<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 10, 1996
REGISTRATION NO. 333-4691
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
SOURCE SERVICES CORPORATION
(Exact name of Registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
DELAWARE 7363 36-2690960
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
5580 LBJ FREEWAY, SUITE 300
DALLAS, TEXAS 75240
(214) 385-3002
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
D. LES WARD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
5580 LBJ FREEWAY, SUITE 300
DALLAS, TEXAS 75240
(214) 385-3002
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES TO:
<TABLE>
<S> <C>
RICHARD M. HULL, ESQ. SIDNEY J. NURKIN, ESQ.
DAVID R. EARHART, ESQ. M. HILL JEFFRIES, ESQ.
J. CARTER MEYER, ESQ. R. BRANDON ASBILL, ESQ.
GARDERE & WYNNE, L.L.P. ALSTON & BIRD
1601 ELM STREET, SUITE 3000 1201 WEST PEACHTREE STREET
DALLAS, TEXAS 75201 ATLANTA, GEORGIA 30309
(214) 999-3000 (404) 881-7000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING HEADING IN PROSPECTUS
--------------------------------------------- ------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus..... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus................................. Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............... Prospectus Summary; Risk Factors; The
Company
4. Use of Proceeds.............................. Prospectus Summary; Use of Proceeds;
Capitalization
5. Determination of Offering Price.............. Underwriting
6. Dilution..................................... Risk Factors; Dilution
7. Selling Security Holders..................... Principal and Selling Stockholders
8. Plan of Distribution......................... Outside Front Cover Page; Underwriting
9. Description of Securities to be Registered... Dividend Policy; Management; Description
of Capital Stock
10. Interests of Named Experts and Counsel....... Not Applicable
11. Information with Respect to the Registrant... Outside Front Cover Page; Prospectus
Summary; Risk Factors; Use of Proceeds;
Dividend Policy; Capitalization;
Selected Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Principal and
Selling Stockholders; Description of
Capital Stock; Shares Eligible for
Future Sale; Experts; Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS, DATED JULY 10, 1996
2,500,000 Shares
LOGO
SOURCE SERVICES CORPORATION
Common Stock
---------------------
Of the 2,500,000 shares of Common Stock, $0.02 par value per share ("Common
Stock"), of Source Services Corporation (the "Company") offered hereby (the
"Offering"), 1,591,235 shares are being offered by the Company and 908,765 are
being offered by certain stockholders of the Company (the "Selling
Stockholders") including the Source Services Corporation Employees' Profit
Sharing Plan. The Company will not receive any of the proceeds from the sale of
the shares of Common Stock by the Selling Stockholders.
Prior to the Offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
will be between $15.00 and $17.00 per share. See "Underwriting" for a discussion
of the factors considered in determining the initial public offering price. The
Common Stock has been approved for listing on the Nasdaq National Market under
the symbol "SRSV".
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2) PROCEEDS TO
SELLING
STOCKHOLDER(2)
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<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
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Total(3)................ $ $ $ $
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- ------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $800,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an aggregate of 375,000 additional shares of Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the Price to
Public, Underwriting Discount, Proceeds to Company and Proceeds to Selling
Stockholders will be $ , $ , $ and $ , respectively.
See "Underwriting."
---------------------
The Common Stock is offered severally by the Underwriters named herein,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters. The Underwriters reserve the right to reject orders in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the shares of Common Stock will be made on or about
, 1996.
<TABLE>
<S> <C>
THE ROBINSON-HUMPHREY RAUSCHER PIERCE
COMPANY, INC. REFSNES, INC.
</TABLE>
, 1996.
<PAGE> 4
EXPERIENCE ON DEMAND(SM)
[MAP]
[ ] Indicates markets served by the Company. A market, as defined
by the Company, is a geographic area that can be efficiently
served through at least one branch office.
Source Services Corporation(R) has a 34-year history
of providing EXPERIENCE ON DEMAND(SM) through
professional and highly skilled personnel. With offices
in 52 markets across the United States and one in
Canada, and a current national database of
more than one million potential candidates, Source(SM) consults
with clients to provide integrated
solutions for their specialty staffing needs.
[SOURCE SERVICES LOGO]
----------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, all information in this Prospectus assumes (i) a
2.9-for-one stock split in the form of a stock dividend effected in June 1996
and (ii) no exercise of the Underwriters' over-allotment option. This Prospectus
contains certain forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from the
results anticipated in these forward-looking statements as a result of certain
of the factors set forth under "Risk Factors" and elsewhere in this Prospectus.
THE COMPANY
Source Services Corporation (the "Company") is a specialty staffing
services firm that provides flexible staffing, traditionally known as temporary
staffing, and permanent placement of professional and skilled personnel
primarily in the areas of information technology, accounting and finance, and
engineering and manufacturing. The Company has recently expanded its service
offerings to include the staffing of professional and skilled personnel in the
areas of health care and legal services. The Company believes that the ability
to provide both flexible staffing and permanent placement of professional and
skilled personnel in a broad spectrum of fields enables it to present integrated
solutions to its clients' staffing needs and to attract qualified candidates. It
further believes that the staffing of professional and skilled personnel in
specialty niches generally includes longer term assignments than typical
clerical temporary placement and offers the Company the opportunity for greater
growth and higher profitability. The Company has offices in 52 markets
throughout the United States and one in Canada.
Founded in 1962, the Company began its operations as a provider of
permanent placement services to the information technology industry. Using the
resources and relationships that it developed as a leading provider of permanent
placement services, the Company in 1991 shifted the focus of its service
offerings to flexible staffing services. Today, the Company's flexible staffing
business benefits greatly from the Company's experience in providing permanent
placement services.
Over its 34 years, the Company has developed expertise in the recruitment
and selection of professional and skilled personnel to satisfy client requests.
The Company currently maintains a database of over one million potential
candidates and uses proprietary technology to match these candidates with its
clients' specific needs. In addition, each of the Company's sales associates has
a background in one of the Company's areas of specialization, thereby promoting
a better understanding of the needs of the Company's clients and providing the
Company an advantage in its recruiting efforts.
The Company had net service revenue of $141.8 million in 1995, an increase
of 57.5% from 1994. The Company has experienced significant growth as net
service revenue has increased at a compounded annual rate of approximately 46.5%
over the past three years. This growth has resulted primarily from an increase
in the Company's net service revenue from flexible staffing, which has grown at
a compounded annual rate of approximately 70.0% for the past three years. During
1995, approximately 60.7% of the Company's net service revenue was derived from
its flexible staffing services. The Company also continues to benefit from its
experience in information technology. Information technology net service revenue
has grown at a compounded annual rate of approximately 54.7% for the past three
years and accounted for approximately 68.1% of total net service revenue in
1995.
STRATEGY
The Company's strategy is to focus on providing flexible staffing of
professional and skilled personnel. While permanent placement will remain an
important part of the Company's business, the Company believes that specialty
flexible staffing offers greater growth and profit potential than other segments
of the staffing services industry due to changing practices of employers today.
The Company seeks to differentiate itself from other providers of specialty
staffing services by recruiting highly qualified candidates and focusing on
client needs. The Company strives to achieve these service objectives primarily
by employing sales associates with
3
<PAGE> 6
backgrounds in the Company's areas of specialization, developing and using
proprietary technology and maintaining a database of over one million
professional or skilled candidates.
The Company intends to expand its business by focusing on the following
growth strategies:
- Leveraging existing relationships by promoting the full range of its
service offerings to existing clients.
- Expanding service offerings in existing markets.
- Opening offices in new geographic markets.
- Introducing new areas of specialization.
- Pursuing strategic acquisitions.
THE STAFFING SERVICES INDUSTRY
The staffing industry has experienced rapid growth in the last decade with
industry revenues exceeding $60 billion in 1995, according to Staffing Industry
Analysts, a staffing services industry publication. Staffing Industry Analysts
estimated that the temporary help sector reached $41.2 billion in revenues for
1995, which represents an average annual growth rate of 17.7% over the past four
years. In addition, Staffing Industry Analysts estimates that flexible staffing
personnel accounted for approximately 1.8% of the United States workforce in
1995 as compared to 1.0% in 1991.
Information technology, which comprised 68.1% of the Company's 1995 net
service revenue, has become one of the fastest growing sectors of the staffing
services industry according to Staffing Industry Analysts. Staffing Industry
Analysts estimated that revenues from the information technology sector of the
staffing services industry reached $8.9 billion in 1995 and increased 25% from
1994. 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. Businesses have outsourced many of these functions
and have used employees of specialty staffing firms in an attempt to meet the
increased demand for computer-skilled personnel.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company....... 1,591,235 shares
Common Stock Offered by the Selling
Stockholders............................ 908,765 shares
Common Stock to be Outstanding after this
Offering................................ 8,787,632 shares
Use of Proceeds........................... The net proceeds will be used to repay certain
indebtedness, to make capital improvements, to
support growth, including potential acquisitions,
and for working capital and other general
corporate purposes. See "Use of Proceeds."
Nasdaq National Market Symbol............. SRSV
</TABLE>
4
<PAGE> 7
SUMMARY FINANCIAL AND OPERATING DATA
The following table sets forth summary financial data for each of the
fiscal years in the five-year period ended December 31, 1995 and the quarters
ended April 2, 1995 and March 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDED(1) QUARTER ENDED(1)
-------------------------------------------------------- ---------------------
DEC. 31, DEC. 31, JAN. 2, JAN. 1, DEC. 31, APRIL 2, MARCH 31,
1991 1992 1994 1995 1995 1995 1996
-------- -------- -------- -------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net service revenue....... $ 45,888 $ 45,109 $ 53,835 $ 90,067 $141,832 $ 29,942 $40,833
Gross profit.............. 37,897 32,503 33,908 54,656 78,780 16,245 22,298
Operating income (loss)... (5,731) (2,660) 1,679 5,414 7,262 1,055 1,454
Net income (loss)......... (4,371) (2,138) 817 3,247 4,175 614 802
Net income (loss) per
share.................. $ (1.31) $ (0.50)(2) $ 0.11 $ 0.45 $ 0.58 $ 0.09 $ 0.11
Weighted average shares
outstanding............ 3,330 4,255 7,386 7,250 7,178 7,192 7,153
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
Balance Sheet Data:
Working capital..................................................... $14,702 $ 35,572
Total assets........................................................ 31,744 51,814
Total long term debt................................................ 65 65
Stockholders' equity................................................ 18,108 40,978
Other Data:
Net service revenue by
areas of
specialization:
Information
technology........... 56.9% 57.7% 58.9% 65.1% 68.1% 66.6% 67.4%
Accounting and
finance.............. 37.4 36.3 35.5 29.3 26.1 28.5 25.7
Other.................. 5.7 6.0 5.6 5.6 5.8 4.9 6.9
------- ------- ------- ------- -------- ------- -------
100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
======= ======= ======= ======= ======== ======= =======
Net service revenue by
service type:
Flexible staffing...... 25.0% 38.5% 49.3% 54.7% 60.7% 62.5% 63.4%
Permanent placement.... 75.0 61.5 50.7 45.3 39.3 37.5 36.6
------- ------- ------- ------- -------- ------- -------
100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
======= ======= ======= ======= ======== ======= =======
Number of markets at
period end............. 51 49 45 48 53 51 53
</TABLE>
- ---------------
(1) The Company's fiscal year ends on the Sunday closest to December 31, and the
Company's fiscal quarters end on the Sunday closest to the end of each
calendar quarter.
(2) Includes net income per share of $0.02 attributed to cumulative effect on
prior years of change in accounting for income taxes.
(3) Adjusted to reflect the sale of 1,591,235 shares of Common Stock offered by
the Company hereby and the anticipated application of the net proceeds
therefrom. See "Use of Proceeds."
5
<PAGE> 8
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be carefully considered in evaluating the Company and its
business before purchasing the Common Stock offered hereby.
EFFECT OF FLUCTUATIONS IN THE ECONOMY
Demand for the Company's services is significantly affected by the general
level of economic activity in the United States and the regions of the country
in which the Company operates. When economic activity slows, many companies hire
fewer permanent employees and decrease their usage of flexible staffing (i.e.,
personnel on long or short-term assignment) before undertaking layoffs of their
full-time employees. Therefore, a significant economic downturn, either on a
national basis or in regions of the country where the Company's operations are
more heavily concentrated (such as the Northeast and California), could have a
material adverse effect on the Company's business. As economic activity
increases, flexible staffing personnel often have been added to the workforce
prior to permanent employees. During these periods of increased economic
activity and generally higher levels of employment, the competition among
specialty staffing firms for qualified flexible and, to a lesser extent,
permanent personnel is intense. Further, the Company may face increased pricing
pressures during such periods. There can be no assurance that during these
periods the Company will be able to recruit candidates necessary to fill its
clients' staffing needs or that such pricing pressures will not adversely affect
the Company's results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
DEPENDENCE ON AVAILABILITY OF QUALIFIED CANDIDATES
The Company depends upon its ability to attract and retain personnel for
flexible staffing and permanent placement positions, particularly technical and
professional personnel, who possess the skills and experience necessary to meet
the staffing requirements of its clients. The growth of the market for flexible
staffing services in the information technology area in recent years has been
driven largely by rapid technological advances, with businesses increasingly
turning to outside technical personnel to staff their information technology
operations. The Company must continually evaluate and upgrade its base of
available qualified personnel to keep pace with changing client needs and
emerging technologies. Competition for individuals with proven technical or
professional skills is intense and demand for such individuals is expected to
remain very strong for the foreseeable future. There can be no assurance that
qualified personnel will continue to be available to the Company in sufficient
numbers and upon economic terms that are acceptable to the Company. See
"Business -- Business Strategy."
ABILITY TO ACHIEVE AND MANAGE GROWTH
The Company has experienced growth driven primarily by internal expansion
of services, opening of new markets and industry trends toward the increased use
of flexible staffing of professional and skilled personnel. The Company's
continued growth depends on many factors, including the Company's ability to:
(i) maintain margins in the face of competitive pressures and changing
regulatory environments; (ii) hire, integrate and retain qualified managers in
existing markets as well as markets in which the Company has no prior operating
experience; (iii) apply its management practices to a significantly larger
organization; (iv) maintain and expand existing client relationships; (v)
develop new client relationships; (vi) develop new service offerings; (vii)
identify and expand into new markets; (viii) maintain sufficient working
capital; (ix) continue to improve the recruitment, motivation and retention of
its sales associates; and (x) expand its market presence in its current
locations. There can be no assurance that the Company will be able to implement
successfully any of the foregoing or that industry trends toward the increased
use of flexible staffing will continue.
DEPENDENCE ON MANAGEMENT
The success of the Company's business is highly dependent upon the
continued services of its management, including D. Les Ward, its President and
Chief Executive Officer; Richard Dupont, its Chief Financial Officer; and Jack
A. Causa, Joseph A. Gendron and Lawrence J. Stanczak, its Vice Presidents of
6
<PAGE> 9
Operations. The loss of the services of one or more of such individuals could
have a material adverse effect upon the Company's business and development. The
Company does not maintain key person insurance policies on the lives of any of
these individuals. The Company's continued growth also will depend upon its
ability to attract and retain additional skilled management personnel. See
"Management."
COMPETITION
The staffing industry is highly competitive and there are limited barriers
to entry by competitors. The Company faces significant competition in the
markets it serves and is likely to face significant competition in any new
markets that it may enter. The Company competes for potential clients with
providers of outsourcing services, systems integrators, computer systems
consultants, other providers of staffing services, temporary personnel agencies
and search firms. National clerical firms and accounting firms, among others,
also have begun to penetrate the Company's current and potential target markets
with competing services. A number of the Company's competitors possess
substantially greater resources than the Company. The Company also faces the
risk that certain of its current and prospective clients will decide to provide
similar services internally. Additionally, the Company faces significant
competition in recruiting candidates in many professional and technical
specialties. There can be no assurance that the Company will be able to continue
to compete effectively with existing or potential competitors. See
"Business -- Competition."
RELIANCE ON QUALIFIED SALES ASSOCIATES
The Company's success depends upon the continued service of its sales
associates and its ability to identify, hire, develop and retain additional
qualified sales associates. The Company expends significant resources in
recruiting and training its employees, and the pool of available applicants for
these positions is limited. There can be no assurance that the Company will
continue to be able to identify, hire, develop and retain qualified sales
associates.
RELIANCE ON INFORMATION PROCESSING SYSTEMS AND PROPRIETARY TECHNOLOGY
The Company's business depends upon its ability to store, retrieve, process
and manage significant databases, and periodically to expand and upgrade its
information processing capabilities. The Company's computer equipment and
software systems are maintained at its Dallas, Texas headquarters. Interruption
or loss of the Company's information processing capabilities through loss of
stored data, breakdown or malfunction of computer equipment and software
systems, telecommunications failure, conversion difficulties or damage to the
Company's headquarters and systems caused by fire, tornado, lightning,
electrical power outage or other disruption could have a material adverse effect
on the Company. See "Business -- Management Information Systems."
The Company's business depends upon continued use of its proprietary
software, databases and processing techniques. None of the Company's proprietary
software is copyrighted, although the Company attempts to protect its trade
secrets and other proprietary information through agreements with employees and
consultants. The enforceability of these agreements varies from state to state
and, while the Company intends to vigorously enforce these agreements, there can
be no assurance that these precautions will be adequate to deter
misappropriation of the Company's proprietary software and information
processing and operating techniques.
EMPLOYMENT LIABILITY RISK
Providers of staffing services employ and place people in the workplaces of
other businesses. An inherent risk of such activity includes possible claims of
errors and omissions, misuse of client proprietary information, misappropriation
of funds, discrimination and harassment, employment of illegal aliens, theft of
client property, other criminal activity or torts and other claims. In some
instances the Company, pursuant to written contracts with certain clients, is
required to indemnify such clients against some or all of the foregoing matters.
A failure of any Company employee or personnel to observe the Company's policies
and guidelines intended to reduce exposure to these risks, relevant client
policies and guidelines or applicable federal, state or local laws,
7
<PAGE> 10
rules and regulations, or other circumstances that cannot be predicted could
result in negative publicity, injunctive relief and the payment by the Company
of monetary damages, or fines, or have other material adverse effects upon the
Company. Moreover, the Company could be held responsible for the actions at a
workplace of persons not under the direct control of the Company. The Company is
also exposed to potential claims with respect to the permanent placement
process. Because of legal constraints and considerations, the Company has found
it increasingly difficult to perform background investigations. To reduce its
exposure to the foregoing risks, the Company maintains insurance and fidelity
bonds covering general liability, workers' compensation claims, employee theft
and in some cases errors and omissions. There can be no assurance that such
insurance coverage will be available economically in amounts adequate to cover
any such liability. See "Business -- Legal Proceedings" and
"Business -- Insurance."
ACQUISITION RISKS
The Company intends to evaluate the acquisition of other staffing services
firms. There can be no assurance that the Company will be able to successfully
identify suitable acquisition candidates, complete acquisitions, integrate
acquired businesses into its operations, or expand into new markets. Once
integrated, acquired firms may not perform as expected. Acquisitions involve a
number of special risks, such as diversion of management's attention,
difficulties in the integration of acquired operations and retention of
personnel, legal liabilities, maintenance of uniform standards, controls,
procedures and policies, impairment of relationships with clients of the
acquired firm, operating in markets in which the Company has little or no prior
experience, and tax and accounting issues, some or all of which could have a
material adverse effect on the Company's results of operations and financial
condition. The Company has not completed any acquisitions to date. The Company
is unable to predict whether or when any prospective acquisition candidate will
become available or the likelihood that any acquisition will be completed.
INCREASED COSTS FROM GOVERNMENT REGULATION
The Company is required to pay a number of federal, state and local payroll
and related costs, including unemployment taxes, workers' compensation and
insurance, FICA and Medicare, among others, for its employees and personnel.
Unemployment taxes are a significant expense to the Company. Because the Company
employs a large number of personnel for relatively short durations, and because
it experiences significant turnover in its personnel, it is taxed at the highest
statutory rates for unemployment taxes. Significant increases in the effective
rates of any payroll related costs likely would have a material adverse effect
upon the Company. In addition, the Company could incur costs related to workers'
compensation claims at a higher rate in the future because of such factors as
higher than expected losses from known claims or an increase in the number and
severity of new claims. See "Business -- Insurance." The Company's costs could
also increase as a result of health care reforms or the possible imposition of
additional requirements and restrictions related to the placement of personnel.
Recent federal and state legislative proposals have included provisions
extending health insurance benefits to personnel who currently do not receive
such benefits. There can be no assurance that the Company will be able to
increase the fees charged to its clients in a timely manner and in a sufficient
amount to cover increased costs as a result of any of the foregoing. There is
also no assurance that the Company will be able to adapt to future regulatory
changes made by the Internal Revenue Service, the Department of Labor or other
state and federal regulatory agencies.
As a provider of health care personnel, the Company is subject to extensive
federal, state and local laws and governmental regulations, including periodic
examinations by governmental agencies and federal and state anti-fraud, abuse
and kickback statutes and regulations. Although such regulations have not had a
material adverse effect on the Company, there can be no assurance that the
Company will be able to continue to obtain or maintain required government
approvals or licenses or that in the future regulatory changes will not have a
material adverse effect on the Company.
MAINTENANCE OF PRICE LEVELS
From time to time, the Company has received requests from certain of its
largest clients for volume discounts or other preferred pricing, and at times
has agreed to such requests. There can be no assurance that
8
<PAGE> 11
the Company will be able to maintain its current price levels. Any decrease in
prices could materially adversely affect the Company's results of operations.
CONTROL OF THE COMPANY BY EXISTING STOCKHOLDERS
Upon the consummation of this Offering, those shares owned by the Company's
Profit Sharing Plan, officers, directors and employees are estimated to
constitute a majority of those shares outstanding. Although the holders of these
shares do not necessarily vote together, the holders of a majority of the
outstanding Common Stock can elect all of the directors of the Company and can
approve, delay or prevent certain fundamental corporate transactions, including
mergers, consolidations and the sale of substantially all of the Company's
assets. Purchasers in the Offering will become minority stockholders and will be
unable to control the management or business policies of the Company. See
"Principal and Selling Stockholders" and "Description of Capital Stock."
LACK OF PRIOR PUBLIC MARKET, DETERMINATION OF OFFERING PRICE AND SUBSEQUENT
MARKET PRICE
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that after the Offering an active public
market for the Common Stock will develop or be sustained. The initial public
offering price for the Common Stock was determined by negotiation between the
Company and the Representatives of the Underwriters, and there can be no
assurance that the price at which the Common Stock will trade after completion
of the Offering will not be below the initial public offering price. From time
to time, the stock market experiences significant price and volume fluctuations
which may be unrelated to the operating performance of particular companies.
Factors such as quarterly changes in results of operations, analysts' estimates,
market conditions, announcements by competitors, regulatory actions and general
economic conditions may have a significant effect on market price. See
"Underwriting."
EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS; ANTI-TAKEOVER PROVISIONS
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") and Amended and Restated Bylaws (the "Bylaws")
include provisions that may have the effect of discouraging proposals by third
parties to acquire a controlling interest in the Company, which could deprive
stockholders of the opportunity to consider an offer that would be beneficial to
them. The Certificate of Incorporation contains certain provisions that may
reduce the likelihood of a change in management or voting control of the Company
without the consent of the Company's Board of Directors. These provisions could
have the effect of delaying, deterring or preventing tender offers or takeover
attempts. See "Description of Capital Stock -- Special Provisions of the
Certificate of Incorporation and Bylaws."
DILUTION
Purchasers of Common Stock offered hereby will experience immediate
dilution in the net tangible book value per share of Common Stock of $11.31 per
share, assuming an initial public offering price of $16.00 per share. See
"Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market following
the Offering could adversely affect the market price of the Common Stock.
Immediately following the Offering, the Company will have 8,787,632 shares of
Common Stock outstanding. In addition to the shares of Common Stock to be sold
in the Offering, 1,625,718 currently outstanding shares will be freely tradeable
upon consummation of the Offering, and an additional 1,523,142 shares will be
freely tradeable 180 days after the date of this Prospectus when certain
agreements by certain stockholders not to sell or otherwise transfer shares of
Common Stock expire. See "Management -- Executive Compensation -- Profit Sharing
Plan," "Shares Eligible for Future Sale" and "Underwriting."
9
<PAGE> 12
SUBSTANTIAL DISCRETION OF MANAGEMENT CONCERNING PROCEEDS OF OFFERING
The Company has allocated approximately $4.8 million of the net proceeds of
the Offering for specific purposes, with the remaining net proceeds to be used
for the expansion of the Company's operations, and for general corporate
purposes. Accordingly, management will have substantial discretion in spending a
large part of the net proceeds to be received by the Company. There can be no
assurance that management will use such net proceeds in a manner that enhances
stockholder value. See "Use of Proceeds."
AVAILABILITY OF AUTHORIZED CAPITAL STOCK
Following the Offering, the Company will have 91,212,368 shares of Common
Stock authorized for issuance. In addition, the Certificate of Incorporation
authorizes the issuance of up to 2,000,000 shares of preferred stock (the
"Preferred Stock"). No shares of Preferred Stock are outstanding, and the
Company has no present intention to issue any shares of Preferred Stock. The
Board of Directors, in its sole discretion, may establish the preferences,
conversion or other rights or voting powers of each series of Preferred Stock
and may issue Preferred Stock for such consideration and on such terms as it
deems desirable. The issuance of additional shares of Common Stock could dilute
the economic and voting interests of the holders of Common Stock. Any shares of
Preferred Stock that may be issued likely would have priority over the Common
Stock with regard to any cash dividends and in the event of any liquidation of
the Company, and the approval of the holders of the Preferred Stock may be
required, in addition to the approval of the holders of the Common Stock, with
regard to various corporate actions. The Board of Directors also could issue
Preferred Stock for the purpose of attempting to discourage mergers, tender
offers or proxy contests, the assumption of control by holders of large blocks
of the Company's securities or the removal of incumbent management, any of which
may be viewed by holders of a majority of the Common Stock as desirable and in
their best interests. See "Description of Capital Stock."
THE COMPANY
With offices in 52 markets throughout the United States and one in Canada,
the Company is a leading provider of flexible staffing and permanent placement
services in the information technology, finance and accounting, and engineering
and manufacturing areas. The Company concentrates on the professional and
technical specialty niches within the staffing industry because it believes that
these niches require more highly skilled personnel and longer-term assignments,
thereby offering the opportunity for greater growth and higher profitability
than niches requiring less skilled personnel.
The Company is incorporated under the laws of Delaware. The Company's
principal executive offices are located at 5580 LBJ Freeway, Suite 300, Dallas,
Texas 75240 and its telephone number is (214) 385-3002.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
to be sold by the Company in the Offering are estimated to be $22.9 million
after deducting estimated underwriting discounts and commissions and estimated
offering expenses to be paid by the Company (assuming an initial offering price
of $16.00 per share). If the Underwriters exercise the over-allotment option and
acquire an additional 375,000 shares from the Company, such net proceeds to the
Company are estimated to be $28.5 million.
Of these net proceeds, the Company has specific plans for approximately
$4.8 million, which it intends to use as follows:
$2.8 million to repay short-term bank borrowings (which were incurred
in 1996 to provide working capital, bear interest at the rate of 8.25% per
annum and are due in May 1997); and
$2.0 million for capital improvements (principally furniture, fixtures
and equipment for the Company's existing offices).
10
<PAGE> 13
The Company intends to use the balance of the net proceeds primarily to
support its future growth, although it has no current specific plans. See "Risk
Factors -- Substantial Discretion of Management Concerning Proceeds of Offering"
and "Business -- Growth Strategy." At present, the Company has no plans to
acquire any specific staffing company but tentatively has reserved up to $5.0
million to open new offices and up to $4.0 million to expand services in
existing markets. However, actual expenditures may impact the amounts and
direction of the Company's other expansion. Any proceeds not used for these
growth purposes will be used for working capital and other general corporate
purposes.
Pending application of the net proceeds as described above, the Company
intends to invest the net proceeds in short-term, interest-bearing investment
grade securities. The Company will not receive any proceeds from the sale of the
shares offered by the Selling Stockholders. See "Principal and Selling
Stockholders."
DIVIDEND POLICY
The Company has not paid any dividends in recent years. The Company
currently intends to retain any earnings to provide for the operation and
expansion of its business and does not anticipate paying any cash dividends in
the foreseeable future.
DILUTION
The net tangible book value per share of the Common Stock at March 31, 1996
was $2.53. "Net tangible book value per share" represents the Company's total
tangible assets less total liabilities divided by the total number of shares of
Common Stock outstanding. After giving effect to the sale by the Company of the
shares of Common Stock to be sold by the Company in the Offering (at an assumed
initial offering price of $16.00 per share, and after deducting estimated
underwriting discounts and commissions and expenses of the Offering to be paid
by the Company), and the application of the net proceeds as set forth under "Use
of Proceeds," the Company's net tangible book value per share of Common Stock as
of March 31, 1996, would have been $4.69, representing an immediate increase of
$2.16 in net tangible book value per share to existing stockholders and an
immediate dilution of $11.31 in net tangible book value per share to persons
purchasing shares in the Offering. The following table illustrates this dilution
per share of Common Stock:
<TABLE>
<S> <C> <C>
Assumed initial public offering price................................. $16.00
Net tangible book value per share before the Offering............... $2.53
Increase per share attributable to new investors.................... 2.16
-----
Pro forma net tangible book value per share after the Offering........ 4.69
------
Dilution of net tangible book value per share to new investors........ $11.31
======
</TABLE>
The following table sets forth, on a pro forma basis as of March 31, 1996,
the difference between existing stockholders and new investors with respect to
the number of shares of Common Stock purchased from the Company and the total
cash consideration and average price per share paid to the Company (based upon
an assumed initial offering price of $16.00 per share for new investors):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders................. 7,153,363 81.8% $ 1,727,000 6.4% $ 0.24
New Investors......................... 1,591,235 18.2 25,459,760 93.6 $ 16.00
--------- ----- ----------- ------
8,744,598 100.0% $27,186,760 100.0%
========= ===== =========== ======
</TABLE>
11
<PAGE> 14
CAPITALIZATION
The following table sets forth the Company's capitalization at March 31,
1996 on a historical basis and as adjusted to give effect to the sale by the
Company of 1,591,235 shares of Common Stock offered hereby at an assumed initial
public offering price of $16.00 per share and the application of the net
proceeds therefrom as described in "Use of Proceeds." The data set forth below
should be read in conjunction with the other financial information presented
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Short-term debt.......................................................... $ 2,785 $ --
======= =======
Long-term debt, net of current portion................................... $ 65 $ 65
------- -------
Stockholders' equity(1):
Preferred stock, $0.01 par value; 2,000,000 shares authorized; no
shares issued and outstanding....................................... -- --
Common stock, $0.02 par value; 100,000,000 shares authorized, 7,153,363
shares issued and outstanding; 8,744,598 shares issued and
outstanding as adjusted............................................. 144 175
Capital in excess of par............................................... 1,583 24,422
Retained earnings(2)................................................... 16,381 16,381
------- -------
Total stockholders' equity..................................... 18,108 40,978
------- -------
Total capitalization..................................................... $18,173 $41,043
======= =======
</TABLE>
- ---------------
(1) Excludes 1,000,000 and 30,000 shares of Common Stock reserved for future
issuance under the Company's Employees' Stock Option Plan and Directors
Stock Option Plan, respectively, and 87,000 shares subject to options
granted outside of such plans that were outstanding as of March 31, 1996.
(2) Reflects a combination of retained earnings and cumulative translation
adjustment.
12
<PAGE> 15
SELECTED FINANCIAL DATA
The following table contains certain selected financial data for the
Company. The balance sheet data as of January 1, 1995 and December 31, 1995, and
the income statement data for each of the three fiscal years in the period ended
December 31, 1995, have been derived from the audited financial statements of
the Company included elsewhere in this Prospectus. The balance sheet data as of
December 31, 1991 and 1992 and January 2, 1994, and the income statement data
for each of the fiscal years ended December 31, 1991 and 1992, have been derived
from the audited financial statements of the Company which are not included in
this Prospectus. The selected financial data as of and for the quarters ended
April 2, 1995 and March 31, 1996, have been derived from the unaudited financial
statements of the Company which have been prepared on the same basis as the
audited financial statements, and, in the opinion of the Company's management,
include all adjustments necessary, consisting only of normal recurring
adjustments, for a fair presentation. This financial data should be read in
conjunction with the information set forth in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements and related Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
-------------------------------------------------------------------- --------------------
DECEMBER 31, DECEMBER 31, JANUARY 2, JANUARY 1, DECEMBER 31, APRIL 2, MARCH 31,
1991 1992 1994 1995 1995 1995 1996
------------ ------------ ---------- ---------- ------------ -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net service revenue........ $ 45,888 $ 45,109 $ 53,835 $ 90,067 $141,832 $ 29,942 $40,833
Cost of sales, flexible
staffing................. 7,991 12,606 19,927 35,411 63,052 13,697 18,535
-------- -------- -------- -------- -------- -------- -------
Gross profit............... 37,897 32,503 33,908 54,656 78,780 16,245 22,298
-------- -------- -------- -------- -------- -------- -------
Operating expenses:
Selling.................. 39,634 31,212 27,546 43,795 64,882 14,026 19,322
General and
administrative......... 3,994 3,951 4,683 5,447 6,636 1,164 1,522
-------- -------- -------- -------- -------- -------- -------
Total operating
expenses.......... 43,628 35,163 32,229 49,242 71,518 15,190 20,844
-------- -------- -------- -------- -------- -------- -------
Operating income (loss).... (5,731) (2,660) 1,679 5,414 7,262 1,055 1,454
Other income (expense),
net...................... (927) (556) (349) (403) (540) (81) (174)
-------- -------- -------- -------- -------- -------- -------
Income (loss) before income
taxes and cumulative
effect of change in
accounting
principle................ (6,658) (3,216) 1,330 5,011 6,722 974 1,280
Income tax (expense)
benefit.................. 2,287 1,013 (513) (1,764) (2,547) (360) (478)
-------- -------- -------- -------- -------- -------- -------
Net income (loss) before
cumulative effect of
change in benefit........ (4,371) (2,203) 817 3,247 4,175 614 802
Cumulative effect on prior
years of change in
accounting for income
taxes.................... -- 65 -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------
Net income (loss).......... $ (4,371) $ (2,138) $ 817 $ 3,247 $ 4,175 $ 614 $ 802
======== ======== ======== ======== ======== ======== =======
Net income (loss) per share
before cumulative
effect................... $ (1.31) $ (0.52) $ 0.11 $ 0.45 $ 0.58 $ 0.09 $ 0.11
Cumulative effect.......... -- .02 -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------
Net income (loss) per
share.................... $ (1.31) $ (0.50) $ 0.11 $ 0.45 $ 0.58 $ 0.09 $ 0.11
======== ======== ======== ======== ======== ======== =======
Weighted average shares
outstanding.............. 3,330 4,255 7,386 7,250 7,178 7,192 7,153
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JANUARY 2, JANUARY 1, DECEMBER 31, APRIL 2, MARCH 31,
1991 1992 1994 1995 1995 1995 1996
------------ ------------ ---------- ---------- ------------ -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital............. $ 5,482 $ 3,015 $ 4,238 $ 6,419 $ 14,642 $ 7,007 $14,702
Total assets................ 13,251 13,895 13,031 22,434 30,624 22,105 31,744
Total long-term debt........ 5,372 1,566 1,179 179 135 39 65
Stockholders' equity........ 2,326 2,992 4,107 7,812 17,294 8,523 18,108
</TABLE>
13
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in connection with the Company's
Financial Statements and the related Notes thereto included elsewhere in this
Prospectus.
OVERVIEW
Founded in 1962, the Company began its operations as a provider of
permanent placement services to the information technology industry. The Company
expanded its specialty focus to include accounting and finance in 1976 and
engineering and manufacturing in 1980. By the late 1980's, the Company had
become a national provider of permanent placement services in information
technology and accounting and finance.
In recent years, employers have shifted their hiring practices to include a
greater proportion of flexible, or temporary, employees. This hiring trend, in
combination with a downturn in the national economy beginning in 1990, resulted
in a significant reduction in permanent hiring that lasted through 1993, which
caused the Company to experience a significant reduction in net service revenue
from permanent placements. In response to this reduction in net service revenue,
the Company began a number of strategic initiatives to expand services, reduce
operating expenses and improve profitability.
As one of these initiatives, the Company shifted its focus to providing
flexible staffing services. In 1990, the Company established its Source
Consulting and Accountant Source Temps divisions to supply flexible staffing
personnel to clients in the information technology and accounting and finance
fields. Since then, the Company has introduced flexible staffing services in all
of its areas of specialization, and these services currently account for a
majority of the Company's net service revenue.
In recent years, substantially all of the Company's growth has come from
expansion of its flexible staffing services, adding staffing services in new
areas of specialization and entering new geographic markets. This internal
growth has occurred despite the Company's lack of access to outside capital.
The following table sets forth the number of markets, by service type and
area of specialization, as of the end of the indicated periods:
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Flexible Staffing......................................... 11 21 30 43 47
Permanent Placement....................................... 51 49 45 46 51
Information Technology.................................... 49 47 43 46 51
Accounting and Finance.................................... 33 35 35 33 37
Engineering and Manufacturing............................. 5 5 5 7 11
Other..................................................... 0 0 0 2 4
</TABLE>
Flexible staffing net service revenue has grown from $17.5 million in 1992
to $86.1 million in 1995, a compounded annual rate of 70.0%, and accounted for
60.7% of total net service revenue in 1995. The increasing proportion of
flexible staffing net service revenue has had the effect of lowering the
Company's gross profit as a percentage of net service revenue. This decrease
occurs because, in accordance with industry practices, the Company classifies
all costs associated with permanent placement services as operating expense
whereas in flexible staffing, employee costs are treated as a cost of net
service revenue.
Flexible staffing net service revenue is recognized based on hours worked
by assigned personnel on a weekly basis. The Company bills its clients for a
negotiated hourly rate. Flexible staffing personnel generally are employees of
the Company; accordingly, the Company generally is responsible for all direct
costs associated with employing flexible staffing personnel including wages,
payroll taxes and payroll-related insurance. Because the Company generally pays
its flexible staffing personnel only for the hours they actually work, wages for
a majority of the Company's flexible staffing personnel are variable costs that
increase or decrease in proportion with net service revenue from flexible
staffing services.
14
<PAGE> 17
The Company's permanent placement services typically result in payment to
the Company when a candidate is hired by a client and the candidate is retained
for the duration of a guarantee period. Net service revenue from permanent
placements is recognized on the date the employer and candidate mutually agree
to an offer and acceptance of employment. The Company's fee is usually
structured as a percentage of the placed candidate's first-year annual
compensation. The primary costs associated with permanent placement are sales
commissions which increase in proportion with net service revenue from permanent
placements.
RESULTS OF OPERATIONS
The following table illustrates the percentage of net service revenue
generated within the Company's areas of specialization for the indicated
periods:
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
-------------------------------------- --------------------
JANUARY 2, JANUARY 2, DECEMBER 31, APRIL 2, MARCH 31,
1994 1995 1995 1995 1996
---------- ---------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Information Technology................ 58.9% 65.1% 68.1% 66.6% 67.4%
Accounting and Finance................ 35.5 29.3 26.1 28.5 25.7
Other................................. 5.6 5.6 5.8 4.9 6.9
----- ----- ----- ----- -----
Total Net Service Revenue... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
The following table sets forth, as a percentage of net service revenue,
certain items in the Company's statement of operations for the indicated
periods:
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
-------------------------------------- --------------------
JANUARY 2, JANUARY 1, DECEMBER 31, APRIL 2, MARCH 31,
1994 1995 1995 1995 1996
---------- ---------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Flexible Staffing..................... 49.3% 54.7% 60.7% 62.5% 63.4%
Permanent Placement................... 50.7 45.3 39.3 37.5 36.6
----- ----- ----- ----- -----
Total Net Service Revenue........... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
Gross Profit.......................... 63.0% 60.7% 55.5% 54.2% 54.6%
Operating Expenses.................... 59.9 54.7 50.4 50.7 51.0
----- ----- ----- ----- -----
Operating Income...................... 3.1% 6.0% 5.1% 3.5% 3.6%
===== ===== ===== ===== =====
Net Income............................ 1.5% 3.6% 2.9% 2.1% 2.0%
===== ===== ===== ===== =====
</TABLE>
Quarter Ended April 2, 1995 Compared with Quarter Ended March 31, 1996
Net Service Revenue. Net service revenue increased 36.4% from $29.9
million in 1995 to $40.8 million in 1996. The growth in net service revenue
resulted from an increase in the number of sales associates from 335 in 1995 to
403 in 1996, and the Company's continued emphasis on expanding the number of
service offerings in all markets.
Net service revenue from flexible staffing services grew 37.8% from $18.8
million in 1995 to $25.9 million in 1996. The growth in flexible staffing net
service revenue was the result of a 26.8% increase in hours billed and a 9.6%
increase in average billing rates. Permanent placement net service revenue
increased 34.1% from $11.2 million in 1995 to $15.0 million in 1996. Permanent
placement net service revenue growth resulted primarily from an increase in the
number of permanent placements and, to a lesser extent, an increase in average
placement fees.
Net service revenue from information technology increased 37.8% from $20.0
million in 1995 to $27.5 million in 1996. Net service revenue from accounting
and finance increased 22.6% from $8.5 million in 1995 to $10.5 million in 1996.
Net service revenue from engineering, manufacturing and other professional
specialties increased 96.8% from $1.5 million in 1995 to $2.9 million in 1996.
The increase in net service revenue in each of the foregoing areas of
specialization was attributable to the increase in the number of sales
associates.
15
<PAGE> 18
Gross Profit. Gross profit increased 37.3% from $16.2 million in 1995 to
$22.3 million in 1996, primarily as a result of the factors set forth above. As
a percentage of net service revenue, gross profit remained consistent with the
prior period at approximately 54.6%.
Operating Expenses. Operating expenses increased 37.2% from $15.2 million
in 1995 to $20.8 million in 1996. The increase was primarily a result of hiring
additional operations employees and increased expenses associated with the
expansion of the Company's business. The Company continued to invest in
improving general corporate communications and operating facilities. As a
percentage of net service revenue, Operating expenses increased from 50.7% in
1995 to 51.0% in 1996.
Operating Income. Operating income increased 37.8% from $1.1 million in
1995 to $1.5 million in 1996, primarily as a result of the factors set forth
above.
Other (Income) Expense. Other (income) expense increased from $81,000 in
1995 to $174,000 in 1996.
Income Taxes. The effective income tax rate was 37.0% and 37.3% in 1995
and 1996, respectively.
Net Income. Net income increased from $614,000 in 1995 to $802,000 in 1996
as a result of the factors set forth above.
1994 Compared with 1995
Net Service Revenue. Net service revenue increased 57.5% from $90.1
million in 1994 to $141.8 million in 1995. The growth in net service revenue was
primarily attributable to the opening of offices in five new geographic markets
and the continued growth of the Company's flexible staffing business.
Net service revenue from flexible staffing services grew 74.7% from $49.3
million in 1994 to $86.1 million in 1995. The growth in flexible staffing net
service revenue was the result of a 48.3% increase in the number of hours billed
and a 17.8% increase in average billing rates. In 1994, flexible staffing
services were offered in 43 markets as compared to 47 markets in 1995. Permanent
placement net service revenue increased 36.6% from $40.8 million in 1994 to
$55.7 million in 1995. Permanent placement net service revenue growth resulted
primarily from an increase in the number of permanent placements and, to a
lesser extent, an increase in average placement fees.
Net service revenue from information technology increased 64.9% from $58.6
million in 1994 to $96.6 million in 1995. Net service revenue from accounting
and finance increased 40.2% from $26.4 million in 1994 to $37.0 million in 1995.
The growth in net service revenue from information technology and accounting and
finance staffing services resulted from expansion of flexible staffing services
into new markets and an increase in the number of sales associates. Net service
revenue from engineering, manufacturing and other professional specialties
increased 61.6% from $5.1 million in 1994 to $8.2 million in 1995.
Gross Profit. Gross profit increased 44.1% from $54.7 million in 1994 to
$78.8 million in 1995. As a percentage of net service revenue, gross profit
decreased from 60.7% in 1994 to 55.5% in 1995. The decrease resulted from the
changing mix of the Company's net service revenue toward flexible staffing
services.
Operating Expenses. Operating expenses increased 45.2% from $49.2 million
in 1994 to $71.5 million in 1995. The increase resulted primarily from the rapid
expansion of the Company's business including opening offices in five new
markets. In addition, the Company added corporate personnel and began upgrading
its management information system. As a percentage of net service revenue,
operating expenses decreased from 54.7% in 1994 to 50.4% in 1995.
Operating Income. Operating income increased 34.1% from $5.4 million in
1994 to $7.3 million in 1995, primarily as a result of the above factors.
Other (Income) Expense. Other (income) expense increased from $403,000 of
expense in 1994 to $540,000 of expense in 1995.
Income Taxes. The effective income tax rate was 35.2% and 37.9% in 1994
and 1995, respectively.
16
<PAGE> 19
Net Income. Net income increased from $3.2 million in 1994 to $4.2 million
in 1995 as a result of the above factors.
1993 Compared with 1994
Net Service Revenue. Net service revenue increased 67.3% from $53.8
million in 1993 to $90.1 million in 1994. The growth in net service revenue was
primarily attributable to management's efforts to expand information technology
flexible staffing services throughout the Company's existing markets and growth
in the number of sales associates from 254 to 360.
Net service revenue from flexible staffing services grew 81.6% from $27.2
million in 1993 to $49.3 million in 1994. The growth in flexible staffing net
service revenue was the result of a 67.3% increase in the number of hours billed
and a 10.9% increase in average billing rates. In 1993, flexible staffing
services were offered in 30 markets as compared to 43 markets in 1994. Permanent
placement net service revenue increased 52.8% from $26.7 million in 1993 to
$40.8 million in 1994. Permanent placement net service revenue growth resulted
primarily from an increase in the number of permanent placements and, to a
lesser extent, an increase in average placement fees.
Net service revenue from information technology increased 84.7% from $31.7
million in 1993 to $58.6 million in 1994. Net service revenue from accounting
and finance increased 38.2% from $19.1 million in 1993 to $26.4 million in 1994.
The growth in information technology and accounting and finance staffing net
service revenue resulted from expansion of flexible staffing services into new
markets and an increase in the number of sales associates. Net service revenue
from engineering, manufacturing and other professional specialties increased
68.8% from $3.0 million in 1993 to $5.1 million in 1994.
Gross Profit. Gross profit increased 61.2% from $33.9 million in 1993 to
$54.7 million in 1994. As a percentage of net service revenue, gross profit
decreased from 63.0% in 1993 to 60.7% in 1994. The decrease resulted from the
changing mix of the Company's net service revenue toward flexible staffing
services.
Operating Expenses. Operating expenses increased 52.8% from $32.2 million
in 1993 to $49.2 million in 1994. The increase resulted primarily from hiring
additional sales associates and increased commissions and other variable
expenses associated with net service revenue growth. As a percentage of net
service revenue, operating expenses decreased from 59.9% in 1993 to 54.7% in
1994.
Operating Income. Operating income increased 222.5% from $1.7 million in
1993 to $5.4 million in 1994 for the reasons stated above.
Other (Income) Expense. Other (income) expense increased from $349,000 of
expense in 1993 to $403,000 of expense in 1994.
Income Taxes. The effective income tax rate was 38.6% and 35.2% in 1993
and 1994, respectively.
Net Income. Net income increased from $817,000 in 1993 to $3.2 million in
1994 as a result of the above factors.
17
<PAGE> 20
QUARTERLY FINANCIAL DATA
The following tables set forth selected unaudited quarterly financial
information. This information is derived from unaudited financial statements of
the Company and includes all adjustments, consisting of normal recurring
accruals, which are, in the opinion of management, necessary to present a fair
statement of the results for such periods. The operating results for any quarter
are not necessarily indicative of results for any future period.
STATEMENTS OF REVENUES AND EXPENSES FOR THE QUARTER ENDED
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DEC.
MARCH 31, JUNE 30, SEPT. 30, JAN. 1, APRIL 2, JUNE 30, SEPT. 30, 31, MARCH 31,
1994 1994 1994 1995 1995 1995 1995 1995 1996
--------- -------- --------- ------- -------- -------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net service revenue................... $18,728 $21,669 $21,868 $27,802 $29,942 $34,418 $37,015 $40,457 $40,833
Cost of sales, flexible staffing...... 7,661 8,551 7,835 11,364 13,697 14,934 16,592 17,829 18,535
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit.................. 11,067 13,118 14,033 16,438 16,245 19,484 20,423 22,628 22,298
Operating expenses:
Selling............................. 9,176 10,597 11,457 12,565 14,026 16,120 16,505 18,231 19,322
General and administrative.......... 999 1,193 1,859 1,396 1,164 1,478 1,645 2,349 1,522
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses...... 10,175 11,790 13,316 13,961 15,190 17,598 18,150 20,580 20,844
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income.............. 892 1,328 717 2,477 1,055 1,886 2,273 2,048 1,454
Other income (expenses):
Income, net......................... (97) (45) (13) (30) 26 (5) 0 17 (9)
Other, net.......................... (73) (114) 149 (180) (107) (120) (177) (174) (165)
------- ------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes.... 722 1,169 853 2,267 974 1,761 2,096 1,891 1,280
------- ------- ------- ------- ------- ------- ------- ------- -------
Income tax (expense) benefit.......... 306 438 219 801 360 651 776 760 478
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income............................ $ 416 $ 731 $ 634 $ 1,466 $ 614 $ 1,110 $ 1,320 $ 1,131 $ 802
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income per share.................. $ 0.06 $ 0.10 $ 0.09 $ 0.20 $ 0.09 $ 0.15 $ 0.18 $ 0.16 $ 0.11
------- ------- ------- ------- ------- ------- ------- ------- -------
Weighted average shares outstanding... 7,274 7,252 7,230 7,208 7,192 7,179 7,167 7,154 7,153
</TABLE>
<TABLE>
<CAPTION>
DEC.
MARCH 31, JUNE 30, SEPT. 30, JAN. 1, APRIL 2, JUNE 30, SEPT. 30, 31, MARCH 31,
1994 1994 1994 1995 1995 1995 1995 1995 1996
--------- -------- --------- ------- -------- -------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net service revenue................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales, flexible staffing...... 40.9% 39.5% 35.8% 40.9% 45.7% 43.4% 44.8% 44.1% 45.4%
----- ----- ----- ----- ----- ----- ----- ----- -----
Gross profit.................. 59.1% 60.5% 64.2% 59.1% 54.3% 56.6% 55.2% 55.9% 54.6%
Operating expenses:
Selling............................. 49.0% 48.9% 52.4% 45.2% 46.8% 46.8% 44.6% 45.1% 47.3%
General and administrative.......... 5.3% 5.5% 8.5% 5.0% 3.9% 4.3% 4.4% 5.8% 3.7%
----- ----- ----- ----- ----- ----- ----- ----- -----
Total operating expenses...... 54.3% 54.4% 60.9% 50.2% 50.7% 51.1% 49.0% 50.9% 51.0%
----- ----- ----- ----- ----- ----- ----- ----- -----
Operating income.............. 4.8% 6.1% 3.3% 8.9% 3.6% 5.5% 6.2% 5.1% 3.6%
Other income (expense):
Interest, net....................... (0.5%) (0.2%) (0.1%) (0.1%) 0.1% 0.0% 0.0% 0.0% 0.0%
Other, net.......................... (0.4%) (0.5%) 0.7% (0.6%) (0.4%) (0.4%) (0.5%) (0.4%) (0.4%)
----- ----- ----- ----- ----- ----- ----- ----- -----
Income before income taxes.... 3.9% 5.4% 3.9% 8.2% 3.3% 5.1% 5.7% 4.7% 3.2%
----- ----- ----- ----- ----- ----- ----- ----- -----
Income tax (expense) benefit.......... 1.6% 2.0% 1.0% 2.9% 1.2% 1.9% 2.1% 1.9% 1.2%
----- ----- ----- ----- ----- ----- ----- ----- -----
Net income............................ 2.3% 3.4% 2.9% 5.3% 2.1% 3.2% 3.6% 2.8% 2.0%
===== ===== ===== ===== ===== ===== ===== ====== =====
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its operations through cash
generated by operating activities and through various forms of external
financing, including operating leases, capital leases and bank lines of credit.
The principal use of cash is for financing working capital, particularly during
periods of growth. In addition, the Company has used a significant amount of its
cash resources to repurchase stock to provide liquidity to stockholders. The
Company anticipates that it will no longer use its cash resources to fund such
stock repurchases and that it will no longer continue to make significant
contributions to the Profit Sharing Plan.
Flexible staffing personnel are generally paid weekly for their services,
whereas customer payments are generally received within 30 to 90 days from date
of invoice. As new offices are established or acquired, or as existing offices
expand, there will be increasing requirements for cash resources to fund
operations. The start-up of services in a new market has generally required
expenditures of up to $200,000 before generating positive
18
<PAGE> 21
cash flow. Historically, such new operations have achieved operating
profitability within nine months of inception but have not contributed
significant net service revenues for the first 12-to-18 months.
As of March 31, 1996, the Company had a $4.0 million bank line of credit,
and borrowings outstanding under this facility were $2.8 million. On May 21,
1996, the Company replaced its $4.0 million credit facility with a $10.0 million
bank line of credit, which was used to repay amounts outstanding under the
previous facility. For the three months ended March 31, 1996, the Company had
negative cash flow from operations of approximately $2.7 million primarily as
the result of the Company's continued investment in accounts receivable and the
continued investment in computer hardware, communications equipment and office
automation software.
In 1995, the Company leased $4.5 million of computer hardware,
communications equipment and office automation software as part of its program
to enhance its management information systems. In 1995, the Company purchased
$2.2 million of fixed assets, consisting primarily of furniture, office
equipment and telephone systems using funds generated through operating
activities. The Company has purchased an additional $1.0 million of fixed assets
through March 31, 1996, consisting mainly of furniture and computer and
telephone equipment for new employees.
As the Company's flexible staffing business grows and accounts receivable
increase (which receivables generally are paid within 30-90 days), the Company's
need for capital will increase. With the exception of possible acquisitions, the
Company believes that its cash balance and funds from operations, combined with
the proceeds of this Offering and its line of credit, will be sufficient to fund
continued expansion of its services and office locations at least through the
next 12 to 18 months. The Company believes that any additional amounts that may
be necessary to fund any future acquisition will be available under the
Company's line of credit or from other sources on reasonable terms.
SEASONALITY
The Company's quarterly operating results are affected to some extent by
the seasonality of its customers' businesses. For example, the demand for the
Company's information technology staffing services is typically lower during the
first quarter until customers finalize their operating budgets. On the other
hand, demand for the Company's accounting and finance staffing services
typically is lower in the second and third quarters. The Company believes that
for the most part, the aggregate mix of the Company's business evens out such
seasonal fluctuations, although in recent years demand for the Company's
services in the first quarter may be relatively less than in subsequent quarters
of the same fiscal year. There can be no assurance that changes in the mix of
the Company's business, changes in the businesses of the Company's customers or
the addition of new service areas by the Company will not cause seasonal factors
to have a more pronounced effect on the Company's quarterly operating results.
19
<PAGE> 22
BUSINESS
GENERAL
The Company is a specialty staffing services firm that provides flexible
staffing and permanent placement of professional and skilled personnel primarily
in the areas of information technology, accounting and finance, and engineering
and manufacturing. It recently expanded its service offerings to include the
staffing of professional and skilled personnel in the areas of health care and
legal services. The Company believes that the ability to provide both flexible
staffing and permanent placement of professional and skilled personnel in a
broad spectrum of fields enables it to present integrated solutions to its
clients' staffing needs. The Company further believes that the staffing of
professional and skilled personnel in specialty niches generally includes longer
term assignments than typical clerical temporary placement and offers the
Company the opportunity for greater growth and higher profitability. The Company
has offices in 52 markets throughout the United States and one in Canada.
Founded in 1962, the Company began its operations as a provider of
permanent placement services to the information technology industry. The Company
expanded its specialty focus to include accounting and finance in 1976 and
engineering and manufacturing in 1980. The Company believes that by the late
1980's, it had become one of the largest providers of permanent placement
services in the information technology, accounting and finance, and engineering
and manufacturing areas. Using the resources and relationships that it developed
as a leading provider of permanent placement services, the Company in 1991
shifted the focus of its service offerings to flexible staffing services,
traditionally known as temporary staffing, in its areas of specialization. For
the past three years, the Company's net service revenue from flexible staffing
has grown at a compounded annual rate of approximately 70.0%. During 1995,
approximately 60.7% of the Company's net service revenue was derived from its
flexible staffing services.
The Company's flexible staffing business benefits greatly from the
Company's experience in providing permanent placement services. Over its 34
years, the Company has developed expertise in the recruitment and selection of
professionals to satisfy client requests. Also, the Company currently maintains
a database of over one million potential professional or skilled candidates from
which it can match its clients' needs. In addition, each of the Company's sales
associates has a background in one of the Company's areas of specialization,
thereby promoting a better understanding of the needs of the Company's clients
and providing the Company an advantage in its recruiting efforts.
INDUSTRY OVERVIEW
The staffing industry has experienced rapid growth in the last decade with
industry revenues exceeding $60 billion in 1995, according to Staffing Industry
Analysts, a staffing services industry publication. Staffing Industry Analysts
estimated that the temporary help sector reached $41.2 billion in revenues for
1995, which represents an average annual growth rate of 17.7% over the past four
years. In addition, Staffing Industry Analysts estimates that flexible staffing
personnel accounted for approximately 1.8% of the United States workforce in
1995 as compared to 1.0% in 1991.
The significant increase in demand for flexible staffing services has been
driven by the fundamental changes in the employer-employee relationship that
have occurred in recent years. Many employers have sought to control personnel
costs by reducing their permanent staff of employees and supplementing their
workforce with temporary employees for special projects, peak work loads and
other needs. Other employers have responded to new technology, increased
automation, shorter technology cycles, governmental regulation and global
competitive pressures by turning to flexible hiring practices to keep costs
variable, achieve maximum flexibility, outsource highly specialized skills and
avoid the negative effects of layoffs. Employers also use flexible staffing to
shift certain employment costs and risks from their business to staffing
companies which often are able to spread these risks and costs over a larger
number of employees.
Information technology has become one of the fastest growing sectors of the
staffing services industry according to Staffing Industry Analysts. 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
20
<PAGE> 23
services. Businesses have outsourced many of these functions and have used
employees of specialty staffing firms in an attempt to meet the increased demand
for computer-skilled personnel. Staffing Industry Analysts estimated that net
service revenue from the information technology sector of the staffing services
industry reached $8.9 billion in 1995 and increased approximately 25% from 1994.
The Company believes that the staffing services industry is highly
fragmented and is currently experiencing a trend towards consolidation due
primarily to demand by larger companies for centralized staffing services and
the increased difficulties of smaller staffing services firms resulting from
increased working capital requirements, limited management resources and a
highly competitive environment.
BUSINESS STRATEGY
The Company seeks to be a leading provider of specialty staffing services.
The Company's business strategy includes the following key elements.
Focus on Flexible Staffing. In recent years, employers have substantially
increased their utilization of flexible staffing services, a trend that the
Company expects to continue. As a result, the Company has focused, and intends
to continue to focus, on offering flexible staffing services in its areas of
specialization. The Company strives to become the vendor of choice to corporate
clients seeking flexible staffing solutions to their employment needs and the
employer of choice for skilled professionals seeking flexibility in hours,
project type and workplace.
Focus on Specialty Staffing Services. The Company focuses on providing
professional and skilled personnel for its clients' specialty staffing needs.
The Company believes that the specialty staffing segments offer greater growth
and profitability than other segments of the staffing services industry
requiring less skilled personnel. In addition, the Company believes that its
expertise and reputation in its areas of specialization provide a competitive
advantage in attracting qualified personnel.
Recruit Highly Qualified Candidates. Recruiting is critical to the
Company's business and growth strategy. The Company strives to maintain a
competitive advantage in the recruiting process by: (i) hiring sales associates
with experience in the Company's areas of specialization; (ii) cultivating the
Company's reputation as a leading provider of specialty staffing services
through its marketing efforts; (iii) maintaining a database with over one
million candidates coupled with using proprietary technology to match clients'
needs with candidates' skills; and (iv) offering candidates both flexible
staffing and permanent placement opportunities with a large and diverse client
base.
Focus on Client Needs. The Company focuses on providing integrated
staffing solutions to meet the needs of its clients. The Company emphasizes
building long-term relationships with its clients by assuming a consultative
role, rather than a project-oriented role, in addressing the overall specialized
staffing needs of its clients. The Company's sales associates are responsible
for maintaining a close working relationship with their clients including
developing a comprehensive understanding of the clients' business and specific
staffing needs. By providing on-going support of its sales associates through
training, advertising and its proprietary management information systems, the
Company seeks to retain its sales associates, who provide critical continuity in
maintaining relationships with its clients.
Utilize Proprietary Technology and Extensive Candidate Database. Through
its proprietary software, the Company believes that it is better able to match
client-specified criteria to the skills possessed by candidates. The Company's
management information system also contains a database with information on more
than one million potential candidates. The Company periodically updates its
database and identifies the employment status of candidates therein. Even if not
currently seeking employment opportunities, candidates included in this database
serve as an extensive source of referrals for the Company. The Company believes
that its proprietary software and candidate database enable it to more
successfully match candidates with client-specified criteria, thereby building
client confidence in its services.
21
<PAGE> 24
GROWTH STRATEGY
The Company intends to expand its business by focusing on the following
growth strategies.
Leveraging Existing Relationships. During its 34 years in the specialty
staffing industry, the Company has established relationships with numerous
clients and candidates. The Company's position as a leading provider of both
flexible staffing and permanent placement services in multiple areas of
specialization allows it to provide a wide range of staffing services to
existing clients, thereby expanding its business within its current client base.
The substantial increase in the Company's net service revenue from flexible
staffing over the last four years was derived in substantial part from providing
flexible staffing services to existing permanent placement clients. The Company
believes that the experience gained during that period in promoting its flexible
staffing services to existing clients will enable the Company more effectively
to increase the sale of its newer service offerings to existing clients.
Expand Services in Existing Markets. The Company offers the combination of
information technology, accounting and finance, and engineering and
manufacturing services in seven of the 53 markets it serves. While information
technology services are offered through almost all of its offices, the Company
believes that the opportunity exists to expand accounting and finance,
engineering and manufacturing, as well as its other professional staffing
services in most of its existing locations, as local market considerations
dictate.
Open Offices in New Markets. The Company plans to expand by opening
offices to serve new geographic markets. The Company opened offices in five new
markets during 1995. In selecting new locations, the Company analyzes various
information, including availability and quality of placement candidates, market
demand and local hiring practices in order to determine which of its services
are appropriate for that geographic location. The Company has identified
numerous domestic markets that satisfy its criteria for geographic expansion,
including at least 12 metropolitan areas with populations of greater than
800,000 in which the Company currently does not have an office. The Company may
also consider additional markets in Canada and Mexico.
Introduce New Services. The Company plans to introduce new staffing
services in an effort to meet client demands. The Company recently began to
offer the placement of nurses and other licensed health care professionals
through one of its offices. The Company also is evaluating its ability to
provide outsourcing services, such as managing a complete information technology
function. While the Company's focus will continue to be in professional
staffing, management believes that offering lower skilled personnel would
complement its current service offerings and allow it to attract certain larger
clients who desire to obtain such services from a single source. Because the
existing staffing infrastructure is already in place, management believes that
adding the less highly skilled service line can be done with little additional
cost and at attractive profit margins.
Pursue Strategic Acquisitions. Substantially all of the Company's growth
has been through internal expansion. In recent years, the Company has not had
the financial resources to complete the acquisition of additional staffing
businesses. The Company believes that the opportunity exists to expand its
service offerings and geographic presence through strategic acquisitions.
THE COMPANY'S SPECIALTY STAFFING SERVICES
Overview. The Company is a staffing services firm that specializes in
providing flexible staffing and permanent placement of professional and skilled
personnel primarily in the areas of information technology, accounting and
finance, and engineering and manufacturing. It has offices in 52 markets
throughout the United States and one in Canada. The Company has recently
expanded its service offerings to include the staffing of professional and
skilled personnel in the areas of health care and legal services. The Company
believes that providing a broad range of specialty staffing services allows it
to capitalize on its name recognition and reputation initially developed as a
provider of personnel to the information technology industry.
The Company seeks to develop an understanding of its clients' staffing
needs through its sales associates, each of which has a background in an area in
which the Company specializes. For example, sales associates in the Company's
information technology divisions have technical experience in various
computer-related fields,
22
<PAGE> 25
while most sales associates in the Company's accounting and finance divisions
are certified public accountants. The specialized background of each of the
Company's sales associates, coupled with the Company's emphasis on developing
and maintaining long-term relationships with its clients, fosters the
development of a consultative relationship which enhances the Company's ability
to offer integrated staffing solutions to meet the needs of its clients.
Due to its position as a provider of flexible staffing and permanent
placement staffing services in its primary areas of specialization, the Company
has developed access to a large number of qualified candidates. The Company
maintains a database of qualified candidates containing more than one million
names. The Company seeks to assure the high quality of its candidates through
personal screening interviews with each candidate. These screening interviews
are conducted by sales associates having a background in the candidate's area of
specialty thereby further enabling the Company to offer to its clients
candidates which best meet the clients' staffing needs. The Company's policy is
to replace, without additional charge, flexible staffing personnel who fail to
perform to the client's satisfaction and candidates placed in permanent
positions whose employment terminates within the guarantee period.
Flexible Staffing. Flexible staffing involves the placement of Company
employees and independent contractors on short and long-term assignments with
clients. The Company believes that flexible staffing services offer its clients
a reliable and cost-effective way of obtaining professional and skilled
personnel for special projects or to balance uneven or peak workloads. Because
of its reputation and expertise in the segments of the staffing industry in
which it specializes, the Company has access to a large number of qualified
candidates to meet its clients' flexible staffing needs. The Company believes
that many professional and skilled personnel are attracted to flexible staffing
positions because of their desire to maintain flexible work schedules, obtain
different and challenging work experiences and familiarize themselves with an
employer prior to considering permanent employment. Additionally, the Company
believes that its ability to offer both flexible staffing and permanent
placement options to candidates gives the Company a competitive advantage in
attracting skilled and qualified flexible staffing placement candidates.
Typically, the duration of flexible assignments ranges from days or weeks
to months, or in some cases years. During a typical week, the Company has more
than 1,600 persons in flexible positions with clients. The Company charges
hourly fees for personnel placed in flexible staffing assignments. For 1995 and
the quarter ended March 31, 1996, flexible staffing accounted for approximately
60.7% and 63.4%, respectively, of the Company's net service revenue.
The following table sets forth the number of markets in which the Company
offered flexible staffing services in its areas of specialization as of the
dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JANUARY 1, JANUARY 1, DECEMBER 31, MARCH 31,
1991 1992 1994 1995 1995 1996
------------ ------------ ---------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Information Technology..... 6 12 23 35 43 46
Accounting and Finance..... 8 13 20 22 24 39
Engineering and
Manufacturing............ 0 0 3 7 11 12
Other...................... 0 0 0 2 4 5
</TABLE>
Set forth below are the percentages of the Company's net service revenue
derived from its flexible staffing services for each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
-------------------------------------- --------------------
JANUARY 2, JANUARY 1, DECEMBER 31, APRIL 2, MARCH 31,
1994 1995 1995 1995 1996
---------- ---------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Information Technology................... 31.2% 38.1% 44.1% 43.4% 46.2%
Accounting and Finance................... 17.7 15.4 14.6 17.0 14.9
Other.................................... .4 1.2 2.0 2.1 2.3
---- ---- ---- ---- ----
Total Flexible Staffing........ 49.3% 54.7% 60.7% 62.5% 63.4%
==== ==== ==== ==== ====
</TABLE>
23
<PAGE> 26
Permanent Placement. During 1995 and the quarter ended March 31, 1996,
permanent placements accounted for 39.3% and 36.6%, respectively, of the
Company's net service revenue. The Company currently offers permanent placement
services in 52 markets in 29 states and one in Canada.
Permanent placement services include placement of candidates in permanent
positions with clients. The Company believes that many businesses, in an effort
to manage their cost structures and focus on their core business, have generally
reduced the number of permanent, full-time employees as well as the size and
capability of their human resources functions. Accordingly, companies rely more
heavily on permanent placement providers for their hiring needs. The Company
further believes that the increasing demand for specialized employee skills has
enhanced its clients' dependence on its ability to more effectively identify and
understand specialized and technical candidate skills. In addition, utilizing
permanent placement providers allows companies to access a broader range of
professional and skilled candidates. The Company believes its 34 year history in
permanent placement services, its database containing information on over one
million qualified potential placement candidates, its national presence and its
practice of employing sales associates with backgrounds in the areas in which
they recruit enable it to provide permanent placement staffing solutions that
meet clients' needs.
The Company's permanent placement services typically result in payment to
the Company when a candidate is hired by a client and the candidate is retained
for the duration of the guarantee period. The Company's fee is usually
structured as a percentage of the placed candidate's first-year annual
compensation.
Set forth below are the percentages of the Company's net service revenue
derived from its permanent placement services for each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
-------------------------------------- --------------------
JANUARY 2, JANUARY 1, DECEMBER 31, APRIL 2, MARCH 31,
1994 1995 1995 1995 1996
---------- ---------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Information Technology................... 27.7% 27.0% 24.0% 23.2% 21.2%
Accounting and Finance................... 17.8 13.9 11.5 11.5 10.8
Other.................................... 5.2 4.4 3.8 2.8 4.6
---- ---- ---- ---- ----
Total Permanent Placement...... 50.7% 45.3% 39.3% 37.5% 36.6%
==== ==== ==== ==== ====
</TABLE>
AREAS OF SPECIALIZATION
The Company specializes in providing flexible staffing and permanent
placement of professional and skilled personnel in the areas of information
technology, accounting and finance, engineering and manufacturing, health care
and legal services through eight divisions. The Company regularly reviews its
areas of specialization to determine whether new areas can be added to better
serve its clients' needs. Although the Company will continue to focus on
providing professional and skilled personnel, it may expand into less skilled
areas in order to meet the needs of clients who desire to obtain their staffing
services from one source.
Information Technology. The Company provides persons skilled in
computer-related fields for flexible staffing and permanent positions. Staffing
of information technology personnel accounted for approximately 68.1% of the
Company's net service revenue in 1995 and approximately 67.4% in the quarter
ended March 31, 1996.
The Company meets clients' information technology staffing needs through
two divisions. SOURCE CONSULTING provides experienced professionals in all
information technology disciplines for flexible staffing assignments. SOURCE EDP
provides information systems professionals on a contingency fee and retainer
basis for permanent employment.
Due to the rapid development of information technology, many companies'
computer systems incorporate a variety of hardware and software components which
may span a number of technology generations. For example, a company may operate
concurrently on mainframe, midrange and client/server hardware platforms running
a variety of operating systems and relational databases. Systems applications
development has become much more important in this environment as information
technology departments strive to integrate a
24
<PAGE> 27
company's information processing capabilities into a single system while
providing for ever-changing functionality. In addition, in order to facilitate
communication within organizations, there is a greater need for information
technology personnel with specific expertise in the rapidly evolving
location-wide networking and communications technologies.
The substantial increase in the use of sophisticated information
technologies has coincided with economic factors that have led to reductions in
corporate work forces and a return by businesses to a focus on their core
competencies. Faced with the challenge of implementing and operating more
complex information systems without enlarging their corporate staffs, businesses
are increasingly using specialty staffing services companies to augment their
information technology operations.
At the same time, an increasing number of technical professionals are
choosing to operate as consultants, motivated by a desire for more flexible work
schedules and an opportunity to work with emerging and challenging technologies
in a variety of industries and work environments. Such consultants generally are
able to maintain compensation levels comparable to or higher than that of
similarly skilled, full-time employees. These factors have caused information
technology services to be one of the fastest growing segments of the specialty
staffing services industry.
The Company's information technology consultants provide computer
programming assistance, systems analysis and design, software engineering,
network support and personal computer help desk services. The projects on which
these consultants are placed range in duration from weeks or months to over one
year.
Because technical needs are diverse and technology advances occur
frequently, information technology consultants are in high demand. As a result,
the Company focuses heavily on recruiting persons highly skilled in a variety of
computer-related fields. The Company believes that building a large base of
personnel highly skilled in computer-related fields who are available for
assignment is as integral to its success as are its client relationships. To
recruit such personnel, the Company uses targeted telephone recruiting, obtains
referrals from its existing consultants and clients and places newspaper
advertisements. To foster loyalty and commitment from its existing information
technology consultants, the Company maintains frequent contact and offers
competitive wages, flexible schedules and exposure to a variety of information
technology systems.
Positions for which personnel are provided include:
<TABLE>
<S> <C>
- Chief Information Officers - Directors of Systems Development
- Systems Analysts - Systems Programmers
- Office Automation Analysts - Telecommunications Analysts
- Application Programmers - Software Quality Assurance Personnel
- Database Architects and Administrators - Data Administration Personnel
- Database Support Personnel - Computer Operators
- Software Maintenance Personnel - Systems Auditors
- Database Architecture Personnel - Programmer Analysts
- Data Security/Disaster Recovery Personnel - Systems Designers
- Data Communication Architecture Personnel - Operating System Support Personnel
- Network Design and Administration Personnel - Production Control Personnel
- Client Server Support Personnel - Project Managers
- Help Desk Support and Training Personnel - Project Leaders
- Data/Voice Communications Personnel - Software Engineers
- Software Designers - Systems Integration Specialists
- Datacenter Managers - Training Specialists
</TABLE>
Accounting and Finance. For 1995 and the quarter ended March 31, 1996,
staffing of accounting and finance personnel accounted for approximately 26.1%
and 25.7%, respectively, of the Company's net service revenue. The Company meets
clients' accounting and finance staffing needs through two divisions. ACCOUNTANT
SOURCE TEMPS provides accounting and financial personnel for flexible staffing
assignments in 39 markets. SOURCE FINANCE provides experienced accounting and
finance professionals on a contingency fee and retainer basis for permanent
employment in 37 markets.
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<PAGE> 28
Fundamental changes in the accounting profession have resulted from the
increased use of information technology to automate routine transactions. For
example, sophisticated software prepares information and reports formerly
prepared by larger accounting staffs. Therefore, the role of accountants is
changing from preparing to analyzing information and reports. These changes
require that accounting and finance personnel have greater analytical abilities
and skills consistent with the increased utilization of technology. The Company
believes that its emphasis on specialty staffing better allows it to attract
accounting and finance professionals with these more advanced skills.
The use of accounting and finance professionals in flexible staffing
assignments offers clients a reliable and cost-effective means of handling
uneven or peak workloads caused by events such as periodic financial reporting
deadlines, tax deadlines, special projects, systems conversions and unplanned
staffing fluctuations. The Company meets such clients' needs with personnel who
have an extensive range of financial and accounting experience, including
corporate taxation, budget preparation and analysis, financial reporting,
regulatory filings, payroll preparation, cost analysis, and audit services.
Through the use of the Company's services, clients are able to avoid the cost
and inconvenience of hiring and terminating permanent employees. Typically, the
duration of flexible staffing assignments of accounting and finance personnel is
six to eight weeks.
Positions for which personnel are provided include:
<TABLE>
<S> <C>
- Chief Financial Officers - Treasurers
- Controllers and Assistant Controllers - Financial Analysts
- Tax Accountants - Financial Reporting Specialists
- Staff and Senior Accountants - Cost Accountants
- Internal Audit Personnel - Accounting Managers
- Credit and Collections Personnel - Budget Analysts
- General Accounting Administrative Personnel - Full Charge Bookkeepers
</TABLE>
Engineering and Manufacturing. The Company provides professional personnel
in the fields of engineering and manufacturing in 14 of the Company's markets in
eight states. For 1995 and the quarter ended March 31, 1996, staffing of
engineering and manufacturing personnel accounted for approximately 5.8% and
6.9%, respectively, of the Company's net service revenue.
The Company meets clients' engineering and manufacturing staffing needs
through two divisions. SOURCE ENGINEERING provides personnel highly skilled in a
variety of engineering disciplines for both flexible staffing and permanent
placement. SOURCE MANUFACTURING provides both flexible staffing and permanent
placement of persons skilled in a variety of manufacturing and industry
management disciplines.
The demand for engineering and manufacturing professionals has increased
with the general increase in activity in the industrial and manufacturing
sectors of the national economy. Additionally, as a result of increased use of
automation, shorter production cycles and an increased emphasis on quality
assurance and quality control in manufacturing processes, and the emergence of
management techniques emphasizing team development, the skills required of
engineering and manufacturing professionals have changed. The Company has
recognized these trends, and through screening of candidates has emphasized
placement of engineering and manufacturing professionals having the skills
necessary in today's market.
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<PAGE> 29
Positions for which personnel are provided include:
<TABLE>
<S> <C>
- Quality Engineers - Quality Managers and Directors
- ISO 9000 Personnel - Quality Assurance Personnel
- Information Engineers - Human Resources Personnel
- Purchasing and Materials Management
Personnel - Sales Engineers
- Systems Engineers - Software Engineers
- Systems and Software Design Specialists - Equipment Testers
- Civil Engineers - Industrial Engineers
- Electrical Engineers - Mechanical Engineers
- Design Engineers - Product Managers
- Production Managers - Production Controllers
- Production Schedulers - Product Designers
- Inventory Control Managers
</TABLE>
Legal Services. Through its SOURCE LEGAL division, the Company recently
has started to provide legal services personnel for flexible staffing and
permanent placement in four markets.
Positions for which personnel are provided include:
<TABLE>
<S> <C>
- Attorneys - Firm Administrators
- Legal Assistants - Litigation Support Personnel
- Document Coding Specialists - Legal Secretarial Personnel
- Legal Fileclerks - Legal Computer Professionals
</TABLE>
Health Care. Commencing in January 1996, the Company, through its SOURCE
HEALTHCARE STAFFING division, began to provide licensed professionals to health
care institutions primarily for flexible staffing but also, when requested, for
permanent placements in one market.
Positions for which personnel are provided include:
<TABLE>
<S> <C>
- Physicians - Radiologists
- Physician Assistants - Registered Nurses
- Licensed Practical Nurses - Licensed Vocational Nurses
- Nursing Assistants - Medical Technicians
- X-Ray Technicians - Physical Therapists
</TABLE>
ORGANIZATIONAL STRUCTURE
The Company currently operates offices in 52 markets throughout the United
States and one in Toronto, Canada. The Company's operations are divided into
three geographic regions, each of which is under the management of a Vice
President of Operations who is responsible for the overall profitability of his
region. Each market served by the Company in a region is managed by a Managing
Director who reports directly to the Vice President of Operations of that region
and is responsible for sales of the Company's services in that market. Each of
the service offerings in a market is supervised by a Sales Manager for that
service. Each of the service offerings in each market is served by sales
associates who report to a Sales Manager.
The Company believes that the current business environment requires service
providers to be responsive to the ever-changing needs of their clients. To meet
this requirement, in 1996 the Company implemented an organizational structure
and compensation policy that is designed to promote an entrepreneurial spirit
among its employees. To this end, the Company permits its managers considerable
discretion, within overall Company policies, in hiring, pricing, training and
marketing decisions at the local level. The Company's compensation policy is
designed to reward contributions at all operating levels to the increased
profitability of the Company's business. Since its inception, the Company has
been substantially owned by its employees. The Company believes that its
employee owners have an incentive to enhance the profitability of the Company's
business in order to promote growth and an increase in the value of their equity
interest in the Company.
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<PAGE> 30
In order to provide further focus on its flexible staffing services, the
Company has created national executive management positions for the Company's
areas of specialization. The Company has filled the position of National
Director of Flexible Staffing Services for the accounting and finance area and
is seeking to fill similar positions for its other flexible staffing service
offerings. These managers will support operational management and will be
charged with developing comprehensive plans encompassing market expansion,
emerging services, marketing strategies and operational performance objectives
for their area of specialization. The Company believes that these managers,
working closely with operational management, can develop integrated staffing
strategies that increase the likelihood of cross-selling of services and greater
customer penetration.
RECRUITING AND TRAINING
Recruiting candidates is critical to the Company's business and growth
strategy. The Company believes it has an advantage over its competitors in
recruiting highly qualified personnel for the following reasons:
- The background and experience of the Company's sales associates in
each of its areas of specialization;
- The Company's experience as a national provider of specialty
staffing services;
- The Company's database of over one million candidates; and
- The Company's ability to offer candidates both flexible staffing
assignments and permanent placement opportunities.
The Company attracts more than half of its candidates through referrals and
repeat business. Additional candidates are identified through a comprehensive
Candidate Attraction Program which includes the use of a proprietary, on-line
database containing the names, qualifications and other relevant information on
more than one million professional or highly skilled candidates; using
proprietary and purchased lists of prospects; the use of the Internet, including
a Company home page; national advertising campaigns; attendance at trade shows
and career conferences; speaking engagements and professional association
memberships; local media advertising; and college campus promotional activities
and speaking engagements. Because of its national geographic presence, the
Company has the ability to recruit highly qualified personnel in certain of its
areas of specialization, such as engineering and manufacturing and health care,
that require a regional or national focus.
The Company relies heavily on the recruitment efforts of its sales
associates. The majority of the Company's sales associates first contact the
Company as applicants for the Company's placement services. Therefore, most of
the Company's sales associates have personally experienced and benefitted from
the ability of the Company to place its candidates in attractive flexible
staffing or permanent placement positions. This personal experience benefits the
sales associate and the Company in recruiting qualified candidates and in
understanding the staffing needs of the Company's clients. During the first four
months of 1996, the Company hired a net 100 additional sales associates. While
it typically takes four to six months for a new sales associate to become
profitable, the Company believes that these additions are an investment for
future growth.
The Company's sales associates are trained by the Company. Each newly-hired
sales associate attends a one week initial training program administered by the
corporate training department which employs field personnel as trainers. When
sales associates return to their assigned office, they undergo an additional
nine weeks of training by local office management. This "Certification Program"
is unique for each service of the Company and is formal in its execution,
including both qualitative and quantitative training events with formal sign-off
by local management. Additionally, regularly scheduled meetings in each branch
office include training events based on specific needs in that office. Audio
visual training aids are developed and disseminated by the corporate training
department to support field management with ongoing training.
Before a candidate is placed with a client in either a flexible staffing or
permanent position, a sales associate with a background in the candidate's area
of specialty will conduct a personal interview with that candidate in order to
evaluate qualifications and level of skills. This screening process allows the
sales associate
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<PAGE> 31
to match candidates who can satisfy the needs of individual clients as well as
direct the prospective candidates toward opportunities that are well suited to
their career goals.
The Company offers all of its candidates the opportunity to develop or
enhance their skills as technological or other changes occur through a variety
of training aids. In connection with an upgrade to its management information
systems, the Company is installing training software licensed from a third-party
supplier. Candidates for the Company's flexible staffing and permanent placement
services also have the opportunity to increase their technical and business
skills through the use of an on-line discussion database and chat line. See
"Business -- Management Information System."
SALES AND MARKETING
The Company markets to local accounts through its sales associates, thereby
permitting the Company to capitalize on their expertise and relationships in
local markets. Marketing activities at the local level are conducted within
guidelines established by the Company and are supervised through the Vice
Presidents of Operations, Managing Directors and Sales Managers.
The Company's national marketing strategy, which is largely based on
attracting clients who desire to work with a limited number of vendors for their
staffing needs, is developed and coordinated at the corporate level and is
implemented through regional and local management. This enables the Company to
develop a focused national marketing strategy that is consistent throughout all
of its markets.
Clients are solicited through personal sales presentations, presentations
at trade shows, telephone marketing, direct mail solicitation, Company-sponsored
technical seminars and training, and referrals from clients and candidates. In
addition, as a result of its history of providing permanent placement services,
the Company has developed and strives to maintain a network of persons who were
placed using the Company's services, are now in positions to affect hiring
decisions and rely on the Company's services in filling their flexible staffing
and permanent placement needs. The Company advertises in a variety of local and
national media, including the Yellow Pages, local and national newspapers and
trade publications. The Company also operates a Web page on the Internet which
provides both clients and candidates with information about the Company and its
services as well as employment opportunities. Each year, the Company publishes
national salary surveys for professionals in the information technology,
accounting and finance, and engineering and manufacturing industries because the
Company recognizes the need for candidates to have timely information regarding
hiring trends and skills currently in demand. In addition, the Company maintains
information regarding the hiring status of employers and the skills they
require.
The Company's marketing plan incorporates a continual review of its
clients' anticipated future staffing needs to enable the Company to respond to
changes in "in-demand" skills. The quality of the relationship with client
personnel is a key component of this strategy, and the Company seeks to develop
long-term consultative relationships with each of its clients to more fully
understand and anticipate their flexible staffing and permanent placement needs.
MANAGEMENT INFORMATION SYSTEMS
The Company relies heavily on its management information systems in the
conduct of its business. The Company principally uses a proprietary, mainframe
based system called SCORE. The Company believes that SCORE's unique system of
coding skills and qualifications of the Company's candidates provides the
Company an advantage in matching such skills and qualifications with clients'
needs. For example, SCORE enables the Company to include within the coding of
the skills and qualifications of a candidate various sub-sets of the candidate's
skills and other related qualifications. Thus, a search of the Company's
database for candidates possessing a group of skills and qualifications,
including, for example, a high level of skill in a particular computer program,
will also identify candidates possessing most of the required qualifications and
having skills in related or similar computer programs. This enables the Company
to respond to specific client needs by searching for candidates possessing
highly specialized skills or a broad grouping of skills as the circumstances
require.
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<PAGE> 32
In 1995, the Company began upgrading its management information systems.
This upgrade program, which involves both the acquisition of new equipment and
the adaptation of the SCORE system to the new equipment, is based on the use of
client-server technology, the increased use of personal computers in each of its
offices, the inter-connection of all of its computer systems over a high-speed
frame relay network, and the use of third-party software to manage daily
documentation and correspondence with clients and to provide training for the
Company's candidates. As part of this upgrade, the SCORE system is being
enhanced to work in the new client-server based network environment. The Company
believes that the enhanced system will:
- Support a broader range of staffing services offerings and will provide
substantially increased support for the Company's flexible staffing
services;
- Integrate back office financial and accounting functions with front
office operations using industry standard third-party software;
- Be able to accommodate larger databases and perform larger and more
complex searches;
- Contain additional productivity features;
- Have a graphical user interface promoting ease of use; and
- Accommodate the expansion of the Company's business for the foreseeable
future.
The present SCORE system will be retained and will continue to be operable
until the enhanced system is fully implemented, which is expected by late 1996.
Although the Company believes the enhancement program is proceeding on schedule,
no assurance can be given that the enhancements will be implemented within the
planned time or that, if implemented, the enhanced system will provide expected
benefits.
COMPETITION
The specialty staffing services industry is very competitive and
fragmented. There are limited barriers to entry and new competitors frequently
enter the market. A number of the Company's competitors possess substantially
greater resources than the Company. The Company faces substantial competition
from local and national specialty staffing firms. National specialty staffing
firms that offer staffing services in some or all of the Company's areas of
specialization include AccuStaff Incorporated, Alternative Resources
Corporation, COREStaff, Inc., Robert Half International, Inc. and Romac
International, Inc. In addition, in each of the Company's markets, one or more
local firms compete with the Company.
The Company believes that the availability and quality of candidates, the
level of service, the effective monitoring of job performance and the price of
service are the principal elements of competition in the staffing industry. The
Company believes that the availability of qualified candidates is especially
important. In order to attract qualified candidates, the Company places emphasis
upon its ability to provide both flexible staffing and permanent placement
opportunities, and must offer competitive compensation, quality and varied
assignments and scheduling flexibility. Additionally, in certain markets the
Company has experienced significant pricing pressure from some of its
competitors. Although the Company believes it competes favorably with respect to
these factors, it expects competition to increase and there can be no assurance
that the Company will remain competitive.
PROPERTIES
The Company owns no real estate. It leases its headquarters as well as its
branch offices. The leases generally have terms of five years. The Company
believes that its facilities are adequate for its needs and does not anticipate
difficulty replacing any of its facilities or locating additional facilities.
INSURANCE
The Company maintains a number of insurance policies. Its general liability
policy has aggregate coverage of $2.0 million, with a $1.0 million limit per
occurrence. The Company maintains an automobile liability policy with a combined
single coverage limit of $1.0 million. The Company also carries an excess
30
<PAGE> 33
liability policy, which covers liabilities that exceed the policy limits of the
above policies, with an aggregate and a per occurrence limit of $5.0 million.
The Company maintains a professional liability and errors and omissions
policy, with aggregate and per occurrence coverage of $1.0 million, covering
certain liabilities that may arise from the actions or omissions of flexible
staffing personnel on information technology assignments through SOURCE
CONSULTING. The Company maintains a fidelity bond in the aggregate amount of
$1.0 million covering certain dishonesty of its personnel. The Company also
maintains worker's compensation and employers' liability coverage in the amount
of $1.0 million. There can be no assurance that any of the above coverages will
be adequate for the Company's needs. See "Risk Factors -- Employment Liability
Risk."
TRADEMARKS
The Company has registered the following trademarks: ACCOUNTANT SOURCE
TEMPS, SOURCE ENGINEERING, SOURCE, SOURCE CONSULTING, SOURCE EDP, SOURCE
FINANCE, SOURCE TEMPS, SOURCE LEGAL and SOURCE SERVICES. The Company also has
registered the SOURCE EDP logo. The Company vigorously defends its rights
pursuant to these trademarks. The Company believes that the loss of one or more
of such trademarks could have a material adverse effect on its business.
EMPLOYEES
As of June 30, 1996, the Company employed approximately 2,850 persons. Of
such persons, approximately 50 were engaged in corporate management and support
functions, approximately 975, including approximately 550 sales associates, were
involved in functions related to customer service, and the balance of 1,825 (of
which approximately 200 were independent contractors) were available for or were
on assignment in temporary staffing positions. As the employer, the Company is
responsible for the permanent and temporary payrolls and employer's share of
social security taxes (FICA), federal and state unemployment taxes, workers'
compensation insurance and other direct labor costs relating to its employees.
The Company offers access to various insurance programs and benefits for its
flexible employees. The Company has no collective bargaining agreements covering
any of its employees and has never experienced any material labor disruption.
The Company considers its relations with its employees to be good.
LEGAL PROCEEDINGS
In the ordinary course of its business, the Company is from time to time
threatened with or named as a defendant in various lawsuits, including
discrimination and harassment and other similar claims. The Company is not
currently involved in any material litigation.
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<PAGE> 34
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of the Company, and their ages as of
May 15, 1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
----------------------------------- --- ------------------------------------------------
<S> <C> <C>
D. Les Ward(1)..................... 42 President, Chief Executive Officer and Director
Richard Dupont..................... 41 Chief Financial Officer and Secretary
Jack A. Causa...................... 47 Vice President of Operations -- Eastern Division
Joseph A. Gendron.................. 45 Vice President of Operations -- Western Division
Lawrence J. Stanczak............... 47 Vice President of Operations -- Central Division
John N. Allred(2).................. 49 Director
Adrian Alter(2)(3)................. 70 Director
Paul M. Bass, Jr.(1)(3)............ 61 Director
Wayne D. Emigh(1)(2)............... 62 Chairman of the Board of Directors
John Sifonis(3).................... 55 Director
Karl Vogeler(2).................... 53 Director
</TABLE>
- ---------------
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
D. Les Ward has served as President and Chief Executive Officer of the
Company since September 1994. From December 1989, when he joined the Company,
until September 1994, Mr. Ward served as Chief Financial Officer of the Company.
From November 1988 until joining the Company, Mr. Ward served as Controller of
Muratec Incorporated, a telecommunications company. Mr. Ward has fifteen years
of financial management experience, including management positions with
companies in the telecommunications, oil and gas and insurance industries. Mr.
Ward has served as a director since September 1994.
Richard Dupont joined the Company in December 1989 as its Controller and
has served as its Chief Financial Officer and Secretary since September 1994.
From November 1988 until joining the Company, Mr. Dupont served in various
capacities, including Assistant Controller, of Muratec Incorporated. Mr. Dupont
has fifteen years of financial management experience, including positions with
companies in the telecommunications, retail and insurance industries.
Jack A. Causa has served as Vice President of Operations -- Eastern
Division since October 1995. From 1985 until that time, Mr. Causa served as
Regional Vice President of the Company. Prior to that time, Mr. Causa held
various management positions with the Company, beginning in 1981. Prior to
joining the Company, Mr. Causa served as Director of Financial Services of
Carter-Wallace, Inc., a consumer products and pharmaceutical manufacturer. Mr.
Causa is a Certified Public Accountant and has six years of audit experience
with Price Waterhouse LLP.
Joseph A. Gendron has served as Vice President of Operations -- Western
Division since October 1995. From April 1992 until that time, Mr. Gendron served
as Regional Vice President after having served as Managing Director from October
1991. From October 1990 until October 1991, Mr. Gendron served as a search
consultant for Innovative Technology, a personnel search firm specializing in
the placement of data communication and software professionals. Prior to that
time, Mr. Gendron served in various capacities with the Company from March 1983.
Lawrence J. Stanczak was named Vice President of Operations -- Central
Division in December 1995. From January 1994 until that time, he served as
Managing Director of the Company's Chicago market. From July 1993 through
December 1993, Mr. Stanczak was a branch manager of Data Performance, Inc., a
provider
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<PAGE> 35
of temporary personnel. Prior to that, Mr. Stanczak served in various capacities
with the Company, including Chicago Area Manager of Source Edp from May 1983
until October 1993.
John N. Allred has served as President of A.R.G., Inc., a provider of
temporary and permanent physicians located in Kansas City area since January
1994. Prior to that time, Mr. Allred served in various capacities with the
Company. Beginning in 1976 he was named Branch Manager of the Kansas City
branch, and was promoted to Regional Vice President in 1983 and Vice President
in 1987. Prior to joining the Company, Mr. Allred held various positions,
including Manager of Data Processing Services and Systems Analyst with Systec
Data Management. Mr. Allred served as a director of the Company from August 1992
until November 1993 and was again elected as a director in September 1994.
Adrian Alter served as Managing Partner of the Dallas/Fort Worth office of
Ernst & Young until his retirement in 1986. From 1986 until 1988, he was a
Senior Vice President and Managing Director of Corporate Finance of Lovett,
Underwood, Neuhaus & Webb, an investment banking firm. Since 1988, Mr. Alter has
been President of Alter and Associates, a financial consulting firm located in
Dallas, Texas. Mr. Alter has served as director of the Company since 1991.
Paul M. Bass, Jr. has been Vice Chairman of First Southwest Company, a
regional investment banking firm, since 1988. He has served as director of the
Company since 1992. Mr. Bass is also affiliated with First Nationwide Bank
F.S.B. (Director and Chairman of the Audit Committee), Keystone Consolidated
Industries, Inc., a wire manufacturing company (Director and Chairman of the
Audit Committee), and MACC Private Equities, Inc., a small business investment
company (Director and Chairman of the Board).
Wayne D. Emigh has served as a director of the Company since 1983. He has
served as Chairman of the Board intermittently from 1985 to 1991, and
continuously since 1993. Mr. Emigh joined the Company in 1968 and served in
various management positions until retiring in 1985. Mr. Emigh also served as
President of the Company on an interim basis from January 1991 until September
1991. Prior to joining the Company, Mr. Emigh held various positions, including
Director of Corporate Management Information Systems, with Rexall Drug and
Chemical Company, a pharmaceutical company, and System Analyst with UNIVAC,
Inc., a computer technology firm.
John Sifonis has been a Principal with Siberg Associates, an information
technology consulting firm in New York, New York, for more than five years.
Prior to that time, Mr. Sifonis has served as Vice President of Mercer
Management Consultants, as Partner with Ernst & Young LLP and in various
development positions with Unisys, Inc., a computer technology firm, and General
Electric Corp. Mr. Sifonis is the author of two books on corporate management,
Dynamic Planning and Corporation on a Tightrope. Mr. Sifonis has served as a
director of the Company since 1992.
Karl Vogeler has been an attorney with the firm of Thompson, Coe, Cousins &
Irons in Dallas, Texas since 1990. Mr. Vogeler's previous business experience
includes serving as Branch Manager of the Dallas, Texas office of Source Edp, as
Project Manager and Senior Systems Analyst of Republic National Bank of Dallas,
N.A., and Systems Engineer for Electronic Data Systems, Inc. Mr. Vogeler has
served on the Board of Directors of the Company since 1994.
COMMITTEES OF THE BOARD OF DIRECTORS
The Executive Committee of the Board of Directors is composed of Messrs.
Emigh, Ward and Bass. Subject to statutory limitations, the Executive Committee
is authorized to exercise the powers of the Board of Directors between regular
meetings.
The Audit Committee is composed of Messrs. Allred, Alter, Emigh and
Vogeler. The Audit Committee reviews the scope of the independent accountants'
examinations of the Company's financial statements and receives and reviews
their reports. The Audit Committee also meets with the independent accountants,
receives recommendations or suggestions for changes in accounting procedures,
and initiates and supervises any special investigations it may choose to
undertake.
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<PAGE> 36
The Compensation Committee consists of Messrs. Alter, Bass and Sifonis. The
Compensation Committee determines the nature and amount of all compensation of
the Company's officers. In addition, the Compensation Committee oversees
administration of the Company's Employees' Stock Option Plan.
DIRECTOR COMPENSATION
Fees and Other Arrangements. The Chairman of the Board receives an annual
fee of $12,000, and all other directors who are not employees of the Company
receive an annual fee of $9,600. Each non-employee director also receives $1,000
for each meeting of the Board of Directors attended and $500 for each meeting of
a committee of the Board of Directors attended or participation in other Board
activities, plus reimbursement of out-of-pocket expenses incurred in connection
with such attendance or participation. Mr. Emigh also receives medical insurance
under the Company's group insurance plan. See "Compensation Committee Interlocks
and Insider Participation."
During 1994 and 1995, the Company granted options to purchase an aggregate
of 87,000 shares of Common Stock to current members of the Board of Directors
who are not employees of the Company.
Non-Employee Directors Stock Option Plan. Pursuant to the Company's
Non-Employee Directors Stock Option Plan (the "Directors Stock Option Plan"),
nonqualified stock options are granted to non-employee directors, assuming there
is an adequate number of shares available for grant under the Directors Stock
Option Plan at a specified grant date, under a formula whereby (i) each
non-employee director elected to the Board after April 3, 1996 at an annual
stockholders' meeting who has not previously served as a director of the Company
will be granted an option to purchase 1,000 shares of Common Stock of the
Company; (ii) each non-employee director appointed after such date to fill a
vacancy in the Board who has not previously served as a director of the Company
will be granted an option to purchase 1,000 shares of Common Stock of the
Company; and (iii) each other non-employee director of the Company elected at,
or continuing to serve following, each annual stockholders meeting after such
date will be granted an option to purchase 1,000 shares of Common Stock of the
Company. The aggregate number of shares of Company Stock that may be granted
during the five year term of the Directors Stock Option Plan is 30,000 shares.
Unless sooner terminated by action of the Board of Directors, the Directors
Stock Option Plan will terminate in April 2001, and no options may thereafter be
granted under the Directors Stock Option Plan.
The Directors Stock Option Plan requires that the exercise price of each
option must not be less than 100% of the fair market value of the Common Stock
at the time of the grant of the option. The period during which each option is
exercisable will commence six months after the date the option is granted and
will expire five years from such date or, if earlier, three months following the
non-employee director's death or disability or 30 days following the date a
nonemployee director ceases to be a director of the Company. Options are not
assignable other than by will or by the laws of descent and distribution.
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<PAGE> 37
EXECUTIVE COMPENSATION
Compensation. The following table summarizes the compensation paid to the
Company's chief executive officer and its four other most highly compensated
executive officers for services rendered for the fiscal year ended December 31,
1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------- RESTRICTED ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS STOCK AWARDS COMPENSATION(1)
- ----------------------------------------------- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C>
D. Les Ward.................................... $200,000 $100,000 $ 22,500 $ 5,062
President and Chief Executive Officer
Richard Dupont................................. 112,000 50,000 22,500 5,062
Chief Financial Officer and Secretary
Jack A. Causa.................................. 140,000 150,000 22,500 5,062
Vice President of Operations --
Eastern Division
Joseph A. Gendron.............................. 125,000 150,000 22,500 5,062
Vice President of Operations --
Western Division
Lawrence J. Stanczak(2)........................ 21,000 199,000 22,500 5,062
Vice President of Operations --
Central Division
</TABLE>
- ---------------
(1) Consists of $4,032 of medical insurance premiums and $1,030 of life
insurance premiums paid on behalf of each executive officer.
(2) Mr. Stanczak became an executive officer of the Company in December 1995.
Employees' Stock Option Plan. Pursuant to the Source Services Corporation
1996 Stock Option Plan (the "Employees' Stock Option Plan"), options may be
granted to eligible employees of the Company or its subsidiaries for the
purchase of an aggregate of 1,000,000 shares of Common Stock of the Company.
Employees eligible under the Employees' Stock Option Plan are those employees
whose performance and responsibilities are determined by the Compensation
Committee to be influential to the Company's success. The Employees' Stock
Option Plan is administered by the Compensation Committee which determines, in
its discretion, the number of shares subject to each option granted and the
related exercise price and option period. The Compensation Committee may grant
either nonqualified stock options or incentive stock options ("ISOs"), as
defined by the Internal Revenue Code of 1986, as amended (the "Code").
The Employees' Stock Option Plan requires that the exercise price of each
option that is intended to constitute an ISO must not be less than 100% of the
fair market value of the Common Stock at the time of the grant of the option.
The option period may not be more than ten years from the date the option is
granted. No ISO, however, may be granted to an employee who owns more than 10%
of the total combined voting power of all classes of outstanding stock of the
Company or its subsidiaries unless the option price is at least 110% of the fair
market value of the Common Stock at the date of the grant and the option period
does not exceed five years. Options may be exercised in annual installments as
specified by the Compensation Committee, and all installments that become
exercisable are cumulative and may be exercised at any time after they become
exercisable until expiration of the option. Options are not assignable except by
will or by the laws of descent and distribution.
There is no limit on the fair market value of ISOs that may be granted to
an employee in any calendar year, but no employee may be granted ISOs that first
become exercisable during a calendar year for the purchase of stock with an
aggregate fair market value (determined as of the date of grant of each option)
in
35
<PAGE> 38
excess of $100,000. An ISO (or an installment thereof) counts against the annual
limitations only in the year it first becomes exercisable. Options are not
assignable.
Full payment for shares purchased upon exercise of an option must be made
at the time of exercise, and no shares may be issued until full payment is made.
The Employees Stock Option Plan provides that an option agreement may include a
provision permitting an optionee the right to tender previously owned shares of
Common Stock in partial or full payment for shares to be purchased on exercise
of an option. Unless sooner terminated by action of the Board of Directors, the
Employees Stock Option Plan will terminate in April 2006 and no options may
thereafter be granted under the Employees Stock Option Plan. The Employees Stock
Option Plan may be discontinued, altered or amended in certain respects by the
Board of Directors without the approval of the stockholders. However, the
Employees Stock Option Plan may not be amended without the approval of the
stockholders (i) to materially increase benefits, (ii) to materially increase
the number of shares of Common Stock that may be issued under the Employees
Stock Option Plan, or (iii) to materially modify the requirements for
participation in the Employees Stock Option Plan.
As of June 30, 1996, no options had been granted under the Employee Stock
Option Plan. However, the Company anticipates that prior to consummation of the
Offering options to purchase up to 333,333 shares may be granted at the Offering
price to certain key employees and officers of the Company.
401(k) Plan. The Company established the Source Services Corporation
401(k) Profit Sharing Plan (the "401(k) Plan"), effective generally as of
January 1, 1996 and effective as of April 30, 1996 with respect to the 401(k)
Plan's elective deferral provisions, pursuant to which eligible employees of the
Company who complete one year of service and attain age 21 may elect to defer on
a before-tax basis up to 15% of their compensation to the 401(k) Plan, subject
to certain restrictions and limitations applicable to the 401(k) Plan under the
Code. The maximum amount of compensation that may be considered under the 401(k)
Plan for any participant for 1996 may not exceed $150,000. The maximum amount a
participant may elect to defer for 1996 on a before-tax basis to the 401(k) Plan
and any similar plan may not exceed $9,500 for 1996, and nondiscrimination
requirements apply to the before-tax deferrals (and Company matching
contributions described below) of certain "highly compensated employees" as
defined in the Code. The Company may, in its discretion, contribute a matching
contribution to the 401(k) Plan based on each participant's annual deferrals of
up to 6% of his or her compensation. For 1996, the Company intends to make a
matching contribution at the rate of 100% of the first 2% of each participant's
compensation deferred, 75% of the next 2% of each participant's compensation
deferred, and 50% of the next 2% of each participant's compensation deferred.
The Company's matching contribution will become fully vested after a participant
completes five years of service with the Company. In addition, the Company may,
in its discretion, make a non-matching contribution to the 401(k) Plan in any
year solely on behalf of non-highly compensated employees.
Profit Sharing Plan. The Company maintains the Source Services Corporation
Employees' Profit Sharing Plan (the "Profit Sharing Plan") to enable eligible
employees of the Company and their beneficiaries to share in the profits of the
Company through Profit Sharing Plan contributions and the investment of such
contributions in Common Stock and other investments. The Profit Sharing Plan is
intended to constitute a tax-qualified plan as described in Section 401(a) of
the Code, and has received a determination to that effect with respect to the
form of the Profit Sharing Plan from the Internal Revenue Service. Each employee
of the Company is eligible to participate in the Profit Sharing Plan upon
completion of a twelve-month period ending on the anniversary of the employee's
date of hire, during which any such employee who is an hourly employee has
completed at least 1,000 hours of service or during which any such employee who
is a salaried employee has been employed for at least six calendar months. The
Company may, at the discretion of the Board of Directors, make contributions to
the Profit Sharing Plan in such amount as it deems appropriate (subject to
limitations imposed on the amount of such contributions under the Code) from its
current net profits for such year or its accumulated earnings and profits.
Contributions made for any year are allocated to the Profit Sharing Plan
accounts of active participants who are hourly employees and who have completed
501 or more hours of service during the year or who are salaried employees and
who have completed three months or more of employment during the year in
proportion to their eligible compensation paid for such year. For 1996, the
maximum amount of compensation that may be considered under the Profit Sharing
Plan for any participant may not exceed $150,000. This amount is subject to
future cost-of-living adjustments.
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<PAGE> 39
Contributions to the Profit Sharing Plan may be made in the form of cash or
Common Stock. Contributions in the form of cash may be used to purchase Common
Stock from stockholders at its appraised value as determined pursuant to an
independent valuation. The Company has no intention to continue to fund such
purchases or to make significant contributions to the Profit Sharing Plan.
Accounts are established under the Profit Sharing Plan for each participant to
reflect shares of Common Stock and other investments held by the Profit Sharing
Plan's trust on behalf of such participant. The Profit Sharing Plan is designed
to invest primarily in Common Stock. Under certain limited circumstances,
participants may elect to sell shares of Common Stock allocated to their Profit
Sharing Plan Common Stock accounts. In such cases, participants are given the
right to direct the investment of the proceeds from such sales among various
investment funds available under the Profit Sharing Plan. All amounts held on
behalf of a participant under the Profit Sharing Plan are fully vested upon the
participant's attainment of normal retirement age, death or total disability. If
a participant's employment terminates for reasons other than normal retirement,
death or total disability, such participant will become fully vested after five
years of credited service. Under certain circumstances, including situations
involving a participant who competes with the Company following termination of
employment, the vested percentage of the benefits payable to the participant is
determined under an alternative five year cliff vesting schedule. Participants
who are employed and who have completed at least ten years of service with the
Company may elect to withdraw a portion of their Profit Sharing Plan accounts,
based on their years of service with the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Alter, Bass and Sifonis. The
members of the Board of Directors who served on the Compensation Committee
during 1995 were Messrs. Allred, Bass, Emigh and Sifonis. Messrs. Allred and
Emigh formerly served in various management positions with the Company.
Pursuant to a consulting agreement between Mr. Sifonis and the Company, Mr.
Sifonis performed certain consulting services for the Company on a one-time
basis from October 1995 through March 1996, including conducting employee
surveys, analyzing training programs and assessing the Company's organizational
structure. Pursuant to the terms of the consulting agreement, Mr. Sifonis was
paid an aggregate of $60,000 for services rendered to the Company.
37
<PAGE> 40
PRINCIPAL AND SELLING STOCKHOLDERS
Record Ownership. Historically, the Company has been owned primarily by
its current and former employees. At July 8, 1996, there were 7,196,397 shares
of the Company's Common Stock outstanding. Mercantile Bank of Joplin, as Trustee
of the trust created pursuant to the Profit Sharing Plan (the "Trustee"), owned
of record 4,752,139 shares, or 66.0%, which are held for the benefit of
approximately 811 persons. The balance of the shares are owned by approximately
345 persons (some of whom are also beneficiaries under the Company's Profit
Sharing Plan). None of such participants beneficially holds more than 5% of the
Company's shares. The address of the Trustee is 402 Main Street, Joplin,
Missouri 64802-0008.
Executive Officers and Directors. The following table sets forth certain
information concerning the ownership of Common Stock as of July 8, 1996, by (a)
each executive officer named in the Summary Compensation Table, (b) each
director and (c) all executive officers and directors as a group. The Company
believes that each of such stockholders has sole voting and dispositive power
over the shares held by such stockholder except as otherwise indicated.
<TABLE>
<CAPTION>
OTHER SHARES TOTAL SHARES
SHARES OWNED BENEFICIALLY BENEFICIALLY PERCENT
NAME OF RECORD OWNED OWNED OF CLASS
- -------------------------------------------------- ------------ ------------ ------------ --------
<S> <C> <C> <C> <C>
D. Les Ward(1).................................... 17,748 32,781 50,529 *
Richard Dupont(1)................................. 8,874 22,138 31,012 *
Jack A. Causa(2).................................. 17,748 53,802 71,550 1.0
Joseph A. Gendron(1)(2)........................... 17,748 37,240 54,988 *
Lawrence J. Stanczak(1)........................... -- 40,977 40,977 *
John Allred(1)(2)(3).............................. 3,549 79,559 83,108 1.2
Adrian Alter(4)................................... -- 14,500 14,500 *
Paul M. Bass, Jr.(4).............................. -- 14,500 14,500 *
Wayne D. Emigh(4)................................. -- 32,333 32,333 *
John Sifonis(3)................................... -- 14,500 14,500 *
Karl Vogeler(3)................................... -- 7,250 7,250 *
All executive officers and directors, as a group
(11 persons).................................... 65,667 349,580 415,247 5.7
</TABLE>
- ---------------
* less than 1%
(1) Shares beneficially owned includes the number of shares of Common Stock held
by the Profit Sharing Plan for the benefit of the following persons: Mr.
Ward -- 32,781; Mr. Dupont -- 22,138; Mr. Gendron -- 9,311; Mr.
Stanczak -- 40,977; and Mr. Allred -- 1,041.
(2) Shares beneficially owned includes the number of shares of Common Stock held
in individual retirement accounts for the benefit of the following persons:
Mr. Causa -- 53,802; Mr. Gendron -- 27,929; and Mr. Allred -- 71,268.
(3) Shares beneficially owned includes currently exercisable options to purchase
the number of shares of Common Stock indicated for the following persons:
Mr. Allred -- 7,250; Mr. Sifonis -- 14,500; and Mr. Vogeler -- 7,250.
(4) Shares beneficially owned includes 14,500 shares of Common Stock held in the
Adrian and Sue Alter Family Trust, 32,333 shares of Common Stock held in
the Wayne D. and Glenda L. Emigh Family Trust, and 14,500 shares of Common
Stock held in the P.M. Bass Family Trust. Under the rules and regulations
of the Securities and Exchange Commission, Messrs. Alter, Emigh and Bass
may be deemed the beneficial owner of such shares.
38
<PAGE> 41
Selling Stockholders. The following table sets forth certain information
concerning the beneficial ownership of Common Stock as furnished by each Selling
Stockholder. The Company believes that each of such stockholders has the sole
voting and dispositive power over the shares held by such stockholder except as
otherwise indicated. See "Risk Factors -- Control of the Company by Existing
Stockholders."
<TABLE>
<CAPTION>
SHARES OF COMMON SHARES OF COMMON
STOCK STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED
BEFORE AFTER
THE OFFERING THE OFFERING
------------------- NUMBER OF SHARES -------------------
NAME NUMBER PERCENT BEING OFFERED NUMBER PERCENT
- -------------------------------------------- ---------- ------- ---------------- ---------- -------
<S> <C> <C> <C> <C> <C>
Sharon L. Anderson.......................... 406 * 406 0 *
Kenneth Barkin.............................. 14,782 * 14,782 0 *
J.J.B. Hilliard W.L. Lyons, Inc. FBO Barbara
W. Beard IRA.............................. 3,162 * 3,162 0 *
Gordon C. Best & Charlotte A. Best, as
Trustee of the 1985 Best Family Trust DTD
8/12/85................................... 8,911 * 8,911 0 *
Marc A. Blackwell........................... 1,218 * 1,218 0 *
Jeff Bloch.................................. 1,218 * 1,218 0 *
Barbara Kim Bradley......................... 298 * 298 0 *
Cecilia Coyle............................... 4,596 * 4,596 0 *
Orlene Dentone.............................. 493 * 493 0 *
Peter L. Dillon............................. 406 * 406 0 *
Theresa Domorod............................. 178 * 178 0 *
Brian Elias................................. 774 * 774 0 *
Jacqueline Gerold........................... 1,655 * 1,200 455 *
Phil Hauser................................. 2,024 * 2,024 0 *
Pat Hellinghausen........................... 208 * 208 0 *
Thomas Hilgenberg........................... 3,074 * 1,537 1,537 *
Dain Bosworth Inc, Custodian FBO Jacalyn
Hughes IRA................................ 1,687 * 1,687 0 *
Leann Hunter................................ 191 * 191 0 *
Smith Barney Harris Upham TTEE, FBO William
P. Karavas Jr., IRA....................... 493 * 493 0 *
Newton Trust Company as Trustee for Thomas
Kecki IRA................................. 6,717 * 6,717 0 *
Charles Russell Lodge....................... 1,774 * 1,774 0 *
Kathy A. Lovering........................... 609 * 609 0 *
Bill Lux.................................... 406 * 406 0 *
Douglas Eugene Mathias...................... 2,960 * 2,960 0 *
Cliff F. Miras.............................. 8,874 * 8,874 0 *
Rick Necessary.............................. 4,437 * 4,437 0 *
David M. Pregeant........................... 37,923 * 8,874 29,049 *
Margaret Graham Ramirez..................... 710 * 210 500 *
Nancy Jean Riehl............................ 1,774 * 1,774 0 *
Tamara Rintacutan Rollins................... 308 * 308 0 *
Smith Barney Inc. Custodian Mitchell H.
Rosen IRA................................. 10,709 * 10,709 0 *
Ophelia Sheppard............................ 142 * 60 82 *
Suzanne Marie Smith......................... 27 * 27 0 *
Robert P. Stevens........................... 73,665 1.02 4,000 69,665 *
Robert Trumbull............................. 83,547 1.16 83,547 0 *
Flora Ann Viggiano.......................... 545 * 545 0 *
Suellen M. Weir............................. 208 * 208 0 *
</TABLE>
39
<PAGE> 42
<TABLE>
<CAPTION>
SHARES OF COMMON SHARES OF COMMON
STOCK STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED
BEFORE AFTER
THE OFFERING THE OFFERING
------------------- NUMBER OF SHARES -------------------
NAME NUMBER PERCENT BEING OFFERED NUMBER PERCENT
- ---- ---------- ------- ---------------- ---------- -------
<S> <C> <C> <C> <C> <C>
Timothy E. Whitaker......................... 69 * 69 0 *
Peter W. Wolfe.............................. 64,780 * 17,748 47,032 *
Source Services Corporation Employees'
Profit Sharing Plan....................... 4,752,139 66.03 711,127 4,041,012 56.15
--------- ------------- ---------
Total............................. 5,098,097 70.84 908,765 4,189,332 58.21
========= ============= =========
</TABLE>
- ---------------
* less than 1%
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 8,787,632 shares of
Common Stock outstanding (9,162,632 shares if the Underwriters' over-allotment
option is exercised in full). Of these shares, the 2,500,000 shares sold in the
Offering (2,875,000 shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable in the public market without
restriction by persons other than affiliates of the Company. Executive officers,
directors and certain stockholders of the Company (including the Trustee) have
contractually agreed with the Underwriters not to sell, offer to sell, contract
to sell, solicit an offer to buy, grant any option for the purchase or sale of,
assign, pledge, distribute or otherwise transfer, dispose of or encumber (or
make any announcement with respect to any of the foregoing), directly or
indirectly, any of their shares of Common Stock (other than those being sold
pursuant to this Offering) or any options, rights, warrants or other securities
convertible into or exercisable or exchangeable for Common Stock or evidencing
any right to purchase or subscribe for shares of Common Stock for a period of up
to 180 days following the date of this Prospectus without the written consent of
the Representatives (the "Contractual Lock-up). These contractual restrictions
cover 4,629,778 shares and will be applicable to any shares of Common Stock
distributed by the Trustee during the Contractual Lock-up period. In addition to
the shares sold in the Offering, the Company estimates that the following shares
would be available to be sold in the public market:
(i) 1,625,718 shares held outside of the Profit Sharing Plan have been
held for more than two years and may be sold immediately following the
Offering pursuant to Rule 144 promulgated under the Securities Act of 1933,
as amended the "Securities Act");
(ii) 541,380 shares held outside of the Profit Sharing Plan have been
held for more than two years and may be sold upon the expiration of the
Contractual Lock-up period pursuant to Rule 144; and
(iii) 981,762 shares held by the Profit Sharing Plan have been held
for more than two years, are distributable by the Trustee pursuant to the
terms of the Profit Sharing Plan and may be sold upon the expiration of the
Contractual Lock-up period pursuant to Rule 144.
Of the remaining 3,138,772 shares, 2,617,015 held by the Profit Sharing
Plan are not distributable pursuant to the terms thereof, and 521,757 shares
held outside of the Profit Sharing Plan are "restricted securities" within the
meaning of Rule 144. See "Underwriting." In general, under Rule 144 as currently
in effect, a person (or persons whose shares are required to be aggregated) who
has beneficially owned, for at least two years, shares of Common Stock that have
not been registered under the Securities Act or that were acquired from an
"affiliate" of the Company, is entitled to sell within any three-month period a
number of shares of Common Stock that does not exceed the greater of (a)1% of
the then-outstanding shares of Common Stock (87,876 shares upon completion of
the Offering) and (b) the average weekly reported trading volume in the Common
Stock during the four calendar weeks preceding such sale. Sales under Rule 144
also are subject to certain notice and manner-of-sale requirements and the
availability of current public information about the Company. A person (or
persons whose shares are aggregated) who has not been an "affiliate" of the
Company (in general, a person who is not a director, officer or principal
stockholder of the Company) during the three months prior to resale and who has
beneficially owned restricted securities for at
40
<PAGE> 43
least three years is entitled to sell such restricted securities under Rule 144
without regard to the requirements discussed above.
The Company is unable to estimate the number of shares of Common Stock that
may be sold in the future by its stockholders since this will depend on the
market price for the Common Stock, the personal circumstances of the
stockholders and other factors. Any sale of substantial amounts of shares of
Common Stock in the open market may significantly reduce the market price of the
Common Stock offered hereby.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 under the Securities Act may be
relied upon with respect to the resale of shares of Common Stock originally
purchased from the Company by its employees, directors and officers prior to the
date the Company becomes subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), pursuant to written
compensatory benefit plans or written contracts relating to the compensation of
such persons. Shares of Common Stock issued in reliance on Rule 701 are
"restricted securities" and, beginning 90 days after the Company becomes subject
to the reporting requirements of the Exchange Act, may be sold by persons other
than affiliates, subject to the provisions regarding manner-of-sale under Rule
144, and by affiliates under Rule 144 without compliance with its two-year
minimum holding period requirements.
The Company intends to file registration statements on Form S-8 under the
Securities Act to register all of the shares of Common Stock issued or reserved
for future issuance under the Employees Stock Option Plan and the Directors'
Plan. After the effective date of those registration statements, shares
purchased upon exercise of options granted pursuant to the Employees Stock
Option Plan and the Directors Stock Option Plan will be available for resale in
the public market without restriction by persons who are not affiliates of the
Company, and to the extent they are held by affiliates, pursuant to Rule 144,
without observance of the holding period requirements. A total of 1,030,000
shares of Common Stock are reserved for issuance upon the exercise of options
granted or which may be granted under the Employees Stock Option Plan and the
Directors Stock Option Plan. See "Risk Factors -- Control of the Company by
Existing Stockholders," "Management -- Employee Benefit Plans -- Employees Stock
Option Plan" and "Management -- Director Compensation -- Non-Employee Directors
Stock Option Plan."
DESCRIPTION OF CAPITAL STOCK
The Company has authorized capital stock consisting of 100,000,000 shares
of Common Stock, $0.02 par value, and 2,000,000 shares of Preferred Stock, $0.01
par value. Prior to this Offering, there were outstanding 7,196,397 shares of
Common Stock, and no shares of Preferred Stock outstanding. A total of 1,030,000
shares of Common Stock are reserved for issuance upon the exercise of options
granted or which may be granted under the Employees Stock Option Plan and the
Directors Stock Option Plan. See "Management -- Director Compensation" and
"Management -- Employee Benefit Plans."
COMMON STOCK
All outstanding shares of Common Stock are, and the shares of Common Stock
offered hereby when issued and paid for will be, fully paid and nonassessable.
All holders of Common Stock have full voting rights and are entitled to one vote
for each share held of record on all matters submitted to a vote of the
stockholders. Votes may not be cumulated in the election of directors.
Stockholders have no preemptive or subscription rights. The Common Stock is
neither redeemable nor convertible, and there are no sinking fund provisions.
Holders of Common Stock are entitled to dividends when, as and if declared by
the Board of Directors from funds legally available therefor and are entitled,
upon liquidation, to share ratably in all assets remaining after payment of
liabilities. See "Dividend Policy." The rights of holders of Common Stock will
be subject to any preferential rights of any Preferred Stock which may be issued
in the future.
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.
PREFERRED STOCK
The Board of Directors of the Company is authorized (without any further
action by the stockholders) to issue Preferred Stock in one or more series and
to fix voting rights, liquidation preferences, dividend rates, conversion
rights, redemption rights and terms, including sinking fund provisions, and
certain other rights and
41
<PAGE> 44
preferences of any series established by the Board of Directors, and to increase
or decrease the number of shares within each such series. The Board of Directors
may issue Preferred Stock for such consideration and on such terms as it deems
desirable. Satisfaction of any dividend preferences of outstanding Preferred
Stock would reduce the amount of funds available for the payment of dividends on
Common Stock. Also, holders of Preferred Stock would normally be entitled to
receive a preference payment in the event of any liquidation, dissolution or
winding-up of the Company before any payment is made to the holders of Common
Stock. In addition, under certain circumstances, the issuance of Preferred Stock
may render more difficult or tend to discourage a merger, tender offer or proxy
contest, the assumption of control by a holder of a large block of the Company's
securities or the removal of incumbent management. The Board of Directors of the
Company, without stockholder approval, may issue Preferred Stock with voting and
conversion rights which could adversely affect the holders of Common Stock. The
Company has no present intention to issue any shares of Preferred Stock.
SPECIAL PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
Anti-takeover Provisions. The Certificate of Incorporation contains
certain provisions, some of which are described below, that in addition to the
authorization of the Preferred Stock may reduce the likelihood of a change in
management or voting control of the Company without the consent of the Company's
Board of Directors. These provisions could have the effect of delaying,
deterring or preventing tender offers or takeover attempts that some or a
majority of the Company's stockholders might consider to be in the stockholders'
best interest, including offers or attempts that might result in a premium over
the market price for the Common Stock.
Staggered Board of Directors. The Certificate of Incorporation
provides that, commencing with the 1997 annual meeting of stockholders, the
Board of Directors will be divided into three classes that are elected to
staggered three year terms. The Company believes that a staggered Board of
Directors will help assure the continuity and stability of the Company's
Board of Directors and the Company's business strategies and policies. The
staggered board provision could increase the likelihood that, in the event
of a takeover of the Company, incumbent directors will retain their
positions. In addition, the staggered board provision will help ensure that
the Company's Board of Directors, if confronted with an unsolicited
proposal from a third party that has acquired a block of the voting stock
of the Company, will have sufficient time to review the proposal and
appropriate alternatives and to seek the best available result for all
stockholders. The affirmative vote of holders of at least 80% of the
Company's outstanding voting stock will be required to amend this
provision.
Removal of Directors During Their Terms. Under the Certificate of
Incorporation, a director may be removed during his or her term of service
only "for cause" and only by the affirmative vote of a majority of the
stockholders entitled to vote. As defined "for cause" means: (i) commission
of an act of fraud or embezzlement against the Company; (ii) conviction of
a felony or a crime involving moral turpitude; (iii) gross negligence or
willful misconduct in performing the director's duties to the Company; or
(iv) breach of fiduciary duty owed to the Company. The affirmative vote of
holders of at least 80% of the Company's outstanding voting stock will be
required to amend this provision. The Bylaws also provide that vacant
directorships may be filled only by the Board of Directors.
Stockholder Action. Unless limited by the Certificate of
Incorporation of a corporation, the Delaware General Corporation Law
permits stockholder action without a meeting, without prior notice and
without a vote upon the written consent of the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. The Certificate of Incorporation
prohibits stockholder action without a meeting, except when there are ten
or fewer stockholders. The affirmative vote of holders of at least 80% of
the Company's outstanding voting stock will be required to amend this
provision.
Fair Price Provision. The Certificate of Incorporation includes a
"fair price" provision that requires the affirmative vote of the holders of
at least 80% of the outstanding voting stock of the Company to
42
<PAGE> 45
approve a merger with, or disposition of assets or the issuance of
securities having a fair market value of $5 million or more to, an
interested stockholder (as defined below), a liquidation proposed by an
interested stockholder or the reclassification of the Company's securities
or a similar transaction that increases the interested stockholder's
proportionate ownership in the Company. An "interested stockholder" is
anyone who owns or controls, directly, indirectly or together with others,
10% or more of the Company's voting stock. However, a transaction with an
interested stockholder will not require stockholder approval if a majority
of disinterested directors (as defined in the Certificate of Incorporation)
approves the transaction or if the transaction involves the distribution to
the stockholders of cash or other consideration that satisfies the "fair
price" criteria set forth in the Certificate of Incorporation, which
generally require that all stockholders receive equal treatment, an
adequate price, and adequate disclosure. The fair price provision of the
Certificate of Incorporation may not be amended without the affirmative
vote of at least 80% of all shares entitled to vote.
Evaluation Factors. The Certificate of Incorporation contains a
provision that allows the Board of Directors to evaluate factors other than
the price offered when considering a proposed acquisition of the Company.
The Certificate of Incorporation permits the Board of Directors to consider
the social, legal and economic effects of the proposed acquisition upon the
Company's employees, suppliers, customers and business and the communities
in which the Company operates. The Board of Directors can also consider any
other factors it deems relevant, including not only the consideration
offered in the proposed transaction relative to the market price of the
Common Stock but also the value of the Company in a freely negotiated
transaction and in relation to the estimate by the Board of Directors of
the future value of the Company as an independent entity. The affirmative
vote of the holders of two-thirds or more of the outstanding voting stock
of the Company will be required to amend this provision.
Limitations on Liability of Directors. The Certificate of Incorporation
limits the liability of directors to the extent allowed by the Delaware General
Corporation Law. Specifically, directors will not be held liable to the Company
or its stockholders for an act or omission in such capacity as a director,
except for liability as a result of: (i) a breach of the duty of loyalty to the
Company or its stockholders; (ii) actions or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii)
payment of an improper dividend or improper repurchase of the Company's stock
under Section 174 of the Delaware General Corporation Law; or (iv) actions or
omissions pursuant to which the director will receive an improper personal
benefit.
The principal effect of the limitation of liability provision is that a
stockholder is unable to prosecute an action for monetary damages against a
director of the Company unless the stockholder can demonstrate one of the
specified bases for liability. This provision, however, does not eliminate or
limit director liability arising in connection with causes of action brought
under the federal securities laws.
The Certificate of Incorporation does not eliminate the directors' duty of
care. The inclusion of this provision in the Certificate of Incorporation may,
however, discourage or deter stockholders or management from bringing a lawsuit
against directors for a breach of their fiduciary duties, even though such an
action, if successful, might otherwise have benefited the Company and its
stockholders. This provision should not affect the availability of equitable
remedies such as injunction or rescission based upon a director's breach of the
duty of care. Once adopted, the affirmative vote of the holders of two-thirds or
more of the outstanding voting stock of the Company will be required to amend
this provision.
Indemnification. The Certificate of Incorporation and Bylaws provide that
the Company is generally required to indemnify its directors and officers for
all judgments, fines, settlements, legal fees and other expenses incurred in
connection with pending or threatened legal proceedings because of the
director's or officer's position with the Company or another entity that the
director or officer serves at the Company's request, subject to certain
conditions, and to advance funds to its directors and officers to enable them to
defend against such proceedings. To receive indemnification, the director or
officer must have been successful in the legal proceeding or acted in good faith
and in what was reasonably believed to be a lawful manner and in the Company's
best interest. Once adopted, the affirmative vote of the holders of two-thirds
or more of the outstanding voting stock of the Company will be required to amend
this provision.
43
<PAGE> 46
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, for whom The Robinson-Humphrey Company, Inc. and
Rauscher Pierce Refsnes, Inc. are acting as representatives (the
"Representatives"), have severally agreed to purchase from the Company and the
Selling Stockholders, and the Company and the Selling Stockholders have agreed
to sell to the Underwriters, the respective number of shares of Common Stock set
forth opposite each Underwriter's name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
The Robinson-Humphrey Company, Inc........................................
Rauscher Pierce Refsnes, Inc..............................................
---------
Total........................................................... 2,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligations is such that they are committed to purchase all shares of Common
Stock offered hereby if any are purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share in sales to certain other
dealers. After the Offering, the public offering price and other selling terms
may be changed.
The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 375,000 shares of Common Stock at the initial public offering
price less the underwriting discount set forth on the cover page of this
Prospectus to cover over-allotments, if any. If the Underwriters exercise their
over-allotment option, the Underwriters have severally agreed, subject to
certain conditions, to purchase approximately the same percentage thereof that
the number of shares of Common Stock to be purchased by each of them as shown in
the table above bears to the 2,500,000 shares of Common Stock offered hereby.
The Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the 2,500,000 shares of Common Stock offered hereby.
The Company, together with each of its executive officers and directors and
certain stockholders beneficially owning in the aggregate 4,629,778 shares of
Common Stock, have agreed not to, directly or indirectly, sell, offer to sell,
contract to sell, solicit an offer to buy, grant any option for the purchase or
sale of, assign, pledge, distribute or otherwise transfer, dispose of or
encumber (or make any announcement with respect to any of the foregoing) any
shares of Common Stock or any options, rights, warrants or other securities
convertible into or exchangeable for Common Stock or evidencing any right to
purchase or subscribe for shares of Common Stock for a period of 180 days from
the date of this Prospectus without the prior written consent of the
Representatives.
The Company has agreed to indemnify the several Underwriters or contribute
to losses arising out of certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiations between the Company and the Representa-
44
<PAGE> 47
tives and will not be based upon any independent appraisal or valuation of the
Company. Among the factors to be considered in determining the initial public
offering price are the economic outlook for the industry in which the Company
operates, the Company's position in the industry, the Company's earnings
prospects, the Company's financial position, the ability and experience of the
Company's management, the prevailing conditions of the securities market at the
time of the Offering and the stock prices of publicly traded companies which the
Company and the Representatives believe to be comparable to the Company.
The Common Stock has been approved for listing on the Nasdaq National
Market under the symbol SRSV.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock covered by this
Prospectus will be passed upon for the Company by Gardere & Wynne, L.L.P.,
Dallas, Texas. Certain legal matters pertaining to the Common Stock will be
passed upon for the Underwriters by Alston & Bird, Atlanta, Georgia.
EXPERTS
The financial statements of the Company as of January 1, 1995 and December
31, 1995 and for each of the three years in the period ended December 31, 1995
included in this Prospectus have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus, which is part of
the Registration Statement, does not contain all of the information set forth in
the Registration Statement and the exhibits thereto. For further information
concerning the Company and the Common Stock, reference is made to the
Registration Statement and to the exhibits and schedules filed therewith, copies
of which may be inspected at the Commission's principal office, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, or copies of which may be
obtained from the Commission at such office upon payment of the fees prescribed
by the Commission. The summaries in this Prospectus of additional information
included in the Registration Statement or any exhibit thereto are qualified in
their entirety by reference to such information or exhibit filed with the
Commission.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements certified by an independent public
accounting firm and quarterly reports for the first three quarters of each
fiscal year containing unaudited financial information.
45
<PAGE> 48
[INTENTIONALLY LEFT BLANK]
<PAGE> 49
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants...................................................... F-2
Balance Sheets as of January 1, 1995 and December 31, 1995 and March 31, 1996
(unaudited).......................................................................... F-3
Statements of Revenues and Expenses for the Years Ended January 2, 1994, January 1,
1995 and December 31, 1995, and for the Three Months Ended April 2, 1995 and March
31, 1996 (unaudited)................................................................. F-4
Statements of Stockholders' Equity for the Years Ended January 2, 1994, January 1, 1995
and December 31, 1995, and for the Three Months Ended March 31, 1996 (unaudited)..... F-5
Statements of Cash Flows for the Years Ended January 2, 1994, January 1, 1995 and
December 31, 1995, and for the Three Months Ended April 2, 1995 and March 31, 1996
(unaudited).......................................................................... F-6
Notes to Financial Statements.......................................................... F-7
</TABLE>
F-1
<PAGE> 50
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Source Services Corporation
In our opinion, the accompanying balance sheet and the related statements of
revenues and expenses, of stockholders' equity and of cash flows present fairly,
in all material respects, the financial position of Source Services Corporation
at December 31, 1995 and January 1, 1995, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Dallas, Texas
March 31, 1996, except as to Note 11
which is as of June 1, 1996.
F-2
<PAGE> 51
SOURCE SERVICES CORPORATION
BALANCE SHEET
(AMOUNTS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, MARCH 31,
1995 1995 1996
---------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................. $ 2,211 $ 1,388 $ 434
Accounts receivable, less allowance for doubtful
accounts and fee adjustments of $1,052, $1,357 and
$1,482, respectively............................... 17,984 25,299 26,407
Deferred tax asset, net............................... 450 745 780
Prepaid expenses and other............................ 217 405 569
------- ------- -------
Total current assets.......................... 20,862 27,837 28,190
Investments............................................. 147 -- --
Deferred tax asset, net................................. 66 7 --
Property and equipment, net............................. 1,359 2,780 3,554
------- ------- -------
Total assets.................................. $22,434 $30,624 $31,744
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings................................. $ -- $ -- $ 2,785
Accounts payable and accrued expenses................. 4,208 3,608 4,786
Accrued commissions and payroll....................... 5,496 9,241 5,497
Accrued 401(k) plan contribution...................... -- -- 251
Accrued contribution to profit sharing plan........... 3,242 6 --
Income taxes payable.................................. 1,497 340 169
------- ------- -------
Total current liabilities..................... 14,443 13,195 13,488
Deferred tax liability................................ -- -- 83
Other liabilities..................................... 179 135 65
------- ------- -------
14,622 13,330 13,636
------- ------- -------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par; 2,000 shares authorized, no
shares issued and outstanding...................... -- -- --
Common stock, $.02 par; 100,000 shares authorized,
2,269, 7,153 (includes 618 shares issued in 1996 to
the profit sharing plan and 4,684 shares issued in
1996 as a stock dividend) and 7,153 shares
outstanding, respectively.......................... 48 144 144
Capital in excess of par.............................. 124 1,655 1,583
Retained earnings..................................... 11,755 15,520 16,406
Deferred compensation................................. (412) -- --
Cumulative translation adjustment..................... (21) (25) (25)
------- ------- -------
11,494 17,294 18,108
Less common stock in treasury at cost, 126 shares
(1994)............................................. 3,682 -- --
------- ------- -------
Total stockholders' equity.................... 7,812 17,294 18,108
------- ------- -------
Total liabilities and stockholders' equity.... $22,434 $30,624 $31,744
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 52
SOURCE SERVICES CORPORATION
STATEMENTS OF REVENUES AND EXPENSES
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
---------------------------------------- --------------------
JANUARY 2, JANUARY 1, DECEMBER 31, APRIL 2, MARCH 31,
1994 1995 1995 1995 1996
---------- ---------- ------------ ------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net service revenue..................... $ 53,835 $ 90,067 $141,832 $29,942 $40,833
Cost of sales, flexible staffing........ 19,927 35,411 63,052 13,697 18,535
-------- -------- -------- ------- -------
Gross profit.................. 33,908 54,656 78,780 16,245 22,298
Operating expenses:
Selling............................... 27,546 43,795 64,882 14,026 19,322
General and administrative............ 4,683 5,447 6,636 1,164 1,522
-------- -------- -------- ------- -------
Total operating expenses...... 32,229 49,242 71,518 15,190 20,844
--------- -------- -------- ------- -------
Operating income.............. 1,679 5,414 7,262 1,055 1,454
Other income (expense):
Interest expense on payable to
stockholders....................... (357) (163) -- -- --
Interest expense...................... (38) (32) (61) (10) (29)
Interest income....................... 99 10 99 36 20
Other, net............................ (53) (218) (578) (107) (165)
--------- -------- -------- ------- -------
Income before income taxes.... 1,330 5,011 6,722 974 1,280
--------- -------- -------- ------- -------
Income tax (expense) benefit:
Current............................... (783) (2,064) (2,764) (391) (423)
Deferred.............................. 270 300 217 31 (55)
--------- -------- -------- ------- -------
(513) (1,764) (2,547) (360) (478)
--------- -------- -------- ------- -------
Net income.............................. $ 817 $ 3,247 $ 4,175 $ 614 $ 802
======== ======== ======== ======= =======
Net income per share.................... $ .11 $ .45 $ .58 $ .09 $ .11
======== ======== ======== ======= =======
Weighted average shares outstanding..... 7,386 7,250 7,178 7,192 7,153
======== ======== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 53
SOURCE SERVICES CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL
---------------- IN EXCESS RETAINED DEFERRED
SHARES AMOUNT OF PAR EARNINGS COMPENSATION
------ ------ --------- -------- ------------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1992...................... 2,356 $ 48 $ -0- $ 5,547 $ (1,402)
Net income........................... 817
Foreign currency translation
adjustment.........................
Deferred compensation................ (57) 81 1,395 456
----- ---- ------ ------- --------
JANUARY 2, 1994........................ 2,299 48 81 7,759 (946)
----- ---- ------ -------- --------
Net income........................... 3,247
Foreign currency translation
adjustment.........................
Deferred compensation................ (30) 43 749 534
----- ---- ------ ------- --------
JANUARY 1, 1995........................ 2,269 48 124 11,755 (412)
----- ---- ------ ------- --------
Net income........................... 4,175
Foreign currency translation
adjustment.........................
Stock contribution to profit sharing
plan............................... 213 2 1,606 (679)
2.9-for-1 stock split................ 4,684 94 (94)
Deferred compensation................ (13) 19 269 412
----- ---- ------ ------- --------
DECEMBER 31, 1995...................... 7,153 144 1,655 15,520 -0-
----- ---- ------ ------- --------
Net income (Unaudited)............... 802
Stock contribution to profit sharing
plan (Unaudited)................... (72) 84
----- ---- ------ ------- --------
MARCH 31, 1996 (UNAUDITED)............. 7,153 $144 $1,583 $16,406 $ -0-
===== ==== ====== ======= ========
<CAPTION>
CUMULATIVE TREASURY STOCK TOTAL
TRANSLATION ---------------- STOCKHOLDERS'
ADJUSTMENT SHARES COST EQUITY
---------- ------ ------ -------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1992...................... 39 $(1,203) $ 2,992
Net income........................... 817
Foreign currency translation
adjustment......................... (20)
Deferred compensation................ - 57 (1,614) 318
-- ------- -------
JANUARY 2, 1994........................ 96 (2,817) 4,107
-- ------- -------
Net income........................... 3,247
Foreign currency translation
adjustment......................... (3) (3)
Deferred compensation................ 30 (865) 461
----- ---- ------- -------
JANUARY 1, 1995........................ (21) 126 (3,682) 7,812
----- ---- ------- -------
Net income........................... 4,175
Foreign currency translation
adjustment......................... (4) (4)
Stock contribution to profit sharing
plan............................... (139) 4,063 4,992
2.9-for-1 stock split................
Deferred compensation................ 13 (381) 319
----- ---- ------- -------
DECEMBER 31, 1995...................... (25) -0- -0- 17,294
----- ---- ------- -------
Net income (Unaudited)............... 802
Stock contribution to profit sharing
plan (Unaudited)................... 12
----- ---- ------- -------
MARCH 31, 1996 (UNAUDITED)............. $ (25) -0- $ -0- $18,108
===== ==== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 54
SOURCE SERVICES CORPORATION
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
-------------------------------------- --------------------
JANUARY 2, JANUARY 1, DECEMBER 31, APRIL 2, MARCH 31,
1994 1995 1995 1995 1996
---------- ---------- ------------ -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................. $ 817 $ 3,247 $ 4,175 $ 614 $ 802
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization........... 620 406 570 124 216
Profit sharing plan stock
contribution.......................... -- -- 4,992 -- 12
Deferred compensation................... 318 461 288 93 --
Deferred tax asset, net................. (77) (231) (236) -- (28)
Deferred tax liability, net............. (273) (111) -- -- 83
Loss on asset sales..................... 8 9 52 -- 6
Decrease (increase) in assets:
Accounts receivable..................... (2,322) (8,122) (7,315) (1,103) (1,108)
Income taxes receivable................. 1,723 -- -- -- --
Prepaid expenses........................ 297 (141) (188) (23) (164)
Investments............................. (5) (5) 147 147 --
Increase (decrease) in liabilities:
Accounts payable and accrued expenses... 192 1,072 (600) 291 1,178
Accrued commissions and payroll......... 398 3,085 3,745 (1,363) (3,744)
Accrued 401(k) plan contribution........ -- -- -- -- 251
Accrued contribution to profit sharing
plan.................................. -- 3,242 (3,236) 1,010 (6)
Income taxes payable.................... 783 714 (1,157) (837) (171)
Accrued interest on payable to
stockholders.......................... 59 (190) -- -- --
Other liabilities....................... (173) (69) (44) (136) (70)
-------- -------- -------- -------- -------
Net cash provided by (used in)
operating activities............. 2,365 3,367 1,193 (1,183) (2,743)
-------- -------- -------- -------- -------
Cash flows from investing activities:
Expenditures for property and equipment.... (157) (874) (2,168) (254) (1,002)
Proceeds from sales of property and
equipment............................... 9 3 152 -- 6
-------- -------- -------- -------- -------
Net cash (used in) provided by
investing activities............. (148) (871) (2,016) (254) (996)
-------- -------- -------- -------- -------
Cash flows from financing activities:
Borrowings from revolving line of credit... 1,435 16,026 13,775 -- 16,130
Repayments of revolving line of credit..... (20) (17,441) (13,775) -- (13,345)
Repayments of principal and interest on
payable to stockholders................. (4,380) (630) -- -- --
-------- -------- -------- -------- -------
Net cash provided by (used in)
financing activities............. (2,965) (2,045) -- -- 2,785
-------- -------- -------- -------- -------
Net increase (decrease) in cash and cash
equivalents................................ (748) 451 (823) (1,437) (954)
Cash and cash equivalents, beginning of the
year....................................... 2,508 1,760 2,211 2,211 1,388
-------- -------- -------- -------- -------
Cash and cash equivalents, end of the year... $ 1,760 $ 2,211 $ 1,388 $ 774 $ 434
======== ======== ======== ======== =======
Supplemental disclosure of cash flow
activity:
Income taxes paid.......................... $ 33 $ 1,556 $ 3,447 $ 1,537 $ 592
======== ======== ======== ======== =======
Interest paid.............................. $ 1,096 $ 385 $ 61 $ 10 $ 29
======== ======== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 55
SOURCE SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Source Services Corporation (the Company) places experienced personnel in
the fields of information technology, accounting, finance, engineering, law and
health care through its divisions: Source Edp, Source Finance, Source
Engineering, Source Manufacturing, Source Consulting, Source Temps, Source
HealthCare and Source Legal divisions.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FISCAL PERIODS
The Company utilizes 4-4-5 (week) quarterly accounting periods with the
fiscal year ending on the Sunday nearest the last day of December. Fiscal 1993
ended January 2, 1994, fiscal 1994 ended January 1, 1995, and fiscal 1995 ended
December 31, 1995.
REVENUE RECOGNITION
Revenue for the placement of personnel on a permanent basis is recognized
on the date the employer and individual mutually agree to an offer and
acceptance of employment. If the individual fails to continue employment for a
period of time as specified in the placement agreement, generally a thirty- to
ninety-day period, the Company is not entitled to collect the placement fee.
Revenue from permanent placements is shown on the Statement of Revenues and
Expenses net of amounts written off for adjustments due to placed candidates not
remaining in employment for the Company's guarantee period. Net adjustments were
$2,385, $2,808 and $4,408 in 1993, 1994 and 1995, respectively. Revenue derived
from flexible staffing is recognized as services are performed by the Company's
employees. Revenue from flexible staffing on the Statement of Revenues and
Expenses represents gross billings less amounts written off. The Company
maintains an allowance for potential fee adjustments and uncollectible accounts.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and in banks and overnight
investments. Overnight investments in Eurodollars were $1,730 and $1,165 at
January 1, 1995 and December 31, 1995, respectively.
TREASURY STOCK
Treasury shares acquired are held for future reissuance to employees.
Treasury shares are recorded at cost of acquisition. Reissued shares are
relieved using the average cost method.
PROPERTY AND EQUIPMENT
Furniture and equipment is stated at cost and is depreciated on a
straight-line basis over estimated useful lives, ranging from five to seven
years. Leasehold improvements are stated at cost and are amortized on a
straight-line basis over the shorter of the lease term or the estimated useful
life of the improvements.
F-7
<PAGE> 56
SOURCE SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SELF-INSURANCE
The Company offers an employee benefit program for which it is self-insured
for a portion of the cost. The Company is liable for claims up to $100 per
employee and aggregate claims up to a defined yearly payment limit. All
full-time employees and salaried consultants are eligible to participate in the
program. Self-insurance costs are accrued using actuarial estimates to
approximate the liability for reported claims and claims incurred but not
reported.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosure
About Fair Value of Financial Instruments," requires the disclosure, to the
extent practicable, of the fair value of financial instruments which are
recognized or unrecognized in the balance sheet. The carrying amounts of the
Company's financial instruments, primarily cash, investments, and short-term
trade receivables and payables, approximate fair value.
INCOME TAXES
The Company accounts for income taxes in accordance with Financial
Accounting Standards Board SFAS No. 109, "Accounting for Income Taxes." Under
SFAS 109, deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. The effect on deferred taxes
of a change in tax rates is recognized in income in the period that includes the
enactment date.
FOREIGN CURRENCY TRANSLATION
Foreign currency translation adjustments arise primarily from activities of
the Company's Canadian operations. Results of operation are translated using the
average exchange rates during the period, while assets and liabilities are
translated into U.S. dollars using current rates. Resulting foreign currency
translation adjustments are recorded in stockholders' equity.
EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the weighted
average number of common stock and common stock equivalents outstanding. Stock
options outstanding for each of three years ended December 31, 1995 and for the
three month periods ended April 2, 1995 and March 31, 1996 were found to have
either no dilutive effect or to have an anti-dilutive effect under the treasury
stock method of calculating such dilutive effect. However, pursuant to
Securities and Exchange Commission regulations, common stock and common stock
equivalents issued by the Company during the twelve month period prior to the
offering have been included in the calculation of earnings per share as if they
were outstanding for all periods presented using the treasury stock method and
the estimated initial public offering price.
NEW ACCOUNTING PRONOUNCEMENT
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock Based Compensation." With respect to stock options
granted to employees, SFAS No. 123 permits companies to continue using the
accounting method promulgated by the Accounting Principle Board Opinion No. 25
(APB No. 25), "Accounting for Stock Issued to Employees", to measure
compensation or to adopt the fair value based method prescribed by SFAS No. 123.
If APB No. 25 method is continued, pro forma disclosures are required as if SFAS
123 accounting provisions were followed. Management has elected not to
F-8
<PAGE> 57
SOURCE SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
adopt the accounting recognition provisions of SFAS No. 123 and will continue to
use the accounting method under APB No. 25. In the opinion of management, SFAS
No. 123 is not expected to have a material impact on the Company's financial
statements.
INTERIM FINANCIAL INFORMATION
The interim financial data included in these financial statements is
unaudited; however, in the opinion of management, the interim data includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results of interim periods.
2. PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following at:
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31,
1995 1995
---------- ------------
<S> <C> <C>
Furniture and fixtures....................................... $3,853 $4,235
Computer equipment........................................... 2,877 1,820
Computer equipment under capital lease....................... 945 --
Leasehold improvements....................................... 192 267
------ ------
7,867 6,322
Accumulated depreciation and amortization.................... (6,508) (3,542)
------ ------
$1,359 $2,780
====== ======
</TABLE>
3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are comprised of the following at:
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31,
1995 1995
---------- ------------
<S> <C> <C>
Trade accounts payable....................................... $2,578 $2,302
Self-insurance accrual for employee benefits................. 410 499
Accrued sales meeting........................................ 470 398
Other........................................................ 750 409
------ ------
$4,208 $3,608
====== ======
</TABLE>
4. PROFIT SHARING PLAN
The Company has a profit sharing plan covering substantially all employees.
Under provisions of the plan, the Company has no obligation beyond declared
contributions and has no rights to the assets of the profit sharing plan. The
Company made no contribution to the plan in fiscal 1993. During fiscal 1994, the
Company declared a contribution funded in cash in the amount of $3,242. During
fiscal 1995, the Company declared a contribution that was funded from treasury
shares and common shares on March 31, 1996 in the amount of $4,998.
At January 1, 1995 and December 31, 1995, the profit sharing plan held
1,584 (pre-split) and 4,904 shares, respectively, of the Company's common stock,
which includes 618 shares contributed to the profit sharing plan on March 31,
1996. The shares held by the profit sharing plan represented approximately 70%
and 68%, respectively, of the outstanding shares.
F-9
<PAGE> 58
SOURCE SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
5. REVOLVING LINE OF CREDIT
The Company has a $4,000 revolving line of credit agreement dated November
30, 1994. The revolving line of credit is collateralized by accounts receivable.
The commitment period extends to November 28, 1996. Commitment fees are payable
on the unused balance at a rate of .5% per annum, payable quarterly. Interest
accrues on outstanding amounts at a rate of prime plus .5%. The prime rate was
8.5% and 8.0% at January 1, 1995 and December 31, 1995, respectively. Under the
terms of the agreement, the Company agreed to comply with certain financial
covenants and restrictions on indebtedness, liens, sales of assets, investments,
dividends and contributions to the Plan. There were no amounts outstanding under
the line of credit at January 1, 1995 and December 31, 1995, however, the
Company borrowed against the line of credit at various times during fiscal 1994
and fiscal 1995 for working capital purposes on an as needed basis.
6. INCENTIVE STOCK BONUS PROGRAM
On December 10, 1992, certain employees were awarded cash and shares of the
Company's common stock previously held in treasury. Total shares awarded were
369. The shares were restricted such that ownership and voting rights vested
over three years: 20% at December 31, 1993, 40% at December 31, 1994 and 40% at
December 31, 1995. Any unvested shares are forfeited and returned to the Company
if an employee terminates prior to the vesting dates. Shares forfeited were 30
and 13, respectively, as of January 1, 1995 and December 31, 1995. Shares vested
were 168 (pre-split) and 774 as of January 1, 1995 and December 31, 1995,
respectively.
The cost of the stock bonus, determined as the fair market value of the
shares ($3.80 as determined by an independent valuation) at the date of grant,
has been recorded as deferred compensation and is presented as a separate
component of stockholders' equity. Deferred compensation is expensed ratably
over the vesting period. Compensation expense relative to the value of shares
awarded was $237, $419 and $361 in fiscal years 1993, 1994 and 1995,
respectively. At December 31, 1995, there was no remaining deferred
compensation.
7. STOCK OPTION PLAN (PRE-SPLIT)
On March 3, 1994, the Company issued 25 nonstatutory stock options to five
outside directors of the Company at an exercise price of $4.84, which was
management's best estimate of market value at the date of grant. On July 13,
1995, the Company issued 10 nonstatutory stock options to two outside directors
of the Company at an exercise price of $10.15, which was management's best
estimate of market value at the date of grant. There was no compensation expense
recorded in connection with the issuance of the options. The 1994 options vest
over two years: 50% at January 1, 1995 and 50% at January 1, 1996. The 1995
options also vest over two years: 50% at January 1, 1996 and 50% at January 1,
1997. The options are exercisable for ten years from the date of grant. During
1994, 5 options were forfeited due to the termination of a director. At December
31, 1995, 30 options were outstanding and 10 options were vested.
F-10
<PAGE> 59
SOURCE SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8. INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
----- ------ ------
<S> <C> <C> <C>
Current provision/(benefit):
Federal................................................. $ 720 $2,100 $2,540
State and other......................................... 63 (36) 224
----- ------ ------
783 2,064 2,764
Deferred provision/(benefit):
Federal and state....................................... (270) (300) (217)
----- ------ ------
$ 513 $1,764 $2,547
===== ====== ======
</TABLE>
The Company's income tax expense was computed in accordance with SFAS 109.
Deferred benefit represents the change in the deferred tax asset and is
discussed further below.
At January 2, 1994, the Company had available unused foreign tax credit
carryforwards of approximately $252, for regular tax and AMT purposes, which
expired in fiscal 1994. The full amount of this potential benefit was offset by
a valuation allowance and no benefit was reflected for any carryforward of
credits as the Company did not anticipate utilizing them.
Balance sheet amounts of deferred taxes are recognized on the temporary
differences between the bases of assets and liabilities as measured by tax laws
and their bases as reported in the financial statements. The principal sources
of temporary differences, tax effected at statutory rates, are reduced by
unrecognized tax benefits in arriving at the deferred tax. The deferred tax
provision or benefit is recognized for the change in deferred tax liabilities or
assets between periods.
Deferred tax assets/(liabilities) are comprised of the following at:
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31,
1995 1995
---------- ------------
<S> <C> <C>
Deferred tax assets
Depreciation................................................. $ 29 $ --
Employee insurance claims.................................... 152 185
Accrued rent................................................. 40 52
Allowance for doubtful accounts.............................. 389 499
Accrued vacation............................................. 59 59
Other........................................................ -- 24
----- ----
Gross deferred tax assets...................................... 669 819
Deferred tax liabilities
Deferred compensation........................................ (153) --
Depreciation................................................. -- (67)
----- ----
Net deferred tax asset/(liability)........................... $ 516 $752
===== ====
</TABLE>
F-11
<PAGE> 60
SOURCE SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table reconciles the federal income tax provision at the
statutory rate to actual taxes reflected in the accompanying financial
statements:
<TABLE>
<CAPTION>
1993 1994 1995
---- ------ ------
<S> <C> <C> <C>
Statutory U.S. tax rates................................... $452 $1,785 $2,213
Increase (decrease) in taxes resulting from:
Permanent differences.................................... 19 40 116
State taxes, net of federal benefit...................... 42 166 224
Other.................................................... -- (227) (6)
---- ------ ------
Income tax expense....................................... $513 $1,764 $2,547
==== ====== ======
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
LEASE AGREEMENTS
The Company leases office facilities and various equipment under
noncancellable leases expiring at various dates through 2002. Certain leases are
subject to escalation clauses based upon changes in the Consumer Price Index.
The minimum future annual operating lease commitments for leases with
noncancellable terms in excess of one year, exclusive of escalation, are as
follows:
<TABLE>
<CAPTION>
YEAR OPERATING
------------------------------------------------- ---------
<S> <C>
1996............................................. $ 3,552
1997............................................. 3,384
1998............................................. 3,240
1999............................................. 2,663
2000............................................. 1,708
Thereafter....................................... 310
-------
$14,857
=======
</TABLE>
Rental expense for the years ended January 2,1994, January 1, 1995 and
December 31, 1995 was $2,631, $2,426 and $3,063, respectively.
LITIGATION
The Company is a defendant in various lawsuits arising in the normal course
of business. The ultimate outcome of these matters cannot presently be
determined; however, it is management's belief that these matters will not
result in significant exposure to the Company. Accordingly, no provision for any
liability that may result has been made in the financial statements.
10. SUBSEQUENT EVENTS (UNAUDITED)
SOURCE SERVICES CORPORATION 401(K) PLAN
On April 29, 1996, the Company established the Source Services Corporation
defined contribution 401(k) Profit Sharing Plan (the 401(k) Plan) to help
supplement retirement income of employees who complete one year of service and
attain age 21. The 401(k) Plan is effective generally as of January 1, 1996 and
effective as of April 30, 1996 with respect to the 401(k) Plan's elective
deferral provisions, whereby eligible employees may elect to defer on a before
tax basis up to 15% of their compensation to the 401(k) Plan. The maximum amount
a participant may elect to defer for 1996 may not exceed $9.5. For 1996, the
Company intends to make a matching contribution at a rate of 100% of the first
2% of each participant's
F-12
<PAGE> 61
SOURCE SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
compensation deferred, 75% of the next 2% of each participant's compensation
deferred, and 50% of the next 2% of each participant's compensation deferred.
The Company's matching contribution will become fully vested after a participant
completes four years of service with the Company. Under the 401(k) Plan, the
Company will make contributions to a Trust Fund, which will pay benefits upon
retirement. Eligible employees may contribute amounts through payroll
deductions. The employee contributions and employer contributions are invested
in funds available under the 401(k) Plan.
1996 STOCK OPTION PLAN
On April 30, 1996, the Company approved the 1996 Stock Option Plan (the
Employees' Stock Option Plan). Under the Employees' Stock Option Plan, options
may be granted to eligible employees of the Company or its subsidiaries for the
purchase of an aggregate 1,000 shares of Common Stock of the Company. Employees
eligible under the Employees' Stock Option Plan are those employees whose
performance and responsibilities are determined by the Compensation Committee of
the Board of Directors to be influential to the Company's success. The
Employees' Stock Option Plan requires that the exercise price of each option
that is intended to constitute an incentive stock option must not be less than
100% of the fair value of the Common Stock at the time of the grant of the
option. No options have been granted under the Employees' Stock Option Plan
(Note 7).
REVOLVING LINE OF CREDIT AGREEMENT
Effective May 21, 1996, the Company negotiated a new revolving line of
credit agreement with another financial institution to replace the existing
revolving credit agreement dated November 30, 1994. The new $10,000 agreement is
collateralized by accounts receivable and other property of the Company. The
commitment period extends to May 21, 1997. Commitment fees are payable on the
unused balance at a rate of 3/8% per annum, payable quarterly. Interest accrues
on outstanding amounts at the prime rate. Restrictive covenants under the new
agreement include tangible net worth levels, current ratio limitations, and
interest coverage requirements in addition to restrictions on indebtedness,
liens, and sale of assets. Proceeds from new borrowings under the new agreement
were used to payoff and cancel the old credit facility. The line of credit
agreement will be used going forward to fund working capital requirements. At
the date the new credit facility was entered into, $1,625 was drawn under this
new revolving line of credit agreement (Note 5).
11. RECAPITALIZATION
Effective June 1, 1996, the Company declared a 2.9-for-1 stock split in the
form of a stock dividend distributable to stockholders of record at the close of
business on that day. All per share amounts and number of shares presented in
the financial statements have been restated to reflect the stock split.
F-13
<PAGE> 62
[INTENTIONALLY LEFT BLANK]
<PAGE> 63
[INTENTIONALLY LEFT BLANK]
<PAGE> 64
[INTENTIONALLY LEFT BLANK]
<PAGE> 65
[PICTURE]
Source Services Corporation(R) is a specialty staffing firm with 34 years of
experience in providing professional and skilled personnel to our clients. The
Company offers staffing services in the information technology, accounting and
finance, engineering and manufacturing, legal services and health care
professions.
[PICTURE]
OUR DIVISIONS
SOURCE CONSULTING - Provides IT consultants for short- or long-term
assignments.
SOURCE EDP - Provides IT professionals for permanent positions.
ACCOUNTANT SOURCE TEMPS - Provides temporary accounting and financial
professionals.
SOURCE FINANCE - Provides accounting and financial professionals for permanent
positions.
SOURCE ENGINEERING - Provides multidisciplined engineers for temporary and
permanent positions.
SOURCE MANUFACTURING - Provides manufacturing professionals for temporary and
permanent positions.
SOURCE LEGAL - Provides attorneys and paralegals for temporary and permanent
positions.
SOURCE HEALTHCARE STAFFING - Provides physicians, RNs, LPNs/LVNs and nursing
assistants for temporary and permanent positions.
[SOURCE SERVICES LOGO]
<PAGE> 66
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, THE SELLING STOCKHOLDERS OR THE UNDERWRITERS. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
The Company........................... 10
Use of Proceeds....................... 10
Dividend Policy....................... 11
Dilution.............................. 11
Capitalization........................ 12
Selected Financial Data............... 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 14
Business.............................. 20
Management............................ 32
Principal and Selling Stockholders.... 38
Shares Eligible for Future Sale....... 40
Description of Capital Stock.......... 41
Underwriting.......................... 44
Legal Matters......................... 45
Experts............................... 45
Additional Information................ 45
Index to Financial Statements......... F-1
</TABLE>
------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMPANY'S COMMON STOCK OFFERED HEREBY,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
================================================================================
2,500,000 SHARES
LOGO
SOURCE SERVICES
CORPORATION
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
THE ROBINSON-HUMPHREY
COMPANY, INC.
RAUSCHER PIERCE
REFSNES, INC.
, 1996
================================================================================
<PAGE> 67
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses in connection with the offering
described in this Registration Statement will be as follows. All of the amounts
except the SEC registration fee, NASD fee and the Nasdaq National Market listing
fee are estimates.
<TABLE>
<CAPTION>
ITEM AMOUNT
- -------------------------------------------------------------------------------- --------
<S> <C>
SEC registration fee............................................................ $ 16,854
NASD fee........................................................................ 5,388
Nasdaq National Market listing fee.............................................. 39,469
Legal fees and expenses......................................................... 400,000
Accounting fees and expenses.................................................... 175,000
Printing expenses............................................................... 130,000
Fees and expenses for qualification under state securities laws (including legal
fees)......................................................................... 7,500
Transfer agent's and registrar's fees and expenses.............................. 14,000
Miscellaneous................................................................... 11,789
--------
Total................................................................. $800,000
========
</TABLE>
- ---------------
* None of this amount is to be borne by the Selling Stockholders.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant is incorporated under the laws of Delaware. Section 145 of
the Delaware General Corporation Law provides that a Delaware corporation may
indemnify any person against expenses, fines and settlements actually and
reasonably incurred by any such person in connection with a threatened, pending
or completed action, suit or proceeding in which he is involved by reason of the
fact that he is or was a director, officer, employee or agent of such
corporation, provided that (i) he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and (ii) with respect to any criminal action or proceeding, he had
no reasonable cause to believe his conduct was unlawful. If the action or suit
is by or in the name of the corporation, the corporation may indemnify any such
person against expenses actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interest of the corporation, except that no indemnification may be made in
respect to any claim,issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the corporation, unless and only to the extent that the Delaware Court
of Chancery or the court in which the action or suit is brought determines upon
application that, despite the adjudication of liability but in light of the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
As permitted by the Delaware General Corporation Law, the Certificate of
Incorporation provides that the directors and officers of the Registrant shall
be indemnified by the Registrant against certain liabilities that those persons
may incur in their capacities as directors or officers. The Certificate of
Incorporation eliminates the liability of directors of the Registrant, under
certain circumstances, to the maximum extent permitted by the Delaware General
Corporation Law. See "Description of Capital Stock -- Special Provisions of the
Certificate of Incorporation and Bylaws" included in the Prospectus.
The Underwriting Agreement to be filed as Exhibit 1.1 hereto contains
reciprocal agreements of indemnity between the Registrant and the underwriters
as to certain liabilities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"), and in certain circumstances provides
for indemnification of the Registrant's directors and officers.
II-1
<PAGE> 68
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During the previous three years, the Registrant has issued and sold the
following securities (all such amounts having been adjusted to reflect the
2.9-for-one stock split effected in June 1996) without registration under the
Securities Act (none of which sales were underwritten):
In March 1996, the Company issued 619,785 shares of Common Stock to
the Company's Profit Sharing Plan for the accounts of participants therein
in consideration for services rendered to the Company valued at
approximately $5,003,162. There was no public offering in such
transactions, and the Registrant believes that such transactions were
exempt from the registration requirements of the Securities Act by reason
of Section 4(2) thereof.
In March 1994 and July 1995, the Registrant issued options to purchase
72,500 and 29,000 shares of Common Stock, respectively, to members of the
Board of Directors (14,500 of which options have been forfeited). No
payment was made by the recipients for such options. Options to purchase
43,500 shares of Common Stock were exercised in May 1996 for aggregate cash
consideration of $72,750. No underwriters participated in any of such
transactions. The Registrant believes that these transactions were exempt
from the registration requirements of the Securities Act pursuant to
Section 4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<S> <C>
1.1 -- Form of Underwriting Agreement
3.1* -- Amended and Restated Certificate of Incorporation of the Registrant
3.2* -- Amended and Restated Bylaws of the Registrant
4.1 -- Form of certificate representing shares of the Registrant's Common Stock
5.1 -- Legal Opinion of Gardere & Wynne, L.L.P., regarding legality of securities being
registered
10.1* -- Office Lease dated January 23, 1995 by and between Massachusetts Mutual Life
Insurance Company and the Registrant
10.2* -- Source Services Corporation 1996 Stock Option Plan
10.3* -- Source Services Corporation Employees' Profit Sharing Plan
10.4* -- Amendment No. 1 to Source Services Corporation Employees' Profit Sharing Plan
10.5* -- Source Services Corporation Non-Employee Directors Stock Option Plan
10.6* -- Loan Agreement dated May 21, 1996 between the Registrant and Bank One, Texas,
N.A.
10.7* -- Security Agreement dated as of May 21, 1996 between the Registrant and Bank One,
Texas, N.A.
10.8* -- Promissory Note dated May 21, 1996 payable to Bank One, Texas, N.A.
10.9* -- Form of Director Incentive Stock Option Bonus Agreement
10.10* -- Source Services Corporation 401(k) Plan
23.1 -- Consent of Price Waterhouse LLP
23.2 -- Consent of Gardere & Wynne, L.L.P. (included in Exhibit 5.1)
24.1* -- Power of attorney
27.1* -- Financial Data Schedule
</TABLE>
- ---------------
* Previously filed
II-2
<PAGE> 69
(B) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule is included in Part II of the
Registration Statement:
II -- Valuation and Qualifying Accounts and Reserves
All other schedules are omitted because they are inapplicable or the
requested information is shown in the financial statements or noted therein.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(b) The undersigned Registrant hereby undertakes to provide to the
representatives of the underwriters at the closing specified in the Underwriting
Agreements certificates in such denominations and registered in such names as
required by the representatives of the underwriters to permit prompt delivery to
each purchaser.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(d) If the Underwriters do not exercise their option to purchase additional
shares of Common Stock to cover over-allotments, if any, or if such option is
partially exercised, the Registrant hereby undertakes to file a post-effective
amendment to the Registration Statement deregistering all such shares as to
which such option shall not have been exercised.
II-3
<PAGE> 70
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on the 10th day of July, 1996.
SOURCE SERVICES CORPORATION
By: /s/ D. LES WARD
------------------------------------
D. Les Ward
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- -------------------------------- -------------
<S> <C> <C>
s/ D. LES WARD President, Chief Executive July 10, 1996
- --------------------------------------------- Officer and Director
D. Les Ward (Principal Executive Officer)
/s/ RICHARD DUPONT* Chief Financial Officer and July 10, 1996
- --------------------------------------------- Secretary (Principal Financial
Richard Dupont and Accounting Officer)
/s/ JOHN ALLRED* Director July 10, 1996
- ---------------------------------------------
John Allred
/s/ ADRIAN ALTER* Director July 10, 1996
- ---------------------------------------------
Adrian Alter
/s/ PAUL M. BASS, JR.* Director July 10, 1996
- ---------------------------------------------
Paul M. Bass, Jr.
/s/ WAYNE D. EMIGH* Director July 10, 1996
- ---------------------------------------------
Wayne D. Emigh
/s/ JOHN SIFONIS* Director July 10, 1996
- ---------------------------------------------
John Sifonis
/s/ KARL VOGELER* Director July 10, 1996
- ---------------------------------------------
Karl Vogeler
*By: /s/ D. LES WARD
- ---------------------------------------------
D. Les Ward
As Attorney-in-Fact
</TABLE>
II-4
<PAGE> 71
SCHEDULE II
SOURCE SERVICES CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SUPPLEMENTAL SCHEDULE
(AMOUNTS SHOWN IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------- --------------- ---------------------- ---------- -------------
ADDITIONS
----------------------
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
- ----------------------------------- --------------- ---------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Allowance reserve.................. 1993 $ 603 $351 $ -- $111 $ 843
1994 843 482 -- 273 1,052
1995 1,052 887 -- 582 1,357
</TABLE>
<PAGE> 72
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- ----------- --------------------------------------------------------------------------- ------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement
3.1* -- Amended and Restated Certificate of Incorporation of the Registrant
3.2* -- Amended and Restated Bylaws of the Registrant
4.1 -- Form of certificate representing shares of the Registrant's Common
Stock
5.1 -- Legal Opinion of Gardere & Wynne, L.L.P., regarding legality of
securities being registered
10.1* -- Office Lease dated January 23, 1995 by and between Massachusetts Mutual
Life Insurance Company and the Registrant
10.2* -- Source Services Corporation 1996 Stock Option Plan
10.3* -- Source Services Corporation Employees' Profit Sharing Plan
10.4* -- Amendment No. 1 to Source Services Corporation Employees' Profit
Sharing Plan
10.5* -- Source Services Corporation Non-Employee Directors Stock Option Plan
10.6* -- Loan Agreement dated May 21, 1996 between the Registrant and Bank One,
Texas, N.A.
10.7* -- Security Agreement dated as of May 21, 1996 between the Registrant and
Bank One, Texas, N.A.
10.8* -- Promissory Note dated May 21, 1996 payable to Bank One, Texas, N.A.
10.9* -- Form of Director Incentive Stock Option Bonus Agreement
10.10* -- Source Services Corporation 401(k) Plan
23.1 -- Consent of Price Waterhouse LLP
23.2 -- Consent of Gardere & Wynne, L.L.P. (included in Exhibit 5.1)
24.1* -- Power of attorney
27.1* -- Financial Data Schedule
</TABLE>
- ---------------
* Previously filed
<PAGE> 1
EXHIBIT 1.1
DRAFT DATED JULY 3, 1996
SOURCE SERVICES CORPORATION
COMMON STOCK
----------------------
UNDERWRITING AGREEMENT
----------------------
________________, 1996
THE ROBINSON-HUMPHREY COMPANY, INC.
RAUSCHER PIERCE REFSNES, INC.
As representatives of the several Underwriters named in Schedule I hereto
c/o The Robinson-Humphrey Company, Inc.
3333 Peachtree Road, N.E.
Atlanta, Georgia 30326
Dear Sirs:
Source Services Corporation, a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Underwriters named in Schedule I (the "Underwriters") an aggregate of
1,591,235 shares of common stock, par value $.02 per share ("Common Stock"), of
the Company (the "Company Firm Shares"), and the shareholders of the Company
named in Schedule II hereto (the "Selling Shareholders") propose, subject to
the terms and conditions stated herein, to sell to the Underwriters an
aggregate of 908,765 shares of Common Stock in the respective amounts set forth
opposite their names in Schedule II hereto (such shares together with the
Company Firm Shares, the "Firm Shares"), and at the election of the
Underwriters the Company proposes, subject to the terms and conditions stated
herein, to issue and sell to the Underwriters up to 375,000 additional shares
of Common Stock (the "Optional Shares") (the Firm Shares and the Optional
Shares that the Underwriters elect to purchase pursuant to Section 2 hereof are
collectively called the "Shares" ).
1. (a) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, each of the Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-4691) with
respect to the Shares, including a prospectus subject to completion, has
been filed by the Company with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the
"Act"), and one or more amendments to such registration statement have
been so filed. After the
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execution of this Agreement, the Company will file with the Commission
either (A) if such registration statement, as it may have been amended,
has become effective under the Act and information has been omitted
therefrom in accordance with Rule 430A under the Act, a prospectus in the
form most recently included in an amendment to such registration
statement with such changes or insertions as are required by Rule 430A or
permitted by Rule 424(b) under the Act and as have been provided to and
approved by the Representatives, or (B) if such registration statement,
as it may have been amended, has not become effective under the Act, an
amendment to such registration statement, including a form of prospectus,
a copy of which amendment has been provided to and approved by the
Representatives prior to the execution of this Agreement. As used in
this Agreement, the term "Registration Statement" means such registration
statement, as amended at the time when it was or is declared effective,
including all financial statement schedules and exhibits thereto and
including any information omitted therefrom pursuant to Rule 430A under
the Act and included in the Prospectus (as hereinafter defined); the term
"Preliminary Prospectus" means each prospectus subject to completion
included in such registration statement or any amendment or
post-effective amendment thereto (including the prospectus subject to
completion, if any, included in the Registration Statement at the time it
was or is declared effective); and the term "Prospectus" means the
prospectus first filed with the Commission pursuant to Rule 424(b) under
the Act or, if no prospectus is required to be so filed, such term means
the prospectus included in the Registration Statement. For purposes of
the following representations and warranties, to the extent reference is
made to the Prospectus and at the relevant time the Prospectus is not yet
in existence, such reference shall be deemed to be to the most recent
Preliminary Prospectus.
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued and, to the knowledge of the Company, no
proceeding for that purpose has been instituted or threatened by the
Commission or the securities authority of any state or other
jurisdiction. If the Registration Statement has become effective under
the Act, no stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued and, to the knowledge of
the Company, no proceeding for that purpose has been instituted or
threatened or is contemplated by the Commission or the securities
authority of any state or other jurisdiction.
(iii) When any Preliminary Prospectus was filed with the Commission
it (A) contained all statements required to be stated therein in
accordance with, and complied in all material respects with the
requirements of, the Act and the rules and regulations of the Commission
thereunder and (B) did not include any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the
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<PAGE> 3
circumstances under which they were made, not misleading. When the
Registration Statement or any amendment thereto was or is declared
effective, and at each Time of Delivery (as hereinafter defined), it (A)
contained or will contain all statements required to be stated therein in
accordance with, and complied or will comply in all material respects
with the requirements of, the Act and the rules and regulations of the
Commission thereunder and (B) did not or will not include any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein not misleading. When the Prospectus or
any amendment or supplement thereto is filed with the Commission pursuant
to Rule 424(b) (or, if the Prospectus or such amendment or supplement is
not required to be so filed, when the Registration Statement or the
amendment thereto containing such amendment or supplement to the
Prospectus was or is declared effective) and at each Time of Delivery,
the Prospectus, as amended or supplemented at any such time, (A)
contained or will contain all statements required to be stated therein in
accordance with, and complied or will comply in all material respects
with the requirements of, the Act and the rules and regulations of the
Commission thereunder and (B) did not or will not include any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The foregoing
provisions of this paragraph (iii) do not apply to statements or
omissions made in any Preliminary Prospectus, the Registration Statement
or any amendment thereto or the Prospectus or any amendment or supplement
thereto in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through you specifically for
use therein.
(iv) The Company has been duly incorporated, is validly existing as
a corporation in good standing under the laws of the State of Delaware
and has full power and authority (corporate and other) to own or lease
its properties and conduct its business as described in the Prospectus.
The Company has full power and authority (corporate and other) to enter
into this Agreement and to perform its obligations hereunder. The
Company is duly qualified to transact business as a foreign corporation
and is in good standing under the laws of each other jurisdiction in
which it owns or leases properties, or conducts any business, so as to
require such qualification, except where the failure to so qualify would
not have a material adverse effect on the financial position, results of
operations or business of the Company.
(v) The Company's authorized, issued and outstanding capital stock
is as disclosed in the Prospectus. All of the issued shares of capital
stock of the Company have been duly authorized and validly issued, are
fully paid and nonassessable and conform to the description of the Common
Stock contained in
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<PAGE> 4
the Prospectus. None of the issued shares of capital stock of the
Company or its predecessors has been issued or is owned or held in
violation of any preemptive rights of shareholders, and no person or
entity (including any holder of outstanding shares of capital stock of
the Company) has any preemptive or other rights to subscribe for any of
the Shares.
(vi) The Company does not own, directly or indirectly, any capital
stock or other equity securities of any corporation or any ownership
interest in any partnership, joint venture or other association.
(vii) Except as disclosed in the Prospectus, there are no
outstanding (A) securities or obligations of the Company convertible into
or exchangeable for any capital stock of the Company, (B) warrants,
rights or options to subscribe for or purchase from the Company any such
capital stock or any such convertible or exchangeable securities or
obligations, or (C) obligations of the Company to issue any shares of
capital stock, any such convertible or exchangeable securities or
obligations, or any such warrants, rights or options.
(viii) Since the date of the most recent audited financial
statements included in the Prospectus, the Company has not sustained any
material loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree, otherwise
than as disclosed in or contemplated by the Prospectus.
(ix) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus and other than as disclosed
in or contemplated by the Registration Statement and the Prospectus, (A)
the Company has not incurred any liabilities or obligations, direct or
contingent, or entered into any transactions, not in the ordinary course
of business, that are material to the Company, (B) the Company has not
purchased any of its outstanding capital stock or declared, paid or
otherwise made any dividend or distribution of any kind on its capital
stock, (C) there has not been any material change in the capital stock,
long-term debt or short-term debt of the Company, and (D) there has not
been any material adverse change, or any development that reasonably
could portend a prospective material adverse change, in or affecting the
financial position, results of operations or business of the Company.
(x) The Shares to be issued and sold by the Company have been duly
authorized and, when issued and delivered against payment therefor as
provided herein, will be validly issued and fully paid and nonassessable
and will conform to the description of the Common Stock contained in the
Prospectus; and
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<PAGE> 5
the certificates evidencing the Shares will comply with all applicable
requirements of Delaware law.
(xi) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company
owned or to be owned by such person or to require the Company to include
such securities in the securities registered pursuant to the Registration
Statement (or any such right has been effectively waived) or in any
securities being registered pursuant to any other registration statement
filed by the Company under the Act.
(xii) All offers and sales of the Company's capital stock prior to
the date hereof were at all relevant times duly registered under the Act
or exempt from the registration requirements of the Act by reason of
Sections 3(b), 4(2) or 4(6) thereof and were duly registered or the
subject of an available exemption from the registration requirements of
the applicable state securities or blue sky laws, or if not registered or
exempt in compliance with the Act and applicable state securities or blue
sky laws, any private rights of action for rescission or damages arising
from such failure to register any such securities are time barred by
applicable statutes of limitations or equitable principles, including
laches.
(xiii) The Company is not, or with the giving of notice or passage
of time or both would not be, in violation of its Certificate of
Incorporation or Bylaws or in default under any indenture, mortgage, deed
of trust, loan agreement, lease or other agreement or instrument to which
the Company is a party or to which any of its properties or assets are
subject, except for any such default which would not have a material
adverse effect on the financial position, results of operations or
business of the Company.
(xiv) The issue and sale of the Shares to be issued and sold by the
Company and the performance of this Agreement and the consummation of the
transactions herein contemplated will not conflict with, or (with or
without the giving of notice or the passage of time or both) result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any material indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which the Company is
a party or to which any of its properties or assets is subject, except
for any such conflict, breach, violation or default which would not have
a material adverse effect on the financial position, results of
operations or business of the Company, nor will such action conflict with
or violate any provision of the Certificate of Incorporation or Bylaws of
the Company or any statute, rule or regulation or any order, judgment or
decree of any court or
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<PAGE> 6
governmental agency or body having jurisdiction over the Company or any
of its properties or assets.
(xv) The Company has good and indefeasible title in fee simple to
all real property, if any, and good title to all personal property owned
by it, in each case free and clear of all liens, security interests,
pledges, charges, encumbrances, mortgages and defects, except such as are
disclosed in the Prospectus or such as do not materially and adversely
affect the value of such property and do not interfere with the use made
or proposed to be made of such property by the Company; and any real
property and buildings held under lease by the Company are held under
leases which are valid and enforceable as to the Company and, to the
Company's knowledge, as to others, with such exceptions as are disclosed
in the Prospectus or are not material and do not interfere with the use
made or proposed to be made of such property and buildings by the
Company.
(xvi) No consent, approval, authorization, order or declaration of
or from, or registration, qualification or filing with, any court or
governmental agency or body is required for the sale of the Shares or the
consummation of the transactions contemplated by this Agreement, except
the registration of the Shares under the Act (which, if the Registration
Statement is not effective as of the time of execution hereof, shall be
obtained as provided in this Agreement) and such as may be required from
the National Association of Securities Dealers, Inc. (the "NASD") and
under state securities or blue sky laws in connection with the offer,
sale and distribution of the Shares by the Underwriters.
(xvii) Other than as disclosed in the Prospectus, there is no
litigation, arbitration, claim, proceeding (formal or informal) or
investigation pending or, to the Company's knowledge, threatened (or any
basis therefor) in which the Company is a party or of which any of its
properties or assets are the subject which, if determined adversely to
the Company, would individually or in the aggregate reasonably be
expected to have a material adverse effect on the financial position,
results of operations or business of the Company. The Company is not in
violation of, or in default with respect to, any statute, rule,
regulation, order, judgment or decree, except as described in the
Prospectus or such as do not and will not individually or in the
aggregate have a material adverse effect on the financial position,
results of operations or business of the Company.
(xviii) To the Company's knowledge, Price Waterhouse LLP, who have
certified certain financial statements of the Company, are and were
during the periods covered by their reports included in the Registration
Statement and the Prospectus, independent public accountants as required
by the Act and the rules and regulations of the Commission thereunder.
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(xix) The financial statements and schedules (including the related
notes) of the Company included in the Registration Statement, the
Prospectus or any Preliminary Prospectus were prepared in accordance with
generally accepted accounting principles consistently applied throughout
the periods involved and fairly present the financial position and
results of operations of the Company, on a consolidated basis, at the
dates and for the periods presented. The selected financial data set
forth under the caption "Selected Financial Data" in the Prospectus
fairly present, on the basis stated in the Prospectus, the information
included therein.
(xx) This Agreement has been duly authorized, executed and delivered
by the Company and constitutes the valid and binding agreement of the
Company enforceable against the Company in accordance with its terms,
subject, as to enforcement, to applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws relating to or
affecting the enforcement of creditors' rights generally and to general
equitable principles.
(xxi) Neither the Company nor, to the Company's knowledge, any of
its officers, directors or other affiliates has (A) taken, directly or
indirectly, any action designed to cause or result in, or that has
constituted or might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Shares or (B) since the filing of
the Registration Statement (1) sold, bid for, purchased or paid anyone
any compensation for soliciting purchases of, the Shares or (2) paid or
agreed to pay to any person any compensation for soliciting another to
purchase any other securities of the Company.
(xxii) The Company has obtained for the benefit of the Company and
the Underwriters from each of its directors and executive officers a
written agreement that for a period of 180 days from the date of the
Prospectus such director or executive officer will not, without your
prior written consent, sell, offer to sell, contract to sell, solicit an
offer to buy, grant any option for the purchase or sale of, assign,
pledge, distribute or otherwise transfer, dispose of or encumber (or make
any announcement with respect to any of the foregoing), directly or
indirectly, any shares of Common Stock, or any options, rights, warrants
or other securities convertible into or exercisable or exchangeable for
Common Stock or evidencing any right to purchase or subscribe for shares
of Common Stock, whether or not beneficially owned by the undersigned,
except as provided in Section 2.
(xxiii) Neither the Company nor, to the Company's knowledge, any
director, officer, agent, employee or other person associated with or
acting on behalf of the Company has, directly or indirectly, used any
corporate funds for
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<PAGE> 8
unlawful contributions, gifts, entertainment or other unlawful expenses
relating to political activity; made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic
political parties or campaigns from corporate funds; violated any
provision of the Foreign Corrupt Practices Act of 1977, as amended; or
made any bribe, rebate, payoff, influence payment, kickback or other
unlawful payment.
(xxiv) The operations of the Company with respect to any real
property currently leased or owned or by any means controlled by the
Company (the "Real Property") are in compliance with all federal, state,
and local laws, ordinances, rules, and regulations relating to
occupational health and safety and the environment (collectively,
"Laws"), and the Company has all licenses, permits and authorizations
necessary to operate under all Laws and are in compliance with all terms
and conditions of such licenses, permits and authorizations, except for
any such non-compliance or any failure to have such necessary licenses,
permits and authorizations which would not have a material adverse effect
on the financial position, results of operations or business of the
Company; the Company has not authorized or conducted and has no knowledge
of the generation, transportation, storage, use, treatment, disposal or
release of any hazardous substance, hazardous waste, hazardous material,
hazardous constituent, toxic substance, pollutant, contaminant, petroleum
product, natural gas, liquefied gas or synthetic gas defined or regulated
under any environmental law on, in or under any Real Property; and there
is no pending or, to the Company's knowledge, threatened claim,
litigation or any administrative agency proceeding, nor has the Company
received any written or oral notice from any governmental entity or third
party, that: (A) alleges a violation of any Laws by the Company; (B)
alleges the Company is a liable party under the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C.
Section 9601 et seq. or any state superfund law; (C) alleges possible
contamination of the environment by the Company; or (D) alleges possible
contamination of the Real Property.
(xxv) The Company owns or has the right to use all patents, patent
applications, trademarks, trademark applications, tradenames, service
marks, copyrights, franchises, trade secrets, proprietary or other
confidential information and intangible properties and assets
(collectively, "Intangibles") necessary to its business as presently
conducted or as the Prospectus indicates the Company proposes to conduct;
to the knowledge of the Company, the Company has not infringed and is not
infringing, and the Company has not received notice of infringement with
respect to, asserted Intangibles of others; and, to the knowledge of the
Company, there is no infringement by others of Intangibles of the
Company.
(xxvi) The Company has previously disclosed and delivered or made
available to you prior to the date the Registration Statement was
declared
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<PAGE> 9
effective copies of all pension, retirement, profit-sharing, deferred
compensation, stock option, employee stock ownership, severance pay,
vacation, bonus or other incentive plans, all other written employee
programs, arrangements or agreements, all medical, vision, dental or
other health plans, all life insurance plans and all other employee
benefit plans or fringe benefit plans, including, without limitation,
"employee benefit plans" as that term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
adopted, maintained, sponsored in whole or in part or contributed to by
the Company or its predecessors for the benefit of employees, retirees,
dependents, spouses, directors, independent contractors or other
beneficiaries and under which employees, retirees, dependents, spouses,
directors, independent contractors or other beneficiaries are eligible to
participate (collectively, the "Company Benefit Plans").
The Company (and each predecessor of the Company that adopted or
contributed to a Company Benefit Plan) have maintained all Company
Benefit Plans (including filing all reports and returns required to be
filed with respect thereto) in accordance with their terms and in
compliance with the applicable terms of ERISA, the Internal Revenue Code
and any other applicable federal and state laws the breach or violation
of which would have, individually or in the aggregate, a material adverse
effect on the earnings, assets, affairs, business prospects or condition
(financial or otherwise) of the Company and its subsidiaries, taken as a
whole. Each Company Benefit Plan which is intended to be qualified under
Section 401(a) of the Internal Revenue Code has either received a
favorable determination letter from the Internal Revenue Service or
timely requested such a letter and has at all times been maintained in
accordance with Section 401 of the Internal Revenue Code, except where
any failure to so maintain such Company Benefit Plan would not have,
individually or in the aggregate, a material adverse effect on the
earnings, assets, affairs, business prospects or condition (financial or
otherwise) of the Company and its subsidiaries, taken as a whole. The
Company has not engaged in a transaction with respect to any Company
Benefit Plan that, assuming the taxable period of such transaction
expired as of the date hereof, would subject the Company or any
subsidiary to a tax or penalty imposed by either Section 4975 of the
Internal Revenue Code or Section 502(i) of ERISA in amounts which are
reasonably likely to have, individually or in the aggregate, a material
adverse effect on the earnings, assets, affairs, business prospects or
condition (financial or otherwise) of the Company and its subsidiaries,
taken as a whole.
The Company is not obligated to provide post-retirement medical
benefits or any other unfunded post-retirement welfare benefits (except
COBRA continuation coverage required to be provided by ERISA Section
601), which such liabilities to the Company would have, individually or
in the aggregate, a material adverse effect on the earnings, assets,
affairs, business prospects or
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<PAGE> 10
condition (financial or otherwise) of the Company. Neither the Company
nor any member of a group of trades or businesses under common control
(as defined in ERISA Sections 4001(a)(14) and 4001(b)(1)) with the
Company have at any time within the last six years sponsored, contributed
to or been obligated under Title I or IV of ERISA to contribute to a
"defined benefit plan" (as defined in ERISA Section 3(35)). Within the
last six years, neither the Company nor any member of a group of trades
or businesses under common control (as defined in ERISA Sections
4001(a)(14) and 4001(b)(1)) with Company have had an "obligation to
contribute" (as defined in ERISA Section 4212) to a "multiemployer plan"
(as defined in ERISA Sections 4001(a)(3) and 3(37)(A)).
(xxvii) No labor dispute exists with the Company's employees or, to
the Company's knowledge, is imminent which could materially adversely
affect the condition (financial or otherwise), results of operations,
properties, affairs, management, business affairs or business prospects
of the Company. The Company is not aware of any existing or imminent
labor disturbance by its employees which could be expected to adversely
affect the condition (financial or otherwise), results of operations,
properties, affairs, management, business affairs or business prospects
of the Company.
(xxvii) No labor dispute exists with the Company's employees or is
imminent which could materially adversely affect the condition (financial
or otherwise), results of operations, properties, affairs, management,
business affairs or business prospects of the Company. The Company is
not aware of any existing or imminent labor disturbance by its employees
which could be expected to adversely affect the condition (financial or
otherwise), results of operations, properties, affairs, management,
business affairs or business prospects of the Company.
(xxviii) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
customary in the businesses in which it is engaged; and the Company has
no knowledge of any facts or circumstances that would prevent the renewal
of its existing insurance coverage as and when such coverage expires or
that would prevent the Company from obtaining similar coverage from
similar insurers as may be necessary to continue its business at a
comparable cost, except as disclosed in the Prospectus.
(xxix) The Company makes and keeps accurate books and records
reflecting its assets and maintains internal accounting controls which
provide reasonable assurance that (A) transactions are executed in
accordance with management's authorization, (B) transactions are recorded
as necessary to permit preparation of the Company's consolidated
financial statements in accordance with
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<PAGE> 11
generally accepted accounting principles and to maintain accountability
for the assets of the Company, (C) access to the assets of the Company is
permitted only in accordance with management's authorization, and (D) the
recorded accountability for assets of the Company is compared with
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(xxx) The Company's software systems include design, performance and
functionality so that the Company and its clients will not experience
invalid or incorrect results or abnormal software operation related to
calendar year 2000. The Company' software systems include calendar year
2000 date conversion and compatibility capabilities, including, but not
limited to, date data century recognition, same century and multiple
century formula and date value calculations, and user interface date data
values that reflect the century.
(xxxi) The Company has filed all foreign, federal, state and local
tax returns that are required to be filed by it and has paid all taxes
shown as due on such returns as well as all other taxes, assessments and
governmental charges that are due and payable, and no material deficiency
with respect to any such return has been assessed or proposed. All
applicable income and employment taxes have been withheld and paid for
any individuals who would be considered common law employees of the
Company for federal income and employment tax withholding purposes.
(xxxii) The Company is not, will not become as a result of the
transactions contemplated hereby, and does not intend to conduct its
business in a manner that would cause it to become, an "investment
company" or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(xxxiii) Neither the Company nor any "affiliate" (as defined in
Florida Statutes, Section 517.021(1), for purposes of this paragraph
only) does business with the government of Cuba or with any person or
affiliate located in Cuba that would require disclosure under Florida
Statutes, Section 517.075.
(b) REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS. Each
Selling Shareholder severally and not jointly represents and warrants to,
and agrees with, each of the several Underwriters and the Company that:
(i) Such Selling Shareholder has full right, power (corporate and
other) and authority to enter into this Agreement and the Custody
Agreement (as hereinafter defined) and to sell, assign, transfer and
deliver to the Underwriters the Shares to be sold by such Selling
Shareholder hereunder; and the execution and
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<PAGE> 12
delivery of this Agreement and the Custody Agreement have been duly
authorized by all necessary action of such Selling Shareholder.
(ii) Such Selling Shareholder has duly executed and delivered this
Agreement and the Custody Agreement, and each constitutes the valid and
binding agreement of such Selling Shareholder enforceable against such
Selling Shareholder in accordance with its terms, subject, as to
enforcement, to applicable bankruptcy, insolvency, reorganization and
moratorium laws and other laws relating to or affecting the enforcement
of creditors' rights generally and to general equitable principles.
(iii) No consent, approval, authorization, order or declaration of
or from, or registration, qualification or filing with, any court or
governmental agency or body is required for the sale of the Shares to be
sold by such Selling Shareholder or the consummation of the transactions
contemplated by this Agreement or the Custody Agreement, except the
registration of such Shares under the Act (which, if the Registration
Statement is not effective as of the time of execution hereof, shall be
obtained as provided in this Agreement) and such as may be required from
the NASD and under state securities or blue sky laws in connection with
the offer, sale and distribution of such Shares by the Underwriters.
(iv) The sale of the Shares to be sold by such Selling Shareholder
and the performance of this Agreement and the Custody Agreement and the
consummation of the transactions herein and therein contemplated will not
conflict with, or (with or without the giving of notice or the passage of
time or both) result in a breach of violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement, lease or other agreement or instrument to
which such Selling Shareholder or any of its subsidiaries is a party or
to which any of their respective properties or assets is subject, nor
will such action conflict with or violate any provision of the
Certificate of Incorporation or Bylaws or other governing instruments of
such Selling Shareholder or any of its subsidiaries or any statute, rule
or regulation or any order, judgment or decree of any court or
governmental agency or body having jurisdiction over such Selling
Shareholder or subsidiary or any of such Selling Shareholder's or
subsidiary's properties or assets.
(v) Such Selling Shareholder has, and immediately prior to each Time
of Delivery (as defined in Section 4 hereof), such Selling Shareholder
will have, good and valid title to the Shares to be sold by such Selling
Shareholder hereunder, free and clear of all liens, security interests,
pledges, charges, encumbrances, defects, shareholders' agreements, voting
trusts, equities or claims of any nature whatsoever; and, upon delivery
of such Shares against payment therefor as provided herein, good and
valid title to such Shares, free and clear of
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<PAGE> 13
all liens, security interests, pledges, charges, encumbrances, defects,
shareholders' agreements, voting trusts, equities or claims of any nature
whatsoever, will pass to the several Underwriters.
(vi) Neither such Selling Shareholder nor any of its officers,
directors or other affiliates has (A) taken, directly or indirectly, any
action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or
resale of the Shares or (B) since the filing of the Registration
Statement (1) sold, bid for, purchased or paid anyone any compensation
for soliciting purchases of, the Shares or (2) paid or agreed to pay to
any person any compensation for soliciting another to purchase any other
securities of the Company.
(vii) When any Preliminary Prospectus was filed with the Commission
it did not, with regard to such Selling Shareholder, include any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. When the
Registration Statement or any amendment thereto was or is declared
effective and at each Time of Delivery, it did not or will not, with
regard to such Selling Shareholder, include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading. When the Prospectus or any amendment
or supplement thereto is filed with the Commission pursuant to Rule
424(b) (or, if the Prospectus or such amendment or supplement is not
required to be so filed, when the Registration Statement or the amendment
thereto containing such amendment or supplement to the Prospectus was or
is declared effective), and at each Time of Delivery, the Prospectus, as
amended or supplemented at any such time, did not or will not, with
regard to such Selling Shareholder, include any untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. The foregoing provisions of this
paragraph (vii) do not apply to statements or omissions made in any
Preliminary Prospectus, the Registration Statement or any amendment
thereto or the Prospectus or any amendment or supplement thereto in
reliance upon and in conformity with written information furnished to the
Company by any underwriter through you specifically for use therein.
Such Selling Shareholder further represents that it was not prompted to
sell the Shares to be sold by it hereunder by any information concerning
the Company that is not set forth in the Preliminary Prospectus or the
Prospectus.
In order to document the Underwriters' compliance with the reporting and
withholding provisions of the Internal Revenue Code of 1986, as amended, with
respect to the transactions herein contemplated, each of the Selling
Shareholders agrees to deliver to
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<PAGE> 14
you prior to or at the First Time of Delivery (as hereinafter defined) a
properly completed and executed United States Treasury Department Form W-9 (or
other applicable form or statement specified by Treasury Department regulations
in lieu thereof).
Each of the Selling Shareholders represents and warrants that certificates
in negotiable form representing all of the Shares to be sold by such Selling
Shareholder hereunder have been placed in custody under a Custody Agreement and
Power of Attorney (the "Custody Agreement"), in the form heretofore furnished
to and approved by you, duly executed and delivered by such Selling Shareholder
to the Company, as custodian (the "Custodian"), which Custody Agreement
appoints D. Les Ward and Richard Dupont, and each of them, as such Selling
Shareholder's attorneys-in-fact (the "Attorneys-in-Fact") with authority to
execute and deliver this Agreement on behalf of such Selling Shareholder, to
determine the purchase price to be paid by the Underwriters to the Selling
Shareholders as provided in Section 2 hereof, to authorize the delivery of the
Shares to be sold by such Selling Shareholder hereunder and otherwise to act on
behalf of such Selling Shareholder in connection with the transactions
contemplated by this Agreement and the Custody Agreement.
Each of the Selling Shareholders specifically agrees that the Shares
represented by the certificates held in custody for such Selling Shareholder
under the Custody Agreement are subject to the interests of the Underwriters
hereunder, and that the arrangements made by such Selling Shareholder for such
custody, and the appointment by such Selling Shareholder of the
Attorneys-in-Fact, are irrevocable. Each of the Selling Shareholders
specifically agrees that the obligations of the Selling Shareholders hereunder
shall not be terminated by operation of law, whether by the death or incapacity
of any individual Selling Shareholder or, in the case of an estate or trust, by
the death or incapacity of any executor or trustee or the termination of such
estate or trust, or in the case of a partnership or corporation, by the
dissolution of such partnership or corporation, or by the occurrence of any
other event.
2. PURCHASE AND SALE OF SHARES. Subject to the terms and conditions
herein set forth, (a) the Company and each Selling Shareholder agree, severally
and not jointly, to sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company
and each Selling Shareholder, at a purchase price of $________ per share, the
number of Firm Shares (to be adjusted by you so as to eliminate fractional
shares) determined by multiplying the aggregate number of Firm Shares to be
sold by the Company and by the Selling Shareholders as set forth opposite their
respective names in Schedule II hereto by a fraction, the numerator of which is
the aggregate number of Firm Shares to be purchased by such Underwriter as set
forth opposite the name of such Underwriter in Schedule I hereto, and the
denominator of which is the aggregate number of Firm Shares to be purchased by
the Underwriters from the Company and the Selling Shareholders hereunder and
(b) in the event and to the extent that the Underwriters shall exercise the
election to purchase Optional Shares as provided
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<PAGE> 15
below, the Company agrees to issue and sell to each of the Underwriters, and
each of the Underwriters agrees, severally and not jointly, to purchase from
the Company, at the purchase price per share set forth in clause (a) of this
Section 2, that portion of the number of Optional Shares as to which such
election shall have been exercised (to be adjusted by you so as to eliminate
fractional shares) determined by multiplying such number of Optional Shares by
a fraction, the numerator of which is the maximum number of Optional Shares
that such Underwriter is entitled to purchase as set forth opposite the name of
such Underwriter in Schedule I hereto and the denominator of which is the
maximum number of the Optional Shares that all of the Underwriters are entitled
to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase, at
their election in whole or in part from time to time, up to 375,000 Optional
Shares, at the purchase price per share set forth in clause (a) in the
paragraph above, for the sole purpose of covering over-allotments in the sale
of Firm Shares. Any such election to purchase Optional Shares may be exercised
by written notice from you to the Company, given from time to time within a
period of 30 calendar days after the date of this Agreement and setting forth
the aggregate number of Optional Shares to be purchased and the date on which
such Optional Shares are to be delivered, as determined by you but in no event
earlier than the First Time of Delivery (as hereinafter defined) or, unless you
and the Company otherwise agree in writing, earlier than two or later than ten
business days after the date of such notice. In the event you elect to
purchase all or a portion of the Optional Shares, the Company agrees to furnish
or cause to be furnished to you the certificates, letters and opinions, and to
satisfy all conditions, set forth in Section 7 hereof at each Subsequent Time
of Delivery (as hereinafter defined).
3. OFFERING BY THE UNDERWRITERS. Upon the authorization by you of the
release of the Shares, the several Underwriters propose to offer the Shares for
sale upon the terms and conditions disclosed in the Prospectus.
4. DELIVERY OF SHARES; CLOSING. Certificates in definitive form for the
Shares to be purchased by each Underwriter hereunder, and in such denominations
and registered in such names as The Robinson-Humphrey Company, Inc. may request
upon at least 48 hours' prior notice to the Company, shall be delivered by or
on behalf of the Company and the Selling Shareholders to you for the account of
such Underwriter against payment by such Underwriter on its behalf of the
purchase price therefor by wire transfer or certified or official bank check or
checks drawn on an Atlanta, Georgia bank, payable to the order of the Company
and the Custodian, as their interests may appear, in same-day available funds.
The closing of the sale and purchase of the Shares shall be held at the offices
of Gardere & Wynne, 3000 Thanksgiving Tower, 1601 Elm Street, Dallas, Texas
75201, or at such other location as you, the Attorneys-in-Fact and the Company
may agree upon, except that physical delivery of such certificates shall be
made at the office of The Depository Trust Company, 55 Water Street, New York,
New York 10041. The time and date of such delivery and payment shall be, with
respect to the Firm Shares, at 9:00 a.m.,
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<PAGE> 16
Dallas time, on the third (or if the Firm Shares are priced, as contemplated by
Rule 15c6-1(c) promulgated pursuant to the Securities Act of 1934, as amended
(the "Exchange Act"), after 4:30 p.m., Washington, D.C. time, the fourth) full
business day after this Agreement is executed or at such other time and date
not less than the seventh full business day thereafter as you and the Company
may agree upon in writing, and, with respect to the Optional Shares, at 10:00
a.m., Atlanta time, on the date and at the location specified by you in the
written notice given by you of the Underwriters' election to purchase all or
part of such Optional Shares, or at such other time and date as you and the
Company may agree upon. Such time and date for delivery of the Firm Shares is
herein called the "First Time of Delivery," such time and date for delivery of
any Optional Shares, if not the First Time of Delivery, is herein called a
"Subsequent Time of Delivery," and each such time and date for delivery is
herein called a "Time of Delivery." The Company will make such certificates
available for checking and packaging at least 24 hours prior to each Time of
Delivery at the office of the office of The Depository Trust Company, 55 Water
Street, New York, New York 10041 or at such other location in New York, New
York specified by you in writing at least 48 hours prior to such Time of
Delivery.
5. (A) COVENANTS OF THE COMPANY. The Company covenants and agrees with
each of the Underwriters:
(i) If the Registration Statement has been declared effective prior
to the execution and delivery of this Agreement, the Company will file
the Prospectus with the Commission pursuant to and in accordance with
subparagraph (1) (or, if applicable and if consented to by you,
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the
second business day following the execution and delivery of this
Agreement or (B) the fifth business day after the date on which the
Registration Statement is declared effective. The Company will advise
you promptly of any such filing pursuant to Rule 424(b).
(ii) The Company will not file with the Commission the prospectus or
the amendment referred to in the second sentence of Section l(a)(i)
hereof, any amendment or supplement to the Prospectus or any amendment to
the Registration Statement unless you have received a reasonable period
of time to review any such proposed amendment or supplement and consented
to the filing thereof and will use its best efforts to cause any such
amendment to the Registration Statement to be declared effective as
promptly as possible. Upon the request of the Representatives or counsel
for the Underwriters, the Company will promptly prepare and file with the
Commission, in accordance with the rules and regulations of the
Commission, any amendments to the Registration Statement or amendments or
supplements to the Prospectus that may be necessary or advisable in
connection with the distribution of the Shares by the several
Underwriters and will use its best efforts to cause any such amendment to
the Registration Statement to be declared effective as promptly as
possible. If required, the Company will file
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<PAGE> 17
any amendment or supplement to the Prospectus with the Commission in the
manner and within the time period required by Rule 424(b) under the Act.
The Company will advise the Representatives, promptly after receiving
notice thereof, of the time when the Registration Statement or any
amendment thereto has been filed or declared effective or the Prospectus
or any amendment or supplement thereto has been filed and will provide
evidence to the Representatives of each such filing or effectiveness.
(iii) The Company will advise you promptly after receiving notice or
obtaining knowledge of (A) the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or any
part thereof or any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto or of the initiation or threatening of any proceeding for any
such purpose, (B) the suspension of the qualification of the Shares for
offer or sale in any jurisdiction or of the initiation or threatening of
any proceeding for any such purpose, or (C) any request made by the
Commission or any securities authority of any other jurisdiction for
amending the Registration Statement, for amending or supplementing the
Prospectus or for additional information. The Company will use its best
efforts to prevent the issuance of any such stop order and, if any such
stop order is issued, to obtain the withdrawal thereof as promptly as
possible.
(iv) If the delivery of a prospectus relating to the Shares is
required under the Act at any time prior to the expiration of nine months
after the date of the Prospectus and if at such time any events have
occurred as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or if for any reason it is necessary during such same period
to amend or supplement the Prospectus to comply with the Act or the rules
and regulations thereunder, the Company will promptly notify you and upon
your request (but at the Company's expense) prepare and file with the
Commission an amendment or supplement to the Prospectus that corrects
such statement or omission or effects such compliance and will furnish
without charge to each Underwriter and to any dealer in securities as
many copies of such amended or supplemented Prospectus as you may from
time to time reasonably request. If the delivery of a prospectus
relating to the Shares is required under the Act at any time nine months
or more after the date of the Prospectus, upon your request but at the
expense of such Underwriter, the Company will prepare and deliver to such
Underwriter as many copies as you may request of an amended or
supplemented Prospectus complying with Section 10(a)(3) of the Act.
Neither your consent to, nor the Underwriters' delivery of, any such
amendment or supplement shall constitute a waiver of any of the
conditions set forth in Section 7.
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<PAGE> 18
(v) The Company promptly from time to time will take such action as
you may reasonably request to qualify the Shares for offering and sale
under the securities or blue sky laws of such jurisdictions as you may
request and will continue such qualifications in effect for as long as
may be necessary to complete the distribution of the Shares, provided
that in connection therewith the Company shall not be required to qualify
as a foreign corporation or to file a general consent to service of
process in any jurisdiction.
(vi) The Company will promptly provide you, without charge, (A) two
manually executed copies of the Registration Statement as originally
filed with the Commission and of each amendment thereto, (B) for each
other Underwriter a conformed copy of the Registration Statement as
originally filed and of each amendment thereto, without exhibits, and (C)
so long as a prospectus relating to the Shares is required to be
delivered under the Act, as many copies of each Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto as you may
reasonably request.
(vii) As soon as practicable, but in any event not later than 45
days after the end of the Company's fiscal quarter in which the first
anniversary of the effective date of the Registration Statement occurs,
the Company will make generally available to its security holders an
earnings statement of the Company and its subsidiaries, if any, covering
a period of at least 12 months beginning after the effective date of the
Registration Statement (which need not be audited) complying with Section
11(a) of the Act and the rules and regulations thereunder.
(viii) During the period beginning on the date hereof and continuing
to and including the date 180 days after the date of the Prospectus, the
Company will not, without your prior written consent, offer, pledge,
issue, sell, contract to sell, grant any option for the sale of, or
otherwise dispose of (or announce any of the foregoing, directly or
indirectly, any shares of Common Stock or securities convertible into,
exercisable or exchangeable for, shares of Common Stock, except as
provided in Section 2 and except that the Company may (aa) grant options
pursuant to the Company's stock option plans described in the
Registration Statement in the ordinary course of business consistent with
past practice; and (bb) issue shares of Common Stock upon the exercise of
any of the Company's outstanding stock options as described in the
Registration Statement or stock options granted under clause (aa) above.
(ix) During a period of five years from the effective date of the
Registration Statement, the Company will furnish to you and, upon
request, to each of the other Underwriters, without charge, (A) copies of
all reports or other communications (financial or other) furnished to
shareholders, (B) as soon as they
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<PAGE> 19
are available, copies of any reports and financial statements furnished
to or filed with the Commission, the NASD or any national securities
exchange, and (C) such additional information concerning the business and
financial condition of the Company and its subsidiaries, if any, as you
may reasonably request.
(x) Neither the Company nor any of its officers, directors or other
affiliates will (A) take, directly or indirectly, prior to the
termination of the underwriting syndicate contemplated by this Agreement,
any action designed to cause or to result in, or that might reasonably be
expected to constitute, the stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of any of
the Shares, (B) sell, bid for, purchase or pay anyone any compensation
for soliciting purchases of, the Shares or (C) pay or agree to pay to any
person any compensation for soliciting another to purchase any other
securities of the Company.
(xi) The Company will apply the net proceeds from the offering in
the manner set forth under "Use of Proceeds" in the Prospectus.
(xii) The Company will cause the Shares to be listed on the Nasdaq
Stock Market's National Market at each Time of Delivery and for at least
one year from the date hereof.
(xiii) If at any time during the period beginning on the date the
Registration Statement becomes effective and ending on the later of (A)
the date 30 days after such effective date and (B) the date that is the
earlier of (1) the date on which the Company first files with the
Commission a Quarterly Report on Form 10-Q or an Annual Report on Form
10-K after such effective date and (2) the date on which the Company
first issues a quarterly or annual financial report to shareholders after
such effective date, any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your reasonable
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or
event necessitates an amendment of or supplement to the Prospectus), the
Company will, after written notice from you advising the Company to the
effect set forth above, forthwith prepare, consult with you concerning
the substance of, and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting on
such rumor, publication or event.
(xiv) The Company will file timely and accurate reports on Form SR
with the Commission in accordance with Rule 463 of the Commission under
the Act or any successor provision or requirement.
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<PAGE> 20
(B) COVENANTS OF THE SELLING SHAREHOLDERS. Each Selling Shareholder
covenants and agrees with each of the Underwriters:
(i) During the period beginning on the date hereof and continuing to
and including the date 180 days after the date of the Prospectus, such
Selling Shareholder will not, without your prior written consent, sell,
offer to sell, contract to sell, solicit an offer to buy, grant any
option for the purchase or sale of, assign, pledge, distribute or
otherwise transfer, dispose of or encumber (or make any announcement with
respect to any of the foregoing), directly or indirectly, any shares of
Common Stock, or any options, rights, warrants or other securities
convertible into or exercisable or exchangeable for Common Stock or
evidencing any right to purchase or subscribe for shares of Common Stock,
whether or not beneficially owned by the undersigned, except as provided
in Section 2.
(ii) Neither such Selling Shareholder nor any of its officers,
directors or other affiliates will (A) take, directly or indirectly,
prior to the termination of the underwriting syndicate contemplated by
this Agreement, any action designed to cause or to result in, or that
might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of any of the Shares, (B) sell, bid for, purchase or
pay anyone any compensation for soliciting purchases of, the Shares or
(C) pay to or agree to pay any person any compensation for soliciting
another to purchase any other securities of the Company.
6. EXPENSES. The Company will pay all costs and expenses incident to the
performance of its obligations and the obligations of the Selling Shareholders
under this Agreement, whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated pursuant to Section 10 hereof,
including, without limitation, all costs and expenses incident to (i) the
reasonable fees, disbursements and expenses of the Company's counsel and
accountants in connection with the registration of the Shares under the Act and
all other expenses in connection with the preparation, printing and filing of
the Registration Statement (including all amendments thereto), any Preliminary
Prospectus, the Prospectus and, if applicable, any amendments and supplements
thereto, this Agreement and any blue sky memoranda; (ii) the delivery of copies
of the foregoing documents to the Underwriters; (iii) the filing fees of the
Commission and the NASD relating to the Shares and the related reasonable fees
and disbursements of counsel for the Underwriters in connection with filings
with the NASD; (iv) the preparation, issuance and delivery to the Underwriters
of any certificates evidencing the Shares, including transfer agent's and
registrar's fees; (v) the qualification of the Shares for offering and sale
under state securities and blue sky laws, including filing fees and reasonable
fees and disbursements of counsel for the Underwriters relating thereto; (vi)
any listing of the Shares on the Nasdaq Stock Market's National Market and
(vii) any reasonable expenses
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<PAGE> 21
for travel, lodging and meals incurred by the Company and any of its officers,
directors and employees in connection with any meetings with prospective
investors in the Shares. In addition, each Selling Shareholder will pay all
costs and expenses incident to (i) the reasonable fees, disbursements and
expenses of counsel for such Selling Shareholder, (ii) such Selling
Shareholder's pro rata share of the fees and expenses of the Attorneys-in-Fact
and the Custodian, and (iii) the sale and delivery of the Shares to be sold by
such Selling Shareholder to the Underwriters hereunder. It is understood,
however, that, except as provided in this Section, Section 8 and Section 10
hereof, the Underwriters will pay all of their own costs and expenses,
including the fees of their counsel, stock transfer taxes on resale of any of
the Shares by them, and any advertising expenses relating to the offer and sale
of the Shares.
7. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters hereunder to purchase and pay for the Shares to be delivered at
each Time of Delivery shall be subject, in their discretion, to the accuracy of
the representations and warranties of the Company and the Selling Shareholders
contained herein as of the date hereof and as of such Time of Delivery, to the
accuracy of the statements of Company officers made pursuant to the provisions
hereof, to the performance by the Company and the Selling Shareholders of their
respective covenants and agreements hereunder, and to the following additional
conditions precedent:
(a) If the registration statement as amended to date has not become
effective prior to the execution of this Agreement, such registration statement
shall have been declared effective not later than 4:00 p.m., Atlanta time, on
the day following the date of this Agreement or such later date and/or time as
shall have been consented to by you in writing. The Prospectus and any
amendment or supplement thereto shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for such
filing and in accordance with Section 5(a) of this Agreement; no stop order
suspending the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceedings for that purpose shall have been
instituted, threatened or, to the knowledge of the Company and the
Representatives, contemplated by the Commission; and all requests for
additional information on the part of the Commission shall have been complied
with to your reasonable satisfaction.
(b) Alston & Bird, counsel for the Underwriters, shall have furnished to
you such opinion or opinions, dated such Time of Delivery, with respect to the
incorporation of the Company, the validity of the Shares being delivered at
such Time of Delivery, the Registration Statement, the Prospectus, and other
related matters as you may reasonably request, and the Company shall have
furnished to such counsel such documents as they request for the purpose of
enabling them to pass upon such matters.
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<PAGE> 22
(c) You shall have received an opinion, dated such Time of Delivery, of
Gardere & Wynne, L.L.P., counsel for the Company, in form and substance
satisfactory to you and your counsel, to the effect that:
(i) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware and
has the corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement and the
Prospectus and to enter into this Agreement and perform its obligations
hereunder. The Company is duly qualified to transact business as a
foreign corporation and is in good standing under the laws of each other
jurisdiction in which it owns or leases property, or conducts any
business, so as to require such qualification, except where the failure
to so qualify would not have a material adverse effect on the financial
position, results of operations or business of the Company.
(ii) The Company's authorized, issued and outstanding capital stock
is as disclosed in the Prospectus. All of the issued shares of capital
stock of the Company (including the Shares to be sold by the Selling
Shareholders) have been duly authorized and validly issued, are fully
paid and nonassessable and conform to the description of the Common Stock
contained in the Prospectus. None of the issued shares of capital stock
of the Company or its predecessors has been issued or is owned or held in
violation of any preemptive rights of shareholders, and no person or
entity (including any holder of outstanding shares of capital stock of
the Company) has any preemptive or other rights to subscribe for any of
the Shares.
(iii) Except as disclosed in the Prospectus, there are no
outstanding (A) securities or obligations of the Company convertible into
or exchangeable for any capital stock of the Company, (B) warrants,
rights or options to subscribe for or purchase from the Company any such
capital stock or any such convertible or exchangeable securities or
obligations, or (C) obligations of the Company to issue any shares of
capital stock, any such convertible or exchangeable securities or
obligations, or any such warrants, rights or options.
(iv) The Shares to be issued and sold by the Company have been duly
authorized and, when issued and delivered against payment therefor as
provided herein, will be validly issued and fully paid and nonassessable
and will conform to the description of the Common Stock contained in the
Prospectus; the certificates evidencing the Shares comply with all
applicable requirements of Delaware law; and the Shares have been listed
on the Nasdaq Stock Market's National Market.
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<PAGE> 23
(v) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company
owned or to be owned by such person or to require the Company to include
such securities in the securities registered pursuant to the Registration
Statement (or any such right has been effectively waived) or in any
securities being registered pursuant to any other registration statement
filed by the Company under the Act.
(vi) All offers and sales of the Company's capital stock prior to
the date hereof were at all relevant times duly registered under the Act
or exempt from the registration requirements of the Act by reason of
Sections 3(b), 4(2) or 4(6) thereof and were duly registered or the
subject of an available exemption from the registration requirements of
the applicable state securities or blue sky laws, or if not registered or
exempt in compliance with the Act and applicable state securities or blue
sky laws, any private rights of action for rescission or damages arising
from such failure to register any such securities are time barred by
applicable statutes of limitations or equitable principles, including
laches.
(vii) The Company is not, or with the giving of notice or passage of
time or both, would not be, in violation of its Certificate of
Incorporation or Bylaws or in default under any indenture, mortgage, deed
of trust, loan agreement, lease or other agreement or instrument to which
the Company is a party or to which any of its properties or assets is
subject, except for any such default which would not have a material
adverse effect on the financial position, results of operations or
business of the Company.
(viii) The issue and sale of the Shares being issued at such Time of
Delivery and the performance of this Agreement and the consummation of
the transactions herein contemplated will not conflict with, or (with or
without the giving of notice or the passage of time or both) result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any material indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which the Company is
a party or to which any of its properties or assets is subject, except
for any such conflict, breach, violation or default which would not have
a material adverse effect on the financial position, results of
operations or business of the Company, nor will such action conflict with
or violate any provision of the Certificate of Incorporation or Bylaws of
the Company or any statute, rule or regulation or any order, judgment or
decree of any court or governmental agency or body having jurisdiction
over the Company or any of its respective properties or assets.
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<PAGE> 24
(ix) The Company has good and indefeasible title in fee simple to
all real property and good title to all personal property owned by it, in
each case free and clear of all liens, security interests, pledges,
charges, encumbrances, mortgages and defects except such as are disclosed
in the Prospectus or such as do not materially and adversely affect the
value of such property and do not interfere with the use made and
proposed to be made of such property by the Company; and any real
property and buildings held under lease by the Company are held by the
Company under leases which are valid and enforceable as to the Company
and, to such counsel's knowledge, as to others, with such exceptions as
are disclosed in the Prospectus or are not material and do not interfere
with the use made and proposed to be made of such property and buildings
by the Company.
(x) No consent, approval, authorization, order or declaration of or
from, or registration, qualification or filing with, any court or
governmental agency or body is required for the issue and sale of the
Shares or the consummation of the transactions contemplated by this
Agreement, except the registration of the Shares under the Act and such
as may be required from the NASD or under state securities or blue sky
laws in connection with the offer, sale and distribution of the Shares by
the Underwriters.
(xi) To such counsel's knowledge and other than as disclosed in or
contemplated by the Prospectus, there is no litigation, arbitration,
claim, proceeding (formal or informal) or investigation pending or
threatened (or any basis therefor) in which the Company is a party or of
which any of its properties or assets is the subject which, if determined
adversely to the Company, would individually or in the aggregate
reasonably would be expected to have a material adverse effect on the
financial position, results of operations or business of the Company;
and, to such counsel's knowledge, the Company is not in violation of, or
in default with respect to, any statute, rule, regulation, order,
judgment or decree, except as described in the Prospectus.
(xii) The Company owns or has the right to use all Intangibles
necessary to its business as presently conducted or as the Prospectus
indicates the Company proposes to conduct; to such counsel's knowledge,
the Company has not infringed and is not infringing, and the Company has
not received notice of infringement with respect to, asserted Intangibles
of others; and, to such counsel's knowledge, there is no infringement by
others of Intangibles of the Company.
(xiii) This Agreement has been duly authorized, executed and
delivered by the Company and, assuming that this Agreement is governed by
the laws of the State of Texas, constitutes the valid and binding
agreement of the Company enforceable against the Company in accordance
with its terms, subject, as to enforcement, to applicable bankruptcy,
insolvency, reorganization and
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<PAGE> 25
moratorium laws and other laws relating to or affecting the enforcement
of creditors' rights generally and to general equitable principles.
(xiv) The Registration Statement and the Prospectus and each
amendment or supplement thereto (other than the financial statements and
related schedules therein, as to which such counsel need express no
opinion), as of their respective effective or issue dates, complied as to
form in all material respects with the requirements of the Act and the
rules and regulations thereunder. The descriptions in the Registration
Statement and the Prospectus of statutes, legal and governmental
proceedings or contracts and other documents are accurate and fairly
present the information required to be shown; and such counsel do not
know of any statutes or legal or governmental proceedings required to be
described in the Registration Statement or Prospectus that are not
described as required or of any contracts or documents of a character
required to be described in the Registration Statement or Prospectus or
to be filed as exhibits to the Registration Statement which are not
described and filed as required.
(xv) The Registration Statement is effective under the Act; any
required filing of the Prospectus pursuant to Rule 424(b) has been made
in the manner and within the time period required by Rule 424(b); and no
stop order suspending the effectiveness of the Registration Statement or
any part thereof has been issued and, to such counsel's knowledge, no
proceedings for that purpose have been instituted or threatened or are
contemplated by the Commission.
(xvi) The Company is not, and will not be as a result of the
consummation of the transactions contemplated by this Agreement, an
"investment company," or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as
amended.
(xviii) All individuals participating in (or eligible to participate
in) any Company Benefit Plan maintained (or contributed to) by the
Company are common-law employees under the rationale set forth in
Professional and Executive Leasing, Inc., 89 TC 225 (1987). No written
or oral representations have been made as to the impact of utilizing
Company employees (and other individuals compensated by Company for
services rendered to Company clients) on the tax qualified status under
Code Section 401 of the ERISA Plans of Company clients.
Such counsel shall also state that they have no reason to believe (i) that
the Registration Statement, or any further amendment thereto made prior to such
Time of Delivery, on its effective date and as of such time of Delivery,
contained or contains any untrue statement of a material fact or omitted or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, or (ii) that the Prospectus, or any
amendment or supplement thereto made prior to such Time of
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<PAGE> 26
Delivery, as of its issue date and as of such Time of Delivery, contained or
contains any untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading (provided that
such counsel need express no belief regarding the financial statements and
related schedules and other financial data contained in the Registration
Statement, any amendment thereto, or the Prospectus, or any amendment or
supplement thereto).
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deem proper, on certificates of responsible
officers of the Company and public officials.
(d) You shall have received an opinion, dated such Time of Delivery, of
Gardere & Wynne, L.L.P., counsel for the Selling Shareholders, in form and
substance satisfactory to you and your counsel, to the effect that:
(i) A Custody Agreement has been duly executed and delivered by each
Selling Shareholder, each of which Custody Agreement is enforceable
against such Selling Shareholder in accordance with its terms, subject,
as to enforcement, to applicable bankruptcy, insolvency, reorganization
and moratorium laws and other laws relating to or affecting the
enforcement of creditors' rights generally and to general equitable
principles.
(ii) This Agreement has been duly executed and delivered by or on
behalf of each Selling Shareholder.
(iii) As of such Time of Delivery, each Selling Shareholder has made
good delivery to the Underwriters, or to a financial intermediary
designated by you, of the Shares to be sold by such Selling Shareholder
hereunder, duly endorsed, and assuming that the Underwriters constitute
bona fide purchasers as defined in Section 8-302 of the Uniform
Commercial Code, the Selling Shareholders have transferred all rights and
interests therein to the Underwriters, free and clear of any and all
liens, pledges, encumbrances, charges, agreements, equities, claims,
security interests, restrictions, shareholder agreements or voting
trusts.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deem proper, on certificates of responsible
officers of the Company, the Selling Shareholders and public officials.
(e) You shall have received from Price Waterhouse LLP letters dated,
respectively, the date hereof and each Time of Delivery, in form and
substance satisfactory to you, stating that they are independent public
accountants with
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<PAGE> 27
respect to the Company within the meaning of the Act and the applicable
published rules and regulations of the Commission thereunder , and to the
effect that:
(i) In their opinion, the financial statements and schedules
audited by them and included in the Registration Statement comply
as to form in all material respects with the applicable accounting
requirements of the Act and the published rules and regulations
thereunder with respect to registration statements on Form S-1.
With respect to the three-month periods ended March 31, 1996 and
April 2, 1995, we have performed the procedures specified by the
American Institute of Certified Public Accountants for a review of
interim financial information as described in SAS No. 71, Interim
Financial Information, on the unaudited condensed consolidated
balance sheet as of March 31, 1996 and April 2, 1995 and the
unaudited consolidated condensed statements of income, of cash
flows and of changes in stockholders' equity for the three-month
periods ended March 31, 1996 and April 2, 1995 included in the
Registration Statement;
(ii) The unaudited summary and selected financial information
included in the Preliminary Prospectus and the Prospectus under
the captions "Prospectus Summary" and "Selected Financial Data"
agrees with the corresponding amounts in the audited financial
statements included in the Prospectus or previously reported on by
them;
(iii) On the basis of a reading of the latest available
interim financial statements (unaudited) of the Company, a reading
of the minute books of the Company, inquiries of officials of the
Company responsible for financial and accounting matters and other
specified procedures, all of which have been agreed to by the
Representatives, nothing came to their attention that caused them
to believe that:
(A) the unaudited financial statements described in
paragraph (i) above and included in the Registration
Statement do not comply as to form in all material respects
with the accounting requirements of the Act and the related
published rules and regulations thereunder or that any
material modifications should be made to such unaudited
financial statements for them to be in conformity with
generally accepted accounting principles;
(B) at a specified date not more than five days prior
to the date of delivery of such respective letter, there
was any change in the capital stock, decline in
stockholders' equity or increase in long-term debt of the
Company, or other items specified by the Underwriters, in
each case as compared with amounts shown in the
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<PAGE> 28
latest balance sheets included in the Prospectus, except in
each case for changes, decreases or increases which the
Prospectus discloses have occurred or may occur or which
are described in such letters; and
(C) for the period from the closing date of the latest
statements of revenues and expenses included in the
Prospectus to a specified date not more than five days
prior to the date of delivery of such respective letter,
there were any decreases in net service revenue or net
income of the Company, or other items specified by the
Underwriters, or any increases in any items specified by
the Underwriters, in each case as compared with the
corresponding period of the preceding year, except in each
case for decreases which the Prospectus discloses have
occurred or may occur or which are described in such
letter.
(iv) They have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts,
percentages and financial information specified by you which are
derived from the general accounting records of the Company, which
appear in the Prospectus and have compared and agreed such
amounts, percentages financial information with the accounting
records of the Company or to analyses and schedules prepared by
the Company from its detailed accounting records.
In the event that the letters to be delivered referred to above set
forth any such changes, decreases or increases, it shall be a further
condition to the obligations of the Underwriters that the Underwriters
shall have determined, after discussions with officers of the Company
responsible for financial and accounting matters and with Price
Waterhouse LLP, that such changes, decreases or increases as are set
forth in such letters do not reflect a material adverse change in the
stockholders' equity or long-term debt of the Company as compared with
the amounts shown in the latest balance sheets of the Company included in
the Prospectus, or a material adverse change in net service revenue or
net income, of the Company, in each case as compared with the
corresponding period of the prior year.
(f) Since the date of the latest audited financial statements included in
the Prospectus, the Company shall not have sustained (i) any loss or
interference with its business from fire, explosion, flood, hurricane or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as disclosed in
or contemplated by the Prospectus, or (ii) any change, or any development
involving a prospective change (including without limitation a change in
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<PAGE> 29
management or control of the Company), in or affecting the position (financial
or otherwise), results of operations, net worth or business prospects of the
Company, otherwise than as disclosed in or contemplated by the Prospectus, the
effect of which, in either such case, is in your judgment so material and
adverse as to make it impracticable or inadvisable to proceed with the
purchase, sale and delivery of the Shares being delivered at such Time of
Delivery as contemplated by the Registration Statement, as amended as of the
date hereof.
(g) The Shares shall be listed on the Nasdaq Stock Market's National
Market, subject to notice of issuance.
(h) Subsequent to the date hereof there shall not have occurred any of the
following: (i) any suspension or limitation in trading in securities generally
on the New York Stock Exchange, or any setting of minimum prices for trading on
such exchange, or in the Common Stock by the Commission or the NASD or the
Nasdaq Stock Market's National Market; (ii) a moratorium on commercial banking
activities in New York declared by either federal or state authorities; (iii)
any downgrading in the rating of any debt securities of the Company by any
"nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Act), or any public announcement that any
such organization has under surveillance or review its rating of any debt
securities of the Company (other than an announcement with positive
implications of a possible upgrading, and no implication of a possible
downgrading, of such rating); or (iv) any outbreak or escalation of hostilities
involving the United States, declaration by the United States of a national
emergency or war or any other national or international calamity or emergency
if the effect of any such event specified in this clause (iv) in your
reasonable judgment makes it impracticable or inadvisable to proceed with the
purchase, sale and delivery of the Shares being delivered at such Time of
Delivery as contemplated by the Registration Statement, as amended as of the
date hereof.
(i) The Company shall have furnished to you at such Time of Delivery
certificates of officers of the Company and certificates of the Selling
Shareholders, satisfactory to you, as to the accuracy of the representations
and warranties of the Company and such Selling Shareholders herein at and as of
such Time of Delivery, as to the performance by the Company and such Selling
Shareholders of all of their respective obligations hereunder to be performed
at or prior to such Time of Delivery and as to such other matters as you may
reasonably request, and the Company shall have furnished or caused to be
furnished certificates as to the matters get forth in subsections (a) and (f)
of this Section 7, and as to such other matters as you may reasonably request.
8. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to indemnify
and hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out
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<PAGE> 30
of or are based upon: (i) any untrue statement or alleged untrue statement made
by the Company in Section l(a) of this Agreement; (ii) any untrue statement or
alleged untrue statement of any material fact contained in (A) the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or (B) any application or
other document, or any amendment or supplement thereto, executed by the Company
or based upon written information furnished by or on behalf of the Company
filed in any jurisdiction in order to qualify the Shares under the securities
or blue sky laws thereof or filed with the Commission or any securities
association or securities exchange (each an "Application"); (iii) the omission
or alleged omission to state in the Registration Statement or any amendment
thereto, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto, or any Application a material fact required to be stated
therein or necessary to make the statements therein not misleading, or (iv) any
failure of the Company to perform its obligations hereunder or under law, and
will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating, defending
against or appearing as a third-party witness in connection with any such loss,
claim, damage, liability or action; provided, however, that the Company shall
not be liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement or any amendment thereto, any Preliminary Prospectus,
the Prospectus or any amendment or supplement thereto or any Application in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through you expressly for use therein (it being
understood that the only information so provided is the information included in
the last paragraph on the cover page and in the first seven paragraphs under
the caption "Underwriting" in any Preliminary Prospectus and the Prospectus).
The Company will not, without the prior written consent of each Underwriter,
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding (or related cause of action or
portion thereof) in respect of which indemnification may be sought hereunder
(whether or not such Underwriter is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of such Underwriter from all liability arising out of
such claim, action, suit or proceeding (or related cause of action or portion
thereof).
(b) Each Selling Shareholder severally and not jointly, agrees to
indemnify and hold harmless each Underwriter against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon: (i)
any untrue statement or alleged untrue statement made by any Selling
Shareholder in Section l(b) of this Agreement; (ii) with regard to such Selling
Shareholder, any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or any amendment thereto, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
the
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<PAGE> 31
Custody Agreement or any Application; (iii) with regard to such Selling
Shareholder, the omission or alleged omission to state in the Registration
Statement or any amendment thereto, any Preliminary Prospectus, the Prospectus
or any amendment or supplement thereto, the Custody Agreement or any
Application a material fact required to be stated therein or necessary to make
the statements therein not misleading; or (iv) any failure of such Selling
Shareholder to perform his obligations hereunder, under the Custody Agreement
or under law, and will reimburse each Underwriter for any legal or other
expenses reasonably incurred by such Underwriter in connection with
investigating, defending against or appearing as a third-party witness in
connection with any such loss, claim, damage, liability or action; provided,
however, that no such Selling Shareholder shall be liable in any such case to
the extent that any such loss, claim, damage, liability or action arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement or any amendment thereto,
any Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto or any Application in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through you expressly
for use therein (it being understood that the only information so provided is
the information included in the last paragraph on the cover page and in the
first seven paragraphs under the caption "Underwriting" in any Preliminary
Prospectus and the Prospectus); and provided further, however, that in no event
shall the liability of any Selling Shareholder under this Section 8(b) exceed
the net proceeds received by such Selling Shareholder from the Underwriters
with regard to the sale of Shares hereunder. No Selling Shareholder will,
without the prior written consent of each Underwriter, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim,
action, suit or proceeding (or related cause of action or portion thereof) in
respect of which indemnification may be sought hereunder (whether or not such
Underwriter is a party to such claim, action, suit or proceeding), unless such
settlement, compromise or consent includes an unconditional release of such
Underwriter from all liability arising out of such claim, action, suit or
proceeding (or related cause of action or portion thereof).
(c) Each Underwriter, severally but not jointly, agrees to indemnify and
hold harmless the Company and each Selling Shareholder against any losses,
claims, damages or liabilities to which the Company or any Selling Shareholder
may become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or any amendment thereto, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or any Application or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such
Underwriter through you expressly for use therein (it being
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<PAGE> 32
understood that the only information so provided is the information included in
the last paragraph on the cover page and in the first seven paragraphs under
the caption "Underwriting" in any Preliminary Prospectus and the Prospectus);
and will reimburse the Company and each Selling Shareholder for any legal or
other expenses reasonably incurred by the Company or such Selling Shareholder
in connection with investigating or defending any such loss, claim, damage,
liability or action.
(d) Promptly after receipt by an indemnified party under subsection (a),
(b) or (c) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the
indemnifying party); provided, however, that if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be one or more
legal defenses available to it or other indemnified parties which are different
from or additional to those available to the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party and such indemnified party shall
have the right to select separate counsel to defend such action on behalf of
such indemnified party. After such notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and approval
by such indemnified party of counsel appointed to defend such action, the
indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof, unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
or (ii) the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party. Nothing in this
Section 8(d) shall preclude an indemnified party from participating at its own
expense in the defense of any such action so assumed by the indemnifying party.
(e) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a),
(b) or (c) above in respect of any losses, claims, damages or liabilities (or
actions in respect thereof) referred to therein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative
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<PAGE> 33
benefits received by the Company and the Selling Shareholders on the one hand
and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (d) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of the Company and the Selling Shareholders on the one
hand and the Underwriters on the other in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Shareholders on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Selling
Shareholders bear to the total underwriting discounts and commissions received
by the Underwriters. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Selling Shareholders on
the one hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company, the Selling Shareholders and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this subsection (e) were determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable
considerations referred to above in this subsection (e). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this
subsection (e) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (e), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares underwritten
by it and distributed to the public were offered to the public exceeds the
amount of any damages which such Underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this subsection (e) to contribute are several in proportion to
their respective underwriting obligations and not joint.
(f) The obligations of the Company and the Selling Shareholders under this
Section 8 shall be in addition to any liability which the Company or such
Selling Shareholders may otherwise have and shall extend, upon the same terms
and conditions, to each person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriters under this Section
8 shall be in addition to any liability
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<PAGE> 34
which the respective Underwriters may otherwise have and shall extend, upon the
same terms and conditions, to each officer and director of the Company and each
Selling Shareholder and to each person, if any, who controls the Company and
such Selling Shareholder within the meaning of the Act.
9. DEFAULT OF UNDERWRITERS. (a) If any Underwriter defaults in its
obligation to purchase Shares at a Time of Delivery, you may in your discretion
arrange for you or another party or other parties to purchase such Shares on
the terms contained herein. If within thirty-six (36) hours after such default
by any Underwriter you do not arrange for the purchase of such Shares, the
Company and the Selling Shareholders shall be entitled to a further period of
thirty-six (36) hours within which to procure another party or other parties
satisfactory to you to purchase such Shares on such terms. In the event that,
within the respective prescribed periods, you notify the Company and the
Selling Shareholders that you have so arranged for the purchase of such Shares,
or the Company and the Selling Shareholders notify you that they have so
arranged for the purchase of such Shares, you or the Company and the Selling
Shareholders shall have the right to postpone a Time of Delivery for a period
of not more than seven days in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus that in your opinion
may thereby be made necessary. The cost of preparing, printing and filing any
such amendments shall be paid for by the Underwriters. The term "Underwriter"
as used in this Agreement shall include any person substituted under this
Section with like effect as if such person had originally been a party to this
Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company and
the Selling Shareholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased does not exceed one-eleventh of
the aggregate number of Shares to be purchased at such Time of Delivery, then
the Company and the Selling Shareholders shall have the right to require each
non-defaulting Underwriter to purchase the number of Shares which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of such defaulting Underwriter or Underwriters for
which such arrangements have not been made, but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
10. TERMINATION. (a) This Agreement may be terminated with respect to the
Firm Shares or any Optional Shares in the sole discretion of the
Representatives by notice to the Company given prior to the First Time of
Delivery or any Subsequent Time of Delivery, respectively, in the event that
(i) any condition to the obligations of the Underwriters set forth in Section 7
hereof has not been satisfied in all material respects, or
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<PAGE> 35
(ii) the Company or the Selling Shareholders shall have failed, refused or been
unable to deliver the Shares or to perform all obligations and satisfy all
conditions on their respective parts to be performed or satisfied hereunder at
or prior to such Time of Delivery, in either case other than by reason of a
default by any of the Underwriters. If this Agreement is terminated pursuant
to this Section 10(a), the Company and the Selling Shareholders, pro rata in
accordance with the number of Shares proposed to be sold hereunder, will
reimburse the Underwriters severally upon demand for all out-of-pocket expenses
(including reasonable counsel fees and disbursements) that shall have been
incurred by them in connection with the proposed purchase and sale of the
Shares. Neither the Company nor any Selling Shareholder shall in any event be
liable to any of the Underwriters for the loss of anticipated profits from the
transactions covered by this Agreement.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company and
the Selling Shareholders as provided in Section 9(a), the aggregate number of
such Shares which remains unpurchased exceeds one-eleventh of the aggregate
number of Shares to be purchased at such Time of Delivery, or if the Company
and the Selling Shareholders shall not exercise the right described in Section
9(b) to require non-defaulting Underwriters to purchase Shares of a defaulting
Underwriter or Underwriters, then this Agreement (or, with respect to a
Subsequent Time of Delivery, the obligations of the Underwriters to purchase
and of the Company to sell the Optional Shares) shall thereupon terminate,
without liability on the part of any non-defaulting Underwriter, the Company or
the Selling Shareholders, except for the expenses to be borne by the Company,
the Selling Shareholders and the Underwriters as provided in Section 6 hereof
and the indemnity and contribution agreements in Section 8 hereof; but nothing
herein shall relieve a defaulting Underwriter from liability for its default.
11. SURVIVAL. The respective indemnities, agreements, representations,
warranties and other statements of the Company, its officers, the Selling
Shareholders and the several Underwriters, as set forth in this Agreement or
made by or on behalf of them, respectively, pursuant to this Agreement, shall
remain in full force and effect, regardless of any investigation (or any
statement as to the results thereof) made by or on behalf of any Underwriter or
any controlling person referred to in Section 8(e) or the Company, any Selling
Shareholder or any officer or director or controlling person of the Company or
any Selling Shareholder referred to in Section 8(e), and shall survive delivery
of and payment for the Shares. The respective agreements, covenants,
indemnities and other statements set forth in Sections 6 and 8 hereof shall
remain in full force and effect, regardless of any termination or cancellation
of this Agreement.
12. NOTICES. All communications hereunder shall be in writing and, if
sent to any of the Underwriters, shall be mailed, delivered or sent by
facsimile transmission and confirmed in writing to you in care of The
Robinson-Humphrey Company, Inc., 3333
- 35 -
<PAGE> 36
Peachtree Road, N.E., Atlanta, Georgia 30326, Attention: Corporate Finance
Department (with a copy to Alston & Bird, One Atlantic Center, 1201 West
Peachtree Street, Atlanta, Georgia 30309-3424, Attention: M. Hill Jeffries); if
sent to the Company, shall be mailed, delivered or sent by facsimile
transmission and confirmed in writing to the Company at Source Services
Corporation, 5580 LBJ Freeway, Suite 300, Dallas, Texas 75240, Attention:
President (with a copy to Gardere & Wynne, L.L.P., 3000 Thanksgiving Tower,
1601 Elm Street, Dallas, Texas 75201, Attention: Richard M. Hull); and if
sent to any Selling Shareholder, shall be mailed, delivered or sent by
facsimile transmission and confirmed in writing to the Attorneys-in-Fact, or
either of them, at Source Services Corporation, 5580 LBJ Freeway, Suite 300,
Dallas, Texas 75240 (with a copy to Gardere & Wynne, L.L.P., 3000 Thanksgiving
Tower, 1601 Elm Street, Dallas, Texas 75201, Attention: Richard M. Hull).
13. REPRESENTATIVES. You will act for the several Underwriters in
connection with the transactions contemplated by this Agreement, and any action
under this Agreement taken by you jointly or by The Robinson-Humphrey Company,
Inc. will be binding upon all the Underwriters.
14. BINDING EFFECT. This Agreement shall be binding upon, and inure
solely to the benefit of, the Underwriters, the Company and the Selling
Shareholders and to the extent provided in Sections 8 and 10 hereof, the
officers and directors and controlling persons referred to therein and their
respective heirs, executors, administrators, successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. No purchaser of any of the Shares from any Underwriter shall be
deemed a successor or assign by reason merely of such purchase.
15. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia without giving effect to any
provisions regarding conflicts of laws.
16. COUNTERPARTS. This Agreement may be executed by any one or more of the
parties hereto in any number of counterparts, each of which shall be deemed to
be an original, but all such counterparts shall together constitute one and the
same instrument.
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<PAGE> 37
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us one of the counterparts hereof, and
upon the acceptance hereof by The Robinson-Humphrey Company, Inc., on behalf of
each of the Underwriters, this letter will constitute a binding agreement among
the Underwriters and the Company. It is understood that your acceptance of
this letter on behalf of each of the Underwriters is pursuant to the authority
set forth in the Master Agreement among Underwriters, a copy of which shall be
submitted to the Company for examination upon request, but without warranty on
your part as to the authority of the signers thereof.
Very truly yours,
SOURCE SERVICES CORPORATION
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
SELLING SHAREHOLDERS
By:
----------------------------
Name:
--------------------------
Attorney-in-Fact
The foregoing Agreement is hereby
confirmed and accepted as of the date
first written above at Atlanta,
Georgia.
THE ROBINSON-HUMPHREY COMPANY, INC.
RAUSCHER PIERCE REFSNES, INC.
By: The Robinson-Humphrey Company, Inc.
By:
-----------------------------------
(Authorized Representative)
On behalf of each of the Underwriters
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<PAGE> 38
SCHEDULE I
Number of
Optional Shares
Total Number of to be Purchased
Firm Shares to be if Maximum
Underwriter Purchased Option Exercised
----------- ----------------- ----------------
[S] [C] [C]
The Robinson-Humphrey Company, Inc.
Rauscher Pierce Refsnes, Inc.
Total
---------- ----------
- 38 -
<PAGE> 39
SCHEDULE II
Total Number of Maximum Number
Firm Shares to be of Option Shares
Selling Shareholders* Sold to be Sold
----------------- ----------------
- --------------------
* Each of the Selling Shareholders has executed and delivered a Power of
Attorney appointing D. Les Ward and Richard Dupont such Selling Shareholder's
Attorneys-in-Fact and is represented by [insert name and address of counsel].
- 39 -
<PAGE> 1
EXHIBIT 4.1
INCORPORATED UNDER THE
LAWS OF THE STATE OF DELAWARE
<TABLE>
<S> <C>
NUMBER SHARES
C [LOGO]
COMMON STOCK SOURCE SERVICE CORPORATION(R) PAR VALUE $.02
THIS CERTIFICATE IS TRANSFERABLE CUSIP 836162 10 7
IN NEW YORK, NEW YORK AND DALLAS, TEXAS SEE REVERSE FOR CERTAIN DEFINITIONS
</TABLE>
This Certifies that
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK,
PAR VALUE $.02 PER SHARE, OF
SOURCE SERVICES CORPORATION transferable on the books of the Corporation by the
holder hereof in person or by attorney upon surrender of this Certificate
properly endorsed. This Certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated: CONTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT
[SEAL]
/s/ ILLEGIBLE /s/ ILLEGIBLE BY
PRESIDENT SECRETARY AUTHORIZED SIGNATURE
<PAGE> 1
EXHIBIT 5.1
[GARDERE & WYNNE, L.L.P. LETTERHEAD]
July 10, 1996
Source Services Corporation
5580 LBJ Freeway, Suite 300
Dallas, Texas 75240
Gentlemen:
We have served as counsel for Source Services Corporation, a Delaware
corporation (the "Company"), and certain stockholders of the Company (the
"Selling Stockholders") in connection with Registration Statement on Form S-1
(No. 333-4691) (the "Registration Statement"), filed with the Securities and
Exchange Commission on May 29, 1996 and as amended on July 8, 1996, covering the
proposed public offering of 1,591,235 shares of Common Stock, $.02 par value, of
the Company ("Common Stock") to be issued and sold by the Company (the "Company
Shares"), 908,765 shares of Common Stock to be sold by the Selling Stockholders
(the "Selling Stockholder Shares") and, subject to the exercise of an
over-allotment option granted by the Company, an additional 375,000 shares of
Common Stock to be issued and sold by the Company (the "Additional Shares").
With respect to the foregoing, we have examined such documents and
questions of law as we have deemed necessary to render the opinions expressed
below. Based upon the foregoing, we are of the opinion that:
1. The Company Shares and the Additional Shares, when sold,
issued and delivered in the manner and for the consideration stated in the
Prospectus constituting a part of the Registration Statement and in the
Underwriting Agreement described in the Registration Statement, will be duly
authorized, validly issued, fully paid and nonassessable.
2. The Selling Stockholder Shares are duly authorized, validly
issued, fully paid and nonassessable.
We consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement and to the use of our name in the Registration Statement
and in the Prospectus included therein under the heading "Legal Matters."
Very truly yours,
GARDERE & WYNNE, L.L.P.
By: /s/ RICHARD M. HULL
-----------------------------------
Richard M. Hull, Partner
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 31, 1996, except as
to Note 11 which is as of June 1, 1996, relating to the financial statements of
Source Services Corporation, which appears in such Prospectus. We also consent
to the application of such report to the Financial Statement Schedule for the
three years ended December 31, 1995 listed under Item 16(b) of this Registration
Statement when such schedule is read in conjunction with the financial
statements referred to in our report. The audits referred to in such report also
included this schedule. We also consent to the reference to us under the
headings "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Dallas, Texas
July 10, 1996
