<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 28, 1997 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 21027
SOURCE SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-2690960
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5580 LBJ FREEWAY
SUITE 300
DALLAS, TEXAS 75240
(Address of principal executive offices) (zip-code)
Registrant's telephone number, including area code: (972) 385-3002
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value
$.02 per share
----------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) had been subject to such filing
requirements in the past 90 days. YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of February 27, 1998, 13,754,043 shares of $.02 par value Common Stock were
outstanding, and the aggregate market value of the common shares (based upon the
last price on February 27, 1998) was approximately $362,762,884.
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
Source Services Corporation (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 55
markets throughout the United States and one in Canada.
Initially a large provider of permanent placement services, the Company
shifted its focus in 1991 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 44%. During fiscal year 1997,
approximately 68% 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 35
years, the Company has developed expertise in recruiting and selecting
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, virtually all of the
Company's sales associates have 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.
On February 2, 1998, the Company and Romac International, Inc.
("Romac") announced that they had entered into a merger agreement providing for
a stock-for-stock transaction, under which Romac would be the surviving entity.
(See Note 13, under "Notes to Consolidated Financial Statements" for further
information.) This merger is subject to, among other considerations, approval by
shareholders of both companies. While the merger is anticipated by management to
be completed in the second calendar quarter of 1998, because all the conditions
of the merger agreement have not been met, consummation of the merger at this
time is uncertain. Therefore, the Company's Form 10-K has been prepared in a
manner to best describe its business in an ongoing manner, thus providing a
better understanding of the Company's strategies, business and ongoing
obligations as they existed at the end of its 1997 fiscal year for which the
report is filed.
INDUSTRY OVERVIEW
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.
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,
<PAGE> 3
accounting and finance, and engineering and manufacturing. It provides services
in 55 markets throughout the United States and one in Canada. The Company's
operations are more heavily concentrated in large metropolitan areas. 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, virtually all of whom have 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, while most sales associates in the Company's accounting
and finance divisions are certified public accountants. The specialized
background 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 that 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 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 period of assignment depends upon the duration of the
need for the skills possessed by an individual employee. During a typical week,
the Company has more than 3,800 persons in flexible positions with clients. The
Company charges hourly fees for personnel placed in flexible staffing
assignments. For the years ended December 28, 1997, and December 29, 1996,
flexible staffing accounted for approximately 67.8% and 62.3% respectively, of
the Company's net service revenue. The ability of the Company to locate and hire
personnel with capabilities required by customers is critical to its operations.
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 28, December 29, December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Information Technology. . . . . . . . . . 49 50 43
Accounting and Finance. . . . . . . . . . 48 45 24
Engineering and Manufacturing . . . . . . 17 16 11
Other . . . . . . . . . . . . . . . . . 10 11 4
</TABLE>
2
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Set forth below are the percentages of the Company's net service
revenue derived from its flexible staffing services for each of the years
indicated:
<TABLE>
<CAPTION>
December 28, December 29, December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Information Technology ................... 46.8% 45.1% 44.1%
Accounting and Finance ................... 17.5 14.9 14.6
Other .................................... 3.5 2.3 2.0
----- ----- -----
Total Flexible Staffing .......... 67.8% 62.3% 60.7%
===== ===== =====
</TABLE>
Permanent Placement. During fiscal years ended December 28, 1997 and
December 29, 1996, permanent placements accounted for 32.2% and 37.7%,
respectively, of the Company's net service revenue. The Company currently offers
permanent placement services in 54 markets covering 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 structure 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 35 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. Source keeps the database current by contacting the
candidates through direct mail, phone contact, direct contact, e-mail and other
means to update candidate information. This database of candidates has been
compiled over 36 years through direct mail, advertising, referrals, technical
seminars, job fairs, college fairs and other medium.
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 years
indicated:
<TABLE>
<CAPTION>
December 28, December 29, December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Information Technology ................... 17.0% 21.2% 24.0%
Accounting and Finance ................... 11.8 12.3 11.5
Other .................................... 3.4 4.2 3.8
----- ----- -----
Total Permanent Placement ........ 32.2% 37.7% 39.3%
===== ===== =====
</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. The Company's focus is on providing professional and
skilled personnel.
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 63.8% of the
Company's net service revenue for fiscal year 1997, and 66.3% for the fiscal
year 1996.
The Company meets clients' information technology staffing needs
through two divisions in 54 markets. SOURCE CONSULTING provides experienced
professionals in all information technology disciplines for flexible
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<PAGE> 5
staffing assignments. SOURCE EDP provides information systems professionals on a
contingency fee and retainer basis for permanent employment.
Accounting and Finance. For fiscal years 1997 and 1996, staffing of
accounting and finance personnel accounted for approximately 29.3% and 27.2%,
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 48 markets. SOURCE FINANCE provides experienced accounting and
finance professionals on a contingency fee and retainer basis for permanent
employment in 48 markets.
Engineering. The Company provides professional personnel in the fields
of engineering in 17 of the Company's markets in 11 states. For fiscal years
1997 and 1996, staffing of engineering personnel accounted for approximately
4.0% and 5.0%, respectively, of the Company's net service revenue.
SOURCE ENGINEERING provides personnel highly skilled in a variety of
engineering disciplines for both flexible staffing and permanent placement.
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.
Health Care. The Company, through its SOURCE HEALTHCARE STAFFING
division, provides licensed professionals to health care institutions primarily
for flexible staffing in six markets.
ORGANIZATIONAL STRUCTURE
The Company currently operates offices in 55 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.
In order to provide further focus on its flexible staffing services,
the Company has two national executive management positions for the Company's
areas of specialization; National Director of Flexible Staffing Services for the
accounting and finance area and National Director of Flexible Staffing Services
for the information technology area. These directors work with operations
management in each market.
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.
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<PAGE> 6
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.
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 benefited from
the ability of the Company to place its candidates in attractive flexible
staffing or permanent placement positions. This personal experience benefits the
sales associates and the Company in recruiting qualified candidates and in
understanding the staffing needs of the Company's clients.
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 that 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 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 through a variety of training aids as technological or
other changes occur. In connection with an upgrade to its management information
systems, the Company provides 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.
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, and 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
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employment opportunities. Each year, the Company publishes 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 system
called WIZARD, which is an enhanced version of their previous system, SCORE.
WIZARD is based on the use of client-server technology, the inter-connection of
all of the Company's 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. The Company
believes that WIZARD'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, WIZARD enables the Company
to include within the coding of the skills and qualifications of a candidate
various subcandidates possessing a group of skills and qualifications,
including, for example, a high level of skill in a particular computer program,
WIZARD 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.
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 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.
INSURANCE
The Company maintains a fidelity bond and a number of insurance
policies including general liability and automobile liability, (each with excess
liability coverage), professional liability and errors and omissions, and
worker's compensation and employers' liability. There can be no assurance that
any of the above coverages will be adequate for the Company's needs.
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
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<PAGE> 8
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 December 28, 1997, the Company employed approximately 4,160
persons. Of such persons, approximately 85 were engaged in corporate management
and support functions, approximately 1,122, including approximately 767 sales
associates, were involved in functions related to customer service, and the
balance of 3,453 (of which approximately 230 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.
ITEM 2. PROPERTIES
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.
ITEM 3. 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. (See Note 12 -- "Commitments and
Contingencies" to Financial Statements).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter ended December 28, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the Nasdaq National Market
under the symbol "SRSV" since the Company's initial public offering on July 29,
1996.
The Company has not paid any dividends in recent years and has not
declared any cash dividends on its Common Stock in 1997. 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.
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<PAGE> 9
The following table sets forth, for the periods indicated, the range of
high, low and close sales prices for the Common Stock as reported on the Nasdaq
National Market since the Company's initial public offering (the "Offering") in
July 1996. All amounts have been adjusted for the 3-for-2 stock split effective
November 15, 1997.
<TABLE>
<CAPTION>
1997 High Low Close
- ---- ---- --- -----
<S> <C> <C> <C>
First Quarter (through March 30, 1997) ................. $ 13.33 $ 11.33 $ 11.92
Second Quarter (through June 29, 1997) .................. 19.00 10.50 17.25
Third Quarter (through September 28, 1997) .............. 20.67 17.00 19.67
Fourth Quarter (through December 28, 1997) .............. 22.13 18.17 19.75
</TABLE>
<TABLE>
<CAPTION>
1996 High Low Close
- ---- ---- --- -----
<S> <C> <C> <C>
Third Quarter (from July 29,1996) ...................... $ 13.33 $ 9.33 $ 11.67
Fourth Quarter (through December 29, 1996) .............. 12.42 10.33 11.42
</TABLE>
As of February 27, 1998, there were approximately 213 stockholders of
record and approximately 2,400 beneficial holders of the Company's Common Stock.
On March 11, 1998, the closing market price was $25.75.
On July 29, 1996, the Company's Registration Statement on Form S-1
(File No. 2-21027) (the "Registration Statement") relating to the Offering was
declared effective by the Commission. The Registration Statement registered an
amount of Common Stock having an aggregate offering price of $27,138,034. The
Offering was consummated on July 29, 1996, and the Company issued 1,938,431
shares of Common Stock at $14 per share (for an aggregate offering amount of
$27,138,034). The managing underwriters of the Offering were The
Robinson-Humphrey Company, Inc. and Rauscher Pierce Refsnes, Inc. In connection
with the Offering, the Company paid underwriting discounts and commissions of
$1,899,662 of expenses for the underwriters and approximately $1,148,237 of
other expenses. None of such expenses were paid to directors, officers, 10%
stockholders or affiliates of the Company. After deducting such total expenses
of $3,047,899, the Company's net proceeds from the Offering were $24,090,135.
[Pending its use of the remaining $11,795,872 in net proceeds, the Company has
invested this amount in short-term, investment grade, interest-bearing
obligations.]
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<PAGE> 10
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information regarding
the Company's financial position and operating results which has been extracted
from the Company's financial statements for the five years ended December 28,
1997. The information should be read in conjunction with Item 7 - "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and related Notes included elsewhere in
this report. All prior year net income per share and weighted average shares
outstanding amounts have been retroactively adjusted for 3-for-2 stock split
effective November 15, 1997.
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------------------------------
December 28, December 29, December 31, January 1, January 2,
1997 1996 1995 1995 1994
---------- --------- --------- --------- ----------
(Amounts in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net service revenue ...................... $ 294,676 $ 204,748 $ 141,832 $ 90,067 $ 53,835
Cost of sales, flexible
staffing ............................... 143,582 92,042 63,052 35,411 19,927
--------- --------- --------- --------- ---------
Gross profit ............................. 151,094 112,706 78,780 54,656 33,908
--------- --------- --------- --------- ---------
Operating expenses:
Selling ................................ 122,570 93,211 64,882 43,795 27,546
General and
administrative ....................... 10,694 8,371 6,636 5,447 4,683
--------- --------- --------- --------- ---------
Total operating
expenses ......................... 133,264 101,582 71,518 49,242 32,229
--------- --------- --------- --------- ---------
Operating income ......................... 17,830 11,124 7,262 5,414 1,679
Other income (expense),
net .................................... 743 88 (540) (403) (349)
--------- --------- --------- --------- ---------
Income before income
taxes .................................. 18,573 11,212 6,722 5,011 1,330
Income tax expense ....................... (8,045) (4,741) (2,547) (1,764) (513)
--------- --------- --------- --------- ---------
Net income ............................... $ 10,528 $ 6,471 $ 4,175 $ 3,247 $ 817
========= ========= ========= ========= =========
Net income per share:
Basic .................................. $ 0.77 $ 0.54 $ 0.39 $ 0.30 $ 0.07
========= ========= ========= ========= =========
Diluted ............................... $ 0.75 $ 0.54 $ 0.39 $ 0.30 $ 0.07
========= ========= ========= ========= =========
Weighted average shares outstanding:
Basic .................................. 13,721 11,978 10,767 10,875 11,079
Diluted ................................ 13,978 12,049 10,836 10,920 11,079
</TABLE>
The Company has not declared or paid any cash dividends during the five
year period ending December 28, 1997.
<TABLE>
<CAPTION>
December 28, December 29, December 31, January 1, January 2,
1997 1996 1995 1995 1994
------- ------- ------- ------- -------
( In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital ................... $51,959 $41,337 $14,642 $ 6,419 $ 4,238
Total assets ...................... 86,269 64,553 30,624 22,434 13,031
Total long-term debt .............. -- -- -- -- 630
Stockholders' equity .............. 59,024 47,937 17,294 7,812 4,107
</TABLE>
9
<PAGE> 11
The following tables set forth the unaudited quarterly results of
operations for the years ended December 28, 1997 and December 29, 1996:
<TABLE>
<CAPTION>
QUARTER ENDED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------------------------------------------------------------------------------------------
MARCH 30, 1997 JUNE 29, 1997 SEPTEMBER 28, 1997 DECEMBER 28, 1997
------------------ ----------------- ----------------------- ----------------------
<S> <C> <C> <C> <C>
Net service revenue $65,392 $70,969 $76,411 $81,904
Gross profit $33,956 $36,323 $38,931 $41,885
Net income $ 1,841 $ 2,440 $ 2,954 $ 3,293
Net income per share:
Basic $ 0.13 $ 0.18 $ 0.22 $ 0.24
Diluted $ 0.13 $ 0.18 $ 0.21 $ 0.23
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------------------------------------------------------------------------------------------
MARCH 31, 1996 JUNE 30, 1996 SEPTEMBER 29, 1996 DECEMBER 29, 1996
------------------- ---------------- ----------------------- ----------------------
<S> <C> <C> <C> <C>
Net service revenue $40,833 $47,899 $54,035 $61,980
Gross profit $22,298 $27,161 $29,592 $33,653
Net income $ 802 $ 1,430 $ 1,941 $ 2,297
Net income per share:
Basic $ 0.07 $ 0.11 $ 0. 16 $ 0.17
Diluted $ 0.07 $ 0.11 $ 0 .15 $ 0.17
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-Looking Statements
This Form 10-K includes certain "forward-looking" statements, within
the meaning of the Private Securities Litigation Reform Act of 1995, which
reflect the Company's current expectations regarding the future results of
operations, performance and achievements. Source Services Corporation has tried,
wherever possible, to identify these "forward-looking" statements by using words
such as "anticipate," "believe," "estimate," "expect" and similar expressions.
These statements reflect the Company's current beliefs and are based on
information currently available to it. Accordingly, these statements are subject
to risks and uncertainties which could cause the Company's actual results,
performance or achievements to differ materially from those expressed in, or
implied by these statements. These risks and uncertainties include the
following: economic activity in the United States and in the regions of the
country in which the Company operates; the Company's ability to attract and
retain qualified personnel; the Company's ability to maintain and protect its
information processing systems and proprietary technology; the achievement and
management of growth by the Company through internal expansion in current
markets; the retention of key management personnel and qualified sales
associates; exposure to employment liability risk; competition in the Company's
current and potential target markets; and changes in legislative or regulatory
requirements. Readers are encouraged to review the Risk Factors Section of the
Company's Form S-1 filing dated July 29, 1996 for a more complete description of
these factors. The Company is not obligated to update or revise these
"forward-looking" statements to reflect new events or circumstances.
The following discussion should be read in connection with the
Company's Consolidated Financial Statements and the related Notes thereto
included elsewhere in this document.
Overview
On February 2, 1998, the Company and Romac International, Inc.
("Romac") announced that they had entered into a merger agreement providing for
a stock-for-stock transaction, under which Romac would be the surviving entity.
(See Note 13, under "Notes to Consolidated Financial Statements" for further
information.) This merger is subject to, among other considerations, approval by
shareholders of both companies. While the merger is anticipated by management
to be completed in the second calendar quarter of 1998, because all the
conditions of the merger agreement have not been met, consummation of the merger
at this time is uncertain. Therefore, the Company's Form 10-K has been prepared
in a manner to best describe its business in an ongoing manner, thus providing a
better understanding of the Company's strategies, business and ongoing
obligations as they existed at the end of its 1997 fiscal year for which the
report is filed.
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.
All growth has been through internal expansion rather than from
acquisitions.
10
<PAGE> 12
The following table sets forth the number of markets, by service type
and area of specialization, as of the end of the indicated fiscal periods:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Flexible Staffing 55 54 47 43 30
Permanent Placement 54 53 51 46 45
------------------------------------------------------------------------------------
Information Technology 54 53 51 46 43
Accounting and Finance 52 51 37 33 35
Engineering and Manufacturing 17 16 11 7 5
Other 10 11 4 2 0
</TABLE>
RESULTS OF OPERATIONS
Fiscal Year 1997 as compared to Fiscal Year 1996
Net service revenue. Net service revenue increased 44.0% to $294.7 million
in 1997, from $204.7 million in 1996. The growth in net service revenue was
primarily attributable to an increase in the number of sales associates, and the
Company's continued emphasis on expanding the number of service offerings in all
markets.
Net service revenues from flexible staffing services grew 56.8% to $199.9
million in 1997, from $127.5 million in 1996. The growth in flexible staffing
net service revenue is primarily due to an increase in the hours billed from
adding additional markets and growth in existing markets and, to a lesser
extent, an increase in the average billing rates.
Permanent placement net service revenue increased 22.8% to $94.8 million in
1997, from $77.2 million in 1996. The growth in permanent placement net service
revenue is primarily the result of an increase in the number of permanent
placements and, to a lesser extent, an increase in the average placement fees.
Gross profit. Gross profit increased 34.1% to $151.1 million in 1997, from
$112.7 million in 1996. Gross profit as a percentage of net service revenues
decreased slightly to 51.3% for 1997, from 55.1% in 1996. The decrease was
primarily a result of a continued change in mix of the Company's net service
revenue toward flexible staffing services.
Operating expenses. Operating expenses increased 31.2% to $133.3 million in
1997, from $101.6 million in 1996. The increase was primarily a result of hiring
additional operations employees, increased expenses associated with the
expansion of the Company's business, and upgrades in the Company's management
information system. As a percentage of net service revenue, operating expenses
decreased to 45.2% in 1997, as compared to 49.6% in 1996.
Operating income. Operating income increased 60.4% to $17.8 million in
1997, from $11.1 million in 1996. The increase is primarily a result of the
factors described above.
Other (income) expense. Other income was $0.7 million in 1997, as compared
to $88,000 of income in 1996. The increase in other income was primarily a
result of an increase in interest income.
Income taxes. The effective tax rate was 43.3% and 42.2% in 1997 and 1996,
respectively.
Net income. Net income increased 61.5% to $10.5 million in 1997, from $6.5
million in 1996, as a result of the factors described above.
Fiscal Year 1996 as compared to Fiscal Year 1995
Net service revenue. Net service revenue increased 44.4% to $204.7 million
in 1996, from $141.8 million in 1995. The growth in net service revenue was
primarily attributable to an increase in the number of sales associates, and the
Company's continued emphasis on expanding the number of service offerings in all
markets.
11
<PAGE> 13
Net service revenues from flexible staffing services grew 48.1% to $127.5
million in 1996, from $86.1 million in 1995. The growth in flexible staffing net
service revenue is primarily due to an increase in the hours billed in existing
markets, and, to a lesser extent, an increase in the average billing rates.
Permanent placement service revenue increased 38.6% to $77.2 million in
1996, from $55.7 million in 1995. The growth in permanent placement net service
revenue is primarily the result of an increase in the number of permanent
placements, and, to a lesser extent, an increase in the average placement fees.
Gross profit. Gross profit increased 43.1% to $112.7 million in 1996, from
$78.8 million in 1995. Gross profit as a percentage of net service revenues
decreased to 55.1% for 1996, from 55.5% in 1995. The decrease was primarily as a
result of a continued change in mix of the Company's net service revenue toward
flexible staffing services.
Operating expenses. Operating expenses increased 42.0% to $101.6 million in
1996, from $71.5 million in 1995. The increase was primarily a result of hiring
additional operations employees, increased expenses associated with the
expansion of the Company's business, and upgrades in the Company's management
information system. As a percentage of net service revenue, operating expenses
decreased to 49.6% in 1996, as compared to 50.4% in 1995.
Operating income. Operating income increased 53.2% to $11.1 million in
1996, from $7.3 million in 1995. The increase is primarily a result of the
factors described above.
Other (income) expense. Other (income) expense increased to $88,000 of
income in 1996, as compared to $540,000 of expense in 1995.
Income taxes. The effective tax rate was 42.2% and 37.9% in 1996 and 1995,
respectively.
Net income. Net income increased to $6.5 million in 1996, from $4.2 million
in 1995, as a result of the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $9.9 million for the fiscal year
ended December 28, 1997, as compared to cash used in operating activities of
$1.2 million for the fiscal year ended December 29, 1996. The increase in cash
from operating activities in fiscal 1997 is primarily attributable to higher
net income and increases in accounts payable and accrued expenses and accrued
commissions and payroll. Cash provided by operating activities was $1.2 million
for the fiscal year ended December 31, 1995 primarily as a result of net
income, adjusted for non-cash items, offset by increases in working capital.
Cash used in investing activities was $5.4 million, $5.5 million and $2.0
million for the fiscal years ended December 28, 1997, December 29, 1996 and
December 31, 1995, respectively. Cash used in investing activities in fiscal
1997 includes $3.5 million in capital expenditures and purchases of short-term
investments of $1.9 million. Cash used in investing activities in fiscal 1996
and 1995 includes $5.9 million and $2.2 million in capital expenditures,
respectively.
Cash provided by financing activities were $0.4 million in fiscal 1997 and
$24.2 million in fiscal 1996. Cash provided by financing activities in fiscal
1997 includes $0.4 million in proceeds from the exercise of stock options. Cash
provided by financing activities in fiscal 1996 includes $24.1 million in net
proceeds from the Company's initial public offering.
Working capital for the fiscal year ended December 28, 1997, is $52.0
million as compared to $41.3 million for the fiscal year ended December 29,
1996.
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 through
periods of growth. As a result of the Offering on July 29, 1996, the Company
received $24.1 million in net proceeds. These proceeds have been used to repay
short-term borrowings, make capital improvements and to support future growth.
If new offices are established or acquired, or existing offices expanded,
there will be increased requirements for cash resources to fund operations. The
start-up of services in a new market has generally required expenditures of up
to approximately $200,000 before generating positive cash flow. Historically,
such new operations generally have achieved operating profitability within nine
months of inception but have not contributed significant net service revenues
for the first 12-to-18 months.
On April 30, 1997, the Company renewed its $10.0 million line of credit
loan agreement. No amounts were borrowed under the agreement during the year. As
of December 28, 1997, $10.0 million is available for borrowing under the
Company's line of credit loan agreement.
During 1997, capital expenditures were made primarily for computer
equipment and office furniture and fixtures. The foregoing capital expenditures
were financed internally from operating activities.
Flexible staffing personnel are generally paid weekly for their services,
whereas customer payments are generally received within 30 to 90 days from the
date of invoice. Should the Company's flexible staffing business grow and
accounts receivable increase, the Company's need for capital will increase. With
the exception of
12
<PAGE> 14
possible acquisitions, the Company believes that its cash balance, funds from
operations and its line of credit will be sufficient to fund continued expansion
of its services and office locations at least through the next 12 months.
YEAR 2000 COMPUTER ISSUES
Many computer systems in use today were designed and developed using
two digits, rather than four, to specify the year. As a result, such systems
will recognize the year 2000 as "00." This could cause many computer
applications to fail completely or to create erroneous results unless corrective
measures are taken.
The Company utilizes software or related computer technologies
essential to its operations that will be affected by the Year 2000 issue. The
Company has studied what actions will be necessary to make its computer systems
Year 2000 compliant and has completed certain phases of its compliance plan.
The Company expects all of its systems to be Year 2000 compliant by late 1998
and has determined that it will not have a material impact on its business,
operations nor its financial statements.
13
<PAGE> 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Management's Report
The accompanying financial statements of Source Services Corporation
(the "Company") are the responsibility of and have been prepared by the Company
in conformity with generally accepted accounting principles. It is necessary to
include some amounts that are based on best judgment and estimates. The
financial information displayed in other sections of this report is consistent
with these financial statements.
The Company seeks to assure the objectivity and integrity of its
financial records by careful selection of its managers, by organizational
arrangements that provide an appropriate division of responsibility and by
communications programs aimed at assuring that its policies and methods are
understood throughout the organization.
The Company has a comprehensive formalized system of internal
accounting controls designed to provide reasonable assurance that assets are
safeguarded and that financial records are reliable. Appropriate management
monitors the system for compliance. In addition, as part of their audit of
financial statements, the Company's independent accountants review and test the
internal accounting controls selectively to establish a basis of reliance
thereon in determining the nature, extent and timing of tests to be applied.
The Board of Directors pursues its oversight role in the area of
financial reporting and internal accounting control through its Audit Committee.
This Committee, composed solely of nonmanagement directors, regularly meets with
the independent accountants and management to monitor the proper discharge of
each of its responsibilities relative to internal accounting controls and the
financial statements.
/s/ D. Les Ward /s/ Richard Dupont
- ------------------------------------- -------------------------------------
D. Les Ward Richard Dupont
President and Chief Executive Officer Chief Financial Officer and Secretary
14
<PAGE> 16
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Source Services Corporation
In our opinion, the consolidated financial statements and financial statement
schedule listed in the index appearing under Item 14(a)(1) and (2) and 14(d) on
page F-2 present fairly, in all material respects, the financial position of
Source Services Corporation and its subsidiary at December 28, 1997 and December
29, 1996, and the results of their operations and their cash flows for each of
the three years in the period ended December 28, 1997, 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.
As described in Note 13, on February 2, 1998, Source Services Corporation
announced that they had entered into an agreement to merge with Romac
International, Inc. ("Romac"), in a stock-for-stock transaction, under which
Romac would be the surviving entity.
/s/ Price Waterhouse LLP
- ------------------------------
PRICE WATERHOUSE LLP
Dallas, Texas
February 6, 1998
15
<PAGE> 17
SOURCE SERVICES CORPORATION
CONSOLIDATED BALANCE SHEET
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 28, DECEMBER 29,
1997 1996
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................ $ 23,723 $ 18,849
Accounts receivable, less allowance for doubtful accounts
and fee adjustments of $4,543 and $2,590, respectively .......... 49,254 37,018
Short-term investments ............................................... 1,906 --
Deferred tax asset ................................................... 2,789 1,611
Prepaid expenses and other ........................................... 882 268
-------- --------
Total current assets ....................................... 78,554 57,746
Property and equipment, net ............................................... 7,715 6,807
-------- --------
Total assets ............................................... $ 86,269 $ 64,553
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ................................ $ 5,351 $ 3,796
Accrued commissions and payroll ...................................... 20,374 11,684
Accrued 401(k) plan contribution ..................................... 537 430
Income taxes payable ................................................. 333 499
-------- --------
Total current liabilities .................................. 26,595 16,409
Other liabilities ......................................................... 650 207
-------- --------
Total liabilities .......................................... 27,245 16,616
Commitments and contingencies (Note 12)
Stockholders' equity:
Preferred stock, $.01 par, 2,000 shares authorized, no
shares issued and outstanding ................................... -- --
Common stock, $.02 par, 100,000 shares authorized, 13,754
and 13,701 shares outstanding ................................... 274 182
Capital in excess of par ............................................. 26,196 25,707
Retained earnings .................................................... 32,605 22,077
Treasury stock ....................................................... (9) (8)
Cumulative translation adjustment .................................... (42) (21)
-------- --------
Total stockholders' equity ................................. 59,024 47,937
-------- --------
Total liabilities and stockholders' equity ................. $ 86,269 $ 64,553
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
16
<PAGE> 18
SOURCE SERVICES CORPORATION
CONSOLIDATED STATEMENT OF REVENUES AND EXPENSES
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 31,
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net service revenue .......................... $ 294,676 $ 204,748 $ 141,832
Cost of sales, flexible staffing ............. 143,582 92,042 63,052
--------- --------- ---------
Gross profit ....................... 151,094 112,706 78,780
--------- --------- ---------
Operating expenses:
Selling ................................. 122,570 93,211 64,882
General and administrative .............. 10,694 8,371 6,636
--------- --------- ---------
Total operating expenses ...... 133,264 101,582 71,518
--------- --------- ---------
Operating income .............. 17,830 11,124 7,262
Other income (expense):
Interest income ......................... 1,175 472 99
Interest expense ........................ (181) (173) (61)
Other, net .............................. (251) (211) (578)
--------- --------- ---------
Income before income taxes .... 18,573 11,212 6,722
--------- --------- ---------
Income tax (expense) benefit:
Current ................................. (8,727) (5,508) (2,764)
Deferred ................................ 682 767 217
--------- --------- ---------
Total income tax expense ...... (8,045) (4,741) (2,547)
--------- --------- ---------
Net income ................................... $ 10,528 $ 6,471 $ 4,175
========= ========= =========
Net income per share:
Basic ................................... $ 0.77 $ 0.54 $ 0.39
========= ========= =========
Diluted ................................. $ 0.75 $ 0.54 $ 0.39
========= ========= =========
Weighted average shares outstanding:
Basic ................................... 13,721 11,978 10,767
========= ========= =========
Diluted ................................. 13,978 12,049 10,836
========= ========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
17
<PAGE> 19
SOURCE SERVICES CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Common Stock Capital Cumulative Treasury Stock Total
-------------- in Excess Retained Deferred Translation ----------------- Stockholders'
Shares Amount of Par Earnings Compensation Adjustment Shares Cost Equity
------ ------ --------- -------- ------------ ----------- ------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
January 1, 1995 .................. 2,269 $ 48 $ 124 $ 11,755 $ (412) $ (21) 126 $ (3,682) $ 7,812
Net income ..................... 4,175 4,175
Foreign currency translation
adjustment ................... (4) (4)
Stock contribution to profit
sharing plan ................. 213 2 1,606 (679) (139) 4,063 4,992
2.9-for-1 stock split .......... 4,684 94 (94) --
Deferred compensation .......... (13) 19 269 412 13 (381) 319
------ ------ -------- -------- -------- -------- ------ -------- --------
December 31, 1995 ................ 7,153 144 1,655 15,520 0 (25) 0 0 17,294
------ ------ -------- -------- -------- -------- ------ -------- --------
Net income ..................... 6,471 6,471
Stock contribution to profit
sharing plan ................. (72) 86 14
Foreign currency translation
adjustment ................... 4 4
Initial public offering of
common stock ................. 1,563 31 20,325 20,356
Costs of initial public
offering ..................... (1,148) (1,148)
Stock options exercised ........ 44 72 72
Repurchase of fractional
shares ....................... (1) 1 (8) (8)
Underwriters overallotment
exercised .................... 375 7 4,875 4,882
------ ------ -------- -------- -------- -------- ------ -------- --------
December 29, 1996 ................ 9,134 182 25,707 22,077 0 (21) 1 (8) 47,937
------ ------ -------- -------- -------- -------- ------ -------- --------
Net Income ..................... 10,528 10,528
Foreign currency translation
adjustment ................... (21) (21)
Stock options exercised ........ 53 366 366
Tax benefit from exercise of
stock options ................ 215 215
3-for-2 stock split ............ 4,567 92 (92) --
Repurchase of fractional
shares ....................... (1) (1)
------ ------ -------- -------- -------- -------- ------ -------- --------
December 28, 1997 ................ 13,754 $ 274 $ 26,196 $ 32,605 $ 0 $ (42) 1 $ (9) $ 59,024
====== ====== ======== ======== ======== ======== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
18
<PAGE> 20
SOURCE SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 31,
1997 1996 1995
---------- -------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................ $ 10,528 $ 6,471 $ 4,175
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization .................... 2,552 1,476 570
Profit Sharing Plan stock contributions .......... -- 14 4,992
Deferred compensation ............................ -- -- 288
Deferred tax asset, net .......................... (1,178) (859) (236)
Deferred tax liability, net ...................... 497 91 --
Loss on asset sales .............................. -- 18 52
Tax benefit from exercise of stock options ....... 215 -- --
Decrease (increase) in assets:
Accounts receivable .............................. (12,236) (11,719) (7,315)
Prepaid expense .................................. (614) 137 (188)
Investments ...................................... -- -- 147
Increase (decrease) in liabilities:
Accounts payable and accrued expenses ............ 1,555 188 (600)
Accrued commissions and payroll .................. 8,690 2,443 3,745
Accrued 401(k) plan contribution ................. 107 430 --
Accrued contribution to profit sharing plan ...... -- (6) (3,236)
Income taxes payable ............................. (166) 159 (1,157)
Other liabilities ................................ (75) (15) (44)
-------- -------- --------
Net cash provided by (used in)
operating activities ..................... 9,875 (1,172) 1,193
-------- -------- --------
Cash flows from investing activities:
Expenditures for property and equipment ............... (3,485) (5,875) (2,168)
Proceeds from sales of property and equipment ......... 25 354 152
Purchases of short-term investments ................... (1,906) -- --
-------- -------- --------
Net cash used in investing
activities ............................... (5,366) (5,521) (2,016)
-------- -------- --------
Cash flows from financing activities:
Initial public offering proceeds, net of
offering costs ..................................... -- 19,208 --
Exercise of underwriters' overallotment
option .............................................. -- 4,882 --
Proceeds from exercise of stock options, net .......... 366 72 --
Repurchase treasury stock from
Profit Sharing Plan ................................ (1) (8) --
-------- -------- --------
Net cash provided by financing
activities ........................... 365 24,154 --
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents .............................................. 4,874 17,461 (823)
Cash and cash equivalents at beginning of period ........... 18,849 1,388 2,211
-------- -------- --------
Cash and cash equivalents at end of period ................. $ 23,723 $ 18,849 $ 1,388
======== ======== ========
Supplemental Cash Flow Information
Cash paid during the period for :
Interest .............................................. $ 181 $ 73 $ 61
======== ======== ========
Income taxes .......................................... $ 8,675 $ 4,977 $ 3,447
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
19
<PAGE> 21
SOURCE SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1 --- ORGANIZATION AND BUSINESS
Source Services Corporation (the Company) was incorporated under the laws
of the State of Delaware on May 6, 1969. The Company, which operates in a single
business segment for generally accepted accounting principle reporting purposes,
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, Accountant Source Temps, Source HealthCare Staffing and Source
Legal.
NOTE 2 --- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary. All significant intercompany
transactions and balances have been eliminated.
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 1997
ended December 28, 1997, fiscal 1996 ended December 29, 1996, 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 with an employment date no later than the end of the
following month. 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 Consolidated 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. Revenue derived from
flexible staffing is recognized as services are performed by the Company's
employees. Revenue from flexible staffing on the Consolidated 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 $15,400 and $4,500 at
December 28, 1997 and December 29, 1996, respectively.
Short-term investments
Short-term investments include marketable debt securities at December 28,
1997. All such securities are classified as held-to-maturity in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The debt securities include
government and corporate obligations all with maturities less than one year. The
carrying amount of these investments approximates market value.
20
<PAGE> 22
Treasury stock
Treasury shares acquired are held for future reissuance. 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 three 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.
Long-lived assets
It is the Company's policy to periodically review the net realizability of
its long-lived assets through an assessment of the estimated future cash flows
related to such assets. In the event that assets are found to be carried at
amounts which are in excess of estimated gross future cash flows, then the
assets will be adjusted for impairment to a level commensurate with a
discounted cash flow analysis of the underlying assets.
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 $125 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 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. There were no off-balance
sheet investments or derivatives at December 28, 1997 or December 29, 1996.
Stock-based compensation
The Company accounts for stock option and stock purchase plans in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25") and makes the appropriate disclosures as
required by Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" ("SFAS 123"). (See Note 8 - Stock Option Plans)
Income taxes
The Company accounts for income taxes under the principles of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 requires an asset and liability approach to the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
differences between the carrying amounts and the tax bases of assets and
liabilities.
Foreign currency translation
Foreign currency translation adjustments arise primarily from activities of
the Company's Canadian operations. Results of operations 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.
21
<PAGE> 23
Earnings per share
The Company computes earnings per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128") which
was issued in February 1997, effective for interim and annual periods ending
after December 15, 1997. Prior year earnings per share have been restated in
accordance with SFAS 128. Basic net earnings per share is computed by dividing
net income by the weighted average number of common shares outstanding during
the period. Diluted earnings per share is computed by dividing net income by the
weighted average number of common shares and potential dilutive common shares
outstanding during the period. Quarterly and year-to-date computations of per
share amounts are made independently; therefore, the sum of the per share
amounts for the quarter may not equal per share amounts for the year.
Recently issued accounting standards
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131") effective for fiscal years beginning after December 15, 1997. SFAS
131 requires companies to disclose certain information regarding their operating
segments, their products and services, their major customers and geographical
areas in which they operate. The determination of reportable segments under SFAS
131 is based on material segments of a company whose operating results are
regularly reviewed by the chief operating decision maker in determining
allocation of resources between segments and assessing their performance. The
Company is presently evaluating its reporting requirements under this standard
and will adopt the provisions of SFAS 131 effective December 31, 1998.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130") effective for fiscal
years beginning after December 15, 1997. SFAS 130 establishes standards for the
reporting and display of comprehensive income and its components in a full set
of financial statements. The adoption of this statement in 1998 is not expected
to have a significant effect on the Company's financial statements.
NOTE 3 --- PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following at:
<TABLE>
<CAPTION>
December 28, December 29,
1997 1996
-------- --------
<S> <C> <C>
Furniture and fixtures ..................................... $ 7,455 $ 5,899
Computer equipment ......................................... 6,092 5,060
Leasehold improvements ..................................... 550 404
-------- --------
14,097 11,363
Accumulated depreciation and amortization .................. (6,382) (4,556)
-------- --------
$ 7,715 $ 6,807
======== ========
</TABLE>
NOTE 4 --- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are comprised of the following at:
<TABLE>
<CAPTION>
December 28, December 29,
1997 1996
------ ------
<S> <C> <C>
Trade accounts payable ..................................... $1,492 $1,798
Self-insurance accrual for employee benefits ............... 1,809 1,015
Accrued sales meeting ...................................... 719 308
Other ...................................................... 1,331 675
------ ------
$5,351 $3,796
====== ======
</TABLE>
NOTE 5 --- 401(K) AND PROFIT SHARING PLAN
Effective October 1, 1997, the Company merged its profit sharing plan and
401(k) plan to form the Source Services 401(k) and Profit Sharing Retirement
Savings Plan ("the Plan"), and Merrill Lynch became the trustee and
administrator. The Plan covers all active participants who were participating in
either the previous 401(k) or profit sharing plan or those employees who meet
the Plan's requirements for eligibility. At December 28, 1997 and December 29,
1996, the Plan held 3,469 and 5,048 shares, respectively, of the Company's
common stock. The shares held by the Plan represented approximately 25% and 37%,
respectively, of the Company's outstanding shares. Employer contributions to the
Plan were $2,037 in 1997. Employer contributions to the 401(k) plan were
22
<PAGE> 24
$1,608 in 1996. There were no contributions to the Profit Sharing Plan in 1997
or 1996, and contributions to the Profit Sharing Plan were $4,998 in 1995.
NOTE 6 --- REVOLVING LINE OF CREDIT
The Company has a $10,000 revolving line of credit agreement dated April
30, 1997. The revolving line of credit is collateralized by accounts receivable
and other property of the Company. The commitment period extends to April 29,
1998. Commitment fees are payable on the unused balance at a rate of 0.375% per
annum, payable quarterly. Interest accrues on outstanding amounts at the prime
rate. The prime rate was 8.50% at December 28, 1997. Restrictive covenants under
the agreement include tangible net worth levels, current ratio limitations, and
interest coverage requirements in addition to restrictions on indebtedness,
liens, and sale of assets. There were no amounts outstanding under the line of
credit at December 28, 1997.
Prior to April 30, 1997, the Company had a $10,000 revolving line of
credit dated May 21, 1996. The commitment period extended through May 21, 1997.
There were no amounts outstanding under the line of credit at December 29, 1996,
however the Company borrowed against the line of credit at various times during
fiscal 1996 for working capital purposes on an as needed basis. Interest accrued
on the outstanding amounts at the prime rate. The prime rate at December 29,
1996 was 8.25%.
NOTE 7 --- EQUITY
On October 21, 1997, the Company declared a 3-for-2 stock split of its
common stock. The stock split was in the form of a 50% stock dividend and was
distributed on November 15, 1997, to stockholders of record at the close of
business on November 3, 1997. Other than as specifically noted, all share and
per share amounts have been re-stated to reflect the stock split. In conjunction
with the stock split, the Company purchased fractional shares from certain
stockholders. This repurchase consisted of approximately 0.1 shares for $1.2.
On July 29, 1996, the Company effected an initial public offering (the
"Offering") in which 2,500.0 (pre-split) shares of common stock were offered;
1,563.4 (pre-split) shares by the Company and 936.6 (pre-split) shares by
certain stockholders of the Company. The offering price was $14.00 (pre-split)
per share, of which the Company received $13.02 (pre-split), after application
of underwriting discounts, resulting in net proceeds of $20,356. The Company did
not receive any proceeds from the sale of shares sold by existing stockholders.
In addition, the Company granted the underwriters of the Offering, a
30-day option to purchase up to an aggregate of 375.0 (pre-split) additional
shares of Common Stock at the Offering price less the underwriting discount
solely to cover over-allotments, if any. The underwriters exercised their
over-allotment option in full on August 13, 1996. Upon exercising the option,
total proceeds to the Company from the Offering increased to $25,238.
Contemporaneous with the Offering, the Company issued stock options to
certain key employees. The total number of shares granted in these options was
358.8 (pre-split) at the Offering price of $14.00 (pre-split) per share. These
options are generally exercisable in the following cumulative installments:
first installment - up to one-third of the total optioned shares at any time on
or after two years from the date of grant; second installment - up to an
additional one-third of the total optioned shares at any time after three years
from the date of grant; and third installment - up to an additional one-third of
the total optioned shares at any time after four years from the date of grant.
There was no compensation expense recorded in connection with the issuance of
the options. These options terminate on July 25, 2006. (See Note 8 -- Stock
Option Plans).
During the fourth quarter of 1996, the Company re-purchased fractional
shares held by the Profit Sharing Plan as well as certain stockholders. This
repurchase consisted of approximately 0.5 shares for $7.9.
23
<PAGE> 25
NOTE 8 --- STOCK OPTION PLANS
The Company approved the 1996 Stock Option Plan (the Employees' Stock
Option Plan) in April 1996. 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 the Company's common stock. All options
must be issued with an exercise price equal to the market value of the option on
the date of grant. Options granted under the plan vest over four years and
expire ten years from issuance.
The Company also maintains various stock option plans for non-employee
directors. Options granted under the 1994 and 1995 non-employee director plans
vest equally over two years and expire ten years from issuance. Option granted
under the 1996 non-employee director plan vest six months from the date of grant
and expire five years from issuance. Options granted under the 1997 non-employee
director plan vest at the date of grant, are exerciseable on a pro rata basis
over a five year period and expire ten years from issuance.
Activity under the various stock option plans is as follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Options Exercise Price
--------- ----------------
<S> <C> <C>
Outstanding, December 29, 1996 ..... 612.3 $ 8.54
Granted ......................... 168.8 $ 15.68
Exercised ....................... (52.5) $ 6.98
------
Outstanding, December 28, 1997 ..... 728.6 $ 10.31
======
</TABLE>
The following table summarizes information about options outstanding under
the stock option plans at December 28, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exerciseable
------------------- --------------------
Range of Number of Weighted Average Number of Weighted Average
Exercise Prices Options Outstanding Exercise Price Options Exerciseable Exercise Price
- --------------- ------------------ ----------------- ------------------- -----------------
<S> <C> <C> <C> <C>
$1.11 - $2.33 50.3 $2.17 50.3 $2.17
$9.33 - $13.83 605.6 $9.89 18.0 $11.58
$17.92 - $20.50 72.7 $19.40 - -
</TABLE>
The Company applies APB 25 and related interpretations in accounting for
its stock-based compensation plans. In accordance with SFAS 123, the Company
elected to continue to apply the provisions of APB 25. However, pro forma
disclosures as if the Company adopted the cost recognition provisions of SFAS
123 are required and are presented below.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net income As reported . . . . . . . . . $ 10,528 $6,471
Pro forma . . . . . . . . . . $ 9,696 $6,222
Net income per share As Reported:
Basic . . . . . . . . . . $0.77 $0.54
Diluted . . . . . . . . . $0.75 $0.54
Pro Forma:
Basic . . . . . . . . . . $0.71 $0.52
Diluted . . . . . . . . . $0.69 $0.51
</TABLE>
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1997 and 1996, respectively: no dividend yield,
expected volatility of 27.0% and 29.0%, risk free interest rates of 6.6% and
6.6%, and expected lives
24
<PAGE> 26
of ten years. The weighted average fair value of options granted during 1997 and
1996 was $8.66 and $5.31, respectively.
NOTE 9 - EARNINGS PER SHARE
Following is a reconciliation of the denominators of the basic and diluted
earnings per share calculations. There were no differences in the numerator (net
income) for any of the years presented.
<TABLE>
<CAPTION>
Effect of
Shares for the Dilutive Securities
year ended Basic EPS (Stock Options) Diluted EPS
-------------- --------- --------------- -----------
<S> <C> <C> <C> <C>
1997 13,721 257 13,978
1996 11,978 71 12,049
1995 10,767 69 10,836
</TABLE>
NOTE 10 -- EMPLOYEE STOCK PURCHASE PLAN
During 1996, the Company enacted an Employee Stock Purchase Plan. This
plan allows employees to purchase stock at the current market price through
payroll deductions, without paying commissions on purchases. All employees are
eligible to participate in the Employee Stock Purchase Plan, and there is no
waiting period.
NOTE 11 --- INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ---- ----
<S> <C> <C> <C>
Current provision:
Federal ........................................ $ 6,869 $ 4,074 $ 2,540
State and other ................................ 1,858 1,434 224
------- ------- -------
8,727 5,508 2,764
Deferred benefit:
Federal and state .............................. (682) (767) (217)
------- ------- -------
Total income tax expense ................... $ 8,045 $ 4,741 $ 2,547
======= ======= =======
</TABLE>
The Company's income tax expense was computed in accordance with SFAS 109.
Deferred benefit represents the change in the net deferred tax asset and is
discussed further below.
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 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.
25
<PAGE> 27
Deferred tax assets / (liabilities) are comprised of the following at :
<TABLE>
<CAPTION>
December 28, December 29,
1997 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Employee insurance claims ............................... $ 739 $ 411
Accrued rent ............................................ 44 52
Allowance for doubtful accounts ......................... 1,856 1,051
Accrued vacation ........................................ 150 97
------- -------
Gross deferred tax assets .................................. 2,789 1,611
Deferred tax liabilities:
Depreciation ............................................ (587) (91)
------- -------
Net deferred tax asset ..................................... $ 2,202 $ 1,520
======= =======
</TABLE>
The following table reconciles the federal income tax provision at the statutory
rate to actual taxes reflected in the accompanying financial statements:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Statutory U.S. tax rates ........................... $ 6,501 $ 3,814 $ 2,213
Increase/(Decrease) in taxes resulting from:
Permanent differences ........................... 297 125 116
State taxes, net of federal benefit ............. 1,130 766 224
Other ........................................... 117 36 (6)
------- ------- -------
Income tax expense ................................. $ 8,045 $ 4,741 $ 2,547
======= ======= =======
</TABLE>
NOTE 12 --- 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
----
<S> <C>
1998 $5,380
1999 5,231
2000 4,465
2001 2,469
2002 1,089
Thereafter 2,883
</TABLE>
Rental expense for the years ended December 28, 1997, December 29, 1996, and
December 31, 1995 was $4,826, $3,932, 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 the outcome of these
lawsuits will not be material to the Company's results of operations or
financial condition. Accordingly, no provision for any liability that may result
has been made in the financial statements.
26
<PAGE> 28
NOTE 13 --- SUBSEQUENT EVENT
On February 2, 1998, the Company and Romac International, Inc. ("Romac")
announced that they had entered into a merger agreement providing for a
stock-for-stock transaction, under which Romac would be the surviving entity,
which the parties intend to qualify as a "pooling of interest" for accounting
purposes and to qualify as a tax-free reorganization. Under the terms of the
merger agreement, stockholders of the Company will receive 1.1932 shares of
Romac common stock, par value $0.01 per share, for each of the approximately
13.7 million outstanding shares of the Company's common stock, subject to
adjustment based on Romac's market price prior to closing and certain other
conditions. The consummation of the merger is subject to certain conditions
including effectiveness of a registration statement to be filed by Romac with
the Securities and Exchange Commission, approval by the stockholders of each
company, termination of the waiting period under the Hart-Scott-Rodino
Improvements Act of 1976, receipt of opinions from both companies' accountants
regarding the ability of the merger to be treated as a "pooling of interest" for
accounting purposes and other conditions. The merger is expected to be completed
in the second calendar quarter of 1998.
27
<PAGE> 29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company, and their ages as of
February 28, 1998, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
D. Les Ward (1) . . . . . . . . . . . . . . . . . 43 President, Chief Executive Officer and Director
Richard M. Dupont . . . . . . . . . . . . . . . 42 Chief Financial Officer and Secretary
Richard J. Davis . . . . . . . . . . . . . . . . 40 Vice President of Operations - Eastern Division
Joseph A. Gendron . . . . . . . . . . . . . . . 46 Vice President of Operations - Western Division
Lawrence J. Stanczak . . . . . . . . . . . . . 49 Vice President of Operations - Central Division
John N. Allred (2) . . . . . . . . . . . . . . . 51 Director
Adrian Alter (2)(3)(4) . . . . . . . . . . . . . 72 Director
Paul M. Bass, Jr. (1)(3) . . . . . . . . . . . . 62 Director
Wayne D. Emigh (1)(2) . . . . . . . . . . . . . . 64 Chairman of the Board of Directors
John Sifonis (3). . . . . . . . . . . . . . . . . 56 Director
Karl Vogeler (2)(4). . . . . . . . . . . . . . . 55 Director
</TABLE>
- -----------
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
(4) Member of the Nominating 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 eighteen years
of financial management experience, including management positions with
companies in the staffing, telecommunications, oil and gas and insurance
industries. Mr. Ward has served as a director since September 1994.
Richard M. 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.
Richard J. Davis has served as Vice President of Operations - Eastern
Division since May 1997. From 1988 until joining the Company, Mr. Davis served
in various capacities, including National Director of Sales Methodology, at
Ernst & Young, LLP. Prior to joining Ernst & Young, LLP, Mr. Davis worked with
the Dun & Bradstreet Corporation holding various positions in sales, sales
management, and national account pursuits.
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 beginning in
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
28
<PAGE> 30
1993 through December 1993, Mr. Stanczak was a branch manager of Data
Performance, Inc., a provider 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 June 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
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 California Federal Bank
(Director and Chairman of the Audit Committee), Keystone Consolidated
Industries, Inc., a wire manufacturing company (Director and Chairman of the
Audit Committee and member of the Executive Committee), MACC Private Equities,
Inc., a small business investment company (Director and Chairman of the Board),
and Richard Gordman 1/2 Price Stores, Inc. (Chairman of the Board and Chairman
of the Executive Committee).
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, and Systems Analyst with UNIVAC, Inc.
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 is a litigation partner with the law firm of Thompson,
Coe, Cousins & Irons in Dallas, Texas, where he has been employed 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.
29
<PAGE> 31
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.
The Nominating Committee consists of Messrs. Alter and Vogeler. The
Nominating Committee recommends to the Board of Directors nominees for
directors. Other than as set forth in the Company's Bylaws, no formal procedures
have been established for considering nominations by shareholders.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16 of the Securities and Exchange Act of 1934, as amended (the
"1934 Act"), requires the Company's executive officers and directors and persons
who own greater than 10% of a registered class of the Company's equity
securities to file reports of ownership and changes in ownership with the
Securities and Exchange Commission (the ""Commission") and the Nasdaq Stock
Market. Based solely on a review of Forms 3 and 4 it has received and on written
representations from certain reporting persons that no Forms 3, 4 or 5 were
required from them, the Company believes that, except as set forth below, during
1997 all Section 16 filing requirements applicable to its executive officers,
directors and greater than 10% beneficial owners were complied with by such
persons.
Richard M. Dupont inadvertently failed to timely file a Form 4 to
report three contemporaneous transactions. Such report was subsequently filed.
30
<PAGE> 32
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to the Company's
chief executive officer and its four other most highly compensated executive
officers (each, a "Named Officer") for services rendered for each of the years
presented:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS (1)
SECURITIES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS ($)(2)
- --------------------------- ---- ---------- --------- ------- ------------
<S> <C> <C> <C> <C> <C>
D. Les Ward, 1997 $350,000 $175,000 - - - - $ 11,203
President and Chief Executive 1996 250,000 250,000 (4) 60,000 10,828
Officer 1995 200,000 100,000 - - - - 26,578
Richard M. Dupont, 1997 $200,000 $100,000 - - - - $ 11,203
Chief Financial Officer and 1996 144,000 147,500 (4) 37,500 9,841
Secretary 1995 112,000 50,000 - - - - 26,578
Richard J. Davis, 1997 $157,000 $ 50,000 37,500 $ 2,549
Vice President of Operations - 1996 - - - - - - - - - - - - - -
Eastern Division (3) 1995 - - - - - - - - - - - - - -
Joseph A. Gendron, 1997 $176,000 $279,000 - - - - $ 11,203
Vice President of Operations - 1996 176,000 108,000 37,500 10,828
Western Division 1995 125,000 107,000 - - - - 26,578
Lawrence J. Stanczak, 1997 $185,000 $255,000 - - - - $ 11,203
Vice President of Operations - 1996 170,000 35,000 37,500 10,828
Central Division 1995 21,000 199,000 - - - - 26,578
</TABLE>
(1) None of the Named Officers had any restricted stock holdings as of December
28, 1997.
(2) Consists of $22,500 of the Company's common stock contributed to the
Company's Profit Sharing Plan on behalf of each executive officer, $3,964
of medical and dental premiums and $114 of life insurance premiums paid on
behalf of each executive officer (except for Mr. Davis who received $2,478
and $71 in medical and dental premiums and life insurance, respectively),
as well as 401(k) matching paid for 1997 and 1996, respectively, as
follows: Messrs. Ward, Gendron, Stanczak and Dupont - $7,125 each, and
Messrs. Ward, Gendron, Stanczak - $6,750 each, Mr. Dupont - $5,763.
(3) Mr. Davis commenced employment with the Company on May 15, 1997.
(4) Includes bonus for participation in the Offering, as follows: Mr. Ward -
$75,000, Mr. Dupont - $50,000.
31
<PAGE> 33
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of February 28,
1998 with respect to each director, each of the Named Officers, and directors
and executive officers of the Company as a group, and to the persons known by
the Company to be the beneficial owner for more than five percent of the
Company's Common Stock.
<TABLE>
<CAPTION>
Number of Percent of
Shares Company's
Presently Outstanding
Name of Shareholder Owned (1) Stock
- ------------------- --------- -----
<S> <C> <C>
Merrill Lynch, as trustee of the
Source Services Corporation 401(k) and
Profit Sharing Retirement Savings Plan 3,244,094 (2) 23.6
T. Rowe Price Associates, Inc. 1,705,050 (3) 12.4
Dresdner RCM Global Investors LLC 869,450 (4) 6.3
John N. Allred 48,014 (5) *
Adrian Alter 25,200 (5)(7) *
Paul M. Bass 24,750 (5)(7) *
Wayne D. Emigh 48,499 (7) *
John Sifonis 24,750 (5) *
Karl Vogeler 24,750 (5) *
D. Les Ward 50,294 (6) *
Richard M. Dupont 40,748 (6) *
Joseph A. Gendron 51,732 *
Lawrence J. Stanczak 42,466 *
All directors and executive officers as a group (11 individuals) 381,203 2.8
</TABLE>
- --------------------
* Less than 1%.
(1) On November 15, 1997, the Company's common stock split 3-for-2.
(2) As will be reported on a Schedule 13G to be filed with the Commission by
Merrill Lynch. According to such Schedule 13G, Merrill Lynch has sole
voting power over 3,244,094 shares. These shares are held in trust for
participants in the Source Services Corporation 401(k) and Profit Sharing
Retirement Savings Plan. The address of the stockholder is Merrill Lynch,
9603 South Merdian Blvd., Englewood, Colorado, 80112.
(3) As reported on a Schedule 13G dated February 11, 1998 filed with the
Commission by T. Rowe Price Associates, Inc. According to such Schedule
13G, T. Rowe Price Associates, Inc. has sole voting power over 331,750
shares and sole dispositive power over 1,705,050 shares. The address of the
stockholder is T. Rowe Price Associates, Inc., 100 E. Pratt Street,
Baltimore, Maryland, 21202.
32
<PAGE> 34
These securities are owned by various individual and institutional
investors which T. Rowe Price Associates, Inc. serves as investment advisor
with power to direct investments and/or sole power to vote the securities.
For purposes of the reporting requirements of the Securities Exchange Act
of 1934, T. Rowe Price Associates, Inc. is deemed to be a beneficial owner
of such securities; however, T. Rowe Price Associates, Inc. expressly
disclaims that it is, in fact, the beneficial owner of such securities.
(4) As reported on a Schedule 13G dated February 6, 1998 filed with the
Commission by Dresdner RCM Global Investors LLC. According to such Schedule
13G, Dresdner RCM Global Investors LLC has sole voting power over 681,950
shares, sole dispositive power over 816,950 shares and shared dispositive
power over 52,500 shares. The address of the stockholder is Dresdner RCM
Global Investors LLC, Four Embarcadero Center, San Francisco, California,
94111.
(5) Includes shares of Common Stock subject to options exercisable within 60
days as follows: Mr. Allred - 24,750; Mr. Alter -- 3,000; Mr. Bass --
3,000; Mr. Sifonis - 9,750; and Mr. Vogeler - 24,750.
(6) Includes the following number of Common Shares credited to the accounts of
the above mentioned beneficial owners by the trustee acting under the
provisions of the Source Services Corporation 401(k) and Profit Sharing
Retirement Savings Plan: Mr. Ward - 49,172 shares; and Mr. Dupont - 33,207
shares.
(7) Includes 21,750 shares of Common Stock held in the Adrian and Sue Alter
Family Trust, 450 shares held by Sue Alter; 48,499 shares of Common Stock
held in the Wayne D. and Glenda L. Emigh Family Trust; and 21,750 shares of
Common Stock held in the Bass Family Trust. Under the rules and regulations
of the Securities and Exchange Commission, Messrs. Alter, Emigh and Bass
may not be deemed the beneficial owner of such shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Messrs. Alter, Bass and Sifonis are the members of the Company's
Compensation Committee. There are no material transactions or relationships
between the Compensation Committee members and the Company.
33
<PAGE> 35
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS OF FORM 8-K
(a) List of Financial Statements, Financial Statement Schedules and Exhibits.
(1) and (2) - Response to this portion of Item 14 is submitted as a
separate section of this report.
(3) - Response to this portion of Item 14 is submitted as a separate
section of this report.
(b) Reports on Form 8-K.
(1) The Company filed a Form 8-K on or about December 11, 1997, to report
the 3-for-2 split of the Company's stock, reporting Item 5.
(c) Exhibits - Response to this portion of Item 14 is submitted as a separate
section of this report.
(d) Financial Statement Schedules - Response to this portion of Item 14 is
submitted as a separate section of this report.
34
<PAGE> 36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized, on March 20, 1998.
Source Services Corporation
(Registrant)
By: /s/ Richard M. Dupont
--------------------------------------------------
Richard M. Dupont, Chief Financial Officer
and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant and in the capacities indicated on March 20, 1998.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ D. Les Ward
-------------------------------
D. Les Ward President, Chief Executive Officer
and Director
/s/ Richard M. Dupont
-------------------------------
Richard M. Dupont Chief Financial Officer and Secretary
/s/ John N. Allred
-------------------------------
John N. Allred Director
/s/ Adrian Alter
-------------------------------
Adrian Alter Director
/s/ Paul M. Bass, Jr.
-------------------------------
Paul M. Bass, Jr. Director
/s/ Wayne D. Emigh
-------------------------------
Wayne D. Emigh Chairman of the Board of Directors
/s/ John Sifonis
-------------------------------
John Sifonis Director
/s/ Karl Vogeler
-------------------------------
Karl Vogeler Director
</TABLE>
35
<PAGE> 37
Form 10-K
Item 14(a)(1) and (2) and Form 14(d)
Financial Statements and Financial Statement Schedule
Year Ended December 29, 1996
Source Services Corporation
Dallas, Texas
F-1
<PAGE> 38
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following financial statements and report of independent
accountants are included in Item 8:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants ........................................................ 15
Consolidated Balance Sheet at December 28, 1997 and
December 29, 1996 ................................................................... 16
Consolidated Statement of Revenues and Expenses for the
Years Ended December 28, 1997, December 29, 1996 and
December 31, 1995 ................................................................... 17
Consolidated Statement of Stockholder's Equity for the
Years Ended December 28, 1997, December 29, 1996, and
December 31, 1995 ................................................................... 18
Consolidated Statement of Cash Flows for the Years Ended
December 28, 1997, December 29, 1996 and
December 31, 1995 .................................................................... 19
Notes to Consolidated Financial Statements ............................................... 20
</TABLE>
The following financial statement schedule of Source Services Corporation
is included herein:
<TABLE>
<S> <C>
Schedule II - Valuation and Qualifying Accounts .......................................... F-3
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
F-2
<PAGE> 39
SOURCE SERVICES CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SUPPLEMENTAL SCHEDULE
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- --------
Additions
---------
Balance at Charges to Balance at
Beginning Costs and End of
Description of Period Expenses Deductions Period
- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance Reserve 1995 $1,052 $ 887 $ 582 $1,357
1996 1,357 2,622 1,389 2,590
1997 2,590 3,633 1,680 4,543
</TABLE>
F-3
<PAGE> 40
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
2 - Agreement and Plan of Merger by and among Romac
International, Inc. and Source Services Corporation, dated
as of February 1, 1998, as amended.
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
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 Director 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 Independent Accountants
24.1* - Power of attorney
27.1 - Financial Data Schedule
</TABLE>
- -----------------
* Previously filed with the Securities and Exchange Commission as an Exhibit
to the Company's Registration Statement on Form S-1 (File No. 333-4691),
and incorporated herein by reference.
F-4
<PAGE> 1
________________________________________________________________________________
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ROMAC INTERNATIONAL, INC.
AND
SOURCE SERVICES CORPORATION
________________________________________________________________________________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.1 Effective Time of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.3 Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.4 Directors and Officers of the Surviving Corporation . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III
CONVERSION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.1 Conversion of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(a) Cancellation of Treasury Stock and the Parent-Owned Stock . . . . . . . . . . . . . . . . . 7
(b) Conversion of Company Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(c) Cancellation of Company Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.2 Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(a) Exchange Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(b) Exchange Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(c) Distributions with Respect to Unexchanged Shares . . . . . . . . . . . . . . . . . . . . . 9
(d) No Further Ownership Rights in Company Common Stock . . . . . . . . . . . . . . . . . . . . 9
(f) Termination of Exchange Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(g) No Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.3 Certain Adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . 11
Section 4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.3 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.4 Consents and Approvals; No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.5 SEC Reports and Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.6 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.7 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.8 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4.9 Other Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.10 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4.11 Compliance with Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 4.12 Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.13 Board Action, Vote Required; Amendment of Rights Agreement . . . . . . . . . . . . . . . . 18
Section 4.14 Accounting and Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.16 Tax Returns and Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.17 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.18 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.19 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.20 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.21 Environmental and Employee Safety Matters . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.22 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.23 Tangible Personal Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.24 Employees and Independent Contractors. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND THE SUB . . . . . . . . . . . . . . . . . . . . . 24
Section 5.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.3 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.4 Consents and Approvals; No Violations . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.5 SEC Reports and Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.6 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.7 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.8 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 5.10 Accounting and Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 5.11 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 5.12 Interim Operations of the Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 5.13 Compliance with Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 5.14 Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 5.15 Tax Returns and Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 5.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 5.18 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 5.19 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 5.20 Environmental and Employee Safety Matters . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 5.21 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 5.22 Tangible Personal Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 5.23 Employees and Independent Contractors. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE VI
COVENANTS
Section 6.1 Covenants of the Company and the Parent . . . . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
(a) Ordinary Course . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(b) Dividends; Changes in Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(c) Issuance of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(d) Governing Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(e) No Solicitation of Competing Transactions. . . . . . . . . . . . . . . . . . . . . . . . . 37
(f) No Acquisitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(g) No Dispositions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(h) Indebtedness and Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(i) Other Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(j) Advise of Changes; Filings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 6.2 Additional Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE VII
ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.1 Registration Statement; Joint Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.2 Stockholders' Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 7.3 Pooling Opinion of the Parent's Accountants, Comfort Letter of Company's Accountants
and Parent's Accountant's. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 7.4 Access to Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 7.5 Legal Conditions to Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.6 Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.7 Stock Exchange Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.8 Company Stock Option Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.9 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 7.10 Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 7.11 Additional Agreements; Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 7.12 Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 7.13 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 7.14 Indemnification; Directors' and Officers' Liability Insurance . . . . . . . . . . . . . . . 45
ARTICLE VIII
CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 8.1 Conditions to Each Party's Obligation To Effect the Merger . . . . . . . . . . . . . . . . 46
(a) Stockholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(b) Nasdaq Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(c) Other Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(d) Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(e) No Injunctions or Restraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(f) Pooling Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(g) Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 8.2 Conditions to Obligations of the Parent and the Sub . . . . . . . . . . . . . . . . . . . . 47
(a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
(b) Performance of Obligations of the Company . . . . . . . . . . . . . . . . . . . . . . . . . 47
(c) Letter from Company Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
(d) No Amendments to Resolutions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
(e) Employment and Noncompetition Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 48
(f) Consents Under Company Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
(g) No Acceleration of Option Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
(h) Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
(i) Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 8.3 Conditions to Obligations of the Company . . . . . . . . . . . . . . . . . . . . . . . . . 48
(a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
(b) Performance of Obligations of the Parent and the Sub . . . . . . . . . . . . . . . . . . . 49
(c) Directors Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
(d) No Amendments to Resolutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
(e) Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE IX
TERMINATION,
AMENDMENT, AND WAIVER . . . . . . . . . . . . . . . . . . . . . . 49
Section 9.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 9.2 Effects of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 9.3 Fees and Expenses Upon Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(a) Termination Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 9.4 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 9.5 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
ARTICLE X
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 10.1 Nonsurvival of Representations, Warranties, and Agreements . . . . . . . . . . . . . . . . 53
Section 10.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 10.3 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 10.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 10.5 Entire Agreement; No Third Party Beneficiaries; Rights of Ownership . . . . . . . . . . . . 54
Section 10.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 10.7 No Remedy in Certain Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 10.8 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 10.9 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
</TABLE>
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EXHIBITS
EXHIBIT 1 - Assumption Agreement
EXHIBIT 7.6 - Form of Affiliate Agreement (including Form of Rule 145 Compliance Letter)
EXHIBIT 8.2 - Principal Terms of Employment Agreement
SCHEDULES
Schedule 4.2 - Company Stock Option Plans
Schedule 4.8 - Company Benefit Plans
Schedule 4.9 - Other Company Benefit Plans
Schedule 4.16 - Tax Returns
Schedule 4.17 - Material Contracts
Schedule 4.18 - Insurance Policies
Schedule 4.19 - Company Subsidiaries
Schedule 4.20 - Real Property
Schedule 4.22 - Intellectual Property
Schedule 4.24 - Employees and Independent Contractors
Schedule 5.8 - Parent Benefit Plans
Schedule 5.9 - Other Parent Benefit Plans
Schedule 5.15 - Tax Returns
Schedule 5.16 - Material Contracts
Schedule 5.17 - Insurance Policies
Schedule 5.18 - Parent Subsidiaries
Schedule 5.19 - Real Property
Schedule 5.21 - Intellectual Property
Schedule 5.23 - Employees and Independent Contractors
Schedule 7.2 - Director Nominees
Schedule 7.14 - Indemnification Arrangements
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 1, 1998, by and
among Romac International, Inc., a Florida corporation (the "Parent"), New
Romac, Inc., a Florida corporation and a wholly-owned subsidiary of the Parent
(the "Sub"), and Source Services Corporation, a Delaware corporation (the
"Company").
BACKGROUND
The Boards of Directors of the Parent, the Sub, and the Company deem
it advisable and in the best interests of their respective shareholders to
consummate, and have approved, the business combination transaction provided
for herein, in which the Company will merge with and into the Sub and the Sub
will remain a wholly-owned subsidiary of the Parent (the "Merger"). For
federal income tax purposes, it is intended that the Merger shall qualify as a
reorganization within the meaning of Section 368(a) of the Code (as defined
below). For accounting purposes, it is intended that the Merger shall be
accounted for as a pooling of interests in accordance with generally accepted
accounting principles applied on a consistent basis ("GAAP") and applicable
regulations of the Securities and Exchange Commission.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. When used in this Agreement, the
following terms shall have the meanings specified below, which apply to both
the singular and the plural forms of such terms:
"Affiliated Group" means any affiliated group within the
meaning of Code Section 1504(a) or any similar group defined under a similar
provision of state, local, or foreign law.
"Articles of Merger" has the meaning set forth in Section 2.1.
"Certificate of Merger" has the meaning set forth in Section
2.1.
"Certificates" has the meaning set forth in Section 3.2(b).
"Closing Date" has the meaning set forth in Section 2.2.
"Closing" has the meaning set forth in Section 2.2.
<PAGE> 8
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the preface of this
Agreement.
"Company Benefit Plans" has the meaning set forth in Section
4.8(a).
"Company ERISA Affiliate" has the meaning set forth in Section
4.8(a).
"Company ERISA Plans" has the meaning set forth in Section
4.8(a).
"Company Common Stock" has the meaning set forth in Section
3.1.
"Company Permits" has the meaning set forth in Section 4.11.
"Company Rights Agreement" means the Source Services
Corporation and ChaseMellon Shareholder Services LLC, Rights Agent, Rights
Agreement, dated as of May 30, 1997.
"Company SEC Documents" has the meaning set forth in Section
4.5.
"Company Stock Option" has the meaning set forth in Section
7.8(a).
"Company Stock Option Plans" has the meaning set forth in
Section 4.2.
"Company" has the meaning set forth in the preface of this
Agreement.
"Company Disclosure Letter" means the letter dated the date of
this Agreement from the Company to the Parent.
"Competing Transaction" means any of the following involving
the Company or any of its Subsidiaries: (i) any merger, consolidation, share
exchange, business combination, or other similar transaction; (ii) any sale,
lease, exchange, mortgage, pledge, transfer, or other disposition of 10% or
more of the assets of the Company and its Subsidiaries, taken as a whole, in a
single transaction or series of transactions; (iii) any tender offer or
exchange offer for 10% or more of the Company Common Stock or the filing of a
registration statement under the Securities Act in connection therewith; or
(iv) any person having acquired beneficial ownership or the right to acquire
beneficial ownership of, or any "group" (as such term is defined under Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder)
having been formed that beneficially owns or has the right to acquire
beneficial ownership of, 10% or more of the Company Common Stock.
"Company Expense Payment" has the meaning set forth in Section
9.3(b).
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<PAGE> 9
"Confidentiality Agreement" means the confidentiality
agreement between the Company and the Parent, dated December 12, 1997, as
amended on January 21, 1998.
"Constituent Corporations" has the meaning set forth in
Section 2.3.
"Current Policy" has the meaning set forth in Section 7.14.
"D&O Insurance" has the meaning set forth in Section 7.14.
"Deferred Intercompany Transaction" has the meaning set forth
in Treas. Reg. Section 1.1502-13.
"DGCL" means the Delaware General Corporation Law.
"Effective Time" has the meaning set forth in Section 2.1.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Agent" has the meaning set forth in Section 3.2(a).
"Exchange Fund" has the meaning set forth in Section 3.2(a).
"Exchange Ratio" means the ratio at which issued and
outstanding shares of Company Common Stock are converted into the right to
receive shares of Parent Common Stock in accordance with Section 3.1(b).
"GAAP" has the meaning set forth in the preface to this
Agreement.
"Governmental Entity" has the meaning set forth in Section
4.4.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Intellectual Property" means all (a) patents, patent
applications, patent disclosures, and improvements thereto, (b) trademarks,
service marks, trade dress, logos, trade names, and corporate names and
registrations and applications for registration thereof, (c) copyrights,
whether or not registered, copyright registrations and applications for
copyright registration, and works of authorship, including operating manuals,
(d) computer software, data, and documentation, (e) trade secrets and
confidential business information, including ideas, formulae, compositions,
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<PAGE> 10
inventions (whether patentable or unpatentable and whether or not reduced to
practice), know-how, research and development information, drawings,
specifications, designs, plans, proposals, technical data, financial,
marketing, and business data, pricing and cost information, business and
marketing plans, and customer, employee, and supplier lists and information,
(f) other proprietary rights, and (g) copies and tangible embodiments (in
whatever form or medium) of any of the foregoing.
"IRS" means the Internal Revenue Service.
"Joint Proxy Statement" has the meaning set forth in Section
7.1(a).
"Liability" means any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Market Price" equals the weighted average of the sales prices
of the Parent Common Stock on Nasdaq for the 15 consecutive trading days
preceding the third trading day immediately preceding the Closing Date.
"Material Adverse Effect" means such event, change, or effect
is materially adverse to the consolidated condition (financial or otherwise),
properties, assets (including intangible assets), liabilities (including
contingent liabilities), businesses, or results of operations of such entity
(or, if applicable with respect thereto, of such group of entities taken as a
whole).
"Merger" has the meaning set forth in the preface of this
Agreement.
"Nasdaq" means the Nasdaq National Market.
"Parent" has the meaning set forth in the preface of this
Agreement.
"Parent Benefit Plans" has the meaning set forth in Section
5.8(a).
"Parent Common Stock" has the meaning set forth in Section
3.1(a).
"Parent Disclosure Letter" means the letter dated the date of
this Agreement from the Parent to the Company.
"Parent ERISA Affiliate" has the meaning set forth in Section
5.8(a).
"Parent ERISA Plans" has the meaning set forth in Section
5.8(a).
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<PAGE> 11
"Parent Expense Payment" shall have the meaning set forth in
Section 9.3(b).
"Parent Permits" has the meaning set forth in Section 5.13.
"Parent SEC Documents" has the meaning set forth in Section
5.5.
"Parent Stock Plan" means the Romac International, Inc. Stock
Incentive Plan.
"Person" shall mean any natural person, general or limited
partnership, corporation, limited liability company, firm, association, or
other legal entity.
"Pooling Opinion" means a letter of Price Waterhouse LLP dated
a date at least two business days but not more than five business days before
the date of this Agreement that confirms the business combinations to be
effected by the Merger will be properly accounted for as a pooling of interests
under Opinion 16 of the Accounting Principles Board.
"Qualified Stock Options" has the meaning set forth in Section
7.8(a).
"Registration Statement" has the meaning set forth in Section
7.1(a).
"Replacement Stock Option" has the meaning set forth in
Section 7.8(a).
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Stockholders' Meeting" has the meaning set forth in Section
7.2(a).
"Sub" has the meaning set forth in the preface of this
Agreement.
"Subsidiary" means, with respect to any party, any
corporation, or other organization, whether incorporated or unincorporated, of
which (i) such party or any other Subsidiary of such party is a general partner
(excluding partnerships whose general partnership interests held by such party
or any Subsidiary of such party do not have a majority of the voting interest
in such partnership) or (ii) at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of
the Board of Directors or others performing similar functions with respect to
such corporation or other organization is directly or indirectly owned or
controlled by such party or by any one or more of its Subsidiaries.
"Surviving Corporation" has the meaning set forth in Section
2.3.
"Tax" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall
5
<PAGE> 12
profits, environmental (including taxes under Code Section 59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"Terminating Company Breach" has the meaning set forth in
Section 9.1(h).
"Terminating Parent Breach" has the meaning set forth in
Section 9.1(g).
"Termination Fee" has the meaning set forth in Section 9.3(a).
"Voting Debt" has the meaning set forth in Section 4.2.
ARTICLE II
THE MERGER
Section 2.1 Effective Time of the Merger. Subject to the
provisions of this Agreement, articles of merger (the "Articles of Merger") and
a Certificate of Merger ("Certificate of Merger") shall be duly prepared,
executed, and acknowledged by the Sub and the Company, as the case may be, and
then delivered to the Secretaries of State of their respective states of
incorporation, for filing, as provided by the laws of those jurisdictions, as
soon as practicable on or after the Closing Date. The Merger shall become
effective at such time as is provided in the Articles of Merger and the
Certificate of Merger (the "Effective Time").
Section 2.2 Closing. The closing of the Merger (the "Closing")
will take place as promptly as practicable after satisfaction or waiver of the
conditions specified in Article VIII on a date agreed to in writing by the
parties, at the offices of Holland & Knight LLP, 400 North Ashley Street, Suite
2300, Tampa, Florida 33602 (the "Closing Date").
Section 2.3 Effects of the Merger. (a) At the Effective Time (i)
the separate existence of the Company shall cease and the Company shall be
merged with and into the Sub (the Sub and the Company are sometimes referred to
herein as the "Constituent Corporations" and the Sub is sometimes referred to
herein as the "Surviving Corporation"), (ii) the Articles of Incorporation of
the Sub in effect immediately before the Effective Time shall be the Articles
of Incorporation of the Surviving Corporation, and (iii) the By-laws of the Sub
as in effect immediately before the Effective Time shall be the By-laws of the
Surviving Corporation.
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<PAGE> 13
(b) At and after the Effective Time, the
Surviving Corporation shall possess all the rights, privileges, immunities, and
franchises, of a public as well as of a private nature, and be subject to all
the restrictions, disabilities, and duties, of each of the Constituent
Corporations; and all the singular rights, privileges, immunities, and
franchises of each of the Constituent Corporations, and all property, real,
personal, and mixed, and all debts due to either of the Constituent
Corporations on whatever account, including subscriptions to shares and all
other choses in action, and all and every other interest of or belonging to or
due to each of the Constituent Corporations, shall be taken and deemed to be
transferred to and vested in the Surviving Corporation, and all property,
rights, privileges, powers, and franchises, and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation as
they were of the Constituent Corporations, and the title to any real estate
vested by deed or otherwise in either of the Constituent Corporations shall not
revert or be in any way impaired; but all rights of creditors and all liens
upon any property of either of the Constituent Corporations shall be preserved
unimpaired, and all debts, liabilities, and duties of the Constituent
Corporations shall attach to the Surviving Corporation, and may be enforced
against it to the same extent as if such debts and liabilities had been
incurred by it.
Section 2.4 Directors and Officers of the Surviving Corporation.
The directors and officers of the Sub at the Effective Time shall, from and
after the Effective Time, be the directors and officers of the Surviving
Corporation until their successors shall have been duly elected or appointed
and qualified or until their earlier death, resignation, or removal in
accordance with the Surviving Corporation's Articles of Incorporation and
By-laws.
ARTICLE III
CONVERSION OF SECURITIES
Section 3.1 Conversion of Capital Stock. As of the Effective
Time, by virtue of the Merger and without any further action on the part of the
holder of any shares of common stock, par value $.02 per share, of the Company
(the "Company Common Stock") or capital stock of the Sub:
(a) Cancellation of Treasury Stock and the
Parent-Owned Stock. All shares of Company Common Stock that are owned by the
Company or any Subsidiary of the Company and any shares of Company Common Stock
owned by the Parent, the Sub, or any other Subsidiary of the Parent shall be
cancelled and retired and shall cease to exist, and no stock of the Parent or
other consideration shall be delivered in exchange therefor. All shares of
common stock, par value $.01 per share, of the Parent (the "Parent Common
Stock"), if any, owned by the Company shall remain unaffected by the Merger.
(b) Conversion of Company Common Stock. At the
Effective Time, each issued and outstanding share of Company Common Stock
(other than shares to be cancelled pursuant to Section 3.1(a)) shall be
converted into the right to
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receive the number of fully paid and nonassessable shares of the Parent Common
Stock equal to the applicable Exchange Ratio, determined as follows: if the
Market Price is equal to or between $20.00 and $24.00, the Exchange Ratio shall
be 1.1932; if the Market Price is below that range, the Exchange Ratio shall be
calculated by dividing $23.864 by the Market Price; and if the Market Price is
above that range, the Exchange Ratio shall be calculated by dividing $28.636 by
the Market Price.
(c) Cancellation of Company Common Stock. All
shares of Company Common Stock, when converted pursuant to Section 3.1(b),
shall no longer be outstanding and shall automatically be cancelled and retired
and shall cease to exist, and each holder of a certificate representing any
such shares shall cease to have any rights with respect thereto, except the
right to receive the shares of Parent Common Stock and any cash in lieu of
fractional shares of Parent Common Stock to be issued or paid in consideration
therefor upon the surrender of such certificate pursuant to Section 3.2,
without interest.
Section 3.2 Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time,
the Parent shall deposit with Boston Equiserve or such other bank or trust
company designated by the Parent (and reasonably acceptable to the Company)
(the "Exchange Agent"), for the benefit of the holders of shares of Company
Common Stock, for exchange in accordance with this Article III, through the
Exchange Agent, certificates representing the shares of Parent Common Stock
(such shares of Parent Common Stock, together with any dividends or
distributions with respect thereto, being hereinafter referred to as the
"Exchange Fund") issuable pursuant to Section 3.1 in exchange for outstanding
shares of Company Common Stock. The Exchange Agent shall, pursuant to
irrevocable instructions, deliver Parent Common Stock to be issued pursuant to
Section 3.1 out of the Exchange Fund. Except as contemplated by Section 3.2(f)
of this Agreement, the Exchange Fund shall not be used for any other purpose.
(b) Exchange Procedures. As soon as reasonably
practicable after the Effective Time, the Exchange Agent shall mail to each
holder of record of a certificate or certificates that immediately before the
Effective Time represented outstanding shares of Company Common Stock (the
"Certificates") whose shares were converted pursuant to Section 3.1 into the
right to receive shares of Parent Common Stock (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon delivery of the Certificates to
the Exchange Agent and shall be in such form and have such other provisions as
the Parent and the Company may reasonably specify), and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for certificates
representing shares of Parent Common Stock. Upon surrender of a Certificate
for cancellation to the Exchange Agent or to such other agent or agents as may
be appointed by the Parent and the Sub, together with such letter of
transmittal, duly executed, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing that number of shares
of Parent Common Stock that such holder has the right to receive pursuant to
the provisions of this Article III,
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<PAGE> 15
and the Certificate so surrendered shall forthwith be cancelled. In the event
of a transfer of ownership of Company Common Stock that is not registered in
the transfer records of the Company, a certificate representing the proper
number of shares of Parent Common Stock may be issued to a transferee if the
Certificate representing such Company Common Stock is presented to the Exchange
Agent, accompanied by all documents required to evidence and effect such
transfer and by evidence that any applicable stock transfer taxes have been
paid. Until surrendered as contemplated by this Section 3.2, each Certificate
shall be deemed at any time after the Effective Time to represent only the
right to receive upon such surrender the certificate representing shares of
Parent Common Stock and cash in lieu of any fractional shares of Parent Common
Stock as contemplated by this Section 3.2.
(c) Distributions with Respect to Unexchanged
Shares. No dividends or other distributions declared or made after the
Effective Time with respect to Parent Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate
with respect to the shares of Parent Common Stock represented thereby and no
cash payment in lieu of fractional shares shall be paid to any such holder
pursuant to Section 3.2(e) until the holder of record of such Certificate shall
surrender such Certificate. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be paid to the record
holder of the certificates representing whole shares of Parent Common Stock
issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount (to the extent such amount has been determined in
accordance with Section 3.2(e)) of any cash payable in lieu of a fractional
share of Parent Common Stock to which such holder is entitled pursuant to
Section 3.2(e) and the amount of dividends or other distributions with a record
date after the Effective Time theretofore paid with respect to such whole
shares of Parent Common Stock, and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender, and a payment date subsequent to
surrender, payable with respect to such whole shares of Parent Common Stock.
(d) No Further Ownership Rights in Company Common
Stock. All shares of Parent Common Stock issued upon the surrender for
exchange of shares of Company Common Stock in accordance with the terms of this
Agreement (including any cash paid pursuant to Section 3.2(c) or 3.2(e)) shall
be deemed to have been issued in full satisfaction of all rights pertaining to
such shares of Company Common Stock, subject, however, to the Surviving
Corporation's obligation to pay any dividends or make any other distributions
with a record date before the Effective Time that may have been declared or
made by the Company on such shares of Company Common Stock in accordance with
the terms of this Agreement or before the date of this Agreement and that
remain unpaid at the Effective Time, and there shall be no further registration
of transfers on the stock transfer books of the Surviving Corporation of the
shares of Company Common Stock that were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to
the Surviving Corporation for any reason, they shall be cancelled and exchanged
as provided in this Article III.
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(e) No Fractional Shares. (i) Notwithstanding
any other provision of this Agreement, no certificate or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of Certificates, and such fractional share interests will not entitle
the owner thereof to vote or to enjoy any other rights of a shareholder of the
Parent.
(ii) In lieu of a certificate or scrip
representing fractional shares of Parent Common Stock, the Parent shall pay to
each holder that surrenders a Certificate in accordance with this Section 3.2
and that would otherwise be entitled, given the Exchange Ratio, to receive a
fractional share of Parent Common Stock, an amount equal to such fraction
multiplied by the Market Price determined on the Closing Date, without interest
thereon.
(f) Termination of Exchange Fund. Any part of
the Exchange Fund that remains undistributed to the stockholders of the Company
for one year after the Effective Time shall be delivered to the Parent, upon
demand, and any stockholders of the Company who by such time have not complied
with this Article III shall thereafter look only to the Parent for payment of
their claims for Parent Common Stock, any cash in lieu of fractional shares of
Parent Common Stock, and any dividends or distributions with respect to Parent
Common Stock. Any part of the Exchange Fund remaining unclaimed by a
stockholder of the Company as of a date that is immediately before the time
that the part would otherwise escheat to or become property of any governmental
entity shall, to the extent permitted by applicable law, become the property of
the Parent, free and clear of any claims or interest of any person previously
entitled thereto.
(g) No Liability. Neither the Parent nor the
Company shall be liable to any holder of shares of Company Common Stock or
Parent Common Stock, as the case may be, for such shares (or dividends or
distributions with respect thereto) or cash from the Exchange Fund delivered to
a public official pursuant to any applicable abandoned property, escheat, or
similar law.
Section 3.3 Certain Adjustments. If between the date of this
Agreement and the Effective Time, the outstanding shares of Company Common
Stock or of Parent Common Stock are changed into a different number of shares
by reason of any reclassification, recapitalization, split-up, combination, or
exchange of shares, or any dividend payable in stock or other securities shall
be declared thereon with a record date within such period, the Exchange Ratio
shall be adjusted accordingly to provide to the holders of Company Common Stock
and Parent Common Stock the same economic effect as contemplated by this
Agreement prior to such reclassification, recapitalization, split-up,
combination, exchange, or dividend.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Company Disclosure Letter with respect to
any particular representation, the Company represents and warrants to the
Parent and the Sub as follows:
Section 4.1 Organization. The Company and its Subsidiaries each
is a corporation duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its incorporation and has all requisite
corporate power and authority and all necessary governmental approvals to own,
lease, and operate its properties and to carry on its business as now being
conducted, except where the failure to be so organized, existing, and in good
standing or to have such power, authority, and governmental approvals would not
have a Material Adverse Effect on the Company and its Subsidiaries taken as a
whole. The Company and each of its Subsidiaries is duly qualified or licensed
to do business and is in good standing in each jurisdiction in which the
property owned, leased, or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except where
the failure to be so duly qualified or licensed and be in good standing would
not in the aggregate have a Material Adverse Effect on the Company and its
Subsidiaries taken as a whole.
Section 4.2 Capitalization. As of the date of this Agreement,
the authorized capital stock of the Company consists of (a) 100,000,000 shares
of Company Common Stock of which, as of December 31, 1997, 13,754,681 shares
were issued and outstanding, and (b) 2,000,000 shares of preferred stock, par
value $.01 per share, of which no shares are outstanding or reserved for
issuance. As of December 31, 1997, 1,693,500 shares of Company Common Stock
were reserved for issuance upon exercise of outstanding options pursuant to the
Company's stock option plans listed on Schedule 4.2 hereto (the "Company Stock
Option Plans"). Of these 1,693,500 reserved shares, options to purchase 6,750
shares are outstanding at a weighted average per share exercise price of
approximately $1.11, (ii) options to purchase 43,500 shares are outstanding at
a weighted average per share exercise price of $1.11, and (iii) options to
purchase 18,000 shares are outstanding at a weighted average per share exercise
price of $11.58, (iv) options to purchase 27,000 shares at a weighted average
per share exercise price of approximately $13.83, and (v) options to purchase
563,925 shares at a weighted average per share exercise price of approximately
$10.27. All the outstanding shares of the Company's capital stock are, and all
shares that may be issued pursuant to the Company Stock Option Plans will be,
when issued in accordance with the terms thereof, duly authorized, validly
issued, fully paid and nonassessable, and free of any preemptive rights in
respect thereto. As of the date of this Agreement, the only issuances of the
Company's capital stock since December 31, 1997, were upon the exercise of
options outstanding on December 31, 1997, pursuant to the Company Stock Option
Plans. As of the date of this Agreement, no bonds, debentures, notes, or other
indebtedness having the right to vote (or convertible into securities having
the right to vote) ("Voting Debt") of the Company are issued or outstanding.
Except as set forth above, as of the date of this Agreement,
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there are no existing options, warrants, calls, subscriptions, or other rights,
agreements, or commitments of any character relating to the issued or unissued
capital stock or Voting Debt of the Company or any of its Subsidiaries, or
obligating the Company or any of its Subsidiaries to issue, transfer, or sell
or cause to be issued, transferred, or sold any shares of capital stock or
Voting Debt of, or other equity interests in, the Company or of any of its
Subsidiaries, or securities convertible into or exchangeable for such shares or
equity interests or obligating the Company or any of its Subsidiaries to grant,
extend, or enter into any such option, warrant, call, subscription or other
right, agreement, or commitment. As of the date of this Agreement, there are
no outstanding contractual obligations of the Company or any of its
Subsidiaries to repurchase, redeem, or otherwise acquire any shares of capital
stock of the Company or any of its Subsidiaries.
Section 4.3 Authority. The Company has the requisite corporate
power and authority to execute and deliver this Agreement and to perform its
obligations under this Agreement. The execution, delivery, and performance of
this Agreement and the consummation of the Merger and of the other transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Company, and no other corporate proceedings on the part of
the Company are necessary to authorize this Agreement or to consummate the
transactions so contemplated (other than, with respect to the Merger, the
approval and adoption of this Agreement by the holders of a majority of the
outstanding shares of Company Common Stock if and to the extent required by
applicable law). This Agreement has been duly executed and delivered by the
Company and, assuming this Agreement constitutes a valid and binding obligation
of the Parent and the Sub, respectively, constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to or affecting creditors' rights and to general equitable principles.
Section 4.4 Consents and Approvals; No Violations. Neither the
execution, delivery, or performance of this Agreement by the Company, nor the
consummation by the Company of the transactions contemplated hereby, nor
compliance by the Company with any of the provisions of this Agreement will (i)
conflict with or result in any breach of any provision of the Certificate of
Incorporation or the By-laws of the Company or of any of its Subsidiaries, (ii)
except as contemplated in Sections 7.1(c) or 7.5, require any filing with, or
authorization, consent, permit, or approval of, any court, arbitral tribunal,
administrative agency or commission, or other governmental or other regulatory
authority or agency (a "Governmental Entity") (except where the failure to
obtain such permits, authorizations, consents or approvals or to make such
filings would not have a Material Adverse Effect on the Company and its
Subsidiaries taken as a whole), (iii) result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default (or give
rise to any right of termination, amendment, cancellation, or acceleration)
under, any of the terms, conditions, or provisions of any note, bond, mortgage,
indenture, lease, license, contract, agreement, or other instrument or
obligation to which the Company or any of its Subsidiaries is a party or by
which any of them or any of their properties or assets may be bound,
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or (iv) violate any order, writ, injunction, decree, statute, rule, or
regulation applicable to the Company, any of its Subsidiaries, or any of their
properties or assets, except as they relate to (iii) and (iv), for violations,
breaches or defaults that would not, individually or in the aggregate, have a
Material Adverse Effect on the Company and its Subsidiaries taken as a whole.
Section 4.5 SEC Reports and Financial Statements. The Company
has filed with the SEC and has made available to the Parent true and complete
copies of, all forms, reports, schedules, statements, and other documents,
including all exhibits thereto, required to be filed by it since July 29, 1996
under the Exchange Act or the Securities Act (as such documents have been
amended since the time of their filing, collectively, the "Company SEC
Documents"). The Company SEC Documents, including any financial statements and
schedules included therein, at the time filed, (a) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading, and (b)
complied in all material respects with the applicable requirements of the
Exchange Act and the Securities Act, as the case may be, and the regulations of
the SEC thereunder. The financial statements of the Company included in the
Company SEC Documents comply as to form in all material respects with
applicable accounting requirements and with the published regulations of the
SEC with respect thereto, have been prepared in accordance with the books and
records of the Company in accordance with GAAP applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto
or, in the case of the unaudited statements, as permitted by the accounting
rules applicable to reports on Form 10-Q under the Exchange Act) and fairly
present (subject, in the case of the unaudited statements, to normal, recurring
audit adjustments) the consolidated financial position of the Company and its
consolidated Subsidiaries as at the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended. The Company has
made available to the Parent true and complete copies of all material
amendments and modifications that have not been filed by the Company with the
SEC to all agreements, documents, and other instruments that previously have
been filed by the Company with the SEC and are currently in effect.
Section 4.6 Absence of Certain Changes or Events. Except as
contemplated by this Agreement or disclosed in the Company SEC Documents filed
prior to the date of this Agreement, since September 30, 1997, there has not
been (a) any event, change, or effect having, in the aggregate, a Material
Adverse Effect on the Company and its Subsidiaries taken as a whole, (b) any
change by the Company in its accounting methods, principles, or practices, (c)
any loss, damage, or destruction, whether covered by insurance or not, that had
or could have a Material Adverse Effect on the Company or its Subsidiaries or
any revaluation by the Company of any material asset (including any writing-off
of notes or accounts), other than in the ordinary course of business consistent
with past practice, (d) any commitment or transaction by the Company or its
Subsidiaries other than in the ordinary course of business consistent in amount
and nature with past practice, (e) any declaration, setting aside or payment of
any dividend or any other distribution in respect of any
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capital stock of the Company or any redemption, purchase, or other acquisition
of any security relating thereto, or any other payment to any stockholder in
his or her capacity as a stockholder, (f) other than as expressly provided for
in this Agreement or consistent with past practices of the Company, any
increase in or establishment of any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, stock option (including,
without limitation, the granting of stock options, stock appreciation rights,
performance awards, or restricted stock awards), stock purchase, or other
employee benefit plan, or any other increase in the compensation, salaries or
wages payable or to become payable to any employee or agent of the Company or
its Subsidiaries, (g) any labor dispute or disturbance, that had or could have
a Material Adverse Effect on the Company or its Subsidiaries, (h) any
indebtedness for borrowed money incurred, assumed, or guaranteed by the Company
or its Subsidiaries, other than advances in the ordinary course of business
consistent with the past practice of the Company and its Subsidiaries, (i) any
lien or other encumbrance made on any of the properties or assets of the
Company or its Subsidiaries, other than mechanics' and materialmen's liens
arising in the ordinary course of business consistent in amount and nature with
past practice, or (j) any grant of credit by the Company or its Subsidiaries to
any customer on terms or in amounts more favorable than those that have
generally been extended to such customer in the past, any other change in terms
of any credit heretofore extended, or any other change of the Company's or its
Subsidiaries' policies or practices with respect to the granting of credit that
would have a Material Adverse Effect on the Company taken as a whole.
Section 4.7 No Undisclosed Liabilities. Except as and to the
extent set forth on the most recent consolidated balance sheet of the Company
(including the notes thereto) included in the Company SEC Documents, neither
the Company nor any of its Subsidiaries has any liability or obligation of any
nature (whether accrued, absolute, contingent, or otherwise) that would be
required to be reflected on a balance sheet, or in the notes thereto, prepared
in accordance with GAAP, except for liabilities and obligations (i) disclosed
in any Company SEC Document filed prior to the date of this Agreement or (ii)
incurred pursuant to this Agreement.
Section 4.8 Employee Benefit Plans.
(a) Schedule 4.8 contains a true and complete
list of each pension, retirement, profit sharing, deferred compensation, stock
option, stock purchase, bonus, medical, welfare, disability, severance or
termination pay, insurance or incentive plan, and each other employee benefit
plan, program, agreement or arrangement, whether funded or unfunded, sponsored,
maintained or contributed to or required to be contributed to by the Company or
by any trade or business, whether or not incorporated, that together with the
Company would be deemed a "single employer" within the meaning of Section 4001
of ERISA (a "Company ERISA Affiliate"), for the benefit of any employee or
terminated employee of the Company or any Company ERISA Affiliate (the "Company
Benefit Plans"). Schedule 4.8 identifies each Company Benefit Plan that is an
"employee benefit plan," within the meaning of Section 3(3) of ERISA (the
"Company ERISA Plans").
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(b) Neither the Company nor any Company ERISA
Affiliate participates currently or has ever participated in, or is required
currently or has ever been required to contribute to or otherwise participate
in any "multi-employer plan," as defined in Sections 3(37)(A) and 4001(a)(3) of
ERISA and Section 414(f) of the Code.
(c) Neither the Company nor any Company ERISA
Affiliate does now, or has ever, maintained, established, sponsored,
participated in, or contributed to, any pension plan that is subject to Title
IV of ERISA or Section 412 of the Code.
(d) True and complete copies of each of the
Company Benefit Plans and related trusts have been furnished to the Parent,
together with the most recent financial statement and the most recent actuarial
report prepared with respect to any of such Company Benefit Plans that is
funded, the most recent Internal Revenue Service determination letter, the most
recent Summary Plan Description and the most recent Annual Report together with
a statement setting forth any such documents that cannot be furnished; and any
such documents furnished and the nature of the documents that cannot be
furnished shall be reasonably satisfactory to the Parent.
(e) With respect to each Company Benefit Plan
intended to be "qualified" within the meaning of Section 401(a) of the Code, a
determination letter from the Internal Revenue Service has been received to the
effect that the Company Benefit Plan is qualified under Section 401 of the Code
and any trust maintained pursuant thereto is exempt from federal income
taxation under Section 501 of the Code or the time for filing a determination
letter request with the Internal Revenue Service with respect to the Company
Benefit Plans has not expired, and nothing has occurred or will occur through
the Effective Time (including without limitation the transactions contemplated
by this Agreement) that would cause the loss of such qualification or exemption
or the imposition of any penalty or tax liability.
(f) All contributions required by each Company
Benefit Plan or by law with respect to all periods through the Effective Time
shall have been made by such date (or provided for by the Company by adequate
reserves on its financial statements) and no excise or other taxes have been
incurred or are due and owing with respect to any Company Benefit Plan because
of any failure to comply with the minimum funding standards of ERISA and the
Code.
(g) No claim, lawsuit, arbitration, or other
action has been, to the Company's knowledge, threatened, asserted, or
instituted against any Company Benefit Plan, any trustee or fiduciaries
thereof, the Company, or any of the assets of any trust maintained under any
Company Benefit Plan other than which would not have a Material Adverse Effect
on the Company and its Subsidiaries taken as a whole.
(h) All amendments required to bring any Company
Benefit Plan into conformity with any of the applicable provisions of ERISA and
the Code have been duly adopted or will be adopted within the time prescribed
by law for making such amendments.
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(i) Any bonding required with respect to any
Company ERISA Plan in accordance with applicable provisions of ERISA has been
obtained and is in full force and effect.
(j) Each Company Benefit Plan has been operated
and administered in accordance with its terms and the terms and the provisions
of ERISA and the Code (including rules and regulations thereunder) applicable
thereto and in practice is tax qualified under Sections 401(a) and 501 of the
Code other than which would not have a Material Adverse Effect on the Company
and its Subsidiaries taken as a whole.
(k) Each Company Benefit Plan intended to be
"qualified" within the meaning of Section 401(a) of the Code is so qualified
and the trusts maintained under such Company Benefit Plan is exempt from
taxation under section 501(a) of the Code.
(l) No "prohibited transaction," as such term is
defined in Section 4975 of the Code and Section 406 of ERISA, has occurred with
respect to any Company Benefit Plan (and the transactions contemplated by this
Agreement will not constitute or directly or indirectly result in such a
"prohibited transaction") that could subject the Company, the Parent, or any
officer, director or employee of any of the foregoing, or any trustee,
administrator or other fiduciary, to a tax or penalty on prohibited
transactions imposed by either Section 502 of ERISA or Section 4975 of the
Code.
(m) No Company Benefit Plan is under audit by the
Internal Revenue Service or the Department of Labor.
(n) No welfare benefit plan (within the meaning
of Section 3(1) of ERISA) provides for continuing benefits or coverage for any
participant or beneficiary of a participant after such participant's
termination of employment, except as may be required by the Consolidated
Omnibus Budget Reconciliation Act of 1985 or by Sections 601 through 608 of
ERISA, or Sections 162 and 4980B of the Code at the expense of the participant
or the beneficiary of the participant.
(o) The Company does not currently maintain or
contribute to any severance pay plan.
(p) No individual shall accrue or receive any
additional benefits, service, or accelerated rights to payment of benefits
under any Company Benefit Plan as a result of the actions contemplated by this
Agreement;
(q) The Company has complied with all of the
requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985,
Sections 601 through 608 of ERISA, and Sections 162 and 4980B of the Code;
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(r) The Board of Directors of the Company has
taken no action to accelerate the vesting or exercisability of any outstanding
option granted under any Company Stock Option Plan.
Section 4.9 Other Benefit Plans. Except as disclosed in the
Company SEC Documents or in Schedule 4.9 filed before the date of this
Agreement, and except as provided for in this Agreement, as of the date of this
Agreement neither the Company nor any of its Subsidiaries is a party to any
oral or written (i) consulting agreement not terminable on 60 days or less
notice involving the payment of more than $100,000 per year on any such
agreement individually or $200,000 per year for all such agreements in the
aggregate, (ii) union or collective bargaining agreement, (iii) agreement with
any executive officer or other key employee of the Company or any of its
Subsidiaries providing for contingent benefits or the alteration of terms,
based upon the occurrence of a transaction involving the Company of the nature
contemplated by this Agreement, or agreement providing any term of employment
or compensation guarantee extending for a period longer than one year and for
the payment of in excess of $50,000 per year, or (iv) agreement or plan,
including any stock option plan, stock appreciation right plan, restricted
stock plan, or stock purchase plan, providing for increased benefits or the
accelerated vesting of the benefits by the occurrence of any of the
transactions contemplated by this Agreement, or the calculation of the value of
any of the benefits on the basis of any of the transactions contemplated by
this Agreement.
Section 4.10 Litigation. Except as disclosed in the Company SEC
Documents filed before the date of this Agreement, there is no suit, claim,
action, proceeding, or investigation pending or, to the knowledge of the
Company, threatened against, the Company or any of its Subsidiaries before any
Governmental Entity. Except as disclosed in the Company SEC Documents filed
before the date of this Agreement, neither the Company nor any of its
Subsidiaries is subject to any outstanding order, writ, injunction, or decree
that, insofar as can be reasonably foreseen, individually or in the aggregate,
in the future would have a Material Adverse Effect on the Company and its
Subsidiaries taken as a whole, or would prevent the Company from consummating
the transactions contemplated hereby.
Section 4.11 Compliance with Applicable Law. The Company and its
Subsidiaries hold all permits, licenses, variances, exemptions, orders, and
approvals of all Governmental Entities necessary for the lawful conduct of
their respective businesses (the "Company Permits"), except for failures to
hold such permits, licenses, variances, exemptions, orders, and approvals that
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company and its Subsidiaries taken as a whole. The Company and its
Subsidiaries are in compliance with the terms of the Company Permits, except
where the failure so to comply would not have a Material Adverse Effect on the
Company and its Subsidiaries taken as a whole. Except as disclosed in the
Company SEC Documents filed prior to the date of this Agreement, the businesses
of the Company and its Subsidiaries are not being conducted in violation of any
law, ordinance, or regulation of any Governmental Entity, except for possible
violations that individually or in the aggregate do not, and,
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insofar as can be foreseen, in the future will not, have a Material Adverse
Effect on the Company and its Subsidiaries taken as a whole. No investigation
or review by any Governmental Entity with respect to the Company or any of its
Subsidiaries is pending or, to the knowledge of the Company, threatened, nor
has any Governmental Entity indicated an intention to conduct any investigation
or review.
Section 4.12 Opinion of Financial Advisor. The Company has
received the opinion, addressed to it, of The Robinson-Humphrey Company, LLC,
dated the date of this Agreement, to the effect that, as of such date, the
Exchange Ratio is fair to the Company's stockholders from a financial point of
view. A copy of the opinion will be delivered to the Parent before February 6,
1998.
Section 4.13 Board Action, Vote Required; Amendment of Rights
Agreement.
(a) The Board of Directors of the Company has
unanimously determined that the transactions contemplated by this Agreement are
in the best interests of the Company and its stockholders and has resolved to
recommend to such stockholders that they vote in favor of such transactions.
(b) The affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock is the only vote of
the holders of any class or series of the Company's securities necessary to
approve this Agreement and the transactions contemplated by this Agreement.
(c) The Company Rights Agreement has been amended
as of January 30, 1998 to provide that (i) no "Distribution Date," "Shares
Acquisition Date," or "Triggering Event" under the Company Rights Agreement is
deemed to have occurred, (ii) none of the Parent or its Subsidiaries will be an
"Acquiring Person" under the Company Rights Agreement, and (iii) no holder of
rights issued under the Company Rights Agreement shall be entitled to exercise
such rights under, or be entitled to any rights or benefits pursuant to, the
Company Rights Agreement solely by reason of the approval, execution, and
delivery of this Agreement on the consummation of the transactions contemplated
by this Agreement.
Section 4.14 Accounting and Tax Matters. Neither the Company nor,
to the best knowledge of the Company, any of its affiliates has taken, or
agreed to take, or will take any action that would prevent the Merger from
being effected as a "pooling of interests" or would prevent the Merger from
constituting a transaction qualifying under Section 368(a) of the Code.
Neither the Company nor, to the knowledge of the Company, any of its affiliates
or agents is aware of any agreement, plan, or other circumstance that would
prevent the Merger from qualifying under Section 368(a) of the Code and, to the
knowledge of the Company, the Merger will so qualify.
Section 4.15 No Interested Stockholder. As of the date of this
Agreement, neither the Parent nor any officer or director of the Company is an
"interested stockholder" as such term is defined in Section 203 of the DGCL.
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Section 4.16 Tax Returns and Audits.
(a) The Company and its Subsidiaries each has
filed all Tax Returns that it was required to file. All Tax Returns were
correct and complete in all respects. All Taxes owed by any of the Company and
its Subsidiaries (whether or not shown on any Tax Return) have been paid. None
of the Company and its Subsidiaries currently is the beneficiary of any
extension of time within which to file any Tax Return. No claim has ever been
made by an authority in a jurisdiction where any of the Company and its
Subsidiaries does not file Tax Returns that it is or may be subject to taxation
by that jurisdiction. There are no security interests on any of the assets of
any of the Company and its Subsidiaries that arose in connection with any
failure (or alleged failure) to pay any Tax.
(b) Each of the Company and its Subsidiaries has
withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party.
(c) No director, officer, or employee of the
Company or its Subsidiaries that is responsible for Tax matters expects any
authority to assess any additional Taxes for any period for which Tax Returns
have been filed. There is no dispute or claim concerning any Tax Liability of
any of the Company and its Subsidiaries either (A) claimed or raised by any
authority in writing or (B) as to which any director, officer, or employee of
the Company or its Subsidiaries that is responsible for Tax matters has
knowledge based upon personal contact with any agent of such authority.
Schedule 4.16 lists all federal, state, local, and foreign income Tax Returns
filed with respect to any of the Company and its Subsidiaries for taxable
periods ended on or after December 31, 1990, lists all Tax Returns that have
been audited, and lists all Tax Returns that currently are the subject of
audit. The Company has delivered to the Parent correct and complete copies of
all federal income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by any of the Company and its
Subsidiaries since December 31, 1990.
(d) None of the Company and its Subsidiaries has
waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency.
(e) The unpaid Taxes of the Company and its
Subsidiaries (A) did not, as of September 30, 1997, exceed the reserve for Tax
Liability (rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on the latest
consolidated balance sheet of the Company (rather than in any notes thereto)
included in the Company SEC Documents and as of September 30, 1997 (B) will not
exceed that reserve as adjusted for the passage of time through the Closing
Date in accordance with the past custom and practice of the Company and its
Subsidiaries in filing their Tax Returns and accounting for Taxes.
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(f) None of the Company and its Subsidiaries has
filed a consent under Code Section 341(f) concerning collapsible corporations.
None of the Company and its Subsidiaries has made any payments, is
obligated to make any payments, or is a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code Section 280G. None of the Company and its Subsidiaries
has been a United States real property holding corporation within the meaning
of Code Section 897(c)(2) during the applicable period specified in Code
Section 897(c)(1)(A)(ii). The Company and its Subsidiaries each has disclosed
on its federal income Tax Returns all positions taken therein that could give
rise to a substantial understatement of federal income Tax within the meaning
of Code Section 6662. None of the Company and its Subsidiaries is a party to
any Tax allocation or sharing agreement. None of the Company and its
Subsidiaries (A) has been a member of an Affiliated Group filing a consolidated
federal income Tax Return (other than a group the common parent of which was
the Company) or (B) has any material Liability for the Taxes of any Person
(other than any for the Company and its Subsidiaries) under Reg. Section
1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
(g) Schedule 4.16 sets forth the following
information in accordance with the Tax Returns with respect to each of the
Company and its Subsidiaries as of (A) the amount of any net operating loss,
net capital loss, unused investment or other credit, unused foreign tax, or
excess charitable contribution allocable to the Company or its Subsidiaries,
(B) the amount of any deferred gain or loss allocable to the Company or its
Subsidiaries arising out of any Deferred Intercompany Transaction, and (C) the
amount of any Code Section 481 adjustment required to be taken into account by
the Company and its Subsidiaries on any federal income Tax Return to be filed
after the date of this Agreement.
Section 4.17 Material Contracts. Schedule 4.17 lists all material
contracts, agreements, and written arrangements to which the Company or any of
its Subsidiaries is a party or by which any of their assets is bound. To the
Company's and its Subsidiaries' knowledge, no party to any contract listed on
Schedule 4.17 plans to terminate any such contract with either entity or the
Surviving Corporation. Without limiting the foregoing, Schedule 4.17 lists the
following contracts, agreements, and written arrangements:
(a) Any written agreement concerning a
partnership or joint venture;
(b) Any written arrangement concerning
confidentiality or noncompetition;
(c) Any written arrangement between the Company
or any of its Subsidiaries and any of their respective officers, directors,
employees, or "affiliates," as such term is defined in Rule 405, promulgated by
the SEC;
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(d) Any written arrangement under which the
consequences of a default or termination would be reasonably likely to have a
Material Adverse Effect on the assets, liabilities, business, financial
condition, operations, or results of operations of the Company and its
Subsidiaries taken as a whole; or
(e) Any other written arrangement (or group of
related arrangements) either involving more than $100,000 individually or
$200,000 in the aggregate or not entered into in the ordinary course of
business.
The Company has delivered to the Parent a correct and complete copy of each
written arrangement, as amended to date, listed in Schedule 4.17. With respect
to each such written arrangement: (i) the written arrangement is legal, valid,
binding, enforceable, and in full force and effect, assuming the other parties
thereto have duly executed and delivered such arrangements and had the
necessary power and authority to enter into such written arrangements when
executed and delivered; (ii) the written arrangement will continue to be legal,
valid, binding, and enforceable and in full force and effect on identical terms
following the Closing Date subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equitable principles,
assuming, if applicable, that required consents to assignment are obtained;
(iii) to the Company's knowledge, no party is in breach or default, and no
event has occurred that with notice or lapse of time or both would constitute a
breach or default, or permit termination, modification, or acceleration under
the written arrangement; and (iv) to the Company's knowledge, no party has
repudiated any provision of the written arrangement. Neither the Company nor
any of its Subsidiaries is a party to any oral contract, agreement, or other
arrangement that, if reduced to written form, would be required to be listed in
Schedule 4.17.
Section 4.18 Insurance. Schedule 4.18 sets forth and briefly
describes each insurance policy (including liability, property, business risk,
employee health, group life, key man, director/officer liability, and bond
insurance and surety arrangements) currently in effect to which the Company or
any of its Subsidiaries is a party, a named insured, or otherwise the
beneficiary of coverage. The Company has delivered or made available to the
Parent a correct and complete copy of each such insurance policy. With respect
to each insurance policy currently in effect: (a) the policy is legal, valid,
binding, and enforceable and in full force and effect, assuming the other
parties thereto have duly executed and delivered such policy and had the
necessary power and authority to enter into such policy when executed and
delivered; (b) the policy will continue to be legal, valid, binding, and
enforceable and in full force and effect on identical terms until the Closing
Date; (c) neither the Company or any of its Subsidiaries nor any other party to
the policy is in breach or default (including with respect to the payment of
premiums or the giving of notices), and no event has occurred that, with notice
or the lapse of time or both, would constitute such a breach or default or
permit termination, modification, or acceleration under the policy; and (d) to
the Company's knowledge, no party to the policy has repudiated any provision
thereof.
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Section 4.19 Subsidiaries. Except as set forth in Schedule 4.19,
the Company has no Subsidiaries.
Section 4.20 Real Property. Schedule 4.20 lists all parcels of
real property owned or leased (where the lease payments for any year during the
term of the lease exceed $250,000) by the Company or its Subsidiaries. With
respect to each parcel of owned real property, the Company or its Subsidiaries
has good and marketable title to the real property, free and clear of any
mortgage, security interest, easement, covenant, or other restriction. With
respect to each parcel of leased real property, the lease or sublease is legal,
valid, binding, and enforceable, and in full force and effect. All facilities
owned or leased have received all approvals of governmental authorities
(including licenses and permits) required in connection with the occupancy or
operation thereof.
Section 4.21 Environmental and Employee Safety Matters. The
Company and its Subsidiaries have complied with all laws (including rules and
regulations thereunder) of all federal, state, local, and foreign governments
(and all agencies thereof) concerning the environment, public health and
safety, and employee health and safety, and no charge, complaint, action, suit,
proceeding, hearing, investigation, claim, demand, or notice has been filed or
commenced against any of them alleging any failure to comply with any such law
or regulation except for possible violations that in the aggregate do not have
a Material Adverse Effect on the Company and its Subsidiaries taken as a whole.
To the Company's knowledge, neither the Company nor any of its Subsidiaries has
any liability, and to the Company's knowledge there is no basis for such
liability, under any law (or rule or regulation thereunder) of any federal,
state, local, or foreign government (or agencies thereof), concerning release
or threatened release of hazardous substances or pollution or protection of the
environment except for possible liabilities that in the aggregate do not have a
Material Adverse Effect on the Company and its Subsidiaries as a whole.
Section 4.22 Intellectual Property.
(a) The Company and its Subsidiaries own or have
the right to use, pursuant to a valid and enforceable license, all Intellectual
Property used for the operation of its business as presently conducted and as
presently proposed to be conducted. Schedule 4.22 lists each item of
Intellectual Property owned or used by the Company and its Subsidiaries. All
items of Intellectual Property listed in Schedule 4.22, will be owned or
available for use by the Company and its Subsidiaries on identical terms and
conditions immediately on and after the Closing Date and each entity has taken
all reasonable actions to protect each such item of Intellectual Property.
(b) To the Company's knowledge, the Company and
its Subsidiaries have not interfered with, infringed upon, misappropriated, or
otherwise violated any Intellectual Property rights of third parties, and, each
has never received any charge, complaint, claim, or notice alleging any such
interference, infringement, misappropriation, or violation which would have a
Material Adverse Effect on the
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Company and its Subsidiaries taken as a whole. To the Company's knowledge, no
third party has interfered with, infringed upon, misappropriated, or otherwise
come into conflict with any of either entity's Intellectual Property rights.
(c) Set forth on Schedule 4.22 is a list and
description of each patent or registration that has been issued to the Company
or its Subsidiaries with respect to any of the Intellectual Property of either
entity, each pending patent application or application for registration that
either entity has made with respect to any of their Intellectual Property, and
each license, agreement, or other permission that either entity has granted to
any third party with respect to any of their Intellectual Property (together
with any exceptions). The Company and its Subsidiaries have delivered to the
Parent true and complete copies of all such patents, registrations,
applications, licenses, agreements, and permissions (as amended to date).
Section 4.23 Tangible Personal Property.
(a) The Company and its Subsidiaries own or lease
all tangible personal property (including, without limitation, furniture,
fixtures, equipment, and supplies) necessary for the conduct of its business as
presently conducted and as presently proposed to be conducted.
(b) Except as set forth in the Financial
Statements, each of the Company and its Subsidiaries is the sole lawful and
beneficial owner of its tangible personal property, free and clear of all liens
and encumbrances, except for (i) liens for current taxes not yet due or
payable, (ii) liens imposed by law and incurred in the ordinary course of
business for obligations not yet due to carriers, warehousemen, laborers and
materialmen, and (iii) liens in respect of pledges or deposits under worker's
compensation laws, all of which liens aggregate less than $100,000, and each of
the Company and its Subsidiaries has good and marketable title to all such
property.
(c) The tangible personal property of the Company
and its Subsidiaries is in good and serviceable condition, reasonable wear and
tear excepted, and the value attributed to it in the Financial Statements
represents an amount not in excess of the purchase price, less reasonable
depreciation, of such property. Consistent with past practices, the Company
and its Subsidiaries shall repair or replace all tangible personal property
used or disposed of after the date of this Agreement, whether or not in the
ordinary course of business.
Section 4.24 Employees and Independent Contractors. Set forth on
Schedule 4.24 is a true and complete schedule of the names of all persons who
perform services for the Company and its Subsidiaries as of the date of this
Agreement, classified as permanent employees, temporary employees, or
independent contractors and classified according to whether the employee's
services are billable to a third party. To the Company's knowledge, all of the
employees and independent contractors of the Company and its Subsidiaries are
properly and currently licensed, to the extent that licensure is required, and
all of such licenses are in good standing.
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To the Company's and its Subsidiaries' knowledge, no employee or group of
employees or independent contractors listed on Schedule 4.24 plans to terminate
employment with either entity or the Surviving Corporation. All professional
employees (non-billable, core employees) named on Schedule 4.24 are subject to
non-competition and other obligations no less favorable to the Company than the
terms reflected in the standard form of non-competition agreements previously
delivered to the Parent.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND THE SUB
Except as set forth in the Parent Disclosure Letter with respect to
any particular representation, the Parent and the Sub represent and warrant to
the Company as follows:
Section 5.1 Organization. The Parent, the Sub, and the Parent's
Subsidiaries each is a corporation duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority and all necessary governmental
approvals to own, lease, and operate its properties and to carry on its
business as now being conducted except where the failure to be so organized,
existing, and in good standing or to have such power, authority, and
governmental approvals would not have a Material Adverse Effect on the Parent
and its Subsidiaries taken as a whole. The Parent and each of its Subsidiaries
is duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the property owned, leased, or operated by it or the
nature of the business conducted by it makes such qualification or licensing
necessary, except where the failure to be so duly qualified or licensed and be
in good standing would not in the aggregate have a Material Adverse Effect on
the Parent and its Subsidiaries taken as a whole.
Section 5.2 Capitalization. As of the date of this Agreement,
the authorized capital stock of the Parent consists of (a) 100,000,000 shares
of Parent Common Stock of which, as of December 31, 1997, 29,794,592 shares
were issued and outstanding and 608,796 shares were held in treasury, and (b)
15,000,000 shares of preferred stock, par value $.01 per share, of which no
shares are issued and outstanding or reserved for issuance. As of December 31,
1997, 9,000,000 shares of Parent Common Stock were reserved for issuance upon
exercise of outstanding options pursuant to the Parent Stock Plan. Of these
9,000,000 reserved shares, options to purchase 3,424,865 shares are outstanding
at a weighted average per share exercise price of $9.43. All the outstanding
shares of the Parent's capital stock are, and all shares of Parent Common Stock
that are to be issued pursuant to the Merger or that may be issued pursuant to
the Parent Stock Plan will be, when issued in accordance with the respective
terms thereof, duly authorized, validly issued, fully paid and nonassessable
and free of any preemptive rights in respect thereto. As of the date of this
Agreement, no Voting Debt of the Parent is issued or outstanding. As of the
date of this Agreement, the only issuances of the Parent's capital stock since
December 31, 1997, were upon the
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exercise of options outstanding on December 31, 1997, pursuant to the Parent
Stock Plan. Except as set forth above and except for this Agreement, as of the
date of this Agreement, there are no existing options, warrants, calls,
subscriptions, other rights, or other agreements or commitments of any
character relating to the issued or unissued capital stock or Voting Debt of
the Parent or any of its Subsidiaries, or obligating the Parent or any of its
Subsidiaries to issue, transfer, or sell, or cause to be issued, transferred,
or sold, any shares of capital stock or Voting Debt of, or other equity
interests in, the Parent or of any of its Subsidiaries, or securities
convertible into or exchangeable for such shares or equity interests, or
obligating the Parent or any of its Subsidiaries to grant, extend, or enter
into any such option, warrant, call, subscription, or other right, agreement,
or commitment. As of the date of this Agreement, there are no outstanding
contractual obligations of the Parent or any of its Subsidiaries to repurchase,
redeem, or otherwise acquire any shares of capital stock of the Parent or any
of its Subsidiaries that would have a Material Adverse Effect on the Parent and
its Subsidiaries taken as a whole. As of the date of this Agreement, the
authorized capital stock of the Sub consists of 10,000 shares of Common Stock,
par value $.01 per share, all of which are validly issued, fully paid, and
nonassessable and are owned by the Parent.
Section 5.3 Authority. The Parent and the Sub have the requisite
corporate power and authority to execute and deliver this Agreement and to
perform its obligations under this Agreement. The execution, delivery, and
performance of this Agreement, and the consummation of the Merger and the other
transactions contemplated hereby, have been duly authorized by all necessary
corporate action on the part of the Parent and the Sub and no other corporate
proceedings on the part of the Parent and the Sub are necessary to authorize
this Agreement or to consummate the transactions so contemplated (other than
with respect to the Merger, the approval of the issuance of Parent Common Stock
pursuant to the Merger Agreement by the holders of a majority of the
outstanding shares of Parent Common Stock). This Agreement has been duly
executed and delivered by the Parent and the Sub, as the case may be, and,
assuming this Agreement constitutes a valid and binding obligation of the
Company, constitutes a valid and binding obligation of each of the Parent and
the Sub, as the case may be, enforceable against them in accordance with its
terms.
Section 5.4 Consents and Approvals; No Violations. Neither the
execution, delivery, or performance of this Agreement by the Parent and the
Sub, nor the consummation by the Parent and the Sub of the transactions
contemplated hereby, nor compliance by the Parent and the Sub with any of the
provisions of this Agreement, will (i) conflict with or result in any breach of
any provision of the respective certificates of incorporation, or by-laws of
the Parent and the Sub, (ii) except as contemplated in Sections 7.1(c) or 7.5,
require any filing with, or authorization, consent, permit, or approval of, any
Governmental Entity (except where the failure to obtain such permits,
authorizations, consents, or approvals or to make such filings would not have a
Material Adverse Effect on the Parent and its Subsidiaries taken as a whole),
(iii) result in a violation or breach of, or constitute (with or without notice
or lapse of time or both) a default (or give rise to any right of termination,
cancellation, or acceleration) under, any of the terms, conditions, or
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provisions of any note, bond, mortgage, indenture, license, lease, contract,
agreement, or other instrument or obligation to which the Parent or any of its
Subsidiaries is a party or by which any of them or any of their properties or
assets may be bound, or (iv) violate any order, writ, injunction, decree,
statute, rule, or regulation applicable to the Parent, any of its Subsidiaries,
or any of their properties or assets, except as they relate to (iii) and (iv),
for violations, breaches, or defaults that would not, individually or in the
aggregate, have a Material Adverse Effect on the Parent and its Subsidiaries
taken as a whole.
Section 5.5 SEC Reports and Financial Statements. Each of the
Parent and its Subsidiaries has filed with the SEC, and has made available to
the Company true and complete copies of all forms, reports, schedules,
statements, and other documents, including all exhibits thereto, required to be
filed by it since August 15, 1995, under the Exchange Act or the Securities Act
(as such documents have been amended since the time of their filing,
collectively, the "Parent SEC Documents"). The Parent SEC Documents, including
any financial statements and schedules included therein, at the time filed, (a)
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and (b) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be,
and the applicable rules and regulations of the SEC thereunder. The financial
statements of the Parent included in the Parent SEC Documents comply as to form
in all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto or, in the
case of the unaudited statements, as permitted by the accounting rules
applicable to reports on Form 10-Q under the Exchange Act), and fairly present
(subject, in the case of the unaudited statements, to normal, recurring audit
adjustments) the consolidated financial position of the Parent and its
consolidated Subsidiaries as at the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended. The Parent has
made available to the Company true and complete copies of all material
amendments and modifications that have not been filed by the Parent with the
SEC to all agreements, documents, and other instruments that previously have
been filed by the Parent with the SEC and are currently in effect.
Section 5.6 Absence of Certain Changes or Events. Except as
disclosed in the Parent SEC Documents, there has not been any (a) event,
change, or effect having, individually or in the aggregate, a Material Adverse
Effect on Parent and its Subsidiaries taken as a whole, (b) any declaration,
setting aside or payment of any dividend or distribution in respect of any
capital stock of Parent, (c) any redemption, purchase, or other acquisition of
any of its securities, (d) any change by Parent in its accounting methods,
principles or practices, (e) any revaluation by Parent of any material asset
(including any writing-off of notes or accounts receivable), other than in the
ordinary course of business consistent in all material respects with past
practice, or (f) as of the date of this Agreement, any entry by Parent or any
Subsidiary
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of Parent into any commitment or transaction material to Parent and the
Subsidiaries of Parent taken as a whole, except in the ordinary course of
business and consistent in all material respects with past practice.
Section 5.7 No Undisclosed Liabilities. Except as and to the
extent set forth on the most recent consolidated balance sheet of the Parent
(including the notes thereto) included in the Parent SEC Documents, neither the
Parent nor any of its Subsidiaries has any liability or obligation of any
nature (whether accrued, absolute, contingent, or otherwise) that would be
required to be reflected on a balance sheet or in the notes thereto, prepared
in accordance with GAAP, except for liabilities and obligations (i) disclosed
in any Parent SEC Document filed prior to the date of this Agreement or (ii)
incurred pursuant to this Agreement.
Section 5.8 Employee Benefit Plans.
(a) Schedule 5.8 contains a true and complete
list of each pension, retirement, profit sharing, deferred compensation, stock
option, stock purchase, bonus, medical, welfare, disability, severance or
termination pay, insurance or incentive plan, and each other employee benefit
plan, program, agreement or arrangement, whether funded or unfunded, sponsored,
maintained or contributed to or required to be contributed to by the Parent or
the Sub or by any trade or business, whether or not incorporated, that together
with the Parent or the Sub would be deemed a "single employer" within the
meaning of Section 4001 of ERISA (a "Parent ERISA Affiliate"), for the benefit
of any employee or terminated employee of the Parent or the Sub or any ERISA
Affiliate of the Parent or the Sub (the "Parent Benefit Plans"). Schedule 5.8
identifies each Parent Benefit Plan that is an "employee benefit plan," within
the meaning of Section 3(3) of ERISA (the "Parent ERISA Plans").
(b) Neither the Parent nor the Sub nor any Parent
ERISA Affiliate participates currently or has ever participated in, or is
required currently or has ever been required to contribute to or otherwise
participate in any "multi-employer plan," as defined in Sections 3(37)(A) and
4001(a)(3) of ERISA and Section 414(f) of the Code.
(c) Neither the Parent nor the Sub nor any Parent
ERISA Affiliate does now, or has ever, maintained, established, sponsored,
participated in, or contributed to, any pension plan that is subject to Title
IV of ERISA or Section 412 of the Code.
(d) True and complete copies of each of the
Parent Benefit Plans and related trusts have been furnished to the Company,
together with the most recent financial statement prepared with respect to any
of such Parent Benefit Plans that is funded, the most recent Internal Revenue
Service determination letter, the most recent Summary Plan Description and the
most recent Annual Report together with a statement setting forth any such
documents that cannot be furnished; and any
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such documents furnished and the nature of the documents that cannot be
furnished shall be reasonably satisfactory to the Company.
(e) With respect to each Parent Benefit Plan
intended to be "qualified" within the meaning of Section 401(a) of the Code, a
determination letter from the Internal Revenue Service has been received to the
effect that the Parent Benefit Plan is qualified under Section 401 of the Code
and any trust maintained pursuant thereto is exempt from federal income
taxation under Section 501 of the Code or the time for filing a determination
letter request with the IRS with respect to the Parent Benefit Plans has not
expired, and nothing has occurred or will occur through the Effective Time
(including without limitation the transactions contemplated by this Agreement)
that would cause the loss of such qualification or exemption or the imposition
of any penalty or tax liability.
(f) All contributions required by each Parent
Benefit Plan or by law with respect to all periods through the Effective Time
shall have been made by such date (or provided for by the Parent or the Sub by
adequate reserves on its financial statements) and no excise or other taxes
have been incurred or are due and owing with respect to any Parent Benefit Plan
because of any failure to comply with the minimum funding standards of ERISA
and the Code.
(g) No claim, lawsuit, arbitration, or other
action has been, to the Parent's or the Sub's knowledge, threatened, asserted,
or instituted against any Parent Benefit Plan, any trustee or fiduciaries
thereof, the Parent, the Sub, or any of the assets of any trust maintained
under any Parent Benefit Plan other than which would not have a Material
Adverse Effect on the Parent or the Sub taken as a whole.
(h) All amendments required to bring any Parent
Benefit Plan into conformity with any of the applicable provisions of ERISA and
the Code have been duly adopted or will be adopted within the time prescribed
by law for making such amendments.
(i) Any bonding required with respect to any
Parent ERISA Plan in accordance with applicable provisions of ERISA has been
obtained and is in full force and effect.
(j) Each Parent Benefit Plan has been operated
and administered in accordance with its terms and the terms and the provisions
of ERISA and the Code (including rules and regulations thereunder) applicable
thereto and in practice is tax qualified under Sections 401(a) and 501 of the
Code other than which would not have a Material Adverse Effect on the Parent or
the Sub taken as a whole.
(k) Each Parent Benefit Plan intended to be
"qualified" within the meaning of Section 401(a) of the Code is so qualified
and the trusts maintained under such Parent Benefit Plan is exempt from
taxation under section 501(a) of the Code.
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(l) No "prohibited transaction," as such term is
defined in Section 4975 of the Code and Section 406 of ERISA, has occurred with
respect to any Parent Benefit Plan (and the transactions contemplated by this
Agreement will not constitute or directly or indirectly result in such a
"prohibited transaction") that could subject the Company, the Parent, the Sub,
or any officer, director or employee of any of the foregoing, or any trustee,
administrator or other fiduciary, to a tax or penalty on prohibited
transactions imposed by either Section 502 of ERISA or Section 4975 of the
Code.
(m) No Parent Benefit Plan is under audit by the
IRS or the Department of Labor.
(n) No welfare benefit plan (within the meaning
of Section 3(1) of ERISA) provides for continuing benefits or coverage for any
participant or beneficiary of a participant after such participant's
termination of employment, except as may be required by the Consolidated
Omnibus Budget Reconciliation Act of 1985 or by Sections 601 through 608 of
ERISA, or Sections 162 and 4980B of the Code at the expense of the participant
or the beneficiary of the participant.
(o) Neither the Parent nor the Sub currently
maintains or contributes to any severance pay plan.
(p) No individual shall accrue or receive any
additional benefits, service, or accelerated rights to payment of benefits
under any Parent Benefit Plan as a result of the actions contemplated by this
Agreement;
(q) The Parent and the Sub have complied with all
of the requirements of the Consolidated Omnibus Budget Reconciliation Act of
1985, Sections 601 through 608 of ERISA, and Sections 162 and 4980B of the
Code;
(r) The actions contemplated by this Agreement
shall not result in or satisfy a condition to the payment of compensation that
would, in combination with any other payment, result in an "excess parachute
payment" as such term if defined in Section 280G of the Code.
Section 5.9 Other Benefit Plans. Except as disclosed in the
Parent SEC Documents or in Schedule 5.9 filed before the date of this
Agreement, and except as provided for in this Agreement, as of the date of this
Agreement neither the Parent nor the Sub is a party to any oral or written (i)
union or collective bargaining agreement, (ii) agreement with any executive
officer or other key employee of the Parent or the Sub providing for contingent
benefits or the alteration of terms, based upon the occurrence of a transaction
involving the Parent or the Sub of the nature contemplated by this Agreement,
or agreement providing any term of employment or compensation guarantee
extending for a period longer than one year and for the payment of in excess of
$50,000 per year, or (iii) agreement or plan, including any stock option plan,
stock appreciation right plan, restricted stock plan, or stock purchase plan,
providing for increased benefits or the accelerated vesting of the
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benefits by the occurrence of any of the transactions contemplated by this
Agreement, or the calculation of the value of any of the benefits on the basis
of any of the transactions contemplated by this Agreement.
Section 5.10 Accounting and Tax Matters. Neither the Parent nor,
to the Parent's knowledge, any of its affiliates has taken, agreed to take, or
will take any action that would prevent the Merger from being effected as a
"pooling-of-interests" or would prevent the Merger from constituting a
transaction qualifying under Section 368(a) of the Code. Neither the Parent
nor, to the Parent's knowledge, any of its affiliates or agents is aware of any
agreement, plan or other circumstance that would prevent the Merger from
qualifying under Section 368(a) of the Code and, to the Parent's knowledge, the
Merger will so qualify.
Section 5.11 Litigation. Except as disclosed in the Parent SEC
Documents filed before the date of this Agreement, there is no suit, claim,
action, proceeding, or investigation pending or, to the knowledge of the
Parent, threatened against the Parent or any of its Subsidiaries before any
Governmental Entity. Except as disclosed in the Parent SEC Documents filed
before the date of this Agreement, neither the Parent nor any of its
Subsidiaries is subject to any outstanding order, writ, injunction, or decree
that, insofar as can be reasonably foreseen, individually or in the aggregate,
in the future would have a Material Adverse Effect on the Parent and its
Subsidiaries taken as a whole or would prevent the Parent from consummating the
transactions contemplated hereby.
Section 5.12 Interim Operations of the Sub. The Sub was formed
solely for the purpose of engaging in the transactions contemplated hereby, has
engaged in no other business activities, and has conducted its operations only
as contemplated hereby.
Section 5.13 Compliance with Applicable Law. The Parent and the
Sub hold all permits, licenses, variances, exemptions, orders, and approvals of
all Governmental Entities necessary for the lawful conduct of their respective
businesses (the "Parent Permits"), except for failures to hold such permits,
licenses, variances, exemptions, orders, and approvals that would not,
individually or in the aggregate, have a Material Adverse Effect on the Parent
and the Sub, taken as a whole. The Parent and the Sub are in compliance with
the terms of the Parent Permits, except where the failure so to comply would
not have a Material Adverse Effect on the Parent and the Sub taken as a whole.
Except as disclosed in the Parent SEC Documents filed prior to the date of this
Agreement, the businesses of the Parent and the Sub are not being conducted in
violation of any law, ordinance, or regulation of any Governmental Entity,
except for possible violations that individually or in the aggregate do not,
and, insofar as can be foreseen, in the future will not, have a Material
Adverse Effect on the Parent and the Sub, taken as a whole. No investigation
or review by any Governmental Entity with respect to the Parent or the Sub is
pending or, to the knowledge of the Parent, threatened, nor has any
Governmental Entity indicated an intention to conduct any investigation or
review.
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Section 5.14 Opinion of Financial Advisor. The Parent has
received the opinion of Robert W. Baird & Co. Incorporated, dated the date of
this Agreement, to the effect that, as of such date, the Exchange Ratio is fair
to the Parent's shareholders from a financial point of view. A copy of the
opinion will be delivered to the Company before February 6, 1998.
Section 5.15 Tax Returns and Audits.
(a) The Parent and the Sub each has filed all Tax
Returns that it was required to file. All Tax Returns were correct and
complete in all respects. All Taxes owed by either the Parent or the Sub
(whether or not shown on any Tax Return) have been paid. Neither the Parent
nor the Sub currently is the beneficiary of any extension of time within which
to file any Tax Return. No claim has ever been made by an authority in a
jurisdiction where either the Parent or the Sub does not file Tax Returns that
it is or may be subject to taxation by that jurisdiction. There are no
security interests on any of the assets of the Parent and the Sub that arose in
connection with any failure (or alleged failure) to pay any Tax.
(b) The Parent and the Sub have withheld and paid
all Taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor, stockholder,
or other third party.
(c) No holder of Parent Common Stock or director
or officer (or employee responsible for Tax matters) of the Parent or the Sub
expects any authority to assess any additional Taxes for any period for which
Tax Returns have been filed. There is no dispute or claim concerning any Tax
Liability of the Parent or the Sub either (A) claimed or raised by any
authority in writing or (B) as to which any holder of Parent Common Stock and
the directors and officers (and employees responsible for Tax matters) of the
Parent and the Sub has knowledge based upon personal contact with any agent of
such authority. Schedule 5.15 lists all federal, state, local, and foreign
income Tax Returns filed with respect to the Parent and the Sub for taxable
periods ended on or after December 31, 1995, lists all Tax Returns that have
been audited, and lists all Tax Returns that currently are the subject of
audit. The Parent has delivered to the Company correct and complete copies of
all federal income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by the Parent and the Sub since
December 31, 1995.
(d) Neither the Parent nor the Sub has waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.
(e) The unpaid Taxes of the Parent and the Sub
(A) did not, as of September 30, 1997, exceed the reserve for Tax Liability
(rather than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) set forth on the face of the latest
consolidated balance sheet of the Parent (rather than in any notes thereto)
included in the Parent SEC Documents and (B) do
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not exceed that reserve as adjusted for the passage of time through the Closing
Date in accordance with the past custom and practice of the Parent and the Sub
in filing their Tax Returns.
(f) Neither the Parent nor the Sub has filed a
consent under Code Section 341(f) concerning collapsible corporations.
Neither the Parent nor the Sub has made any payments, is obligated to make any
payments, or is a party to any agreement that under certain circumstances could
obligate it to make any payments that will not be deductible under Code Section
280G. Neither the Parent nor the Sub has been a United States real property
holding corporation within the meaning of Code Section 897(c)(2) during the
applicable period specified in Code Section 897(c)(1)(A)(ii). The Parent and
the Sub each has disclosed on its federal income Tax Returns all positions taken
therein that could give rise to a substantial understatement of federal income
Tax within the meaning of Code Section 6662. Neither the Parent nor the Sub is
a party to any Tax allocation or sharing agreement. Neither the Parent nor the
Sub (A) has been a member of an Affiliated Group filing a consolidated federal
income Tax Return (other than a group the common parent of which was the Parent)
or (B) has any Liability for the Taxes of any Person (other than any for the
Parent and the Sub) under Reg. Section 1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor, by contract, or
otherwise.
(g) Schedule 5.15 sets forth the following
information with respect to each of the Parent and the Sub as of the most
recent practicable date: (A) the amount of any net operating loss, net capital
loss, unused investment or other credit, unused foreign tax, or excess
charitable contribution allocable to the Parent or the Sub, (B) the amount of
any deferred gain or loss allocable to the Parent or the Sub arising out of any
Deferred Intercompany Transaction, and (C) the amount of any Code Section 481
adjustment required to be taken into account by the Company and its
Subsidiaries on any federal income Tax Return to be filed after the date of
this Agreement.
Section 5.16 Material Contracts. Schedule 5.16 lists all material
contracts, agreements, and written arrangements to which the Parent or the Sub
is a party or by which any of their assets is bound. To the Parent's and the
Sub's knowledge, no party to any contract listed on Schedule 5.16 plans to
terminate any such contract with either entity or the Surviving Corporation.
Without limiting the foregoing, Schedule 5.16 lists the following contracts,
agreements, and written arrangements:
(a) Any written agreement concerning a
partnership or joint venture;
(b) Any written arrangement concerning
confidentiality or noncompetition;
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(c) Any written arrangement between the Parent or
the Sub and any of their respective officers, directors, employees, or
"affiliates," as such term is defined in Rule 405, promulgated by the SEC;
(d) Any written arrangement under which the
consequences of a default or termination would be reasonably likely to have a
Material Adverse Effect on the assets, liabilities, business, financial
condition, operations, or results of operations of the Parent or the Sub taken
as a whole; or
(e) Any other written arrangement (or group of
related arrangements) either involving more than $100,000 individually or
$200,000 in the aggregate or not entered into in the ordinary course of
business.
The Parent has delivered to the Company a correct and complete copy of each
written arrangement, as amended to date, listed in Schedule 5.16. With respect
to each such written arrangement: (i) the written arrangement is legal, valid,
binding, enforceable, and in full force and effect, assuming the other parties
thereto have duly executed and delivered such arrangements and had the
necessary power and authority to enter into such written arrangements when
executed and delivered; (ii) the written arrangement will continue to be legal,
valid, binding, and enforceable and in full force and effect on identical terms
following the Closing Date subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equitable principles,
assuming, if applicable, that required consents to assignment are obtained;
(iii) to the Parent's knowledge, no party is in breach or default, and no event
has occurred that with notice or lapse of time or both would constitute a
breach or default, or permit termination, modification, or acceleration under
the written arrangement; and (iv) to the Parent's knowledge, no party has
repudiated any provision of the written arrangement. Neither the Parent nor
the Sub is a party to any oral contract, agreement, or other arrangement that,
if reduced to written form, would be required to be listed in Schedule 5.16.
Section 5.17 Insurance. Schedule 5.17 sets forth and briefly
describes each insurance policy (including liability, property, business risk,
employee health, group life, key man, director/officer liability, and bond
insurance and surety arrangements) currently in effect to which the Parent or
the Sub is a party, a named insured, or otherwise the beneficiary of coverage.
The Parent has delivered or made available to the Company a correct and
complete copy of each such insurance policy. With respect to each insurance
policy currently in effect: (a) the policy is legal, valid, binding, and
enforceable and in full force and effect, assuming the other parties thereto
have duly executed and delivered such policy and had the necessary power and
authority to enter into such policy when executed and delivered; (b) the policy
will continue to be legal, valid, binding, and enforceable and in full force
and effect on identical terms until the Closing Date; (c) neither the Parent
nor the Sub nor any other party to the policy is in breach or default
(including with respect to the payment of premiums or the giving of notices),
and no event has occurred that, with notice or the lapse of time or both, would
constitute such a breach or default or permit termination, modification,
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or acceleration under the policy; and (d) to the Parent's knowledge, no party
to the policy has repudiated any provision thereof.
Section 5.18 Subsidiaries. Except as set forth in Schedule 5.18,
the Parent has no Subsidiaries.
Section 5.19 Real Property. Schedule 5.19 lists all parcels of
real property owned or leased (where the lease payments for any year during the
term of the lease exceed $250,000) by the Parent or the Sub. With respect to
each parcel of owned real property, the Parent or the Sub has good and
marketable title to the real property, free and clear of any mortgage, security
interest, easement, covenant, or other restriction. With respect to each
parcel of leased real property, the lease or sublease is legal, valid, binding,
and enforceable, and in full force and effect. All facilities owned or leased
have received all approvals of governmental authorities (including licenses and
permits) required in connection with the occupancy or operation thereof.
Section 5.20 Environmental and Employee Safety Matters. The
Parent and the Sub have complied with all laws (including rules and regulations
thereunder) of all federal, state, local, and foreign governments (and all
agencies thereof) concerning the environment, public health and safety, and
employee health and safety, and no charge, complaint, action, suit, proceeding,
hearing, investigation, claim, demand, or notice has been filed or commenced
against any of them alleging any failure to comply with any such law or
regulation except for possible violations that in the aggregate do not have a
Material Adverse Effect on the Parent and the Sub taken as a whole. To the
Parent's knowledge, neither the Parent nor the Sub has any liability, and to
the Parent's knowledge there is no basis for such liability, under any law (or
rule or regulation thereunder) of any federal, state, local, or foreign
government (or agencies thereof), concerning release or threatened release of
hazardous substances or pollution or protection of the environment except for
possible liabilities that in the aggregate do not have a Material Adverse
Effect on the Parent and the Sub as a whole.
Section 5.21 Intellectual Property.
(a) The Parent and the Sub own or have the right
to use, pursuant to a valid and enforceable license, all Intellectual Property
used for the operation of its business as presently conducted and as presently
proposed to be conducted. Schedule 5.21 lists each item of Intellectual
Property owned or used by the Parent and the Sub. All items of Intellectual
Property listed in Schedule 5.21, will be owned or available for use by the
Parent and the Sub on identical terms and conditions immediately on and after
the Closing Date and each entity has taken all reasonable actions to protect
each such item of Intellectual Property.
(b) To the Parent's knowledge, the Parent and the
Sub have not interfered with, infringed upon, misappropriated, or otherwise
violated any Intellectual Property rights of third parties, and, each has never
received any charge, complaint, claim, or notice alleging any such
interference, infringement, misappropriation, or violation which would have a
Material Adverse Effect on the
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Parent and the Sub taken as a whole. To the Parent's knowledge, no third party
has interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any of either entity's Intellectual Property rights.
(c) Set forth on Schedule 5.21 is a list and
description of each patent or registration that has been issued to the Parent
or the Sub with respect to any of the Intellectual Property of either entity,
each pending patent application or application for registration that either
entity has made with respect to any of their Intellectual Property, and each
license, agreement, or other permission that either entity has granted to any
third party with respect to any of their Intellectual Property (together with
any exceptions). The Parent and the Sub have delivered to the Company true and
complete copies of all such patents, registrations, applications, licenses,
agreements, and permissions (as amended to date).
Section 5.22 Tangible Personal Property.
(a) The Parent and the Sub own or lease all
tangible personal property (including, without limitation, furniture, fixtures,
equipment, and supplies) necessary for the conduct of its business as presently
conducted and as presently proposed to be conducted.
(b) Except as set forth in the Financial
Statements, each of the Parent and the Sub is the sole lawful and beneficial
owner of its tangible personal property, free and clear of all liens and
encumbrances, except for (i) liens for current taxes not yet due or payable,
(ii) liens imposed by law and incurred in the ordinary course of business for
obligations not yet due to carriers, warehousemen, laborers and materialmen,
and (iii) liens in respect of pledges or deposits under worker's compensation
laws, all of which liens aggregate less than $100,000, and each of the Parent
and the Sub has good and marketable title to all such property.
(c) The tangible personal property of the Parent
and the Sub is in good and serviceable condition, reasonable wear and tear
excepted, and the value attributed to it in the Financial Statements represents
an amount not in excess of the purchase price, less reasonable depreciation, of
such property. Consistent with past practices, the Parent and the Sub shall
repair or replace all tangible personal property used or disposed of after the
date of this Agreement, whether or not in the ordinary course of business.
Section 5.23 Employees and Independent Contractors. Set forth on
Schedule 5.23 is a true and complete schedule of the names of all persons who
perform services for the Parent and the Sub as of the date of this Agreement,
classified as permanent employees, temporary employees, or independent
contractors and classified according to whether the employee's services are
billable to a third party. To the Parent's knowledge, all of the employees and
independent contractors of the Parent and the Sub are properly and currently
licensed, to the extent that licensure is required, and all of such licenses
are in good standing. To the Parent's and the Sub's knowledge, no employee or
group of employees or independent
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contractors listed on Schedule 5.23 plans to terminate employment with either
entity or the Surviving Corporation.
ARTICLE VI
COVENANTS
Section 6.1 Covenants of the Company and the Parent. During the
period from the date of this Agreement and continuing until the Effective Time
(except as expressly contemplated or permitted by this Agreement, or to the
extent that the other party shall otherwise consent in writing):
(a) Ordinary Course. The Company and its
Subsidiaries and the Parent, the Sub and their Subsidiaries shall carry on
their respective businesses in the usual, regular, and ordinary course in
substantially the same manner as conducted before the date of this Agreement
and shall use all reasonable efforts to preserve intact their present business
organizations, keep available the services of their present officers and
employees, and preserve their relationships with customers and others having
business dealings with them to the end that a Material Adverse Effect shall not
result to its goodwill and ongoing business at the Effective Time.
(b) Dividends; Changes in Stock. (i) The Company
shall not, nor shall it permit any of its Subsidiaries to, nor shall the
Company propose to, (A) declare or pay any dividends on or make other
distributions in respect of any of its capital stock except for dividends by a
wholly-owned Subsidiary, (B) split, combine, or reclassify any of its capital
stock, or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of, or in substitution for shares of its capital stock, or
(C) repurchase, redeem, or otherwise acquire any shares of its capital stock.
(ii) The Parent shall not, nor shall it
permit any of its Subsidiaries to, nor shall the Parent propose to, (A) declare
or pay any dividends on, or make other distributions in respect of, any of its
capital stock except for dividends by a wholly-owned Subsidiary, (B) split,
combine, or reclassify any of its capital stock, or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of, or in
substitution for shares of its capital stock (unless appropriate adjustment is
made to prevent dilution in the number of shares to be received by the
Company's shareholders), or (C) repurchase, redeem, or otherwise acquire, or
permit any Subsidiary to repurchase, redeem, or otherwise acquire, any shares
of its capital stock (unless appropriate adjustment is made to prevent dilution
in the number of shares to be received by the Company's shareholders).
(c) Issuance of Securities. (i) The Company
shall not, nor shall it permit any of its Subsidiaries to, issue, deliver, or
sell, or authorize or propose the issuance, delivery, or sale of, any shares of
its capital stock of any class, any Voting Debt, or any securities convertible
into, or any rights, warrants, calls, subscriptions, or options to acquire, any
such shares, Voting Debt or convertible securities, other than (i) the issuance
of shares of Company Common Stock, upon the exercise of stock
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options or stock grants or the acceptance of offers issued, awarded, or granted
or made prior to the date of this Agreement pursuant to the Company Stock
Option Plans, and (ii) issuances by a wholly-owned Subsidiary of its capital
stock to its parent.
(ii) The Parent shall not, nor shall it
permit any of its Subsidiaries to, issue, deliver, or sell, or authorize or
propose the issuance, delivery, or sale of, in excess of 1,500,000 shares of
its capital stock of any class, any Voting Debt, or any securities convertible
into, or any rights, warrants, calls, subscriptions, or options to acquire, any
such shares, Voting Debt or convertible securities, other than (i) the issuance
of shares of Parent Common Stock, upon the exercise of stock options or stock
grants or the acceptance of offers issued, awarded, or granted or made prior to
the date of this Agreement pursuant to the Parent Stock Option Plan or the
issuance of additional options to purchase Shares of Parent Common Stock under
the Parent Stock Option Plan; and (ii) issuances by a wholly-owned Subsidiary
of its capital stock to its parent.
(d) Governing Documents. Except as contemplated
by Sections 2.1 and 2.3, neither the Company nor the Parent shall amend or
propose to amend its Certificate of Incorporation or Articles of Incorporation,
as the case may be, or its By-laws.
(e) No Solicitation of Competing Transactions.
Neither the Company nor any of its Subsidiaries shall, directly or indirectly,
through any officer, director, agent, or otherwise, initiate, solicit, or
knowingly encourage (including by way of furnishing non-public information or
assistance), or take any other action to facilitate knowingly, any inquiries or
the making of any proposal that constitutes, or may reasonably be expected to
lead to, any Competing Transaction, or enter into or maintain or continue
discussions or negotiate with any person or entity in furtherance of such
inquiries or to obtain a Competing Transaction, or agree to or endorse any
Competing Transaction, or authorize or permit any of the officers, directors,
or employees of the Company or any of its Subsidiaries or any investment
banker, financial advisor, attorney, accountant, or other agent or
representative of the Company or any of its Subsidiaries to take any such
action. The Company shall notify the Parent orally promptly and in writing (as
promptly as practicable) of all of the relevant details relating to any inquiry
or proposal that the Company or any of its Subsidiaries or any officer,
director, or employee of the Company, or any investment banker, financial
advisor, attorney, accountant, or other agent or representative of the Company
may receive relating to a Competing Transaction and if such inquiry or proposal
is in writing, the Company shall deliver to the Parent a copy of such inquiry
or proposal unless delivery would violate the fiduciary duties of the Company,
in which case, the Company will provide to the Parent a fair and complete
description of the terms of such Competing Transaction.
Notwithstanding the foregoing, if the Board of Directors of the
Company determines in good faith after receipt of advice of the Company's
independent counsel (who may be the Company's regularly engaged independent
legal counsel) that the action described below is necessary to comply with
their fiduciary duties to the
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Company or its stockholders under applicable law and before taking the action,
the Company (i) provides immediate notice to the Parent that it is taking the
action and provides in any such notice to the Parent in reasonable detail, the
identity of the person or entity making a proposal and the terms and conditions
of the proposal, and (ii) provides the Parent with all information to be
provided to the person or entity that the Parent has not previously been
provided, and (iii) receives from such person or entity an executed
confidentiality agreement on terms not less favorable in any material respect
to the Company than those contained in the Confidentiality Agreement, then the
Company may:
(i) furnish information (including non-public
information) to, or enter into discussions or negotiations with, any person or
entity that makes an unsolicited, bona fide proposal of a Competing
Transaction,
(ii) comply with Rule 14e-2 promulgated under the
Exchange Act with regard to a tender or exchange offer,
(iii) refer any third party to this Section 6.1(e) or
make a copy of this Section 6.1(e) available to any third party, or
(iv) fail to make or withdraw or modify its
recommendation referred to in Section 7.2(a) following the receipt of a
proposal that constitutes, or may reasonably be expected to lead to, a
Competing Transaction
(f) No Acquisitions. The Company shall not, nor
shall it permit any of its Subsidiaries to, acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial equity interest
in or substantial portion of the assets of, or by any manner, any business or
any corporation, partnership, association, or other business organization or
division thereof, or otherwise acquire or agree to acquire any assets not in
the ordinary course of business. Without limiting the generality of the
foregoing, the Company shall not, nor shall it permit any of its Subsidiaries
to (i) make any capital expenditures in excess of $100,000 individually or
$1,000,000 in the aggregate, (ii) make any venture capital investment, or (iii)
open any additional offices.
(g) No Dispositions. Other than (i) as may be
required by law to consummate the transactions contemplated by this Agreement
or (ii) sales or licenses of products or technology in the ordinary course of
business consistent with prior practice, the Company and the Parent shall not,
nor shall it permit any of its Subsidiaries to, sell, lease, license, encumber,
or otherwise dispose of, or agree to sell, lease, license, encumber, or
otherwise dispose of, any of its assets that with respect to the Company are
material or with respect to the Parent would create a Material Adverse Effect,
individually or in the aggregate, to the Company and its Subsidiaries or to the
Parent and its Subsidiaries, as the case may be, taken as a whole.
(h) Indebtedness and Leases. The Company and the
Parent shall not, nor shall it permit any of its Subsidiaries to, incur any
indebtedness for
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borrowed money, guarantee any such indebtedness, issue or sell any debt
securities, warrants, or rights to acquire any debt securities of the Company
or the Parent, as the case may be, or any of its Subsidiaries, guarantee any
debt securities of others, prepay any indebtedness of the Company or the
Parent, as the case may be, other than, in each case, in the ordinary course of
business consistent with prior practice. The Company and the Parent shall not,
and shall not permit any of its Subsidiaries to, enter into any material
leases.
(i) Other Actions. Notwithstanding the fact that
such action might otherwise be permitted pursuant to this Section 6.1, no party
shall, nor shall any party permit any of its Subsidiaries to, take any action
that would, or is reasonably likely to, result in any of its representations
and warranties set forth in this Agreement being untrue, or in any of the
conditions to the Merger set forth in Article VIII not being satisfied,
including any disposition of assets or distributions to the Company's
stockholders that would prevent the Parent's counsel from rendering the opinion
described in Section 8.1(g).
(j) Advise of Changes; Filings. Each party shall
confer on a regular and frequent basis with the other, report on operational
matters, and promptly advise the other orally and in writing of any change or
event having, or which, insofar as can reasonably be foreseen, could have, a
Material Adverse Effect on such party and its Subsidiaries taken as a whole.
Each party shall promptly provide the other (and its counsel) copies of all
filings made by such party with any federal, state, or foreign Governmental
Entity in connection with this Agreement and the transactions contemplated by
this Agreement.
Section 6.2 Additional Covenants. During the period from the
date of this Agreement and continuing until the Effective Time, the Company
agrees as to itself and its Subsidiaries that it will not, without the prior
written consent of the Parent (i) enter into, adopt, amend (except as may be
required by law), or terminate any Company Benefit Plans or other employee
benefit plan, or any agreement, arrangement, plan, or policy between the
Company and one or more of its directors or officers, (ii) except for normal
increases in the ordinary course of business consistent with past practice
that, in the aggregate, do not result in a material increase in benefits or
compensation expense to the Company, increase in any manner the compensation or
fringe benefits of any director, officer, or employee, (iii) pay any benefit
not required by any plan or arrangement as in effect as of the date of this
Agreement (including, without limitation, the granting of stock options, stock
appreciation rights, restricted stock, or performance units), or (iv) enter
into any contract, agreement, commitment, or arrangement to do any of the
foregoing. The Parent will not take any of the foregoing actions except in
connection with the transactions contemplated by this Agreement.
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ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Registration Statement; Joint Proxy Statement.
(a) As promptly as practicable after the date of
this Agreement, the Company shall supply the Parent with the information
pertaining to the Company required by the rules and regulations of the
Securities Act or the Exchange Act, as the case may be, for inclusion or
incorporation by reference in (i) the registration statement on Form S-4 to be
filed with the SEC by the Parent in connection with the issuance of shares of
Parent Common Stock in the Merger (the "Registration Statement"), which
information will not, at the time the Registration Statement is filed with the
SEC and at the time it becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading, and (ii) the proxy statement relating to the meeting of the
Company's and the Parent's respective stockholders to be held in connection
with the Merger (together with any amendments thereof or supplements thereto,
the "Joint Proxy Statement"), which information will not, at the date mailed to
stockholders and at the time of the Stockholders' Meetings of the Company and
of the Parent, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading. No representation is made by the Company with respect to
statements made in the Joint Proxy Statement or the Registration Statement
based on information supplied by the Parent or the Sub in writing for inclusion
in such documents. If before the Effective Time any event or circumstance
relating to the Company or any of its Subsidiaries, or their respective
officers or directors, should be discovered by the Company that should be set
forth in an amendment or a supplement to the Registration Statement or Joint
Proxy Statement, the Company shall promptly inform the Parent and shall make
appropriate amendments or supplements to the Joint Proxy Statement.
(b) As promptly as practicable after the date of
this Agreement, the Parent shall supply the Company with the information
pertaining to the Parent required by the rules and regulations of the Exchange
Act for inclusion or incorporation by reference in the Joint Proxy Statement,
which information will not, at the date mailed to stockholders and at the time
of the Stockholders' Meetings, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they are made, not misleading. No representation is made by the Parent
with respect to statements made in the Registration Statement or Joint Proxy
Statement based on information supplied by the Company in writing for inclusion
in such documents. If before the Effective Time any event or circumstance
relating to the Parent or any of its Subsidiaries, or their respective officers
or directors, should be discovered by the Parent that should be set forth in an
amendment or a supplement to the Registration Statement or Joint Proxy
Statement, the Parent shall promptly inform the Company and shall make
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appropriate amendments or supplements to the Registration Statement or Joint
Proxy Statement.
(c) As promptly as practicable after the
execution of this Agreement, the Company and the Parent shall prepare and file
with the SEC the Joint Proxy Statement relating to the Stockholders' Meetings
of the Company and of the Parent. As promptly as practicable after comments
are received from the SEC on the preliminary proxy materials and after the
furnishing by the Company and the Parent of all information required to be
contained therein, the Parent shall promptly prepare and file with the SEC the
Registration Statement, in which the Joint Proxy Statement shall be included as
a prospectus, in connection with the registration under the Securities Act of
the shares of Parent Common Stock to be issued to the stockholders of the
Company pursuant to the Merger. The Parent shall use all reasonable efforts to
cause the Registration Statement to become effective as promptly as
practicable, and shall take any action required under applicable federal or
state securities laws in connection with the issuance of shares of Parent
Common Stock pursuant to the Merger. The Company shall furnish all information
concerning the Company as the Parent may reasonably request in connection with
such actions and the preparation of the Registration Statement. As promptly as
practicable after the Registration Statement becomes effective, the Company and
the Parent shall mail the Joint Proxy Statement to their respective
stockholders.
Section 7.2 Stockholders' Meetings.
(a) The Company and the Parent shall each,
consistent with applicable law and their Certificate of Incorporation or
Articles of Incorporation, as applicable, and By-laws, call and hold a special
meeting of its stockholders as promptly as practicable for the purpose of
voting upon the adoption or approval of this Agreement, and in the case of the
Parent the issuance of Parent Common Stock pursuant to this Agreement (the
"Stockholders' Meeting"), and shall use all reasonable efforts to hold their
respective Stockholders' Meetings as soon as practicable after the date on
which the Registration Statement becomes effective. The Company and the Parent
shall each, subject to the applicable fiduciary duties of their directors, as
determined by such directors in good faith with the advice of their independent
counsel (who may be their regularly engaged independent legal counsel) (i) use
all reasonable efforts to solicit from its stockholders proxies in favor of the
adoption or approval, as the case may be, of the Merger, (ii) shall take all
other action necessary or advisable to secure the vote or consent of
stockholders required by Delaware or Florida law, as the case may be, to obtain
such adoption or approvals, and the Company and the Parent shall include in the
Joint Proxy Statement the recommendation of its Board of Directors in favor of
this Agreement.
(b) The Parent shall vote (or consent with
respect to) any shares of common stock of the Sub beneficially owned by it, or
with respect to which it has the power (by agreement, proxy, or otherwise) to
cause to be voted (or to provide a consent), in favor of the adoption of this
Agreement at any meeting of the
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shareholders of the Sub at which this Agreement shall be submitted for adoption
and at all adjournments or postponements thereof (or, if applicable, by any
action of the shareholders of the Sub by consent in lieu of a meeting).
(c) The Parent shall appoint the three
individuals listed on Schedule 7.2(c) to the Board of Directors of the Parent
to serve the terms and on the Committees of the Board set forth opposite each
individual's name, commencing at the Effective Time.
Section 7.3 Pooling Opinion of the Parent's Accountants, Comfort
Letter of Company's Accountants and Parent's Accountant's. (a) The Parent
shall use all reasonable efforts to cause to be delivered to the Company a
Pooling Opinion. The Company shall cooperate with Price Waterhouse LLP so that
a Pooling Opinion may be delivered to the Parent.
(b) The Company shall cause to be delivered to
Parent a letter of Price Waterhouse, LLP, the Company's independent auditors,
dated a date within two business days before the date on which the Registration
Statement shall become effective and addressed to Parent, in form and substance
reasonably satisfactory to Parent and customary in scope and substance for
letters delivered by independent public accountants in connection with
underwriting of securities.
(c) Parent shall cause to be delivered to the
Company a letter to Price Waterhouse LLP, Parent's independent auditors, dated
a date within two business days before the date of which the Registration
Statement shall become effective and addressed to the Company, in form and
substance reasonably satisfactory to the Company and customary in scope and
substance for letters delivered by independent public accounts in connection
with registration statements similar to the Registration Statement.
Section 7.4 Access to Information. Upon reasonable notice, the
Company shall (and shall cause each of its Subsidiaries to) afford to the
officers, employees, accountants, counsel, and all other authorized
representatives of the Parent, full access during the period before the
Effective Time, to all its properties, books, contracts, commitments, records,
customers, accountants, and counsel. Upon reasonable notice, the Parent shall
(and shall cause each of its Subsidiaries to) afford to the officers,
employees, accountants, counsel, and all other authorized representatives of
the Company, full access during the period before the Effective Time, to all of
its properties, books, contracts, commitments, records, customers, accountants,
and counsel. During the period before the Effective Time, each of the Company
and the Parent shall (and shall cause each of their respective Subsidiaries to)
furnish promptly to the other a copy of each report, schedule, registration
statement, and other document filed or received by it during such period
pursuant to the requirements of federal securities laws. The Company shall
(and shall cause its Subsidiaries to) furnish promptly to the Parent all other
information concerning its business, properties, and personnel and access for
discussions with such of its management personnel as the Parent may reasonably
request. The Parent shall (and
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shall cause its Subsidiaries to) furnish promptly to the Company all other
information concerning its business, properties, and personnel, and access for
discussions with such of its management personnel as the Company may reasonably
request. The parties will hold any such information that is "evaluation
material" (as defined in the Confidentiality Agreement) subject to the terms of
the Confidentiality Agreement.
Section 7.5 Legal Conditions to Merger. The Company, the Parent,
and the Sub each will take all reasonable actions necessary to comply promptly
with all legal requirements that may be imposed on itself with respect to the
Merger (which actions shall include furnishing all information required under
the HSR Act and in connection with approvals of or filings with any other
Governmental Entity), and will promptly cooperate with and furnish information
to each other in connection with any such requirements imposed upon any of them
or any of their Subsidiaries in connection with the Merger. The Company, the
Parent, and the Sub will each, and will cause its Subsidiaries to, take all
reasonable actions necessary to obtain (and will cooperate with each other in
obtaining) any consent, authorization, order, or approval of, or any exemption
by, any Governmental Entity or other public or private third party, required to
be obtained or made by the Parent, the Company, or any of their Subsidiaries in
connection with the Merger or the taking of any action contemplated thereby or
by this Agreement.
Section 7.6 Affiliates. Before the Closing Date, the Company and
the Parent each shall deliver to the other a letter identifying all persons who
are, at the time this Agreement is submitted for approval to the stockholders
of the Company and the Parent, its "affiliates" for purposes of Rule 145 under
the Securities Act and the SEC's Accounting Series Release 135. The Company
shall use its best efforts to cause each such person to deliver to the Parent
on or before the Closing Date a written agreement, substantially in the form
attached as Exhibit 7.6 hereto.
Section 7.7 Stock Exchange Listing. The Parent shall use its
best efforts to cause the shares of Parent Common Stock to be issued in the
Merger and under the Company Stock Option Plans after the Merger to be approved
for listing on Nasdaq, subject to official notice of issuance, prior to the
Closing Date.
Section 7.8 Company Stock Option Plans.
(a) At the Effective Time, the Parent will
substitute for each outstanding option to purchase Company Common Stock, as
amended or modified, (each a "Company Stock Option") granted under the Company
Stock Option Plans, whether vested or unvested, an option (each a "Replacement
Stock Option") to acquire, on the same terms and conditions as were applicable
under such Company Stock Option prior to the Effective Time (including, without
limitation, any vesting acceleration terms automatically triggered by the
Merger), the number (rounded down to the nearest whole number) of shares of
Parent Common Stock as the holder of such Company Stock Option would have been
entitled to receive pursuant to the Merger had such holder exercised such
option in full immediately before the Effective Time (not taking into account
whether or not such Company Stock Option was in fact
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exercisable), at a price per share (rounded up to the nearest whole cent) equal
to (i) the aggregate exercise price for the shares of Company Common Stock
issuable upon exercise of such Company Stock Option immediately prior to the
Effective Time divided by (ii) the number of shares of Parent Common Stock
deemed issuable pursuant to such Company Stock Option at the Effective Time;
however, in the case of any Company Stock Option to which Section 421 of the
Code applies by reason of its qualification under any of Sections 422-424 of
the Code ("Qualified Stock Options"), the option price, the number of shares
purchasable pursuant to such option, and the terms and conditions of exercise
of such option shall be determined in a manner that complies with Section
425(a) of the Code.
(b) As soon as practicable after the Effective
Time, the Parent shall deliver to each holder of an outstanding Company Stock
Option an appropriate notice setting forth such holder's rights pursuant to the
applicable Replacement Stock Option.
(c) The Parent shall take all corporate action
necessary to reserve for issuance a sufficient number of shares of Parent
Common Stock for delivery pursuant to the terms set forth in this Section.
(d) The Parent shall file a Registration
Statement on Form S-8 (or any successor form), as soon as practicable after the
Effective Time, with respect to the shares of Parent Common Stock issuable upon
exercise of the Replacement Stock Options, and the Parent shall use its best
efforts to maintain the effectiveness of such registration statement(s) (and
maintain the current status of the prospectus or prospectuses relating thereto)
for so long as such Replacement Stock Options shall remain outstanding.
(e) The Company will take all necessary actions
pursuant to the Company Stock Option Plans and the instruments evidencing the
Company Stock Options to provide for the replacement of the Company Stock
Options in accordance with this Section.
Section 7.9 Expenses. Except as set forth in Section 9.3,
whether or not the Merger is consummated, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expenses, and, in connection therewith,
each of the Parent and the Company shall pay, with its own funds and not with
funds provided by the other party, any and all property or transfer taxes
imposed on such party, except that expenses incurred in connection with
printing and mailing the Joint Proxy Statement and the Registration Statement
shall be shared equally by the Parent and the Company.
Section 7.10 Brokers or Finders. Each of the Parent and the
Company represents, as to itself, its Subsidiaries, and its affiliates, that no
agent, broker, investment bankers, financial advisor, or other firm or person
is or will be entitled to any brokers' or finder's fee or any other commission
or similar fee in connection with
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any of the transactions contemplated by this Agreement except Robert W. Baird &
Co. Incorporated, whose fees and expenses will be paid by the Parent in
accordance with the Parent's agreement with such firm and Rauscher Pierce
Refsnes, Inc. and The Robinson-Humphrey Company, LLC, whose fees and expenses
will be paid by the Company in accordance with the Company's agreement with
such firm (copies of which have been delivered by the Company to the Parent
prior to the date of this Agreement), and each of the Parent and the Company
agree to indemnify and hold the other harmless from and against any and all
claims, liabilities, or obligations with respect to any other fees,
commissions, or expenses asserted by any person on the basis of any act or
statement alleged to have been made by such party or its affiliate.
Section 7.11 Additional Agreements; Best Efforts. Subject to the
terms and conditions of this Agreement, each of the parties agrees to use its
best efforts to take, or cause to be taken, all actions and to do, or cause to
be done, all things necessary, proper, or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, subject to the appropriate vote of shareholders of the Company
described in Section 8.1(a), including cooperating fully with the other
parties. Without limiting the generality of the foregoing sentence, the
parties shall provide all information and make all necessary filings under the
HSR Act, and the Parent shall use its best efforts to obtain regulatory
approvals or clearances to consummate the transactions contemplated hereby. If
at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement or to vest the Surviving
Corporation with full title to all properties, assets, rights, approvals,
immunities, and franchises of either of the Constituent Corporations, the
proper officers and directors of each party to this Agreement shall take all
such necessary action.
Section 7.12 Tax Treatment. The Company and the Parent agree to
treat the Merger as a reorganization within the meaning of Section 368(a) of
the Code.
Section 7.13 Public Announcements. Company and the Parent shall
use all reasonable efforts to develop a joint communications plan and each
party shall use all reasonable efforts to ensure that all press releases and
other public statements with respect to the transactions contemplated by this
Agreement shall be consistent with such joint communications plan or, to the
extent inconsistent therewith, shall have received the prior written approval
of the other.
Section 7.14 Indemnification; Directors' and Officers' Liability
Insurance. All rights to indemnification and/or reimbursement existing in
favor of any present or former director, officer, or employee of the Company or
any of its Subsidiaries (an "Indemnified Party") as provided in (a) the
Company's Certificate of Incorporation or Bylaws, or (b) the certificate of
incorporation, bylaws, or similar organizational documents of any of its
subsidiaries, or (c) such related contracts as are listed on Schedule 7.14,
each as in effect on the date hereof, shall survive the Merger with respect to
matters occurring at or prior to the Effective Time including without
limitation, those with respect to this Agreement. The Parent and the Sub agree
that pursuant to the terms of the Merger such obligations and liabilities with
respect to
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indemnification and reimbursement of the Indemnified Parties shall become
obligations and liabilities of the Parent and the Surviving Corporation and its
respective successors. For a period of six years after the Closing Date, the
Parent and the Sub shall cause to be maintained in effect, at no expense to the
insured thereunder, the current policy or policies (hereinafter, simply
"Current Policy") of directors' and officers' liability insurance ("D&O
Insurance") maintained by the Company; however, (i) the Parent and the Sub
shall have the right to substitute therefor a policy or policies that provide
the same limit of liability as the Current Policy and that provide, in all
material respects, the same coverage as the Current Policy, (ii) the D&O
Insurance to be maintained during such six-year period shall cover only
wrongful facts of the insureds that occur prior to the Closing Date; and (iii)
neither the Parent nor the Sub shall be required to expend an amount greater
than 125% of the annual premium on the Current Policy."
ARTICLE VIII
CONDITIONS
Section 8.1 Conditions to Each Party's Obligation To Effect the
Merger. The obligation of each party to effect the Merger shall be subject to
the satisfaction prior to the Closing Date of the following conditions:
(a) Stockholder Approval. This Agreement shall
have been approved or adopted by the affirmative vote of the holders of a
majority of the outstanding shares of Common Stock entitled to vote at its
Stockholders' Meeting.
(b) Nasdaq Listing. The shares of Parent Common
Stock issuable to the Company's stockholders pursuant to this Agreement and
under the Company Stock Option Plans after the Merger shall have been
authorized for listing on Nasdaq, upon official notice of issuance.
(c) Other Approvals. Other than the filing
provided for by Section 2.1 and any filing pursuant to state takeover laws, all
authorizations, consents, orders, or approvals of, or declarations or filings
with, or expirations of waiting periods imposed by, any Governmental Entity
(including the expiration of all applicable waiting periods under the HSR Act),
the failure to obtain which would have a Material Adverse Effect on the Parent
and its Subsidiaries or the Surviving Corporation and its Subsidiaries, in each
case taken as a whole, shall have been filed, occurred, or been obtained. The
Parent shall have received all state securities or "Blue Sky" permits and other
authorizations necessary to issue Parent Common Stock pursuant to this
Agreement after the Merger.
(d) Registration Statement. The Registration
Statement shall have become effective under the Securities Act and shall not be
the subject of any stop order or proceedings seeking a stop order.
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(e) No Injunctions or Restraints. No temporary
restraining order, preliminary or permanent injunction, or other order issued
by any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect.
(f) Pooling Opinion. The Parent and the Company
shall each have received a Pooling Opinion.
(g) Tax Opinion. The Parent and the Company
shall have received the opinion of Holland & Knight LLP, counsel to the Parent,
dated on or about the date that is two business days before the date the Joint
Proxy Statement is first mailed to stockholders of the Company, to the effect
that, on the basis of facts, representations, and assumptions set forth in such
opinion, the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, and that the
Parent, the Sub, and the Company will each be a party to that reorganization
within the meaning of Section 368(b) of the Code, and such opinion shall not
have been withdrawn or modified in any material respect. In rendering such
opinion, counsel to the Parent may rely upon certificates of officers of the
Parent and the Company as to factual matters.
(h) Fairness Opinions. The opinions of Robert W.
Baird & Co., delivered to the Parent as described in Section 5.14, and The
Robinson-Humphrey Company, LLC, delivered to the Company as described in
Section 4.12, shall not have been withdrawn or modified in any material
respect.
Section 8.2 Conditions to Obligations of the Parent and the Sub.
The obligations of the Parent and the Sub to effect the Merger are subject to
the satisfaction of the following conditions, unless waived by the Parent and
the Sub:
(a) Representations and Warranties. The
representations and warranties of the Company set forth in this Agreement shall
be true and correct in all material respects as of the date of this Agreement
and (except to the extent such representations and warranties speak as of an
earlier date) as of the Closing Date as though made on and as of the Closing
Date, except as otherwise contemplated by this Agreement; however, if any such
representation or warranty is already qualified by materiality, for purposes of
this section, each such representation or warranty shall be modified by
materiality only once. The Parent shall have received a certificate signed on
behalf of the Company by an executive officer of the Company to such effect.
(b) Performance of Obligations of the Company.
The Company shall have performed in all material respects all obligations
required to be performed by it under this Agreement at or prior to the Closing
Date, and the Parent shall have received a certificate signed on behalf of the
Company by an executive officer of the Company to such effect.
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(c) Letter from Company Affiliates. The Parent
shall have received from each person named in the letter referred to in Section
7.6 an executed copy of an agreement substantially in the form of Exhibit 7.6.
(d) No Amendments to Resolutions. Neither the
Board of Directors of the Company nor any committee thereof shall have amended,
modified, rescinded, or repealed the resolutions adopted by such Board on
January 30, 1998 (accurate and complete copies of which have been provided to
the Parent) and shall not have adopted any other resolutions in connection with
this Agreement and the transactions contemplated hereby inconsistent with such
resolutions.
(e) Employment and Noncompetition Agreements.
Richard DuPont shall have entered into an employment and noncompetition
agreement with the Sub having the principal terms described on Exhibit 8.2.
(f) Consents Under Company Obligations. Company
shall have obtained the consent or approval of any person whose consent or
approval shall be required under any agreement or instrument in order to permit
the consummation of the transactions contemplated hereby except those which the
failure to obtain would not, individually or in the aggregate, have a Material
Adverse Effect on the Parent, with or without including its ownership of the
Company and its Subsidiaries after the Merger, or the Company.
(g) No Acceleration of Option Vesting. During
the period beginning on the date of this Agreement and ending on the Closing
Date, the Board of Directors of the Company shall not have taken any action to
accelerate the vesting or exercisability of any outstanding option granted
under any Company Stock Option Plan on or before the Closing Date.
(h) Legal Opinion. The Parent shall have
received the opinion of Katten Muchin & Zavis, counsel to the Company, to the
effect that, (i) the Company is duly organized, validly existing under the laws
of the State of Delaware, and has the corporate powers and authority to
execute, deliver, and perform this Agreement, and (ii) this Agreement has been
duly authorized, executed, and delivered by the Company.
(i) Employee Matters. There shall have been no
material changes in the employment of the persons named on Schedule 4.24 either
qualitatively or quantitatively.
Section 8.3 Conditions to Obligations of the Company. The
obligation of the Company to effect the Merger is subject to the satisfaction
of the following conditions, unless waived by the Company:
(a) Representations and Warranties. The
representations and warranties of the Parent and the Sub set forth in this
Agreement shall be true and correct in all material respects as of the date of
this Agreement and (except to the
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extent such representations speak as of an earlier date) as of the Closing Date
as though made on and as of the Closing Date, except as otherwise contemplated
by this Agreement; however, if any such representation or warranty is already
qualified by materiality, for purposes of this section, each such
representation or warranty shall be modified by materiality only once. The
Company shall have received a certificate signed on behalf of the Parent by an
executive officer of the Parent to such effect.
(b) Performance of Obligations of the Parent and
the Sub. The Parent and the Sub shall have performed in all material respects
all obligations required to be performed by them under this Agreement at or
prior to the Closing Date, and the Company shall have received a certificate
signed on behalf of the Parent by an executive officer of the Parent to such
effect.
(c) Directors Election. The persons named on
Schedule 7.2(c) shall have been elected directors of the Parent as of the
Effective Time.
(d) No Amendments to Resolutions. Neither the
Board of Directors of the Parent nor any committee thereof shall have amended,
modified, rescinded, or repealed the resolutions adopted by such Board on
January 30, 1998 (accurate and complete copies of which have been provided to
the Company) and shall not have adopted any other resolutions in connection
with this Agreement and the transactions contemplated hereby inconsistent with
such resolutions.
(e) Legal Opinion. The Company shall have
received the opinion of Holland & Knight LLP, counsel to the Company, to the
effect that, (i) the Parent and Sub each is duly organized, validly existing
under the laws of the State of Florida, and has the corporate power and
authority to execute, deliver, and perform this Agreement, and (ii) this
Agreement has been duly authorized, executed, and delivered by the Parent and
Sub.
ARTICLE IX
TERMINATION,
AMENDMENT, AND WAIVER
Section 9.1 Termination. This Agreement may be terminated and
the Merger may be abandoned at any time before the Effective Time,
notwithstanding any requisite approval and adoption of this Agreement and the
transactions contemplated hereby by the stockholders of the Company or the
Parent:
(a) by written consent duly authorized by the
Boards of Directors of each of the Parent and the Company;
(b) by the Parent or the Company if either (i)
the Effective Time shall not have occurred on or before June 30, 1998; however,
(x) the right to terminate this Agreement under this Section 9.1(b)(i) shall
not be available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date;
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and (y) if a request for additional information is received from a Governmental
Entity pursuant to the HSR Act, the date in this Section 9.1(b)(i) shall be
extended to the 90th day following acknowledgment by such Governmental Entity
that the Parent and the Company have complied with such request, but in any
event not later than July 31, 1998; or (ii) there shall be any statute, law,
ordinance, rule, or regulation that makes consummation of the Merger illegal or
otherwise prohibited or if any court of competent jurisdiction or Governmental
Entity shall have issued an order, decree, or ruling or taken any other action
restraining, enjoining, or otherwise prohibiting the Merger and such order,
decree, ruling, or other action shall have become final and nonappealable;
(c) by the Parent, if (i) the Board of Directors
of the Company withdraws, modifies, or changes its recommendation of this
Agreement or the Merger, or shall have resolved to do any of the foregoing or
the Board of Directors of the Company shall have recommended to the
stockholders of the Company any Competing Transaction or resolved to do so; or
(ii) a tender offer or exchange offer for 30% or more of the outstanding shares
of capital stock of the Company is commenced, and the Board of Directors of the
Company, within ten business days after such tender offer or exchange offer is
so commenced, either fails to recommend against acceptance of such tender offer
or exchange offer by its stockholders or takes no position with respect to the
acceptance of such tender offer or exchange offer by its stockholders;
(d) by the Company in order to enter into a
definitive agreement for a Competing Transaction, upon three business days'
prior written notice to the Parent setting forth, in reasonable detail, the
identity of the person proposing the Competing Transaction and the terms and
conditions of such Competing Transaction, if, as a result of an unsolicited
proposal for such Competing Transaction, the Board of Directors of the
Company, after advice of the Company's independent counsel (who may be the
Company's regularly engaged independent legal counsel), determines in good
faith that, after giving effect to any concessions that may be offered by the
Parent, their fiduciary duties under applicable law require that such Competing
Transaction be accepted; however, the Company shall have complied with Section
6.1(e); provided that upon the delivery by the Company of the notice described
in the preceding clause, the Company shall, and shall cause its financial and
legal advisors to, negotiate with the Parent to make such adjustments in the
terms and conditions of this Agreement as would enable the Parent to proceed
with the transactions contemplated hereby; and also provide that any
termination of this Agreement by the Company pursuant to this Section 9.1(d)
shall not be effective until the Company has made payment of the full fee
required by Section 9.3(a) hereof;
(e) by either the Parent or the Company, if the
Stockholders' Meeting of the Company shall have been held and the stockholders
of the Company shall have failed to adopt this Agreement at such meeting
(including any adjournment or postponement thereof);
(f) by either the Parent or the Company, if the
Stockholders' Meeting of the Parent shall have been held and the shareholders
of the Parent shall
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have failed to approve the issuance of Parent Common Stock in connection with
the Merger at such meeting (including any adjournment or postponement thereof);
(g) by the Company, upon a breach of any
representation, warranty, or agreement set forth in this Agreement such that
the condition set forth in Section 8.3(a) would not be satisfied (a
"Terminating Parent Breach"); however, if such Terminating Parent Breach is
curable by the Parent through the exercise of its reasonable efforts and the
Parent continues to exercise its reasonable efforts, the Company may not
terminate this Agreement under this Section 9.1(g) for a period of 30 days
after the Company's delivery to the Parent of written notice setting forth in
reasonable detail the circumstances giving rise to such Terminating Parent
Breach;
(h) by the Parent, upon a breach of any
representation, warranty, or agreement set forth in this Agreement such that
the condition set forth in Section 8.2(a) would not be satisfied (a
"Terminating Company Breach"); however, if such Terminating Company Breach is
curable by the Company through the exercise of its reasonable efforts and the
Company continues to exercise such reasonable efforts, the Parent may not
terminate this Agreement under this Section 9.1(h) for a period of 30 days from
the date on which the Parent delivers to the Company written notice setting
forth in reasonable detail the circumstances giving rise to such Terminating
Company Breach; or
(i) by the Parent, if the Market Price is less
than $20.00.
Section 9.2 Effects of Termination. In the event of a
termination of this Agreement by either the Company or the Parent as provided
in Section 9.1, this Agreement shall forthwith become void and there shall be
no liability or obligation on the part of the Parent, the Sub, or the Company
or their respective officers or directors, except (i) with respect to the last
sentence of Section 7.4, and Sections 7.10, 7.11 and 9.3, and (ii) to the
extent that such termination results from the willful breach by a party hereto
of any of its representations, warranties, covenants, or agreements set forth
in this Agreement, except as provided in Section 10.7.
Section 9.3 Fees and Expenses Upon Termination.
(a) Termination Fee. The Company shall pay the
Parent a fee of $12,000,000 (the "Termination Fee"), if this Agreement is
terminated:
(i) by the Company pursuant to Section
9.1(b)(i) and a Competing Transaction, having a value per share of
Company Common Stock exceeding the value per share of Company Common
Stock as determined based on the Exchange Ratio on the date of
termination, shall have been consummated within nine months of such
termination;
(ii) pursuant to Section 9.1(c)(i);
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(iii) pursuant to Section 9.1(c)(ii) and
such Competing Transaction shall have been consummated within nine
months of such termination;
(iv) pursuant to Section 9.1(d);
(v) pursuant to Section 9.1(e) and a
Competing Transaction shall have been publicly proposed before such
termination and the transaction contemplated by such Competing
Transaction shall have been consummated within nine months of such
termination; or
(vi) pursuant to Section 9.1(h) and a
Competing Transaction shall have been consummated within nine months
of such termination.
(b) The Company shall reimburse the Parent for
its costs and expenses, as stipulated below, if this Agreement is terminated by
the Company or the Parent pursuant to Section 9.1(e) (the "Company Expense
Payment"). The Company and the Parent agree that the amount of the Company
Expense Payment shall be $1.5 million. If applicable, the Company Expense
Payment shall be in addition to any payment required pursuant to Section
9.3(a). The Parent shall reimburse the Company for its costs and expenses, as
stipulated below, if this Agreement is terminated by the Parent or the Company
pursuant to Section 9.1(f) (the "Parent Expense Payment"). The Parent and the
Company agree that the amount of the Parent Expense Payment shall be $1.5
million.
(c) Any payment required to be made pursuant to
Section 9.3(a) or Section 9.3(b) shall be made as promptly as practicable but
in any event not later than five business days after the party entitled to such
payment delivers a written request for such payment and shall be made by wire
transfer of immediately available funds to an account designated by the
recipient of such payment.
(d) If the party obligated to make a payment
pursuant to Section 9.3(a) or 9.3(b) fails to pay the entire amount of such
payment when due, interest shall be paid on such unpaid amount, commencing on
the date that the Termination Fee became due, at a daily rate equal to the rate
of interest publicly announced by Citibank, N.A., from time to time, in the
City of New York, as such bank's Base Rate plus 2%, divided by 360.
Section 9.4 Amendment. This Agreement may be amended by the
parties hereto, by action taken or authorized by their respective Boards of
Directors, at any time before or after approval of the matters presented in
connection with the Merger by the stockholders of the Company or the Parent,
but, after any such approval, no amendment shall be made that by law requires
further approval by such stockholders without such further approval. This
Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
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Section 9.5 Extension; Waiver. At any time prior to the
Effective Time, the parties hereto, by action taken or authorized by their
respective Boards of Directors may, to the extent legally allowed, (i) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (ii) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant to this
Agreement, and (iii) waive compliance with any of the agreements or conditions
contained herein. Any agreement on the part of a party of this Agreement to
any such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party.
ARTICLE X
MISCELLANEOUS
Section 10.1 Nonsurvival of Representations, Warranties, and
Agreements. None of the representations, warranties, and agreements in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time, except for the agreements contained in Sections
3.1, 3.2, 7.8, 7.11 and 7.14, the last sentence of Section 9.4, and Article X,
the agreements of the "affiliates" of the Company delivered pursuant to
Section 7.6 and the agreements listed in Section 8.2(e).
Section 10.2 Notices. All notices and other communications under
this Agreement shall be in writing and shall be deemed given if delivered
personally, telecopied (if confirmed), sent via recognized overnight carrier or
mailed by registered or certified mail (return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) If to the Parent or the Sub, to
Romac International, Inc.
120 West Hyde Park Place
Tampa, Florida 33606
Attention: David L. Dunkel,
President & Chief Executive
Officer
Telecopy No.: (813) 254-9640
with a copy to
Holland & Knight LLP
400 North Ashley, Suite 2300
Tampa, Florida 33602
Attention: Michael L. Jamieson, Esq.
Telecopy No.: (813) 229-0134
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(b) if to the Company, to
Source Services Corporation
5580 LBJ Freeway, Suite 300
Dallas, Texas 75240
Attention: D. Les Ward,
President & Chief Executive
Officer
Telecopy No.: (972) 385-7003
with a copy to
Herbert Wander, Esq.
Katten Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661
Telecopy No.: (312) 902-1061
Section 10.3 Interpretation. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this Agreement
unless otherwise indicated. The table of contents and headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Whenever the words "include,"
"includes," or "including" are used in this Agreement, they shall be deemed to
be followed by the words "without limitation." The phrase "made available" in
this Agreement shall mean that the information referred to has been made
available if requested by the party to whom such information is to be made
available. For the purpose of this Agreement, "Knowledge" shall mean (i) with
respect to the Company and its Subsidiaries, the actual knowledge of D. Les
Ward and Richard DuPont and (ii) with respect to the Parent and its
Subsidiaries, the actual knowledge of David L. Dunkel, James D. Swartz, Tom
Calcaterra and Howard W. Sutter.
Section 10.4 Counterparts. This Agreement may be executed in two
or more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when two or more counterparts have been
signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.
Section 10.5 Entire Agreement; No Third Party Beneficiaries;
Rights of Ownership. This Agreement (including the documents and instruments
referred to herein) (a) constitutes the entire agreement and supersedes all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter of this Agreement, and (b) except as
otherwise contemplated in the covenants listed in Section 10.1 (which covenants
shall be enforceable by the persons affected thereby following the Effective
Time), are not intended to confer upon any person other than the parties hereto
any rights or remedies under this Agreement.
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Section 10.6 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Florida without
regard to any applicable conflicts of law.
Section 10.7 No Remedy in Certain Circumstances. Each party
agrees that, should any court or other competent authority hold any provision
of this Agreement or part of this Agreement to be null, void, or unenforceable,
or order any party to take any action inconsistent with this Agreement or not
to take any action required herein, the other party shall not be entitled to
specific performance of such provision or part of this Agreement or to any
other remedy, including money damages or a right of termination of this
Agreement pursuant to Section 9.1(b)(i), for breach of this Agreement or of any
other provision of this Agreement or part of this Agreement as a result of such
holding or order.
Section 10.8 Publicity. Except as otherwise required by law or
the rules of Nasdaq, for so long as this Agreement is in effect, neither the
Company nor the Parent shall, or shall permit any of its Subsidiaries to, issue
or cause the publication of any press release or other public announcement with
respect to the transactions contemplated by this Agreement without the consent
of the other party, which consent shall not be unreasonably withheld.
Section 10.9 Assignment. Neither this Agreement nor any of the
rights, interests, or obligations under this Agreement shall be assigned by any
of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties, except that the Sub may assign, in
its sole discretion, any or all of its rights, interests, and obligations under
this Agreement to the Parent or to any direct or indirect wholly owned
Subsidiary of the Parent. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of, and be enforceable by the
parties and their respective successors and assigns.
55
<PAGE> 62
IN WITNESS WHEREOF, the Parent, the Sub, and the Company have caused
this Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
SOURCE SERVICES CORPORATION ROMAC INTERNATIONAL, INC.
By:/s/ D. Les Ward By:/s/ David L. Dunkel
------------------------------- ------------------------------
Title: Chief Executive Officer Title: Chief Executive Officer
NEW ROMAC, INC.
By:/s/ James D. Swartz
------------------------------
Title: President
56
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-30019 and No. 333-42005) of Source Services
Corporation of our report dated February 6, 1998 appearing on page 15 of this
Form 10-K.
/s/ Price Waterhouse LLP
- ------------------------
PRICE WATERHOUSE LLP
Dallas, Texas
March 16, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM THE BALANCE
SHEET AND STATEMENT OF REVENUES AND EXPENSES AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH THE COMPANY'S FORM 10-K FOR THE YEAR ENDED DECEMBER 28, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> DEC-28-1997
<CASH> 23,723
<SECURITIES> 0
<RECEIVABLES> 49,254
<ALLOWANCES> 4,543
<INVENTORY> 0
<CURRENT-ASSETS> 78,554
<PP&E> 14,097
<DEPRECIATION> 6,382
<TOTAL-ASSETS> 86,269
<CURRENT-LIABILITIES> 26,595
<BONDS> 0
0
0
<COMMON> 274
<OTHER-SE> 58,750
<TOTAL-LIABILITY-AND-EQUITY> 86,269
<SALES> 294,676
<TOTAL-REVENUES> 294,676
<CGS> 143,582
<TOTAL-COSTS> 143,582
<OTHER-EXPENSES> 133,264
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 181
<INCOME-PRETAX> 18,573
<INCOME-TAX> 8,045
<INCOME-CONTINUING> 10,528
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,528
<EPS-PRIMARY> 0.77
<EPS-DILUTED> 0.75
</TABLE>
