<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 25, 1998
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
StaffMark, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
StaffMark, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):*
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
* Previously paid on August 27, 1998 in connection with confidential filing of
preliminary confidential proxy material.
<PAGE> 2
[STAFFMARK LOGO]
SEPTEMBER 25, 1998
Dear StaffMark Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"StaffMark Special Meeting") of StaffMark, Inc., a Delaware corporation
("StaffMark"), to be held at The University of Arkansas Center for Continuing
Education, 2 East Center Street, Fayetteville, Arkansas 72701, on October 27,
1998 at 10:00 a.m., Central Standard Time.
At the StaffMark Special Meeting, you will be asked to approve the issuance
(the "Issuance") of StaffMark common stock pursuant to: (i) the Merger
Agreement, dated as of August 18, 1998 (the "Transaction Agreement"), by and
among StaffMark, an indirect wholly-owned subsidiary of StaffMark (the
"Transaction Subsidiary"), and Robert Walters plc (the "Company"), and the
transactions contemplated thereby; and (ii) the option arrangements for the
Company, whereby StaffMark Common Stock will be issued to employees and
directors of the Company who exercise outstanding options to acquire ordinary
shares of the Company. Pursuant to the Transaction Agreement and applicable
British law: (a) the Company will become an indirect wholly-owned subsidiary of
StaffMark; (b) outstanding ordinary shares of the Company (other than such
shares held by the Transaction Subsidiary) will be cancelled and new ordinary
shares of the Company will be issued to the Transaction Subsidiary; and (c)
former Company shareholders will receive for each outstanding ordinary share no
more than 0.272 of a share of StaffMark common stock, subject to downward
adjustment in certain circumstances as provided in the Transaction Agreement
(collectively, the "Transaction"). A detailed description of the Transaction
Agreement and the Transaction is set forth in the accompanying Proxy Statement,
which you should read carefully.
After careful consideration, StaffMark's Board of Directors has determined
that the Issuance is in the best interest of the stockholders of StaffMark.
Accordingly, the Board has approved the Issuance and recommends that all
StaffMark stockholders vote for its approval.
I firmly believe that there are strong growth prospects for the combined
companies. The Transaction represents a continuation of StaffMark's business
strategy of focusing on expanding our value-added high margin professional
business and geographic scope, as well as increasing our internal growth rate
following the Transaction. This is our largest transaction to date, providing
StaffMark with a platform in the professional area of accounting and finance
staffing and outsourcing and critical mass in the U.K., continental Europe,
Australia and Asia. The management teams of StaffMark and Robert Walters plc
have a similar culture and share a common vision of creating a leading global
human resource business solutions company.
Your vote is important. Whether or not you plan to attend the Special
Meeting in person, I urge you to either complete, date, sign and return the
accompanying proxy card in the provided prepaid envelope or attend the StaffMark
Special Meeting and vote in person.
Sincerely,
/s/ CLETE T. BREWER
Clete T. Brewer
President and Chief Executive
Officer
<PAGE> 3
STAFFMARK, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 27, 1998
To the Stockholders of StaffMark, Inc.:
Notice is hereby given that a Special Meeting of Stockholders (the
"StaffMark Special Meeting") of StaffMark, Inc., a Delaware corporation
("StaffMark"), will be held at The University of Arkansas Center for Continuing
Education, 2 East Center Street, Fayetteville, Arkansas 72701, on October 27,
1998 at 10:00 a.m., Central Standard Time, and any adjournments or postponements
thereof, for the following purposes:
(1) To consider and vote upon a proposal to approve the issuance (the
"Issuance") of common stock, par value $0.01 per share, of StaffMark
("StaffMark Common Stock"), pursuant to: (i) a Merger Agreement, dated as
of August 18, 1998 (the "Transaction Agreement"), by and among StaffMark,
PFS&C International Holding Company, Inc., an indirect wholly-owned
subsidiary of StaffMark (the "Transaction Subsidiary"), and Robert Walters
plc, a company registered under the Companies Act 1985 of Great Britain
(the "Company"), and the transactions contemplated thereby; and (ii) the
option arrangements for the Company, whereby StaffMark Common Stock will be
issued after the closing of the Transaction (as defined below) to employees
and directors of the Company who exercise outstanding options to acquire
ordinary shares of the Company. Pursuant to the Transaction Agreement and
applicable British law: (a) the Company will become an indirect
wholly-owned subsidiary of StaffMark; (b) outstanding ordinary shares of
the Company (other than such shares held by the Transaction Subsidiary)
will be cancelled and new ordinary shares of the Company will be issued to
the Transaction Subsidiary; and (c) former Company shareholders will
receive for each outstanding ordinary share no more than 0.272 of a share
of StaffMark Common Stock, subject to downward adjustment in certain
circumstances as provided in the Transaction Agreement (collectively, the
"Transaction").
(2) To transact such other business as may properly come before the
StaffMark Special Meeting.
The Board of Directors of StaffMark has fixed at the close of business on
September 15, 1998 as the record date for determination of StaffMark
stockholders entitled to notice of and to vote at the StaffMark Special Meeting.
A complete list of stockholders entitled to vote will be available for
inspection at the offices of StaffMark at 302 East Millsap Road, Fayetteville,
Arkansas for a period of ten days prior to the StaffMark Special Meeting.
By Order of the Board of Directors
/s/ GORDON Y. ALLISON
Gordon Y. Allison
Secretary
Fayetteville, Arkansas
September 25, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE FILL IN, SIGN, DATE,
AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE, TO WHICH NO POSTAGE
NEED BE AFFIXED IF MAILED IN THE UNITED STATES. PLEASE DO NOT SEND STOCK
CERTIFICATES WITH YOUR PROXY CARD.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
INDEX OF DEFINED TERMS...................................... i
FOREIGN CURRENCY CONSIDERATIONS............................. iv
SUMMARY..................................................... 1
POTENTIAL RISKS, DETRIMENTS AND OTHER CONSIDERATIONS
ASSOCIATED WITH THE TRANSACTION........................... 16
THE STAFFMARK SPECIAL MEETING............................... 18
Time and Place; Purpose................................... 18
Voting Rights; Quorum Requirement; Votes Required for
Approval............................................... 18
Proxies................................................... 18
Recommendation of the StaffMark Board..................... 19
THE TRANSACTION............................................. 19
General................................................... 19
Issuance of StaffMark Common Stock in the Transaction..... 20
Share Options............................................. 20
Effective Date............................................ 21
Background of the Transaction............................. 21
Reasons for the Transaction............................... 24
Opinion of Financial Advisor to StaffMark................. 25
Percentage Ownership Interest of Company Shareholders in
StaffMark after the Effective Date..................... 28
Regulatory Approvals...................................... 29
Certain Federal Securities Law Consequences; Affiliate
Agreements............................................. 29
Stock Listing............................................. 30
Accounting Treatment...................................... 30
Certain Federal Income Tax Consequences................... 30
The Transaction Support Agreements........................ 31
No Appraisal Rights....................................... 33
THE TRANSACTION AGREEMENT................................... 33
Covenants................................................. 33
No Solicitation........................................... 34
Representations and Warranties............................ 35
Conditions to the Transaction............................. 35
Termination; Termination Fee.............................. 36
Expenses.................................................. 37
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND
INFORMATION............................................... 38
UNAUDITED PRO FORMA FINANCIAL INFORMATION................... 39
UNITED KINGDOM CORPORATE AND REGULATORY APPROVALS CONCERNING
THE TRANSACTION........................................... 57
The Scheme of Arrangement................................. 57
The Court Meeting......................................... 57
The Extraordinary General Meeting of the Company.......... 58
BUSINESS OF THE COMPANY..................................... 58
Description of the Company's Business..................... 58
Personnel................................................. 59
Operations................................................ 59
Properties of the Company................................. 60
Litigation................................................ 60
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE COMPANY.................. 61
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
FORWARD LOOKING STATEMENTS.................................. 66
DIRECTORS OF STAFFMARK FOLLOWING THE TRANSACTION............ 66
EXPERTS..................................................... 66
ADDITIONAL INFORMATION ABOUT STAFFMARK...................... 67
OTHER MATTERS; STAFFMARK STOCKHOLDER PROPOSALS FOR 1999
ANNUAL MEETING............................................ 68
INDEX TO FINANCIAL STATEMENTS............................... F-1
</TABLE>
Appendix I: Transaction Agreement
Appendix II: Conditions to the Transaction
Appendix III: Opinion of Morgan Stanley & Co. Limited
<PAGE> 6
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM SECTION REFERENCE PAGE NO.
- ------------ ----------------- --------
<S> <C> <C>
"Affiliate Agreements" "The Transaction -- Certain Federal Securities Law 30
Consequences; Affiliate Agreements"
"Affiliates" "The Transaction -- Certain Federal Securities Law 29
Consequences; Affiliate Agreements"
"ANZ" "Management's Discussion and Analysis of Financial 64
Consideration and Results of Operations of the
Company"
"Associates" "The Transaction Agreement -- No Solicitation" 34
"Base Value" "The Transaction -- Issuance of StaffMark Common 20
Stock in the Transaction"
"Brewer" "Summary -- StaffMark Selected Financial Data" 10
"Combined Group" "Summary -- Introduction" 1
"Commercial" "Summary -- StaffMark" 4
"Companies Act" "Summary -- Introduction" 1
"Company" "Summary -- Introduction" 1
"Company Board" "Summary -- The Transaction" 8
"Company Group" "Summary -- Introduction" 1
"Company Optionholders" "Summary -- Introduction" 1
"Company Shares" "Summary -- Introduction" 1
"Compensation Differential" "Unaudited Pro Forma Financial Information" 39
"Consideration Shares" "Summary -- Introduction" 1
"Court Meeting" "Summary -- Introduction" 1
"Credit Facility" "Management's Discussion and Analysis of Financial 64
Consideration and Results of Operations of the
Company"
"DGCL" "Summary -- The Transaction; Appraisal Rights" 9
"Discount Facility" "Management's Discussion and Analysis of Financial 64
Consideration and Results of Operations of the
Company"
"EBITDA" "The Transaction -- Opinion of Financial Advisor to 27
StaffMark"
"EBS" "Unaudited Pro Forma Financial Information" 40
"Effective Date" "Summary -- The Transaction" 7
"EGM" "Summary -- The Transaction" 7
"Exchange Ratio" "The Transaction -- Issuance of StaffMark Common 20
Stock in the Transaction"
"Exclusivity Period" "The Transaction Agreement -- No Solicitation" 34
"Exclusivity Letter" "The Transaction -- Background of the Transaction" 22
"Existing Company Shares" "Summary -- Introduction" 1
"February Meetings" "The Transaction -- Background of the Transaction" 21
"Final Exchange Rate" "The Transaction -- Issuance of StaffMark Common 20
Stock in the Transaction"
"Final StaffMark Price" "The Transaction -- Issuance of StaffMark Common 20
Stock in the Transaction"
"Flexible" "Unaudited Pro Forma Financial Information" 40
</TABLE>
i
<PAGE> 7
<TABLE>
<CAPTION>
DEFINED TERM SECTION REFERENCE PAGE NO.
- ------------ ----------------- --------
<S> <C> <C>
"Founding Companies" "Summary -- StaffMark Selected Financial Data" 10
"Global" "Unaudited Pro Forma Financial Information" 40
"High Court" "Summary -- Introduction" 1
"High Court Order" "Summary -- Introduction" 1
"Historical" "Summary -- Comparative Per Share Data" 15
"Historical Exchange Ratios" "The Transaction -- Opinion of Financial Advisor to 27
StaffMark"
"Incorporated Risk Factors" "Forward Looking Statements" 66
"Incremental Value" "The Transaction -- Issuance of StaffMark Common 20
Stock in the Transaction"
"Initial Floatation" "Management's Discussion and Analysis of Financial 64
Condition and Results of Operation of the Company"
"Initial Public Offering" "Summary -- StaffMark" 4
"Issuance" "Summary -- Introduction" 1
"IT" "Summary -- StaffMark" 4
"Midland" "Management's Discussion and Analysis of Financial 64
Condition and Results of Operations of the Company"
"Midland Overdraft Facility" "Management's Discussion and Analysis of Financial 64
Condition and Results of Operations of the Company"
"Modified Proposal" "The Transaction -- Background of the Transaction" 22
"Morgan Stanley" "Summary -- The Transaction; Opinion of StaffMark's 8
Financial Advisor"
"1973 Act" "The Transaction -- Regulatory Approvals" 29
"Option Arrangements" "Summary -- Introduction" 1
"Other Founding Companies" "Unaudited Pro Forma Financial Information" 39
"Overdraft Facility" "Management's Discussion and Analysis of Financial 64
Condition and Results of Operations of the Company"
"Payroll Facility" "Management's Discussion and Analysis of Financial 64
Condition and Results of Operations of the Company"
"Professional/IT" "Summary -- StaffMark" 4
"Proforma Combined" "Summary -- Comparative Per Share Data" 15
"Progressive" "Unaudited Pro Forma Financial Information" 40
"Recruitment Transactions" "The Transaction -- Opinion of Financial Advisor to 26
StaffMark"
"Registrar" "The Transaction -- Conditions to the Transaction" 7
"Remaining Negotiated Points" "The Transaction -- Background of the Transaction" 23
"SAB" "Summary -- StaffMark Selected Financial Data" 10
"Savings Arrangement" "The Transaction -- Share Options" 21
"Scheme of Arrangement" "Summary -- Introduction" 1
"Second Issue Shares" "Management's Discussion and Analysis of Financial 64
Condition and Results of Operations of the Company"
</TABLE>
ii
<PAGE> 8
<TABLE>
<CAPTION>
DEFINED TERM SECTION REFERENCE PAGE NO.
- ------------ ----------------- --------
<S> <C> <C>
"Scheme Document" "The Transaction -- The Transaction Support 31
Agreements"
"Securities Act" "Certain Federal Securities Law -- Consequences; 29
Affiliate Agreements"
"SG&A" "Management's Discussion and Analysis of Financial 62
Condition and Results of Operations of the Company"
"Share Option Schemes" "The Transaction -- Share Options" 20
"SLC" "Unaudited Pro Forma Financial Information" 40
"StaffMark" "Summary -- Introduction" 1
"StaffMark Board" "Summary -- Introduction" 1
"StaffMark Common Stock" "Summary -- Introduction" 1
"StaffMark Group" "Summary -- Introduction" 1
"StaffMark Special Meeting" "Summary -- Introduction" 1
"Strategic Legal" "Unaudited Pro Forma Financial Information" 40
"Takeover Proposal" "Summary -- The Transaction; Termination of the 8
Transaction"
"Taps" "Summary -- Business of the Company" 5
"Tax Adjustment" "Unaudited Pro Forma Financial Information" 39
"Termination Fee" "Summary -- The Transaction; Termination of the 8
Transaction"
"The Global Pipeline" "Summary -- Business of the Company" 5
"Transaction" "Summary -- Introduction" 1
"Transaction Agreement" "Summary -- Introduction" 1
"Transaction Committee" "The Transaction -- Background of the Transaction" 23
"Transaction Subsidiary" "Summary -- Introduction" 1
"Transaction Support Agreements" "Summary -- The Transaction; Transaction Support 9
Agreements"
"TriStar" "Management's Discussion and Analysis of Financial 62
Condition and Results of Operations of the Company"
"U.K." "Foreign Currency Considerations" iv
"U.K. GAAP" "Foreign Currency Considerations" iv
"U.K. Takeover Code" "The Transaction -- The Transaction Support 31
Agreements"
"U.K. Transactions" "The Transaction -- Opinion of Financial Advisor to 26
StaffMark"
"U.S. GAAP" "Foreign Currency Considerations" iv
</TABLE>
iii
<PAGE> 9
FOREIGN CURRENCY CONSIDERATIONS
The financial statements of Robert Walters plc appearing in this Proxy
Statement are expressed in United Kingdom ("U.K.") pounds sterling and are
prepared in accordance with accounting principles generally accepted in the U.K.
("U.K. GAAP"). U.K. GAAP differs in certain respects from accounting principles
generally accepted in the United States ("U.S. GAAP"). The significant
differences between U.K. GAAP and U.S. GAAP relevant to Robert Walters plc are
explained in "Summary -- Reconciliation of U.K. GAAP to U.S. GAAP."
References herein to "U.S. dollars," "U.S. $," "dollars," and "$" are to
United States currency. References herein to A$ are to Australian dollars.
References herein to "pounds sterling," "British pounds," "L," "pence" and "p"
are to U.K. currency. Solely for convenience, this Proxy Statement contains
translations of certain pound sterling amounts into U.S. dollars at specified
rates. These translations should not be construed as representations that the
pound sterling amounts actually represent such U.S. dollar amount or could be
converted into U.S. dollars at the rates indicated. Unless otherwise indicated,
the translations of pounds sterling into U.S. dollars have been made at either
the exchange rate at the end of the period for which financial information is
presented or at the weighted average exchange rate, as applicable. See
"Summary -- Pro Forma Selected Financial Data" and "Unaudited Pro Forma
Financial Information."
On September 11, 1998, the noon buying rate in the City of New York for
cable transfers in pounds sterling as certified for customs purposes by the
Federal Reserve Bank of New York (the "Noon Buying Rate") was L1.00 -- $1.6847.
The following table sets forth certain information concerning the exchange rates
between U.S. dollars and pounds sterling based on the Noon Buying Rate,
expressed as U.S. dollars per pound sterling.
<TABLE>
<CAPTION>
FINANCIAL YEAR PERIOD END AVERAGE(A) HIGH LOW
-------------- ---------- ---------- ---- ---
<S> <C> <C> <C> <C>
1993......................................... $1.4775 $1.4965 $1.5900 $1.4175
1994......................................... $1.5665 $1.5393 $1.6368 $1.4615
1995......................................... $1.5535 $1.5803 $1.6440 $1.5302
1996......................................... $1.7123 $1.5733 $1.7123 $1.4948
1997......................................... $1.6427 $1.6391 $1.7035 $1.5775
1998 (through August 31, 1998)............... $1.6760 $1.6548 $1.6910 $1.6162
</TABLE>
- ---------------
(a) The average of the Noon Buying Rates in effect on the last day of each month
during the relevant period.
iv
<PAGE> 10
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information appearing elsewhere in, and
incorporated by reference into, this Proxy Statement. All references to
StaffMark refer to StaffMark, Inc. and where appropriate, its subsidiaries and
their respective operations and include StaffMark's predecessors.
INTRODUCTION
StaffMark, Inc. a Delaware corporation ("StaffMark" and, together with its
subsidiaries, the "StaffMark Group"), is furnishing this Proxy Statement to
holders of its common stock, par value $0.01 per share (the "StaffMark Common
Stock"), in connection with the solicitation of proxies by the Board of
Directors of StaffMark (the "StaffMark Board") for use at its special meeting of
stockholders, and at any adjournment or postponement thereof (the "StaffMark
Special Meeting").
At the StaffMark Special Meeting, holders of StaffMark Common Stock will be
asked to vote upon a proposal to approve the issuance (the "Issuance") of
StaffMark Common Stock, pursuant to: (i) a Merger Agreement, dated as of August
18, 1998 (the "Transaction Agreement"), by and among StaffMark, PFS&C
International Holding Company, Inc., a Nevada corporation and an indirect
wholly-owned subsidiary of StaffMark (the "Transaction Subsidiary"), and Robert
Walters plc (individually, the "Company" and, together with its subsidiaries,
the "Company Group"), and the transactions contemplated thereby (which issuance
of StaffMark Common Stock shall be referred to as the "Consideration Shares");
and (ii) the option arrangements for the Company (the "Option Arrangements"),
whereby StaffMark Common Stock will be issued after the closing of the
Transaction (as defined below) to employees and directors of the Company who
hold options ("Company Optionholders") and exercise such options during certain
periods permitted under the term of such options (which in general shall not be
permitted after the six-month anniversary of the Transaction). Pursuant to the
Transaction Agreement and applicable British law as described in the following
paragraph: (a) the Company will become an indirect wholly-owned subsidiary of
StaffMark; (b) outstanding Existing Company Shares (as defined below) will be
cancelled and new Company Shares (as defined below) will be issued to the
Transaction Subsidiary; and (c) former Company shareholders will receive for
each Existing Company Share no more than 0.272 of a share of StaffMark Common
Stock, subject to downward adjustment in certain circumstances as provided in
the Transaction Agreement (collectively, the "Transaction"). Pursuant to the
Option Arrangements, Company Optionholders will receive the same number of
shares of StaffMark Common Stock as would have been issued in the Transaction if
such Company Optionholder had exercised such Company options for ordinary shares
of 5p each in the capital of the Company (the "Company Shares") immediately
prior to the Transaction. Unless otherwise provided, references in this Proxy
Statement to the "Combined Group" mean the combined StaffMark Group and Company
Group following the effective date of the Transaction.
The Company will be acquired by StaffMark by way of a Scheme of Arrangement
(the "Scheme of Arrangement"). A Scheme of Arrangement is a U.K. statutory
procedure whereby, subject to the requisite approvals of Company shareholders
and the sanction of the High Court of Justice in England and Wales (the "High
Court"), the Existing Company Shares will be cancelled and new Company Shares
will be issued to the Transaction Subsidiary, leaving the Transaction Subsidiary
as the sole shareholder of the Company and the Company as an indirect
wholly-owned subsidiary of StaffMark. In consideration for the cancellation of
the Existing Company Shares, the holders of Existing Company Shares will receive
the Consideration Shares. "Existing Company Shares" means Company Shares in
issue on the date of the Scheme of Arrangement together with any further Company
Shares: (i) in issue 48 hours prior to the time of the meeting (the "Court
Meeting") convened by order of the High Court to consider and, if thought fit,
approve the Scheme of Arrangement (with or without amendment); and (ii) issued
thereafter and prior to the close of business on the London business day before
the date of the order of the High Court (the "High Court Order") sanctioning the
Scheme of Arrangement under Section 425 of the Companies Act of 1985, as
amended, of Great Britain (the "Companies Act") and confirming the cancellation
of the share capital in connection therewith under Section 137 of the Companies
Act either on terms that the original or any subsequent holders thereof shall be
bound by the Scheme of Arrangement or in respect of which the holders thereof
shall have agreed to be bound
1
<PAGE> 11
by the Scheme of Arrangement, in each case other than any such Company Shares
held or to be held by the Transaction Subsidiary. See "The Transaction" and
"United Kingdom Corporate and Regulatory Approvals Concerning the Transaction."
A copy of the Transaction Agreement and the conditions to the Transaction
are attached hereto as Appendix I and II, respectively. Reference is made to,
and this summary is qualified in its entirety by, the more detailed information
contained in this Proxy Statement and the Appendices hereto. StaffMark
stockholders are urged to read this Proxy Statement and the Appendices attached
hereto in their entirety.
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION
Q. WHY IS STAFFMARK ACQUIRING THE COMPANY IN THE TRANSACTION? HOW WILL
STAFFMARK STOCKHOLDERS BENEFIT?
A. In a press release, dated August 18, 1998, announcing the Transaction,
Clete T. Brewer, StaffMark's President and Chief Executive Officer, said:
"We are very excited about the growth prospects for the combined
companies. The addition of Rob Walters, Ben Anderson, Giles Daubeney and
their teams will greatly strengthen the Combined Group. This is a
continuation of our strategy of focusing on expanding our value-added high
margin professional business and geographic scope. This is our largest
transaction to date, providing StaffMark with critical mass in the U.K.,
continental Europe, Australia and Asia. The management teams of StaffMark
and Robert Walters plc have a similar culture and share a common vision of
creating a global human resource solution business."
In the same press release, Rob Walters, the Chief Executive Officer of the
Company, said:
"This transaction creates significant capital value for Robert Walters
plc's Shareholders and is the result of the shared belief of both Robert
Walters plc and StaffMark that recruitment companies need to be global to
deliver world-wide integrated solutions to clients. By combining our
international network with StaffMark's U.S. coverage we will create a
genuinely international recruitment group. The merger will also offer
enhanced opportunities for the employees of both companies. There will be
synergies to exploit going forward; our Global Pipeline product will gain a
U.S. distribution channel; our well established finance and accounting
recruitment brand in the U.K. will be rolled out where appropriate in the
U.S. and our IT recruitment business will be enhanced by the combination
with that of StaffMark."
Q. WHAT DO I NEED TO DO NOW?
A. Just mail your signed proxy card no later than October 20, 1998. The
StaffMark Special Meeting will take place on October 27, 1998. The
StaffMark Board unanimously recommends voting in favor of the proposed
Transaction.
Q. SHOULD I SEND IN MY STOCK CERTIFICATES?
A. No. The number of shares of StaffMark Common Stock that you own will not be
affected by the Transaction. StaffMark will be issuing additional, or
newly-issued, shares of StaffMark Common Stock to the former shareholders
of the Company after the Transaction is completed.
Q. EXPLAIN WHAT STOCKHOLDERS WILL RECEIVE IN THE TRANSACTION.
A. StaffMark Stockholders. After the Transaction, each share of StaffMark
Common Stock will remain outstanding. Holders of StaffMark Common Stock
will continue to hold their same shares after the Transaction.
Company Shareholders. In the Transaction, each Existing Company Share will
be cancelled in exchange for the right to receive no more than 0.272 of a
share of StaffMark Common Stock, subject to a potential downward adjustment
to be determined on the closing date. This potential downward adjustment
will occur in certain circumstances, based upon the average trading prices
of StaffMark Common Stock and average currency exchange rates prior to the
closing of the Transaction, if such
2
<PAGE> 12
average StaffMark Common Stock price exceeds $37.16. See "The
Transaction -- Issuance of StaffMark Common Stock in the Transaction."
EXAMPLES
Company Shareholder: Assuming the average trading price for StaffMark
Common Stock prior to the closing of the Transaction is equal to or less
than $37.16, a Company shareholder that owns 100 Existing Company Shares
will be entitled to receive 27 shares of StaffMark Common Stock and a check
for the market value of the fractional share upon the closing of the
Transaction.
StaffMark Stockholder: If you currently own 100 shares of StaffMark Common
Stock, then you will continue to hold those 100 shares after the
Transaction.
Q. HOW DOES THE TRANSACTION IMPACT OVERALL STOCK OWNERSHIP?
A. Immediately after the closing of the Transaction, assuming the Company's
directors and employees were to exercise all outstanding Company options,
StaffMark Common Stock issued pursuant to the Transaction would constitute
24.4%, and Robert Walters personally would beneficially own 5.4%, of the
outstanding StaffMark Common Stock. See "Potential Risks, Detriments and
Other Considerations Associated with the Transaction -- Dilution of Voting
Interests of StaffMark Stockholders" and "The Transaction -- Percentage
Ownership Interest of Company Shareholders in StaffMark After the Effective
Date."
Q. WHAT ARE THE SIGNIFICANT ACCOUNTING AND FINANCIAL CONSEQUENCES OF THE
TRANSACTION?
A. The Transaction is expected to be accounted for under the
pooling-of-interests method of accounting. Under this method, historical
Company income statement and cash flow amounts and balance sheet amounts
will be carried over to, and reflected in, StaffMark's audited statements,
without any adjustment related to any premium associated with the
Transaction. Under the pooling-of-interests accounting method, no goodwill
will be recognized for the difference between the value of the
Consideration Shares issued in the Transaction and the net book value of
the Company. For further information, see "-- Anticipated Accounting
Treatment."
Since the Company's audited historical statements have been prepared in
accordance with U.K. GAAP, which differs in certain respects from U.S.
GAAP, and its results and accounts historically have been denominated in
U.K. pounds sterling, the Company's results and accounts, reflected in its
historical statements appearing in this Proxy Statement beginning on page
F-1, will be subject to certain U.S. GAAP adjustments and currency
adjustments in order to be presented in U.S. dollars as part of StaffMark's
financial statements. To understand these adjustments better, please see
"-- Reconciliation of U.K. GAAP to U.S. GAAP" and "Unaudited Pro Forma
Financial Information."
The StaffMark Board expects the Transaction to be accretive to StaffMark's
earnings per share in the fiscal year ending December 31, 1999.
Q. WILL STAFFMARK PAY DIVIDENDS ON ITS COMMON STOCK?
A. StaffMark historically has not paid any dividend to its common stockholders
in order to reinvest profits in the future growth of the StaffMark
business. StaffMark intends to continue this practice for the foreseeable
future.
Q. WHEN DO YOU EXPECT THE TRANSACTION TO BE COMPLETED?
A. StaffMark and the Company are working towards completing the Transaction as
quickly as possible. In addition to StaffMark stockholder and Company
shareholder approvals, we must obtain English court approvals. We hope to
complete the Transaction during the Fall of 1998. If all approvals are
obtained quickly with no delays, the Transaction could close as early as
November, 1998.
3
<PAGE> 13
For additional questions about the Transaction, please contact:
<TABLE>
<CAPTION>
STAFFMARK STOCKHOLDERS ROBERT WALTERS PLC SHAREHOLDERS
<S> <C>
Clete T. Brewer Robert Walters
Terry C. Bellora Thomas Chambers
StaffMark, Inc. Robert Walters plc
302 East Millsap Road 10 Bedford Street
Fayetteville, Arkansas 72703 London WC2E 9HE
Telephone: (501) 973-6000 Telephone: 44 171 379 3333
StaffMark Web Site: Robert Walters plc Web Site:
http://www.staffmark.com http://www.robertwalters.com
</TABLE>
STAFFMARK
StaffMark provides diversified staffing, professional, consulting and
solutions services to businesses, professional and service organizations and
governmental agencies. StaffMark believes it is a leading provider of such
services based upon 1997 revenues (which placed it as the 15th largest U.S.
public staffing company) and 1997 and 1998 revenue growth. Since its initial
public offering in October 1996 (the "Initial Public Offering"), StaffMark has
grown both internally and through the acquisition of over 30 staffing and
professional service companies. StaffMark believes that a balance of internal
growth and selective acquisitions will best allow it to capitalize on its growth
opportunities. StaffMark operates over 220 branches located in 30 states and in
Canada, as well as representative offices in the United Kingdom, Thailand and
South Africa.
StaffMark's principal operations are organized into two divisions,
Professional/Information Technology ("Professional/IT") and Commercial Staffing
Services ("Commercial"). The information technology platform in the
Professional/IT division operates under the IntelliMark(TM) brand, providing
information technology ("IT") business solutions, including staffing, help desk
and distributed services, network services development, systems integration,
training and enterprise resource planning. The professional platform in the
Professional/IT division provides lawyers and legal support under the brand name
"Strategic Legal Resources" in addition to providing accountants and clinical
trial support services. The Professional/IT division generated approximately
27.3% and 39.2% of StaffMark's revenues for the year ended December 31, 1997 and
for the six months ended June 30, 1998, respectively. The Commercial division
provides both office and light industrial staffing and generated approximately
72.7% and 60.8% of StaffMark's revenues for the year ended December 31, 1997 and
for the six months ended June 30, 1998, respectively.
STAFFMARK BUSINESS STRATEGY
StaffMark's overall business strategy is to increase its revenue and
enhance its profitability by providing the timely delivery of quality
diversified staffing, consulting, professional and solutions services to its
customers, in conjunction with providing opportunities to its employees,
temporary associates, professionals and consultants. The Transaction is
consistent with StaffMark's overall business strategy and complements
StaffMark's existing business lines by providing a value-added, high margin
international professional services component with a significant presence in the
United Kingdom. See "The Transaction -- Reasons for the Transaction." After
completing the Transaction, StaffMark intends to continue to implement its
overall business strategy through a combination of strategies, the key elements
of which are identified and described below.
Operating Strategy. StaffMark's operating strategy is to continue to: (i)
develop long-term relationships with its customers as a primary provider of
quality, customized and diversified staffing and professional services; (ii)
adopt on a company-wide basis the best practices, policies and procedures of
existing StaffMark operations and newly acquired companies; (iii) increase
operating efficiencies and provide a strong level of corporate support by
combining a number of general and administrative functions at the corporate
level and by reducing or eliminating redundant functions; (iv) maintain a
decentralized entrepreneurial environment that rewards performance and attracts
and retains self-motivated, achievement-oriented individuals; (v) establish
4
<PAGE> 14
service platforms and brand name identification; and (vi) utilize available
capital resources, whether equity, debt or a combination thereof, in the most
efficient manner.
Internal Growth Strategy. StaffMark's internal growth strategy consists of
the following key components: (i) focusing on further penetration in existing
geographic markets, enhancing and expanding new services and spinning-off or
seeding new branch offices; (ii) expanding and cross-developing the
Professional/ IT services offered by StaffMark and increasing the percentage of
revenues and gross profits derived from this division; and (iii) increasing
Vendor-on-Premises relationships which StaffMark believes provide a more stable
source of revenues and attractive operating profits.
Acquisition and Integration Strategy. StaffMark's acquisition and
integration strategy is to pursue acquisitions that: (i) expand the geographic
scope of its operations; (ii) increase its penetration of existing markets;
(iii) increase the scope of StaffMark's operations into complementary or new
service offerings; (iv) include strong management, profitable operating results
and/or strong local and regional presence; and/or (v) expand the percentage of
revenues generated by the Professional/IT division. Following acquisition
consummation, StaffMark initiates the integration process with respect to
acquired companies.
BUSINESS OF THE COMPANY
The Company is a London-based international recruitment consultancy
operating in 14 cities in ten countries and specializing in placing accounting,
finance and IT professionals on a contract, temporary and permanent basis with
clients in the commercial, industrial and finance sectors. The Company operates
in the United Kingdom, Continental Europe, Australia, the United States, the
Asia Pacific region and South Africa. The Company's operations are divided into
four divisions: Robert Walters Associates (permanent recruitment), Robert
Walters Resourcing (contract and temporary recruitment), Robert Walters
Technology (IT recruitment) and Resource Solutions (outsourcing).
Robert Walters Associates comprises the Company's U.K. permanent and
overseas recruitment businesses and has offices in London, Windsor, Amsterdam,
Auckland, Brisbane, Brussels, Frankfurt, Hong Kong, Johannesburg, Melbourne, New
York, Singapore, Sydney and Wellington. Robert Walters Associates contributed
55.4%, 50.5% and 46.1% of total Company gross profit during each of the years
ended December 31, 1995, 1996 and 1997, respectively.
Robert Walters Resourcing comprises the Company's contract and temporary
recruitment businesses. Utilizing the Company's international network of
offices, candidates are sourced and offered to clients on an international
basis -- a process referred to as "The Global Pipeline." Robert Walters
Resourcing contributed 44.6%, 44.1% and 46.1% of total Company gross profit
during each of the years ended December 31, 1995, 1996 and 1997, respectively.
Robert Walters Technology is the Company's specialist IT recruitment
business and, in addition to the Company's U.K. businesses, includes the
Melbourne, Australia-based TriStar recruitment business, which was acquired in
December, 1997. The Company also has a 7.1% stake (with an option to increase
its holding up to 20%) in Internet Appointments Limited which operates under the
name taps.com ("Taps"), an internet recruitment site for IT and finance
professionals. Robert Walters Technology contributed 0.0%, 5.4% and 7.8% of
total Company gross profit during each of the years ended December 31, 1995,
1996 and 1997, respectively.
Resource Solutions is the outsourcing division of the Company. Resource
Solutions manages on-site recruitment activities of clients working with other
divisions of the Company as well as with other recruitment agencies. Resource
Solutions currently has 23 U.K. and four Australian outsourcing agreements.
For the year ended December 31, 1997 and the six months ended June 30,
1998, respectively, the Company's revenue profile, geographic revenue
concentration and revenue mix consisted of: contract placements (82.1% and 84.6%
of revenues) and permanent placements (17.9% and 15.4% of revenues); U.K.
revenues (91.3% and 77.3% of revenues) and non-U.K. revenues (8.7% and 22.7% of
revenues); and Finance and Accounting placements (89.5% and 73.1% of revenues)
and IT placements (10.5% and 26.9% of revenues).
5
<PAGE> 15
The Company's key strengths include a management team with first hand
experience in running and developing a successful international recruitment
consultancy over a number of years. The Company's overall business strategy is
to focus on opportunities that maximize revenues and profits in an ever changing
and competitive marketplace through the development of an understanding of both
clients and candidates, in conjunction with developing a presence in an
increasing number of countries.
THE TRANSACTION
General. Upon the terms and subject to the conditions of the Transaction
Agreement and the Scheme of Arrangement, the Company will be acquired by the
Transaction Subsidiary, the Company will become an indirect wholly-owned
subsidiary of StaffMark and the holders of Existing Company Shares will receive
the Consideration Shares and become stockholders of StaffMark. See "The
Transaction -- General."
Reasons for the Transaction. StaffMark and the Company believe that the
Transaction represents an important opportunity to:
- Create a global provider of professional staffing, consulting, and
solution services.
- Enable StaffMark's IT recruitment services division to increase its
revenue base and geographic service coverage, improve its access to
technical talent, and market its IT solutions to the Company's
international customer base as well as provide the Company with a
distribution channel in North America for IT candidates sourced
worldwide.
- Enhance the position of the Combined Group as a service provider to the
accounting and financial professional services sector. The Transaction
provides StaffMark with one of the most recognized accounting and
professional financial service brand names in the U.K. in this
recruitment sector, which StaffMark has identified as a strategic
priority. The Transaction provides the Company with access to the large
U.S. market through StaffMark's customer base and branch network.
- Provide each of the Company and StaffMark with access to a significantly
expanded pool of potential employees and contractors and the opportunity
to capitalize on mobility in the professional labor pool. StaffMark will
be able to access the Company's established recruitment operations in
various world markets, while the Company will be able to access
StaffMark's predominantly U.S.-based network of offices and customers.
- Create opportunities for potential synergies including increased success
in recruitment and retention of IT contractors, increased cross-border
service opportunities with multinational customers, and increased scope
of professional services available to StaffMark and the Company's
respective customer bases.
- Enhance the strength and depth of StaffMark's management through the
addition of the Company's internationally experienced management team.
The management teams of StaffMark and the Company have a similar culture
and share a common vision of creating a global human resource solutions
business.
- Accelerate StaffMark's expansion into becoming a provider of human
resource solutions across its business units through utilization of the
Company's Resource Solutions model. StaffMark and the Company believe
that the combination of the Company's and StaffMark's businesses will
provide opportunities to augment their respective capabilities and
expertise in providing outsourced human resource services.
Potential Risks, Detriments and Other Considerations Associated with the
Transaction. There are potential detriments, risks and considerations associated
with the Transaction that StaffMark stockholders should consider before voting
concerning the Issuance. These considerations include integration and operation
risks concerning the Combined Group, significant additional StaffMark Common
Stock available for future sale in the market, dilution of voting interests for
existing StaffMark stockholders, the anticipated accounting
6
<PAGE> 16
treatment concerning the Transaction and risks concerning new foreign
operations. See "Potential Risks, Detriments and Other Considerations Associated
with the Transaction."
Conversion of Company Shares; Treatment of Company Share Options. As of the
date the Scheme of Arrangement becomes effective (the "Effective Date"), the
Company will be acquired by the Transaction Subsidiary, whereupon: (i) the
Existing Company Shares will be cancelled in consideration of the Consideration
Shares being issued to the Company shareholders; (ii) an equal number of new
Company Shares will be issued to the Transaction Subsidiary; and (iii) the
Company will become an indirect wholly-owned subsidiary of StaffMark. For the
Transaction to be consummated, the Issuance must be approved by the StaffMark
stockholders and the other conditions set forth in Appendix II hereto and
incorporated herein by reference must be satisfied or waived. See "Transaction
Agreement -- Conditions to the Transaction." Pursuant to the Option
Arrangements, the Company Optionholders who exercise Company options during the
six-month period following the Effective Date will receive, in accordance with
the Companies Act and the Option Arrangements, shares of StaffMark Common Stock.
Following the Effective Date, StaffMark intends to grant to certain executives
and employees of the Company StaffMark stock options to purchase 400,000 shares
of StaffMark Common Stock at the fair market value of StaffMark Common Stock on
the date of grant.
Conditions to the Transaction. StaffMark, the Transaction Subsidiary and
the Company will not be obligated to complete the Transaction unless a number of
conditions are satisfied or (where applicable) waived by them, the complete
description of which is set forth in Appendix II. These conditions include,
among other things:
(a) approval of the Issuance by the stockholders of StaffMark at the
StaffMark Special Meeting;
(b) approval of the Scheme of Arrangement by holders of Existing
Company Shares at the Court Meeting and passing of a special resolution by
Company shareholders to implement the Scheme of Arrangement at the
Company's Extraordinary General Meeting (the "EGM");
(c) sanction of the Scheme of Arrangement by the High Court and
registration of the High Court Order by the Registrar of Companies in
England and Wales (the "Registrar");
(d) receipt by StaffMark and the Company of an opinion letter from
StaffMark's independent public accountants that the Transaction should be
accounted for as a pooling-of-interests;
(e) approval of the Consideration Shares for trading upon notice of
issuance on the Nasdaq National Market;
(f) execution and delivery of an Affiliate Agreement by each of the
directors of the Company;
(g) execution and delivery of deeds of variation of their respective
service agreements by each of Robert Walters, Giles Daubeney, Benjamin
Anderson and Thomas Chambers;
(h) the absence of: (i) material adverse investigations or legal
proceedings (either threatened or instituted) or new material liabilities
or contingencies involving the Company; (ii) adverse legal proceedings,
statutes, regulations or investigations affecting the Transaction, or (iii)
any material adverse change in the business, financial position or results
of the Company;
(i) satisfaction of all regulatory requirements, including the receipt
of all necessary consents, approvals, authorizations and orders necessary
to consummate the Transaction; and
(j) the Scheme of Arrangement becoming effective by December 31, 1998,
or such later date as StaffMark and the Company shall mutually agree and
the High Court shall approve.
The conditions set forth in items (a), (b), and (c) above may not be waived
by any of the parties to the Transaction Agreement. StaffMark and the Company
may jointly waive the condition set forth in item (d) above, although StaffMark
believes that any such waiver would not be effected without any resolicitation
of votes by StaffMark stockholders concerning the Issuance. StaffMark may waive
by written notice to the Company, the conditions identified in items (f), (g),
(h)(i) and (h)(iii). StaffMark and the Company may,
7
<PAGE> 17
by written notice, jointly waive items (e), (h)(ii), (i) and (j), but as to item
(j), only if the High Court so approves.
Termination of the Transaction. The Transaction Agreement may be
terminated:
(i) by the mutual written consent of StaffMark, the Transaction
Subsidiary and the Company;
(ii) by either StaffMark and the Transaction Subsidiary or the Company
if the Effective Date shall not have occurred on or before December 31,
1998 and the party seeking to terminate the Transaction Agreement shall not
have breached in any material respect its obligations thereunder in any
manner that shall have proximately contributed to the failure to consummate
the Transaction on or before such date;
(iii) by StaffMark and the Transaction Subsidiary if the Company Board
(a) withdraws or modifies in a manner adverse to StaffMark its approval or
recommendation of the transactions contemplated by the Transaction
Agreement, (b) approves or recommends any Takeover Proposal (as defined
below) or (c) fails to comply with its obligations concerning seeking the
earliest appropriate dates for the relevant High Court hearings, the
dissemination of the circular to be issued by the Company to its
shareholders containing an explanatory statement of the Scheme of
Arrangement and the Transaction (the "Circular") or materials concerning
the EGM or the filing of materials before the High Court, necessary to
implement the Scheme of Arrangement and applying to the High Court for its
sanction of the Scheme of Arrangement;
(iv) by StaffMark and the Transaction Subsidiary if the financial
advisor to the Company Board withdraws or in any way modifies its consent
to being named in the context of any recommendation statement by the
Company Board to its shareholders regarding the Transaction; or
(v) by either StaffMark and the Transaction Subsidiary or the Company
if, under certain circumstances, there shall have been a breach by the
other party of the obligations set forth in the Transaction Agreement to
achieve satisfaction with respect to any of the conditions summarized under
"Transaction Agreement -- Conditions to the Transaction" (as set forth in
detail in Appendix II) and such breach shall not be cured within 15 days
after notice thereof shall have been received by the party alleged to be in
breach.
If the Transaction Agreement is terminated by StaffMark and the Transaction
Subsidiary pursuant to clause (iii) or (iv) above, the Company will pay to
StaffMark a fee of the lesser of L900,000 and the largest sum as would not
reduce the net assets of the Company as defined in Section 152(2) of the
Companies Act to a material extent (the "Termination Fee"), provided that, if
the Company has no net assets (as so defined), the Termination Fee will not be
payable.
"Takeover Proposal" means any publicly announced intention to make any bona
fide proposal or offer by any third party (other than a proposal or offer by the
StaffMark Group) or any proposal or offer so made for a merger, scheme of
arrangement, exchange offer, consolidation, partnership, joint venture or other
business combination involving, or any purchase of, all or substantially all of
the assets of the Company Group or more than 50% of the voting share capital of
the Company.
Recommendation of the StaffMark Board. The StaffMark Board has unanimously
approved the Issuance, the Transaction Agreement, the Transaction and the
transactions contemplated thereby, and recommends that holders of shares of
StaffMark Common Stock approve and adopt the Issuance, which is required as a
condition of the Transaction Agreement. See "The Transaction -- Reasons for the
Transaction" and "The StaffMark Special Meeting -- Recommendation of the
StaffMark Board."
Opinion of StaffMark's Financial Advisor. On August 17, 1998, and on the
date of this Proxy Statement, Morgan Stanley & Co. Limited ("Morgan Stanley"),
financial advisor to StaffMark, rendered its written opinions to the StaffMark
Board to the effect that, as of the dates of such opinions, based upon and
subject to the matters set forth therein, the Exchange Ratio (as defined below)
is fair to StaffMark, from a financial point of view. The full text of the
opinion of Morgan Stanley dated as of the date of this Proxy Statement, which
sets forth the assumptions made, matters considered and limitations on the
review
8
<PAGE> 18
undertaken by Morgan Stanley, is attached as Appendix III to this Proxy
Statement. If the Transaction is successfully completed, Morgan Stanley will be
paid a total of $2 million in fees. See "The Transaction -- Opinion of Financial
Advisor to StaffMark."
Accounting Treatment. The Transaction is expected to be accounted for under
the pooling-of-interests method of accounting in accordance with U.S. GAAP. The
receipt by StaffMark of a letter from its independent public accountants with
respect to such pooling-of-interests treatment is a mutual condition precedent
to the obligations of StaffMark and the Company to effect the Transaction.
Regulatory Approvals. Certain regulatory requirements must be complied with
before the Transaction can be consummated. See "The Transaction -- Regulatory
Approvals." The Transaction is being effected by means of the Scheme of
Arrangement, a U.K. statutory procedure requiring (in addition to the approval
of the resolution to be proposed at the Court Meeting) the sanction of the High
Court and the filing and registration of the High Court Order with the
Registrar. Once effective, the Scheme of Arrangement will bind the holders of
all Existing Company Shares.
The Transaction Support Agreements. Pursuant to letter agreements (the
"Transaction Support Agreements") with StaffMark, each of Mr. & Mrs. Robert
Walters, Giles Daubeney, Benjamin Anderson, Thomas Chambers, Charles Scott,
Russell Tenzer, and Business Management Services Trustees Limited, has
acknowledged their intent to vote their Company Shares in favor of the Scheme of
Arrangement. As a group, such persons and their affiliates have voting power
with respect to 7,713,556 Company Shares representing in the aggregate
approximately 31.4% of the Company Shares outstanding. See "The
Transaction -- The Transaction Support Agreements."
Appraisal Rights. Under the Delaware General Corporation law ("DGCL"), the
holders of StaffMark Common Stock are not entitled to appraisal or dissenter's
rights in connection with the approval of the Issuance. Following the Court
Meeting, the EGM, the High Court hearing to sanction the Scheme of Arrangement,
and the registration of the High Court Order, holders of Existing Company Shares
will not have any dissenters' rights or any other means under English company
law to challenge the Transaction.
9
<PAGE> 19
STAFFMARK SELECTED FINANCIAL DATA
StaffMark acquired in separate transactions simultaneously with the closing
of the Initial Public Offering, the Founding Companies (defined below). Pursuant
to the requirements of the Securities and Exchange Commission's Staff Accounting
Bulletin ("SAB") No. 97, which was issued and became effective July 31, 1996,
Brewer Personnel Services, Inc. ("Brewer") was designated, for financial
reporting purposes, as the acquiror of Prostaff Personnel, Inc. and its related
entities, Maxwell Staffing, Inc. and its related entities, HRA, Inc., First
Choice Staffing, Inc., and Blethen Temporaries, Inc. and its related entities
(collectively, the "Founding Companies"). Accordingly, the primary financial
information presented below relates to Brewer through the date of the Initial
Public Offering and to StaffMark on a consolidated basis for all periods
subsequent to the Initial Public Offering. The Selected Financial Data of
StaffMark presented below should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operation and the
financial statements and the notes thereto incorporated herein by reference from
StaffMark's Annual Report on Form 10-K for the year ended December 31, 1997 and
StaffMark's Quarterly Report on Form 10-Q for the six months ended June 30,
1998.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
------------------- -------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues.................. $325,859 $165,706 $426,496 $104,476 $43,874 $27,894 $12,313
Cost of services.......... 244,116 128,746 329,728 81,607 35,115 22,906 10,063
-------- -------- -------- -------- ------- ------- -------
Gross profit.............. 81,743 36,960 96,768 22,869 8,759 4,988 2,250
Operating expenses:
Selling, general and
administrative....... 51,630 25,047 63,013 14,623 5,804 3,483 1,623
Depreciation and
amortization......... 5,032 1,777 5,317 1,374 591 256 121
Nonrecurring merger
costs................ 1,120 -- -- -- -- -- --
-------- -------- -------- -------- ------- ------- -------
Operating income.......... 23,961 10,136 28,438 6,872 2,364 1,249 506
Interest expense.......... 1,777 543 1,256 1,376 801 92 54
Net income................ 13,059 5,809 16,469 4,023 1,587 1,177 478
Basic earnings per
share.................. $ 0.64 $ 0.41 $ 1.03 $ 0.82 $ 0.84 $ 0.62 $ 0.25
Diluted earnings per
share.................. $ 0.62 $ 0.40 $ 1.00 $ 0.82 $ 0.83 $ 0.62 $ 0.25
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
------------------- ----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- ------- ------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........ $ 57,724 $ 24,088 $ 22,596 $24,050 $ 1,508 $1,157 $ 366
Total assets........... 412,191 141,908 248,649 71,498 21,752 4,054 2,917
Long-term debt......... 112,560 43,430 12,000 -- 15,986 224 1,232
Stockholders' equity... 227,264 75,475 195,285 58,110 2,786 2,110 1,110
</TABLE>
10
<PAGE> 20
SELECTED FINANCIAL DATA OF THE COMPANY
The Selected Financial Data of the Company presented below should be read
in conjunction with the Company's financial statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Company included elsewhere herein. The financial information
below is presented in accordance with U.K. GAAP. A reconciliation of U.K. GAAP
to U.S. GAAP follows. To consider the Company's financial data on a U.S. dollar
basis, see "Summary -- Reconciliation of U.K. GAAP to U.S. GAAP" and "Pro Forma
Selected Financial Data" and the "Unaudited Pro Forma Financial Information"
included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
----------------- ----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- ------- ------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
PROFIT AND LOSS ACCOUNT DATA:
Turnover....................... L71,885 L36,768 L90,806 L45,928 L23,980 L19,141 L9,863
Direct costs................... 51,014 24,181 61,299 29,435 14,487 10,369 4,749
------- ------- ------- ------- ------- ------- ------
Gross profit................... 20,871 12,587 29,507 16,493 9,493 8,772 5,114
Operating expenses:
Administrative expenses..... 16,243 9,219 21,312 12,342 7,277 6,996 4,519
Depreciation................ 504 127 592 274 148 152 101
------- ------- ------- ------- ------- ------- ------
Operating profit............... 4,124 3,241 7,603 3,877 2,068 1,624 494
Interest expense............... -- -- -- -- -- -- --
Profit on ordinary activities
after taxation.............. 2,704 2,036 5,055 2,428 1,334 1,012 258
Earnings per share............. 11.0p 8.8p 21.7p 11.3p 6.4p 4.9p 1.3p
Dividends per share............ 1.7p 1.3p 3.9p 2.8p 2.0p 1.7p 4.7p
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
----------------- ----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Net current assets............. L10,334 L 5,058 L 7,460 L 3,744 L 1,342 L 961 L 407
Total assets................... 30,612 17,482 24,571 12,465 6,311 5,053 3,128
Long term debt................. -- -- -- -- -- -- --
Equity shareholders' funds..... 12,121 6,908 10,006 5,245 2,136 1,532 983
</TABLE>
11
<PAGE> 21
RECONCILIATION OF U.K. GAAP TO U.S. GAAP
Certain profit and loss and balance sheet items in the U.K. published
accounts of the Company have been adjusted for the purpose of preparing the pro
forma information included in this Proxy Statement, principally to reflect the
different treatment of goodwill, preference shares and stock-based compensation
under U.K. GAAP and U.S. GAAP. U.K. GAAP allows goodwill to be written off to
reserves in the year of acquisition, while U.S. GAAP requires capitalization of
goodwill as an intangible asset and subsequent amortization over an estimated
life, not to exceed 40 years. Under U.K. GAAP, the Company's preference shares
are considered a component of stockholder's equity. U.S. GAAP considers these
preference shares as debt with related dividends being treated as interest. U.S.
GAAP requires the recognition of expense related to certain of the Company's
stock-based compensation plans while U.K. GAAP does not require recognition of
such expenses. This reconciliation is shown below.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEARS ENDED DECEMBER 31,
------------------- ---------------------------------
1998 1997 1997 1996 1995
-------- -------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
PROFIT FOR THE PERIODS ATTRIBUTABLE TO
ORDINARY SHAREHOLDERS
U.K. GAAP.................................. L2,704 L2,036 L5,055 L2,428 L1,334
Adjustments:
Recognition of expense for stock-based
compensation arrangements............. (1,270) (387) (2,212) (197) --
Recognition of interest expense related
to preference shares.................. -- -- -- (9) (23)
Amortization of intangible assets
related to purchase business
combinations.......................... (60) -- (8) -- --
------- ------- ------- ------- -------
U.S. GAAP (pounds)......................... 1,374 1,649 2,835 2,222 1,311
Exchange rate(1)........................... 1.6499 1.6333 1.6378 1.5606 1.5779
------- ------- ------- ------- -------
U.S. GAAP.................................. $ 2,267 $ 2,693 $ 4,643 $ 3,468 $ 2,069
======= ======= ======= ======= =======
BASIC EARNINGS PER SHARE
U.K. GAAP.................................. L0.110 L0.088 L0.217 L0.113 L0.064
Adjustments:
Recognition of expense for stock-based
compensation arrangements............. (0.052) (0.017) (0.095) (0.009) --
Amortization of intangible assets
related to purchase business
combinations.......................... (0.002) -- -- -- --
------- ------- ------- ------- -------
U.S. GAAP (pounds)......................... 0.056 0.071 0.122 0.104 0.064
Exchange rate(1)........................... 1.6499 1.6333 1.6378 1.5606 1.5779
------- ------- ------- ------- -------
U.S. GAAP.................................. $ 0.092 $ 0.116 $ 0.200 $ 0.162 $ 0.101
======= ======= ======= ======= =======
DILUTED EARNINGS PER SHARE
U.K. GAAP L0.110 L0.088 L0.217 L0.113 L0.064
Adjustments:
Recognition of expense for stock-based
compensation arrangements............. (0.052) (0.017) (0.095) (0.009) --
Amortization of intangible assets
related to purchase business
combinations.......................... (0.002) -- -- -- --
Dilutive effect of stock-based
compensation arrangements............. (0.002) (0.002) (0.005) (0.002) --
------- ------- ------- ------- -------
U.S. GAAP (pounds)......................... 0.054 0.069 0.117 0.102 0.064
Exchange rate(1)........................... 1.6499 1.6333 1.6378 1.5606 1.5779
------- ------- ------- ------- -------
U.S. GAAP.................................. $ 0.089 $ 0.113 $ 0.192 $ 0.159 $ 0.101
======= ======= ======= ======= =======
</TABLE>
12
<PAGE> 22
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
----------------- ---------------------------
1998 1997 1997 1996 1995
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
TOTAL ASSETS
U.K. GAAP.................................. L30,612 L17,482 L24,571 L12,465 L6,311
Adjustments:
Capitalization of intangible assets
related to purchase business
combinations.......................... 4,675 -- 4,735 -- --
------- ------- ------- ------- -------
U.S. GAAP (pounds)......................... 35,287 17,482 29,306 12,465 6,311
Exchange rate(1)........................... 1.6686 1.6642 1.6453 1.7112 1.5526
------- ------- ------- ------- -------
U.S. GAAP.................................. $58,880 $29,094 $48,217 $21,330 $ 9,798
======= ======= ======= ======= =======
NET ASSETS
U.K. GAAP.................................. L12,121 L6,908 L10,006 L5,245 L2,136
Adjustments:
Capitalization of intangible assets
related to purchase business
combinations.......................... 4,675 -- 4,735 -- --
Preference shares....................... -- -- -- -- (175)
------- ------- ------- ------- -------
U.S. GAAP (pounds)......................... 16,796 6,908 14,741 5,245 1,961
Exchange rate(1)........................... 1.6686 1.6642 1.6453 1.7112 1.5526
------- ------- ------- ------- -------
U.S. GAAP.................................. $28,026 $11,496 $24,253 $ 8,975 $ 3,045
======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) Pounds sterling amounts have been converted into U.S. dollars at the
exchange rate at the end of the period for balance sheet data and the
weighted average exchange rate during the applicable period for statement of
income data.
13
<PAGE> 23
PRO FORMA SELECTED FINANCIAL DATA
The following table sets forth certain selected unaudited pro forma
financial data for StaffMark after giving effect to the Transaction and other
required pro forma adjustments for the periods indicated. The Transaction is
expected to be treated as a pooling-of-interests for financial accounting
purposes. The following table should be read together with the consolidated
financial statements and accompanying notes of StaffMark included in the
documents described under "Additional Information about StaffMark," the audited
and unaudited consolidated financial statements and accompanying notes of the
Company included in this Proxy Statement and the unaudited pro forma financial
statements and accompanying discussion and notes set forth under "Unaudited Pro
Forma Financial Information." The pro forma amounts in the table below are
presented in accordance with U.S. GAAP. Pounds sterling amounts of the Company
have been converted into U.S. dollars at the exchange rate at the end of the
period for balance sheet data and the weighted average exchange rate during the
applicable period for statement of income data. The pro forma amounts in the
table below are presented for information and do not indicate what the financial
position or the results of operations of StaffMark would have been had the
Transaction occurred as of the dates or for the periods presented. The pro forma
amounts also do not indicate what the financial position or future results of
operations of StaffMark will be. No adjustment has been included in the pro
forma amounts for any anticipated cost savings or estimated expenses related to
the Transaction. See "Unaudited Pro Forma Financial Information."
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
------------------- -----------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues............................. $455,746 $275,888 $657,701 $176,149 $81,713
Cost of services..................... 336,216 204,695 488,689 127,542 57,975
-------- -------- -------- -------- -------
Gross profit......................... 119,530 71,193 169,012 48,607 23,738
Operating expenses:
Selling, general, and
administrative expenses......... 80,334 48,204 114,282 33,883 17,287
Depreciation and amortization..... 6,165 3,079 8,151 1,802 824
Nonrecurring merger costs......... 1,120 -- -- -- --
-------- -------- -------- -------- -------
Operating income..................... 31,911 19,910 46,579 12,922 5,627
Interest expense..................... 2,206 1,859 4,113 1,390 837
Net income........................... 17,903 10,979 26,422 7,075 2,938
Basic earnings per share............. $ 0.66 $ 0.51 $ 1.14 $ 0.66 $ 0.40
Diluted earnings per share........... $ 0.63 $ 0.50 $ 1.10 $ 0.65 $ 0.40
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, YEAR ENDED DECEMBER 31,
------------------- -----------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................... $ 60,967 $ 32,506 $ 34,870 $ 30,457 $ 3,592
Total assets......................... 471,071 171,002 296,866 92,828 31,550
Long term debt....................... 112,560 43,430 12,000 -- 15,986
Stockholders' equity................. 241,290 86,971 219,538 67,085 6,102
</TABLE>
14
<PAGE> 24
COMPARATIVE PER SHARE DATA
The following table shows actual ("historical") per share information and
unaudited pro forma information as if StaffMark and the Company had been
combined for the periods shown ("pro forma combined"), calculated based on an
Exchange Ratio of 0.272 of a share of StaffMark Common Stock for each Existing
Company Share and assuming that the Transaction is accounted for as a
pooling-of-interests. No cash dividends have ever been paid on the StaffMark
Common Stock. The historical data are based on the historical consolidated
financial statements and related notes of each of StaffMark and the Company
incorporated by reference and included in this document, as the case may be.
This table should be read together with the historical financial statements of
StaffMark and the Company and related notes thereto and the unaudited pro forma
financial statements and accompanying discussion and related notes set forth
under "Unaudited Pro Forma Financial Information". The data presented does not
indicate StaffMark's future results of operations or the actual results that
would have occurred if the Transaction had occurred at the beginning of the
periods indicated. No adjustments have been included for any anticipated costs
savings or estimated expenses related to the Transaction.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED FOR THE YEARS ENDED
AND AS OF JUNE 30, AND AS OF DECEMBER 31,
------------------- -----------------------
1998 1997 1997 1996 1995
-------- -------- ------ ------ -----
<S> <C> <C> <C> <C> <C>
STAFFMARK HISTORICAL
Basic earnings per common share.................. $ 0.64 $ 0.41 $ 1.03 $ 0.82 $0.84
Diluted earnings per common share................ 0.62 0.40 1.00 0.82 0.83
Book value per share............................. 10.94 5.20 10.20 4.33 1.47
Cash dividends per share......................... -- -- -- -- --
COMPANY HISTORICAL (in pence)
Basic earnings per common share.................. 11.0 p 8.8 p 21.7p 11.3p 6.4p
Diluted earnings per common share................ 11.0 p 8.8 p 21.7p 11.3p 6.4p
Book value per share............................. 49.31p 29.93p 40.74p 22.75p 9.56p
Cash dividends per share......................... 1.7 p 1.3 p 3.9p 2.8p 2.0p
PRO FORMA COMBINED(1)
Basic earnings per common share.................. $ 0.66 $ 0.51 $ 1.14 $ 0.66 $0.40
Diluted earnings per common share................ 0.63 0.50 1.10 0.65 0.40
Book value per share............................. 8.79 4.18 8.50 3.41 0.77
Cash dividends per share......................... 0.03 0.02 0.07 0.13 0.04
COMPANY PRO FORMA PER SHARE EQUIVALENTS(1)
Basic earnings per common share.................. $ 0.18 $ 0.14 $ 0.31 $ 0.18 $0.11
Diluted earnings per common share................ 0.17 0.14 0.30 0.18 0.11
Book value per share............................. 2.39 1.14 2.31 0.93 0.21
Cash dividends per share......................... 0.01 0.01 0.02 0.04 0.01
</TABLE>
- ---------------
(1) Pounds sterling amounts have been converted into U.S. dollars at the
exchange rate at the end of the period for balance sheet data and the
weighted average exchange rate during the applicable period for statement of
income data.
15
<PAGE> 25
POTENTIAL RISKS, DETRIMENTS AND OTHER CONSIDERATIONS
ASSOCIATED WITH THE TRANSACTION
Before making a voting decision with respect to the Issuance, StaffMark
stockholders should consider all of the information contained in this Proxy
Statement, including the following potential risks, detriments and other
considerations associated with the Transaction:
Integration and Operation of the Combined Group. StaffMark and the Company
expect certain benefits to arise from the Transaction. See "The
Transaction -- Reasons for the Transaction." Achievement of these anticipated
benefits will depend in part upon when, and how effectively, the businesses of
the Combined Group are integrated. Although StaffMark in the past has completed
a significant number of acquisitions, the Transaction is substantially larger
than any acquisition previously completed by StaffMark. In addition, the
substantial majority of StaffMark's completed acquisitions to date have not
involved either substantial non-U.S. operations or accounting/finance
professional staffing operations, and the combination could give rise to
relatively novel integration considerations that StaffMark heretofore has not
encountered. Thus, the integration of the Combined Group will present challenges
to management and potentially could require increased management time, attention
and resources. There can be no assurance that the operations of the Combined
Group will be successfully combined, that such combination will occur in the
time period anticipated or that the anticipated benefits will be fully achieved.
Shares Eligible for Future Sale. Sales of substantial amounts of StaffMark
Common Stock in the public market could adversely affect the market price of the
StaffMark Common Stock. Approximately 6.69 million shares of StaffMark Common
Stock are anticipated to be issued as the Consideration Shares pursuant to the
Transaction, excluding shares of StaffMark Common Stock that may be issued after
the Effective Date in respect of currently outstanding Company options. See "The
Transaction -- Percentage Ownership Interest of Company Shareholders in
StaffMark After the Effective Date" and "The Transaction -- Share Options." A
substantial number, or approximately 4.59 million, of such shares of StaffMark
Common Stock will be eligible for sale in the public market without restriction
or further registration immediately following the completion of the Transaction.
It is expected that following the publication of the Combined Group's results of
operations (which is currently expected to occur on or prior to February 28,
1999), the remainder, or up to approximately 2.1 million shares, of StaffMark
Common Stock issued through the Issuance will become eligible for resale without
restriction or further registration. See "The Transaction -- Certain Federal
Securities Law Consequences; Affiliate Agreements." Since the holders of the
majority of outstanding Company Shares are U.K. institutions, a number of which
cannot or will not hold shares of a U.S. public company, a substantial amount of
StaffMark Common Stock may be sold in the market after the completion of the
Transaction.
Dilution of Voting Interests of StaffMark Stockholders. Existing holders of
StaffMark Common Stock will own in the aggregate approximately 76.8% of the
voting power of the outstanding shares of StaffMark Common Stock immediately
following consummation of the Transaction, excluding shares of StaffMark Common
Stock that may be issued after the Effective Date in respect of currently
outstanding Company options. See "The Transaction -- Percentage Ownership
Interest of Company Shareholders in StaffMark after the Effective Date." Thus,
existing holders of StaffMark Common Stock will experience dilution of their
voting power as a result of the Transaction.
Anticipated Accounting Treatment. The Transaction is expected to be
accounted for under the pooling-of-interests methods of accounting. See "The
Transaction -- Accounting Treatment." Under this method of accounting, the
recorded assets, liabilities and stockholder equity accounts of StaffMark and
the Company will be carried forward to StaffMark at their historical recorded
amounts after addressing any conformity issues, including but not limited to
differences between U.S. GAAP and U.K. GAAP, net income of StaffMark after the
Transaction will include the net income of StaffMark and the Company for the
entire fiscal year in which the Transaction occurs, and the historical reported
net income of StaffMark and the Company for prior periods will be combined and
restated as net income of StaffMark after addressing any conformity issues,
including but not limited to differences between U.S. GAAP and U.K. GAAP. It is
a condition to the obligations of StaffMark and the Company to effect the
Transaction that they receive a letter from StaffMark's independent auditors to
the effect that such auditors concur that the Transaction should be treated as a
pooling-of-interests under U.S. GAAP if the Transaction is consummated. No
assurance can be
16
<PAGE> 26
given, however, that StaffMark and the Company would waive the foregoing
condition and effect the Transaction if pooling-of-interests accounting were not
available; provided, however, if such a joint waiver occurred, no such waiver
would be effected without any resolicitation of votes by StaffMark stockholders
concerning the Issuance. If pooling-of-interests accounting treatment were not
available, the purchase method of accounting would be applicable. Under purchase
method accounting, the book value of the Company's assets and liabilities would
be adjusted to their fair values and the excess of the purchase price over the
fair value of the Company's assets would be capitalized and expensed, which
would materially and adversely affect StaffMark's earnings.
StaffMark expects to incur certain non-recurring expenses related to the
Transaction, presently estimated to be $14 million, after addressing any
conformity issues, including but not limited to any differences between U.K.
GAAP and U.S. GAAP. These expenses would include, but not be limited to,
professional fees, printing fees, fees of financial advisors, and restructuring
expenses, including the elimination of redundant offices, severance plans and
other expenses directly related to the Transaction. Although StaffMark believes
this estimate of non-recurring expenses is accurate, certain material additional
costs may be incurred in connection with the Transaction. Transaction related
expenses will be recorded in the period in which the Transaction is concluded,
which is currently estimated to occur in fourth quarter of 1998. In addition,
StaffMark is developing a plan to integrate the operations of the Company after
the Transaction. In connection with that plan, StaffMark anticipates that
certain non-recurring charges will be incurred in connection with such
integration. StaffMark cannot identify the timing, nature and amount of such
charges as of the date of this Proxy Statement. However, any such charge could
affect StaffMark's results of operations in the period in which such charges are
recorded.
New Risks Associated with Foreign Operations. Substantially all of the
Company's historical revenues have been derived from clients or activities
located outside of the United States. As a result, completion of the Transaction
will subject StaffMark, to a greater extent, to the usual risks of doing
business abroad, such as currency fluctuations, restrictions on transfer of
funds, labor unrest, political instability and U.S. restrictions.
Year 2000 Compliance Considerations. As part of StaffMark's integration
plan with respect to the Company, the Transaction integration team is reviewing
and assessing Year 2000 compliance issues. The "Year 2000 Issue" is the result
of computer programs (whether related to IT systems or non-IT systems) being
written using two digits rather than four digits to define the applicable year.
Computer programs that have time sensitive software may recognize a date using
"00" as the Year 1900 rather than the Year 2000. StaffMark has focused on the
work performed by the Company's Year 2000 project team as part of its due
diligence inquiry and integration analysis. In response to its inquiry, the
Company has informed StaffMark that its believes its Year 2000 compliance
project is substantially complete as of the date of this Proxy Statement and
believes it will be complete as of December 31, 1998. As to IT systems, the
Company is currently utilizing the same primary search and retrieval software
system (EZ Access) that StaffMark is using in its Professional/IT division. The
EZ Access software system is Year 2000 compliant. Other than the Company's
Cardbox invoicing software system, the Company's back office accounting and
administrative systems are Year 2000 compliant. The remediation necessary to
make the Cardbox software system Year 2000 compliant involves updating current
databases per instructions from the vendor which is not expected to be a timely
or costly process and is expected to be completed by December 31, 1998.
As to non-IT systems and vendor services, other than banking relationships
and utilities (which includes electrical power, water and related items) there
is no such system or vendor service which is material to the operations of the
Company. As to banking needs, the Company's banking relationships are primarily
with large international financial institutions which are undertaking their own
Year 2000 compliance procedures and certifying their compliance to the Company.
As to the utilities, the Company's utility vendors are certifying their Year
2000 compliance procedures to the Company. To the extent that a utility vendor
fails to certify its Year 2000 compliance capability, StaffMark's contingency
plan in this connection is to ensure that the Company has adequate back-up
utility sources necessary for maintaining the Company's day-to-day operations.
Accordingly, StaffMark does not believe that any non-IT system or vendor service
failure involving the Company will be material to StaffMark's financial
condition or operations. In any event, StaffMark's overall contingency plan with
respect to the Company is to ensure that the Company's Year 2000 compliance
17
<PAGE> 27
project is materially complete by June 30, 1999, if a portion or all of the
project is not complete by December 31, 1998, as previously represented by the
Company. As to the Company's completion of its Year 2000 compliance project and
the implementation of StaffMark's contingency plans, if necessary, StaffMark
believes that the costs of each matter individually and both matters in the
aggregate will not be material to its financial condition or results of
operations.
THE STAFFMARK SPECIAL MEETING
This Proxy Statement is furnished in connection with the solicitation of
proxies from the holders of StaffMark Common Stock by the StaffMark Board for
use at the StaffMark Special Meeting. This Proxy Statement and accompanying form
of proxy are first being mailed to stockholders of StaffMark on or about
September 25, 1998.
TIME AND PLACE; PURPOSE
The StaffMark Special Meeting will be held at The University of Arkansas
Center for Continuing Education, 2 East Center Street, Fayetteville, Arkansas
72701, on October 27, 1998, starting at 10:00 a.m., Central Time. At the
StaffMark Special Meeting, the stockholders of StaffMark will be asked to
consider and vote upon: (i) the Issuance; and (ii) such other matters as may
properly come before the StaffMark Special Meeting.
VOTING RIGHTS; QUORUM REQUIREMENT; VOTES REQUIRED FOR APPROVAL
The StaffMark Board has fixed the close of business on September 15, 1998,
as the record date fixed for purposes of voting at the StaffMark Special Meeting
(the "StaffMark Record Date"). Only holders of record of shares of StaffMark
Common Stock on the StaffMark Record Date are entitled to notice of and to vote
at the StaffMark Special Meeting. On the StaffMark Record Date, there were
22,153,596 shares of StaffMark Common Stock outstanding and entitled to vote at
the StaffMark Special Meeting held by 978 stockholders of record.
Each holder of record, as of the StaffMark Record Date, of StaffMark Common
Stock is entitled to cast one vote per share. The presence, in person or by
proxy, of the holders of a majority of the outstanding shares of StaffMark
Common Stock entitled to vote is necessary to constitute a quorum at the
StaffMark Special Meeting. Assuming a quorum is present, the affirmative vote,
in person or by proxy, of at least a majority of the votes properly cast, is
required to approve and adopt the Issuance.
PROXIES
All shares of the StaffMark Common Stock represented by properly executed
proxies received prior to or at the StaffMark Special Meeting, as the case may
be, and not revoked, will be voted in accordance with the instructions indicated
in such proxies. If no instructions are indicated on a properly executed
returned proxy, such proxies will be voted FOR the approval of the Issuance. A
properly executed proxy marked "ABSTAIN," although counted for purposes of
determining whether there is a quorum and for purposes of determining the
aggregate voting power and number of shares represented and entitled to vote at
the StaffMark Special Meeting, will not be voted. Accordingly, since the
affirmative vote of a majority of votes properly cast is required for approval
of the Issuance, a proxy marked "ABSTAIN" will have the effect of a vote against
the Issuance. Shares represented by "broker non-votes" (i.e.,shares held by
brokers or nominees which are represented at a meeting but with respect to which
the broker or nominee is not empowered to vote on a particular proposal) will be
counted for purposes of determining whether there is a quorum at the StaffMark
Special Meeting. In accordance with New York Stock Exchange rules, brokers and
nominees are precluded from exercising their voting discretion with respect to
the approval and adoption of the Issuance and thus, absent specific instructions
from the beneficial owner of such shares, are not empowered to vote such shares
with respect to the approval and adoption of the Issuance. Therefore, since the
affirmative vote of a majority of the votes properly cast is required for
approval of the Issuance, a "broker non-vote" will not have the effect of a vote
against the Issuance.
18
<PAGE> 28
The StaffMark Board is not currently aware of any business to be acted upon
at the StaffMark Special Meeting other than as described herein. If, however,
other matters are properly brought before the StaffMark Special Meeting, or any
adjournments or postponements thereof, the persons appointed as proxies will
have discretion to vote or act thereon according to their best judgment. Such
adjournment may be for the purpose of soliciting additional proxies. Shares
represented by proxies voting against the Issuance will be voted against a
proposal to adjourn the StaffMark Special Meeting for the purpose of soliciting
additional proxies. StaffMark does not currently intend to seek an adjournment
of the StaffMark Special Meeting.
A stockholder may revoke his or her proxy at any time prior to its use by
delivering to the Secretary of StaffMark a signed notice of revocation or a
later-dated signed proxy or by attending the StaffMark Special Meeting and
voting in person. Attendance at the StaffMark Special Meeting will not in itself
constitute the revocation of a proxy.
The cost of solicitation of proxies for the StaffMark Special Meeting will
be paid by StaffMark. In addition to solicitation by mail, arrangements will be
made with brokerage houses and other custodians, nominees and fiduciaries to
send proxy material to beneficial owners; and StaffMark will, upon request,
reimburse them for their reasonable expenses in so doing. StaffMark has retained
Corporate Investor Communications, Inc. to aid in the solicitation of proxies
and to verify certain records related to the solicitation at a fee of $5,000
plus expenses. To the extent necessary in order to ensure sufficient
representation at the StaffMark Special Meeting, StaffMark may request by
telephone or telegram the return of proxy cards. The extent to which this will
be necessary depends entirely upon how promptly proxy cards are returned.
Stockholders are urged to send in their proxies without delay.
STOCKHOLDERS SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS.
RECOMMENDATION OF THE STAFFMARK BOARD
THE STAFFMARK BOARD BELIEVES THAT THE ISSUANCE AND THE TERMS OF THE
TRANSACTION ARE FAIR TO, AND IN THE BEST INTERESTS OF, STAFFMARK AND THE
STOCKHOLDERS OF STAFFMARK AND HAS, BY UNANIMOUS VOTE OF THE DIRECTORS, APPROVED
THE ISSUANCE, THE TRANSACTION AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THE
TRANSACTION AGREEMENT, AND UNANIMOUSLY RECOMMENDS THAT STAFFMARK STOCKHOLDERS
VOTE "FOR" THE ISSUANCE.
THE TRANSACTION
GENERAL
Subject to and upon the terms and conditions of the Transaction Agreement
and the applicable provisions of the Companies Act, the Company will be acquired
by the Transaction Subsidiary and will become a direct wholly-owned subsidiary
of the Transaction Subsidiary and an indirect wholly-owned subsidiary of
StaffMark. For the Transaction to be consummated, it must be approved by the
StaffMark stockholders and Company shareholders, and all of the other conditions
referred to and set out in Appendix II must be: (i) satisfied, including the
High Court's sanction of the Scheme of Arrangement; or (ii) waived, where
permitted by the Transaction Agreement. The discussion in this Proxy Statement
of the Transaction and the description of the principal terms and conditions of
the Transaction Agreement are subject to and qualified in their entirety by
reference to the Transaction Agreement, a copy of which is attached to this
Proxy Statement as Appendix I and is incorporated herein by reference. StaffMark
stockholders are urged to read the Transaction Agreement carefully in its
entirety.
19
<PAGE> 29
ISSUANCE OF STAFFMARK COMMON STOCK IN THE TRANSACTION
Holders of Existing Company Shares will receive in the Transaction, in
exchange for each Existing Company Share held by such holder, that fraction
(rounded to four decimal places) of one share of StaffMark Common Stock (the
"Exchange Ratio") equal to:
(i) 0.272, if the Final StaffMark Price (defined below) is equal to or
less than $37.16; or
(ii) the lower of:
(A) 0.272; and
(B) a fraction equal to (x) (1) the sum of the Base Value (defined
below) and the Incremental Value (defined below) multiplied by
(2) the Final Exchange Rate (defined below) divided by (y) the
Final StaffMark Price (defined below),
if the Final StaffMark Price is greater than $37.16.
As used in the calculations set forth above and as referred to elsewhere
herein, the following terms shall have the meanings set forth below:
"Base Value" means an amount equal to: (i) the product of (a) 37.16
multiplied by (b) 0.272, divided by; (ii) the Final Exchange Rate.
"Final Exchange Rate" means the average of the mid-points of the
closing spread of the U.S. dollar to the pound sterling spot rate in
London, as shown in the Financial Times (U.K. edition) for the 10 trading
day period ending on the third New York business day prior to the Effective
Date.
"Final StaffMark Price" means the amount (expressed in U.S. dollars)
equal to the average of the closing sales prices of the StaffMark Common
Stock on the Nasdaq National Market System for the 10 trading day period
ending on the third New York business day prior to the Effective Date.
"Incremental Value" means an amount equal to the product of: (i) (a)
the Final StaffMark Price minus (b) 37.16 multiplied by; (ii) 0.05.
No fraction of a share of StaffMark Common Stock will be issued to holders
of Existing Company Shares but in lieu thereof, each such holder who would
otherwise be entitled to such a fraction of a share of StaffMark Common Stock
(after first aggregating all such fractions of shares of StaffMark Common Stock
to which such holder would be otherwise entitled) will instead receive cash
(without interest) from StaffMark as if any fraction of a share of StaffMark
Common Stock to which such holder would otherwise have been entitled had been
sold at the like fraction of the middle market closing price of StaffMark Common
Stock on the Nasdaq National Market System on the Effective Date and converted
into pounds sterling at the mid-point of the closing spread of the U.S. dollar
to the pound sterling spot rate, as shown in the Financial Times (U.K. edition)
on the New York business day following the Effective Date.
SHARE OPTIONS
The "Share Option Schemes" consist of the Robert Walters plc 1996 Approved
Executive Share Option Scheme, the Robert Walters plc 1996 Unapproved Executive
Share Option Scheme and the Robert Walters plc Savings-Related Share Option
Scheme. The Scheme of Arrangement will extend to any Company Shares issued upon
the exercise of options under the Share Option Schemes where the Company Shares
are issued 48 hours prior to the date of the Court Meeting. The Scheme of
Arrangement will also extend to Company Shares issued upon the exercise of
Company options under the Share Option Schemes after such time but prior to the
close of business on the London business day before the making of the High Court
Order to the extent that the relevant persons are or agree to be bound by the
Scheme of Arrangement.
The Scheme of Arrangement will not extend to Company Shares issued to any
person other than the Transaction Subsidiary or its nominee at or after the
close of business on the London business day before the date of the High Court
Order. It is therefore proposed that the Articles of Association of the Company
be amended so that any Company Shares issued to any person other than the
Transaction Subsidiary or its
20
<PAGE> 30
nominee after that time will (on issue or on the Effective Date, whichever is
later) be immediately transferred to the Transaction Subsidiary or its nominee
in consideration for and conditional on the issue to the holder of such Company
Shares of StaffMark Common Stock to the holder of such Company Shares on the
same terms as under the Scheme of Arrangement. This will prevent any holder of
Company Shares (apart from the Transaction Subsidiary or its nominee) being left
with Company Shares after dealings in Company Shares have ceased on the London
Stock Exchange.
Apart from options exercisable early, for example, in certain circumstances
where the holder of the option has ceased employment, options under the Share
Option Schemes are not normally exercisable until between 1999 and 2006.
However, if the High Court sanctions the Scheme of Arrangement, pursuant to the
provisions of the Company's Share Option Schemes, Company Optionholders must
exercise their options during the six-month period after the date on which the
High Court sanctions the Scheme of Arrangement, otherwise the Company options
will lapse at the end of the six-month period (to the extent they have not
otherwise lapsed by then).
StaffMark intends to offer optionholders under the Company's
Savings-Related Share Option Scheme (the "Savings Arrangement"), the opportunity
to cancel options granted thereunder in exchange for a number of shares of
StaffMark Common Stock equal in value to the gain which optionholders would have
made if all such options had been exercised in full prior to completion of the
Transaction and the Company Shares obtained upon such exercise had been
exchanged for StaffMark Common Stock in accordance with the Exchange Ratio
pursuant to the Transaction.
The Company currently has outstanding share options with exercise prices
ranging from 70.66 p to 545 p and a weighted average price of 176 p. Assuming
all outstanding Company options as of September 15, 1998 are exercised after the
Effective Date under the Share Option Schemes to the maximum extent possible in
accordance with the foregoing and the Final StaffMark Price is less than $37.16,
it is anticipated that no more than approximately 472,000 shares of StaffMark
Common Stock will be issued thereunder and that the StaffMark Group will receive
no more than approximately $5.2 million in consideration in connection with any
such exercise. Following the Effective Date, StaffMark intends to grant to
certain executives and employees of the Company StaffMark stock options to
purchase 400,000 shares of StaffMark Common Stock at the fair market value of
StaffMark Common Stock on the date of grant.
EFFECTIVE DATE
The Transaction will be consummated, subject to satisfaction or (where
permitted under the terms of the Transaction Agreement) waiver of the conditions
precedent referred to and set out in Appendix II , at the date and time on which
an office copy of the High Court Order sanctioning the Scheme of Arrangement
under the Companies Act shall have been duly delivered to the Registrar for
registration and such High Court Order shall have been registered.
BACKGROUND OF THE TRANSACTION
In early January, 1998, senior management of StaffMark and the Company
initiated discussions by a telephone conference call concerning a possible
combination of the two companies. Approximately one week after the initial
conference call, senior management of StaffMark and the Company met in New York
City for two days to discuss the potential combination in greater detail. During
the January discussions, senior management discussed their respective companies'
histories, goals, strategies and cultures and developed an understanding
concerning the potential complementary nature of their businesses and
compatibility of their long-term strategic objectives. A discussion between the
Chief Executive Officers of StaffMark and the Company relating to certain
aspects of a potential combination during early February, 1998 led to the
arrangement of a series of senior management meetings in London between February
14 and 17, 1998 (the "February Meetings"). Senior management of StaffMark, prior
to the February Meetings, informed members of the StaffMark Board concerning the
potential combination and thereafter periodically provided updates concerning
material developments and considerations related to the proposed combination.
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The February Meetings included: (i) large group senior management meetings
on February 14 and 16, at which discussions took place concerning (a) the
potential strategies, fit and culture of the combined organizations and
marketing and branding considerations and (b) potential transaction terms and
management responsibilities of certain Company management; (ii) smaller separate
group meetings on February 15 and 16, which focused upon distinct operational,
financial and acquisition/expansion due diligence investigations by
representative StaffMark and Company management concerning the Company; and
(iii) meetings involving management of StaffMark and the Company, and their
respective legal, financial and accounting advisors, that focused on potential
transaction terms and structure. These meetings culminated in StaffMark's
February 17, 1998 offer of an all-stock scheme of arrangement acquisition
proposal, which was rejected primarily because the Company believed that the
offer premium was inadequate relative to then-existing Company Share trading
prices. At that time, all discussions concerning a potential business
combination terminated.
The next contact between StaffMark and the Company occurred at the end of
March, 1998 when Clete Brewer, Terry Bellora and Rob Janes of StaffMark attended
a staffing industry forum in San Francisco, which Robert Walters and Ben
Anderson of the Company also attended. At that time, representatives of the
Company advised StaffMark representatives that the Company was interested but
was investigating or pursuing several acquisitive transactions, and was not
interested in a combination at that time, but would be interested in resuming
discussions in the future. On June 9, 1998, senior management of StaffMark and
the Company met in London, whereupon the companies agreed to resume discussions
concerning a potential business combination. Subsequently thereafter, StaffMark
hosted senior management of the Company at StaffMark headquarters in
Fayetteville, Arkansas and at certain StaffMark operations located in New York
City and Dallas, in order to facilitate Company management's financial and
operational due diligence investigation and understanding of StaffMark's
culture, operating philosophies and strategies.
Discussions between senior management of StaffMark and the Company
concerning culture and transactional (e.g., pooling-of-interests accounting and
tax) issues and mutual due diligence investigations continued during July of
1998. On July 23, 1998, StaffMark instructed Morgan Stanley, StaffMark's
financial advisor, to convey to Goldman Sachs International, the Company's
financial advisor, StaffMark's indication of interest to acquire all outstanding
Company shares pursuant to a Scheme of Arrangement involving an exchange ratio
of 0.25487 shares of StaffMark Common Stock for each Company Share, subject to
downward adjustment to such ratio necessary to ensure that the per Company Share
pound sterling value of the Transaction would increase by a currency adjusted
pro rata amount of L0.05 for each $1.00, or any increment thereof, that the
Final StaffMark Price exceeded $38.37. See "-- Issuance of StaffMark Common
Stock in the Transaction."
Subsequent negotiations over this indication of interest resulted in a nine
hour senior management conference call on July 24, 1998 which focused on
detailed financial due diligence and budget matters. Subsequent to such detailed
financial due diligence, on July 25, 1998, StaffMark modified its July 23, 1998
indication of interest to change: (i) the exchange ratio from 0.25487 to 0.272
shares of StaffMark Common Stock for each Company Share; and (ii) from $38.37 to
$35.98, the level at which the 0.272 exchange ratio would be subject to the
aforementioned downward adjustment.
On July 27, 1998, (i) StaffMark requested and obtained an exclusivity
undertaking from the Company (the "Exclusivity Letter"), pursuant to which the
Company agreed to negotiate exclusively with StaffMark concerning a potential
business combination until October 31, 1998 or become obligated to pay
StaffMark, for any breach thereof, an amount comparable to the maximum amount
set forth under "The Transaction -- Termination; Termination Fee" and (ii)
StaffMark modified its July 25, 1998 indication of interest to change, from
$35.98 to $37.16, the level at which the 0.272 exchange ratio would be subject
to the aforementioned downward adjustment (the "Modified Proposal"). Between
July 28 and August 12, 1998, members of senior management of StaffMark continued
their due diligence investigation of the Company and negotiated most of the
principal terms of the Transaction, the Scheme of Arrangement and the
transactions contemplated thereby.
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On August 13, 1998, senior management of StaffMark, together with Morgan
Stanley, StaffMark's financial advisor, and StaffMark's outside legal advisors
and accountants reviewed in detail the Transaction for the benefit of the
StaffMark Board. Clete Brewer, President and Chief Executive Officer of
StaffMark, described in detail the rationale for a combination with the Company,
the strategic aspects of the proposed combination, the proposed resolution of
governance, management, employee benefit and organizational issues relating to
the proposed combination and the potential for a future change in the holding
company name, in view of branding and other considerations. Clete Brewer
explained (i) that the Transaction is consistent with StaffMark's operating,
growth and acquisition strategies, (ii) that the Transaction complements
StaffMark's existing business lines because the Company's business provides a
value-added, high margin, international professional services component with a
significant presence in the United Kingdom and (iii) that StaffMark senior
management was not recommending the Transaction to the StaffMark Board in lieu
of any other alternative. Other members of StaffMark senior management presented
the results of their due diligence investigations in connection with
presentations concerning the financial analysis, operational and strategic fit
considerations associated with the Transaction and in response to director
questions concerning those factors and the overall merits of the Transaction. In
this regard, management described, responded to questions concerning and
provided an analysis of certain potential risks, detriments and considerations
associated with the Transaction. See "Potential Risks, Detriments and Other
Considerations Associated with the Transaction." Management reported to the
StaffMark Board that consensus had been reached between the parties on most of
the principal terms of the proposed combination, except for certain conditions
to consummating the Transaction and termination terms and other terms contained
in or referred to in the Transaction Agreement, which were in the process of
being negotiated between the parties (the "Remaining Negotiated Points").
Morgan Stanley made a presentation to the StaffMark Board concerning the
Transaction and orally indicated to the StaffMark Board that it would be
prepared to deliver a written opinion that the Exchange Ratio was fair from a
financial point of view to StaffMark in connection with execution of a
Transaction Agreement containing the economic terms of the Modified Proposal as
outlined at the StaffMark Board meeting. See "-- Opinion of Financial Advisor to
StaffMark." Representatives of Arthur Andersen LLP reported to the Board
concerning the pooling-of-interests method of accounting for the proposed
combination. StaffMark counsel and outside legal advisors reviewed certain legal
matters with the StaffMark Board, including: (i) a review of the terms of the
Transaction Agreement, a draft and summary of which had been distributed to the
members of the StaffMark Board prior to the meeting; (ii) a discussion
concerning relevant U.K. law and other requirements with respect to the
Transaction Agreement (and ancillary agreements related to the Transaction), the
Scheme of Arrangement and U.K. Takeover Panel particulars, including disclosure
obligations related thereto; (iii) a discussion of the business judgment rule,
the fiduciary duties of the directors and other relevant aspects of Delaware
corporate law; and (iv) a discussion of U.S. Federal securities law matters
relevant to the Transaction. Following completion of all of the presentations,
StaffMark senior management recommended that the StaffMark Board approve the
Transaction. The StaffMark Board then approved in principle the Transaction and
all transactions contemplated thereby, including the Issuance, and delegated
responsibility to a committee of the StaffMark Board, consisting of Jerry
Brewer, Clete Brewer and William Lynch (the "Transaction Committee"), to take
final action and authorize final approval, on behalf of the entire StaffMark
Board, of the Transaction and all transactions contemplated thereby, including
the Issuance, upon the resolution of the Remaining Negotiated Points to the
satisfaction of the Transaction Committee, and authorize appropriate members of
management to execute all agreements, instruments and documents to effectuate
the Transaction, upon the resolution of the Remaining Negotiated Points to the
satisfaction of the Transaction Committee.
Between August 13, 1998 and August 17, 1998, StaffMark and the Company
finalized all negotiations concerning the Transaction. On August 17, 1998: (i)
Morgan Stanley delivered, after the closing of trading for StaffMark Common
Stock and Company Shares, a written opinion to StaffMark concerning the fairness
of the Exchange Ratio to StaffMark, from a financial point of view; (ii) the
Board of Directors of the Company approved the final terms of the Transaction;
and (iii) the Transaction Committee of the StaffMark Board had resolved to its
satisfaction the Remaining Negotiated Points and, on behalf of the StaffMark
Board, approved the Transaction and all transactions related thereto, including
the Issuance. Following such events, the Transaction Agreement and all ancillary
agreements related to the Transaction were executed. The Transac-
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<PAGE> 33
tion was publicly announced before the opening of trading for Company Shares and
StaffMark Common Stock on August 18, 1998. In recommending the approval of the
Issuance, the StaffMark Board considered the terms of the Transaction, the due
diligence conclusions of senior management of StaffMark and all of the analyses
and written and oral presentations provided to the StaffMark Board concerning
the Transaction, including the opinion of Morgan Stanley that the Exchange Ratio
is fair to StaffMark from a financial point of view. See "The StaffMark Special
Meeting -- Recommendation of the StaffMark Board" and "-- Opinion of Financial
Advisor to StaffMark."
REASONS FOR THE TRANSACTION
The StaffMark and the Company believe that the Transaction represents an
important opportunity to:
- Create a global provider of professional staffing, consulting, and
solution services. By combining the Company's offices with StaffMark's
branch system, the Combined Group will have over 235 offices in 12
countries, including operations in Amsterdam, Bangkok, Brussels, Boston,
Chicago, Frankfurt, Hong Kong, Johannesburg, London, Melbourne, New York,
San Francisco, Singapore, Sydney and Vancouver. This network will enable
the Combined Group to provide wider geographic service coverage to its
multinational customer base and additional opportunities to its employees
and contractors and will provide a platform for further expansion.
- Enable StaffMark's IT recruitment services division to increase its
revenue base and geographic service coverage, improve its access to
technical talent and market its IT solutions to the Company's
international customer base as well as provide the Company with a
distribution channel in North America for IT candidates sourced
worldwide.
- Enhance the position of the Combined Group as a service provider to the
accounting and financial professional services sector. The Transaction
provides StaffMark with one of the most recognized accounting and
professional financial service brand names in the U.K. in this
recruitment sector, which StaffMark has identified as a strategic
priority. The Transaction provides the Company with access to the large
U.S. market through StaffMark's customer base and branch network.
- Provide each of the Company and StaffMark with access to a significantly
expanded pool of potential employees and contractors and the opportunity
to capitalize on mobility in the professional labor pool. StaffMark will
be able to access the Company's established recruitment operations in
various world markets, while the Company will be able to access
StaffMark's predominantly U.S.-based network of offices and customers.
- Create opportunities for potential synergies including increased success
in recruitment and retention of IT contractors, increased cross-border
service opportunities with multinational customers, and increased scope
of professional services available to StaffMark's and the Company's
respective customer bases.
- Enhance the strength and depth of StaffMark's management through the
addition of the Company's internationally experienced management team.
The management teams of StaffMark and the Company have a similar culture
and share a common vision of creating a global human resource solutions
business.
- Accelerate StaffMark's expansion into becoming a provider of human
resource solutions across its business units through utilization of the
Company's Resource Solutions model. StaffMark and the Company believe the
combination of the Company's and StaffMark's businesses will provide
opportunities to augment their respective capabilities and expertise in
providing outsourced human resource services.
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OPINION OF FINANCIAL ADVISOR TO STAFFMARK
Morgan Stanley was retained by StaffMark to act as its financial advisor in
connection with the Transaction. Morgan Stanley is an internationally recognized
investment banking firm and was selected by StaffMark based on Morgan Stanley's
qualifications, experience and expertise.
On August 13, 1998, Morgan Stanley orally indicated to the StaffMark Board
that, in connection with an execution of the Transaction Agreement containing
the economic terms of the Modified Proposal presented at the August 13, 1998
meeting of the StaffMark Board, Morgan Stanley would be prepared to deliver a
written fairness opinion to the effect that the Exchange Ratio was fair to
StaffMark from a financial point of view. Morgan Stanley subsequently delivered
to the StaffMark Board written opinions dated August 17, 1998 and the date of
this Proxy Statement to the effect that, as of the dates of such opinions, and
based on and subject to matters stated therein, the Exchange Ratio was fair to
StaffMark from a financial point of view. StaffMark does not expect to request
any further updates of the Morgan Stanley fairness opinions. Although Morgan
Stanley evaluated the fairness, from a financial point of view, of the Exchange
Ratio, the specific consideration payable in the Transaction was determined by
StaffMark and the Company through arm's-length negotiations.
UPON REQUEST BY STAFFMARK AND WITH THE CONSENT OF MORGAN STANLEY, THE FULL
TEXT OF MORGAN STANLEY'S WRITTEN OPINION DATED AS OF THE DATE OF THIS PROXY
STATEMENT, WHICH SETS FORTH, AMONG OTHER THINGS, THE ASSUMPTIONS MADE,
PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN, IS ATTACHED AS APPENDIX III TO THIS PROXY STATEMENT AND IS
INCORPORATED HEREIN BY REFERENCE. HOLDERS OF STAFFMARK COMMON STOCK ARE URGED
TO, AND SHOULD, READ THIS OPINION CAREFULLY AND IN ITS ENTIRETY. MORGAN
STANLEY'S OPINION IS ADDRESSED TO THE STAFFMARK BOARD, IS DIRECTED ONLY TO THE
FAIRNESS OF THE EXCHANGE RATIO FROM A FINANCIAL POINT OF VIEW TO STAFFMARK AND
DOES NOT ADDRESS ANY OTHER ASPECT OF THE TRANSACTION, DOES NOT EXPRESS AN
OPINION AS TO THE PRICE AT WHICH STAFFMARK COMMON STOCK WILL TRADE AT ANY TIME,
NOR DOES IT CONSTITUTE AN OPINION OR RECOMMENDATION TO ANY HOLDER OF STAFFMARK
COMMON STOCK AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE STAFFMARK SPECIAL
MEETING. THE SUMMARY OF THE OPINION OF MORGAN STANLEY SET FORTH IN THIS PROXY
STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH
OPINION.
In arriving at its opinions, Morgan Stanley, among other things: (i)
reviewed certain publicly available financial statements and other information
of the Company and StaffMark, respectively; (ii) reviewed certain internal
financial statements and other financial and operating data concerning the
Company and StaffMark prepared by the managements of the Company and StaffMark,
respectively; (iii) reviewed certain financial projections concerning the
Company and reviewed fiscal 1998 and 1999 earnings per share projections
communicated to us orally concerning StaffMark, which items were prepared by the
managements of the Company and StaffMark, respectively; (iv) discussed the past
and current operations and financial condition and the prospects of the Company
with senior executives of the Company; (v) reviewed the likely pro forma impact
of the Transaction on StaffMark's future earnings per share, consolidated
capitalization and financial ratios, if the Transaction is consummated; (vi)
discussed the business prospects for the Combined Group and the potential
benefits arising from the Transaction; (vii) reviewed the reported prices and
trading activity of the Company Shares and the StaffMark Common Stock; (viii)
compared the financial performance of the Company and StaffMark and the prices
and trading activity of the Company Shares and the StaffMark Common Stock with
that of certain other comparable publicly traded companies and their securities;
(ix) reviewed the financial terms, to the extent publicly available, of certain
comparable acquisition transactions; (x) participated in discussions and
negotiations among representatives of the Company and StaffMark and its
advisors; (xi) reviewed the Transaction Agreement; and (xii) considered such
other factors and performed such other analyses as Morgan Stanley deemed
appropriate.
In rendering its opinions, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by Morgan Stanley for purposes of its opinions. With respect to the
financial projections, Morgan Stanley assumed that they were reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
managements of StaffMark and the Company as to the future financial performance
of StaffMark and the Company, respectively. Morgan Stanley did not make an
independent evaluation or appraisal of the assets or liabilities of StaffMark or
the Company, nor was Morgan Stanley furnished with any such evaluations or
appraisals. Morgan Stanley expressed no
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opinion as to what the value of the StaffMark Common Stock actually will be when
issued to the Company shareholders pursuant to the Transaction or the price at
which such securities will trade subsequent to the Transaction. Morgan Stanley
assumed that the Transaction would be consummated in accordance with the terms
set forth in the Transaction Agreement, including that the Transaction will
qualify for "pooling-of-interests" treatment in accordance with U.S. GAAP.
Morgan Stanley's opinions were necessarily based on information made available
to it and financial, market and other conditions and circumstances as they
existed and could be evaluated on the dates of its opinions.
Morgan Stanley also relied as to legal matters concerning the Transaction
Agreement and the Exclusivity Letter on advice of counsel to StaffMark. Morgan
Stanley's opinions did not address the merits of the underlying decision by
StaffMark to engage in the transactions contemplated by the Transaction
Agreement.
The following is a brief summary of certain of the analyses performed by
Morgan Stanley in connection with its written fairness opinion dated August 17,
1998.
Analysis of Selected Precedent Transactions. Using publicly available
information, Morgan Stanley reviewed the following three completed crossborder
transactions in the recruitment industry: CRT Group plc and Education Technology
LLC, Hunterskill Howard plc and Accustaff Inc., and Michael Page Group plc and
Interim Services Inc. (collectively, the "Recruitment Transactions"). This
analysis, which was based on publicly available financial information for the
latest 12 months preceding the entry into the relevant transaction agreement,
showed that the financial terms of the Transaction and the Exchange Ratio were
within the ranges established by the Recruitment Transactions. Morgan Stanley
also reviewed the following 12 announced or completed U.K. stock-for-stock
transactions that took place since 1994 with a transaction size of less than
$500 million: Davenport Vernon plc and Evans Halshaw Holdings plc, Pict
Petroleum plc and Premier Consolidated Oilfields plc, Unipalm Group plc and
UUNet Technologies Inc., Cluff Resources plc and Ashanti Goldfields Company
Ltd., Molyneux Estates plc and TBI plc, Automated Securities Holding plc and ADT
Limited, Pet CityHoldings plc and PetsMart Inc., Sheriff Holdings plc and
Ashtead Group plc, Philip Harris plc and Nottingham Group plc, Rolfe & Nolan plc
and SunGard Data Systems Inc., Coda Group plc and Baan Company NV, and
International Public Relations plc and The Interpublic Group of Companies Inc.
(collectively, the "U.K. Transactions"). Morgan Stanley compared certain
financial and market statistics of the U.K. Transactions and noted that the mean
premium to market price four weeks prior to announcement of the transactions was
46.2% and that the median premium to market price four weeks prior to
announcement of the transactions was 48.0%. The premium paid by StaffMark
represents a premium of approximately 13.8% over the market price four weeks
prior to the announcement of the Transaction and a premium of approximately
54.2% over the market price at the close of business on August 17, 1998, the
last trading day prior to the announcement of the Transaction.
No transaction utilized as a comparison in the comparable transaction
analysis is identical to the Transaction. In evaluating the precedent
transactions, Morgan Stanley made judgments and assumptions with regard to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of StaffMark
and the Company, such as the impact of competition on StaffMark or the Company
and the industry generally, industry growth and the absence of any adverse
material change in the financial condition and prospects of StaffMark or the
Company or the industry or in the financial markets in general. Mathematical
analysis (such as determining the average or the mean) is not in itself a
meaningful method of using comparable transaction data.
Peer Group Comparison. As part of its analysis, Morgan Stanley compared
certain financial information of the Company with that of a group of publicly
traded U.K. recruitment companies, including Diagonal plc, Select Appointments
Holdings plc, Parity plc, Spring Group plc, Lorien plc, Corporate Services Group
plc, Delphi Group plc, Harvey Nash Group plc, MSB International plc and PSD
Group plc. Morgan Stanley also compared certain financial information of
StaffMark with that of a group of publicly traded U.S. recruitment companies
including Robert Half International Inc., Metro Information Services Inc., Romac
International Inc., On Assignment Inc., Data Processing Resources Corporation,
Corestaff Inc., Alternative Resources Corporation, Cotelligent Group Inc.,
Norrell Corporation, CDI Corp, SOS Staffing Services Inc., Interim Services
Inc., Personnel Group of America Inc. and Accustaff Inc. Such financial
information included 1998
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<PAGE> 36
and 1999 price to earnings multiples and 1998 and 1999 aggregate value to
earnings before interest, tax, depreciation and amortization ("EBITDA")
multiples.
No company utilized as a comparison in the comparable companies analysis is
identical to StaffMark or the Company. In evaluating the comparable companies,
Morgan Stanley made judgments and assumptions with regard to industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of StaffMark and the
Company, such as the impact of competition on StaffMark or the Company and the
industry generally, industry growth and the absence of any adverse material
change in the financial condition and prospects of StaffMark or the Company or
the industry or in the financial markets in general. Mathematical analysis (such
as determining the average or the mean) is not in itself a meaningful method of
using comparable company data.
Historical Exchange Ratio Analysis. Morgan Stanley reviewed the historical
ratios of the daily closing prices per share of StaffMark and the Company (the
"Historical Exchange Ratios") for a period from August 14, 1997 to August 14,
1998, and the average of such Historical Exchange Ratios for the ten-day, one-
month, three-month, six-month and twelve-month periods ending August 14, 1998.
Assuming a 40% premium for control, this analysis showed that the averages of
the Historical Exchange Ratios were 0.2812 during the ten-day period, 0.2723
during the one-month period, 0.2871 during the three-month period, 0.2871 during
the six-month period and 0.3089 during the twelve-month period ending August 14,
1998, respectively. Morgan Stanley assumed a 40% premium for control on the
basis of the analysis set forth under "-- Analysis of Selected Precedent
Transactions." The Exchange Ratio is 0.272, subject to downward adjustment in
certain circumstances. See "-- Issuance of StaffMark Common Stock in the
Transaction."
Contribution Analysis. Morgan Stanley analyzed the pro forma contribution
of each of StaffMark and the Company. Such analysis included relative
contributions of sales, EBITDA and earnings. In particular, such analysis showed
that the Company would contribute 25.8% of 1997 sales, 19.3% of 1998 projected
EBITDA, 19.9% of 1999 projected EBITDA, 25.0% of 1998 projected earnings and
25.6% of 1999 projected earnings. Based on the Exchange Ratio, Company
shareholders would own approximately 24% of the Combined Group.
Pro Forma Analysis of the Transaction. Morgan Stanley analyzed the pro
forma impact of the Transaction on StaffMark's earnings per share for the fiscal
years ended December 31, 1998 and December 31, 1999. Such analysis was based on
earnings estimates for the fiscal years ended December 31, 1998 and December 31,
1999 for the Company and StaffMark based on certain financial projections
prepared by the respective managements of each company. Morgan Stanley observed
that if the transaction was treated as a pooling of interests for accounting
purposes, the Transaction would be expected to enhance StaffMark's earnings per
share in the financial year ending December 31, 1999. This statement should not
be interpreted to mean that StaffMark's future earnings per share will
necessarily be greater than StaffMark's earnings per share for the fiscal year
ended December 31, 1997, or for its current fiscal year.
Other analyses performed were not material to Morgan Stanley's conclusion
when considered in light of the overall mix of analyses performed and financial
information analyzed.
In connection with its written opinion dated as of the date of this Proxy
Statement, Morgan Stanley reviewed the analyses used to render its August 17,
1998 opinion by performing procedures to update certain such analyses and by
reviewing the assumptions upon which such analyses were based and the factors
considered in connection therewith. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to a partial analysis or
summary description. In arriving at such opinions, no particular weight or
significance was attributed to any particular analysis or factor considered by
Morgan Stanley. Morgan Stanley believes that its analyses must be considered as
a whole and that selecting portions of its analyses, without considering all
analyses, would create an incomplete view of the process underlying its
opinions. The ranges of valuations resulting for any particular analysis
described above should not be taken to be Morgan Stanley's view of the actual
value of the Company or StaffMark.
Morgan Stanley did not consider it practicable to, nor did it attempt to,
quantify, rank or otherwise assign relative weights to the specific factors it
considered in reaching its decision. There were no specific factors
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<PAGE> 37
considered by Morgan Stanley which did not support Morgan Stanley's fairness
opinion. For purposes of rendering the fairness opinion, Morgan Stanley assumed,
in all respects material to its analysis, that the representations and
warranties of each party contained in the Transaction Agreement were true and
correct, that each party would perform all of the covenants and agreements
required to be performed by it under the Transaction Agreement, that the
Transaction Agreement would not be amended in any material respect and that all
conditions to the consummation of the Transaction would be satisfied without
waiver thereof. In rendering its opinion, Morgan Stanley made numerous
assumptions with respect to industry performance, general business and economic
conditions including, but not limited to, no material change in the way
StaffMark conducts its business, no material change in the overall need for
staffing solution providers by industrial and services companies and no material
change in GDP growth, inflation, interest rates and unemployment. The analyses
performed by Morgan Stanley are not necessarily indicative of actual values,
which may be significantly more or less favorable than suggested by such
analyses. Such analyses were prepared solely as a part of Morgan Stanley's
analysis of the fairness of the Exchange Ratio from a financial point of view to
StaffMark and were provided to the StaffMark Board in connection with the
delivery of Morgan Stanley's opinion on August 17, 1998. The analyses do not
purport to be appraisals or to reflect the prices at which the Company or
StaffMark might actually be sold.
In addition, as described above, Morgan Stanley's opinion and presentation
to the StaffMark Board was one of many factors taken into consideration by the
StaffMark Board in making its determination to approve the Transaction.
Consequently, the Morgan Stanley analyses described above should not be viewed
as determinative of the opinion of the StaffMark Board or the view of the
management of StaffMark with respect to the value of the Company or StaffMark or
of whether the StaffMark Board would have been willing to agree to a different
exchange ratio. The Exchange Ratio was determined through negotiations between
StaffMark and the Company and was approved by the StaffMark Board. Morgan
Stanley provided advice to StaffMark during the course of such negotiations;
however, the decision to enter into the Transaction Agreement and to accept the
Exchange Ratio was solely that of the StaffMark Board.
Morgan Stanley is an internationally recognized investment banking and
advisory firm. As part of its investment banking business, Morgan Stanley is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. Morgan
Stanley is a full-service securities firm engaged in securities trading and
brokerage activities as well as providing investment banking, financing and
financial advisory advice. In the ordinary course of its business, Morgan
Stanley and its affiliates may actively trade the debt and equity securities of
StaffMark and the Company for their own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
Morgan Stanley has been retained by StaffMark to act as financial advisor
to StaffMark with respect to the Transaction. Pursuant to a letter agreement
dated July 30, 1998, between StaffMark and Morgan Stanley, StaffMark has agreed
to pay Morgan Stanley (i) an advisory fee of $50,000 per month for each month of
the assignment, which is payable in the event that the Transaction is not
completed and (ii) if the Transaction is successfully completed, a transaction
fee of $2,000,000, against which any advisory fee previously paid will be
credited. The fee payable to Morgan Stanley was proposed by StaffMark following
arm's-length negotiations with Morgan Stanley and after considering fees paid
and payable in comparable transactions. In addition, StaffMark has agreed to
reimburse Morgan Stanley for certain reasonable fees and expenses relating to
the Transaction, and to indemnify Morgan Stanley for liabilities and expenses
arising out of the engagement and the transactions in connection therewith,
including liabilities under the federal securities laws.
PERCENTAGE OWNERSHIP INTEREST OF COMPANY SHAREHOLDERS IN STAFFMARK AFTER THE
EFFECTIVE DATE
Assuming that there will be approximately 22.2 million shares of StaffMark
Common Stock (excluding StaffMark Common Stock issuable upon the exercise of
StaffMark stock options) and 24.59 million Existing Company Shares outstanding
immediately prior to the Effective Date and that the Final StaffMark Price is
not greater than $37.16, the number of Consideration Shares to be issued in the
Transaction would be approximately 6.69 million, excluding any shares of
StaffMark Common Stock issued after the Effective Date
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of the Transaction under the Option Arrangements, which would represent
approximately 23.2% of the outstanding shares of StaffMark Common Stock
immediately after the Effective Date. Under such circumstances, and assuming no
other significant changes in StaffMark Common Stock beneficial ownership, Robert
Walters would become the largest individual beneficial owner of approximately
1.59 million (or 5.5% of the outstanding) shares of StaffMark Common Stock
immediately after the Effective Date. Assuming the complete exercise of options
under the Option Arrangements and no other change in assumptions set forth in
this paragraph, StaffMark Common Stock issued as Consideration Shares and
pursuant to the Option Arrangements would constitute 24.4%, and Robert Walters
will beneficially own 5.4%, of the outstanding StaffMark Common Stock.
REGULATORY APPROVALS
Court Process for the Scheme of Arrangement. The Transaction is being
effected by way of a Scheme of Arrangement, a U.K. statutory procedure. Under
Section 425 of the Companies Act, in order for the Transaction to be effective,
among other things, application must be made to the High Court. In determining
whether to sanction the Scheme of Arrangement, the High Court must be satisfied
that the statutory provisions have been complied with, including correct notice
of the Court Meeting having been given, an Explanatory Statement under Section
426 of the Companies Act having been dispatched and the passing at the Court
Meeting by the requisite majority of the resolution to approve the Scheme of
Arrangement. The High Court also must be satisfied that the holders of Existing
Company Shares were fairly represented by those attending the Court Meeting,
that those constituting the statutory voting majority acted bona fide and that
sanctioning of the Scheme of Arrangement is reasonable.
The Transaction will become effective upon registration by the Registrar of
the High Court Order sanctioning the Scheme of Arrangement. Once effective, the
Transaction will bind the holders of all Existing Company Shares in issue at the
close of business on the last London business day before the High Court makes
the High Court Order sanctioning the Transaction, whether or not such holders
voted in favor of the resolution to be proposed at the Court Meeting.
The Transaction (and therefore the Scheme of Arrangement) also involves,
among other things, a reduction of the Company's share capital by the
cancellation of all the Existing Company Shares pursuant to Section 135 of the
Companies Act. The resolution to cancel the Existing Company Shares is subject,
under Section 137 of the Companies Act, to the confirmation of the High Court.
Such confirmation is discretionary and the cancellation will not become
effective unless and until the High Court has made the requisite High Court
Order and the High Court Order has been duly delivered to, and registered by,
the Registrar.
Competition Matters. The Fair Trading Act of 1973 (the "1973 Act") provides
the basis of any U.K. review of the antitrust aspects of the Transaction. Under
the 1973 Act, the Secretary of State may only require investigation of the
Transaction by the Monopolies and Mergers Commission if either the gross value
of the worldwide assets acquired exceeds L70 million, or both StaffMark and the
Company supply or acquire goods or services of the same description and have a
combined market share of at least 25% in the United Kingdom or a substantial
part of the United Kingdom. Since the Transaction satisfies neither of these
thresholds, no scope arises under the 1973 Act for the Transaction to be
referred to the Monopolies and Mergers Commission.
CERTAIN FEDERAL SECURITIES LAW CONSEQUENCES; AFFILIATE AGREEMENTS
In light of the fact that the Scheme of Arrangement will be sanctioned by
the High Court, the StaffMark Common Stock to be issued in the Transaction will
not be registered under the Securities Act of 1933, as amended (the "Securities
Act"), in reliance upon the exemption from registration provided by Section
3(a)(10) of the Securities Act. See "United Kingdom Corporate and Regulatory
Approvals Concerning the Transaction." As a result, no registration statement
concerning the Issuance has been or will be filed with the U.S. Securities and
Exchange Commission. Shares of StaffMark Common Stock issued to a holder of
Existing Company Shares who is deemed to control, be controlled by or be under
common control with the Company or StaffMark, respectively ("Affiliates"), will
not be freely tradeable under the Securities Act.
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Affiliates may not sell their shares of StaffMark Common Stock acquired in the
Transaction except pursuant to (i) an effective registration statement under the
Securities Act covering such shares, (ii) the resale provisions of Rule 145
promulgated under the Securities Act or (iii) another applicable exemption from
the registration requirements of the Securities Act. In general, Rule 145, as
currently in effect, imposes restrictions on the manner in which Affiliates may
make resales of StaffMark Common Stock and also on the number of shares of
StaffMark Common Stock that such Affiliates, and others (including persons with
whom the Affiliates act in concert), may sell within any three-month period.
Shares of StaffMark Common Stock issued in the Transaction to persons that are
not Affiliates will be freely tradeable under the Securities Act.
It is a condition to consummation of the Transaction that all directors of
the Company must deliver to StaffMark, on or before the Effective Date, written
agreements (the "Affiliate Agreements") pursuant to which they will have
represented to and covenanted with StaffMark, among other things, that they will
not sell, hedge or otherwise reduce their risk with respect to the voting shares
or other securities of StaffMark and the Company that are deemed to be
"essentially the same as common stock" that are held by them in an amount
greater than 10% of their individual holdings, limited to 1% of the outstanding
voting shares and securities deemed to be "essentially the same as common stock"
of StaffMark or the Company respectively in the aggregate, for all such sales,
beginning 30 days prior to the consummation of the Transaction and ending with
the publication by StaffMark of financial results including at least 30 days of
combined operations of the Company and StaffMark, in the form of a quarterly
earnings report, an effective registration statement filed with the SEC, a
report to the SEC on Form 10-K, 10-Q or 8-K or any other public filing or
announcement which includes such combined results of operations, provided that
StaffMark agrees to use all reasonable endeavors to publish such results by
February 28, 1999 and shall in any event publish such results by March 31, 1999.
Legends restricting the transfer of such shares of StaffMark Common Stock will
be placed on all certificates representing such shares.
STOCK LISTING
The shares of StaffMark Common Stock to be issued in the Transaction will
be listed on the Nasdaq National Market. On the Effective Date, a request will
be made for the Company Shares to cease to be listed on the London Stock
Exchange.
ACCOUNTING TREATMENT
It is a condition to the consummation of the Transaction that StaffMark and
the Company each receive from Arthur Andersen LLP a letter, dated within two
London business days prior to the date of the High Court Order, confirming that
the Transaction, if consummated, should be accounted for in accordance with the
pooling-of-interests method of accounting under Opinion No. 16, "Business
Combinations," of the Accounting Principles Board of the American Institute of
Certified Public Accountants. Under this accounting method, the assets and
liabilities of the Company, as well as its stockholder equity accounts will be
carried forward to StaffMark at their historical recorded bases and conformed as
appropriate, including but not limited to any differences between U.S. GAAP and
U.K. GAAP. Results of operations of StaffMark will be restated to include the
results of both the Company and StaffMark for all periods presented and
conformed as appropriate, including but not limited to any differences between
U.S. GAAP and U.K. GAAP. The reported balance sheet amounts and results of
operations of the separate corporations for prior periods will be combined,
reclassified and conformed, as appropriate, to reflect the combined financial
position and results of operations for StaffMark. See "Unaudited Pro Forma
Financial Information."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Tax Implications to StaffMark Stockholders. No gain or loss will be
recognized for U.S. federal income tax purposes by StaffMark stockholders.
THE DISCUSSION SET FORTH ABOVE ONLY ADDRESSES FEDERAL INCOME TAX
CONSEQUENCES TO STAFFMARK STOCKHOLDERS GENERALLY WITH RESPECT TO THE
TRANSACTION, AND DOES NOT ADDRESS THE TAX CONSEQUENCES OF THE TRANSAC-
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TION TO ANY COMPANY SHAREHOLDER AND DOES NOT PURPORT TO BE A COMPLETE ANALYSIS
OR DESCRIPTION OF ALL POTENTIAL FEDERAL INCOME TAX CONSEQUENCES OF THE
TRANSACTION. IN ADDITION, THE FOREGOING DISCUSSION DOES NOT ADDRESS TAX
CONSEQUENCES WHICH MAY VARY WITH, OR ARE CONTINGENT ON, INDIVIDUAL
CIRCUMSTANCES. MOREOVER, THIS DISCUSSION DOES NOT ADDRESS ANY NON-INCOME TAX OR
ANY FOREIGN, STATE OR LOCAL TAX CONSEQUENCES OF THE TRANSACTION. ACCORDINGLY,
EACH STOCKHOLDER OF STAFFMARK AND EACH COMPANY SHAREHOLDER IS STRONGLY URGED TO
CONSULT WITH SUCH HOLDER'S TAX ADVISOR TO DETERMINE THE PARTICULAR UNITED STATES
FEDERAL, STATE, LOCAL OR FOREIGN INCOME OR OTHER TAX CONSEQUENCES ASSOCIATED
WITH THE TRANSACTION.
THE TRANSACTION SUPPORT AGREEMENTS
Robert Walters, Benjamin Anderson, Thomas Chambers, Charles Scott and
Russell Tenzer have executed Transaction Support Agreements in each of their
capacities as directors and shareholders of the Company. Giles Daubeney has
executed a Transaction Support Agreement in his capacity as a director of the
Company. In addition, Mrs. Robert Walters, Robert Walters, and Business
Management Services Trustees Ltd. (in the capacity as trustee) have executed
Transaction Support Agreements as shareholders of the Company. Each Company
shareholder that is a party to a Transaction Support Agreement intends, without
creating any legal obligation in respect thereof, to vote all of his, her or its
Company Shares in favor of the Scheme of Arrangement. As a group, such
shareholders have voting power with respect to 7,713,556 Company Shares,
constituting in the aggregate approximately 31.4% of the Company Shares
outstanding.
Pursuant to the Transaction Support Agreements, each Company shareholder
who is a director of the Company has further agreed, in his capacity as a
director of the Company (in each case, provided it is consistent with such
person's fiduciary duties to the Company or other legal duties or duties arising
under the London City Takeover Code on Takeovers and Mergers (the "U.K. Takeover
Code") to do so):
(i) in the document containing the Scheme of Arrangement (the "Scheme
Document"), to recommend all members of the Company to vote in favor of the
Scheme of Arrangement;
(ii) to cooperate with StaffMark in the production of the Scheme
Document together with, among other things, the information required by
Rules 24 and 25 of the U.K. Takeover Code and to take responsibility for
the information in that document concerning the Company, its directors,
their close families and any related companies and trusts in the terms
required or permitted by Rule 19.2 of the U.K. Takeover Code;
(iii) to use all reasonable efforts to procure the convening of such
meetings of directors or members of the Company as are necessary to pass
such resolutions as may be necessary in connection with the implementation
of the Scheme of Arrangement;
(iv) to take all such action as such shareholder is reasonably able to
take to procure the obtaining of the clearances and consents to be obtained
by the Company referred to in, and the fulfillment of the conditions to be
fulfilled by the Company set out in, Appendix II;
(v) to use all reasonable efforts to procure that (except pursuant to
existing obligations) no shares in the Company or any of its subsidiaries
or securities convertible or exchangeable into such shares will be allotted
or issued and no options over, or other rights to acquire, any such shares
will be granted by the Company or any of its subsidiaries otherwise than to
the Company or one of its wholly-owned subsidiaries;
(vi) to use all reasonable efforts to procure that neither the Company
nor any of its subsidiaries:
(a) declares or pays any dividend other than the interim dividend
of 1.7 pence per share in respect of the six months ended June 30, 1998;
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(b) disposes of any assets or assumes or incurs any liabilities
(including contingent liabilities) in either case material to the
Company Group taken as a whole otherwise than in the ordinary course of
business; and
(c) undertakes any binding commitment or contract which is of a
long term or unusual nature or magnitude and which is other than in the
ordinary course of business and which in each case is material in the
context of the Company Group taken as a whole
except, in the case of any matter falling within any of clauses (a), (b) or
(c) above, to or with the Company or one of its wholly-owned subsidiaries;
(vii) to take no action, and to use all reasonable efforts to procure
that neither the Company nor any of its subsidiaries takes any action,
which would be (or might reasonably be expected to be) materially
prejudicial to the Scheme of Arrangement;
(viii) without prejudice to the generality of the provision described
in clause (vii) above, not to, directly or indirectly, solicit, initiate or
knowingly encourage (including by way of furnishing information) any
Takeover Proposal from any person or to engage in or continue discussions
or negotiations relating thereto;
(ix) to procure, so far as lies within such shareholder's power, in
such shareholder's capacity as a director, that the Company observes and
performs its obligations described under the heading "The Transaction
Agreement -- No Solicitations"; and
(x) to promptly notify StaffMark (and supply copies of all relevant
information) of any event or circumstance of which such shareholder becomes
aware which would be likely to have a significant impact on the
satisfaction of the conditions to the Transaction;
provided that the obligations described in clauses (i) through (x) above will
not require that such shareholder expend any money or incur any liability, or
procure the expending of any money or incurring of any liability, except for
expenditure and liabilities in the nature of incidental expenses.
Unless (x) the Company Board shall have withdrawn (or modified in a manner
adverse to StaffMark) its approval or recommendation of the Transaction or (y)
each Company shareholder that is a party to the Transaction Support Agreements
shall have publicly withdrawn (or modified in a manner adverse to StaffMark)
his, her or its own recommendation of such transactions notwithstanding that the
Company Board has not withdrawn or modified its approval or recommendation, each
such party has agreed to: (i) not exercise the voting rights attached to his,
her or its Company Shares in an adverse manner to the Scheme of Arrangement and
not to assist the taking of any action which might result in any condition of
the Scheme of Arrangement not being satisfied; and/or (ii) not enter into any
agreement or arrangement with any person, whether conditionally or
unconditionally, and whether directly or indirectly, to do any acts prohibited
by the respective Transaction Support Agreements.
The obligations of each Company shareholder under the respective
Transaction Support Agreement will lapse, subject to the provisions described in
the next succeeding sentence, whether or not any Takeover Proposal is announced
on or before December 31, 1998, on the earlier of (x) the Effective Date and (y)
December 31, 1998. The obligations described in the first paragraph of this
section will lapse if any Takeover Proposal is announced on or before December
31, 1998, on the later of (x) December 31, 1998 and (y) the date upon which all
required payments are made to StaffMark under the provisions described under the
headings "The Transaction Agreement -- No Solicitation" or "-- Termination;
Termination Fee". The lapsing of such obligations will not affect any rights or
liabilities in respect of breaches of the undertaking contained in the
Transaction Support Agreement committed prior to the lapsing. Each of the
Transaction Support Agreements will be governed by and construed in accordance
with English law.
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NO APPRAISAL RIGHTS
The Transaction does not give rise to dissenter's rights under the terms of
the DGCL. Section 262 of the DGCL provides for appraisal rights only in the case
of a statutory acquisition or consolidation of a Delaware corporation where the
petitioning stockholder does not consent to the transaction. In addition, no
appraisal rights are available where a Delaware corporation is to be the
surviving corporation and a vote of its stockholders is not required under DGCL
Section 251(f). There are also no appraisal rights, unless otherwise provided
for in a Delaware corporation's certificate of incorporation, for shares listed
on a national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association of
Securities Dealers, Inc., or held by more than 2,000 holders of record, unless
such stockholders would be required to accept anything other than shares of the
surviving corporation, shares of another corporation so listed or held by such
number of holders of record, cash in lieu of fractional shares of such stock or
any combination thereof. The Amended StaffMark Certificate of Incorporation does
not provide for such additional appraisal rights. StaffMark Common Stock is
designated as a national market system security.
English law does not provide for appraisal rights in a Scheme of
Arrangement. Once a scheme has been approved by the shareholders and the High
Court, and the High Court Order sanctioning it has been registered by the
Registrar, all shareholders of the relevant class are bound by the terms of the
scheme; a dissenting shareholder would have no rights comparable to dissenters'
rights.
THE TRANSACTION AGREEMENT
Following is a summary of certain provisions of the Transaction Agreement.
The summary does not purport to be complete and is qualified in its entirety by
reference to the Transaction Agreement, a copy of which is attached to this
Proxy Statement as Appendix I and incorporated herein by reference. Statements
in this Proxy Statement with respect to the terms of the Transaction are
qualified in their entirety by reference to the Transaction Agreement. StaffMark
stockholders are urged to read the full text of the Transaction Agreement.
COVENANTS
Under the Transaction Agreement, StaffMark, the Transaction Subsidiary and
the Company have agreed to use all reasonable endeavors to comply with the
timetable for the Transaction and (so far as they each may be able) to achieve
satisfaction of the conditions summarized under "-- Conditions to the
Transaction" (as set forth in detail in Appendix II), provided that the Company
will not be obliged to take any action if, at the time when such action would
otherwise have been required pursuant to the provision described above, the
Company Board shall have withdrawn (or modified in a manner adverse to
StaffMark) its approval or recommendation of the transactions contemplated by
the Transaction Agreement (whether before or after the Court Meeting or the EGM)
and the Company shall, at such time, have paid any amounts which are due to be
paid at that time under the provisions described under "-- No Solicitation" or
"-- Termination; Termination Fee." In addition and pursuant to the Transaction
Agreement, the Transaction Subsidiary agrees with and undertakes to the Company
that it will acquire at least one Company Share prior to the record date of the
EGM and the Company agrees that it will procure that the Transaction Subsidiary
will become the registered holder of such Company Shares as soon as practicable
and in any event on such record date of the EGM.
Under the Transaction Agreement, unless the Company Board shall, at the
time when such action would otherwise have been required pursuant thereto, have
withdrawn (or modified in a manner adverse to StaffMark) its approval or
recommendation of the transactions contemplated by the Transaction Agreement
(whether before or after the Court Meeting or the EGM) and the Company shall, at
such time, have paid any amounts which are due under the provisions described
under the headings "-- No Solicitation" or "Termination; Termination Fee", the
Company agrees to seek the earliest appropriate dates for the relevant High
Court hearings, to instruct its registrars to dispatch the Circular, appropriate
forms of proxy for use at the Court Meeting and the EGM and this Proxy Statement
promptly following approval thereof (where required) by the
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High Court, the London Stock Exchange Limited and the Securities and Exchange
Commission (as the case may be) to Company shareholders and, in the event that
the Issuance shall have been approved at the StaffMark Special Meeting and the
resolutions to be considered at the Court Meeting and the EGM have been passed
by the requisite majorities, promptly to apply to the High Court for and
diligently to seek its sanction of the Scheme of Arrangement.
StaffMark will, subject to the Scheme of Arrangement becoming effective,
issue to holders of Existing Company Shares the Consideration Shares. Holders of
Existing Company Shares will receive the number of shares of StaffMark Common
Stock determined in accordance with the Final Exchange Ratio. Under the
Transaction Agreement, StaffMark and the Transaction Subsidiary each agree to
instruct counsel to appear on its behalf at the hearing of the petition to
sanction the Scheme of Arrangement to undertake to the High Court to be bound
thereby.
Under the Transaction Agreement, StaffMark undertakes to the Company that
the Remuneration Committee of the Company will continue to determine
entitlements under the Robert Walters plc Bonus Incentive Scheme (adopted July
17, 1996) for the year ended December 31, 1998. Each party agreed to promptly
notify the other (and supply copies of all relevant information) of any event or
circumstances of which they become aware which would be likely to have a
significant impact on the satisfaction of the conditions set out in Appendix II.
NO SOLICITATION
The Transaction Agreement provides that between August 18, 1998 and the
earlier of the Effective Date, 5:00 p.m. (London time) on December 31, 1998, or
the date of termination of the Transaction Agreement and payment of the amount
as provided in clause (ii) below or in the next succeeding paragraph (the
"Exclusivity Period"):
(i) The Company will not, and it will use its best endeavors not to
permit any member of the Company Group or any director, officer or employee
of any member of the Company Group (collectively, "Associates"), attorneys,
financial advisors, agents or other representatives, or those of any member
of the Company Group to, directly or indirectly, solicit, initiate or
knowingly encourage (including by way of furnishing information) any
Takeover Proposal from any person or engage in or continue discussions or
negotiations relating thereto. However, so long as the Company is in
compliance with its obligations described in the immediately preceding
sentence, it may engage in discussions or negotiations with, and furnish
information concerning the Company, the Company Group or their businesses,
properties or assets, to a third party which has made an unsolicited
Takeover Proposal if, and only to the extent that, the Company Board
concludes, in good faith, after consultation with, and based upon the
written advice of, its outside counsel at a meeting of the Company Board,
that the failure to take such action would be in breach of the fiduciary
duties of the directors of the Company or would violate the obligations of
the Company Board under the provisions of the U.K. Takeover Code, the
Companies Act and/or the rules and regulations of the London Stock Exchange
Limited. A copy of the written legal advice, along with a copy of the
minutes of such Company Board meeting reflecting the Company Board's
conclusion, shall be promptly provided to StaffMark by the Company. The
Company will promptly (but in no case later than 24 hours) notify StaffMark
of the receipt of any Takeover Proposal, including the material terms and
conditions thereof (subject to any confidentiality agreements in existence
at July 27, 1998) (and any changes in the material terms and conditions
thereof) and the identity of the person making such Takeover Proposal.
(ii) If the Company is in breach of its obligations described under
clause (i) above, the Company will pay to StaffMark damages equal to the
reasonable costs and expenses, including legal, financial advisory, tax,
accounting and other professional fees, travel expenses and out-of-pocket
expenses incurred by the StaffMark Group under the Transaction Agreement,
each of the Company, StaffMark and the Transaction Subsidiary agreeing such
amount to be a genuine pre-estimate of damages suffered by StaffMark and
the Transaction Subsidiary. The maximum amount so payable shall not exceed
the amount so determined in accordance with the next succeeding paragraph.
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If on or before the expiry of the Exclusivity Period any announcement is
made by any third party with respect to a Takeover Proposal (which Takeover
Proposal is made and becomes unconditional in all respects or otherwise
effective), the Company will pay to StaffMark an amount equal to the lesser of
L900,000 and the largest sum as would not reduce the net assets of the Company
as defined in Section 152(2) of the Companies Act to a material extent, provided
that if the Company has no net assets (as so defined) no such sum will be
payable. Under the Transaction Agreement, it is agreed that, if a payment is
made under any of the provisions described under clause (ii) above, the
immediately preceding sentence or "-- Termination; Termination Fee", no payment
will be required to be made under any other such provision.
REPRESENTATIONS AND WARRANTIES
The Transaction Agreement includes representations and warranties by the
Company as to the accuracy of the information furnished by the Company in
connection with this Proxy Statement. The Company agrees to indemnify and hold
harmless up to a maximum amount equal to the Termination Fee StaffMark (for
itself and on behalf of its directors and officers) from and against any and all
losses, damages, liabilities, costs and expenses to which StaffMark may become
subject from the Company's breach of the foregoing representations and
warranties.
The Transaction Agreement includes representations and warranties of
StaffMark as to: (i) the accuracy of the information included in this Proxy
Statement or incorporated by reference herein (other than information furnished
by the Company or its advisors); and (ii) the compliance as to form in all
material respects of this Proxy Statement with the provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder, except that no representation or warranty is made by StaffMark with
respect to information furnished by the Company or its advisors in connection
with this Proxy Statement or the failure by the Company or its advisors to
provide information concerning the Company or its advisors necessary to enable
this Proxy Statement to comply with such provisions. StaffMark agrees to
indemnify and hold the Company (for itself and on behalf of its directors and
officers) harmless from and against any and all losses, damages, liabilities,
cost and expenses to which the Company may become subject arising from
StaffMark's breach of the foregoing representations and warranties.
The Transaction Agreement provides that: (i) to the knowledge of StaffMark,
StaffMark has not taken or failed to take any action, which action or failure
would of itself prevent the treatment of the Transaction as a
pooling-of-interests under U.S. GAAP; and (ii) to the knowledge of the Company,
the Company has not taken or failed to take any action or failure, which action
or failure would of itself prevent the treatment of the Transaction as a
pooling-of-interests under U.S. GAAP. Under the Transaction Agreement, StaffMark
represents and warrants to the Company that StaffMark believes that, on the
basis of the facts and circumstances known to StaffMark on the date of the
Transaction Agreement, if the Transaction were completed on such date, the
Transaction should be accounted for as a pooling-of-interests under U.S. GAAP.
CONDITIONS TO THE TRANSACTION
StaffMark, the Transaction Subsidiary and the Company will not be obligated
to complete the Transaction unless a number of conditions are satisfied or
waived by them, the complete description of which is set forth in Appendix II
attached hereto and incorporated herein by reference. These conditions include,
among other things:
(a) approval of the Issuance by the stockholders of StaffMark at the
StaffMark Special Meeting;
(b) approval of the Scheme of Arrangement by holders of Existing
Company Shares at the Court Meeting and passing of a special resolution by
Company shareholders to implement the Scheme of Arrangement at the EGM;
(c) sanction of the Scheme of Arrangement by the High Court and
registration of the High Court Order by the Registrar;
(d) receipt of confirmation from StaffMark's independent public
accountants that the Transaction will be accounted for as a
pooling-of-interests;
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(e) approval of the Consideration Shares for trading upon notice of
issuance on the Nasdaq National Market;
(f) execution and delivery of an Affiliate Agreement by each director
of the Company;
(g) execution and delivery of deeds of variation of their respective
service agreements by each of Robert Walters, Giles Daubeney, Benjamin
Anderson and Thomas Chambers;
(h) the absence of: (i) material adverse investigations or legal
proceedings (either threatened or instituted) or new material liabilities
or contingencies involving the Company; (ii) adverse legal proceedings,
statutes, regulations or investigations affecting the Transaction, or (iii)
any material adverse change in the business, financial position or results
of the Company;
(i) satisfaction of all regulatory requirements, including the receipt
of all necessary consents, approvals, authorizations and orders necessary
to consummate the Transaction; and
(j) the Scheme of Arrangement becoming effective by December 31, 1998,
or such later date as StaffMark and the Company shall mutually agree and
the High Court shall approve.
The conditions set forth in items (a), (b), and (c) above may not be waived
by any of the parties to the Transaction Agreement. StaffMark and the Company
may jointly waive the condition set forth in item (d) above, although StaffMark
believes that any such waiver would not be effected without any resolicitation
of votes by StaffMark stockholders concerning the Issuance. StaffMark may waive
by written notice to the Company, the conditions identified in items (f), (g),
(h)(i) and (h)(iii). StaffMark and the Company may, by written notice, jointly
waive items (e), (h)(ii), (i) and (j), but as to item (j), only if the High
Court so approves.
TERMINATION; TERMINATION FEE
The Transaction Agreement may be terminated:
(i) by the mutual written consent of StaffMark, the Transaction
Subsidiary and the Company;
(ii) by either StaffMark and the Transaction Subsidiary or the Company
if the Effective Date shall not have occurred on or before December 31,
1998 and the party seeking to terminate the Transaction Agreement shall not
have breached in any material respect its obligations thereunder in any
manner that shall have proximately contributed to the failure to consummate
the Transaction on or before such date (including, in the case of StaffMark
and the Transaction Subsidiary so seeking to terminate, the other of them
not having breached its obligations under the Transaction Agreement);
(iii) by StaffMark and the Transaction Subsidiary if the board of
directors of the Company (through its own action or through any agency, or
otherwise) shall have
(a) withdrawn (or modified in a manner adverse to StaffMark) its
approval or recommendation of the transactions contemplated by the
Transaction Agreement,
(b) approved or recommended, or proposed publicly to approve or
recommend, any Takeover Proposal, or
(c) failed to comply with its obligations concerning seeking the
earliest appropriate dates for the relevant High Court hearings, the
dissemination of the Circular or materials concerning the EGM or the
filing of materials before the High Court necessary to implement the
Scheme of Arrangement and applying to the High Court for its sanction of
the Scheme of Arrangement;
(iv) by StaffMark and the Transaction Subsidiary if any financial
advisor to the Company Board appointed pursuant to Rule 3 of the U.K.
Takeover Code, which is Goldman Sachs International, withdraws or in any
way modifies its consent (whether written or oral) to being named in the
context of any recommendation statement by the Company Board to its
shareholders regarding the Transaction; or
36
<PAGE> 46
(v) by either StaffMark and the Transaction Subsidiary or the Company
if, under certain circumstances, there shall have been a breach by the
other of the obligations set forth in the Transaction Agreement to achieve
satisfaction, with respect to any of the conditions described under the
heading "-- Conditions to the Transaction," and as set forth in Appendix
II, which if not cured would cause such conditions not to be satisfied, and
such breach shall not have been cured within 15 days after notice thereof
shall have been received by the party alleged to be in breach, subject in
all cases to compliance with the U.K. Takeover Code and the requirements of
the U.K. Panel on Take-Overs and Mergers.
If the Transaction Agreement is terminated by StaffMark and the Transaction
Subsidiary pursuant to the provisions described above in clause (iii) or (iv) in
the immediately preceding paragraph, the Company shall pay to StaffMark the
Termination Fee, provided that, if the Company has no net assets (as defined in
Section 152(2) of the Companies Act), the Termination Fee shall not be payable.
EXPENSES
Except as provided in the Transaction Agreement, each party will bear all
legal, accountancy and other costs and expenses incurred by it in connection
with the Transaction Agreement and the implementation of the Scheme of
Arrangement and the Transaction. See "Potential Risks, Detriments and Other
Considerations Associated with the Transaction -- Anticipated Accounting
Treatment" for additional information concerning estimated expenses of the
Transaction.
37
<PAGE> 47
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
StaffMark Common Stock is listed on the Nasdaq National Market. Company
Shares are listed on the Official List of the London Stock Exchange Limited. The
StaffMark ticker symbol on the Nasdaq is "STAF." The Company's ticker symbol on
the London Stock Exchange Limited is "RBW." There is no established U.S. trading
market for the Company Shares.
The tables below set forth, for the calendar quarters indicated, the
reported high and low sale prices of StaffMark Common Stock and Company Shares
as reported by their respective exchanges, in each case based on published
financial sources, and the dividends declared on such stock.
<TABLE>
<CAPTION>
STAFFMARK COMMON
STOCK(1) COMPANY SHARES(2)
---------------------- -------------------------------------------------------------
MARKET MARKET MARKET
PRICE($) PRICE($)(3) PRICE(P)
----------- CASH ------------- CASH ----------- CASH
HIGH LOW DIVIDEND HIGH LOW DIVIDEND($)(4) HIGH LOW DIVIDEND(P)(4)
---- --- -------- ---- --- -------------- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996
First Quarter............. N/A N/A -- N/A N/A -- N/A N/A --
Second Quarter............ N/A N/A -- N/A N/A $0.03 N/A N/A 2.01p
Third Quarter............. $14 3/4 $13 3/8 -- $2.29 $1.64 -- 148p 105 1/2p --
Fourth Quarter............ 16 3/4 9 3/4 -- 2.28 2.11 0.02 145 1/2 127 1/2 1.50p
1997
First Quarter............. $15 1/4 $12 -- $2.99 $2.29 -- 187 1/2p 135 1/2p --
Second Quarter............ 23 11 1/2 -- 3.82 2.67 $0.02 233 1/2 162 1/2 1.30p
Third Quarter............. 39 3/8 21 7/8 -- 6.04 3.68 -- 379 219 1/2 --
Fourth Quarter............ 40 1/2 25 7/8 -- 8.64 5.83 0.04 525 361 1/2 2.60p
1998
First Quarter............. $35 $23 -- $9.48 $7.47 -- 569 1/2p 455p --
Second Quarter............ 44 7/8 32 3/8 -- 9.61 6.71 $0.03 576 402 1/2 1.70p
Third Quarter (through
September 23, 1998)..... 37 17 -- 7.02 4.37 -- 424 1/2 269 1/2 --
</TABLE>
- ---------------
(1) StaffMark Common Stock became publicly traded on September 27, 1996. All
StaffMark Common Stock amounts are expressed in U.S. dollars.
(2) The Company Shares became publicly traded on August 7, 1996. Amounts
concerning Company Share market prices and dividends are expressed in
British pence and, on an as converted basis, in U.S. dollars.
(3) The Company Share prices indicated above reflect the high and low market
prices during the respective quarters as reported by the London Stock
Exchange Limited. These share prices have been converted from United Kingdom
pounds sterling to U.S. dollars at the closing exchange rate as of the date
the high or low stock price was attained. For instances in which the
quarterly high or low was attained on multiple days during a quarter, the
exchange rate as of the date closest to quarter end was used to convert
pounds sterling to U.S. dollars.
(4) In accordance with U.K. practice, the Company reports its results of
operations and declares dividends bi-annually. Amounts reflected do not
include the declaration of dividends in the second and fourth calendar
quarters of 1996 of L64,000 and L165,000 in the aggregate, respectively,
concerning then outstanding cumulative convertible participating preferred
ordinary shares of the Company. The Company's dividends per share have been
converted at the average exchange rate for the quarter in which the dividend
was declared.
On August 17, 1998, the last full trading day prior to the public
announcement of the proposed Transaction, the closing price on their respective
exchanges was $25.625 per share of StaffMark Common Stock and 278 1/2p per
Company Share (or $4.54, as converted to U.S. dollars), and based upon such
prices, the exchange rate of L1.00 to $1.6229 and an assumed Exchange Ratio of
0.272, the proposal for Consideration Shares pursuant to the Transaction as of
such date represented a 54.2% premium to Company shareholders as of such date.
On September 23, 1998, the closing price on their respective exchanges was
$21.38 per share of StaffMark Common Stock and 327p per Company Share (or $5.48,
as converted to U.S. dollars as of such date). On September 15, 1998, there were
978 holders of record of 22,153,596 outstanding shares of StaffMark Common Stock
and 1,228 holders of 24,588,807 outstanding Company Shares. StaffMark
stockholders are urged to obtain current market quotations prior to making any
decision with respect to the Transaction.
38
<PAGE> 48
STAFFMARK, INC.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
StaffMark has entered into the Transaction Agreement to acquire the Company
by way of the Scheme of Arrangement to be accounted for as a
pooling-of-interests. The following unaudited pro forma balance sheet as of June
30, 1998, and the unaudited pro forma statements of income for the six months
ended June 30, 1998 and 1997 and for the years ended December 31, 1997, 1996,
and 1995 give effect to the Transaction using the pooling-of-interests method of
accounting as well as other pro forma adjustments as outlined below. For a
description of pooling-of-interests accounting and certain other accounting
matters, see "The Transaction -- Accounting Treatment".
StaffMark expects to incur certain non-recurring expenses related to the
Transaction, presently estimated to be approximately $14 million. These expenses
would include, but would not be limited to, professional fees, printing fees,
fees of financial advisors, and restructuring expenses, including elimination of
redundant offices, severance plans and other expenses directly related to the
Transaction. Although StaffMark believes this estimate of non-recurring expenses
is accurate, certain material additional costs may be incurred in connection
with the Transaction. Transaction related expenses will be recorded in the
period in which the Transaction is concluded, which is currently estimated to
occur in the fourth quarter of 1998. Because the foregoing charges are
non-recurring in nature, they have not been reflected in the accompanying pro
forma statements of income.
In October 1996, StaffMark, through wholly-owned subsidiaries,
simultaneously with the closing of its Initial Public Offering, merged with
Brewer and five other independent staffing companies (the "Other Founding
Companies"). Pursuant to the requirements of SAB No. 97, Brewer was designated
as the acquiror for financial reporting purposes, of the Other Founding
Companies. Based upon the provisions of SAB No. 97, these acquisitions were
accounted for as combinations at historical cost.
The following unaudited pro forma financial statements present StaffMark
and give effect to (1) the Transaction with the Company for all periods
presented, (2) all other significant business combinations meeting the criteria
of Rules 11-01(a)(1) and (2) of Regulation S-X consummated since January 1, 1997
as if the transactions were consummated as of the beginning of 1997, (3) the
adjustment to compensation expense for the difference between historical
compensation paid to certain owners of previous purchase business combinations
and the employment contract compensation negotiated in conjunction with the
respective acquisitions (the "Compensation Differential"), and (4) the
adjustment to record income taxes related to the taxation of certain
acquisitions as S corporations prior to the consummation of the acquisitions
(the "Tax Adjustment"). Pro forma income tax expense is based upon a combined
effective tax rate of 41% for periods beginning on or after January 1, 1997. For
periods prior to this date, tax expense is provided at 39%, adjusted for the
impact of nondeductible goodwill amortization. The pro forma adjustments
reflected in the following statements are as follows:
Unaudited Pro Forma Balance Sheet as of June 30, 1998
(i) The Transaction between StaffMark and the Company
(ii) Adjustments to conform the basis of accounting used in presenting the
Company's historical financial statements to U.S. GAAP
(iii) Estimated non-recurring expenses associated with the Transaction
(iv) The recognition of accumulated foreign currency translation
adjustments to reflect the pooling-of-interests between StaffMark and the
Company.
39
<PAGE> 49
STAFFMARK, INC.
UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
Unaudited Pro Forma Statement of Income for the Six Months Ended June 30, 1998
(i) The Transaction between StaffMark and the Company.
(ii) Adjustments to conform the basis of accounting used in presenting the
Company's historical financial statements to U.S. GAAP.
(iii) StaffMark's May 1998 acquisition of Progressive Resources, Inc.,
Progressive Personnel Resources, Inc., Strategic Computer Resources, LLC,
and Progressive Personnel Resources of New Jersey, Inc. (collectively
"Progressive").
(iv) Adjustment to compensation expense for the Compensation Differential
related to the above purchase business combination.
(v) Adjustment to the provision for income taxes for the Tax Adjustment
related to the above purchase business combination.
Unaudited Pro Forma Statement of Income for the Six Months Ended June 30, 1997
(i) The Transaction between StaffMark and the Company.
(ii) Adjustments to conform the basis of accounting used in presenting the
Company's historical financial statements to U.S. GAAP.
(iii) StaffMark's May 1998 acquisition of Progressive.
(iv) StaffMark's January 1998 acquisition of Strategic Legal Resources, LLC
("Strategic Legal").
(v) StaffMark's October 1997 acquisition of Structured Logic Company, Inc.
("SLC").
(vi) StaffMark's July 1997 acquisition of Expert Business Systems,
Incorporated ("EBS").
(vii) StaffMark's April 1997 acquisition of Global Dynamics, Inc.
("Global").
(viii) StaffMark's March 1997 acquisition of Flexible Personnel, Inc.,
Great Lakes Search Associates, Inc., and HR America, Inc. (collectively
"Flexible").
(ix) Adjustment to compensation expense for the Compensation Differential
related to the above purchase business combinations.
(x) Adjustment to the provision for income taxes for the Tax Adjustment
related to the above purchase business combinations.
Unaudited Pro Forma Statement of Income for the Year Ended December 31, 1997
(i) The Transaction between StaffMark and the Company.
(ii) Adjustments to conform the basis of accounting used in presenting the
Company's historical financial statements to U.S. GAAP.
(iii) StaffMark's May 1998 acquisition of Progressive.
(iv) StaffMark's January 1998 acquisition of Strategic Legal.
(v) StaffMark's October 1997 acquisition of SLC.
(vi) StaffMark's July 1997 acquisition of EBS.
(vii) StaffMark's April 1997 acquisition of Global.
(viii) StaffMark's March 1997 acquisition of Flexible.
40
<PAGE> 50
STAFFMARK, INC.
UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
(ix) Adjustment to compensation expense for the Compensation Differential
related to the above purchase business combinations.
(x) Adjustment to the provision for income taxes for the Tax Adjustment
related to the above purchase business combinations.
Unaudited Pro Forma Statement of Income for the Year Ended December 31, 1996
(i) The Transaction between StaffMark and the Company.
(ii) Adjustments to conform the basis of accounting used in presenting the
Company's historical financial statements to U.S. GAAP.
Unaudited Pro Forma Statement of Income for the Year Ended December 31, 1995
(i) The Transaction between StaffMark and the Company.
(ii) Adjustments to conform the basis of accounting used in presenting the
Company's historical financial statements to U.S. GAAP.
The pro forma financial statements do not purport to represent what
StaffMark's results of operations would actually have been if such transactions
in fact had occurred on those dates or to project StaffMark's results of
operations for any future period. See "Potential Risks, Detriments and Other
Considerations Associated with the Transaction."
The unaudited pro forma financial statements should be read in conjunction
with the other information contained elsewhere within or incorporated by
reference into this Proxy Statement.
41
<PAGE> 51
STAFFMARK, INC.
UNAUDITED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY
-------------------------------------------------------------
AS REPORTING U.S. AS RESTATED
REPORTED BASIS GAAP TRANSLATED HISTORICAL
IN BRITISH CONVERSION IN BRITISH EXCHANGE TO U.S. COMBINED
STAFFMARK POUNDS(a) (b) POUNDS RATE DOLLARS RESULTS
--------- ---------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........ $ 4,410 L 2,407 L -- L 2,407 1.66861 $ 4,016 $ 8,426
Accounts receivable, net of
allowance for doubtful
accounts....................... 81,086 24,104 -- 24,104 1.66861 40,220 121,306
Prepaid expenses and other....... 4,702 1,129 -- 1,129 1.66861 1,884 6,586
Deferred income taxes............ 1,610 -- -- -- 1.66861 -- 1,610
-------- ------- ------ ------- ------- --------
Total current assets....... 91,808 27,640 -- 27,640 46,120 137,928
PROPERTY AND EQUIPMENT, net........ 14,357 2,952 -- 2,952 1.66861 4,926 19,283
INTANGIBLE ASSETS, net............. 304,574 -- 4,675(c) 4,675 1.66861 7,801 312,375
OTHER ASSETS....................... 1,452 20 -- 20 1.66861 33 1,485
-------- ------- ------ ------- ------- --------
$412,191 L30,612 L4,675(c) L35,287 $58,880 $471,071
======== ======= ====== ======= ======= ========
LIABILITIES AND
STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable and other
accrued liabilities............ $ 5,990 L12,056 -- L12,056 1.66861 $20,117 $ 26,107
Payroll and related
liabilities.................... 19,245 2,742 -- 2,742 1.66861 4,575 23,820
Reserve for workers' compensation
claims......................... 6,527 -- -- -- 1.66861 -- 6,527
Income taxes payable............. 2,322 2,508 -- 2,508 1.66861 4,185 6,507
-------- ------- ------ ------- ------- --------
Total current
liabilities.............. 34,084 17,306 -- 17,306 28,877 62,961
LONG-TERM DEBT..................... 112,560 -- -- -- 1.66861 -- 112,560
OTHER LONG-TERM LIABILITIES........ 36,314 1,031 -- 1,031 1.66861 1,720 38,034
DEFERRED INCOME TAXES.............. 1,969 154 -- 154 1.66861 257 2,226
STOCKHOLDERS' EQUITY:
Common stock..................... 208 1,229 -- 1,229 1.66861 2,051 2,259
Paid-in capital.................. 191,915 7,052 -- 7,052 1.66861 11,767 203,682
Retained earnings................ 35,141 3,840 4,675(c) 8,515 1.66861 14,208 49,349
Accumulated other comprehensive
income......................... -- -- -- -- 1.66861 -- --
-------- ------- ------ ------- ------- --------
Total stockholders'
equity................... 227,264 12,121 4,675 16,796 28,026 255,290
-------- ------- ------ ------- ------- --------
$412,191 L30,612 L4,675 L35,287 $58,880 $471,071
======== ======= ====== ======= ======= ========
<CAPTION>
PRO FORMA
TRANSACTION PRO
ADJUSTMENTS FORMA
----------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........ $ -- $ 8,426
Accounts receivable, net of
allowance for doubtful
accounts....................... -- 121,306
Prepaid expenses and other....... -- 6,586
Deferred income taxes............ -- 1,610
-------- --------
Total current assets....... -- 137,928
PROPERTY AND EQUIPMENT, net........ -- 19,283
INTANGIBLE ASSETS, net............. -- 312,375
OTHER ASSETS....................... -- 1,485
-------- --------
$ -- $471,071
======== ========
LIABILITIES AND
STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable and other
accrued liabilities............ $ 14,000(d) $ 40,107
Payroll and related
liabilities.................... -- 23,820
Reserve for workers' compensation
claims......................... -- 6,527
Income taxes payable............. -- 6,507
-------- --------
Total current
liabilities.............. 14,000 76,961
LONG-TERM DEBT..................... -- 112,560
OTHER LONG-TERM LIABILITIES........ -- 38,034
DEFERRED INCOME TAXES.............. -- 2,226
STOCKHOLDERS' EQUITY:
Common stock..................... (1,968)(e) 275
(16)(f)
Paid-in capital.................. 1,968(e) 205,528
(122)(f)
Retained earnings................ (14,000)(d) 35,798
449(f)
Accumulated other comprehensive
income......................... (311)(f) (311)
-------- --------
Total stockholders'
equity................... (14,000) 241,290
-------- --------
$ -- $471,071
======== ========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
42
<PAGE> 52
STAFFMARK, INC.
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1998
(a) Records the balance sheet of the Company as of June 30, 1998 as reported in
British pounds.
(b) Records adjustment to conform the basis of accounting used in preparing the
Company's historical financial results to U.S. GAAP.
(c) Adjustment to record capitalization of intangible assets related to the
Company's purchase business combinations in accordance with U.S. GAAP,
which was formerly written off to Stockholders' Equity in accordance with
U.K. GAAP. Intangible assets related to these combinations totaled
approximately L4.7 million and are expected to be amortized over periods
ranging from 30 to 40 years.
(d) In connection with the Transaction, StaffMark and the Company expect to
incur certain non-recurring transaction costs of approximately $14 million,
which will include investment banking fees and expenses, costs associated
with closing duplicate facilities and disposing of duplicate assets,
professional fees and expenses, printing, distribution and travel, and
other expenses. The pro forma adjustment regarding transaction expenses
represent management's best estimate based upon available information at
this time. Actual adjustments will differ from those reflected in the
accompanying pro forma balance sheet.
The following table presents the major components of the estimated
transaction costs (dollars in thousands):
<TABLE>
<S> <C>
Investment banking fees and expenses........................ $ 6,200
Closing of duplicate facilities and disposal of duplicate
assets.................................................... 2,560
Professional fees and expenses.............................. 2,490
Printing, distribution, and travel.......................... 1,230
Other....................................................... 1,520
-------
$14,000
=======
</TABLE>
Since these charges are nonrecurring in nature, they have not been
reflected in the accompanying pro forma statements of income.
(e) Adjustment to record issuance of StaffMark Common Stock in exchange for all
of the Company's outstanding shares. The excess of the par value of the
Company's outstanding shares over the par value of the StaffMark Common
Stock issued on the Effective Date will be transferred to Paid-In Capital.
(f) Adjustment to record the balance of Accumulated Other Comprehensive Income
in accordance with U.S. GAAP. This balance represents the accumulated total
of adjustments related to the translation of the Company's historical
financial statements to U.S. dollars.
43
<PAGE> 53
STAFFMARK, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE COMPANY
---------------------------------------------------------
AS ADJUSTED
REPORTED TO U.S.
IN REPORTING GAAP AS RESTATED
BRITISH BASIS IN AVERAGE TRANSLATED HISTORICAL PRO FORMA
POUNDS CONVERSION BRITISH EXCHANGE TO U.S. COMBINED TRANSACTION
STAFFMARK (a) (b) POUNDS RATE DOLLARS RESULTS ADJUSTMENTS
--------- -------- ---------- -------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SERVICE REVENUES............. $325,859 L71,885 L -- L71,885 1.64989 $118,603 $444,462 $ --
COST OF SERVICES............. 244,116 51,014 -- 51,014 1.64989 84,168 328,284 --
-------- ------- ------- ------- ------- -------- -------- -------
Gross profit................ 81,743 20,871 -- 20,871 34,435 116,178 --
OPERATING EXPENSES:
Selling, general and
administrative............ 51,630 16,243 1,270(c) 17,513 1.64989 28,895 80,525 (2,095)(g)
Depreciation and
amortization.............. 5,032 504 60(d) 564 1.64989 931 5,963 --
Nonrecurring merger costs... 1,120 -- -- -- 1.64989 -- 1,120 --
-------- ------- ------- ------- ------- -------- -------- -------
Operating income...... 23,961 4,124 (1,330) 2,794 4,609 28,570 2,095
OTHER INCOME (EXPENSE):
Interest expense............ (1,777) -- -- -- 1.64989 -- (1,777) --
Other, net.................. (49) 15 -- 15 1.64989 26 (23) --
-------- ------- ------- ------- ------- -------- -------- -------
INCOME BEFORE INCOME TAXES... 22,135 4,139 (1,330) 2,809 4,635 26,770 2,095
INCOME TAX PROVISION......... 9,076 1,435 -- 1,435 1.64989 2,368 11,444 --
-------- ------- ------- ------- ------- -------- -------- -------
Net income.................. $ 13,059 L 2,704 L(1,330) L 1,374 $ 2,267 $ 15,326 $ 2,095
======== ======= ======= ======= ======== ======== =======
BASIC NET INCOME PER COMMON
SHARE....................... $ 0.64 $ 0.57
======== ========
BASIC WEIGHTED AVERAGE SHARES
OUTSTANDING.................. 20,275 26,959(e)
======== ========
DILUTED NET INCOME PER COMMON
SHARE........................ $ 0.62 $ 0.54
======== ========
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING........... 21,224 28,195(f)
======== ========
<CAPTION>
PRO FORMA
COMBINED PURCHASE
STAFFMARK BUSINESS
& THE COMBI-
COMPANY NATION(h) PRO FORMA
--------- --------- ---------
<S> <C> <C> <C>
SERVICE REVENUES............. $444,462 $11,284 $455,746
COST OF SERVICES............. 328,284 7,932 336,216
-------- ------- --------
Gross profit................ 116,178 3,352 119,530
OPERATING EXPENSES:
Selling, general and
administrative............ 78,430 1,904 80,334
Depreciation and
amortization.............. 5,963 202 6,165
Nonrecurring merger costs... 1,120 -- 1,120
-------- ------- --------
Operating income...... 30,665 1,246 31,911
OTHER INCOME (EXPENSE):
Interest expense............ (1,777) (429) (2,206)
Other, net.................. (23) -- (23)
-------- ------- --------
INCOME BEFORE INCOME TAXES... 28,865 817 29,682
INCOME TAX PROVISION......... 11,444 335 11,779
-------- ------- --------
Net income.................. $ 17,421 $ 482 $ 17,903
======== ======= ========
BASIC NET INCOME PER COMMON
SHARE....................... $ 0.65 $ 0.66
======== ========
BASIC WEIGHTED AVERAGE SHARES
OUTSTANDING.................. 26,959(e) 27,099(i)
======== ========
DILUTED NET INCOME PER COMMON
SHARE........................ $ 0.62 $ 0.63
======== ========
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING........... 28,195(f) 28,335(j)
======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
44
<PAGE> 54
STAFFMARK, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(a) Records the financial results of the Company for the period from January 1,
1998 through June 30, 1998 as reported in British pounds.
(b) Records adjustments to conform the basis of accounting used in preparing
the Company's historical financial results to U.S. GAAP.
(c) Adjustment to record compensation expense related to the Share Option
Schemes in accordance with U.S. GAAP. Options under the Share Option
Schemes are exercisable between three and ten years after the grant date,
dependent on the achievement of certain financial targets over any
three-year period. Accordingly, the Share Option Schemes have been
considered variable plans under Accounting Principles Board No. 25,
"Accounting for Stock Issued to Employees." Compensation expense was
computed as the sum of (i) the net equity in the share options, determined
as the product of the outstanding share options and the difference between
the period-ending market price of the Company's shares and the grant price,
amortized over the remaining vesting period, and (ii) the net equity value
of share options exercised during the period. For purposes of computing
this adjustment, the minimum possible vesting period of three years from
grant date was used to determine the amortization period. Information
regarding the outstanding share options as of June 30, 1998 was as follows:
<TABLE>
<CAPTION>
OUTSTANDING
GRANT DATE SHARE OPTIONS GRANT PRICE
---------- ------------- -----------
<S> <C> <C>
July 15, 1996 934,631 L0.7066
August 15, 1997 335,608 3.0205
April 21, 1998 40,000 5.4500
June 3, 1998 70,000 5.0667
</TABLE>
Compensation expense related to the Savings-Related Share Option Scheme was
computed as the difference of (i) the product of 85,479 share options,
based on employee investments into the plan and the grant price of L1.40,
and the difference between the period-ending market price and the grant
price and (ii) the compensation expense recognized in prior periods.
(d) Adjustment to record the amortization of intangible assets related to the
Company's purchase business combinations. Intangible assets related to
these combinations totaled approximately L4.7 million and are being
amortized over periods ranging from 30 to 40 years.
(e) Represents the sum of StaffMark's historical weighted average shares
outstanding plus the Company's historical weighted average shares
outstanding adjusted for the share exchange ratio of 0.272 as shown below.
<TABLE>
<CAPTION>
WEIGHTED
DESCRIPTION AVERAGE SHARES
- ----------- --------------
<S> <C>
StaffMark................................................... 20,275,185
The Company................................................. 6,683,492
----------
Restated Historical Basic Weighted Average Shares........... 26,958,677
==========
</TABLE>
45
<PAGE> 55
STAFFMARK, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME -- (CONTINUED)
(f) Includes the shares discussed in Note (e) above and the dilutive effect of
StaffMark's stock options and the Company's stock compensation schemes
adjusted for the share exchange ratio of 0.272 as shown below.
<TABLE>
<CAPTION>
WEIGHTED
DESCRIPTION AVERAGE SHARES
- ----------- --------------
<S> <C>
Restated Historical Basic Weighted Average Shares........... 26,958,677
Dilutive Effect:
StaffMark Stock Option Plan............................... 949,189
The Company's Share Option Schemes........................ 286,927
----------
Restated Historical Diluted Weighted Average Shares......... 28,194,793
==========
</TABLE>
(g) Adjustment to remove compensation expense recognized in accordance with the
Share Option Schemes which will not be incurred subsequent to the
Transaction.
(h) Represents the financial results of Progressive for the period from January
1, 1998 through the date of acquisition as adjusted (1) to reflect the
compensation level the owners have agreed to receive from StaffMark
subsequent to the acquisition, (2) to reflect the amortization expense
relating to the intangible assets recorded in conjunction with the
acquisition, (3) to reflect interest expense relating to debt incurred in
conjunction with the acquisition, and (4) to reflect the incremental
provision for federal and state income taxes as if Progressive had
recognized income tax expense in accordance with StaffMark's effective tax
rate.
(i) Includes the shares discussed in Note (e) above and the effect of shares
issued in conjunction with the purchase business combination discussed in
Note (h) as shown below.
<TABLE>
<CAPTION>
WEIGHTED
DESCRIPTION AVERAGE SHARES
- ----------- --------------
<S> <C>
Restated Historical Basic Weighted Average Shares........... 26,958,677
Effect of Shares Issued for Progressive..................... 140,218
----------
Pro Forma Basic Weighted Average Shares..................... 27,098,895
==========
</TABLE>
(j) Includes the shares discussed in Note (f) above and the effect of shares
issued in conjunction with the purchase business combination discussed in
Note (h) as shown below.
<TABLE>
<CAPTION>
WEIGHTED
DESCRIPTION AVERAGE SHARES
- ----------- --------------
<S> <C>
Restated Historical Diluted Weighted Average Shares......... 28,194,793
Effect of Shares Issued for Progressive..................... 140,218
----------
Pro Forma Diluted Weighted Average Shares................... 28,335,011
==========
</TABLE>
46
<PAGE> 56
STAFFMARK, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE COMPANY
------------------------------------------------------------
ADJUSTED
AS REPORTING TO U.S. AS RESTATED
REPORTED IN BASIS GAAP IN AVERAGE TRANSLATED HISTORICAL
BRITISH CONVERSION BRITISH EXCHANGE TO U.S. COMBINED
STAFFMARK POUNDS(a) (b) POUNDS RATE DOLLARS RESULTS
--------- ----------- ---------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
SERVICE REVENUES.............. $165,706 L36,768 L -- L36,768 1.63332 $60,054 $225,760
COST OF SERVICES.............. 128,746 24,181 -- 24,181 1.63332 39,495 168,241
-------- ------- ------ ------- ------- ------- --------
Gross profit................. 36,960 12,587 -- 12,587 20,559 57,519
OPERATING EXPENSES:
Selling, general and
administrative............. 25,047 9,219 387(c) 9,606 1.63332 15,690 40,737
Depreciation and
amortization............... 1,777 127 -- 127 1.63332 208 1,985
-------- ------- ------ ------- ------- ------- --------
Operating income........ 10,136 3,241 (387) 2,854 4,661 14,797
-------- ------- ------ ------- ------- --------
OTHER INCOME (EXPENSE):
Interest expense............. (543) -- -- -- 1.63332 -- (543)
Other, net................... 253 36 -- 36 1.63332 59 312
-------- ------- ------ ------- ------- ------- --------
INCOME BEFORE INCOME TAXES.... 9,846 3,277 (387) 2,890 4,720 14,566
INCOME TAX PROVISION.......... 4,037 1,241 -- 1,241 1.63332 2,027 6,064
-------- ------- ------ ------- ------- ------- --------
Net income.............. $ 5,809 L 2,036 L (387) L 1,649 $ 2,693 $ 8,502
======== ======= ====== ======= ======= ========
BASIC NET INCOME PER COMMON
SHARE........................ $ 0.41 $ 0.42
======== ========
BASIC WEIGHTED AVERAGE SHARES
OUTSTANDING.................. 14,178 20,454(d)
======== ========
DILUTED NET INCOME PER COMMON
SHARE........................ $ 0.40 $ 0.41
======== ========
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING........... 14,397 20,891(e)
======== ========
<CAPTION>
PRO FORMA
COMBINED PURCHASE
PRO FORMA STAFFMARK BUSINESS
TRANSACTION & THE COMBI-
ADJUSTMENTS COMPANY NATIONS(g) PRO FORMA
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
SERVICE REVENUES.............. $ -- $225,760 $50,128 $275,888
COST OF SERVICES.............. -- 168,241 36,454 204,695
----- -------- ------- --------
Gross profit................. -- 57,519 13,674 71,193
OPERATING EXPENSES:
Selling, general and
administrative............. (632)(f) 40,105 8,099 48,204
Depreciation and
amortization............... -- 1,985 1,094 3,079
----- -------- ------- --------
Operating income........ 632 15,429 4,481 19,910
----- -------- ------- --------
OTHER INCOME (EXPENSE):
Interest expense............. -- (543) (1,316) (1,859)
Other, net................... -- 312 (37) 275
----- -------- ------- --------
INCOME BEFORE INCOME TAXES.... 632 15,198 3,128 18,326
INCOME TAX PROVISION.......... -- 6,064 1,283 7,347
----- -------- ------- --------
Net income.............. $ 632 $ 9,134 $ 1,845 $ 10,979
===== ======== ======= ========
BASIC NET INCOME PER COMMON
SHARE........................ $ 0.45 $ 0.51
======== ========
BASIC WEIGHTED AVERAGE SHARES
OUTSTANDING.................. 20,454(d) 21,527(h)
======== ========
DILUTED NET INCOME PER COMMON
SHARE........................ $ 0.44 $ 0.50
======== ========
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING........... 20,891(e) 21,965(i)
======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
47
<PAGE> 57
STAFFMARK, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(a) Records the financial results of the Company for the period from January 1,
1997 through June 30, 1997 as reported in British pounds.
(b) Records adjustments to conform the basis of accounting used in preparing
the Company's historical financial results to U.S. GAAP.
(c) Adjustment to record compensation expense related to the Company's Share
Option Schemes in accordance with U.S. GAAP. Options under the Share Option
Schemes are exercisable between three and ten years after the grant date,
dependent on the achievement of certain financial targets over any
three-year period. Accordingly, the Share Option Schemes have been
considered variable plans under Accounting Principles Board No. 25,
"Accounting for Stock Issued to Employees." Compensation expense was
computed as the net equity in the share options, determined as the product
of 1,283,373 outstanding share options and the difference between the
period-ending market price of the Company's shares and the grant price
(L0.7066), amortized over the remaining vesting period. For purposes of
computing this adjustment, the minimum possible vesting period of three
years from grant date was used to determine the amortization period.
(d) Represents the sum of StaffMark's historical weighted average shares
outstanding plus the Company's historical weighted average shares
outstanding adjusted for the share exchange ratio of 0.272 as shown below.
<TABLE>
<CAPTION>
WEIGHTED
DESCRIPTION AVERAGE SHARES
- ----------- --------------
<S> <C>
StaffMark................................................... 14,178,351
The Company................................................. 6,275,595
----------
Restated Historical Basic Weighted Average Shares........... 20,453,946
==========
</TABLE>
(e) Includes the shares discussed in Note (d) above the dilutive effect of
StaffMark's stock options and the Share Option Schemes adjusted for the
share exchange ratio of 0.272 as shown below.
<TABLE>
<CAPTION>
WEIGHTED
DESCRIPTION AVERAGE SHARES
- ----------- --------------
<S> <C>
Restated Historical Basic Weighted Average Shares........... 20,453,946
Dilutive Effect:
StaffMark Stock Option Plan............................... 218,168
The Company's Share Option Schemes........................ 219,058
----------
Restated Historical Diluted Weighted Average Shares......... 20,891,172
==========
</TABLE>
(f) Adjustment to remove compensation expense recognized in accordance with the
Share Option Schemes which will not be incurred subsequent to the
Transaction.
(g) Represents the financial results of Progressive, Strategic Legal, SLC, EBS,
Global and Flexible for the period from January 1, 1997 through the earlier
of June 30, 1997 or the effective date of acquisition as adjusted (1) to
reflect the compensation level the owners agreed to receive from StaffMark
subsequent to the acquisition, (2) to reflect the amortization expense
relating to the intangible assets recorded in conjunction with the
acquisitions, (3) to reflect interest expense relating to debt incurred in
conjunction with the acquisitions, and (4) to reflect the incremental
provision for federal and state income taxes as if the acquired companies
had recognized income tax expense in accordance with StaffMark's effective
tax rate.
48
<PAGE> 58
STAFFMARK, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME -- (CONTINUED)
(h) Includes the shares discussed in Note (d) above and the effect of shares
issued in conjunction with the purchase business combinations discussed in
Note (g) as shown below.
<TABLE>
<CAPTION>
WEIGHTED
DESCRIPTION AVERAGE SHARES
- ----------- --------------
<S> <C>
Restated Historical Basic Weighted Average Shares........... 20,453,946
Effect of Shares Related to the Following Acquisitions:
Progressive............................................... 211,496
Strategic Legal........................................... 46,320
SLC....................................................... 276,846
EBS....................................................... 129,500
Global.................................................... 343,519
Flexible.................................................. 65,654
----------
Pro Forma Basic Weighted Average Shares..................... 21,527,281
==========
</TABLE>
(i) Includes the shares discussed in Note (e) above and the effect of shares
issued in conjunction with the purchase business combinations discussed in
Note (g) as shown below.
<TABLE>
<CAPTION>
WEIGHTED
DESCRIPTION AVERAGE SHARES
----------- --------------
<S> <C>
Restated Historical Diluted Weighted Average Shares......... 20,891,172
Effect of Shares Related to the Following Acquisitions:
Progressive............................................... 211,496
Strategic Legal........................................... 46,320
SLC....................................................... 276,846
EBS....................................................... 129,500
Global.................................................... 343,519
Flexible.................................................. 65,654
----------
Pro Forma Diluted Weighted Average Shares................... 21,964,507
==========
</TABLE>
49
<PAGE> 59
STAFFMARK, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE COMPANY
-----------------------------------------------------------
ADJUSTED
AS REPORTING TO U.S. AS RESTATED
REPORTED BASIS GAAP IN AVERAGE TRANSLATED HISTORICAL
IN BRITISH CONVERSION BRITISH EXCHANGE TO U.S. COMBINED
STAFFMARK POUNDS(a) (b) POUNDS RATE DOLLARS RESULTS
--------- ---------- ---------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
SERVICE REVENUES...................... $426,496 L90,806 L L90,806 1.63776 $148,718 $575,214
COST OF SERVICES...................... 329,728 61,299 -- 61,299 1.63776 100,393 430,121
-------- ------- ------- ------- ------- -------- --------
Gross profit......................... 96,768 29,507 -- 29,507 48,325 145,093
OPERATING EXPENSES:
Selling, general and
administrative..................... 63,013 21,312 2,212(c) 23,524 1.63776 38,527 101,540
Depreciation and amortization........ 5,317 592 8(d) 600 1.63776 983 6,300
-------- ------- ------- ------- ------- -------- --------
Operating income................ 28,438 7,603 (2,220) 5,383 8,815 37,253
-------- ------- ------- ------- -------- --------
OTHER INCOME
(EXPENSE):
Interest expense..................... (1,256) -- -- -- 1.63776 -- (1,256)
Other, net........................... 732 97 -- 97 1.63776 160 892
-------- ------- ------- ------- ------- -------- --------
INCOME BEFORE INCOME TAXES............ 27,914 7,700 (2,220) 5,480 8,975 36,889
INCOME TAX PROVISION.................. 11,445 2,645 -- 2,645 1.63776 4,332 15,777
======== ======= ======= ======= ======== ========
Net income...................... $ 16,469 L 5,055 L(2,220) L 2,835 $ 4,643 $ 21,112
======== ======= ======= ======= ======== ========
BASIC NET INCOME PER COMMON SHARE..... $ 1.03 $ 0.94
======== ========
BASIC WEIGHTED AVERAGE SHARES
OUTSTANDING.......................... 16,015 22,354(e)
======== ========
DILUTED NET INCOME PER COMMON SHARE... $ 1.00 $ 0.91
======== ========
DILUTED WEIGHTED AVERAGE SHARES
OUTSTANDING.......................... 16,521 23,121(f)
======== ========
<CAPTION>
PRO FORMA
COMBINED PURCHASE
PRO FORMA STAFFMARK BUSINESS
TRANSACTION & THE COMBI-
ADJUSTMENTS COMPANY NATIONS(h) PRO FORMA
----------- --------- ---------- ---------
<S> <C> <C> <C> <C>
SERVICE REVENUES...................... $ -- $575,214 $82,487 $657,701
COST OF SERVICES...................... -- 430,121 58,568 488,689
------- -------- ------- --------
Gross profit......................... -- 145,093 23,919 169,012
OPERATING EXPENSES:
Selling, general and
administrative..................... (3,623)(g) 97,917 16,365 114,282
Depreciation and amortization........ -- 6,300 1,851 8,151
------- -------- ------- --------
Operating income................ 3,623 40,876 5,703 46,579
------- -------- ------- --------
OTHER INCOME
(EXPENSE):
Interest expense..................... -- (1,256) (2,857) (4,113)
Other, net........................... -- 892 13 905
------- -------- ------- --------
INCOME BEFORE INCOME TAXES............ 3,623 40,512 2,859 43,371
INCOME TAX PROVISION.................. -- 15,777 1,172 16,949
======= ======== ======= ========
Net income...................... $ 3,623 $ 24,735 $ 1,687 $ 26,422
======= ======== ======= ========
BASIC NET INCOME PER COMMON SHARE..... $ 1.11 $ 1.14
======== ========
BASIC WEIGHTED AVERAGE SHARES
OUTSTANDING.......................... 22,354(e) 23,162(i)
======== ========
DILUTED NET INCOME PER COMMON SHARE... $ 1.07 $ 1.10
======== ========
DILUTED WEIGHTED AVERAGE SHARES
OUTSTANDING.......................... 23,121(f) 23,929(j)
======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
50
<PAGE> 60
STAFFMARK, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(a) Records the financial results of the Company for the year ended December
31, 1997 as reported in British pounds.
(b) Records adjustments to conform the basis of accounting used in preparing
the Company's historical financial results to U.S. GAAP.
(c) Adjustment to record compensation expense related to the Share Option
Schemes in accordance with U.S. GAAP. Options under the Share Option
Schemes are exercisable between three and ten years after the grant date,
dependent on the achievement of certain financial targets over any
three-year period. Accordingly, the Share Option Schemes have been
considered variable plans under Accounting Principles Board No. 25,
"Accounting for Stock Issued to Employees." Compensation expense was
computed as the sum of (i) the net equity in the share options, determined
as the product of the outstanding share options and the difference between
the period-ending market price of the Company's shares and the grant price,
amortized over the remaining vesting period, and (ii) the net equity value
of share options exercised during the period. For purposes of computing
this adjustment, the minimum possible vesting period of three years from
grant date was used to determine the amortization period. Information
regarding the outstanding share options as of December 31, 1997 was as
follows:
<TABLE>
<CAPTION>
OUTSTANDING
GRANT DATE SHARE OPTIONS GRANT PRICE
---------- ------------- -----------
<S> <C> <C>
July 15, 1996 1,046,679 L0.7066
August 15, 1997 371,000 3.0205
</TABLE>
Compensation expense related to the Savings-Related Share Option Scheme was
computed as the product of 43,586 share options, based on employee
investments into the plan and the grant price of L1.40, and the difference
between the period-ending market price and the grant price.
(d) Adjustment to record the amortization of intangible assets related to the
Company's purchase business combinations. Intangible assets related to
these combinations totaled approximately L4.7 million and are being
amortized over periods ranging from 30 to 40 years.
(e) Represents the sum of StaffMark's historical weighted average shares
outstanding plus the Company's historical weighted average shares
outstanding adjusted for the share exchange ratio of 0.272 as shown below.
<TABLE>
<CAPTION>
WEIGHTED
DESCRIPTION AVERAGE SHARES
- ----------- --------------
<S> <C>
StaffMark................................................... 16,015,589
The Company................................................. 6,338,547
----------
Restated Historical Basic Weighted Average Shares........... 22,354,136
==========
</TABLE>
(f) Includes the shares discussed in Note (e) above and the dilutive effect of
StaffMark's stock options and the Share Option Schemes adjusted for the
share exchange ratio of 0.272 as shown below.
<TABLE>
<CAPTION>
WEIGHTED
DESCRIPTION AVERAGE SHARES
- ----------- --------------
<S> <C>
Restated Historical Basic Weighted Average Shares........... 22,354,136
Dilutive Effect:
StaffMark Stock Option Plan............................... 505,908
The Share Option Schemes.................................. 261,438
----------
Restated Historical Diluted Weighted Average Shares......... 23,121,482
==========
</TABLE>
(g) Adjustment to remove compensation expense recognized in accordance with the
Share Option Schemes which will not be incurred subsequent to the
Transaction.
(h) Represents the financial results of Progressive, Strategic Legal, SLC, EBS,
Global, and Flexible for the period from January 1, 1997 through the
earlier of the date of acquisition or December 31, 1997 as adjusted (1) to
reflect the compensation level the owners agreed to receive from StaffMark
subsequent to
51
<PAGE> 61
STAFFMARK, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME -- (CONTINUED)
the acquisition, (2) to reflect the amortization expense relating to the
intangible assets recorded in conjunction with the acquisitions, (3) to
reflect interest expense relating to debt incurred in conjunction with the
acquisitions, and (4) to reflect the incremental provision for federal and
state income taxes as if the acquired companies had recognized income tax
expense in accordance with StaffMark's effective tax rate.
(i) Includes the shares discussed in Note (e) above and the effect of shares
issued in conjunction with the purchase business combinations discussed in
Note (h) as shown below.
<TABLE>
<CAPTION>
WEIGHTED
DESCRIPTION AVERAGE SHARES
- ----------- --------------
<S> <C>
Restated Historical Basic Weighted Average Shares........... 22,354,136
Effect of Shares Related to the Following Acquisitions:
Progressive............................................... 211,496
Strategic Legal........................................... 46,320
SLC....................................................... 276,846
EBS....................................................... 67,242
Global.................................................... 170,348
Flexible.................................................. 35,447
----------
Pro Forma Basic Weighted Average Shares..................... 23,161,835
==========
</TABLE>
(j) Includes the shares discussed in Note (f) above and the effect of shares
issued in conjunction with the purchase business combinations discussed in
Note (h) as shown below.
<TABLE>
<CAPTION>
WEIGHTED
DESCRIPTION AVERAGE SHARES
- ----------- --------------
<S> <C>
Restated Historical Diluted Weighted Average Shares......... 23,121,482
Effect of Shares Related to the Following Acquisitions:
Progressive............................................... 211,496
Strategic Legal........................................... 46,320
SLC....................................................... 276,846
EBS....................................................... 67,242
Global.................................................... 170,348
Flexible.................................................. 35,447
----------
Pro Forma Diluted Weighted Average Shares................... 23,929,181
==========
</TABLE>
52
<PAGE> 62
STAFFMARK, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE COMPANY
-----------------------------------------------------------
ADJUSTED
AS REPORTING TO U.S. AS RESTATED
REPORTED BASIS GAAP IN AVERAGE TRANSLATED HISTORICAL PRO FORMA
IN BRITISH CONVERSION BRITISH EXCHANGE TO U.S. COMBINED TRANSACTION
STAFFMARK POUNDS(a) (b) POUNDS RATE DOLLARS RESULTS ADJUSTMENTS
--------- ---------- ---------- -------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SERVICE REVENUES............. $104,476 L45,928 L -- L45,928 1.56057 $71,673 $176,149 $ --
COST OF SERVICES............. 81,607 29,435 -- 29,435 1.56057 45,935 127,542 --
-------- ------- ----- ------- ------- ------- -------- -----
Gross profit............... 22,869.. 16,493 -- 16,493 25,738 48,607 --
OPERATING EXPENSES:
Selling, general and
administrative........... 14,623 12,342 197(c) 12,539 1.56057 19,567 34,190 (307)(g)
Depreciation and
amortization............. 1,374 274 -- 274 1.56057 428 1,802 --
-------- ------- ----- ------- ------- ------- -------- -----
Operating income..... 6,872 3,877 (197) 3,680 5,743 12,615 307
-------- ------- ----- ------- ------- -------- -----
OTHER INCOME (EXPENSE):
Interest expense........... (1,376) -- (9)(d) (9) 1.56057 (14) (1,390) --
Other, net................. 301 51 -- 51 1.56057 80 381 --
-------- ------- ----- ------- ------- ------- -------- -----
INCOME BEFORE INCOME TAXES... 5,797 3,928 (206) 3,722 5,809 11,606 307
INCOME TAX PROVISION......... 1,774 1,500 -- 1,500 1.56057 2,341 4,115 723(h)
-------- ------- ----- ------- ------- ------- -------- -----
Net income (loss).......... $ 4,023 L 2,428 L(206) L 2,222 $ 3,468 $ 7,491 $(416)
======== ======= ===== ======= ======= ======== =====
BASIC NET INCOME PER COMMON
SHARE...................... $ 0.82 $ 0.70
======== ========
BASIC WEIGHTED AVERAGE SHARES
OUTSTANDING................ 4,901 10,703(e)
======== ========
DILUTED NET INCOME PER COMMON
SHARE...................... $ 0.82 $ 0.69
======== ========
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING......... 4,901 10,809(f)
======== ========
<CAPTION>
PRO FORMA
COMBINED
STAFFMARK
& THE
COMPANY
---------
<S> <C>
SERVICE REVENUES............. $176,149
COST OF SERVICES............. 127,542
--------
Gross profit............... 48,607
OPERATING EXPENSES:
Selling, general and
administrative........... 33,883
Depreciation and
amortization............. 1,802
--------
Operating income..... 12,922
--------
OTHER INCOME (EXPENSE):
Interest expense........... (1,390)
Other, net................. 381
--------
INCOME BEFORE INCOME TAXES... 11,913
INCOME TAX PROVISION......... 4,838
--------
Net income (loss).......... $ 7,075
========
BASIC NET INCOME PER COMMON
SHARE...................... $ 0.66
========
BASIC WEIGHTED AVERAGE SHARES
OUTSTANDING................ 10,703(e)
========
DILUTED NET INCOME PER COMMON
SHARE...................... $ 0.65
========
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING......... 10,809(f)
========
</TABLE>
The accompanying notes are an integral part of this statement.
53
<PAGE> 63
STAFFMARK, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(a) Records the financial results of the Company for the year ended December
31, 1996 as reported in British pounds.
(b) Records adjustments to conform the basis of accounting used in preparing
the Company's historical financial results to U.S. GAAP.
(c) Adjustment to record compensation expense related to the Company's Share
Option Schemes in accordance with U.S. GAAP. Options under the Share Option
Schemes are exercisable between three and ten years after the grant date,
dependent on the achievement of certain financial targets over any
three-year period. Accordingly, the Share Option Schemes have been
considered variable plans under the Accounting Principles Board No. 25,
"Accounting for Stock Issued to Employees." Compensation expense was
computed as the sum of (i) the net equity in the share options, determined
as the product of the 1,388,223 outstanding share options and the
difference between the period-ending market price of the Company's shares
and the grant price (L0.7066), amortized over the remaining vesting period,
and (ii) the net equity value of share options exercised during the period.
For purposes of computing this adjustment, the minimum possible vesting
period of three years from grant date was used to determine the
amortization period.
(d) Adjustment to record dividends paid on preference shares as interest
expense in accordance with U.S. GAAP.
(e) Represents the sum of StaffMark's historical weighted average shares
outstanding plus the Company's historical weighted average shares
outstanding adjusted for the share exchange ratio of 0.272 as shown below.
<TABLE>
<CAPTION>
WEIGHTED
DESCRIPTION AVERAGE SHARES
- ----------- --------------
<S> <C>
StaffMark................................................... 4,900,671
The Company................................................. 5,802,396
----------
Restated Historical Basic Weighted Average Shares........... 10,703,067
==========
</TABLE>
(f) Includes the shares discussed in Note (e) above and the dilutive effect of
StaffMark's stock options and the Share Option Schemes adjusted for the
share exchange ratio of 0.272 as shown below.
<TABLE>
<CAPTION>
WEIGHTED
DESCRIPTION AVERAGE SHARES
- ----------- --------------
<S> <C>
Restated Historical Basic Weighted Average Shares........... 10,703,067
Dilutive Effect:
StaffMark Stock Option Plan............................... --
The Company's Share Option Schemes........................ 105,796
----------
Restated Historical Diluted Weighted Average Shares......... 10,808,863
==========
</TABLE>
(g) Adjustment to remove compensation expense recognized in accordance with the
Share Option Schemes which will not be incurred subsequent to the
Transaction.
(h) Records the incremental provision to reflect federal and state income taxes
as if StaffMark had been a subchapter C Corporation for all of 1996. This
adjustment records StaffMark's income tax expense at an effective rate of
39%, adjusted for non-deductible goodwill amortization.
54
<PAGE> 64
STAFFMARK, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE COMPANY
-----------------------------------------------------------
ADJUSTED
AS REPORTING TO U.S. AS RESTATED
REPORTED BASIS GAAP IN AVERAGE TRANSLATED HISTORICAL
IN BRITISH CONVERSION BRITISH EXCHANGE TO U.S. COMBINED
STAFFMARK POUNDS(a) (b) POUNDS RATE DOLLARS RESULTS
--------- ---------- ---------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
SERVICE REVENUES....................... $43,874 L23,980 L -- L23,980 1.57793 $37,839 $81,713
COST OF SERVICES....................... 35,115 14,487 -- 14,487 1.57793 22,860 57,975
------- ------- ---- ------- ------- -------
Gross profit......................... 8,759 9,493 -- 9,493 14,979 23,738
OPERATING EXPENSES:
Selling, general and
administrative..................... 5,804 7,277 7,277 1.57793 11,483 17,287
Depreciation and amortization........ 591 148 -- 148 1.57793 233 824
------- ------- ---- ------- ------- ------- -------
Operating income............... 2,364 2,068 -- 2,068 3,263 5,627
------- ------- ---- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense..................... (801) -- (23)(c) (23) 1.57793 (36) (837)
Other, net........................... 24 46 -- 46 1.57793 73 97
------- ------- ---- ------- ------- ------- -------
INCOME BEFORE INCOME TAXES............. 1,587 2,114 (23) 2,091 3,300 4,887
INCOME TAX PROVISION................... -- 780 -- 780 1.57793 1,231 1,231
------- ------- ---- ------- ------- ------- -------
Net income........................... $ 1,587 L 1,334 L(23) L 1,311 $ 2,069 $ 3,656
======= ======= ==== ======= ======= =======
BASIC NET INCOME PER COMMON SHARE...... $ 0.84 $ 0.50
======= =======
BASIC WEIGHTED AVERAGE SHARES
OUTSTANDING.......................... 1,898 7,305(d)
======= =======
DILUTED NET INCOME PER COMMON SHARE.... $ 0.83 $ 0.50
======= =======
DILUTED WEIGHTED AVERAGE SHARES
OUTSTANDING.......................... 1,917 7,324(e)
======= =======
<CAPTION>
PRO FORMA
COMBINED
PRO FORMA STAFFMARK
TRANSACTION & THE
ADJUSTMENTS COMPANY
----------- ---------
<S> <C> <C>
SERVICE REVENUES....................... $ -- $81,713
COST OF SERVICES....................... -- 57,975
----- -------
Gross profit......................... -- 23,738
OPERATING EXPENSES:
Selling, general and
administrative..................... -- 17,287
Depreciation and amortization........ -- 824
----- -------
Operating income............... -- 5,627
----- -------
OTHER INCOME (EXPENSE):
Interest expense..................... -- (837)
Other, net........................... -- 97
----- -------
INCOME BEFORE INCOME TAXES............. -- 4,887
INCOME TAX PROVISION................... 718(f) 1,949
----- -------
Net income........................... $(718) $ 2,938
===== =======
BASIC NET INCOME PER COMMON SHARE...... $ 0.40
=======
BASIC WEIGHTED AVERAGE SHARES
OUTSTANDING.......................... 7,305(d)
=======
DILUTED NET INCOME PER COMMON SHARE.... $ 0.40
=======
DILUTED WEIGHTED AVERAGE SHARES
OUTSTANDING.......................... 7,324(e)
=======
</TABLE>
The accompanying notes are an integral part of this statement.
55
<PAGE> 65
STAFFMARK, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(a) Records the financial results of the Company for the year ended December
31, 1995 as reported in British pounds.
(b) Records adjustments to conform the basis of accounting used in preparing
the Company's historical financial results to U.S. GAAP.
(c) Adjustment to record dividends paid on preference shares as interest
expense in accordance with U.S. GAAP.
(d) Represents the sum of StaffMark's historical weighted average shares
outstanding plus the Company's historical weighted average shares
outstanding adjusted for the share exchange ratio of 0.272 as shown below.
<TABLE>
<CAPTION>
WEIGHTED
DESCRIPTION AVERAGE SHARES
----------- --------------
<S> <C>
StaffMark................................................... 1,898,133
The Company................................................. 5,407,165
---------
Restated Historical Basic Weighted Average Shares........... 7,305,298
=========
</TABLE>
(e) Includes the shares discussed in Note (d) above and the dilutive effect of
StaffMark's stock options and the Share Option Schemes adjusted for the
share exchange ratio of 0.272 as shown below.
<TABLE>
<CAPTION>
WEIGHTED
DESCRIPTION AVERAGE SHARES
----------- --------------
<S> <C>
Restated Historical Basic Average Shares.................... 7,305,298
Dilutive Effect:
StaffMark Stock Option Plan............................... 18,850
The Company's Share Option Schemes........................ --
---------
Restated Historical Diluted Weighted Average Shares......... 7,324,148
=========
</TABLE>
(f) Records the incremental provision to reflect federal and state income taxes
as if StaffMark had been a subchapter C Corporation during 1995. This
adjustment records income tax expense at an effective rate of 39%, adjusted
for nondeductible goodwill.
56
<PAGE> 66
UNITED KINGDOM CORPORATE AND REGULATORY APPROVALS
CONCERNING THE TRANSACTION
THE SCHEME OF ARRANGEMENT
A Scheme of Arrangement is a U.K. statutory procedure under Section 425 of
the Companies Act. It permits a company to make an arrangement with its members
which, if agreed to by the requisite majority and sanctioned by the High Court,
will be binding on all the members concerned whether they voted in favor of it
or not.
The essential statutory requirements are:
(i) the Scheme of Arrangement has to be agreed to at the Court
Meeting;
(ii) the Scheme of Arrangement has to be agreed to at the Court
Meeting by a majority in number representing three-fourths in value of the
members voting at the meeting, whether in person or by proxy;
(iii) the notice convening the Court Meeting has to be accompanied by
a statement under Section 426 of the Companies Act explaining the effect of
the Scheme of Arrangement and stating any material interests of the
directors of the company and the effect on those interests of the Scheme of
Arrangement in so far as it is different from the effect on the like
interests of other persons;
(iv) the Scheme of Arrangement has to be sanctioned, and the reduction
of capital involved therein has to be confirmed, by the High Court; and
(v) an office copy of the order of the High Court sanctioning the
Scheme and confirming the reduction of capital has to be delivered to the
Registrar for registration and registered by him, upon which the Scheme of
Arrangement becomes effective.
In addition to the statutory requirements for the Scheme of Arrangement:
(vi) the reduction of capital involved in the Scheme of Arrangement
has to comply with the statutory procedures of Sections 135-141 of the
Companies Act; and
(vii) the Company is required to hold the EGM to consider and, if
thought fit, pass a special resolution to implement the Scheme of
Arrangement, including the reduction of capital involved therein and the
issue of new Company Shares to the Transaction Subsidiary. This resolution
requires a majority of not less than three-fourths of the holders of the
Company Shares present and voting in person or by proxy (if a poll is
demanded) at the EGM.
THE COURT MEETING
Time, Place and Date. The Court Meeting will be held on October 28, 1998 at
10 Bedford Street, London, England WC2E 9HE, commencing at 10:00 a.m., London
time.
Purpose. At the Court Meeting, the holders of Existing Company Shares will
be asked to consider and vote upon a proposal to approve the Scheme of
Arrangement.
Record Date; Shares Entitled to Vote. Only holders of Existing Company
Shares on the Register of Members 48 hours before the time fixed for the Court
Meeting or any adjournment thereof (as the case may be) will be entitled to vote
at the Court Meeting. On September 15, 1998, there were 24,588,807 Existing
Company Shares in issue, the holders of which are entitled on a poll to one vote
per share on each matter to come before the meeting.
Vote Required. The affirmative vote of a majority in number representing
three-fourths in value of the holders of Existing Company Shares voting either
in person or by proxy at the Court Meeting is required to approve the Scheme of
Arrangement.
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<PAGE> 67
THE EXTRAORDINARY GENERAL MEETING OF THE COMPANY
Time, Place and Date. The EGM will be held on October 28, 1998 at 10
Bedford Street, London, England WC2E 9HE, commencing at 10:05 a.m., London time
(or as soon thereafter as the Court Meeting shall have concluded or been
adjourned).
Purpose. At the EGM, the holders of Company Shares will be asked to
consider and vote upon a proposal to reduce the share capital of the Company by
the cancellation of the Existing Company Shares and upon the reduction taking
effect for the share capital of the Company to be increased to its former amount
by the creation of such number of Company Shares as equals the number of
Existing Company Shares so cancelled and the issue thereof to the Transaction
Subsidiary, in consideration of the Consideration Shares being issued, in
accordance with the Scheme of Arrangement and to alter the Articles of
Association of the Company with the result that the Company will become an
indirect wholly-owned subsidiary of StaffMark.
Record Date; Shares Entitled to Vote. Only holders of record of Company
Shares on the Register of Members at 10:05 a.m. on October 26, 1998 will be
entitled to vote at the EGM. On September 15, 1998, there were 24,588,807
Company Shares in issue, the holders of which are entitled on a poll to one vote
per share on each matter to come before the EGM.
Vote Required. The affirmative vote of three-quarters in number of the
holders of Company Shares present at the EGM and voting either in person or by
proxy (if a poll is demanded) at the EGM is required to approve the matters
included in the resolution to be proposed at the EGM.
BUSINESS OF THE COMPANY
DESCRIPTION OF THE COMPANY'S BUSINESS
The Company is a London-based international recruitment consultancy
operating in 14 cities in ten countries specializing in placing accounting,
finance and information technology professionals on a contract, temporary and
permanent basis with clients in the commercial, industrial and finance sectors.
The Company operates in the United Kingdom, Continental Europe, the United
States, Australia, the Asia Pacific region and South Africa. The Company's
operations are divided into four divisions: Robert Walters Associates (permanent
recruitment), Robert Walters Resourcing (contract and temporary recruitment),
Robert Walters Technology (IT recruitment) and Resource Solutions (outsourcing).
Robert Walters Associates comprises the Company's U.K. permanent and
overseas recruitment businesses and has offices in London, Windsor, Amsterdam,
Auckland, Brisbane, Brussels, Frankfurt, Hong Kong, Johannesburg, Melbourne, New
York, Singapore, Sydney and Wellington. Robert Walters Associates contributed
55.4%, 50.5% and 46.1% of total Company gross profit during each of the years
ended December 31, 1995, 1996 and 1997, respectively.
Robert Walters Resourcing specializes in contract recruitment, utilizing
the Company's international network of offices in developing The Global
Pipeline. Robert Walters Resourcing contributed 44.6%, 44.1% and 46.1% of total
Company gross profit during each of the years ended December 31, 1995, 1996 and
1997, respectively.
Robert Walters Technology is the Company's specialist IT recruitment
business and, in addition to the Company's U.K. businesses, includes the TriStar
business (which was acquired in December, 1997) in Australia and a 7.1% stake
(with an option to increase its holding up to 20%) in Taps, an internet
recruitment site for IT and finance professionals. Robert Walters Technology
contributed 0.0%, 5.4% and 7.8% of total Company gross profit during each of the
years ended December 31, 1995, 1996 and 1997, respectively.
Resource Solutions is the outsourcing division of the Company. Resource
Solutions manages on-site recruitment activities of clients working with other
divisions of the Company as well as with other recruitment agencies. Resource
Solutions currently has 23 U.K. and four Australian agreements.
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<PAGE> 68
For the year ended December 31, 1997 and the six months ended June 30,
1998, respectively, the Company's revenue profile, geographic revenue
concentration and revenue mix consisted of: contract placements (82.1% and 84.6%
of revenues) and permanent placements (17.9% and 15.4% of revenues); U.K.
revenues (91.3% and 77.3% of revenues) and non-U.K. revenues (8.7% and 22.7% of
revenues); and Finance and Accounting placements (89.5% and 73.1% of revenues)
and IT placements (10.5% and 26.9% of revenues).
The Company's key strengths include a management team with first hand
experience in running and developing a successful recruitment consultancy over a
number of years. The Company's overall business strategy is to focus on
recognizing opportunities to maximize revenues and profits in an ever changing
and competitive marketplace, through the development of an understanding of both
clients and candidates, in conjunction with developing a presence in an
increasing number of countries.
PERSONNEL
Recruiting. One of the Company's most successful recruiting tools is
referrals by its existing candidate and contractor base. The Company employs
full-time researchers and recruiters to ensure that its supply of both full time
professional candidates and contractors is maintained. The Company holds open
days specific to clients and for general recruitment purposes in order to
maintain a steady stream of candidates. In addition, the Company obtains
applicants through the placement of advertisements in national newspapers and
magazines. Due to the shortage particularly of IT professionals and contractors
in Europe and North America, the Company has set up The Global Pipeline. The
Global Pipeline sources candidates in Australia, New Zealand, Hong Kong,
Singapore and South Africa and places them on behalf of clients in Europe and
North America. The Company also uses Taps and other websites and search engines
to find candidates.
Full Time Employees/Contractors/Temporary Staff. As of June 30, 1998, the
Company had engaged 3,381 contractors and temporary staff. At June 30, 1998, the
Company employed 537 internal staff. None of the Company's employees, nor its
temporary staff, is represented by a collective bargaining agreement. The
Company believes its employee relations to be good and endeavors to pay market
rates to its full-time employees, contractors and temporary staff. The Company
pays the employer share of statutory taxes and National Insurance. The Company
also offers access to various other benefits.
Assessment Training and Quality Control. The Company uses a comprehensive
system to assess the skill base of its contractors, temporary staff and
candidates for full time professional positions. The system is tailored to
ensure that it matches specific client needs. Accounting and other professionals
are assessed on their knowledge of recognized accounting standards and computer
literacy.
The Company also ensures that its contractors' and temporary staff's skills
are continually upgraded to match the client requirements. This is done through
a variety of training programs and information.
Workers Compensation Program. The Company continually evaluates alongside
its insurance brokers its temporary staff and contractors working environment
and insurance policies in place in relation to the temporary staff and
contractors.
OPERATIONS
Branch Offices. The Company offers its services in 14 cities in ten
countries worldwide. There are offices in London, Windsor, Brussels, Amsterdam,
New York, Sydney, Wellington, Auckland, Hong Kong, Melbourne, Brisbane,
Frankfurt, Johannesburg and Singapore. Offices operate with a significant degree
of autonomy. Managers are incentivized through bonus schemes to increase
business and maintain profitability. All managers report to one of the executive
directors who each have designated areas of responsibility.
Marketing. The Company's services are marketed throughout its network of
offices. The centralized marketing function ensures existing clients are kept up
to date on new product offerings through regular mailings and presentations. New
clients are obtained through sales calls, referrals, direct marketing,
telemarketing, marketing reputation and other product offerings. The Company
will also seek to develop
59
<PAGE> 69
specific sector experience as a method of obtaining new clients. The Company's
innovative web site and Taps web site have also proved to be useful in business
generation.
Competition. The accounting, support and IT staffing market are
increasingly becoming more competitive. The Company competes with other
recruitment companies across all its activities. In spite of the market for IT
contractors and permanent employees increasing, competition is increasing as
well. The Company's competitors include, without limitation, Harvey Nash, PSD,
Select, Michael Page, Robert Half, Hayes, Delphi Group, Lorien and MSB
International.
The Company finds it is continually competing for quality candidates and
therefore ensures that its rates of pay and added value candidate support
services such as training are monitored and improved on a regular basis. The
Company believes that its strong reputation and long term relationships with
both clients and candidates will continue to give it a competitive edge. The
Company has an ongoing policy of assessing acquisition opportunities in all its
existing areas of operation as well as new areas.
Regulation. The Company abides by all the employment regulations of all the
territories it operates in and has a central personnel and legal function to
ensure that it complies with the appropriate legislation. When recruiting
internationally, the Company ensures that it abides by the immigration laws of
the territory into which it is placing candidates. Any changes to immigration
law could affect the Company's ability to recruit internationally.
PROPERTIES OF THE COMPANY
The Company owns no real property. It leases its corporate headquarters, as
well as space for all its offices. These facilities are used for operations,
general and administrative functions and training. The Company also leases some
storage facilities. The Company believes it has adequate facilities for its
needs and foresees no difficulty in leasing additional space should expansion
dictate the need. None of the Company's properties are leased from related
parties and are all on differing terms. The Company's registered office and
headquarters is at 25 Bedford Street London WC2E 9HP.
The Company leases commercial office space in connection with the operation
of its businesses in London (multiple locations), Birmingham, Windsor, Thames
Valley, Amsterdam, Brussels, Frankfurt, New York, Hong Kong, Singapore, Sydney,
Melbourne, Brisbane, Wellington, Auckland and Johannesburg. The Company's leased
properties are generally well-maintained, suitable for present operations and
adequate for all present and anticipated future operations.
LITIGATION
The Company is not a party to any material pending legal proceedings other
than routine litigation incidental to its business. In the opinion of the
Company's management, such proceedings should not, individually or in the
aggregate, have a material adverse effect on the Company's results of operations
or financial condition. The Company maintains adequate insurance with coverage
and amounts as management believes are prudent and reasonable.
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<PAGE> 70
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY
The following discussion should be read in conjunction with
"Summary -- Selected Financial Data of the Company," the related notes thereto
and the Company's audited financial statements and the related notes and
unaudited financial statements for the six month period thereto appearing
elsewhere in this Proxy Statement.
OVERVIEW
The Company is a London-based international recruitment consultancy formed
in 1985. The Company operates in 14 cities in ten countries and specializes in
placing professional finance and IT candidates on a permanent, contract or
temporary basis with clients in the commercial, industrial and banking sectors.
The Company operates in the United Kingdom, Continental Europe, the United
States, Australia, the Asia Pacific region and South Africa. The Company acts as
the agent in introducing candidates to clients, taking a fee for the placement
of permanent candidates and taking a margin on the hourly or monthly fee rate
for contract or temporary candidates. The Company is responsible for operating
the payroll activities for its contract and temporary candidates.
The Company's operations are divided into four divisions: Robert Walters
Associates (permanent recruitment), Robert Walters Resourcing (contract and
temporary recruitment), Robert Walters Technology (IT recruitment) and Resource
Solutions (outsourcing).
Robert Walters Associates comprises the Company's U.K. permanent and
overseas recruitment business and has offices in London, Windsor, Amsterdam,
Auckland, Brisbane, Brussels, Frankfurt, Hong Kong, Johannesburg, Melbourne, New
York, Singapore, Sydney and Wellington.
Robert Walters Resourcing comprises the Company's contract and temporary
recruitment business, including The Global Pipeline, the Company's international
network of offices through which candidates are sourced and offered to clients
on an international basis. At June 30, 1998, Robert Walters Resourcing had 3,381
contract or temporary candidates on assignment with clients, including the 782
IT contractors or temporary candidates referred to below.
Robert Walters Technology is the Company's specialist IT recruitment
business and, in addition to the Company's U.K. IT businesses, includes the
Melbourne, Australia-based TriStar recruitment business, which was acquired by
the Company in December 1997. At June 30, 1998, Robert Walters Technology had
782 IT contractors or temporary candidates on assignment with clients, including
493 placed through TriStar. In addition, the Company has a 7.1% stake (with an
option to purchase up to 20%) in Taps, an internet recruitment site for IT and
finance professionals.
Resource Solutions is the outsourcing division of the Company established
in the second half of 1997. Resource Solutions takes over part or all of the
recruitment functions for clients working with other divisions of the Company as
well as other recruitment agencies. Resource Solutions therefore creates
business opportunities for all parts of the Company's business.
Income from the provision of permanent staff is recognized when a candidate
accepts a position and a start date is determined. A provision is made for the
cancellation of placements prior to or shortly after the commencement of
employment. Income in respect of temporary candidates is recognized when the
hours have been worked by the candidate and in respect of contract staff on the
confirmation of the contract. Income in respect of recharges (such as
advertisement placed in newspapers by the Company on behalf of clients) is
recognized when the expense is incurred.
The Company generally compensates its temporary and contract candidates
only for hours actually worked and, therefore, wages of the temporary and
contract candidates are a variable cost that increase or decrease as revenues
increase or decrease. However, the Company recently has engaged certain
candidates on a full time salaried basis recharging the client together with the
agreed margin for the hours worked by such candidates. Cost of services
primarily consists of wages paid to temporary and contract candidates together
with employer National Insurance in the United Kingdom and workers compensation
taxes in Australia and
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<PAGE> 71
New Zealand and the cost of items recharged to clients. Selling, general and
administrative expenses ("SG&A") are comprised primarily of the salary and
benefit costs of the Company's own placement and administrative staff, marketing
costs, property costs, IT systems expenses and other business support costs.
The financial information provided below has been rounded in order to
simplify its presentation. However, the percentages provided below are
calculated using the detailed financial information contained in the financial
statements, the notes thereto and the other financial data included elsewhere in
this Proxy Statement.
RECENT DEVELOPMENTS
In December 1997, the Company acquired the businesses of the
Australia-based IT recruitment companies, ACL TriStar Proprietary Limited and
TriStar Personnel Proprietary Limited (collectively, "TriStar"). The results for
the six month period ended June 30, 1998 include the results of TriStar.
TriStar's balance sheet has been consolidated with that of the Company as at
December 31, 1997 but no trading results of TriStar have been consolidated with
the Company prior to January 1, 1998. The financial information presented for
all other periods represents the operations of the Company only.
In December 1997, the Company also acquired a 7.1% interest (with an option
to purchase up to 20%) in Taps. Taps has been accounted for as an associate
company for trading periods after January 1, 1998. The financial information
presented below for June 30, 1998 includes the Company's share of the increase
in the net assets of Taps in accordance with accounting for an associate company
while the financial information presented for all other periods represents the
operations of the Company only.
RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE RESULTS FOR THE
SIX MONTHS ENDED JUNE 30, 1997
Revenues. Revenues increased L35.1 million, or 95.5%, to L71.9 million for
the six months to June 30, 1998 compared to L36.8 million for the six months to
June 30, 1997. This increase was primarily attributable to the Company's
internal growth and expansion to new offices internationally which accounted for
L24.3 million or 69.2% of the total increase. This reflects the Company's
emphasis on new customer development, the roll out of Resource Solutions and an
overall increase in the demand for staffing services. The increase from the
acquisition of TriStar accounted for L10.8 million or 30.8% of the total
increase in revenues.
Gross Profit. Gross profit increased L8.3 million, or 65.8%, to L20.9
million for the six months to June 30, 1998 compared to L12.6 million for the
six months to June 30, 1997. This increase was primarily attributable to the
Company's internal growth and the acquisition of TriStar. Gross margin decreased
to 29.0% for 1998 compared to 34.2% for 1997 reflecting a change in the mix of
gross profit from 45.6% temporary and contract recruitment in the six months to
June 30, 1997 to 51.6% of gross profit in the six months to June 30, 1998.
Operating Expenses. SG&A increased L7.5 million, or 79.3%, to L16.8 million
for the six months to June 30, 1998 compared to L9.3 million for the six months
to June 30, 1997. This increase was primarily attributable to the Company's
internal growth, the acquisition of TriStar, the development and implementation
of Resource Solutions and the development of the Company's IT recruitment
activities during the period. SG&A as a percentage of revenues decreased to
23.3% for 1998 compared to 25.4% for 1997. This decrease results from an
increase in expenditures due to the development of new business activities such
as the Resource Solutions business and IT recruitment counteracted by a mix
change in revenue from permanent to temporary and contract recruitment.
Operating Income. Operating income increased L0.9 million, or 27.2%, to
L4.1 million for the six months to June 30, 1998 compared to L3.2 million for
the six months to June 30, 1997 as a result of the factors described above.
Operating income as a percentage of revenues decreased to 5.7% for 1998 compared
to 8.8% for 1997.
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<PAGE> 72
Net Income. Net income increased L0.7 million, or 32.8%, to L2.7 million
for the six months to June 30, 1998 compared to L2.0 million for the six months
to June 30, 1997 as a result of the factors described above. Net income as a
percentage of revenues decreased to 3.8% for 1998 compared to 5.5% for 1997.
RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997 COMPARED TO RESULTS FOR THE YEAR
ENDED DECEMBER 31, 1996
Revenues. Revenues increased L44.9 million, or 97.7%, to L90.8 million for
1997 compared to L45.9 million for 1996. This increase was wholly attributable
to the Company's internal growth which reflects the increase in the demand for
staffing services during that period and the roll out of Resource Solutions
during the second half of 1997.
Gross Profit. Gross Profit increased L13.0 million, or 78.9%, to L29.5
million for 1997 compared to L16.5 million for 1996. This increase was wholly
attributable to the Company's internal growth. Gross margin decreased to 32.5%
for 1997 compared to 35.9% for 1996 due to the change in mix of business towards
temporary and contract recruitment and away from permanent recruitment.
Operating Expenses. SG&A increased L9.3 million, or 73.6%, to L21.9 million
for 1997 compared to L12.6 million for 1996. This increase was primarily
attributable to the Company's internal growth and the introduction of Resource
Solutions in the second half of 1997. SG&A as a percentage of revenues decreased
to 24.1% for 1997 compared to 27.5% for 1996 due to the change in mix of revenue
towards temporary and contract recruitment and due to the control of staff,
support and administrative costs during a period of increasing turnover.
Operating Income. Operating income increased L3.7 million, or 96.1%, to
L7.6 million for 1997 compared to L3.9 million for 1996. The Company's operating
margin was 8.4% for 1997 and 1996 reflecting a change in the mix of revenue
while maintaining a close control over business costs.
Net Income. Net income increased L2.7 million, or 108.2%, to L5.1 million
for 1997 compared to L2.4 million for 1996 as a result of the factors described
above. Net income as a percentage of revenues was 5.6% for 1997 compared to 5.3%
for 1996.
RESULTS FOR THE YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE RESULTS FOR THE
YEAR ENDED DECEMBER 31, 1995
Revenues. Revenues increased L21.9 million, or 91.5%, to L45.9 million for
1996 compared to L24.0 million for 1995. This increase was wholly attributable
to the Company's internal growth which reflects the increase in the demand for
staffing services during that period. The Company also undertook an initial
public offering in July 1996 raising L2.0 million thus assisting the Company to
fund its business development.
Gross Profit. Gross profit increased L7.0 million, or 73.7%, to L16.5
million for 1996 compared to L9.5 million for 1995. This increase was wholly
attributable to the Company's internal growth. Gross margin decreased to 35.9%
for 1996 compared to 39.6% for 1995 due to a change in mix of revenue from
permanent recruitment to temporary and contract recruitment.
Operating Expenses. SG&A increased L5.2 million, or 69.9%, to L12.6 million
for 1996 compared to L7.4 million for 1995. This increase was primarily
attributable to the Company's internal growth. SG&A as a percentage of revenues
decreased to 27.5% for 1996 compared to 31.0% for 1995 due to the change in mix
of revenue from permanent recruitment to temporary and contract recruitment.
Operating Income. Operating income increased L1.8 million, or 87.5%, to
L3.9 million for 1996 compared to L2.1 million for 1995. The Company's operating
margin decreased to 8.4% for 1996 compared to 8.6% for 1995 for the reasons
described above.
Net Income. Net income increased L1.1 million, or 82.0%, to L2.4 million
for 1996 compared to L1.3 million for 1995 as a result of the factors described
above. Net income as a percentage of revenues was decreased to 5.3% for 1996
compared to 5.6% for 1995.
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<PAGE> 73
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of funds are from operations, proceeds from
equity share offerings and borrowings under its credit facilities. The Company's
principal uses of cash are to fund acquisitions, working capital and capital
expenditures. The Company generally pays its temporary employees weekly for
their services, while receiving payments from customers 30 to 60 days from the
date of the invoice. As new offices are established or as existing offices are
expanded, the Company has increasing requirements for cash resources to fund
growing operations.
In July 1996, the Company completed an initial public offering of 9,175,002
Company Shares (the "Initial Floatation"), of which 6,794,050 Company Shares
were sold on behalf of existing shareholders and 2,380,952 Company Shares were
sold on behalf of the Company. The net proceeds from the shares sold by the
Company were approximately L2.0 million, after deducting the underwriting and
offering expenses paid by the Company. The Company utilized these net proceeds
to expand its U.K. contract recruitment business, develop its preferred supplier
and managed agency arrangements, support its expansion internationally and to
develop computer systems and networks.
In December 1997, the businesses and certain assets and liabilities of
TriStar were acquired for a total consideration of 12,929,000 Australian
dollars, (A$) (L5,285,000). Of this, A$9,174,000 (L3,876,000) was satisfied by
the issue of 945,459 shares at completion which were placed on behalf of the
vendors at a price of L4.10 per share. The balance of A$3,500,000 (L1,408,450)
was satisfied by a second issue of shares (the "Second Issue Shares"). A
balancing payment two years after completion may be due equal to L1,408,450 less
(a) the amounts received on disposal of any Second Issue Shares converted into
pounds sterling at the rate of exchange existing at completion and (b) the
pounds sterling value of any Second Issue Shares retained on the second
anniversary of completion; however, such balancing payment, if any, is not
expected to be material to the Company. A cash adjustment of A$255,000
(L101,000) arising from an increase in the value of assets acquired between the
date of agreement and completion has been paid. To finance this cash payment and
the expenses of the acquisition, the Company placed 54,541 Company Shares for
cash at a price of L4.10 per share representing a premium of L220,891 over the
aggregate nominal value of such shares of L2,727.
In March 1998, the Company entered into a L1.5 million overdraft (the
"Midland Overdraft Facility") and a L3.0 million revolving line of credit
facility (the "Credit Facility") with Midland Bank plc ("Midland"). Interest on
the Midland Overdraft Facility is charged at 1.0% over Midland's base rate. The
Midland Overdraft Facility is secured by all the assets of the Company. The
Credit Facility matures on March 25, 2001 and interest on any borrowings is
calculated at the Company's option of either 0.75% over Midland's base rate or
0.75% over LIBOR incrementally adjusted based on Midland's regulatory cost rate
as required by the Bank of England. A non-utilization fee of 0.30% is payable in
respect of any sums undrawn and a cancellation fee of 0.25% of the amount
canceled multiplied by the number of whole years remaining to maturity. The
Credit Facility is secured by all the assets of the Company. As at June 30,
1998, L700,000 was drawn under the Credit Facility.
In May 1998, the Company's TriStar operations renewed its facilities in
Australian dollars with the Australian and New Zealand Banking Group Limited
("ANZ") such that the Company's TriStar operations has access to an A$1 million
overdraft facility (the "Overdraft Facility"), an A$1.75 million payroll
facility (the "Payroll Facility") and an A$2 million discount facility (the
"Discount Facility"). Interest on the Overdraft Facility and the Payroll
Facility is calculated at the ANZ reference rate (currently 7.95% plus a margin
of 1.0%) and a line fee is charged at 1.7% on the highest facility limit
recorded for the account. The yield rate for the Discount Facility is charged at
the rate quoted by ANZ for the face value of the bill for the relevant tenor and
a line fee of 1.7% of the facility limit is also charged.
In 1997, the Company invested in new offices (Hong Kong and Auckland), in
upgrading offices (London, Sydney, Amsterdam and New York), in new computer
systems, in its investment in Taps and in the training and development of staff.
The recently opened offices in Frankfurt and Johannesburg, future office
openings, the additional investments on expanding offices in London, Sydney and
Melbourne, the further upgrading of computer systems and the development of the
Resource Solutions outsourcing business are expected to result
64
<PAGE> 74
in additional cash outflows. Robert Walters currently intends to fund these cash
requirements with working capital resources.
Net cash provided by operating activities was L0.3 million, L5.3 million
and L2.6 million for the six months ended June 30, 1998 and the years ended
December 31, 1997 and 1996, respectively. The net cash provided by and used in
operating activities for the periods presented was primarily attributable to net
income adjusted for non-cash expenses such as depreciation and amortization and
changes in operating assets and liabilities.
Net cash used in capital expenditure and acquisitions was L0.9 million,
L2.3 million and L0.9 million for the six months ended June 30, 1998 and the
years ended December 31, 1997 and 1996, respectively. Cash used in investing
activities in 1998 was primarily related to the development of computer systems
and networks and leasehold improvements. Cash used in investing activities in
1997 was primarily related to the acquisition of TriStar, the development of
computer systems and networks and leasehold improvements. Cash used in investing
activities in 1996 was primarily related to the development of computer systems
and networks and leasehold improvements.
Net cash provided by financing activities was L0.6 million, L0.2 million
and L1.6 million for the six months ended June 30, 1998 and the years ended
December 31, 1997 and 1996, respectively. Cash provided by financing activities
in 1998 was primarily derived from an increase in short term borrowings. Cash
provided by financing activities in 1997 was primarily attributable to a
secondary issue of Company Shares. Cash provided by financing activities in 1996
was primarily derived from the Initial Floatation.
The Company paid dividends of L639,000, L648,000 and L1.2 million in the
six months ended June 30, 1998 and the years ended December 31, 1997 and 1996,
respectively.
As a result of the foregoing, combined cash and cash equivalents was L2.4
million, L3.0 million and L2.3 million as at June 30, 1998 and December 31, 1997
and 1996, respectively.
Surplus cash balances are invested in sterling at short-term fixed rates to
give the Company flexibility in its cash management. Approximately 17.7% of the
Company's turnover for the six months ending June 30, 1998 is in Australian
dollars. The Australian dollar foreign currency exposure is partly hedged
through borrowings in Australian dollars through ANZ.
YEAR 2000 COMPLIANCE
Many computer systems and other electronic devices express dates using only
two digits, rather than four, for the number of the year. Consequently, such
systems and devices may be unable to accurately process transactions or deal
with dates in the Year 2000 or later. The Board of the Company considers it is
very important that the risks, issues and costs associated with the Year 2000
date change are assessed at the earliest opportunity, and appropriate steps are
taken to ensure that the Company is not adversely affected by the use of dates
beyond December 31, 1999. To this end, a Year 2000 project team has been formed
and a Year 2000 compliance program has been developed. This program provides a
framework for achieving Year 2000 compliance across the Company by December 31,
1998. The costs associated with achieving Year 2000 compliance are written off
to the profit and loss account as incurred and are not considered to be material
to the consolidated profit of the Company.
INFLATION
The effects of inflation on the Company's operation were not significant
during the periods presented in the financial statements.
65
<PAGE> 75
FORWARD LOOKING STATEMENTS
This Proxy Statement contains (through information presented or
incorporated by reference herein) certain forward-looking statements concerning
StaffMark, the Transaction and the Combined Group within the meaning of the
Private Securities Litigation Reform Act of 1995, including statements made with
respect to the Transaction and StaffMark's future operations, growth
opportunities, revenues and earnings and the potential impact of other
acquisitions on StaffMark's future results. Words such as "may," "should,"
"believe," "anticipate," "future," "forward," "potential," "estimate,"
"opportunity," "goal," "objective," "quality," "growth," "leader," "expect,"
"intend," "plan," "expand," "focus," "proven," "track record," "benchmark,"
"vision," "through," "expiration," "provide," "meet," "strengthen," "best,"
"allowed," "represent," "commitment," "lead," "create," "result," "seek,"
"increase," "add," "find," "establish," "pursue," "feel," "work," "perform,"
"make," "continue," "strike," "can," "will," "going," "target," "include" or the
negative thereof or variations thereon and similar expressions are intended to
identify forward-looking statements. These forward-looking statements inherently
involve risks and uncertainties, although they are based on management's current
plans or assessments which are believed to be reasonable as of the date of this
Proxy Statement. Factors that may cause actual results, goals, targets or
objectives to differ materially from those contemplated, projected, forecast,
estimated, anticipated, planned or budgeted in such forward-looking statements
include, among others, the following possibilities: (i) heightened competition,
specifically the intensification of price competition, the entry of new
competitors, and new services by new and existing competitors; (ii)
unanticipated problems associated with integrating acquired companies and their
operations; (iii) failure to identify, acquire or profitably manage additional
acquired businesses, if any, into StaffMark without substantial costs, delays or
other operational or financial problems; (iv) failure to obtain new customers or
retain significant existing customers; (v) inability to carry out marketing and
sales plans; (vi) inability to obtain capital for future internal and external
growth; (vii) loss of key executives; (viii) general economic and business
conditions (whether foreign, national, state or local) which are less favorable
than expected; and (ix) changes in industry trends such as changes in demand for
commercial or professional information technology staffing personnel. Actual
events or results may differ materially from those discussed in the
forward-looking statements as a result of various factors described above and
under "Potential Risks, Detriments and Other Considerations Associated with the
Transaction" or as a result of those risk factors set forth under "Risk Factors"
in StaffMark's Amendment No. 1 to Form S-1 (File No. 333-32371) filed with the
Securities and Exchange Commission on August 6, 1997, under the Securities Act
of 1933 (the "Incorporated Risk Factors").
DIRECTORS OF STAFFMARK FOLLOWING THE TRANSACTION
All current members of the StaffMark Board of Directors will continue their
service on such Board after the Effective Date. Robert Walters, the Chief
Executive Officer of the Company, will be afforded the opportunity to join the
StaffMark Board after the Effective Date.
EXPERTS
The audited consolidated financial statements of StaffMark as of December
31, 1997 and 1996 and for each of the three years in the period ended December
31, 1997 incorporated by reference in this Proxy Statement have been audited by
Arthur Andersen L.L.P., independent public accountants, as indicated in their
report with respect thereto, and are incorporated herein by reference or
included herein in reliance upon the authority of said firm as experts in giving
said report.
The audited consolidated financial statements of the Company as of December
31, 1997 and 1996 and for each of the three years in the period ended December
31, 1997 included in this Proxy Statement have been audited by Arthur Andersen,
chartered accountants and registered auditors, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said report.
66
<PAGE> 76
ADDITIONAL INFORMATION ABOUT STAFFMARK
StaffMark files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements or
other information we file at the SEC's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at
1-800-732-0330 for further information on the public reference rooms.
StaffMark's SEC filings are also available to the public from commercial
document retrieval services and at the web site maintained by the SEC at
"http://www.sec.gov."
The SEC allows StaffMark to "incorporate by reference," which means that
StaffMark can disclose important information to you by referring you to another
document filed separately with the SEC. The information incorporated by
reference is deemed to be part of this Proxy Statement, except for any
information superseded by information in this Proxy Statement. This Proxy
Statement incorporates by reference the documents set forth below that StaffMark
(File No. 0-20971) has previously filed with the SEC. These documents contain
important information about our companies and their finances.
<TABLE>
<CAPTION>
SEC FILING PERIOD/AS OF DATE
---------- -----------------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1997
Quarterly Report on Form 10-Q Quarter ended March 31, 1998
Quarterly Report on Form 10-Q Quarter ended June 30, 1998
Current Reports on Form 8-Ks and Filed on August 18, 1998; June 19,
Form 8-K/As related thereto 1998; March 16, 1998; February 23,
1998; January 23, 1998; and January
16, 1998 Form 8-K/A to November 21,
1997 Form 8-K, September 19, 1997
Form 8-K/A to August 15, 1997 Form
8-K, respectively
Registration Statement on Form 8-A Filed on September 17, 1996, as
amended thereafter for the purpose of
updating such description of
StaffMark Common Stock
</TABLE>
StaffMark is also incorporating by reference the Incorporated Risk Factors
and additional documents that it files with the SEC between the date of this
Proxy Statement and the date of the StaffMark Special Meeting. See "Forward
Looking Statements."
If you are a stockholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us or the SEC.
You may obtain documents incorporated by reference without charge by writing or
calling StaffMark at the following address:
StaffMark, Inc.
Attention: Gordon Y. Allison
Executive Vice President and
General Counsel
302 East Millsap Road
Fayetteville, AR 72703
501-973-6000
If you would like to request documents from us, please do so by October 20,
1998 to receive them before the StaffMark Special Meeting.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT TO VOTE ON THE TRANSACTION. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS
CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT IS DATED SEPTEMBER 25,
1998. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN SUCH DATE, AND NEITHER THE
MAILING OF THIS PROXY STATEMENT TO STOCKHOLDERS NOR THE ISSUANCE OF STAFFMARK
COMMON STOCK IN THE TRANSACTION SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
67
<PAGE> 77
OTHER MATTERS; STAFFMARK STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
As of the date of this Proxy Statement, the StaffMark Board knows of no
matters that will be presented for consideration at the StaffMark Special
Meeting, other than as described in this Proxy Statement. If any other matters
shall properly come before the StaffMark Special Meeting or any adjournments or
postponements thereof and shall be voted upon, the enclosed proxies will be
deemed to confer discretionary authority on the individuals named as proxies
therein to vote the shares represented by such proxies as to any such matters.
The persons named as proxies intend to vote or not vote in accordance with the
recommendation of the StaffMark Board and management of StaffMark.
Stockholders of StaffMark who intend to present proposals for consideration
at the 1999 Annual Meeting of the stockholders of StaffMark are hereby advised
that any such proposals must be received by the Secretary of StaffMark no later
than the close of business on November 25, 1998, if such proposal is to be
considered for inclusion in StaffMark 1999 Annual Meeting proxy materials.
68
<PAGE> 78
ROBERT WALTERS PLC
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report.............................. F-2
Consolidated Profit and Loss Account for the years ended
31 December 1997, 31 December 1996 and 31 December
1995................................................... F-3
Consolidated Statement of Total Recognized Gains and
Losses for the years ended 31 December 1997, 31
December 1996 and 31 December 1995..................... F-3
Consolidated Balance Sheet as of 31 December 1997 and 31
December 1996.......................................... F-4
Consolidated Cash Flow Statement for the years ended 31
December 1997, 31 December 1996 and 31 December 1995... F-5
Notes to the Accounts..................................... F-6
INTERIM CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of 30 June 1998 and 30 June
1997................................................... F-22
Consolidated Profit and Loss Account for the six months
ended 30 June 1998 and 30 June 1997.................... F-23
Consolidated Cash Flow Statement for the six months ended
30 June 1998 and 30 June 1997.......................... F-24
Notes to the Accounts..................................... F-25
</TABLE>
F-1
<PAGE> 79
INDEPENDENT AUDITORS' REPORT
The shareholders and Board of Directors
Robert Walters plc
We have audited the accompanying consolidated balance sheets of Robert
Walters plc and subsidiaries at December 31, 1996 and 1997, and the related
consolidated profit and loss account, cash flow statements, statements of total
recognised gains and reconciliation of movements in shareholders' funds for each
of the three years ended December 31, 1997. These consolidated financial
statements are the responsibility of the management of Robert Walters plc. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the UK which standards are substantially equivalent to auditing
standards generally accepted in the United States of America ("U.S."). Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present a true and fair view, in all material respects, of the consolidated
financial position of Robert Walters plc and subsidiaries at December 31, 1997
and 1996 and the consolidated results of operations and cash flows for each of
the three years ended December 31, 1997 in conformity with generally accepted
accounting principles in the UK.
Accounting practices used by the Company in preparing the accompanying
financial statements conform with generally accepted accounting principles in
the UK, but do not conform with accounting principles generally accepted in the
U.S. A description of these differences and a reconciliation of consolidated net
income and shareholders' equity to U.S. generally accepted accounting principles
is set forth in Note 23.
ARTHUR ANDERSEN
Chartered Accountants
London, England
February 27, 1998
F-2
<PAGE> 80
ROBERT WALTERS PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
YEAR ENDED 31 DECEMBER,
---------------------------
1997 1996 1995
NOTES L'000 L'000 L'000
----- ------- ------- -------
<S> <C> <C> <C> <C>
TURNOVER................................................. 90,806 45,928 23,980
Direct costs............................................. (61,299) (29,435) (14,487)
-- ------- ------- -------
GROSS PROFIT............................................. 29,507 16,493 9,493
Administrative expenses.................................. (21,904) (12,616) (7,425)
-- ------- ------- -------
OPERATING PROFIT......................................... 7,603 3,877 2,068
Net interest receivable/(payable)........................ 2 97 51 46
------- ------- -------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION............ 3 7,700 3,928 2,114
Taxation................................................. 7 (2,645) (1,500) (780)
------- ------- -------
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION............. 5,055 2,428 1,334
Dividends paid and proposed.............................. 8 (941) (920) (610)
------- ------- -------
Retained profit for the year............................. 4,114 1,508 724
======= ======= =======
EARNINGS PER ORDINARY SHARE PENCE........................ 9 21.7p 11.3p 6.4p
======= ======= =======
</TABLE>
The accompanying notes are an integral part of this Consolidated Profit and
Loss Account.
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
<TABLE>
<CAPTION>
1997 1996 1995
L'000 L'000 L'000
----- ----- -----
<S> <C> <C> <C>
Profit for the financial year............................... 5,055 2,428 1,334
Loss on foreign currency translation........................ (178) (150) (20)
----- ----- -----
Total recognised gains and losses for the year.... 4,877 2,278 1,314
===== ===== =====
</TABLE>
The accompanying notes are an integral part of this Consolidated Statement
of Total Recognised Gains and Losses.
F-3
<PAGE> 81
ROBERT WALTERS PLC
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
31 DECEMBER
----------------
1997 1996
NOTES L'000 L'000
----- ------- ------
<S> <C> <C> <C>
FIXED ASSETS:
Tangible assets............................................. 10 2,596 1,638
Investments................................................. 11 12 --
------- ------
2,608 1,638
CURRENT ASSETS:
Debtors..................................................... 14 18,653 8,370
Cash at bank and in hand.................................... 3,310 2,457
------- ------
21,963 10,827
Creditors: Amounts falling due within one year.............. 15 (14,503) (7,083)
------- ------
NET CURRENT ASSETS.......................................... 7,460 3,744
------- ------
Total assets less current liabilities............. 10,068 5,382
Creditors: Amounts falling due after more than one year..... 16 (18) (93)
Provisions for liabilities and charges...................... 17 (44) (44)
------- ------
NET ASSETS.................................................. 10,006 5,245
======= ======
CAPITAL AND RESERVES:
Called-up share capital..................................... 18 1,228 1,153
Share premium account....................................... 7,021 1,528
Capital redemption reserve.................................. 393 393
Other reserves.............................................. (340) (162)
Profit and loss account..................................... 1,704 2,333
------- ------
EQUITY SHAREHOLDERS' FUNDS.................................. 19 10,006 5,245
======= ======
</TABLE>
The accompanying notes are an integral part of this Consolidated Balance Sheet.
F-4
<PAGE> 82
ROBERT WALTERS PLC
CONSOLIDATED CASH FLOW STATEMENT
<TABLE>
<CAPTION>
YEAR ENDED 31 DECEMBER,
-----------------------------------------------
1997 1996 1995
-------------- -------------- -------------
NOTES L'000 L'000 L'000 L'000 L'000 L'000
----- ----- ------ ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
NET CASH INFLOW FROM OPERATING
ACTIVITIES........................... 22 5,260 2,612 1,519
RETURNS ON INVESTMENTS AND SERVICING OF
FINANCE.............................. 22 97 42 23
TAXATION............................... (1,612) (979) (610)
CAPITAL EXPENDITURE.................... 22 (1,460) (915) (239)
ACQUISITIONS........................... 22 (793) -- --
EQUITY DIVIDENDS PAID.................. (648) (1,166) (91)
------ ------ -----
Cash inflow/(outflow) before
financing............................ 844 (406) 602
Financing:
Issue of ordinary share capital...... 284 1,926 --
Redemption of preference share
capital........................... -- (175) (100)
Repayment of capital element of hire
purchase contracts................ (128) (104) (87)
----- ----- ----
22 156 1,647 (187)
------ ------
INCREASE IN CASH IN THE YEAR........... 1,000 1,241 415
------ ------ -----
Reconciliation of net cash flow to
movement in net funds................
Increase in cash in the year........... 22 1,000 1,241 415
Repayment of capital element of hire
purchase contracts................... 128 104 87
----- ----- ----
Increase in net funds resulting from
cash flows........................... 1,128 1,345 502
New hire purchase contracts............ (62) (187) (79)
Exchange movements on cash............. (147) (57) (20)
Commercial bills payable acquired on
acquisition.......................... (197) -- --
------ ------ -----
MOVEMENT IN NET FUNDS IN THE YEAR...... 722 1,101 403
Net funds at 1 January................. 2,263 1,162 759
------ ------ -----
Net funds at 31 December............... 2,985 2,263 1,162
====== ====== =====
</TABLE>
The accompanying notes are an integral part of this Consolidated Cash Flow
Statement.
F-5
<PAGE> 83
ROBERT WALTERS PLC
NOTES TO THE ACCOUNTS
31 DECEMBER 1997
A summary of the principal accounting policies for Robert Walters plc and
all its subsidiaries (referred to collectively as the "Group") is set out below.
These policies have been applied consistently in all material respects
throughout the years ending 31 December 1997, 1996 and 1995.
Basis of Accounting and Consolidation
The accounts have been prepared under the historical cost convention and in
accordance with applicable accounting standards. The Group accounts consolidate
the accounts of Robert Walters plc and all its subsidiaries drawn up to 31
December each year. Robert Walters plc (the "Company") has elected not to
present its own profit and loss account in accordance with the exemption
provided in Section 230 of the Companies Act 1985. The results of subsidiaries
acquired are consolidated for the periods from the date on which control passed.
Acquisitions are accounted for under the acquisition method with goodwill,
representing any excess of the fair value of the consideration given over the
fair value of the identifiable assets acquired, being written off against
reserves.
Tangible Fixed Assets
Tangible fixed assets are stated at cost, net of depreciation and provision
for permanent diminution in value, as set out in note 10. Depreciation is
provided on all tangible fixed assets at rates calculated to write off the cost
or valuation, less estimated residual value, of each asset on a straight line
basis over its expected useful life, as follows:
- Leasehold improvements -- the shorter of estimated useful life and the
period of the lease
- Motor vehicles -- 17 1/2%
- Fixtures, fittings and office equipment -- 10%
- Computer equipment -- 20% to 33 1/3%
Investments
Investments in subsidiaries and associates are shown in the Company's
balance sheet at cost less provision for permanent diminutions. In the Group
accounts investments in associated undertakings are accounted for using the
equity method. The Consolidated Profit and Loss Account includes, where
material, the Group's share of these undertakings' profits less losses while the
Group's share of the net assets excluding goodwill, which is written off against
reserves, of the associated undertakings is shown in the Consolidated Balance
Sheet.
Leases
Rentals under operating leases are charged on a straight-line basis over
the lease term.
Assets held under hire purchase contracts are included in tangible fixed
assets at fair value and are depreciated in accordance with the Group's
depreciation policy. Obligations under such agreements are included in creditors
net of finance charges allocated to future periods. Finance charges are taken to
the profit and loss account so that the annual rate of the charge is
approximately constant.
Taxation
Corporation tax payable is provided on taxable profits at the current rate.
F-6
<PAGE> 84
ROBERT WALTERS PLC
NOTES TO THE ACCOUNTS -- (CONTINUED)
Advance corporation tax payable on dividends paid or provided for in the
year is written off, except when recoverability against corporation tax payable
is considered to be reasonably assured. Credit is taken for advance corporation
tax written off in previous years when it is recovered against corporation tax
liabilities.
Deferred taxation is provided using the liability method on all timing
differences only to the extent that they are expected to reverse in the future
without being replaced.
Foreign Currencies
The results of overseas operations are translated at the average rates of
exchange during the period and their balance sheets at the rates ruling at the
balance sheet date. Exchange differences arising on translation of the opening
net assets and the results of overseas operations are dealt with through
reserves.
Pensions
The Company currently contributes to the money purchase pension plans of
certain individual Directors and employees as disclosed in notes 4 and 5.
Contributions payable in respect to the year are charged to the profit and loss
account.
Turnover
Turnover comprises the value of services, net of VAT, provided by the Group
in the normal course of business. Income from the provision of permanent staff
is recognized when a candidate accepts a position and a start date is
determined. A provision is made for the cancellation of placements prior to or
shortly after the commencement of employment.
Income in respect of temporary staff is recognized when the service has
been provided and in respect of contract staff on the confirmation of the
contract. Income in respect of recharges is recognized when the expense is
incurred.
1. SEGMENTAL INFORMATION
Turnover for the Group is derived from the continuing principal activity of
the placing of permanent and contract professional staff and is exclusive of
VAT.
Geographical analysis by origin is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- -------------------------- --------------------------
PROFIT PROFIT PROFIT
BEFORE NET BEFORE NET BEFORE NET
TURNOVER TAX ASSETS TURNOVER TAX ASSETS TURNOVER TAX ASSETS
L'000 L'000 L'000 L'000 L'000 L'000 L'000 L'000 L'000
-------- ------ ------ -------- ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United Kingdom....... 82,879 6,841 6,874 42,005 3,340 4,366 21,594 1,752 1,423
Continental Europe... 2,963 915 797 2,453 658 1,022 1,668 402 765
United States........ 531 (188) 136 563 (34) (56) 562 15 1
Asia Pacific......... 4,433 132 2,199 907 (36) (87) 156 (55) (53)
------ ----- ------ ------ ----- ----- ------ ----- -----
90,806 7,700 10,006 45,928 3,928 5,245 23,980 2,114 2,136
====== ===== ====== ====== ===== ===== ====== ===== =====
</TABLE>
The analysis of turnover by destination is not materially different to the
analysis by origin. Amounts in respect of operations acquired during the year
have not been included, as such amounts are not considered to be material.
F-7
<PAGE> 85
ROBERT WALTERS PLC
NOTES TO THE ACCOUNTS -- (CONTINUED)
2. NET INTEREST RECEIVABLE
<TABLE>
<CAPTION>
1997 1996 1995
L'000 L'000 L'000
----- ----- -----
<S> <C> <C> <C>
Hire purchase contracts..................................... (17) (11) (7)
Bank loans and overdrafts................................... (3) (2) (1)
--- --- --
(20) (13) (8)
Bank interest receivable.................................... 117 64 54
--- --- --
Net interest receivable..................................... 97 51 46
=== === ==
</TABLE>
3. PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
Profit on ordinary activities before taxation is stated after charging:
<TABLE>
<CAPTION>
1997 1996 1995
L'000 L'000 L'000
----- ----- -----
<S> <C> <C> <C>
Auditors' remuneration
audit..................................................... 42 43 30
other..................................................... 41 62 11
Depreciation of tangible fixed assets
owned..................................................... 547 249 114
held under hire purchase contracts........................ 45 25 34
Operating lease rentals -- property......................... 792 456 249
=== === ===
</TABLE>
Amounts payable to its auditors by the Group in respect of acquisitions
(1996: flotation) which are included in the cost of investments or offset
against share premium were L75,000 (1996: L65,000).
4. STAFF COSTS
The average monthly number of employees of the Group (including Executive
Directors) during the year was:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Consultants................................................. 160 100 *
Administration.............................................. 131 62 *
--- --- ---
291 162 110
=== === ===
</TABLE>
- ---------------
* The number of average monthly employees (by consultants and administration,
individually) is unavailable for 1995.
Their aggregate remuneration comprised:
<TABLE>
<CAPTION>
1997 1996 1995
L'000 L'000 L'000
------ ----- -----
<S> <C> <C> <C>
Wages and salaries......................................... 13,884 7,105 4,140
Social security costs...................................... 1,078 672 501
Other pension costs........................................ 162 78 22
------ ----- -----
15,124 7,855 4,663
====== ===== =====
</TABLE>
F-8
<PAGE> 86
ROBERT WALTERS PLC
NOTES TO THE ACCOUNTS -- (CONTINUED)
5. DIRECTORS' REMUNERATION
The remuneration of the Directors in office during the year was as follows:
<TABLE>
<CAPTION>
BASIC ANNUAL TAXABLE PENSION 1997 1996 1995
SALARY/FEES BONUS BENEFITS* CONTRIBUTIONS TOTAL TOTAL TOTAL
NAME OF DIRECTOR L'000 L'000 L'000 L'000 L'000 L'000 L'000
- ---------------- ----------- ------ --------- ------------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Executive
R C Walters................... 188 -- 82 31 301 315 308
T W Chambers.................. 99 60 32 6 197 101 --
B G Anderson.................. 173 110 44 6 333 218 200
G P Daubeney.................. 133 90 43 6 272 218 184
R C Parnell................... 133 90 30 6 259 210 179
Non-executive
C T Scott..................... 30 -- -- -- 30 14 --
R P Tenzer.................... 24 -- -- -- 24 22 18
--- --- --- -- ----- ----- ---
Total......................... 780 350 231 55 1,416 1,098 889
=== === === == ===== ===== ===
</TABLE>
- ---------------
* Benefits include the taxable value of private medical insurance, mortgage
subsidies/rent allowances, personal phones and company cars or payments
instead of a company car being provided.
Total annual bonuses are determined by the Remuneration Committee based on
the level of growth in earnings per ordinary share.
The total bonus pool is capped at 50% of aggregate basic salaries and all
benefits of the Directors eligible to participate in such bonuses.
Share options
During the year share options were granted to Directors under The Savings
Related Share Option Scheme, details of which are set out in note 18. In
addition share options were granted on 15 July 1996 under the Approved and
Unapproved Executive Share Option Schemes. Share options held by Directors at
the end of the year were as follows:
<TABLE>
<CAPTION>
ROBERT WALTERS PLC
ROBERT WALTERS PLC 1996
1996 UNAPPROVED ROBERT WALTERS PLC
APPROVED EXECUTIVE EXECUTIVE SAVINGS RELATED
SHARE OPTION SHARE OPTION SHARE OPTION
SCHEME SCHEME SCHEME
------------------ ------------------ ------------------
<S> <C> <C> <C>
R C Walters......................... -- -- 6,950
T W Chambers........................ 42,451 2,547 6,950
B G Anderson........................ 42,451 2,547 6,950
G P Daubeney........................ 42,451 2,547 6,950
R C Parnell......................... 42,451 2,547 6,950
Period of exercise of option........ 1999-2006 1999-2003 Jul-Dec 2000
Exercise price...................... 70.66p 70.66p 140.27p
</TABLE>
The exercise of options under both the Approved and Unapproved Executive
Share Option Schemes is also dependent on the achievement of a percentage
increase in earnings per share over any three financial years of the Group which
exceeds the percentage increase in inflation over that period by at least 6%.
F-9
<PAGE> 87
ROBERT WALTERS PLC
NOTES TO THE ACCOUNTS -- (CONTINUED)
5. DIRECTORS' REMUNERATION (CONTINUED)
Of the options for the directors, previously granted, none have been
exercised or lapsed during the year. Other than as stated above, none of the
Directors held options to acquire shares in Group companies at the date of this
report.
6. DIRECTORS' TRANSACTIONS
Russell Tenzer is a partner in Hazlems Fenton, a firm of chartered
accountants and registered auditors. During the year ended 31 December 1997,
Hazlems Fenton provided accounting and advisory services on an arm's length
basis to the Company, for which the Company was invoiced L12,350 (1996: L21,500)
exclusive of value added tax.
7. TAX ON PROFIT ON ORDINARY ACTIVITIES
The tax charge is based on the profit for the year and comprises:
<TABLE>
<CAPTION>
1997 1996 1995
L'000 L'000 L'000
----- ----- -----
<S> <C> <C> <C>
Corporation tax at an effective rate of 31.5% (1996: 33%)... 2,623 1,417 772
Double taxation relief...................................... (341) (223) (127)
Overseas taxation........................................... 371 243 146
Deferred taxation........................................... -- 30 14
Adjustments in respect of prior years....................... (8) 33 (25)
----- ----- ----
Tax charge.................................................. 2,645 1,500 780
===== ===== ====
</TABLE>
8. DIVIDENDS
<TABLE>
<CAPTION>
NUMBER OF 1997 1996 1995
SHARES L'000 L'000 L'000
--------- ----- ----- -----
<S> <C> <C> <C> <C>
EQUITY:
Ordinary shares
interim paid of 1.3p per share (1996: 2.012p per
share)........................................... 23,222,215 302 336 418
final proposed of 2.6p per share (1996: 1.500p per
share)........................................... 24,563,989 639 346 --
--- --- ---
941 682 418
--- --- ---
Cumulative convertible participating preferred
ordinary shares
interim paid of Nil per share (1996: 9.055p per
share)........................................... -- 64 25
final paid of Nil per share (1996: 23.587p per
share)........................................... -- 165 158
Adjustment in 1995 for final proposed dividend for
prior year of 0.02p per share.................... (14)
--- --- ---
-- 229 169
--- --- ---
NON-EQUITY:
10% cumulative redeemable preference shares
interim paid........................................ -- 9 14
--- --- ---
final paid.......................................... -- -- 9
--- --- ---
-- 9 23
--- --- ---
Total dividends paid and proposed..................... 941 920 610
=== === ===
</TABLE>
F-10
<PAGE> 88
ROBERT WALTERS PLC
NOTES TO THE ACCOUNTS -- (CONTINUED)
9. EARNINGS PER ORDINARY SHARE
The calculation of earnings per ordinary share is based on the profit on
ordinary activities after taxation for the financial year (in 1996, after
deducting preference dividends and other finance costs of non-equity shares) and
on 23,303,483 (1996: 21,332,337 and 1995: 19,879,284) ordinary shares, being the
weighted average number of ordinary shares in issue and ranking for dividend
during the year. The potential dilution of earnings per share from the exercise
of the share options is not material.
10. TANGIBLE FIXED ASSETS
The movement on tangible fixed assets in the year was as follows:
<TABLE>
<CAPTION>
FIXTURES,
FITTINGS
LEASEHOLD MOTOR AND OFFICE COMPUTER
IMPROVEMENTS VEHICLES EQUIPMENT EQUIPMENT TOTAL
GROUP L'000 L'000 L'000 L'000 L'000
- ----- ------------ -------- ---------- --------- -----
<S> <C> <C> <C> <C> <C>
Cost
At 1 January 1997.................... 390 591 608 899 2,488
Additions............................ 167 91 392 928 1,578
Acquisition.......................... 53 1 49 75 178
Disposals............................ (173) (176) -- (79) (428)
Reclassifications.................... -- 3 74 (77) --
Exchange adjustment.................. (2) (57) (48) (39) (146)
---- ---- ----- ----- -----
At 31 December 1997.................. 435 453 1,075 1,707 3,670
==== ==== ===== ===== =====
At 1 January 1997.................... 117 147 271 315 850
Charge for the year.................. 81 77 77 357 592
Disposals............................ (109) (76) 3 (76) (258)
Reclassifications.................... -- 3 21 (24) --
Exchange adjustment.................. (1) (42) (37) (30) (110)
---- ---- ----- ----- -----
At 31 December 1997.................. 88 109 335 542 1,074
==== ==== ===== ===== =====
Net Book Value
At 1 January 1997.................... 273 444 337 584 1,638
==== ==== ===== ===== =====
At 31 December 1997.................. 347 344 740 1,165 2,596
==== ==== ===== ===== =====
</TABLE>
The net book value of assets held under hire purchase contracts by the
Group at 31 December 1997 was L187,000 (1996: L200,000). Depreciation charged in
the year on these assets was L45,000 (1996: L25,000). These amounts are included
in the above table.
F-11
<PAGE> 89
ROBERT WALTERS PLC
NOTES TO THE ACCOUNTS -- (CONTINUED)
10. TANGIBLE FIXED ASSETS (CONTINUED)
During the year, the Group accelerated depreciation rates on computer
equipment from five years to three years straight line.
<TABLE>
<CAPTION>
FIXTURES,
FITTINGS
LEASEHOLD MOTOR AND OFFICE COMPUTER
IMPROVEMENTS VEHICLES EQUIPMENT EQUIPMENT TOTAL
COMPANY L'000 L'000 L'000 L'000 L'000
- ------- ------------ -------- ---------- --------- -----
<S> <C> <C> <C> <C> <C>
Cost
At 1 January 1997.................... 385 591 593 881 2,450
Additions............................ 121 91 352 883 1,447
Disposals............................ (173) (176) -- (79) (428)
Reclassifications.................... -- 3 74 (77) --
Exchange adjustment.................. (2) (56) (48) (39) (145)
---- ---- ----- ----- -----
At 31 December 1997.................. 331 453 971 1,569 3,324
==== ==== ===== ===== =====
Depreciation
At 1 January 1997.................... 115 147 269 307 838
Charge for year...................... 76 77 74 347 574
Disposals............................ (109) (76) 3 (77) (259)
Reclassifications.................... -- 3 21 (24) --
Exchange adjustment.................. (1) (42) (37) (30) (110)
---- ---- ----- ----- -----
At 31 December 1997.................. 81 109 330 523 1,043
==== ==== ===== ===== =====
Net Book Value
At 1 January 1997.................... 270 444 324 574 1,612
==== ==== ===== ===== =====
At 31 December 1997.................. 250 344 641 1,046 2,281
==== ==== ===== ===== =====
</TABLE>
The net book value of assets held under hire purchase contracts by the
Company at 31 December 1997 was L114,000 (1996: L200,000). Depreciation charged
in the year on these assets was L45,000 (1996: L25,000). These amounts are
included in the above total.
11. FIXED ASSET INVESTMENTS
<TABLE>
<CAPTION>
1997 1996
GROUP L'000 L'000
- ----- ------------ ----------
<S> <C> <C>
Investment in associated undertaking........................ 12 --
-- ---
12 --
-- ---
</TABLE>
<TABLE>
<CAPTION>
1997 1996
COMPANY L'000 L'000
- ------- ------------ ----------
<S> <C> <C>
Investments in subsidiary undertakings...................... 5,900 1
Investment in associated undertaking........................ 267 --
----- ---
6,167 1
----- ---
</TABLE>
<TABLE>
<CAPTION>
1997 1996
INVESTMENT IN ASSOCIATED UNDERTAKING L'000 L'000
- ------------------------------------ ------------ ----------
<S> <C> <C>
Cash consideration.......................................... 250 --
Other expenses.............................................. 17 --
Share of net assets acquired................................ (12) --
--- ---
Goodwill.................................................... 255 --
--- ---
</TABLE>
F-12
<PAGE> 90
ROBERT WALTERS PLC
NOTES TO THE ACCOUNTS -- (CONTINUED)
11. FIXED ASSET INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
COMPANY SUBSIDIARIES ASSOCIATES
- ------- ------------ ----------
<S> <C> <C>
COST
At 1 January 1997........................................... 1 --
Additions................................................... 5,899 267
----- ---
At 31 December 1997......................................... 5,900 267
===== ===
</TABLE>
In addition to the investment set out in note 12, during the year the
Company transferred its business in Hong Kong from a branch to a subsidiary. The
cost of the investment in the new subsidiary is L82,000. This is equivalent to
the assets and liabilities transferred from the branch operation.
There have been no amounts written off the cost of investments during the
year.
12. ACQUISITIONS
In December 1997 the businesses and certain assets and liabilities of ACL
TriStar Proprietary Limited and TriStar Personnel Proprietary Limited were
acquired for a total consideration of 12,929,000 Australian dollars (A$)
(L5,385,000). Of this A$9,174,000 (L3,876,000) was satisfied by the issue of
shares at completion. The balance of A$3,500,000 (L1,408,000) was satisfied by a
second issue of shares. A balancing payment two years after completion will be
due, if the sterling value of the second issue of shares is less than
A$3,500,000. A cash adjustment of A$255,000 (L101,000) arising from an increase
in the value of assets acquired between the date of agreement and completion has
been paid.
The following table sets out the identifiable assets and liabilities
acquired. No adjustments to align accounting policies or fair value adjustments
were required.
<TABLE>
<CAPTION>
L'000
------
<S> <C>
Tangible assets............................................. 178
Debtors..................................................... 2,635
Cash at bank and in hand.................................... 7
Creditors................................................... 20
Accruals and other creditors................................ (1,314)
Commercial bills payable.................................... (197)
Goodwill.................................................... 4,488
------
5,817
------
Satisfied by:
Shares issued............................................. 5,284
Cash adjustment........................................... 101
Other expenses............................................ 432
------
5,817
======
</TABLE>
The goodwill of L4,488,000 has been written off against other reserves.
The summarized unaudited profit and loss account for the period from 1 July
1997 to 5 December 1997 and the prior year are shown on the basis of the
accounting policies of ACL TriStar Proprietary Limited and
F-13
<PAGE> 91
ROBERT WALTERS PLC
NOTES TO THE ACCOUNTS -- (CONTINUED)
12. ACQUISITIONS (CONTINUED)
TriStar Personnel Proprietary Limited prior to the acquisition and translated at
average rates for the relevant periods, are as follows:
<TABLE>
<CAPTION>
PREVIOUS RESULTS
----------------------
1/7/97 TO YEAR ENDED
5/12/97 30/6/97
L'000 L'000
UNAUDITED UNAUDITED
--------- ----------
<S> <C> <C>
Turnover.................................................... 8,071 18,128
----- ------
Operating profit............................................ 268 724
Interest payable............................................ (20) (37)
----- ------
Profit on ordinary activities before taxation............... 248 687
Taxation.................................................... (99) (254)
----- ------
Retained profit for the financial period.................... 149 433
</TABLE>
13. PRINCIPAL GROUP INVESTMENTS
<TABLE>
<CAPTION>
PERCENTAGE PRINCIPAL COUNTRY
OF ORDINARY PRINCIPAL OF INCORPORATION
SHARES ACTIVITIES AND OPERATION
----------- ---------- -----------------
<S> <C> <C> <C>
Subsidiary undertakings
RWA Payroll Services Limited............. 100% Payroll Bureau United Kingdom
Robert Walters Associates, Inc........... 100% Recruitment USA
Agency
Robert Walters TriStar Proprietary 100% Recruitment Australia
Limited................................ Agency
Robert Walters Associates (Hong Kong) 100% Recruitment Hong Kong
Limited................................ Agency
Associated undertaking
Internet Appointments Limited............ 7.1% Website United Kingdom
Recruitment
</TABLE>
In December 1997 the Company acquired 7.1% of equity shares of Internet
Appointments Limited ("IAL"). The Company has 20% of the voting rights of IAL
provided that options to increase the share holding to 20% are exercised. The
Company has options to increase its shareholding to 12.9% for an additional
L200,000 upon finalization of the results for the year ending 31 August 1998 and
to 20% for a further L250,000 upon finalization of the results for the year
ending 31 August 1999.
14. DEBTORS
<TABLE>
<CAPTION>
GROUP COMPANY
-------------- --------------
1997 1996 1997 1996
L'000 L'000 L'000 L'000
------ ----- ------ -----
<S> <C> <C> <C> <C>
Trade debtors........................................ 18,116 7,973 15,284 7,750
Amount due from subsidiary undertakings.............. -- -- 746 361
Prepayments and other debtors........................ 537 397 444 363
------ ----- ------ -----
18,653 8,370 16,474 8,474
====== ===== ====== =====
</TABLE>
F-14
<PAGE> 92
ROBERT WALTERS PLC
NOTES TO THE ACCOUNTS -- (CONTINUED)
Other debtors in the Group and Company include L160,000 (1996: L87,000) of
ACT recoverable after more than one year. All other amounts are due within one
year.
15. CREDITORS -- AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
GROUP COMPANY
-------------- --------------
1997 1996 1997 1996
L'000 L'000 L'000 L'000
------ ----- ------ -----
<S> <C> <C> <C> <C>
Obligations under hire purchase contracts............ 110 101 47 101
Trade creditors...................................... 690 893 699 886
Corporation Tax...................................... 2,259 1,230 2,221 1,230
Taxation and social security......................... 2,505 1,406 2,528 1,400
Accruals and other creditors......................... 8,103 3,107 6,714 3,017
Commercial bills payable............................. 197 -- -- --
Dividends proposed................................... 639 346 639 346
Amount due to subsidiary undertakings................ -- -- 100 --
------ ----- ------ -----
14,503 7,083 12,948 6,980
====== ===== ====== =====
</TABLE>
16. CREDITORS -- AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
GROUP COMPANY
------------- -------------
1997 1996 1997 1996
L'000 L'000 L'000 L'000
----- ----- ----- -----
<S> <C> <C> <C> <C>
Obligations under hire purchase contracts................. 18 93 18 93
== == == ==
</TABLE>
Obligations due under hire purchase contracts are repayable within two to
five years.
17. PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
DEFERRED TAXATION
------------------
1997 1996
GROUP AND COMPANY L'000 L'000
- ----------------- ------ ------
<S> <C> <C>
At 1 January 1997........................................... 44 14
Charge to profit and loss account........................... -- 30
-- --
At 31 December 1997......................................... 44 44
== ==
</TABLE>
The deferred taxation liability arises on accelerated capital allowances.
No provision is made for tax that would arise on the remittance of overseas
earnings. There are no material unprovided deferred taxation liabilities at 31
December 1997 (1996: Nil).
18. CALLED-UP SHARE CAPITAL
<TABLE>
<CAPTION>
1997 1996 1997 1996
NUMBER NUMBER L'000 L'000
---------- ---------- ----- -----
<S> <C> <C> <C> <C>
Authorized ordinary shares of 5p each......... 40,000,000 40,000,000 2,000 2,000
========== ========== ===== =====
Allotted, called-up and fully paid ordinary
shares of 5p each........................... 24,563,989 23,063,819 1,228 1,153
========== ========== ===== =====
</TABLE>
F-15
<PAGE> 93
ROBERT WALTERS PLC
NOTES TO THE ACCOUNTS -- (CONTINUED)
18. CALLED-UP SHARE CAPITAL (CONTINUED)
During the year the Company allotted 945,459 ordinary 5p shares with a
nominal value of L47,273 and at a premium of L3,829,109 in connection with the
acquisition of the businesses of ACL TriStar Proprietary Limited and TriStar
Personnel Proprietary Limited. The market price of these shares on 3 November
1997, the date on which the terms of the issue were fixed, was L4.10. These
shares were placed by the Company on behalf of the vendors. A further 341,774
ordinary 5p shares with a nominal value of L17,088 and at a premium of
L1,391,362 were issued to ACL TriStar Proprietary Limited and TriStar Personnel
Proprietary Limited as deferred consideration. The vendors are subject to sale
restrictions in respect of these shares for two years. In addition, at the same
time as the placing on behalf of the vendors, the Company placed 54,541 ordinary
5p shares for cash at a price of L4.10 representing a premium of L220,891 over
the nominal value of such shares of L2,727.
The preference shares which were redeemed in 1996 and 1995 represented
non-voting, cumulative, redeemable preference shares which were redeemed in
accordance with the provisions of the Company's Articles of Association. Due to
the characteristics of these instruments they have been characterized as
non-equity shares for financial reporting purposes.
An additional 158,396 ordinary 5p shares were issued during the year on the
exercise of share options under both the Approved and Unapproved Executive Share
Option Schemes.
The middle market price of the shares at 31 December 1997 was 522p and the
range for the year ending 31 December 1997 was 136p to 522p.
Details of employee share options are set out below. Directors' share
options are set out in note 5.
Employee Share Ownership
The Directors consider that the continued direct participation of employees
in their share ownership of the Company is vital for the success of the Group.
Further to shareholders' resolutions of 9 July 1996, an Approved Executive
Share Option Scheme and an Unapproved Executive Share Option Scheme were adopted
by the Company. Options under the Approved Executive Share Option Scheme are
exercisable between three and ten years after grant and options under the
Unapproved Executive Share Option Scheme are exercisable between three and seven
years after grant. At 31 December 1997 there were outstanding options under
these schemes (excluding those held by Directors as shown in note 5), as
follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE NUMBER OF
OPTIONS DATE OF ISSUE PER SHARE EMPLOYEES
--------- -------------- -------------- ---------
<S> <C> <C> <C> <C>
Approved Scheme.................... 853,955 15 July 1996 70.66p 93
164,902 15 August 1997 320.50p 23
Unapproved Scheme.................. 12,735 15 July 1996 70.66p 5
206,098 15 August 1997 320.50p 25
</TABLE>
Exercise of options under both the Approved Executive Share Option Scheme
and the Unapproved Executive Share Option Scheme is also dependent on the
achievement of a percentage increase in earnings per ordinary share over any
three financial years of the Company, which exceeds the percentage increase in
inflation over that period by at least 6%.
A savings related share option scheme ("SAYE scheme") was approved by
shareholders at an extraordinary general meeting held on 1 May 1997. The SAYE
scheme commenced on 1 July 1997. All employees of the Company were invited to
participate in the three-year scheme with 325,260 options exercisable at a
discount of 20% to the market price of the Company's shares at the time of
grant.
In total, options represent 7.1% of the present issued share capital of the
Company.
F-16
<PAGE> 94
ROBERT WALTERS PLC
NOTES TO THE ACCOUNTS -- (CONTINUED)
19. EQUITY SHAREHOLDERS' FUNDS
Reserves
Of total reserves shown in the Company's balance sheet, the following
amounts are regarded as distributable or otherwise:
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
----- -----
<S> <C> <C>
Distributable
profit and loss account................................... 6,603 2,332
----- -----
Non-distributable
share premium account..................................... 7,021 1,528
capital redemption reserve................................ 393 393
other reserves............................................ (328) (111)
----- -----
</TABLE>
Reconciliation of movements on shareholders' funds
<TABLE>
<CAPTION>
SHARE CAPITAL PROFIT
SHARE PREMIUM REDEMPTION OTHER AND LOSS
CAPITAL ACCOUNT RESERVE RESERVES ACCOUNT TOTAL
L'000 L'000 L'000 L'000 L'000 L'000
------- ------- ---------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
GROUP
Shareholders' funds at 1 January 1997... 1,153 1,528 393 (162) 2,333 5,245
Exchange differences.................... -- -- -- (178) -- (178)
Share issues
initial placement on acquisition of
subsidiary......................... 47 3,829 -- -- -- 3,876
deferred placement on acquisition of
subsidiary......................... 17 1,391 -- -- -- 1,408
cash placing.......................... 3 221 -- -- -- 224
exercise of options................... 8 104 -- -- -- 112
issue costs........................... -- (52) -- -- -- (52)
Goodwill written off.................... -- -- -- -- (4,743) (4,743)
Retained profit for the year............ -- -- -- -- 4,114 4,114
----- ----- --- ---- ------ ------
Shareholders' funds at 31 December
1997.................................. 1,228 7,021 393 (340) 1,704 10,006
===== ===== === ==== ====== ======
COMPANY
Shareholders' funds at 1 January 1997... 1,153 1,528 393 (111) 2,332 5,295
Exchange differences.................... -- -- -- (217) -- (217)
Share issues
initial placement on acquisition of
subsidiary......................... 47 3,829 -- -- -- 3,876
deferred placement on acquisition of
subsidiary......................... 17 1,391 -- -- -- 1,408
cash placing.......................... 3 221 -- -- -- 224
exercise of options................... 8 104 -- -- -- 112
issue costs........................... -- (52) -- -- -- (52)
Retained profit for the year(i)......... -- -- -- -- 4,271 4,271
----- ----- --- ---- ------ ------
Shareholders' funds at 31 December
1997.................................. 1,228 7,021 393 (328) 6,603 14,917
===== ===== === ==== ====== ======
</TABLE>
- ---------------
(i) The profit for the year ended 31 December 1997 was L5,212,000 (1996:
L2,436,000).
The cumulative amount of goodwill written off to reserves is L4,743,000
(1996: LNil).
F-17
<PAGE> 95
ROBERT WALTERS PLC
NOTES TO THE ACCOUNTS -- (CONTINUED)
20. COMMITMENTS
The Group has the following minimum annual rentals under operating leases:
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
----- -----
<S> <C> <C>
Property leases expiry date:
within one year........................................... 37 41
between two and five years................................ 522 188
after five years.......................................... 619 465
----- ---
1,178 694
</TABLE>
There were no capital commitments at 31 December 1997 (31 December 1996:
L750,000 on computer development).
21. CONTINGENT LIABILITIES
The Group has granted fixed and floating charges over its assets to secure
an overdraft facility of L797,000 (1996: L549,000) from its principal bankers.
This facility was not in use at 31 December 1997 or 31 December 1996.
Each member of the Group is party to a joint and several guarantee in
respect of banking facilities granted to the Group. The Group had no contingent
liability under the guarantee at the balance sheet date (31 December 1996:
LNil).
There were no other material contingent liabilities at 31 December 1997
(1996: LNil).
22. CASH FLOW
Reconciliation of operating profit to net cash flow from operating
activities
<TABLE>
<CAPTION>
1997 1996 1995
L'000 L'000 L'000
------ ------ -----
<S> <C> <C> <C>
Operating profit............................................ 7,603 3,877 2,068
Depreciation charges........................................ 592 274 148
Loss/(profit) on sale of fixed assets....................... 70 (2) (13)
Increase in debtors......................................... (7,581) (4,223) (661)
Increase in creditors....................................... 4,576 2,686 (23)
------ ------ -----
Net cash flow from operating activities..................... 5,260 2,612 1,519
</TABLE>
F-18
<PAGE> 96
ROBERT WALTERS PLC
NOTES TO THE ACCOUNTS -- (CONTINUED)
22. CASH FLOW (CONTINUED)
Analysis of cash flows for headings netted in the cash flow statement
<TABLE>
<CAPTION>
1997 1996 1995
L'000 L'000 L'000
------ ----- -----
<S> <C> <C> <C>
Returns on investments and servicing of finance:
Interest received......................................... 117 64 54
Interest paid............................................. (3) (2) (1)
Interest element of hire purchase contracts repayment..... (17) (11) (7)
Payment of non-equity dividends........................... -- (9) (23)
------ ----- ----
Net cash flow for returns on investments and servicing of
finance................................................ 97 42 23
------ ----- ----
Capital expenditure:
Payments to acquire tangible fixed assets................. (1,578) (991) (317)
Receipts from sales of tangible assets.................... 118 76 78
------ ----- ----
Net cash outflow for capital expenditures................. (1,460) (915) (239)
------ ----- ----
Acquisitions:
Investment in associated undertaking...................... (267) -- --
Purchase of subsidiary undertaking........................ (533) -- --
Cash acquired with the purchase of the subsidiary
undertaking............................................ 7 -- --
------ ----- ----
Net cash outflow for acquisitions......................... (793) -- --
------ ----- ----
Financing:
Issue of ordinary share capital........................... 336 2,645 --
Redemption of non-equity preference share capital......... -- (175) (100)
Expenses paid in connection with share issue.............. (52) (719) --
Capital element of hire purchase contracts repayment...... (128) (104) (87)
------ ----- ----
Net cash inflow (outflow) from financing.................. 156 1,647 (187)
------ ----- ----
</TABLE>
<TABLE>
<CAPTION>
AT ACQUISITIONS EXCHANGE AT
1 JANUARY CASH (EXCLUDING MOVEMENTS 31 DECEMBER
1997 FLOWS CASH) ON CASH 1997
L'000 L'000 L'000 L'000 L'000
--------- ----- ------------ --------- -----------
<S> <C> <C> <C> <C> <C>
Analysis of changes in net funds
Cash at bank and in hand.......... 2,457 1,000 -- (147) 3,310
Hire purchase contracts........... (194) 128 (62) -- (128)
Commercial bills payable.......... -- -- (197) -- (197)
----- ----- ---- ---- -----
2,263 1,128 (259) (147) 2,985
===== ===== ==== ==== =====
</TABLE>
Major non-cash transactions
Part of the consideration for the purchase of the subsidiary undertaking
that occurred during the year comprised of shares. Further details of the
acquisition is detailed in note 12.
F-19
<PAGE> 97
ROBERT WALTERS PLC
NOTES TO THE ACCOUNTS -- (CONTINUED)
23. SUMMARY OF RELEVANT DIFFERENCES BETWEEN U.K. AND U.S. GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The consolidated financial statements are prepared in conformity with
accounting principles generally accepted in the U.K. ("U.K. GAAP") which differ
in certain respects from those generally accepted in the United States ("U.S.
GAAP"). The significant areas of difference affecting the financial statements
of the Company are described below:
a) Reconciliations
The following is a summary of the material adjustments to net income and
shareholders' equity which would have been required if U.S. GAAP had been
applied instead of U.K. GAAP.
<TABLE>
<CAPTION>
YEARS ENDED 31 DECEMBER
-------------------------
1997 1996 1995
L'000 L'000 L'000
------- ------ ------
<S> <C> <C> <C> <C>
Net profit in accordance with U.K. GAAP.................. 5,055 2,428 1,334
Adjustments to conform with U.S. GAAP:
-- Amortization of intangible assets related to
purchase business combinations...................... b (8) -- --
-- Recognition of expense for stock-based compensation
arrangements........................................ c (2,212) (197) --
-- Recognition of interest expense related to
preference share dividends.......................... d -- (9) (23)
------ ----- -----
Net income in accordance with U.S. GAAP.................. 2,835 2,222 1,311
====== ===== =====
Earnings per share in accordance with U.S. GAAP:
Basic.................................................. 12.2p 10.4p 6.4p
====== ===== =====
Diluted................................................ 11.7p 10.2p 6.4p
====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
31 DECEMBER
----------------------
1997 1996 1995
L'000 L'000 L'000
------ ----- -----
<S> <C> <C> <C> <C>
Shareholders' funds in accordance with U.K. GAAP 10,006 5,245 2,136
Adjustment to conform to U.S. GAAP:
-- Capitalization of intangible assets related to
purchase business combinations...................... b 4,735 -- --
-- Preference shares................................... d -- -- (175)
------ ----- -----
Shareholders' funds in accordance with U.S. GAAP......... 14,741 5,245 1,961
====== ===== =====
</TABLE>
b) Goodwill
Under U.K. GAAP, the Group writes off goodwill arising on consolidation
directly to the reserves in the year of acquisition. Under U.S. GAAP, goodwill
arising on consolidation is capitalized on the balance sheet and then amortized
over its useful life, which the Group has estimated to be 30 to 40 years.
c) Stock Options
Under U.K. GAAP, no charge is made to reflect the value of any stock
options. Under U.S. GAAP, the provisions of Accounting Principles Board Opinion
No. 25 ("APB 25"), "Accounting for Stock Issued to Employees" have been
followed.
F-20
<PAGE> 98
ROBERT WALTERS PLC
NOTES TO THE ACCOUNTS -- (CONTINUED)
23. SUMMARY OF RELEVANT DIFFERENCES BETWEEN U.K. AND U.S. GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
d) Preference Shares
Under U.K. GAAP, preference shares are classified as a component of total
shareholders' funds and dividends are accrued through the profit and loss
reserve. Under U.S. GAAP, such preference shares are classified outside of
shareholders' funds and dividends are accrued for through the profit and loss
account.
e) Cash Flows
Under UK GAAP, the Company complies with the Financial Reporting Standard
No. 1 ("FRS 1") "Cash Flow Statements" the objective and principles of which are
similar to those set out in Statement of Financial Accounting Standard No. 95
("SFAS 95"), "Statement of Cash Flows". Under FRS 1, the Company presents its
cash flows for (a) operating activities; (b) returns on investments and
servicing of finance; (c) taxation; (d) capital expenditure and financial
investments; (e) acquisitions and disposals; (f) dividends to Ordinary
Shareholders; (g) management of liquid resources; and (h) financing activities.
SFAS 95 requires only three categories of cash flow activity: (a) operating; (b)
investing; and (c) financing.
Cash flows arising from taxation and returns on investments and servicing
of finance under FRS 1 would be included as operating activities under SFAS 95;
dividend payments would be included as a financing activity under SFAS 95 and
cash flows from capital expenditure, long-term investments, acquisitions and
disposals would be included as investing activities under SFAS 95. In addition,
under FRS 1, cash represents cash at bank and in hand less bank overdrafts; cash
equivalents (i.e. liquid resources) are not included with cash. Movements of
liquid resources are included under a separate heading under FRS 1.
F-21
<PAGE> 99
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
ROBERT WALTERS PLC
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SIX MONTHS TO 30 JUNE
------------------------
1998 1997
L'000 L'000
(SEE NOTE 2) UNAUDITED
------------ ---------
<S> <C> <C>
FIXED ASSETS
Tangible assets............................................. 2,952 1,930
Investments................................................. 20 --
------- -------
2,972 1,930
CURRENT ASSETS
Debtors..................................................... 25,233 12,436
Cash at bank and in hand.................................... 2,407 3,116
------- -------
27,640 15,552
Creditors: Amounts falling due within one year.............. (17,306) (10,494)
------- -------
NET CURRENT ASSETS.......................................... 10,334 5,058
------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES....................... 13,306 6,988
Creditors: Amounts falling due after more than one year..... (1,031) (37)
Provisions for liabilities and charges...................... (154) (43)
------- -------
NET ASSETS.................................................. 12,121 6,908
======= =======
CAPITAL AND RESERVES
Called-up share capital..................................... 1,229 1,154
Share premium account....................................... 7,052 1,543
Capital redemption reserve.................................. 393 393
Other reserves.............................................. (519) (251)
Profit and loss account..................................... 3,966 4,069
------- -------
EQUITY SHAREHOLDERS' FUNDS.................................. 12,121 6,908
======= =======
</TABLE>
F-22
<PAGE> 100
ROBERT WALTERS PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
SIX MONTHS TO 30 JUNE
------------------------
1998 1997
L'000 L'000
(SEE NOTE 2) UNAUDITED
------------ ---------
<S> <C> <C>
TURNOVER.................................................... 71,885 36,768
Direct costs................................................ (51,014) (24,181)
------- -------
GROSS PROFIT................................................ 20,871 12,587
Administrative expenses..................................... (16,747) (9,346)
------- -------
OPERATING PROFIT............................................ 4,124 3,241
Share of profits of associated undertaking.................. 8 --
------- -------
Net interest receivable..................................... 7 36
------- -------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION............... 4,139 3,277
Taxation.................................................... (1,435) (1,241)
------- -------
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION................ 2,704 2,036
Dividends paid and proposed................................. (418) (300)
------- -------
RETAINED PROFIT FOR THE FINANCIAL PERIOD.................... 2,286 1,736
------- -------
Earnings per ordinary share (see note 3).................... 11.0p 8.8p
</TABLE>
F-23
<PAGE> 101
ROBERT WALTERS PLC
CONSOLIDATED CASH FLOW STATEMENT
<TABLE>
<CAPTION>
SIX MONTHS TO 30 JUNE
------------------------------
1998 1997
(SEE NOTE 2) UNAUDITED
-------------- -------------
L'000 L'000 L'000 L'000
----- ------ ----- -----
<S> <C> <C> <C> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES................... 289 1,566
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE............. 7 35
TAXATION.................................................... (110) (40)
CAPITAL EXPENDITURE......................................... (860) (446)
ACQUISITIONS................................................ (24) --
DIVIDENDS PAID.............................................. (639) (346)
------ -----
Cash inflow/(outflow) before financing...................... (1,337) 769
Financing -- Issue of ordinary share capital................ 32 17
-- Increase in short-term borrowings............. 700 --
-- Cash in employee benefit trust................ (235) --
-- Repayment of capital element of hire purchase
contracts..................................... (89) (93)
---- ---
408 (76)
INCREASE/(DECREASE) IN CASH IN THE PERIOD................... (929) 693
------ -----
Reconciliation of net cash flow to movement in net funds
Increase/(decrease) in cash in the period................... (929) 693
Repayment of capital element of hire purchase contracts..... 89 93
---- ---
Increase/(decrease) in net funds resulting from cash
flows..................................................... (840) 786
Exchange movements on cash.................................. (198) (35)
Short-term borrowings....................................... (700) --
Cash in employee benefit trust.............................. 235 --
------ -----
MOVEMENT IN NET FUNDS IN THE PERIOD......................... (1,503) 751
Net funds at 1 January...................................... 2,985 2,263
------ -----
NET FUNDS AT 30 JUNE........................................ 1,482 3,014
====== =====
</TABLE>
F-24
<PAGE> 102
ROBERT WALTERS PLC
NOTES TO THE ACCOUNTS
INTERIM RESULTS FOR SIX MONTHS ENDED 30 JUNE 1998
1. ACCOUNTING POLICIES
There have been no changes to the accounting policies set out in the 1997
report and accounts.
2. ACCOUNTS
The financial information set out in this document does not constitute
statutory accounts within the meaning of Section 240 of the Companies Act of
1985. Statutory accounts for the year ended 31 December 1997, on which the
auditors gave an unqualified report, have been delivered to the Registrar of
Companies.
The financial information as of and for the six months ended 30 June 1998
is extracted from audited non-statutory financial statements which have been
prepared for the Company. These non-statutory accounts, on which the auditors
gave an unqualified report (dated 4 September 1998), are available to the public
at the registered office at 25 Bedford Street, London WC2E 9HP, England.
3. EARNINGS PER SHARE
Earnings per share for the half year ended 30 June 1998 have been
calculated on the net profit after taxation and on 24,571,663 (first half 1997:
23,072,041) ordinary shares, being the weighted average of ordinary shares in
issue and ranking for dividend during the period. The potential dilution of
earnings per share from the exercise of the share options is not material.
4. DIVIDENDS
An interim dividend of 1.7p per ordinary share is payable on 15 October
1998 to ordinary shareholders on the register at the close of business on 25
September 1998.
5. CASH FLOW
Reconciliation of operating profit to net cash flow from operating activities
<TABLE>
<CAPTION>
SIX MONTHS TO 30 JUNE
-------------------------
1998 1997
L'000 L'000
(SEE NOTE 2) UNAUDITED
------------ ---------
<S> <C> <C>
Operating profit............................................ 4,124 3,241
Depreciation charges........................................ 504 127
Loss (profit) on sale of fixed assets....................... (15) (1)
Increase in debtors......................................... (6,456) (4,120)
Increase in creditors....................................... 2,132 2,319
------ ------
Net cash inflow from operating activities................... 289 1,566
</TABLE>
6. REGISTERED OFFICE
25 Bedford Street, LONDON WC2E 9HP
F-25
<PAGE> 103
ROBERT WALTERS PLC
NOTES TO THE ACCOUNTS -- (CONTINUED)
ADDITIONAL NOTES FOR INFORMATION PURPOSES
YEAR 2000
Many computer systems and other electronic devices express dates using only
two digits rather than four for the number of the year. Consequently, such
systems and devices may be unable to accurately process transactions or deal
with dates in the Year 2000 or later.
The Board considers it very important that the risks, issues and costs
associated with the Year 2000 date change are assessed at the earliest
opportunity, and appropriate steps taken to ensure that the Group is not
adversely affected by the use of dates beyond 31 December 1999.
A Year 2000 project team has been formed and a Year 2000 compliance program
has been developed. This program provides a framework for achieving Year 2000
compliance across the Group by 31 December 1998.
The costs associated with achieving Year 2000 compliance are written off to
the profit and loss account as incurred and are not considered to be material to
the consolidated profit of the Group.
DIFFERENCES BETWEEN U.K. AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
These interim financial statements are prepared in conformity with U.K.
GAAP which differs in certain respects from U.S. GAAP. The significant areas of
difference affecting these interim financial statements are similar in nature to
those included in note 23 to the consolidated financial statements as of 31
December 1997 included on pages F-20 and F-21.
The following is a summary of the material adjustments to net income and
shareholders' equity which would have been required if U.S. GAAP had been
applied instead of U.K. GAAP.
<TABLE>
<CAPTION>
SIX MONTHS TO
30 JUNE
---------------
1998 1997
L'000 L'000
------ -----
<S> <C> <C>
Net profit in accordance with U.K. GAAP..................... 2,704 2,036
Adjustments to conform with U.S. GAAP:
-- Amortization of intangible assets related to purchase
business combinations.................................. (60) --
-- Recognition of expense for stock-based compensation
arrangements........................................... (1,270) (387)
------ -----
Net income in accordance with U.S. GAAP..................... 1,374 1,649
====== =====
Earnings per share in accordance with U.S. GAAP:
Basic..................................................... 5.6p 7.1p
====== =====
Diluted................................................... 5.4p 6.9p
====== =====
</TABLE>
<TABLE>
<CAPTION>
30 JUNE
---------------
1998 1997
L'000 L'000
------ -----
<S> <C> <C>
Shareholders' funds in accordance with U.K. GAAP............ 12,121 6,908
Adjustment to conform to U.S. GAAP:
-- Capitalization of intangible assets related to purchase
business combinations.................................. 4,675 --
------ -----
Shareholders' funds in accordance with U.S. GAAP............ 16,796 6,908
====== =====
</TABLE>
F-26
<PAGE> 104
APPENDIX I
DATED 18 AUGUST 1998
STAFFMARK, INC.
AND
PFS&C INTERNATIONAL HOLDING COMPANY, INC.
AND
ROBERT WALTERS PLC
MERGER AGREEMENT
<PAGE> 105
MERGER AGREEMENT
THIS AGREEMENT is made on 18 August 1998 BETWEEN:
(1) StaffMark, Inc., a corporation incorporated in the State of
Delaware, whose principal office is at 302 E Millsap Road, Fayetteville,
Arkansas 72703, USA (StaffMark);
(2) PFS&C International Holding Company, Inc., a corporation
incorporated in the State of Nevada, whose principal office is at 501 South
Rancho Drive, Las Vegas, Nevada 89106, USA (StaffMark Subsidiary); and
(3) Robert Walters PLC whose registered office is at 25 Bedford
Street, London WC2E 9HE (Robert Walters).
WHEREAS:
(i) The parties desire to merge StaffMark and Robert Walters.
(ii) The parties intend to effect the Merger by means of a scheme of
arrangement under Section 425 of the Act to be proposed by Robert Walters
to its shareholders under which the whole of the Robert Walters Scheme
Shares will be cancelled and reissued to StaffMark Subsidiary (an indirect
wholly owned subsidiary of StaffMark) and StaffMark will issue
Consideration Stock to the former shareholders of Robert Walters.
(iii) The Merger is subject to the Conditions.
IT IS AGREED AS FOLLOWS:
1 INTERPRETATION
1.1 Definitions
In this Agreement, including the Appendix, the headings shall not affect
its interpretation and, unless the context otherwise requires, the provisions in
this Clause 1 apply:
Act means the Companies Act 1985, as amended;
Agreed Form means, in relation to the documents listed in the Appendix
hereto, such documents in the terms agreed between the parties, whether before
or after the date hereof, and signed by them or on their behalf for the purposes
of identification, such agreement not to be unreasonably withheld or delayed;
Agreed Terms means, in relation to the documents listed in the Appendix
hereto, each document in the terms agreed between the parties and signed by them
or on their behalf for the purposes of identification;
Announcement means the joint press announcement in the Agreed Terms;
Announcement Date means 18 August 1998;
Associate, in relation to Robert Walters, means: (i) any member of the
Robert Walters Group: or (ii) any director, officer or employee of any member of
the Robert Walters Group;
Board means the board of directors of any relevant person;
Circular means the circular in the Agreed Form to be issued by Robert
Walters to Robert Walters Shareholders containing an explanatory statement and
the Scheme regarding, inter alia, the cancellation of the Robert Walters Scheme
Shares, the allotment of New Robert Walters Shares to StaffMark Subsidiary
pursuant to the Scheme and the allotment of Consideration Stock to Robert
Walters Scheme Shareholders;
City Code means the City Code on Take-overs and Mergers;
I-2
<PAGE> 106
Conditions means the conditions to the Merger set out in Appendix 1 to the
Announcement;*
Consideration Stock means the fully paid and non-assessable StaffMark Stock
to be issued to Robert Walters Scheme Shareholders as consideration under the
Scheme on the terms referred to in the Announcement;
Court means the High Court of Justice in England and Wales;
Court Meeting means the meeting of Robert Walters Shareholders convened by
the Court, notice of which will be contained in the Circular (or any adjournment
thereof);
Court Order means the order of the Court sanctioning the Scheme under
Section 425 of the Act and confirming the cancellation of the share capital in
connection therewith under Section 137 of the Act;
Effective Date means the date on which the Scheme becomes effective;
Employee Share Option Schemes means the Robert Walters 1996 Approved
Executive Share Option Scheme, the Robert Walters 1996 Unapproved Executive
Share Option Scheme and the Robert Walters Savings Related Share Option Scheme;
Encumbrance means any charge, mortgage, lien, hypothecation, judgment,
encumbrance, easement, security, title retention, preferential right, trust
arrangement or any other security interest or any other agreement or arrangement
having a commercial effect analogous to the conferring of security or similar
right in favour of any person;
Exchange Act means the United States Securities Exchange Act of 1934, as
amended;
Exclusivity Period means the period between the date hereof and the
earliest of the Effective Date, 5.00 p.m. (London time) on 31 December 1998, the
date of termination of this Agreement pursuant to Clause 14 and payment of the
amount under Clause 8.3.2 or 8.3.4;
Extraordinary General Meeting means the extraordinary general meeting of
Robert Walters Shareholders, notice of which will be contained in the Circular
or any adjournment thereof;
Final Exchange Rate means the average of the mid-points of the closing
spread of the US dollar to the pound sterling spot rate in London, as shown in
the Financial Times (U.K. edition) for the 10 trading day period ending on the
third New York Business Day prior to the Effective Date;
Final StaffMark Price means the amount (expressed in US dollars) equal to
the average of the closing sales prices of the StaffMark Stock on NASDAQ for the
10 trading day period ending on the third New York Business Day prior to the
Effective Date;
London Business Day means a day (excluding Saturdays, Sundays and public
holidays) on which banks are open for business in London;
Meetings means the Court Meeting and the Extraordinary General Meeting;
Merger means the acquisition of Robert Walters by the StaffMark Group
pursuant to the Scheme;
NASDAQ means the NASDAQ National Market System operated by NASDAQ, Inc.;
New Robert Walters Shares means the ordinary shares of 5p each in the
capital of Robert Walters to be issued fully paid to StaffMark Subsidiary
pursuant to the Scheme;
New York Business Day means a day (excluding Saturdays, Sundays and public
holidays) on which banks are open for business in New York;
Proxy Statement means the letter to stockholders, notice of meeting, proxy
statement and the form of proxy to be distributed to the holders of StaffMark
Stock in connection with the issuance of the Consideration
- ---------------
* These are the same conditions that are set forth in Appendix II, on pages II-1
through II-7, of this proxy statement, 5.1 of which has been satisfied.
I-3
<PAGE> 107
Stock by StaffMark pursuant to the Scheme and any schedules required to be filed
with the SEC in connection therewith or any revisions or supplements thereto in
the Agreed Form;
Record Date means close of business on the London Business Day immediately
preceding the Effective Date;
Resolutions means the resolution to be proposed at the Court Meeting and
the resolutions to be proposed at the Extraordinary General Meeting;
Robert Walters Group means Robert Walters and its subsidiary undertakings;
Robert Walters Scheme Shareholders means holders of Robert Walters Scheme
Shares;
Robert Walters Scheme Shares means the Robert Walters Shares in issue on
the date of the Scheme together with any further Robert Walters Shares:
(a) in issue up to 48 hours prior to the time of the Court Meeting;
and
(b) issued thereafter and prior to the close of business on the London
Business Day before the date of the Court Order either on terms that the
original or any subsequent holders thereof shall be bound by the Scheme or
in respect of which the holders thereof shall have agreed to be bound by
the Scheme,
other than any such Robert Walters Shares held or to be held by StaffMark
Subsidiary;
Robert Walters Shareholders means the holders of the Robert Walters Shares;
Robert Walters Shares means ordinary shares of 5p each in the capital of
Robert Walters;
Scheme means the scheme of arrangement under Section 425 of the Act to be
contained in the Circular;
SEC means the United States Securities and Exchange Commission;
Special Meeting means the meeting of StaffMark's stockholders being held in
connection with the approval of the issuance of the Consideration Stock;
StaffMark Group means StaffMark and its subsidiary undertakings;
StaffMark Stock means shares of common stock of $0.01 par value each in the
capital of StaffMark;
StaffMark Stockholder Approval means the affirmative vote of the holders of
a majority of the outstanding StaffMark Stock as of the record date for the
Special Meeting for the purpose of approving the issuance of the Consideration
Stock by StaffMark pursuant to the Scheme;
Takeover Proposal means any publicly announced intention to make any bona
fide proposal or offer by any third party (other than a proposal or offer by the
StaffMark Group) or any proposal or offer so made for a merger, scheme of
arrangement, exchange offer, consolidation, partnership, joint venture or other
business combination involving, or any purchase of, all or substantially all of
the assets of the Robert Walters Group or more than 50% of the voting share
capital of, Robert Walters; and
Timetable means the timetable for the Merger substantially in the Agreed
Form.
1.2 Subordinate Legislation
Any reference to a statutory provision shall include any subordinate
legislation made from time to time under that provision which is in force at the
date of this Agreement;
1.3 Modification etc. of Statutes
Any reference to a statutory provision shall include such provision as from
time to time modified or re-enacted or consolidated whether before or after the
date of this Agreement so far as such modification, re-enactment or
consolidation applies or is capable of applying to any transactions entered into
under this Agreement prior to the Effective Date and (so far as liability
thereunder may exist or can arise) shall include also any past statutory
provision (as from time to time modified, re-enacted or consolidated) which such
provision has directly or indirectly replaced except to the extent that any
statutory provision made or enacted after the date of this Agreement would
create or increase a liability of the parties under this Agreement.
I-4
<PAGE> 108
1.4 Companies Act 1985
The words holding company, subsidiary and subsidiary undertaking shall have
the same meanings in this Agreement as their respective definitions in the Act.
1.5 Interpretation Act 1978
The Interpretation Act 1978 shall apply to this Agreement in the same way
as it applies to an enactment.
1.6 Schedules etc.
References to in this Agreement shall include the Appendix to it and
references to Clauses are to Clauses of this Agreement.
1.7 Currency
References in this Agreement to (pound), p or pound sterling shall be
deemed to be references to the lawful currency of the UK. References in this
Agreement to $ or US dollars shall be deemed to be references to the lawful
currency of the US.
2 THE MERGER
The Merger shall be effected by way of the Scheme. The parties shall use
all reasonable endeavours to comply with the Timetable and (so far as they each
may be able) to achieve satisfaction of the Conditions provided that this Clause
2 shall not oblige Robert Walters to take any action if, at the time when such
action would otherwise have been required pursuant to this Clause 2, the Board
of Robert Walters shall have withdrawn (or modified in a manner adverse to
StaffMark) its approval or recommendation of the transactions contemplated by
this Agreement (whether before or after the Court Meeting or the Extraordinary
General Meeting) and Robert Walters shall, at such time, have paid any amounts
which are due to be paid at that time under Clauses 8.3 or 14.2.
3 SHARE TRANSFER
3.1 StaffMark Subsidiary agrees with and undertakes to Robert Walters that
it will acquire at least one Robert Walters Share prior to the Record Date.
3.2 Robert Walters agrees that it will procure that StaffMark Subsidiary
shall become the registered holder of the Robert Walters Share(s) referred to in
Clause 3.1 as soon as practicable and in any event on the Record Date.
4 SHARE EXCHANGE
4.1 Unless the Board of Robert Walters shall, at the time when such action
would otherwise have been required pursuant to this Clause 4.1, have withdrawn
(or modified in a manner adverse to StaffMark) its approval or recommendation of
the transactions contemplated by this Agreement (whether before or after the
Court Meeting or the Extraordinary General Meeting) and Robert Walters shall, at
such time, have paid any amounts which are due to be paid at that time under
Clauses 8.3 or 14.2, Robert Walters agrees to seek the earliest appropriate
dates for the relevant Court hearings, to instruct its registrars to despatch
the Circular, appropriate forms of proxy for use at the Court Meeting and the
Extraordinary General Meeting and (if agreed between StaffMark and Robert
Walters) the Proxy Statement promptly following approval thereof (where
required) by the Court, the London Stock Exchange Limited and the SEC (as the
case may be) to Robert Walters Shareholders and, in the event of the Resolutions
being passed by the requisite majorities, promptly to apply to the Court for and
diligently to seek its sanction of the Scheme.
I-5
<PAGE> 109
4.2
4.2.1 StaffMark shall, subject to the Scheme becoming effective, issue to
Robert Walters Scheme Shareholders on the Record Date, the Consideration Stock.
For each Robert Walters Scheme Share held by a Robert Walters Scheme Shareholder
as at the Record Date the holder will receive the Final Exchange Proportion of a
share of StaffMark Stock.
In this Clause 4.2.1, the following definitions shall apply:
Final Exchange Proportion (which shall be rounded to four decimal
places) means:
(i) if the Final StaffMark Price is equal to or less than $37.16,
0.272; or
(ii) if the Final StaffMark Price is greater than $37.16, the lower
of:
(a) 0.2720; and
(b) A where:
<TABLE>
<S> <C>
(Base Value + Incremental Value) X Final Exchange Rate
A = ------------------------------------------------------
Final StaffMark Price
</TABLE>
Base Value means BV where:
<TABLE>
<S> <C>
37.16 X 0.272
BV = -------------------
Final Exchange Rate
</TABLE>
Incremental Value means IV where:
IV = (Final StaffMark Price - 37.16) X 0.05.
No fraction of a share of StaffMark Stock shall be issued to Robert Walters
Scheme Shareholders but in lieu thereof, each Robert Walters Scheme Shareholder
on the Record Date who would otherwise be entitled to such a fraction of a share
of StaffMark Stock (after aggregating all fractions of shares of StaffMark Stock
to which such Robert Walters Scheme Shareholder would otherwise be entitled)
shall instead receive cash (without interest) from StaffMark as if any
entitlement to a fraction of a share of StaffMark Stock which such Robert
Walters Scheme Shareholder would otherwise have been entitled to had been sold
at the closing price of StaffMark Stock on NASDAQ on the Effective Date and
converted into pounds sterling at the mid-point of the closing spread of the US
dollar to the pound sterling spot rate, as shown in the Financial Times (U.K.
edition) on the New York Business Day following the Effective Date.
4.3 If at any time during the period between the date of this Agreement
and the time for the calculation of the amount of Consideration Stock to be
issued under the Scheme any change in the outstanding shares of capital stock of
StaffMark shall occur as a result of any capital reorganisation,
reclassification, stock split (including a reverse stock split) readjustment of
shares, or any stock dividend with a record date during such period, the
Consideration Stock shall be equitably adjusted.
4.4 Robert Walters and StaffMark agree that, subject to the requirements
of the Inland Revenue and the Panel on Take-Overs and Mergers (where
applicable), each option over Robert Walters Shares granted prior to the Record
Date under the terms of the Employee Share Option Schemes shall (if the Scheme
becomes effective) be dealt with in accordance with the proposals to be made to
optionholders in the Employee Share Option Schemes in the Agreed Terms.
5 CONSIDERATION
The Consideration Stock shall be validly issued, fully paid, non-assessable
and free of Encumbrance and shall rank pari passu in all respects with the
StaffMark Stock then in issue, including the right to receive and retain any
dividends and other distributions declared, made or paid after the Effective
Date.
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6 THE SPECIAL MEETING
As soon as reasonably practicable after the date of the Announcement and
after such document has been approved by the SEC, StaffMark will disseminate the
Proxy Statement to the StaffMark Stockholders entitled to vote at the Special
Meeting.
7 CO-OPERATION
Each of the parties shall promptly provide such assistance and information
as may reasonably be required by any of the others for the purposes of or in
connection with the Circular and the Proxy Statement including, without
limitation, any that may be required by any regulatory authority.
8 UNDERTAKINGS
8.1 StaffMark and StaffMark Subsidiary each agree to instruct Counsel to
appear on its behalf at the hearing of the petition to sanction the Scheme to
undertake to the Court to be bound thereby.
8.2 StaffMark and Robert Walters undertake to promptly notify each other
(and supply copies of all relevant information) of any event or circumstance of
which they become aware which would be likely to have a significant impact on
the satisfaction of the Conditions.
8.3
8.3.1 In consideration of the commitment of time, cost, expense and
personnel by StaffMark and StaffMark Subsidiary and of StaffMark and StaffMark
Subsidiary incurring the expense of instructing advisers for the purpose of
investigating, finalising and documenting the Merger, Robert Walters undertakes
and agrees that, during the Exclusivity Period, it will not, and it shall use
its best endeavours not to permit any of its Associates, attorneys, financial
advisers, agents or other representatives, or those of any member of the Robert
Walters Group to, directly or indirectly, solicit, initiate or knowingly
encourage (including by way of furnishing information) any Takeover Proposal
from any person or engage in or continue discussions or negotiations relating
thereto.
Provided that, so long as Robert Walters is in compliance with its
obligations under this Clause 8.3.1, it may engage in discussions or
negotiations with, and furnish information concerning Robert Walters, the Robert
Walters Group, or their businesses, properties or assets to, a third party which
has made an unsolicited Takeover Proposal if, and only to the extent that, the
Board of Robert Walters concludes, in good faith, after consultation with, and
based upon the written advice of, its outside counsel at a meeting of the Board,
that the failure to take such action would be in breach of the fiduciary duties
of the directors of Robert Walters or would violate the obligations of the Board
of Robert Walters under the provisions of the City Code, the Act and/or the
rules and regulations of the London Stock Exchange.
A copy of the written legal advice, along with a copy of the minutes of
such Board meeting reflecting the Board's conclusion, shall be promptly provided
to StaffMark by Robert Walters. Robert Walters will promptly (but in no case
later than 24 hours) notify StaffMark of the receipt of any Takeover Proposal,
including the material terms and conditions thereof (subject to any
confidentiality agreements in existence at 27 July 1998) (and any changes in the
material terms and condition thereof) and the identity of the person making such
Takeover Proposal.
8.3.2 If Robert Walters is in breach of Clause 8.3.1, Robert Walters will
pay to StaffMark damages equal to the reasonable costs and expenses, including
legal, financial advisory, tax, accounting and other professional fees, travel
expenses and out-of-pocket expenses incurred by the StaffMark Group hereunder,
each of Robert Walters, StaffMark and StaffMark Subsidiary agreeing such amount
to be a genuine pre-estimate of damages suffered by StaffMark and StaffMark
Subsidiary. The maximum amount so payable shall not exceed the amount determined
under Clause 8.3.4; such amount shall be paid within 5 London Business Days of
demand.
8.3.3 If Robert Walters defaults in the payment when due of any sum
payable under Clause 8.3.2, Robert Walters's liability shall be increased to
include interest on such sum from the date when such payment
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is due until the date of actual payment at a rate per annum of 3% above the base
lending rate from time to time of Barclays Bank PLC. Such interest shall accrue
from day to day and shall be included within the maximum amount determined under
Clause 8.3.4.
8.3.4 In consideration of the commitment of time, costs, expenses and
personnel by StaffMark, if on or before the expiry of the Exclusivity Period any
announcement is made by any third party with respect to a Takeover Proposal
(which Takeover Proposal is made and becomes unconditional in all respects or
otherwise effective), Robert Walters will pay to StaffMark, within 7 days of
demand, a fee of the lesser of:
(i) L900,000; and
(ii) the largest sum as would not reduce the net assets of Robert
Walters as defined in Section 152(2) of the Act to a material extent,
Provided that, if Robert Walters has no net assets (as so defined), no such sum
shall be payable.
8.3.5 It is agreed that, if a payment is made under any of Clauses 8.3.2,
8.3.3, 8.3.4 or 14.2, no payment will be required to be made under any other
such Clause.
8.4 StaffMark and Robert Walters shall each furnish to one another and to
one another's counsel all such information as may be reasonably required in
connection with the Proxy Statement.
8.5 Robert Walters represents and warrants to StaffMark that no
information furnished by Robert Walters in connection with the Proxy Statement
will contain any untrue statement of a material fact or omit to state a material
fact required to be stated in order to make any information so furnished, in
light of the circumstances under which it was so furnished, not misleading in
any material respect as of the date of the mailing of the Proxy Statement and at
the time of the Special Meeting.
8.6 StaffMark represents and warrants to Robert Walters that no
information to be included in the Proxy Statement, or incorporated by reference
in it, other than information furnished by Robert Walters or its advisers in
connection with the Proxy Statement, will contain any untrue statement of a
material fact or omit to state a material fact (other than information
concerning Robert Walters or its advisers necessary to enable the Proxy
Statement to comply with the provisions of the Exchange Act and the rules and
regulations promulgated thereunder) required to be stated in order to make any
information so furnished, in light of the circumstances under which it was so
furnished, not misleading in any material respect as of the date of the mailing
of the Proxy Statement and at the time of the Special Meeting.
8.7 StaffMark represents and warrants to Robert Walters that the Proxy
Statement will comply as to form in all material respects with the provisions of
the Exchange Act and the rules and regulations promulgated thereunder, except
that no representation or warranty is made by StaffMark with respect to:
(i) information furnished by Robert Walters or its advisers in
connection with the Proxy Statement; or
(ii) the failure by Robert Walters or its advisers to provide
information concerning Robert Walters or its advisers necessary to enable
the Proxy Statement to comply with such provisions.
8.8 StaffMark agrees to indemnify and hold Robert Walters (for itself and
on behalf of its directors and officers) harmless from and against any and all
losses, damages, liabilities, costs and expenses to which Robert Walters may
become subject arising from StaffMark's breach of Clauses 8.6 or 8.7.
8.9 Robert Walters agrees to indemnify and hold harmless up to a maximum
amount equal to the Termination Fee (as defined in Clause 14.2) StaffMark (for
itself and on behalf of its directors and officers) from and against any and all
losses, damages, liabilities, costs and expenses to which StaffMark may become
subject arising from Robert Walters's breach of Clause 8.5.
8.10 To the knowledge of StaffMark, StaffMark has not taken or failed to
take any action, which action or failure would of itself prevent the treatment
of the Merger as a pooling-of-interests under US GAAP.
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8.11 To the knowledge of Robert Walters, Robert Walters has not taken or
failed to take any action or failure, which action or failure would of itself
prevent the treatment of the Merger as a pooling-of-interests under US GAAP.
8.12 StaffMark represents and warrants to Robert Walters that StaffMark
believes that, on the basis of the facts and circumstances known to StaffMark on
the date of this Agreement, if the Merger were completed on the date of this
Agreement, the Merger should be accounted for as a pooling-of-interests under US
GAAP.
8.13 StaffMark undertakes to Robert Walters that the Remuneration
Committee of Robert Walters shall continue to determine entitlements under the
Robert Walters PLC Bonus Incentive Scheme (adopted 17 July 1996) for the year
ended 31 December 1998.
9 ANNOUNCEMENT
9.1 Robert Walters and StaffMark agree that the Announcement shall be
released to the London Stock Exchange at 0800 hours (London time) on the
Announcement Date.
9.2 During the Exclusivity Period, Robert Walters and StaffMark shall,
subject to the requirements of law or any regulatory body or the rules and
regulations of any recognised stock exchange or the Code or the Panel on
Take-overs and Mergers, consult together as to the terms of, the timetable for
and manner of publication of, any formal announcement, circular or publication
to shareholders, employees, customers, suppliers, distributors and
sub-contractors and to any recognised stock exchange or other authorities or to
the media or otherwise which either may desire or be obliged to make regarding
this Agreement or any matter referred to herein. Any other communication which
Robert Walters or StaffMark may make concerning such matters shall, subject to
the requirements of law or any regulatory body or the rules and regulations of
any recognised stock exchange, be consistent with any such formal announcement
or circular as aforesaid.
10 ASSIGNMENT
This Agreement is personal to the parties to it and may not be assigned in
whole or in part.
11 VARIATION
No variation of this Agreement shall be effective unless in writing and
signed by or on behalf of Robert Walters and by StaffMark on its behalf and on
behalf of StaffMark Subsidiary.
12 TIME OF THE ESSENCE
Any time, date or period referred to in any provision of this Agreement may
be extended by mutual agreement between Robert Walters and StaffMark on its
behalf and on behalf of StaffMark Subsidiary but as regards any time, date or
period originally fixed or any time, date or period so extended time shall be of
the essence.
13 COSTS
Save as provided in this Agreement, each party shall bear all legal,
accountancy and other costs and expenses incurred by it in connection with this
Agreement and the implementation of the Scheme and the Merger.
14 TERMINATION: TERMINATION FEE
14.1 Notwithstanding anything contained in this Agreement to the contrary,
this Agreement may be terminated as follows:
14.1.1 by the mutual written consent of StaffMark, StaffMark Subsidiary
and Robert Walters;
14.1.2 by either StaffMark and StaffMark Subsidiary or Robert Walters, by
written notice, if the Effective Date shall not have occurred on or before 31
December 1998 and the party seeking to terminate this
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Agreement pursuant to this Clause 14.1.2 shall not have breached in any material
respect its obligations under this Agreement in any manner that shall have
proximately contributed to the failure to consummate the Merger on or before
such date (including, in the case of StaffMark and StaffMark Subsidiary so
seeking to terminate, the other of them not having breached its obligations
mutatis mutandis as aforesaid);
14.1.3 by StaffMark and StaffMark Subsidiary, by written notice, if the
Board of Robert Walters (through its own action or through any agency, or
otherwise) shall have:
(i) withdrawn (or modified in a manner adverse to StaffMark) its
approval or recommendation of the transactions contemplated hereby; or
(ii) approved or recommended, or proposed publicly to approve or
recommend, any Takeover Proposal; or
(iii) failed to comply with its obligations under Clause 4.1 (subject
as provided in that Clause);
14.1.4 by StaffMark and StaffMark Subsidiary if any financial adviser to
the Board of Robert Walters appointed pursuant to Rule 3 of the City Code
withdraws or in any way modifies its consent (whether written or oral) to being
named in the context of any recommendation statement by the Board of Robert
Walters to its shareholders regarding the Merger;
14.1.5 by either StaffMark and StaffMark Subsidiary or Robert Walters if
there shall have been a breach by the other of the obligations referred to in
Clause 2 with respect to any of the Conditions, which if not cured would cause
the Conditions not to be satisfied, and such breach shall not have been cured
within 15 days after notice thereof shall have been received by the party
alleged to be in breach, subject in all cases to compliance with the City Code
and the requirements of the Panel on Take-Overs and Mergers; or
If this Agreement is terminated pursuant to this Clause 14.1, this
Agreement shall terminate (except for Clauses 8.5, 8.6, 8.7, 8.8, 8.9, 9.2, 10,
11, 13, 14, 15, 16 and 17), and there shall be no other liability on the part of
Robert Walters (on the one hand) and StaffMark and StaffMark Subsidiary (on the
other hand) to the other.
14.2 Subject to the provisions of this Agreement which are expressly
provided to survive termination, if this Agreement is terminated by StaffMark
and StaffMark Subsidiary pursuant to Clauses 14.1.3 or 14.1.4, Robert Walters
shall pay to StaffMark Subsidiary a fee (the "Termination Fee") of the lesser
of:
(i) L900,000; and
(ii) the largest sum as would not reduce the net assets of Robert
Walters as defined in Section 152(2) of the Act to a material extent,
in cash, such payment to be made promptly, but in no event later than the fifth
London Business Day following a termination by StaffMark and StaffMark
Subsidiary pursuant to Clauses 14.1.3 or 14.1.4 less any payment previously made
under Clause 8.3,
Provided that, if Robert Walters has no net assets (as so defined), the
Termination Fee shall not be payable.
14.3 If the Board of Robert Walters resolves to take either of the courses
of action referred to in Clauses 14.1.3 (i) or (ii), a written record of any
legal advice received by such Board in connection with such resolution, along
with a copy of the minutes of such Board meeting reflecting the Board's
conclusion, shall be promptly provided to StaffMark by Robert Walters.
14.4 If such financial adviser as is referred to in Clause 14.1.4
withdraws or modifies its consent as referred to in that Clause, a written
record of any legal advice received by the Board of Robert Walters in connection
with such withdrawal or modification, along with a copy of the minutes of any
Board meeting at which such withdrawal or modification was considered, shall be
promptly provided to StaffMark by Robert Walters.
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15 NOTICES
15.1 Any notice or other communication requiring to be given or served
under or in connection with this Agreement shall be in writing and may be
delivered by hand or by courier or sent by fax or by post to the party to be
served as its address stated in this Agreement or at such other address as it
may have notified to the other party in accordance with this Clause 15.1. All
such notices or communications in the case of parties (1) and (2) inclusive
shall be given or served on StaffMark. Any notice or other document sent by post
shall be sent by registered post (if both posted and for delivery within the
same jurisdiction) or by registered airmail (if posted for delivery outside the
jurisdiction in which it is posted), return receipt requested (or any
substantially equivalent service).
15.2 Any notice or document delivered or sent in accordance with Clause
15.1 shall be deemed to have been served:
15.2.1 if delivered by hand or by courier, at the time of delivery; or
15.2.2 if sent by fax, at 10.00 a.m. (local time at the destination) on
the London Business Day at the destination after its transmission; or
15.2.3 if posted, at 10.00 a.m. on the second London Business Day at the
destination after it was put into the post if posted for delivery within the
same jurisdiction, or at 10.00 a.m. (local time at the destination) on the fifth
business day after it was put in the post if sent by registered airmail.
16 SEVERANCE
If any provision of this Agreement shall be held to be illegal or
unenforceable, in whole or in part, under any enactment or rule of law, but
would be valid and enforceable if deleted in whole or in part or reduced in
application, such provision shall apply with such deletion or modification as
may be necessary to make it valid and enforceable but the enforceability of the
remainder of this Agreement shall not be affected.
17 GOVERNING LAW
17.1 This Agreement shall be governed by and construed in accordance with
the laws of England. Each party irrevocably agrees that the courts of England
are to have non-exclusive jurisdiction to settle any dispute which may arise out
of or in connection with this Agreement.
17.2 Each party irrevocably submits to the jurisdiction of such courts and
waives any objection to proceedings in any such court on the ground of venue or
on the ground that the proceedings have been brought in an inconvenient forum.
This Clause 17.2 is for the benefit of each party and shall not limit its rights
to take proceedings in any other court of competent jurisdiction.
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In witness whereof this Agreement has been duly executed on the date first
mentioned on page 1.
<TABLE>
<S> <C>
SIGNED by Clete T. Brewer
on behalf of CLETE T. BREWER
STAFFMARK, INC.
</TABLE>
<TABLE>
<S> <C>
Terry C. Bellora TERRY C. BELLORA (Witness)
</TABLE>
<TABLE>
<S> <C>
SIGNED by Clete T. Brewer
on behalf of CLETE T. BREWER
PFS&C INTERNATIONAL HOLDING COMPANY, INC.
</TABLE>
<TABLE>
<S> <C>
Terry C. Bellora TERRY C. BELLORA (Witness)
</TABLE>
<TABLE>
<S> <C>
SIGNED by
THOMAS WILLIAM CHAMBERS THOMAS W. CHAMBERS
on behalf of
ROBERT WALTERS PLC
</TABLE>
<TABLE>
<S> <C>
James Lewis JAMES LEWIS (Witness)
</TABLE>
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APPENDIX II
CONDITIONS TO THE IMPLEMENTATION OF
THE SCHEME OF ARRANGEMENT AND THE MERGER
<TABLE>
<S> <C> <C> <C>
1 The Merger is conditional upon the Scheme becoming effective by not later
than 31 December 1998 or such later date as Robert Walters plc and
StaffMark may agree and the Court shall approve.
2 The Scheme will become effective and binding following:
2.1 approval by a majority in number representing three-fourths in value of the
holders of the Robert Walters Scheme Shares, present and voting, either in
person or by proxy, at the Court Meeting (or any adjournment thereof);
2.2 the passing of any resolutions required to implement the Scheme and to
amend the articles of association of Robert Walters in the manner indicated
in the paragraph headed "Structure of the Transaction" in the Announcement
at the Extraordinary General Meeting (or any adjournment thereof);
2.3 the approval by the requisite majority of votes of the holders of StaffMark
Shares outstanding as of the record date relating to StaffMark's meeting of
stockholders called for the purpose of approving the issuance of the
StaffMark Shares pursuant to the Scheme; and
2.4 sanction of the Scheme and confirmation of the reduction of capital
involved therein by the Court (in both cases, with or without modification
agreed by both parties), an office copy of the Final Court Order being
delivered for registration to the Registrar of Companies in England and
Wales and, in the case of reduction of capital, registered by him.
3 Robert Walters plc, StaffMark and StaffMark Subsidiary have agreed, subject
as stated in paragraph 4 of this Appendix, that the Merger will also be
conditional upon the following matters, and, accordingly, an office copy of
the Final Court Order will only be delivered for registration to the
Registrar of Companies in England and Wales if:
3.1 StaffMark and Robert Walters plc have received a letter from Arthur
Andersen LLP dated within two London Business Days prior to the date of the
Final Court Order confirming that the Merger should be treated as a pooling
of interests under US GAAP if the Scheme is consummated;
3.2 except as disclosed in the Robert Walters plc annual report and accounts
for the year ended 31 December 1997, or as disclosed in the interim report
of Robert Walters plc for the 6 month period ended 30 June 1998, or as
otherwise publicly announced by delivery of an announcement to the Company
Announcements Office of the London Stock Exchange, or as specifically
disclosed in writing to StaffMark prior to the date of this Announcement
(each and collectively "Robert Walters Disclosed Matters"), since 30 June
1998:
3.2.1 no investigation or enquiry by any Third Party (as defined in
paragraph 3.3 below) having statutory or regulatory competence
(save as a result of the Scheme) and no litigation, arbitration
proceedings, prosecution or other legal proceedings to which any
member of the Robert Walters Group is or may become a party
(whether as plaintiff or defendant or otherwise) has been
threatened in writing, announced or instituted by or remains
outstanding against or in respect of any member of the Robert
Walters Group which, in any such case, is material and adverse in
the context of the Robert Walters Group taken as a whole; or
3.2.2 there has been no material adverse change in the business,
financial position, trading results or prospects of the Robert
Walters Group taken as a whole;
3.2.3 no contingent or other liability of any member of the Robert
Walters Group has arisen which would or could reasonably be
expected materially and adversely to affect the Robert Walters
Group taken as a whole;
3.2.4 StaffMark has not discovered regarding the Robert Walters Group
that:
</TABLE>
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<TABLE>
<S> <C> <C> <C>
(i) any written financial, business or other information which
has been publicly disclosed at any time by any member of the
Robert Walters Group is misleading or contains
misrepresentations of fact or omits to state a fact
necessary to make the information contained therein not
misleading in any case which has not subsequently been
corrected by such disclosure, and, in any event, which is
material in the context of the Robert Walters Group taken as
a whole; or
(ii) any written financial, business or other information (except
for forecasts, statements of opinion, projections, budgets
or estimates) disclosed by or on behalf of any member of the
Robert Walters Group privately to any member of the
StaffMark Group or its advisers contains a misrepresentation
of fact or omits to state a fact necessary to make the
information contained therein not misleading in any case
which has not subsequently been corrected by such disclosure
and, in any event, which is material in the context of the
Robert Walters Group taken as a whole; or
(iii) any member of the Robert Walters Group is subject to any
liability (contingent or otherwise) which has not been
disclosed in the Robert Walters Disclosed Matters and which
is materially adverse in the context of the Robert Walters
Group taken as a whole;
3.3 no government or governmental, quasi-governmental, supranational, statutory
or regulatory body, or court, or trade agency, or association, or
institutional or professional body (or other person or body having
statutory or regulatory competence) in any jurisdiction (each and
collectively a "Third Party") has instituted, implemented or threatened to
take any action, proceeding, suit, investigation or inquiry, or has made,
proposed or enacted any statute, regulation or order, or taken any other
steps, which would or might reasonably be expected to:
3.3.1 make the Merger or Scheme or their respective implementation or the
acquisition of any shares in, or control of, Robert Walters plc by
StaffMark or any member(s) of the StaffMark Group void, illegal or
unenforceable under the laws of any jurisdiction or otherwise
directly or indirectly restrain, prohibit, restrict or delay the
implementation or performance thereof or impose additional
conditions or obligations with respect thereto, or otherwise
challenge or interfere therewith, in each case in a manner or to an
extent that is material in the context of the Merger;
3.3.2 require the divestiture by any member of the Robert Walters Group
or (in connection with the Scheme) any member of the StaffMark
Group of all or any material portion of their respective
businesses, assets or property, or impose any material limitation
on the ability of any of them to conduct their respective
businesses or own their assets or property and which in any such
case is material in the context of the Robert Walters Group or the
StaffMark Group (in each case taken as a whole), being the group on
which such requirement or imposition is made, as the case may be;
3.3.3 impose any limitation on the ability of any member of the StaffMark
Group to acquire, directly or indirectly, or to hold or exercise
effectively all or any rights of ownership of any Robert Walters
Shares held by any member of the StaffMark Group or on the ability
of Robert Walters plc or any member of the Robert Walters Group or
StaffMark to hold or exercise effectively any rights of ownership
of shares in any member of the Robert Walters Group held or owned
by it, in each case, in a manner or to an extent which would be
material in the context of the StaffMark Group or the Robert
Walters Group, as the case may be;
3.3.4 require any member of the StaffMark Group or the Robert Walters
Group to offer to acquire any shares owned by any third party in
the capital of any member of the Robert Walters Group or the
StaffMark Group, in each case, in a manner or to an extent which
would be material in the context of the StaffMark Group or the
Robert Walters Group taken as a whole, as the case may be; or
3.3.5 otherwise affect the business, financial position, trading results
or prospects of the StaffMark Group or the Robert Walters Group, in
each case taken as a whole, in a manner which is material and
adverse;
</TABLE>
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<TABLE>
<S> <C> <C> <C>
3.4 all necessary filings in any jurisdiction have been made, all material
regulatory and statutory obligations in any jurisdiction have been complied
with, all necessary waiting and other time periods (including any
extension(s) thereof) under any applicable legislation or regulations of
any jurisdiction have expired, lapsed or terminated, in each case in
respect of the Merger and the implementation of the Scheme and the
acquisition or proposed acquisition of any shares in, or control of, Robert
Walters plc by StaffMark or any member(s) of the StaffMark Group and all
material authorisations, orders, recognitions, grants, consents, licences,
confirmations, clearances, permission and approvals necessary in any
jurisdiction (collectively "Consents") (in terms and a form satisfactory to
StaffMark, acting reasonably) in respect of the Merger and the
implementation of the Scheme or the acquisition or proposed acquisition of
any shares in, or control of, Robert Walters plc by StaffMark or any
member(s) of the StaffMark Group have been obtained from appropriate Third
Parties and all such Consents, together with all Consents necessary for
Robert Walters plc to carry on its business, remain in full force and
effect and all material filings necessary for such purpose have been made
or received and there has been no notice or indication of any intention to
revoke or not to renew the same;
3.5 save pursuant to the Robert Walters Disclosed Matters, there is no
provision of any arrangement, agreement, licence, permit, franchise or
other binding instrument to which any member of the Robert Walters Group is
a party (which is material in the context of the Robert Walters Group taken
as a whole) (collectively, "Robert Walters Material Agreements") and which,
in consequence of the Merger or the Scheme or the acquisition or proposed
acquisition of any shares in or control or management of Robert Walters plc
or any member of the Robert Walters Group by StaffMark or any member(s) of
the StaffMark Group, could or might reasonably be expected to (to an extent
which is material in the context of the Robert Walters Group taken as a
whole) result in:
3.5.1 any monies borrowed by or other indebtedness or liabilities, actual
or contingent, of any member of the Robert Walters Group being or
becoming repayable or being capable of being declared repayable
immediately or prior to their stated maturity, or the ability of
any such member of the Robert Walters Group to borrow or incur
indebtedness being withdrawn or prohibited;
3.5.2 the creation or enforcement of any liabilities or any mortgage,
charge or other security interest over the whole or any part of the
business, property or assets of any member of the Robert Walters
Group or any such security interest (whenever arising or having
arisen) becoming enforceable;
3.5.3 any such Robert Walters Material Agreement being terminated or
materially and adversely modified or any action being taken
pursuant to such Robert Walters Material Agreement materially
adverse to the Robert Walters Group;
3.5.4 any assets of any member of the Robert Walters Group being disposed
of or charged or any right arising under which any such asset could
be required to be disposed of or charged other than in the ordinary
course of business;
3.5.5 Robert Walters plc or any member of the Robert Walters Group
ceasing to be able to carry on business under any name which it
presently does so;
3.5.6 the business, financial position, trading results or prospects of
the Robert Walters Group being adversely affected,
and no event has occurred which, under any such Robert Walters Material
Agreement, could result in any of the events or circumstances referred to
in paragraphs 3.5.1 to 3.5.6;
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3.6 since 30 June 1998 and except as disclosed pursuant to Robert Walters
Disclosed Matters or as would be disclosed by a search at the Companies
Registry for England and Wales against Robert Walters plc made as at the
date of the Announcement:
3.6.1 (save as between a wholly owned subsidiary of Robert Walters plc
and Robert Walters plc or another wholly owned subsidiary of Robert
Walters plc) no member of the Robert Walters Group has issued or
agreed to issue or authorised or proposed the issue of additional
shares of any class, or securities convertible into, or rights,
warrants or options to subscribe for or acquire, any such shares or
convertible securities (save for any options granted, and Robert
Walters Shares unconditionally issued upon or pursuant to the
exercise of options granted, prior to the date of the Announcement
under the Robert Walters Share Option Schemes);
3.6.2 no member of the Robert Walters Group has recommended, declared,
paid, made or proposed to declare, pay or make any bonus, dividend
or distribution (save as between a wholly-owned subsidiary of
Robert Walters plc and Robert Walters plc or another wholly-owned
subsidiary of Robert Walters plc) other than the final net dividend
of 2.6p per Robert Walters Share in respect of the year ended 31
December 1997 and the interim dividend of 1.7p net per Robert
Walters Share in respect of the 6 months ended 30 June 1998;
3.6.3 no member of the Robert Walters Group has made or authorised or
proposed or announced any material change in its loan capital,
outside the ordinary course of business;
3.6.4 (save for transactions between a wholly-owned subsidiary of Robert
Walters plc and Robert Walters plc or another wholly-owned
subsidiary of Robert Walters plc) no member of the Robert Walters
Group has merged with or demerged or acquired any body corporate or
acquired or disposed of or transferred, mortgaged or charged or
created any security interest over any assets or any right, title
or interest in any assets (other than in the ordinary course of
business) which is material to the Robert Walters Group taken as a
whole or authorised or proposed or announced any intention to
propose any acquisition, demerger, disposal, or transfer as
aforesaid;
3.6.5 no member of the Robert Walters Group has authorised, issued or
proposed the issue of any debentures, or (save in the ordinary
course of business) incurred or increased any indebtedness or
contingent liability of an aggregate amount which is material in
the context of the Robert Walters Group taken as a whole;
3.6.6 no member of the Robert Walters Group has purchased, redeemed or
repaid or announced any proposal to purchase, redeem or repay any
of its own shares or other securities or reduced or made any other
change to any part of its share capital;
3.6.7 no member of the Robert Walters Group has entered into or varied
any contract (including any guarantee), transaction or binding
commitment (whether in respect of capital expenditure or
otherwise), which is of a long-term or unusual nature or magnitude
or which would be restrictive of the business of any member of the
Robert Walters Group or which involves or would involve an
obligation of such a nature or magnitude and which is other than in
the ordinary course of business and which in each case is material
in the context of the Robert Walters Group taken as a whole;
3.6.8 except as referred to in the Announcement, neither Robert Walters
plc nor any of its subsidiaries has entered into or changed or made
any offer (which remains open for acceptance) to enter into or
change the terms of any contract (including any service contract)
with any of the directors of Robert Walters plc which is material
in the context of the Robert Walters Group taken as a whole;
3.6.9 no member of the Robert Walters Group has entered into any contract
or commitment restricting in any material respect the ability of
the Robert Walters Group taken as a whole to compete with any other
person;
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3.6.10 no member of the Robert Walters Group has passed any resolution for
or had any legal proceedings instituted against it for its
winding-up (voluntarily or otherwise), dissolution or
reorganisation or for the appointment or a receiver, administrator,
administrative receiver, trustee or similar officer of all or any
of its assets and revenues or any analogous proceedings in any
jurisdiction or appointed any analogous person in any jurisdiction
(in each case in a manner which could reasonably be expected to
have a material adverse effect on the Robert Walters Group taken as
a whole);
3.6.11 no member of the Robert Walters Group has been unable or has
admitted in writing that it is unable to pay its debts or has
stopped or suspended (or threatened to stop or suspend) payment of
its debts generally or ceased or threatened to cease carrying on
all or a substantial part of its business;
3.6.12 no member of the Robert Walters Group has waived or compromised any
claim which is material in the context of the Robert Walters Group,
taken as a whole;
3.6.13 Robert Walters plc has not made any alteration to its Memorandum or
Articles of Association; and
3.6.14 no member of the Robert Walters Group has entered into an agreement
or binding commitment or passed any resolution with respect to any
of the transactions or events referred to in this paragraph 3.6;
3.7 the StaffMark Shares to be issued pursuant to the Scheme have been approved
for trading upon notice of issuance on NASDAQ;
3.8 each Affiliate of Robert Walters plc has properly executed and delivered to
StaffMark an Affiliate Agreement;
3.9 each of the four executive Directors of Robert Walters plc has properly
executed and delivered to StaffMark on the day before the Effective Date
deeds of variation of their respective service agreements in the Agreed
Terms pursuant to the Merger Agreement subject only to the Scheme becoming
effective.
4. StaffMark reserves the right, in its absolute discretion, to waive all or
any of conditions set out in paragraph 3 apart from paragraphs 3.1, the
first paragraph of paragraph 3.3 as read in conjunction with paragraphs
3.3.1, 3.3.2 and 3.3.5, and paragraph 3.7 which may only be waived jointly
by Robert Walters plc and StaffMark.
5. Robert Walters plc and StaffMark have agreed, subject as stated in
paragraph 6 of this Appendix, that the Merger will also be conditional upon
the following matters, and accordingly, an office copy of the Final Court
Order will only be delivered for registration to the Registrar of Companies
in England and Wales if:-
5.1 clearances have been received, in a form reasonably acceptable to the
Directors of Robert Walters plc, from the Inland Revenue under section 138
of the Taxation of Chargeable Gains Act 1992 and under section 707 of the
Income and Corporation Taxes Act 1988 for transactions involved in the
Scheme;*
5.2 Robert Walters plc has not discovered regarding the StaffMark Group that
any written, financial, business or other information which has been
publicly disclosed at any time by any member of the StaffMark Group
contains a material misstatement of fact or omits to state a material fact
necessary to make the information contained therein not misleading in any
case which has not subsequently been corrected by such disclosure, and, in
any event, which is material in the context of the StaffMark Group taken as
a whole.
6. Robert Walters plc reserves the right, in its absolute discretion, to waive
either or both of the conditions set out in paragraph 5.
7. The Scheme will not proceed if the proposed Merger is referred to the
Monopolies and Mergers Commission before the date of the Court Meeting. In
such event, neither StaffMark nor any holder of Robert Walters Shares will
be bound by any term of the Scheme.
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* This condition has been satisfied.
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DEFINITIONS
The following definitions apply throughout Appendix II, unless the context
requires otherwise:
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"Act" or "Companies
Act".................... The Companies Act 1985 (as amended)
"Affiliates".............. All the Directors of Robert Walters plc
"Affiliate Agreements".... Agreements to be entered into between the Affiliates and
StaffMark as described in the paragraph with the same
heading in the Announcement and in the Agreed Terms pursuant
to the Merger Agreement
"Announcement"............ The joint press Announcement issued by Robert Walters plc
and StaffMark on 18 August, 1998
"Business Day"............ A day (excluding Saturdays, Sundays and public holidays) on
which banks are open for business in London or New York as
specified
"City Code"............... The City Code on Takeovers and Mergers
"Combined Group" or
"Enlarged StaffMark".... The StaffMark Group as enlarged by the Merger
"Court"................... The High Court of Justice in England and Wales
"Court Meeting"........... The meeting of holders of Robert Walters Scheme Shares to be
convened pursuant to an Order of the Court for the purposes
of considering and, if thought fit, approving the Scheme
"Directors"............... The directors of Robert Walters plc or StaffMark, as the
context requires
"Effective Date".......... The date on which the Scheme becomes effective, which is
expected to be in November 1998
"Extraordinary General
Meeting"................ The extraordinary general meeting of Robert Walters
Shareholders in connection with the Scheme
"Final Court Order"....... The order of the Court sanctioning the Scheme under section
425 of the Companies Act and confirming the associated
cancellation of the share capital in connection therewith
under section 137 of the Companies Act
"Goldman Sachs"........... Goldman Sachs International
"IT"...................... Information Technology
"Meetings"................ The Court Meeting and the Extraordinary General Meeting
"Merger".................. The proposed acquisition of Robert Walters plc by the
StaffMark Group pursuant to the Scheme
"Merger Agreement"........ The agreement dated 18 August, 1998 between StaffMark,
StaffMark Subsidiary and Robert Walters plc referred to in
the paragraph headed "Structure of the Transaction" in this
Announcement
"Morgan Stanley".......... Morgan Stanley & Co. Limited
"NASDAQ".................. The NASDAQ National Market System
"New Robert Walters
Shares"................. Robert Walters Shares issued to StaffMark Subsidiary
pursuant to the Scheme
"Record Date"............. The close of business on the London Business Day immediately
preceding the Effective Date
"Robert Walters".......... Robert Walters plc
"Robert Walters Board".... The board of directors of Robert Walters plc
"Robert Walters Group".... Robert Walters plc and its Subsidiary Undertakings
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"Robert Walters Scheme
Shares"................. Issued Robert Walters Shares which become subject to the
Scheme, which exclude any held by StaffMark or its
subsidiaries
"Robert Walters Shares"... Ordinary shares of 5p each in the capital of Robert Walters
plc
"Robert Walters
Shareholders"........... Holders of Robert Walters Shares
"Robert Walters Share
Option Schemes"......... The Robert Walters 1996 Approved Executive Share Option
Scheme, the Robert Walters 1996 Unapproved Executive Share
Option Scheme and the Robert Walters Savings Related Share
Option Scheme
"Scheme" or "Scheme of
Arrangement"............ The proposed scheme of arrangement under section 425 of the
Companies Act between Robert Walters plc and holders of
Robert Walters Scheme Shares to be set out in the Scheme
Circular
"Scheme Circular"......... The circular proposed to be despatched to Robert Walters
Shareholders setting out the details of the Merger and the
Scheme and certain information about Robert Walters plc and
StaffMark and containing notices of the Meetings
"StaffMark"............... StaffMark, Inc.
"StaffMark Board"......... The board of directors of StaffMark
"StaffMark Group"......... StaffMark and its subsidiaries
"StaffMark Shares"........ Common stock of $0.01 each in the capital of StaffMark
"StaffMark
Shareholders"........... Holders of StaffMark Shares
"StaffMark Stock Option
Plan"................... StaffMark Amended and Restated 1996 Stock Option Plan
"StaffMark Subsidiary".... PFS&C International Holding Company, Inc., an indirect
wholly owned subsidiary of StaffMark
"Subsidiary".............. has the meaning given in the Companies Act and Subsidiaries
shall be construed accordingly
"Subsidiary
Undertaking"............ has the meaning given in the Companies Act and Subsidiary
Undertakings shall be construed accordingly
"United Kingdom" or
"U.K.".................. The United Kingdom of Great Britain and Northern Ireland
"United States" or the
"U.S.".................. The United States of America, its territories and
possessions, any state of the United States of America, any
other areas subject to its jurisdiction and the District of
Columbia
"U.S. GAAP"............... U.S. generally accepted accounting principles
</TABLE>
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Appendix III
25 September 1998
Board of Directors
StaffMark Inc.
302 Millsap Road
Fayetteville, Arkansas 72703
USA
Members of the Board:
We understand that Robert Walters plc ("Robert Walters" or the "Company"),
and StaffMark, Inc. (the "Buyer") have entered into the Merger Agreement dated
18 August 1998 (the "Merger Agreement"), which provides, among other things, for
the acquisition of the Company by the Buyer (the "Merger") to be effected by
means of a Scheme of Arrangement to be proposed by the Company under section 425
of the Companies Act 1985 (the "Scheme"). Pursuant to the Scheme, the Company
will become an indirect wholly owned subsidiary of the Buyer and the holders of
ordinary shares of 5p each (the "Ordinary Shares") in the capital of the Company
will, in exchange for the cancellation of their Ordinary Shares, receive shares
of common stock, par value $0.01 of the Buyer (the "Buyer Common Stock"). The
exchange ratio will be 0.272 shares of the Buyer Common Stock for each Ordinary
Share subject to a reduction in accordance with a formula set forth in the
Merger Agreement. The terms and conditions of the Scheme are more fully set
forth in the Merger Agreement. As at the date of this letter, the exchange ratio
will be 0.272 shares of the Buyer Common Stock for each Ordinary Share (the
"Exchange Ratio").
You have asked for our opinion as to whether the Exchange Ratio, pursuant
to the Merger Agreement, is fair from a financial point of view to the Buyer.
For purposes of the opinion set forth herein, we have:
i. reviewed certain publicly available financial statements and other
information of the Company and the Buyer, respectively;
ii. reviewed certain internal financial statements and other financial
and operating data concerning the Company and the Buyer prepared by the
managements of the Company and the Buyer, respectively;
iii. reviewed certain financial projections concerning the Company and
reviewed fiscal 1998 and 1999 earnings per share projections communicated
to us orally concerning the Buyer, which items were prepared by the
managements of the Company and the Buyer, respectively;
iv. discussed the past and current operations and financial condition
and the prospects of the Company with senior executives of the Company;
v. reviewed the likely pro forma impact of the Merger on the Buyer's
future earnings per share, consolidated capitalization and financial ratios
if the Merger is consummated;
vi. discussed the business prospects for the combined group and the
potential benefits arising from the Merger;
vii. reviewed the reported prices and trading activity for the
Ordinary Shares and the Buyer Common Stock;
viii. compared the financial performance of the Company and the Buyer
and the prices and trading activity of the Ordinary Shares and the Buyer
Common Stock respectively, with that of certain other comparable publicly
traded companies and their securities;
ix. reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
x. participated in discussions and negotiations among representatives
of the Buyer and the Company and its advisers;
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xi. reviewed the Merger Agreement; and
xii. considered such other factors and performed such other analyses
as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Company and of the Buyer, respectively. We have not made any independent
valuation or appraisal of the assets or liabilities of the Company or the Buyer,
nor have we been furnished with any such appraisals. In addition we have assumed
that the Merger will be consummated in accordance with the terms set forth in
the Merger Agreement, including, among other things, that the Merger will be
accounted for as a "pooling-of-interests" business combination in accordance
with U.S. Generally Accepted Accounting Principles. Our opinion is based on
economic, market and other conditions as in effect on, and the information made
available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of the Buyer
in connection with this transaction and will receive a fee for our services,
including a fee which is contingent upon the consummation of the Merger and the
other transactions contemplated by the Merger Agreement. Our opinion does not
address the merits of the underlying decision by the Buyer to engage in the
transactions contemplated by the Merger Agreement and does not constitute an
opinion or recommendation to any shareholder as to how such shareholder should
vote at the shareholder meetings to be held in connection with the Scheme and
the transactions contemplated by the Merger Agreement. We are expressing no
opinion herein as to the prices at which the Ordinary Shares or the Buyer Common
Stock will trade at any time.
It is understood that this letter is for the information of the Board of
Directors of the Buyer and, except for inclusion of this letter in its entirety
(and related references thereto) in any proxy or solicitation statement sent by
the Buyer to its shareholders in connection with this transaction or in any
filing made by the Buyer in respect of the transaction with the Securities and
Exchange Commission or any other governmental agency, may not be referred to,
disclosed to any third party or used for any other purpose, without our prior
written consent.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio, pursuant to the Merger Agreement, is fair from a
financial point of view to the Buyer.
Very truly yours,
MORGAN STANLEY & CO. LIMITED
By: /s/ PIERS L.T. DE MONTFORT
----------------------------------
Piers L.T. de Montfort
Managing Director
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<PAGE> 125
STAFFMARK, INC.
302 EAST MILLSAP ROAD
FAYETTEVILLE, ARKANSAS 72703
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF STOCKHOLDERS, OCTOBER 27, 1998.
KNOW ALL MEN BY THESE PRESENTS that I, the undersigned stockholder of
StaffMark, Inc., a Delaware corporation, do hereby nominate, constitute, and
appoint Jerry T. Brewer, Clete T. Brewer, and Gordon Y. Allison, or any one or
more of them, my true and lawful attorney(s) with full power of substitution for
me and in my name, place and stead, to vote all of the Common Stock, par value
$.01 per share, of the Company, standing in my name on its books on September
15, 1998, at the Special Meeting of its Stockholders to be held on October 27,
1998 at the University of Arkansas Center for Continuing Education, 2 East
Center Street, Fayetteville, Arkansas 72701 at 10:00 a.m., Central Standard
Time, and at any and all adjournments thereof.
ALL SHARES WILL BE VOTED AS DIRECTED HEREIN AND, UNLESS OTHERWISE
DIRECTED, WILL BE VOTED "FOR" PROPOSAL 1 AND IN THE DISCRETION OF THE PERSON
VOTING THE PROXY WITH RESPECT TO ANY OTHER BUSINESS PROPERLY BROUGHT BEFORE THE
MEETING.
SEE REVERSE SIDE
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
[STAFFMARK LOGO]
SPECIAL MEETING
OF STOCKHOLDERS
OCTOBER 27, 1998
10:00 a.m. (CST)
<PAGE> 126
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
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1. To approve the issuance of StaffMark Common Stock, par value $0.01 per
share, pursuant to (i) a Merger Agreement, dated as of August 18, 1998, by FOR AGAINST ABSTAIN
and among Staffmark, Inc., PFS&C International Holding Company, Inc., a
Nevada corporation and an indirect wholly-owned subsidiary of StaffMark, [ ] [ ] [ ]
Inc., and Robert Walters plc ("RW"), and the transactions contemplated
thereby; and (ii) the option arrangements for RW, whereby StaffMark Common
Stock will be issued after the closing of the Transaction (as defined in the
Proxy Statement) to employees and directors of RW who hold options and
exercise such options to acquire ordinary shares of RW during certain
periods permitted under the term of such options.
2. In their discretion, upon any other matters which may properly come before
the meeting.
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREON, WHEN
SHARES ARE HELD BY JOINT TENANTS, BOTH SHOULD SIGN, WHEN
SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION,
PLEASE SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER
AUTHORIZED OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED PERSON. PLEASE MARK, SIGN,
DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED SELF-ADDRESSED, POSTAGE PREPAID ENVELOPE.
----------------------------------------------------------
The Stockholder acknowledges receipt of the Notice ----------------------------------------------------------
of Special Meeting and the Proxy Statement and revokes SIGNATURE(S) DATE
all prior Proxies for said meeting. This Proxy, when
properly executed, will be voted in the manner directed
herein by the Stockholder and in accordance with the
instructions set in bold on the reverse side of this
Proxy.
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-FOLD AND DETACH HERE-
