
the date hereof and continue until the third (3rd) anniversary of the date
hereof (the "Original Term") and renew automatically for successive one-year
terms (each, a "Renewal Term") unless notice of non-renewal is given by either
party to the other party at least three (3) months prior to the end of the
Original Term or any Renewal Term; provided that the Employment Period may also
be terminated prior to such date (i) by the Employee for any reason or (ii) by
the Company for Cause, or without Cause.
(b) If the Employment Period is terminated by the Company
without Cause and prior to the first anniversary date hereof, Employee shall be
entitled to receive an amount equal to (i) one-half (1/2) of his Annual Base
Salary as of the date of such termination divided by (ii) twelve (12), payable
in twelve (12) equal monthly installments.
(c) If the Employment Period is terminated by the Company
without Cause and after the first anniversary date hereof, Employee shall be
entitled to receive an amount equal to (i) his Annual Base Salary divided by
(ii) twelve (12), payable in twelve (12) equal monthly installments.
(d) If the Employment Period is terminated by the Company
for Cause, Employee shall not be entitled to receive any compensation other
than accrued and unpaid Annual Base Salary.
(e) All of Employee's rights to fringe benefits and
bonuses hereunder shall cease upon the termination of the Employment Period.
4. Definitions.
"Cause" shall mean (A) Employee being determined by the Board to have
refused to diligently perform the duties assigned to Employee under this
Agreement and not to have remedied the situation within a reasonable period of
time after receipt of written notice from the Company specifying the refusal;
(B) Employee having been determined by the Board to have refused to abide by
the Company's policies, rules, procedures or directives and not to have
remedied the situation within a reasonable period of time after receipt of
written notice from the Company specifying the refusal; (C) Employee's gross
negligence, reckless or willful misconduct with respect to the Company or any
of its Subsidiaries which results in a material harm to such entity's standing
among customers, suppliers, employees and other business relationships; or (D)
Employee having been determined by the Board to be guilty of fraud, dishonesty
or a crime involving moral turpitude. In making any determination described
above, the Board shall act in good faith.
"Subsidiary" means any corporation of which the Company owns
securities having a majority of the ordinary voting power in electing the board
of directors directly or through one or more subsidiaries.
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<PAGE> 4
5. Confidential Information. Employee acknowledges that the
information, observations and data obtained by him during the course of his
performance under this Agreement concerning the business and affairs of the
Company and its affiliates are the property of the Company. Therefore,
Employee agrees that he will not disclose to any unauthorized person or use for
his own account any of such information, observations or data without the
Board's written consent, unless and to the extent that the aforementioned
matters become generally known to and available for use by the public other
than as a result of Employee's wrongful acts or omissions to act. Employee
agrees to deliver to the Company at the termination of his employment, or at
any other time the Company may request in writing, all memoranda, notes, plans,
records, reports and other documents (and copies thereof) relating to the
business of the Company and its affiliates (including, without limitation, all
acquisition prospects, lists and contact information) which he may then
possess or have under his control.
6. Non-Competition and Non-Solicitation.
(a) Non-Competition. Employee acknowledges that in the course of
his employment with the Company he will become familiar with the Company's
trade secrets and with other confidential information concerning the Company
and that his services will be of special, unique and extraordinary value to the
Company. Therefore, Employee agrees that, during the Employment Period and for
a period equal to the applicable severance payment period set forth in Section
3(b) or 3(c) hereof thereafter (the "Non-Compete Period"), he shall not
directly or indirectly own, manage, control, participate in, consult with,
render services for, or in any manner engage in any business competing with the
core businesses of the Company or the core business of any of its Subsidiaries
as such businesses exist or are in process on the date of the termination of
Employee's employment, within the geographical area in which the Company or its
Subsidiaries engage; provided that if the Employment Period is terminated by
the Company pursuant to clause (E) of the definition for "Cause", the Employee
shall not be subject to the terms of this Section 6(a) or 6(b). For purposes
of this Section 6, "core business" shall mean any business from which the
Company or any of its Subsidiaries derives in excess of ten percent (10%) of
the Company's or any such Subsidiary's annual revenues.
(b) Non-Solicitation. During the Non-Compete Period, Employee
shall not directly or indirectly through another entity (i) induce or attempt
to induce any employee of the Company or any Subsidiary to leave the employ of
the Company or such Subsidiary, or in any way interfere with the relationship
between the Company or any Subsidiary and any employee thereof, (ii) hire any
person who was an employee of the Company or any Subsidiary at any time during
the one (1) year period prior to Employee's termination and/or resignation, or
(iii) induce or attempt to induce any customer, supplier, licensee or other
business relation of the Company or any Subsidiary to cease doing business with
the Company or such Subsidiary, or in any way interfere with the relationship
between any such customer, supplier, licensee or business relation and the
Company or any Subsidiary.
(c) Enforcement. If, at the time of enforcement of Section 5 or 6
of this Agreement, a court holds that the restrictions stated herein are
unreasonable under circumstances then existing,
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<PAGE> 5
the parties hereto agree that the maximum duration, scope or geographical area
reasonable under such circumstances shall be substituted for the stated period,
scope or area and that the court shall be allowed to revise the restrictions
contained herein to cover the maximum duration, scope and area permitted by
law. Because Employee's services are unique and because Employee has access to
confidential information, the parties hereto agree that money damages would be
an inadequate remedy for any breach of this Agreement. Therefore, in the event
of a breach or threatened breach of this Agreement, the Company or its
successors or assigns may, in addition to other rights and remedies existing in
their favor, apply to any court of competent jurisdiction for specific
performance and/or injunctive or other relief in order to enforce, or prevent
any violations of, the provisions hereof (without posting a bond or other
security).
7. Notices. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested) or sent by reputable overnight
courier service (charges prepaid) to the recipient at the address below
indicated:
If to the Company:
COREStaff, Inc.
5 Post Oak Park
4400 Post Oak Parkway, Suite 1130
Houston, Texas 77027-3413
Attention: Peter T. Dameris, Vice President,
Secretary and General Counsel
If to the Employee:
George W. Fink
5 Post Oak Park
4400 Post Oak Parkway, Suite 1130
Houston, Texas 77027
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or sent or, if mailed, five (5) days after deposit in the U.S. mail.
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<PAGE> 6
8. General Provisions.
(a) Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(b) Complete Agreement. This Agreement, those documents expressly
referred to herein and other documents of even date herewith embody the
complete agreement and understanding among the parties and supersede and
preempt any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof
in any way.
(c) Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
(d) Successors and Assigns. Except as otherwise provided herein,
this Agreement shall bind and inure to the benefit of and be enforceable by
Employee, the Company and their respective successors and assigns; provided
that the rights and obligations of Employee under this Agreement shall not be
assignable.
(e) Choice of Law. The corporate law of the State of Delaware
will govern all questions concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity and
interpretation of this Agreement and the exhibits hereto will be governed by
and construed in accordance with the internal laws of the State of Texas,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Texas or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Texas.
(f) Remedies. Each of the parties to this Agreement will be
entitled to enforce its rights under this Agreement specifically, to recover
damages and costs (including attorneys' fees) caused by any breach of any
provision of this Agreement and to exercise all other rights existing in its
favor. The parties hereto agree and acknowledge that money damages may not be
an adequate remedy for any breach of the provisions of this Agreement and that
any party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or deposit) for specific
performance and/or other injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement.
(g) Amendment and Waiver. The provisions of this Agreement may be
amended and waived only with the prior written consent of the Company and
Employee.
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
CORESTAFF, INC.
By: /s/ MICHAEL T. WILLIS
-----------------------------------------
Michael T. Willis
President and Chief Executive Officer
/s/ GEORGE W. FINK
---------------------------------------------
GEORGE W. FINK
-7-
<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated July 31, 1996, by and
between CORESTAFF, INC., a Delaware corporation ("Employer"), and AUSTIN P.
YOUNG ("Employee").
W I T N E S S E T H:
WHEREAS, Employer desires to retain the services of Employee as the
Executive Vice President of Finance and Administration of Employer; and
WHEREAS, Employer considers the employment of Employee pursuant to the
terms of this Agreement to be in the best interests of Employer and its equity
holders and wishes to assure that Employee serves Employer on an objective and
impartial basis and without distraction or conflict of interest in the event of
the potential termination of Employee's employment under certain circumstances;
and
WHEREAS, Employee is willing, on the terms and subject to the
conditions provided in this Agreement, to undertake the management
responsibilities contemplated herein, furnish services to Employer as provided
herein and be subject to certain employment restrictions and obligations;
NOW THEREFORE, in consideration of the premises, the covenants,
representations and warranties herein contained and other good, valuable and
binding consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, the parties hereto agree as follows:
1. Employment Term. This Agreement shall, subject to Section 5
herein, remain in effect from August 19, 1996 (the "Effective Date") until
August 19, 1999 (the "Initial Term"), and thereafter automatically renew for
one (1) year terms (a "Renewal Term"), unless notice of non-renewal is given by
either party to the other party at least ninety (90) days prior to the
expiration of any one (1) year Employment Term. Such notice shall be referred
to as a "Termination Notice." The Initial Term, together with any Renewal
Term, of Employee's employment hereunder shall hereinafter be referred to as
the "Employment Term."
2. Responsibilities and Authority. Employer hereby employs
Employee to serve as its Executive Vice President of Finance and
Administration. During the Employment Term, Employee shall have the normal
duties, responsibilities and authority of the Executive Vice President of
Finance and Administration, including without limitation responsibility for
certain administrative and financial aspects of the operations of Employer,
subject to the power of Employer's Chief Executive Officer and President and
the Employer's board of directors (the "Board") to expand or limit such duties,
responsibilities, and authority and to override actions of the Executive Vice
President of Finance and Administration.
<PAGE> 2
2.1. Board Representation. The Employer agrees to appoint
(subject to the approval of a majority of the Board) Employee to Employer's
Board.
3. Acceptance of Employment. Employee accepts employment by
Employer on the terms and conditions herein provided and agrees, subject to the
terms of this Agreement, to devote substantially all of his full business time
to advance the business of Employer. Employee agrees he will not serve on the
Board of any non-affiliate without approval of the Board of Directors. Nothing
contained in this Agreement shall be construed so as to prevent Employee from
investing his personal assets in such a manner and otherwise engaging in
business transactions that will not require a substantial portion of Employee's
business time or otherwise interfere with the performance of his duties
hereunder, according to the guidelines of the Board.
4. Compensation and Benefits. As compensation for his services
hereunder, Employee shall be entitled to the following amounts.
4.1. Base Compensation. Employee shall receive a base
cash salary at the aggregate initial rate of $310,000 per annum. Such Base
Compensation will be reviewed on January 2, 1998, and annually thereafter, by
the Board and its Compensation Committee, and upon recommendation by the
Compensation Committee, the Board in its discretion may make appropriate annual
adjustments. The compensation received by Employee from time to time pursuant
to this Section 4.1 shall be hereinafter referred to as "Base Compensation."
The Base Compensation shall be paid in substantially equal semi-monthly
installments.
4.2. Bonus. In addition to Base Compensation, commencing
January 1, 1997, Employee may be entitled to receive annual bonuses (an
"Incentive Bonus") equal to (i) thirty-five percent (35%) of Employee's annual
Base Compensation based upon Employer meeting consolidated budget and earnings
per share objectives; and (ii) fifteen percent (15%) of Employee's annual Base
Compensation based upon Employee meeting, in the sole good faith discretion of
the Chief Executive Officer and President of Employer, certain written
objectives established annually by Employee and the Employer's Chief Executive
Officer and President. Such budget and earnings per share objectives shall be
exclusive of any acquisitions consummated after the date of this Agreement. In
addition to the Incentive Bonuses referenced above, Employer agrees that
Employee shall receive a non-recurring special bonus for fiscal years 1997 and
1998 equal to $260,591, which shall be payable to Employee in two (2) equal
installments with the first payment being due and payable March 1, 1997 and the
final payment being due and payable March 1, 1998, regardless of any earlier
termination of employment of Employee, except voluntary termination without
Good Reason (as hereinafter defined).
4.3. Benefits. Employee shall be entitled to such
perquisites as may be agreed to by Employee and Employer, and, in addition,
shall be entitled to participate in any plan established by Employer to provide
benefits to its employees at the time Employee meets the eligibility criteria
established for each plan.
2
<PAGE> 3
4.4. Vacation. Employee shall be entitled to four (4)
weeks of compensated vacation each year, to be taken at times mutually agreed
upon between Employee and the Chief Executive Officer and President of Employer
and in accordance with Employer's vacation policy.
4.5. Beneficiaries. Employee shall have the absolute
right to designate the beneficiaries to receive the proceeds of all such
employee benefit programs contained herein in the event of Employee's death.
4.6. Acceleration of Payments.
4.6.1. Definitions. For purposes of this Agreement, the
following terms shall have the following meanings:
(a) "Cause" shall mean:
(i) Employee being determined by the
Board to have refused to diligently perform the duties
assigned to Employee under this Agreement and not to have
remedied the situation within a reasonable period of time
after receipt of written notice from Employer specifying the
refusal; or
(ii) Employee having been determined by
the Board to have refused to abide by Employer's policies,
rules, procedures or directives and not to have remedied the
situation within a reasonable period of time after receipt of
written notice from Employer specifying the refusal; or
(iii) Employee's gross negligence,
reckless or willful misconduct with respect to the Employer or
any of its subsidiaries which results in a material harm to
such entity's standing among customers, suppliers, employees
and other business relationships; or
(iv) Employee having been found guilty by
a court of law of fraud, dishonesty and/or a felony crime.
In making any determination described above, the
Board shall act in good faith.
Notwithstanding the foregoing, the Employee shall in
no event be deemed to have been terminated for Cause unless and until there
shall have been delivered to him a termination notice in the form of a copy of
a resolution duly adopted by the affirmative vote of not less than a majority
of the entire membership of the Board (excluding "Employee") at a meeting of
such Board.
(b) "Good Reason" shall mean the occurrence of
any of the following events without Employee's express written
consent:
3
<PAGE> 4
(i) A substantial and adverse change in
the Employee's duties, control, authority, status or position,
or the assignment to the Employee of any duties or
responsibilities which are materially inconsistent with such
status or position, or a material reduction in the duties and
responsibilities previously exercised by the Employee, or a
loss of title, loss of office, relocation, loss of significant
authority, power or control, or any removal of him from or any
failure to reappoint or reelect him to such positions, except
in connection with the termination of his employment for Cause
or Disability (as defined below), or as a result of his Death;
(ii) Any reduction by Employer in
Employee's Base Compensation unless such reduction shall also
apply to similarly situated executives of Employer and does
not exceed ten percent (10%) per year (unless otherwise agreed
to in writing by Employee);
(iii) Any material breach by Employer of
any provisions of this Agreement;
(iv) A material increase in the amount of
travel required by Employer of Employee to perform Employee's
duties; or
(v) A required relocation by Employer of
Employee outside Harris County, Texas.
(c) Termination by reason of "Death" or "Total
Disability" shall mean termination as defined in Section 5 of this
Agreement.
(d) A "Change of Control" shall be deemed to have
occurred if any "person" as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as then in effect, other
than Golder, Thoma, Cressey & Rauner, Inc., or any of its affiliates,
or any "person" who on that date is a Director or Officer of Employer,
is or becomes the "beneficial owner" as defined in Rule 13d-3 under
such Act, directly or indirectly, of securities of Employer
representing fifty-one percent (51%) or more of the combined voting
power of Employer's then outstanding securities, other than pursuant
to a transaction or a series of transactions which have been approved
by a majority of the disinterested members of the Board of Directors
of Employer.
(e) "Triggering Event" shall mean: (1) a "Change
of Control" as described in paragraph (d) above), and the occurrence
of any event listed in Paragraph 4.6.1.(b) (within six (6) months
after such "Change in Control"); or (2) the actual termination of this
Agreement for any reason other than:
(i) Employee's voluntary termination
(except a voluntary termination for Good Reason as defined
herein); or
4
<PAGE> 5
(ii) Termination of employment for Cause;
or
(iii) Termination of employment upon the
Death or Total Disability of Employee as defined in Section 5
of this Agreement; or
(iv) Termination of employment at the end
of any Employment Term.
4.6.2. Occurrence of Triggering Event. In the event of the
occurrence of a Triggering Event, Employee shall receive from Employer a lump
sum payment equal to two (2) times "Base Compensation" plus the highest
Incentive Bonus paid over the previous two (2) years; provided, however, in no
event shall such Incentive Bonus be deemed to be less than $155,000 prior to
December 31, 1998. In addition to the lump sum severance payment, Employer
will continue to provide, at no cost to Employee, for the lesser of (i) two (2)
years from the date of termination or (ii) the date on which Employee becomes
employed by another party and obtains substantially equivalent coverage through
his new employer, the various group health and dental benefits to which
Employee is entitled under this Agreement.
4.6.3. Time of Payment. All accelerated payments pursuant
to Section 4.6.2 shall be paid as promptly as possible but in any event within
thirty (30) days after the occurrence of a Triggering Event; but, if the full
amount of such accelerated payment is not paid within five (5) business days
after the date of the Triggering Event, such amounts shall be evidenced by a
promissory note from Employer bearing interest at the rate of ten percent (10%)
per annum from the date of the Triggering Event until paid.
4.7. Reimbursement of Expenses. Employee will be promptly
reimbursed by Employer for all reasonable and necessary expenses ("Reimbursable
Expenses") incurred by Employee on behalf of and in connection with the
business of Employer.
4.8. Stock Option Awards.
4.8.1. Subject to approval of the 1995 Long-Term Incentive
Plan Committee (the "LTIP Committee") of Employer, Employee shall be granted on
the Effective Date options to purchase seventy thousand (70,000) shares of the
Common Stock of Employer pursuant to an option agreement in the form as that
which is attached hereto as Exhibit "A," which option agreement shall provide a
maximum five (5) year vesting period and an exercise price equal to the closing
price of Employer's Common Stock on the date of grant.
4.8.2. In addition to the options referenced in Section
4.8.1 of this Agreement and subject to the approval of the LTIP Committee,
Employee shall be granted on the Effective Date a number of shares of
restricted Common Stock of Employer equal to $319,700 divided by the closing
price of Employer's Common Stock on the Effective Date (the "Restricted Stock")
pursuant to a restricted stock agreement. The restricted stock agreement which
is attached hereto as Exhibit "B," shall provide (a) $86,875 of such Restricted
Stock shall become unrestricted upon the
5
<PAGE> 6
completion of eight (8) full months of employment from the Effective Date; and
(b) the remaining $232,825 of such Restricted Stock shall become unrestricted
on March 30, 1999.
4.9. Severance Payment. In the event this Agreement is
not renewed at the expiration of the Initial Term or any Renewal Term, Employee
shall be entitled to a lump sum payment equal to six (6) months of his Base
Compensation. Such lump sum payment shall be paid to Employee within ten (10)
days of the date of expiration of this Agreement.
4.10. Parachute Payments. If Employee is liable for the
payment of any excise tax (the "Basic Excise Tax") because of Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), or any successor or
similar provision, with respect to any payments or benefits received or to be
received from Employer or its affiliates, or any successor to Employer or its
affiliates, whether provided under this Agreement or otherwise, Employer shall
pay to Employee an amount (the "Special Reimbursement") which, after payment by
Employee (or on Employee's behalf) of any federal, state and local taxes
applicable thereto, including, without limitation, any further excise tax under
such Section 4999 of the Code, on, with respect to or resulting from the
Special Reimbursement, equals the net amount of the Basic Excise Tax.
5. Termination. This Agreement may be terminated upon the
following terms:
5.1. Termination by Reason of Death. In the event of
Employee's death ("Death") during the Employment Term, this Agreement will
terminate upon the first day of the month following Employee's date of Death.
5.2. Termination by Reason of Total Disability. Employer
may terminate this Agreement by reason of "Total Disability" upon at least
thirty (30) days' notice to Employee. As used herein, "Total Disability" means
illness or other physical or mental disability of Employee which shall continue
for a period of at least six (6) months in the aggregate during any twelve (12)
month period during the Employment Term, which such illness or disability shall
make it impossible or impracticable for Employee to perform any of his duties
and responsibilities hereunder with whatever reasonable accommodation may be
required by applicable law. If a disagreement arises between Employee and
Employer as to whether Employee is suffering from "Total Disability," as
defined herein, the question of Employee's disability shall be determined by a
physician designated by a majority of the Board.
5.3. Termination by Employer Without Cause. In addition
to actual termination by Employer of Employee's employment without Cause, if
Employee's employment is constructively terminated by Employer, Employee's
employment shall be deemed to have been terminated without Cause. As used
herein, "constructive termination" shall mean any one or more of the events
described in Paragraph 4.6.1.(b) above if not remedied by Employer within
fifteen (15) business days after receipt by Employer of written notice from
Employee of such event of constructive termination.
6
<PAGE> 7
5.4. Termination by Employer For Cause. Employer shall be
entitled to terminate Employee's employment at any time for Cause, as defined
by Section 4.6.1.(a). In the event of such termination for Cause, all of
Employee's rights and benefits provided for in this Agreement shall terminate,
except as to any accrued and unpaid Base Compensation, accrued and unused
vacation (not to exceed sixty (60) days) and any benefits or amounts owed for
Reimbursable Expenses incurred by Employee prior to such termination.
Notwithstanding the foregoing, if Employee, upon receiving notice from Employer
of termination for Cause, which such notice shall specify the facts giving rise
to the asserted Cause, shall challenge such termination, then and in such event
Employee shall be entitled to arbitrate the issue as a "dispute" within the
meaning of Section 10 of this Agreement, and in accordance with the provisions
thereof, by serving a notice of arbitration within fourteen (14) days after
such notice of termination for Cause. Pending the determination of the
arbitrators, Employee's employment shall be deemed suspended, and during the
period of such suspension Employer shall pay an amount equal to the Base
Compensation to which Employee would otherwise be entitled, on a regular
periodic basis, into an escrow account with Texas Commerce Bank, N.A. to be
maintained at money market interest. The principal and interest thereon shall
be paid to Employee if the determination of the arbitrators is favorable to
Employee, and to Employer if the determination is favorable to Employer. All
benefits to which Employee would otherwise be entitled, including but not
limited to medical insurance and life insurance, shall continue to be made
currently available to Employee pending the determination of the arbitrators.
6. Confidential Information. Employee acknowledges that the
information, observations and data obtained by him during the course of his
performance under this Agreement concerning the business and affairs of
Employer and its affiliates are the property of Employer. Therefore, Employee
agrees that he will not disclose to any unauthorized person or use for his own
account any of such information, observations or data without the Board's
written consent, unless and to the extent that the aforementioned matters
become generally known to and available for use by the public other than as a
result of Employee's wrongful acts or omissions to act. Employee agrees to
deliver to Employer at the termination of his employment, or at any other time
Employer may request in writing, all memoranda, notes, plans, records, reports
and other documents (and copies thereof) relating to the business of the
Company and its affiliates (including, without limitation, all acquisition
prospects, lists and contact information) which he may then possess or have
under his control.
7. Non-Competition and Non-Solicitation.
7.1. Non-Competition. Employee acknowledges that in the
course of his employment with Employer he will become familiar with Employer's
trade secrets and with other confidential information concerning Employer and
that his services will be of special, unique and extraordinary value to
Employer. Therefore, Employee agrees that, during the Employment Term and for
the lessor of (a) two (2) years after the termination of the Employment Term or
(b) such time as Employer notifies Employee in writing of the termination of
the restrictions set forth in this Section 7 (the "Non-Compete Period"), he
shall not directly or indirectly own, manage, control, participate in, consult
with, render services for, or in any manner engage in any business competing
with the core businesses of Employer or the core businesses of any of its
subsidiaries as such
7
<PAGE> 8
businesses exist or are in process on the date of the termination of Employee's
employment, within the geographical area in which Employer or its subsidiaries
engage. For purposes of this Section 7, "core business" shall mean any
business from which Employer or any of its subsidiaries derives in excess of
ten percent (10%) of Employer's or any such subsidiary's annual revenues.
Notwithstanding anything to the contrary contained in this
Section 7, the Employer may extend the Non-Compete Period for an additional
one (1) year period after the expiration of the Non-Compete Period, on the same
terms and conditions as set forth herein by: (i) giving Employee written notice
of such extension, at least sixty (60) days prior to the expiration of the
Non-Compete Period and (ii) by paying Employee a lump sum payment equal to his
Base Compensation.
7.2. Non-Solicitation. During the Non-Compete Period,
Employee shall not directly or indirectly through another entity (a) induce or
attempt to induce any employee of Employer or any subsidiary to leave the
employ of Employer or such subsidiary, or in any way interfere with the
relationship between Employer or any subsidiary and any employee thereof, (b)
hire any person who was an employee of Employer or any subsidiary at any time
during the Employment Term (other than an employee whose employment is
terminated by Employer), or (c) induce or attempt to induce any customer,
supplier, licensee, or other business relation of Employer or any subsidiary to
cease doing business with Employer or such subsidiary, or in any way interfere
with the relationship between any such customer, supplier, licensee or business
relation and Employer or any subsidiary.
7.3. Enforcement. If, at the time of enforcement of
Section 6 or 7 of this Agreement, a court holds that the restrictions stated
herein are unreasonable under circumstances then existing, the parties hereto
agree that the maximum duration, scope or geographical area reasonable under
such circumstances shall be substituted for the stated period, scope or area
and that the court shall be allowed to revise the restrictions contained herein
to cover the maximum duration, scope and area permitted by law. Because
Employee's services are unique and because Employee has access to confidential
information, the parties hereto agree that money damages would be an inadequate
remedy for any breach of this Agreement. Therefore, in the event of a breach
or threatened breach of this Agreement, Employer or its successors or assigns
may, in addition to other rights and remedies existing in their favor, apply to
any court of competent jurisdiction for specific performance and/or injunctive
or other relief in order to enforce, or prevent any violations of, the
provisions hereof (without posting a bond or other security).
8. Notices. Any notice or request to be given hereunder to
either party hereto shall be deemed effective only if in writing and either (1)
delivered personally to Employee (in the case of a notice to Employee) or to
the Secretary of the applicable entity or entities, or (2) sent by certified or
registered mail, postage prepaid, to the addresses set forth on the signature
page hereof or to such other address as either party may hereafter specify to
the other by notice similarly served.
9. Assignment. This Agreement and the rights and obligations of
the parties hereto shall bind and inure to the benefit of each of the parties
hereto, and shall also bind and inure to the benefit of Employee's heirs and
legal representatives and any successor or successors of Employer by merger or
consolidation and any assignee of all or substantially all of Employer's
business and
8
<PAGE> 9
properties; except as to any such successor or assignee of Employer, neither
this Agreement nor any duties, rights or benefits hereunder may be assigned by
Employer or by Employee without the express written consent of Employee or
Employer, as the case may be.
10. ARBITRATION. ANY DISPUTE ARISING HEREUNDER BETWEEN EMPLOYEE
AND EMPLOYER WHICH CANNOT BE RESOLVED BY THEM TO THEIR MUTUAL SATISFACTION
WITHIN A PERIOD OF TWO (2) WEEKS, UNLESS MUTUALLY EXTENDED, SHALL BE SUBMITTED
TO ARBITRATION BY A PANEL OF THREE (3) ARBITRATORS IN HOUSTON, TEXAS, IN
ACCORDANCE WITH THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION THEN IN
EFFECT. THE RESULTS OF SUCH ARBITRATION SHALL BE BINDING AND CONCLUSIVE UPON
THE PARTIES HERETO, AND JUDGMENT ON THE AWARD MAY BE ENTERED AT THE INSTANCE OF
EITHER PARTY IN ANY COURT OF COMPETENT JURISDICTION. THE ARBITRATORS SHALL BE
EMPOWERED TO AWARD INTEREST AT A "FLOATING" PRIME RATE, RETROACTIVE TO THE DATE
OF BREACH OF THIS AGREEMENT, UPON ANY AWARD AND TO AWARD ARBITRATION COSTS
INCLUDING REASONABLE ACTUAL LEGAL FEES, IN THEIR DISCRETION, TO THE PREVAILING
PARTY.
11. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF TEXAS.
12. Modification. No modification or waiver of any provision
hereof shall be made unless it be in writing and signed by both of the parties
hereto.
13. Scope of Agreement. This Agreement constitutes the whole of
the agreement between the parties on the subject matter, superseding all prior
oral and written conversations, negotiations, understandings and agreements in
effect as of the date of this Agreement.
14. Indemnity.
14.1. Indemnification Against Suits Other Than Suits
Brought by, or in the Right of Employer. Employer shall indemnify and hold
harmless Employee from and against any claims, damages, expenses (including,
but not limited to, attorneys' fees and other expenses), judgments, fines and
amounts paid in settlement in which Employer is a party to the settlement
incurred by Employee in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of Employer) to which
Employee is a party or is threatened to be made a party by reason of or arising
out of the performance by Employee or Employer of any provision of this
Agreement, provided that Employee acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of Employer,
and with respect to any criminal action or proceeding, Employee had not
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order or its equivalent shall not of
itself, create a presumption that Employee did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of Employer, or with respect to any criminal action or proceeding,
had reasonable cause to believe that his conduct was unlawful.
9
<PAGE> 10
14.2 Indemnification Against Suits Brought by or in the
Right of Employer. Employer shall indemnify and hold harmless Employee from
and against any claims, damages, expenses (including, but not limited to,
attorneys' fees and other expenses), judgments, fines and amounts paid in
settlement in which Employer is a party to the settlement incurred by Employee
in connection with any threatened, pending or completed action, suit or
proceeding by or in the right of Employer to which Employee is a party or is
threatened to be made a party by reason of or arising out of the performance by
Employee or Employer of any provision of this Agreement, provided that Employee
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of Employer. Employee shall not be entitled to
indemnification pursuant to this Section 14.2 in respect of any claim, issue or
matter as to which Employee has been adjudged to be liable for negligence or
misconduct in the performance of his duty to Employer unless and only to the
extent that the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability, in view of all
the circumstances of the case Employee is fairly and reasonably entitled to
indemnity for such expenses which such court deems proper.
14.3. Procedure for Indemnification. Promptly after
receipt by Employee of notice of the commencement of any legal action against
Employee in respect of which indemnity or reimbursement may be sought against
Employer under this Agreement, Employee shall notify Employer in writing of the
commencement thereof. Any indemnification pursuant to Sections 14.1 and 14.2
hereof shall be made by Employer only as authorized in the specific case upon a
determination that indemnification of Employee is proper in the circumstances
because he has met the applicable standards of conduct set forth in Sections
14.1 and 14.2 hereof. Such determination shall be made by a majority of the
Board of Directors of Employer.
14.4. Advance Payment of Expenses. Expenses incurred by
Employee in defending a civil or criminal action, suit or proceeding may be
paid by Employer in advance of the final disposition of such action, suit or
proceeding if authorized by the Board of Directors of Employer upon receipt of
an undertaking by or on behalf of Employee to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by Employer
pursuant to Section 14 hereof.
14.5 Nonexclusivity of Indemnification Provisions.
Indemnification pursuant to Section 14 hereof shall be in addition to any other
rights which Employee may have under corporate or partnership governance
documents, other agreements or applicable law. Notwithstanding any provision
hereof to the contrary, Employer shall not be obligated to indemnify Employee
hereunder to the extent that Employer is prohibited by law from providing such
indemnification.
15. Severability. To the extent that any provision of this
Agreement may be deemed or determined to be invalid or unenforceable for any
reason, such invalidity or unenforceability shall not impair or affect any
other provision, and this Agreement shall be interpreted so as to most fully
give effect to its terms and still be valid and enforceable.
10
<PAGE> 11
IMPORTANT; THIS AGREEMENT CONTAINS VERY IMPORTANT TERMS GOVERNING YOUR
EMPLOYMENT WITH CORESTAFF. SECTION 7 CONTAINS PROVISIONS WHICH AFFECT YOUR
ABILITY TO TAKE CERTAIN ACTIONS FOLLOWING THE TERMINATION OF THIS AGREEMENT.
YOU SHOULD FEEL FREE TO SEEK ADVICE FROM YOUR ATTORNEY REGARDING ANY MATTER
RELATING TO THIS AGREEMENT.
BY EXECUTING THIS AGREEMENT, YOU ARE AFFIRMING THAT YOU HAVE HAD THE
OPPORTUNITY TO REVIEW THIS AGREEMENT AND TO CONSULT WITH YOUR ATTORNEY IF YOU
SO DESIRED, THAT YOU UNDERSTAND THE MEANING AND SIGNIFICANCE OF ALL OF ITS
PROVISIONS, THAT NO REPRESENTATIONS OR PROMISES HAVE BEEN MADE TO YOU REGARDING
YOUR EMPLOYMENT WHICH ARE NOT SET FORTH IN THIS AGREEMENT, AND THAT YOU ARE
FREELY SIGNING THIS AGREEMENT TO OBTAIN EMPLOYMENT WITH CORESTAFF.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
EMPLOYER:
CORESTAFF, INC.
By: /s/ PETER T. DAMERIS
-------------------------------
Name: Peter T. Dameris
Title: General Counsel, Vice President
and Secretary
EMPLOYEE
/s/ AUSTIN P. YOUNG
----------------------------------------
AUSTIN P. YOUNG
Address: 6200 Arnot
Houston, Texas 77007
11
<PAGE> 1
EXHIBIT 21.1
CORESTAFF, INC.
SUBSIDIARIES
Colorado Therapists On Call, Inc., a Colorado corporation
COMSYS Technical Services, Inc., a Delaware corporation
COREStaff Acquisition Sub #5, Inc., a Colorado corporation
COREStaff Acquisition Sub #6, Inc., a Delaware corporation
COREStaff Acquisition Sub #7, Inc., a Delaware corporation
COREStaff Communication Services, Inc., a Delaware corporation
COREStaff Consolidated Management Solutions, Inc., a Delaware corporation
COREStaff Holdings, Inc., a Delaware corporation
COREStaff Personnel Systems, Inc., a California corporation
COREStaff Services, Inc., a Delaware corporation
COREStaff Services (California), Inc., a Delaware corporation
COREStaff Support Services, Inc., a California corporation
COREStaff (UK) Limited, a U.K. corporation
EUROCOMSYS (UK) Limited, a U.K. corporation
Leafstone, Inc., a New York corporation
Professional Healthcare Providers, Inc., a California corporation
Regency Staffing, Inc., a Florida corporation
Technology and Process Consulting, Inc., a Delaware corporation
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-80325) pertaining to the CORESTAFF, Inc. 1995 Long-Term
Incentive Plan and in the Registration Statement (Form S-8 No. 333-3030)
pertaining to the CORESTAFF, Inc. Employee Stock Purchase Plan of our report
dated February 5, 1997, with respect to the consolidated financial statements
of CORESTAFF, Inc. included in the Annual Report (Form 10-K) for the year ended
December 31, 1996.
ERNST & YOUNG LLP
Houston, Texas
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated Financial Statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 6,521
<SECURITIES> 0
<RECEIVABLES> 127,939
<ALLOWANCES> 1,637
<INVENTORY> 0
<CURRENT-ASSETS> 146,090
<PP&E> 16,503
<DEPRECIATION> 0
<TOTAL-ASSETS> 396,397
<CURRENT-LIABILITIES> 51,775
<BONDS> 107,839
<COMMON> 326
0
0
<OTHER-SE> 230,591
<TOTAL-LIABILITY-AND-EQUITY> 396,397
<SALES> 0
<TOTAL-REVENUES> 596,101
<CGS> 0
<TOTAL-COSTS> 451,505
<OTHER-EXPENSES> 107,871
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,656
<INCOME-PRETAX> 31,003
<INCOME-TAX> 13,609
<INCOME-CONTINUING> 17,394
<DISCONTINUED> 0
<EXTRAORDINARY> 940
<CHANGES> 0
<NET-INCOME> 16,454
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.54
</TABLE>
