<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 24, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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AHL SERVICES, INC.
(Exact Name of Registrant as Specified in Charter)
<TABLE>
<S> <C> <C>
GEORGIA 7389 58-2277249
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
3353 PEACHTREE ROAD, NE
SUITE 1120, NORTH TOWER
ATLANTA, GEORGIA 30326
(404)267-2222
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
FRANK A. ARGENBRIGHT, JR.
CHAIRMAN AND CO-CHIEF EXECUTIVE OFFICER
AHL SERVICES, INC.
3353 PEACHTREE ROAD, NE
SUITE 1120, NORTH TOWER
ATLANTA, GEORGIA 30326
(404)267-2222
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:
<TABLE>
<S> <C>
JEFFREY M. STEIN, ESQ. RICHARD C. TILGHMAN, JR., ESQ.
KING & SPALDING PIPER & MARBURY L.L.P.
191 PEACHTREE STREET 36 SOUTH CHARLES STREET
ATLANTA, GEORGIA 30303 BALTIMORE, MARYLAND 21201
(404) 572-4600 (410) 539-2530
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of the Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
TITLE OF CLASS OF SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share................. 2,587,500 $14.50 $37,518,750 $11,370
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</TABLE>
(1) Includes 337,500 shares which the Underwriters have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a).
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
AHL SERVICES, INC.
CROSS-REFERENCE SHEET SHOWING THE LOCATION IN THE
PROSPECTUS OF CERTAIN ITEMS OF FORM S-1
<TABLE>
<CAPTION>
ITEM NO. LOCATION IN PROSPECTUS
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<S> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front Cover Page; Outside Back Cover
Page; Available Information
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............. Prospectus Summary; Risk Factors
4. Use of Proceeds............................ Prospectus Summary; Use of Proceeds
5. Determination of Offering Price............ Outside Front Cover Page; Underwriting
6. Dilution................................... Dilution
7. Selling Security Holders................... Principal and Selling Shareholders
8. Plan of Distribution....................... Outside Front Cover Page; Underwriting
9. Description of Securities to be
Registered............................... Outside Front Cover Page; Dividend Policy;
Capitalization; Prospectus Summary;
Description of Capital Stock; Shares
Eligible for Future Sale
10. Interests of Named Experts and Counsel..... Legal Matters; Experts
11. Information with Respect to the
Registrant............................... Outside Front Cover Page; Prospectus
Summary; Risk Factors; Use of Proceeds;
Dividend Policy; Capitalization; Selected
Financial and Operating Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management;
Principal and Selling Shareholders;
Certain Transactions; Description of
Capital Stock; Shares Eligible for Future
Sale; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. *
</TABLE>
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* Item is omitted because response is negative or item is inapplicable.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
JANUARY 24, 1997
AHL
SERVICES
INC.
(LOGO)
2,250,000 SHARES
AHL SERVICES, INC.
COMMON STOCK
------------------
All of the 2,250,000 shares of Common Stock offered hereby are being sold
by AHL Services, Inc. ("AHL" or the "Company"). Prior to this offering, there
has been no public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price of the Common Stock will be
between $12.50 and $14.50 per share. See "Underwriting" for the factors to be
considered in determining the initial public offering price. The Company has
applied for quotation of the Common Stock on the Nasdaq National Market under
the symbol "AHLS."
------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 HEREOF.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1)
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<S> <C> <C> <C>
Per Share......................... $ $ $
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Total(2).......................... $ $ $
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</TABLE>
(1) Before deducting expenses of the offering estimated at $600,000.
(2) The Company's principal shareholder (the "Selling Shareholder") has granted
the Underwriters a 30-day option to purchase up to an additional 337,500
shares of Common Stock solely to cover over-allotments, if any. To the
extent that the option is exercised, the Underwriters will offer the
additional shares at the Price to Public shown above. If the option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Selling Shareholder will be $ ,
$ and $ , respectively. See "Principal and Selling
Shareholders" and "Underwriting."
-----------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about
, 1997.
<TABLE>
<S> <C>
ALEX. BROWN & SONS THE ROBINSON-HUMPHREY
INCORPORATED COMPANY, INC.
</TABLE>
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 4
APPENDIX I
The inside front cover contains maps which depict the Company's
operating locations in the United States, the Phillipines and Europe.
<PAGE> 5
[INSERT GRAPHICS]
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The Company intends to furnish its shareholders with annual reports
containing audited financial statements and quarterly reports containing
unaudited financial statements for the first three quarters of each fiscal year.
------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus.
THE COMPANY
AHL provides contract staffing and management of its clients'
labor-intensive, task-repetitive support functions on an outsourced basis
throughout the United States and Europe. The Company's core competencies include
recruiting, hiring, training, motivating and managing the large numbers of
personnel required to provide many of the support services needed by its clients
and incorporating quality systems and cost efficiency in its operations. Founded
in 1979, the Company is a leader in providing pre-departure screening, passenger
profiling and other passenger services to the aviation industry and,
increasingly, provides services to other large corporations, including Federal
Express, America Online, Georgia Power, BellSouth and Nike. Through its 60
offices in the United States and 23 offices in seven European countries, AHL is
able to service the multinational needs of its Fortune 1000 client base. The
Company currently has approximately 400 contracts to provide services and has
established long-term relationships with its largest clients, providing the
Company with a significant source of recurring revenues. In December 1994, AHL
made the strategic decision to strengthen its management team and develop a
corporate infrastructure to continue its growth strategy and improve
profitability. The Company intends to take advantage of market trends toward
contract staffing and become the preferred provider of outsourced labor
management solutions for its clients by leveraging its core competencies,
international scale, reputation for quality, performance-based quality
measurement systems, management depth and senior-level relationships with its
key clients.
Large corporations and other institutions are seeking to outsource a
variety of non-core functions to enable them to focus on their core
competencies. Many enterprises need to recruit, hire, train, motivate and manage
large numbers of personnel to handle non-core functions, in labor environments
often characterized by relatively low pay and high turnover rates. These
enterprises are increasingly contracting with specialized third party providers
to better ensure long-term labor availability for support functions. Outsourcing
these functions shifts employment costs and risks, such as workers'
compensation, recruitment and turnover costs and changes in labor regulations,
to outside vendors and allows enterprises to reduce the administrative overhead
and time necessary to properly manage non-core functions. Large enterprises are
increasingly seeking partnering opportunities whereby the third party provider,
in addition to providing on-site management of staff, assumes responsibility for
a particular function, including designing and implementing a solution for its
client, and may share in the economic benefits derived from improved execution
of the function.
The Company provides a variety of services to its clients, all of which are
focused on labor-intensive, task-repetitive functions. The Company's services to
its airline clients include pre-departure screening, passenger profiling, cargo
handling and a number of passenger services, such as baggage claim and check,
aircraft clean and search, lost baggage delivery and replacement, sky cap,
wheelchair assistance, escorting of unaccompanied minors, inter-gate cart
services and frequent flyer lounge operation. The Company is the largest
provider of pre-departure screening services in the United States and a leading
provider of passenger services in Europe. The Company also provides commercial
security and shuttle bus services to its aviation and non-aviation clients. The
Company believes that it is well-positioned to deliver additional services to
its clients, such as warehouse "pick and pack" and light assembly services. AHL
is actively pursuing partnership arrangements with its clients as a means of
providing new services. For example, AHL has recently entered into a joint
venture with British Airways, whereby the Company provides passenger and baggage
check-in and other passenger services for British Airways in Nice, France. The
Company expects to enter into similar arrangements with British Airways for
other European locations.
3
<PAGE> 7
The Company believes that its national and international scale provides it
with a significant advantage in competing for contracts from targeted clients,
given market trends toward outsourced solutions and vendor consolidation. To
demonstrate its ability to deliver quality services at lower cost, AHL is
developing performance-based quality measurement systems to further
differentiate it in the contract staffing industry in which quality measurement
has not been prevalent. The Company typically enters into multi-year agreements
with clients under which the client pays an hourly rate for services performed.
The Company has grown rapidly during the past five years as it has entered
new markets on behalf of its clients and expanded its range of services.
Revenues have grown from $82.6 million in 1992 to $168.6 million in 1995, a
compound annual growth rate of 26.9%. The Company follows a disciplined model
for growth, entering a new market only after it has signed a contract with a
client to provide specific services in that market. Once an initial contract is
awarded, the Company establishes an office and begins building management depth
in that market. After establishing operations in a new market and demonstrating
its ability to provide high quality services, the Company has successfully
leveraged its local infrastructure by marketing additional services to its
initial client and by providing services to additional clients in that region.
The Company's field management and direct sales force market AHL's services to
clients in their assigned regions, while senior executives concentrate on
senior-level relationships and national account management.
The key elements of the Company's growth strategy are to (i) continue to
penetrate existing accounts, (ii) expand service offerings, (iii) obtain new
clients and (iv) explore strategic acquisitions. The Company believes that
substantial opportunities exist in the United States as enterprises are
increasingly outsourcing support functions which have traditionally been
performed in-house, as well as in Europe, where the trends toward labor
management outsourcing are less developed than in the United States. In
addition, the Company believes that it is well-positioned to benefit if more
stringent aviation security measures are implemented by the Federal Aviation
Administration ("FAA").
As of February 1, 1997, all of the outstanding shares of common stock of
Argenbright Holdings Limited ("Argenbright"), a holding company for U.S.
operations, and The ADI Group Limited (together with its predecessors, "ADI"), a
holding company for European operations, were contributed to AHL by Mr. Frank A.
Argenbright, Jr., who founded both companies. As a result, Argenbright and ADI
became wholly-owned subsidiaries of the Company. The Company's executive offices
are located at 3353 Peachtree Road, NE, Atlanta, Georgia 30326 and its telephone
number is (404) 267-2222.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 2,250,000 shares
Common Stock to be outstanding after the
offering................................... 10,603,430 shares(1)
Use of proceeds.............................. To repay outstanding indebtedness, finance
enhancements to the Company's management in-
formation systems, repurchase an outstanding
warrant and for general corporate purposes,
including working capital and possible
acquisitions.
Proposed Nasdaq National Market symbol....... AHLS
</TABLE>
- ---------------
(1) Excludes (i) 698,750 shares of Common Stock reserved for issuance upon
exercise of options outstanding prior to this offering with a weighted
average exercise price of $10.66 per share, (ii) 272,000 shares reserved
for issuance upon exercise of options to be granted concurrently with this
offering with an exercise price equal to the initial public offering price
and (iii) 104,250 shares of Common Stock reserved for future option grants
under the Company's Stock Option Plan. See "Management -- Employee Benefit
Plans -- Stock Option Plan."
4
<PAGE> 8
SUMMARY COMBINED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31,(1) SEPTEMBER 30,(2)
---------------------------------------------- ------------------
1991 1992(3) 1993 1994 1995 1995 1996(4)
------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................. $41,800 $82,576 $104,143 $123,234 $168,601 $123,119 $150,482
Operating income.......... 1,355 2,410 1,044 1,633 2,844 2,350 3,853
Income before income
taxes.................. 1,015 2,089 540 755 2,355 1,517 2,913
Net income (loss)......... 651 1,444 (160) 128 1,438 926 1,863
Pro forma net income per
share.................. $ 0.17 $ 0.22
Weighted average common
and common equivalent
shares................. 8,646 8,646
OPERATING DATA (AT PERIOD
END):
Number of employees....... 2,465 3,972 5,714 7,334 9,954 9,682 11,984
Number of offices......... 9 11 26 33 69 69 83
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------------
PRO FORMA(5) AS ADJUSTED(6)
------------ --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 17,744 $ 24,872
Total assets................................................ 52,586 59,714
Long-term debt, net of current portion...................... 21,820 3,537
Shareholders' equity........................................ 5,046 32,607
</TABLE>
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(1) The Company's fiscal year ends on the last Friday in December. Each of the
fiscal years presented consists of 52 weeks, except that fiscal 1993
consists of 53 weeks.
(2) Reflects the Company's operations for the 39-week periods ended September
29, 1995 and September 27, 1996, respectively.
(3) Includes the results of ADI from its acquisition in March 1992.
(4) Includes the results of Intersec from its acquisition in July 1996. See Note
4 of the Notes to the Company's Combined Financial Statements.
(5) Pro forma to give effect to the Reorganization.
(6) Adjusted to give effect to the sale of the 2,250,000 shares of Common Stock
offered hereby (at an assumed initial public offering price of $13.50 per
share) and application of the estimated net proceeds therefrom as described
in "Use of Proceeds."
---------------------
Unless the context otherwise requires, (i) the "Company" or "AHL" refers to
AHL Services, Inc., including Argenbright and ADI and their predecessors and
subsidiaries, (ii) all information in this Prospectus gives effect to the
Reorganization (as hereinafter defined) and (iii) all information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option. The
"Reorganization" refers to the transactions in which Mr. Argenbright contributed
to the Company (i) the outstanding common stock of Argenbright and ADI, (ii)
certain real estate, a portion of which was previously rented by the Company
(with the Company assuming the related mortgage debt) and (iii) a note with a
balance of $650,000 and $528,000 as of September 30, 1996 and December 31, 1996,
respectively, payable by the Company to Mr. Argenbright. See
"Management -- Compensation Committee Interlocks and Insider Participation."
5
<PAGE> 9
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of the Common Stock offered by this Prospectus.
Reliance on Major Clients. The Company derives a significant portion of
its revenues from relatively few clients. During fiscal 1995, Delta Air Lines,
British Airways, United Airlines and Federal Express accounted for 23.6%, 15.7%,
10.5% and 3.7% of the Company's revenues, respectively, through an aggregate of
79 contracts and, together, represented 53.5% of the Company's revenues. During
fiscal 1995, the Company's ten largest clients accounted for an aggregate of
62.5% of the Company's revenues. The Company's contracts with its clients are
generally terminable by either party upon 30 to 90 days notice, and these
contracts expire at various times over the next several years. Accordingly,
although the Company currently operates under multiple contracts with most of
its major clients (including all of its airline clients), there can be no
assurance that one or more of the Company's major clients will not terminate or
decide not to renew one or more of its contracts with the Company or that any of
the Company's clients will not seek to renegotiate its contracts at lower
margins to the Company. The loss of one or more of the Company's major clients
would have a material adverse effect on the Company. See "Business -- Services
Provided -- Clients."
Dependence on Aviation Industry. The Company's continued success is
largely dependent on continuing demand for the Company's services from passenger
airlines and cargo carriers. In fiscal 1995, approximately 72% of the Company's
revenues were derived from services provided to clients in the aviation
industry. Additionally, the financial condition of the Company's airline clients
is likely to have a material impact upon the nature and extent of the services
which such airlines procure from the Company and other independent suppliers and
the prices which such airlines will be willing to pay for such services.
Consolidation in the airline industry may result in the Company losing
contracts. The financial difficulties of airlines may result in their being
forced to seek bankruptcy protection or cease operating, which could result in
material uncollectible accounts receivable and a reduction in the Company's
volume of business. The aviation industry historically has been highly cyclical,
and a significant downturn in the aviation industry could have a material
adverse effect on the Company's business. Although the volume of air travel
throughout the world has experienced significant growth in the past ten years,
there can be no assurance that such growth will continue. Because the Company's
typical billing arrangements are based on the number of hours of service
provided by the Company or flights serviced, a decrease in the level of air
travel would have an adverse effect on the Company's business, results of
operations and financial condition. See "Business -- Industry Overview."
The Company intends to lessen its reliance on the aviation industry by
seeking to expand its client base in other industries and strengthen developing
relationships with its non-aviation clients. However, there can be no assurance
that these efforts will be successful or that the Company's services will be
widely accepted outside the aviation industry. See "Business -- Services
Provided."
Risks Associated with Managing a Growing Business. The Company has rapidly
expanded its operations in the past several years, and this growth has placed
demands on its management, administrative, operating and financial resources.
The planned continued growth of the Company's client base, the types of services
offered and the geographic markets served can be expected to continue to place a
significant strain on the Company's resources. The Company's future performance
and profitability will depend in large part on its ability to attract and retain
additional management and other key personnel, its ability to successfully
implement enhancements to its management systems and its ability to adapt those
systems, as necessary, to respond to changes in its business. See
"Business -- Growth Strategy", "-- Management Information Systems" and
"Management."
6
<PAGE> 10
Dependence on Labor Force. The contract staffing industry is labor
intensive and is characterized by high rates of personnel turnover and periodic
shortages of sufficient personnel in some markets. The Company may from time to
time be required to increase the wages that it pays and the benefits that it
provides in order to attract and retain a sufficient number of qualified
employees. In addition, the Company may not be able to pass along to its clients
any additional costs associated with an increase in the minimum wage. Some of
the Company's security activities require highly trained employees. A higher
turnover rate among the Company's employees would increase the Company's
recruiting and training costs and may adversely affect productivity. If the
Company were unable to recruit and retain a sufficient number of employees, it
would be forced to limit its growth or possibly reduce the scope of its
operations. There is intense competition for qualified personnel among contract
staffing firms as well as other employers of large numbers of hourly workers
located in the markets where the Company operates. There can be no assurance
that the Company will be able to continue to hire and retain a sufficient number
of qualified personnel in its markets or elsewhere to support its planned growth
or existing operations. See "Business -- Workforce Management."
Risks of Conducting International Operations. Historically, a substantial
portion of the Company's revenues and earnings have come from its European
operations. International operations and the provision of services in foreign
markets are subject to a number of special risks, including currency exchange
rate fluctuations, trade barriers, exchange controls, national and regional
labor strikes, political risks and risks of increases in duties, taxes and
governmental royalties, as well as changes in laws and policies governing
operations of foreign-based companies. In addition, earnings of foreign
subsidiaries and intercompany payments are subject to foreign income tax rules
that may reduce cash flow available to meet required debt service and other
obligations of the Company.
A substantial amount of the Company's revenues are received, and operating
costs are incurred, in foreign currencies, with a significant amount of
operating income having been derived from operations in the United Kingdom.
Because the Company's financial statements are presented in U.S. dollars, any
significant fluctuations in the exchange rates between certain Western European
currencies and the U.S. dollar will affect the Company's results of operations
and financial condition. The Company does not currently engage in
currency-hedging transactions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Liabilities for Client and Employee Actions and Other Claims. The Company
is in the business of placing its employees in public facilities and the
workplaces of other businesses. Attendant risks include possible claims by its
clients' customers or employees of discrimination, harassment and negligence by
the Company's employees and other similar claims. The Company is exposed to
liability for the acts or negligence of its employees while on assignment that
cause personal injury or damages, as well as claims of misuse of client
proprietary information or theft of client property. As a provider of security
services, the Company faces potential liability claims in the event of any
terrorist attempt or other criminal activity which occurs on any airline or
premises subject to the Company's security services. The Company has policies
and guidelines in place to reduce its exposure to these risks, but a failure to
follow these policies and guidelines may result in the payment by the Company of
money damages or fines and adverse publicity. The Company maintains insurance
coverage against certain of these risks, but there can be no assurance that
insurance coverage will continue to be available on acceptable terms or that it
will be adequate to cover any such liability. Any of these situations would have
a material adverse effect on the Company's reputation, business, results of
operations and financial condition. See "Business -- Risk Management and
Safety."
Employee-Related Costs and Claims Exposure. The Company is required to pay
unemployment insurance premiums and workers' compensation benefits for its
employees in the United States. Any increase in the cost of unemployment
insurance or workers' compensation benefits could adversely affect the Company's
profitability. The Company is self-insured for the first $250,000 of each
workers' compensation and automobile or shuttle bus claim and, accordingly,
establishes reserves
7
<PAGE> 11
for future claims and payments. There can be no assurance that the Company's
actual future workers' compensation or liability claims will not exceed the
amount of the Company's reserves. Furthermore, there can be no assurance that
the Company will be able to pass along to its clients any increased costs
related to unemployment and workers' compensation insurance. See "Business --
Risk Management and Safety."
Risks Associated with Acquisition Strategy. An important element of the
Company's growth strategy is to pursue acquisitions that increase density in the
Company's existing markets, add geographic coverage to its existing business,
broaden the Company's service offerings or expand its client base. The Company
has limited experience in making acquisitions, having completed only the ADI
acquisition in March 1992, the Express Baggage Reclaim Services Limited
acquisition in August 1993 and the Intersec acquisition in July 1996. There can
be no assurance that the Company will be able to identify acceptable acquisition
candidates or complete the acquisition of any identified candidates on terms
favorable to the Company or in a timely manner. A substantial portion of the
Company's capital resources, including a portion of the proceeds from this
offering, could be used for these acquisitions. The Company may require
additional debt or equity financings for future acquisitions, which may not be
available on terms favorable to the Company, if at all. There is also no
assurance that the Company will be able to successfully integrate an acquisition
into the Company's business or that any acquired business will be able to be
profitably operated by the Company. See "Business -- Structure and Integration
of Acquisitions."
Impact of Trends Toward Outsourcing, Privatization and Preferred Vendor
Contracts. Outsourcing by U.S. airlines of an increasing number of services not
directly related to flight operations has increased significantly in the past
several years, and the privatization of airport security and other services by
Western European government agencies has recently begun. Although these trends
have increased the demand for the Company's services, there can be no assurance
that these trends will continue or not be reversed or that airlines will not
decide to bring previously outsourced functions back in-house. In addition, the
trend by airlines to select a limited number of preferred vendors to provide all
or a large part of their required pre-departure screening and other services may
not continue or, if it does continue, there can be no assurance that the Company
will be selected as a preferred vendor to provide such services. Adverse
developments with respect to any of these industry trends could have a material
adverse effect on the business, results of operation and financial condition of
the Company. See "Business -- Industry Overview."
A significant element of the Company's growth strategy is to take advantage
of the trends toward outsourcing by seeking contracts to provide
labor-intensive, task-repetitive services for companies outside the aviation
industry. To the extent these potential clients decide not to expand the range
of services they outsource or decide to select vendors other than the Company to
perform the outsourced services, the Company may be unsuccessful in executing
this element of its growth strategy. See "Business -- Industry Overview" and
"-- Growth Strategy."
Fluctuations in Demand for the Company's Services. Demand for the types of
security services provided by the Company is affected by the perceived threat of
terrorist and other criminal activity in the world generally and, specifically,
in the aviation industry. In addition, the Company's business is affected by
determinations of government agencies that regulate aviation security (e.g., the
FAA and the United Kingdom Department of Transport ("U.K. DOT")). Typically,
demand for the Company's aviation security services rises after events involving
or potentially involving terrorist activity and may thereafter decline as the
threat is perceived to diminish. There can be no assurance that the Company will
be able to manage fluctuations in the demand for its services successfully or
that a decline in demand for the Company's services will not have a material
adverse effect on the Company's business, results of operation or financial
condition. See "Business -- Government Regulation."
Failure to Meet Performance Requirements. The success of the Company will
be dependent upon its ability to continue to meet the performance requirements
set by its clients and the
8
<PAGE> 12
government agencies which regulate them. The Company is subject to random
periodic testing by the FAA with regard to adherence to regulations relating to
pre-departure screening and passenger profiling, hiring practices (including
background checks, drug testing, training and individual employee file
maintenance) and baggage handling, and by the U.K. DOT regarding regulations
relating to passenger and baggage handling, aircraft security, document
verification and employee background checks. Any failure to meet these
performance standards or to pass these tests may result in the loss of a
contract or the Company's license to perform services, either of which is likely
to have a material adverse effect on the Company's reputation, business, results
of operations and financial condition. See "Business -- Government Regulation."
Loss of Required Licenses. In many airports in which the Company operates
(including most of the major international airports in Western Europe), a
license is required from the airport authority in order to perform services at
the airport. Some airport authorities limit the number of licenses they issue.
Although the Company currently has licenses to operate in several of the major
international airports in Western Europe where licenses are required, the loss
of, or failure to obtain, a license to operate in one or more airports is likely
to result in the loss of, or the inability to compete for, a major contract. See
"Business -- Government Regulation."
Development of Alternative Services. The pre-departure screening services
and passenger profiling services currently offered by the Company utilize a
large number of personnel and, in certain markets, include the direct
interviewing of each passenger boarding an aircraft. The development of
technologies requiring less manpower or alternative passenger classification
methodologies which are more effective or less expensive than the Company's
current services would reduce demand for the Company's services. In particular,
the costs associated with the performance of passenger profiling and its impact
on passengers may serve as an incentive for airlines to seek the development of
technological alternatives which would be more effective in detecting weapons
and explosives and identifying terrorists. The Company is aware of ongoing
efforts by certain airlines and the FAA to develop such alternatives and of
various governmental authorities' endorsement of these initiatives. The
development and implementation of such alternative systems could have a material
adverse effect on the Company. See "Business -- Services Provided."
Government Regulation. Aviation security matters affecting airports and
passenger airlines are subject to extensive regulation by the FAA and foreign
government agencies. Demand for the Company's pre-departure screening, passenger
profiling, aviation security and various other services is significantly
affected by applicable regulatory requirements and security directives issued by
governmental authorities. There can be no assurance that applicable regulations
will not be changed in a manner that would adversely affect the demand for the
Company's services. For example, from time to time there have been proposals to
shift responsibility for certain aviation security functions from the airlines
to airport authorities or other governmental agencies and any such shift could
reduce demand for the Company's services. Alternatively, any trend toward the
relaxation of aviation security measures could have a material adverse effect on
the Company's business, results of operations or financial condition. See
"Business -- Government Regulation."
Competition. The contract staffing industry is extremely competitive and
highly fragmented, with limited barriers to entry. Companies within the contract
staffing industry compete on the basis of the quality of service provided, their
ability to provide national and international services, the range of services
offered, as well as price. The Company competes in international, national,
regional and local markets with outsourcing companies, specialized contract
service providers and in-house organizations that provide services to potential
clients and third parties. AHL's principal competitors include, in the aviation
services industry, ICTS International N.V., Globe Aviation Securities
Corporation and International Total Services, Inc. and, in the commercial
security industry, Borg-Warner Security Corporation, Guardsmark, Inc. and The
Wackenhut Corporation. The Company's shuttle bus services compete primarily with
numerous local and regional companies. Certain of the Company's competitors and
potential competitors have significantly greater financial resources and larger
operations than the Company. The Company expects that the level of
9
<PAGE> 13
competition will remain high or increase in the future, and there can be no
assurance that the Company will continue to compete successfully. See
"Business -- Competition."
Fluctuations in Quarterly Operating Results. The Company has experienced
and expects to continue to experience quarterly variations in revenues and net
income as a result of various factors, including the timing of commencement of
new contracts, changes in its revenue mix, the timing of additional selling,
general and administrative expenses to support new business and the seasonality
of air travel. Since the Company's revenues are typically based on the number of
hours of service provided by the Company or the number of flights serviced,
decreases in air travel generally result in lower revenues for the Company.
While the effects on seasonality on AHL's business often are obscured by the
timing of the addition of new clients and the performance of new services for
existing clients, the demand for aviation services tends to decline in the first
and fourth fiscal quarters. Consequently, the Company's operating results may
experience significant quarterly fluctuations. The Company's planned operating
expenditures are based on revenue forecasts, and if revenues are below
expectations in any given quarter, operating results are likely to be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Quarterly Results and Seasonality."
Dependence on Key Personnel. The Company is highly dependent on the
efforts of its senior management team, particularly Frank A. Argenbright, Jr.,
Chairman and Co-Chief Executive Officer; Edwin R. Mellett, Vice Chairman and
Co-Chief Executive Officer; Thomas J. Marano, President and Chief Operating
Officer - Argenbright Holdings Limited; A. Trevor Warburton, Managing Director -
The ADI Group Limited; and David L. Gamsey, Chief Financial Officer. The loss of
the services of any of these individuals could have a material adverse effect on
the Company. The Company has key-man life insurance only for Mr. Argenbright and
has employment agreements with Messrs. Mellett, Marano, Gamsey and Warburton.
Mr. Mellett's employment agreement expires in December 2000, and the remaining
U.S. employment agreements expire in December 2001. As the Company continues to
grow, it will need to recruit and retain additional qualified management
personnel, and there can be no assurance that it will be able to do so. See
"Management."
Control by Principal Shareholder. Immediately following this offering, Mr.
Argenbright will beneficially own approximately 78.8% of the outstanding Common
Stock (approximately 75.6% if the Underwriters' over-allotment option is
exercised in full). As a result, Mr. Argenbright will continue to be able to
elect the entire Board of Directors and to control the outcome of all other
matters requiring shareholder approval. Such voting concentration may have the
effect of delaying or preventing a change in control of the Company. See
"Management" and "Principal and Selling Shareholders."
No Prior Public Market for Common Stock; Potential Volatility of Stock
Price. Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained after this offering. The initial public offering price will be
determined through negotiation between the Company and the Representatives of
the Underwriters and may bear no relationship to the price at which the Common
Stock will trade after the offering. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price. The
market price of the Common Stock may be volatile and be significantly affected
by factors such as actual or anticipated fluctuations in the Company's operating
results, announcements of new services by the Company or its competitors,
developments with respect to conditions and trends in the contract staffing
industry or in the industries served by the Company, governmental regulation,
changes in estimates by securities analysts of the Company's future financial
performance, general market conditions and other factors. In addition, the stock
markets have from time to time experienced significant price and volume
fluctuations that have adversely affected the market prices of securities of
companies for reasons often unrelated to their operating performance.
10
<PAGE> 14
Shares Eligible for Future Sale. Sales of substantial amounts of Common
Stock in the public market after this offering could adversely affect the market
price of the Common Stock. An aggregate of 8,353,430 shares of Common Stock, all
of which are beneficially owned by Mr. Argenbright, will be eligible for public
sale beginning 90 days after this offering pursuant to Rule 144 under the
Securities Act of 1933 (the "Securities Act"). Mr. Argenbright, as well as all
persons holding currently exercisable stock options, have agreed not to sell,
offer for sale, or otherwise dispose of any Common Stock for a period of 180
days from the date of this Prospectus without the prior written consent of Alex.
Brown & Sons Incorporated. Within 180 days after this offering, the Company
expects to file registration statements covering the issuance of shares
underlying outstanding stock options and the issuance of shares pursuant to an
employee stock purchase plan that the Company intends to adopt following
consummation of the offering. As of December 31, 1996, outstanding options to
purchase 236,500 shares were currently exercisable and options to purchase
462,250 shares become exercisable at various times between December 1997 and
December 2000. See "Shares Eligible for Future Sale."
Certain Anti-Takeover Provisions. The Company's Amended and Restated
Articles of Incorporation and Bylaws provide for a five member Board of
Directors to be elected to staggered one, two and three year terms and,
thereafter, for successive three year terms. Additionally, directors may only be
removed from office for cause upon a vote of 80% of the Common Stock
outstanding. The Articles and Bylaws also provide that they may not be amended
in certain respects except pursuant to the vote of 80% of the Common Stock
outstanding. These provisions of the Articles of Incorporation and Bylaws could
discourage potential acquisition proposals and could delay or prevent a change
in control of the Company. See "Description of Capital Stock."
Dilution. The initial public offering price is substantially higher than
the net tangible book value per share of the Common Stock. Purchasers of shares
of Common Stock in this offering will incur immediate and substantial dilution
of $10.82 in the net tangible book value per share of Common Stock (assuming an
initial public offering price of $13.50 per share). To the extent that currently
outstanding options to purchase shares of the Company's Common Stock are
exercised, investors will experience further dilution. See "Dilution."
11
<PAGE> 15
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
2,250,000 shares of Common Stock offered by it hereby are estimated to be
approximately $27.6 million, after deducting underwriting discounts and
commissions and offering expenses (assuming an initial public offering price of
$13.50 per share).
The Company intends to use the net proceeds from the offering as follows:
(i) approximately $19.8 million to repay outstanding indebtedness, consisting of
(a) approximately $14.4 million outstanding under a revolving line of credit
with First Union Commercial Credit Corporation ("First Union"), which matures on
December 22, 1998 and bears interest, at the Company's option, at either the
prime rate or LIBOR plus 250 basis points (280 basis points for the European
operations) (with a weighted average interest rate during 1996 of 8.2%), (b)
$3.5 million of subordinated notes payable to Sirrom Capital Corporation
("Sirrom"), which mature on July 9, 2001 and bear interest at an annual rate of
13.5%, (c) approximately $1.2 million outstanding under notes payable to the
sellers of Intersec, which mature between July 8, 1997 and April 8, 1998 and
bear interest at an annual rate of 9.0% and (d) approximately $700,000
outstanding under a term loan with First Union, which matures on December 22,
1998 and bears interest, at the Company's option, at either the prime rate plus
75 basis points or LIBOR plus 300 basis points (with a weighted average interest
rate during 1996 of approximately 8.6%); (ii) approximately $1.0 million for
enhancements to the Company's management information systems; (iii) $750,000 to
repurchase a redeemable warrant held by Sirrom; and (iv) the balance for general
corporate purposes, including working capital purposes to support the Company's
growth and possible acquisitions. The notes to Sirrom were issued to finance the
Intersec acquisition in July 1996. Pending such uses, the Company intends to
invest the net proceeds of this offering in investment-grade, short-term,
interest-bearing securities.
Although the Company regularly evaluates possible acquisition
opportunities, it is not currently engaged in any negotiations and is not a
party to any letter of intent or other agreement or arrangement regarding any
acquisition. See "Business -- Structure and Integration of Acquisitions."
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock, and the
Board of Directors currently intends to retain all earnings for use in the
Company's business for the foreseeable future. The Company's credit facility
with First Union prohibits the payment of dividends. Any future payment of
dividends will depend upon the Company's results of operations, financial
condition, cash requirements and other factors deemed relevant by the Board of
Directors.
12
<PAGE> 16
DILUTION
The pro forma net tangible book value of the Company as of September 30,
1996, after giving effect to the Reorganization, would have been $832,000, or
$0.10 per share. The net tangible book value per share of Common Stock
represents the amount of the Company's shareholders' equity, less intangible
assets, divided by the 8,353,430 shares of Common Stock outstanding at that
date.
Net tangible book value dilution per share of Common Stock represents the
difference between the amount per share paid by purchasers of the 2,250,000
shares of Common Stock in this offering and the pro forma net tangible book
value per share of Common Stock immediately after completion of this offering.
After giving effect to the sale by the Company of the 2,250,000 shares of Common
Stock offered hereby (at an assumed initial public offering price of $13.50 per
share) and after deduction of underwriting discounts and commissions and
estimated offering expenses, the pro forma net tangible book value of the
Company as of September 30, 1996 would have been approximately $28.4 million, or
$2.68 per share. This represents an immediate increase in pro forma net tangible
book value of $2.58 per share to existing shareholders and an immediate dilution
in pro forma net tangible book value of $10.82 per share to purchasers of Common
Stock in this offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................. $13.50
Pro forma net tangible book value per share at September 30, 1996......... $0.10
Increase per share attributable to new investors.......................... $2.58
Pro forma net tangible book value per share after offering.................. 2.68
--------
Net tangible book value dilution per share to new investors................. $10.82
========
</TABLE>
The following table sets forth, as of September 30, 1996, the number of
shares of Common Stock purchased, the total consideration paid and the average
price per share paid by existing shareholders and by new investors purchasing
shares of Common Stock in this offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)....... 8,353,430 78.8% $ 1,000 --% $ --
New investors.................. 2,250,000 21.2 30,375,000 100.0 13.50
------- ----- ---------- -----
Total................ 10,603,430 100.0% $30,376,000 100.0%
======= ===== ========== =====
</TABLE>
- ---------------
(1) Excludes 698,750 shares of Common Stock issuable upon the exercise of
outstanding options exercisable at a weighted average price of $10.66 per
share. To the extent that these options are exercised, there will be
further dilution to new investors. See "Management -- Employee Benefit
Plans -- Stock Option Plan."
13
<PAGE> 17
CAPITALIZATION
The following table sets forth as of September 30, 1996 the pro forma
short-term debt and capitalization of the Company and as adjusted to reflect
receipt of the net proceeds from the sale of the 2,250,000 shares of Common
Stock pursuant to this offering (assuming an initial public offering price of
$13.50 per share):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------
PRO FORMA(1) AS ADJUSTED
------------ -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt.......................... $ 1,527 $ 527
======= =======
Long-term debt, net of current portion:
Credit facility.......................................... $ 14,616 $ --
Subordinated notes(2).................................... 3,667 --
Mortgage debt(3)......................................... 2,535 2,535
Equipment financing and other............................ 1,002 1,002
------- -------
Total long-term debt............................. 21,820 3,537
Redeemable warrant(4)...................................... 662 --
Shareholders' equity:
Preferred Stock: no par value; 5,000,000 shares
authorized; none issued or outstanding................ -- --
Common Stock: $.01 par value; 50,000,000 shares
authorized; 8,353,430 shares issued and outstanding
pro forma; 10,603,430 shares issued and outstanding as
adjusted.............................................. 1 23
Additional paid-in capital............................... -- 27,627
Cumulative translation adjustment........................ 26 26
Retained earnings........................................ 5,469 5,381
Due from shareholder..................................... (450) (450)(5)
------- -------
Total shareholders' equity....................... 5,046 32,607
------- -------
Total capitalization........................ $ 27,528 $36,144
======= =======
</TABLE>
- ---------------
(1) Pro forma to give effect to the Reorganization. See
"Management -- Compensation Committee Interlocks and Insider Participation."
(2) Consists of subordinated debt and seller notes related to the Intersec
acquisition.
(3) Consists of mortgage debt on the real estate contributed to the Company by
Mr. Argenbright in February 1997. See "Management -- Compensation Committee
Interlocks and Insider Participation."
(4) In connection with financing the Intersec acquisition, the Company issued a
redeemable warrant, which will be redeemed from the net proceeds of this
offering for a redemption price of $750,000.
(5) Mr. Argenbright intends to repay this indebtedness within 30 days of the
consummation of this offering. See "Management -- Compensation Committee
Interlocks and Insider Participation."
14
<PAGE> 18
SELECTED COMBINED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
The following selected financial and operating data of the Company are
qualified by reference to and should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Combined Financial Statements and Notes thereto included elsewhere
in this Prospectus. The selected financial data presented below as of and for
each of the fiscal years in the three-year period ended December 31, 1995 have
been derived from the Company's financial statements which have been audited by
Arthur Andersen LLP, independent accountants. The selected financial data for
the fiscal years ended December 31, 1991 and 1992 and the nine months ended
September 30, 1995 and 1996 are derived from the Company's unaudited financial
statements and include, in the opinion of management, all adjustments
(consisting of only normal recurring adjustments) necessary for a fair
presentation of the financial position and results of operations for such
periods. Results for the nine months ended September 30, 1996 are not
necessarily indicative of results that may be expected for the full fiscal year
ended December 31, 1996.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31,(1) SEPTEMBER 30,(2)
---------------------------------------------- -------------------
1991 1992(3) 1993 1994 1995 1995 1996(4)
------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................... $41,800 $82,576 $104,143 $123,234 $168,601 $123,119 $150,482
Operating expenses:
Cost of services................. 29,247 59,805 78,019 91,873 124,491 90,693 111,336
Field operating.................. 7,666 13,552 18,284 20,931 30,328 22,133 26,873
Corporate general and
administrative................. 3,532 6,809 6,796 8,797 10,938 7,943 8,420
------- ------- -------- -------- -------- -------- --------
Operating income............ 1,355 2,410 1,044 1,633 2,844 2,350 3,853
Interest expense, net.............. 510 429 593 904 1,309 868 1,159
Other (income), net................ (170) (108) (89) (26) (820) (35) (219)
------- ------- -------- -------- -------- -------- --------
Income before income
taxes..................... 1,015 2,089 540 755 2,355 1,517 2,913
Income tax provision(5)............ 364 645 700 627 917 591 1,050
------- ------- -------- -------- -------- -------- --------
Net income (loss)........... $ 651 $ 1,444 $ (160) $ 128 $ 1,438 $ 926 $ 1,863
======= ======= ======== ======== ======== ======== ========
Pro forma net income per share..... $ 0.17 $ 0.22
======== ========
Weighted average common and common
equivalent shares................ 8,646 8,646
======== ========
OPERATING DATA (AT PERIOD END):
Number of employees................ 2,465 3,972 5,714 7,334 9,954 9,682 11,984
Number of offices.................. 9 11 26 33 69 69 83
BALANCE SHEET DATA:
Working capital.................... $ 1,098 $ 1,898 $ 4,341 $ (763) $ 13,216 $ 1,924 $ 17,744
Total assets....................... 8,041 11,426 21,036 29,094 40,687 37,450 50,920
Long-term debt, net of current
portion.......................... 2,062 2,446 7,281 1,437 14,609 1,612 19,935
Shareholder's equity............... 953 2,443 2,123 2,252 3,577 3,291 5,265
</TABLE>
- ---------------
(1) The Company's fiscal year ends on the last Friday in December. Each of the
fiscal years presented consists of 52 weeks except that fiscal year 1993
consists of 53 weeks.
(2) Reflects the Company's operations for the 39-week periods ended September
29, 1995 and September 27, 1996, respectively.
(3) Includes the results of ADI from its acquisition in March 1992.
(4) Includes the results of Intersec from its acquisition in July 1996. See Note
4 of the Notes to the Company's Combined Financial Statements.
(5) Prior to 1996, the Company's U.S. operations were conducted through a
significant number of different corporations, all of which were owned by
Mr. Argenbright. Effective January 1, 1996, the Company effected a tax
reorganization which reduced the number of corporations, resulting in a
significantly lower effective state income tax rate.
15
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
AHL provides contract staffing and management of its clients'
labor-intensive, task-repetitive support functions on an outsourced basis
throughout the United States and Europe. Through its 60 offices in the United
States and 23 offices in seven European countries, AHL is able to service the
multinational needs of its Fortune 1000 client base. The Company currently has
approximately 400 contracts to provide services and has established long-term
relationships with its largest clients, providing the Company with a significant
source of recurring revenues. Revenues have grown from $82.6 million in 1992 to
$168.6 million in 1995, a compound annual growth rate of 26.9%. Frank A.
Argenbright, Jr., the Company's Chairman and Co-Chief Executive Officer, founded
the Company in 1979. As of February 1, 1997, all of the outstanding shares of
common stock of Argenbright, a holding company for U.S. operations, and ADI, a
holding company for European operations, were contributed to AHL by Mr.
Argenbright. As a result, Argenbright and ADI became wholly-owned subsidiaries
of the Company.
Since 1992, the Company has completed three acquisitions. In March 1992,
Mr. Argenbright acquired a portion of the passenger services operation of
British Airways at Heathrow Airport. This passenger services operation had
revenues in the first 12 months of operations of approximately $18.0 million.
The Company has used ADI as a platform to expand its operations in Europe. In
August 1993, ADI acquired Express Baggage Reclaim Services Limited, a provider
of lost baggage delivery and replacement services in the United Kingdom, with
revenues of approximately $1.8 million for the twelve months prior to the
acquisition. In July 1996, the Company acquired Intersec, a provider of
commercial and governmental security services in the mid-Atlantic region of the
United States, with revenues of approximately $10.0 million for the twelve
months prior to the acquisition. All of the Company's acquisitions to date have
been accounted for under the purchase method of accounting.
To finance the Intersec acquisition, the Company borrowed $3.5 million on a
subordinated basis and issued a warrant to purchase 1.75% of the outstanding
Common Stock of the Company. The Company has the right to repurchase the
redeemable warrant through December 31, 1997 for a purchase price of $750,000.
Upon consummation of this offering, the Company will repay this debt and
repurchase this warrant. In the first quarter of 1997, the Company expects to
incur a non-recurring pre-tax charge of approximately $900,000 as a result of
early extinguishment of this subordinated debt and the repurchase of the
warrant. In connection with the Intersec acquisition, the Company issued the
sellers a series of 9.0% notes aggregating approximately $1.2 million and
payable at various times through April 1998.
Historically, the Company focused primarily on increasing revenues and
expanding client relationships. In December 1994, AHL made the strategic
decision to strengthen its management team and develop a corporate
infrastructure to continue its growth strategy and improve profitability. The
new management team has dedicated itself to building the structure, systems and
processes throughout the Company to support significant growth and increase
profitability. The Company's current cost-reduction initiatives include an
improved risk management program, a management program for employee uniforms, a
shuttle bus maintenance program and a restructuring of the field staffing
organization.
The Company's services are provided under contracts, typically having terms
of one to five years, which provide the Company with a source of significant
recurring revenues. Although the terms of the Company's contracts vary
significantly, clients generally agree that the Company will provide a stated
service level and agree to pay an hourly rate for services provided. Certain of
the Company's clients, especially in the cargo services area, are billed a fixed
dollar amount per month for services performed. Under some contracts, the
Company is entitled to rate increases when there are increases
16
<PAGE> 20
in the Federal minimum wage although most of the Company's employees are paid at
rates in excess of the Federal minimum wage.
The Company recognizes revenues as services are performed. A substantial
amount of the Company's revenues are received, and operating costs are incurred,
in foreign currencies, with a significant amount of operating income having been
derived from operations in the United Kingdom. Because the Company's financial
statements are presented in U.S. dollars, any significant fluctuations in the
currency exchange rates between certain Western European currencies and the U.S.
dollar will affect the Company's results of operations and financial condition.
The Company does not currently engage in currency-hedging transactions.
In the fall of 1996, the Company made the decision to terminate the
paratransit and municipal bus services offered by its transportation subsidiary
in Florida. The Company incurred nonrecurring pre-tax losses (including
termination costs) associated with these operations aggregating approximately
$600,000 in 1996. The Company believes that substantially all costs related to
these operations have been accrued as of December 31, 1996.
RESULTS OF OPERATIONS
The following table sets forth Statement of Operations data as a percentage
of revenues for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
FISCAL YEARS ENDED SEPTEMBER
DECEMBER 31,(1) 30,(2)
------------------------ ---------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenues................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Cost of services...................... 74.9 74.6 73.8 73.6 74.0
Field operating....................... 17.6 17.0 18.0 18.0 17.8
Corporate general and
administrative..................... 6.5 7.1 6.5 6.5 5.6
----- ----- ----- ----- -----
Operating income................... 1.0 1.3 1.7 1.9 2.6
Interest expense, net................... 0.6 0.7 0.8 0.7 0.8
Other (income), net..................... (0.1) -- (0.5) -- (0.1)
----- ----- ----- ----- -----
Income before income taxes ........ 0.5 0.6 1.4 1.2 1.9
Income tax provision (3)................ 0.6 0.5 0.5 0.5 0.7
----- ----- ----- ----- -----
Net income (loss).................. (0.1)% 0.1% 0.9% 0.7% 1.2%
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) The Company's fiscal year ends on the last Friday in December. Each of the
fiscal years presented consists of 52 weeks except that fiscal year 1993
consists of 53 weeks.
(2) Reflects the Company's operations for the 39-week periods ended September
29, 1995 and September 27, 1996 respectively.
(3) Prior to 1996, the Company's U.S. operations were conducted through a
significant number of different corporations, all of which were owned by Mr.
Argenbright. Effective January 1, 1996, the Company effected a tax
reorganization which reduced the number of corporations, resulting in a
significantly lower effective state income tax rate.
17
<PAGE> 21
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
Revenues. Revenues increased $27.4 million, or 22.2%, to $150.5 million in
the first nine months of fiscal 1996 from $123.1 million in the comparable
period of fiscal 1995. Of this increase, $18.8 million was attributable to
higher revenues from existing clients, $5.4 million to services initiated for
new clients and $3.2 million to the Intersec acquisition. Revenues from existing
clients increased 10.3% in the first nine months of fiscal 1996 over the
comparable period of fiscal 1995 primarily as a result of providing additional
services and expanding into new markets with these clients.
Cost of Services. Cost of services represents the direct costs
attributable to a specific contract, predominantly wages and related benefits,
as well as certain related expenses such as workers' compensation and other
direct labor related expenses. Cost of services increased $20.6 million, or
22.8%, to $111.3 million in the first nine months of fiscal 1996 from $90.7
million in the comparable period of fiscal 1995. As a percentage of revenues,
cost of services increased to 74.0% in the first nine months of fiscal 1996 from
73.6% in the comparable period of fiscal 1995. This percentage increase was
primarily attributable to operating losses in the terminated Florida
transportation operations and operating inefficiencies associated with a new
contract in Detroit, which the Company believes have been corrected.
Field Operating Expenses. Field operating expenses represent expenses
which directly support field operations, such as each district's management,
facilities expenses (such as rent, communication costs and taxes), employee
uniforms, equipment leasing, depreciation and maintenance, local sales and
marketing activities and acquisition-related goodwill. These expenses increased
$4.8 million, or 21.4%, to $26.9 million in the first nine months of fiscal 1996
from $22.1 million in the comparable period of 1995, primarily as a result of
administrative staff, systems and facilities expenses for new operations in
Chicago, Cincinnati and Seattle opened during the first nine months of fiscal
1996. As a percentage of revenues, these expenses decreased to 17.8% in the
first nine months of fiscal 1996 from 18.0% in the comparable period of fiscal
1995.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses include the cost of services the Company provides to
support and manage its field activities. These expenses include corporate
management, accounting and payroll, general administration, human resources
management, professional fees, headquarters occupancy, marketing and management
information systems. These expenses increased $477,000, or 6.0%, to $8.4 million
in the first nine months of fiscal 1996 from $7.9 million in the comparable
period of 1995. As a percentage of revenues, these expenses decreased to 5.6% in
the first nine months of fiscal 1996 from 6.5% in the comparable period of
fiscal 1995. This percentage decrease was primarily due to the Company's ability
to increase revenues without a commensurate increase in corporate expenses.
Operating Income. Operating income increased $1.5 million, or 64.0%, to
$3.9 million in the first nine months of fiscal 1996 from $2.4 million in the
comparable period of fiscal 1995. As a percentage of revenues, operating income
improved to 2.6% in the first nine months of fiscal 1996 from 1.9% in the
comparable period of fiscal 1995.
Interest Expense, Net. Net interest expense increased $291,000 to $1.2
million in the first nine months of 1996 from $868,000 in the comparable period
of 1995. This was the result of approximately $4.7 million of additional
indebtedness incurred in connection with the Intersec acquisition in July 1996
and higher borrowings under the Company's revolving line of credit.
Other Income, Net. Other income, net increased $184,000 to $219,000 in the
first nine months of fiscal 1996 from $35,000 in the comparable period of 1995.
This increase was primarily due to the 1996 collection of notes received in the
sale of the Company's drug testing subsidiary in October 1995.
18
<PAGE> 22
Net Income. Net income increased $937,000, or 101.2%, to $1.9 million, or
1.2% of revenues, in the first nine months of fiscal 1996 from net income of
$926,000 million, or 0.7% of revenues, in the comparable period of fiscal 1995.
The Company's effective income tax rate was approximately 36.0% for the first
nine months of fiscal 1996 compared to 39.0% in the comparable period of fiscal
1995. This decrease was primarily a result of a tax reorganization, which
involved a reduction in the number of operating entities in the United States
and which significantly lowered the effective state income tax rate.
FISCAL 1995 COMPARED TO FISCAL 1994
Revenues. Revenues increased $45.4 million, or 36.8%, to $168.6 million in
fiscal 1995 from $123.2 million in fiscal 1994. Of this increase, $37.1 million
was attributable to higher revenues from existing clients and $8.3 million to
services initiated for new clients. Revenues from existing clients increased
30.1% in fiscal 1995 over fiscal 1994 primarily as a result of providing
additional services and expanding into new markets with these clients.
Cost of Services. Cost of services increased $32.6 million, or 35.5%, to
$124.5 million in fiscal 1995 from $91.9 million in fiscal 1994. As a percentage
of revenues, cost of services decreased to 73.8% in fiscal 1995 from 74.6% in
fiscal 1994. The percentage decrease was primarily attributable to improved
scheduling which reduced the amount of non-billable overtime and lower workers'
compensation claims.
Field Operating Expenses. Field operating expenses increased $9.4 million,
or 44.9%, to $30.3 million in fiscal 1995 from $20.9 million in fiscal 1994
primarily as a result of increased expenses attributable to expanded operations,
including entering the Denver and Frankfurt markets, and an increase in the size
of the field sales force from six to 11 people. As a percentage of revenues,
these expenses increased to 18.0% in fiscal 1995 from 17.0% in fiscal 1994. This
percentage increase was primarily attributable to significantly higher
maintenance cost associated with the paratransit and municipal bus services in
Florida (terminated in 1996), increased expenses attributable to expanded
operations and the increase in the size of the field sales force.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased $2.1 million, or 24.3%, to $10.9 million in
fiscal 1995 from $8.8 million in fiscal 1994 primarily due to continuing
additions to the Company's senior management team. As a percentage of revenues,
these expenses decreased to 6.5% in fiscal 1995 from 7.1% in fiscal 1994. This
percentage decrease was attributable to the Company's ability to increase
revenues without a commensurate increase in corporate expenses.
Operating Income. Operating income increased $1.2 million, or 74.2%, to
$2.8 million in fiscal 1995 from $1.6 million in fiscal 1994. As a percentage of
revenues, operating income improved to 1.7% in fiscal 1995 from 1.3% in fiscal
1994.
Interest Expense, Net. Net interest expense increased to $1.3 million in
fiscal 1995 from $904,000 in fiscal 1994. This increase was attributable to
higher borrowings under the Company's credit facility.
Other Income, Net. Other income, net increased $794,000 to $820,000 in
fiscal 1995 from $26,000 in fiscal 1994. This increase was attributable to
receipt of the cash portion of the sale price for the Company's drug testing
subsidiary in October 1995, net of associated disposition costs.
Net Income. Net income increased $1.3 million to $1.4 million in fiscal
1995 from $128,000 in fiscal 1994. As a percentage of revenues, net income
increased to 0.9% in fiscal 1995 from 0.1% in fiscal 1994. The Company's
effective tax rate was approximately 38.9% in fiscal 1995 compared to 83.0% in
fiscal 1994. This decrease was primarily a result of certain foreign losses for
which there was no income tax benefit.
19
<PAGE> 23
FISCAL 1994 COMPARED TO FISCAL 1993
Revenues. Revenues increased $19.1 million, or 18.3%, to $123.2 million in
fiscal 1994 from $104.1 million in fiscal 1993. Of this increase, $10.5 million
was attributable to services initiated for new clients and $8.6 million to
higher revenues from existing clients. Revenues from existing clients increased
11.0% in fiscal 1994 from fiscal 1993 primarily due to providing additional
services and expanding into new markets.
Cost of Services. Cost of services increased $13.9 million, or 17.8%, to
$91.9 million in fiscal 1994 from $78.0 million in fiscal 1993. As a percentage
of revenues, cost of services decreased to 74.6% in 1994 from 74.9% in fiscal
1993.
Field Operating Expenses. Field operating expenses increased $2.6 million,
or 14.5%, to $20.9 million in fiscal 1994 from $18.3 million in fiscal 1993. As
a percentage of revenues, these expenses decreased to 17.0% in 1994 from 17.6%
in fiscal 1993. This percentage decrease was directly attributable to the
Company's ability to increase revenues (particularly in its European operations)
without a commensurate increase in field expenses.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased $2.0 million, or 29.4%, to $8.8 million in
fiscal 1994 from $6.8 million in fiscal 1993. As a percentage of revenues, these
expenses increased to 7.1% in fiscal 1994 from 6.5% in fiscal 1993. These
increases were primarily attributable to a substantial upgrade in the Company's
management information systems.
Operating Income. Operating income increased $589,000, or 56.4%, to $1.6
million in fiscal 1994 from $1.0 million in fiscal 1993. As a percentage of
revenues, operating income improved to 1.3% in fiscal 1994 from 1.0% in fiscal
1993.
Interest Expense, Net. Net interest expense increased to $904,000 in
fiscal 1994 from $593,000 in fiscal 1993. This increase was attributable to
higher borrowings under the Company's credit facility.
Other Income, Net. Other income, net decreased to $26,000 in fiscal 1994
from $89,000 in fiscal 1993.
Net Income. Net income increased $288,000 to $128,000 in fiscal 1994 from
a net loss of $160,000 in fiscal 1993.
20
<PAGE> 24
QUARTERLY RESULTS AND SEASONALITY
The following table sets forth statement of operations data for the first
three quarters of fiscal 1996 and for each of the four quarters of fiscal 1995.
This quarterly information is unaudited but has been prepared on a basis
consistent with the Company's audited financial statements presented elsewhere
herein and, in the Company's opinion, includes all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of the
information for the quarters presented. The operating results for any quarter
are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996
--------- -------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues................................ $45,519 $ 47,643 $57,320
Operating expenses:
Cost of services...................... 33,541 35,342 42,453
Field operating....................... 8,253 8,427 10,193
Corporate general and
administrative..................... 2,864 2,848 2,708
------- ------- -------
Operating income................... 861 1,026 1,966
Interest expense, net................... 309 301 549
Other (income), net..................... (57) (81) (81)
------- ------- -------
Income before income taxes......... 609 806 1,498
Income tax provision.................... 214 298 538
------- ------- -------
Net income......................... $ 395 $ 508 $ 960
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1995 1995 1995 1995
--------- -------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues................................ $38,354 $ 41,140 $43,625 $ 45,482
Operating expenses:
Cost of services...................... 28,468 30,367 31,858 33,798
Field operating....................... 6,642 7,360 8,131 8,195
Corporate general and
administrative..................... 2,543 2,664 2,736 2,995
------- ------- ------- -------
Operating income................... 701 749 900 494
Interest expense, net................... 232 266 370 441
Other (income), net..................... -- (25) (10) (785)
------- ------- ------- -------
Income before income taxes......... 469 508 540 838
Income tax provision.................... 182 199 210 326
------- ------- ------- -------
Net income......................... $ 287 $ 309 $ 330 $ 512
======= ======= ======= =======
</TABLE>
The Company's contracts at airports with large volumes of international
passengers (such as New York -- Kennedy and London -- Heathrow) result in an
increase in staffing for certain passenger services during periods of higher air
travel, typically in the summer. The Company's contracts at airports with fewer
international passengers generally require more constant staffing throughout the
year. Therefore, the Company has experienced, and expects to continue to
experience, quarterly variations in its results of operations principally as a
result of the seasonality of air travel primarily to and from Europe. While the
effects of seasonality on AHL's business often are obscured by the timing of the
addition of new clients and the commencement of new services for existing
clients, the Company's operating income tends to be lower in the first and
fourth quarters of the fiscal year and highest in the third quarter of the
fiscal year. Additionally, the Company's operating margin tends to be lower in
the fourth quarter because of the occurrence of holidays
21
<PAGE> 25
during which the Company pays overtime wages to employees. Under certain of the
Company's contracts, the Company is not entitled to recoup the cost of these
overtime wages.
LIQUIDITY AND CAPITAL RESOURCES
To support its rapid growth, AHL has historically relied on borrowings
under its bank revolving credit facility. In December 1995, the Company entered
into a three-year, $25.0 million revolving bank line of credit (of which $5.0
million is available to the Company's European operations) and $1.5 million term
debt facility (collectively, the "Credit Facility") to replace the Company's
prior $11.0 million revolving credit facility. The interest rate was reduced
from the prime rate plus 150 basis points to the prime rate or LIBOR plus 250
basis points (280 basis points for the European operations). The Credit Facility
is collateralized by substantially all of the Company's assets. As of December
31, 1996, there was approximately $14.4 million and $667,000 outstanding under
the line of credit and term debt portions of the Credit Facility, respectively,
as well as letters of credit aggregating approximately $3.3 million. The Company
will repay all amounts outstanding under the Credit Facility from the proceeds
of this offering. The Company expects to increase the amount of the Credit
Facility following this offering.
The Company borrowed $3.5 million in July 1996 to fund the Intersec
acquisition. This non-amortizing subordinated debt bears interest at 13.5% per
annum, payable monthly. Sirrom received a warrant to purchase 1.75% of the
outstanding Common Stock of the Company, which the Company has the right to
repurchase through December 31, 1997 for a purchase price of $750,000. Upon
consummation of this offering, the Company will repay this subordinated debt and
repurchase the warrant. In connection with the Intersec acquisition, the Company
issued $1.2 million of notes to the sellers, which bear interest at 9.0% per
annum, payable quarterly, and mature at various times through April 1998. Upon
consummation of this offering, the Company will repay these notes.
Cash used in operating activities was $667,000 in the first nine months of
fiscal 1996. This was the result of $4.7 million of net income before
depreciation and amortization and other non-cash charges offset by $5.4 million
of changes in operating assets, primarily accounts receivable, offset by accrued
salaries and related benefits payable. These changes were consistent with the
Company's higher volume of business. Cash used in investing activities for the
first nine months of 1996 was $3.4 million, principally as a result of the
Intersec acquisition made in July 1996. Cash provided by financing activities
for the first nine months of 1996 was $4.5 million, principally representing
increases in borrowings under the Credit Facility and issuance of the
subordinated notes associated with the Intersec acquisition.
Cash used in operating activities was $3.5 million in fiscal 1995. This was
the result of $4.5 million of net income before depreciation and amortization
and other non-cash charges offset by $8.0 million of changes in operating assets
and liabilities. Cash used in investing activities for fiscal 1995 was $1.6
million, primarily related to the purchase of $2.6 million of management
information systems upgrades and shuttle buses offset by $1.0 million from the
proceeds from the sale of the Company's drug testing subsidiary. Cash provided
by financing activities for fiscal 1995 of $5.1 million resulted primarily from
the refinancing of, and net borrowings under, the previous bank line of credit
and term debt.
Cash provided by operating activities was $132,000 in fiscal 1994. This was
the result of $2.2 million of net income before depreciation and amortization
and other non-cash charges offset by $2.1 million of changes in operating assets
and liabilities. Cash used in investing activities for fiscal 1994 was $1.2
million, primarily related to the purchase of management information systems
upgrades and shuttle buses. Cash provided by financing activities of $1.1
million resulted primarily from borrowings under the Company's previous bank
line of credit.
Capital expenditures were $1.1 million, $2.6 million and $1.3 million in
the nine months ended September 30, 1996 and fiscal 1995 and 1994, respectively.
Historically, capital expenditures have
22
<PAGE> 26
been, and future expenditures are anticipated to be, primarily to support
expansion of the Company's operations and management information systems.
The Company believes that any funds generated from operations, together
with existing cash, the net proceeds of this offering and borrowings under the
Credit Facility, will be sufficient to finance its current operations, planned
capital expenditure requirements and internal growth for at least the next
several years. However, if the Company were to make any significant acquisitions
for cash, it may be necessary for the Company to obtain additional debt or
equity financing. Although the Company regularly evaluates possible acquisition
opportunities, it is not currently engaged in any negotiations and is not a
party to any letter of intent or other agreement or arrangement regarding any
acquisition.
INFLATION
The Company does not believe that inflation has had a material effect on
its results of operations in recent years. However, there can be no assurance
that the Company's business will not be affected by inflation in the future.
23
<PAGE> 27
BUSINESS
AHL provides contract staffing and management of its clients'
labor-intensive, task-repetitive support functions on an outsourced basis
throughout the United States and Europe. The Company's core competencies are
recruiting, hiring, training, motivating and managing the large numbers of
personnel required to provide many of the support services needed by its clients
and incorporating quality systems and cost efficiency in its operations. Founded
in 1979, the Company is a leader in providing pre-departure screening, passenger
profiling and other passenger services to the aviation industry and,
increasingly, provides services to other large corporations, including Federal
Express, America Online, Georgia Power, BellSouth and Nike. Through its 60
offices in the United States and 23 offices in seven European countries, AHL is
able to service the multinational needs of its Fortune 1000 client base. The
Company currently has approximately 400 contracts to provide services and has
established long-term relationships with its largest clients, giving the Company
a significant source of recurring revenues. In December 1994, AHL made the
strategic decision to strengthen its management team and develop a corporate
infrastructure to continue its growth strategy and improve profitability. The
Company intends to take advantage of market trends toward contract staffing and
become the preferred provider of outsourced labor management solutions for its
clients by leveraging its core competencies, international scale, reputation for
quality, performance-based quality measurement systems, management depth and
senior-level relationships with its key clients.
INDUSTRY OVERVIEW
Many corporations and other institutions need to recruit, hire, train,
motivate and manage large numbers of personnel to handle non-core functions, in
labor environments often characterized by relatively low pay and high turnover
rates. Enterprises incur considerable expense and invest substantial amounts of
management time in managing this process. These enterprises are increasingly
contracting with specialized third party providers to better ensure long-term
labor availability for support functions. Contract staffing providers often are
able to provide higher quality services at a lower cost than these enterprises
are able to do themselves. Outsourcing these functions shifts employment costs
and risks, such as workers' compensation, recruitment and turnover costs and
changes in labor regulations, to outside vendors and allows enterprises to
reduce the administrative overhead and time necessary to properly manage
non-core functions.
The nature of the contract staffing industry is changing. As enterprises
centralize purchasing decisions and seek to reduce the number of vendors with
whom they do business, the ability of providers to offer national account
capability and national and international coverage is growing in importance.
Large enterprises are increasingly seeking partnering opportunities whereby the
third party provider, in addition to providing on-site management of staff,
assumes responsibility for a particular function, including designing and
implementing a solution for its client and shares in the economic benefits
derived from improved execution of the function. These trends, as well as the
increasing need for capital and management depth for growth, are creating
consolidation opportunities in the highly fragmented contract staffing industry.
While the aviation industry has historically outsourced certain functions,
such as food service, fueling and pre-departure screening, aviation companies
are increasingly outsourcing labor-intensive support functions not directly
related to flight operations. Functions which are increasingly being outsourced
include passenger profiling, baggage claim and check, sky cap, cargo and baggage
handling, aircraft clean and search, frequent flyer lounge operation, ramp
services, wheelchair assistance, shuttle bus, inter-gate cart, ticketing and
check-in services. Opportunities for outsourcing of security-related
labor-intensive, task-repetitive functions within the aviation industry have
increased in recent years and are expected to continue to increase if the FAA
approves more stringent security measures. Measures under consideration by the
FAA and the White House Commission on Aviation Safety and Security (the "Gore
Commission") in the United States include certification of service providers,
X-raying and matching all checked baggage, implementation of a passenger
profiling system and under-the-wing security guards for parked aircraft.
24
<PAGE> 28
Growth in demand for contract staffing services in the United States and
Europe is expected to continue. Companies in numerous industries are seeking to
reduce costs and focus on their core competencies and, as a result, are
increasingly outsourcing support functions which have traditionally been
performed in-house. The trend toward outsourcing labor management in Europe is
not as developed as it is in the United States, due in part to historically more
restrictive labor regulations which are beginning to be liberalized. Two trends
are expected to increase demand for aviation-related contract staffing services
in Europe: (i) the privatization of major airlines, which should increase their
focus on improving operating performance, and (ii) the liberalization of airport
authority licensing, which currently restricts the number of vendors that may
provide aviation services at a particular airport. The European Union has
mandated that European airports be opened to increased competition to provide
various ground services beginning in January 1999.
BUSINESS STRATEGY
The Company intends to take advantage of market trends toward contract
staffing and become the preferred provider of outsourced labor management
solutions for its clients by leveraging its core competencies, international
scale, reputation for quality, increasing focus on performance-based quality
measurement systems, management depth and senior-level relationships with its
key clients. Key elements of the Company's business strategy include:
Exploit Core Competencies. The Company's core competencies include
recruiting, hiring, training, motivating and managing the large numbers of
personnel required to provide many of the support services needed by its clients
and incorporating quality systems and cost efficiency in its operations. In
1996, the Company recruited, hired and trained over 9,000 full-time employees to
provide services for its clients. The Company completed drug tests and
background checks for substantially all of these individuals. Since inception,
the Company has been able to provide quality service and expand its business
despite the high employee turnover that is inherent in low wage, task-repetitive
positions. The Company has been able to leverage its core competencies in labor
management to regularly expand the range of services it offers. Functions
currently performed by the Company include a variety of aviation passenger
services, commercial security, shuttle bus services and cargo handling.
Target Fortune 1000 Clients. AHL targets large corporations and
institutions that have significant contract staffing needs for labor-intensive,
task-repetitive functions. AHL's major clients include Delta Air Lines, British
Airways, United Airlines, Federal Express, America Online, The Coca-Cola
Company, Northwest Airlines, BellSouth, Nike, United Parcel Service, Georgia
Power, Emory University and several federal, state and local government
agencies. The Company has established long-term relationships with its largest
clients, providing the Company with a source of significant recurring revenues
and establishing the Company as a preferred outsourcing vendor for these
clients. The Company's high quality of services has enabled it to experience an
average retention rate of approximately 98% of clients and 92% of contract
billable hours over the last three fiscal years. The Company's field management
and direct sales force market AHL's services to clients in their assigned
regions, while senior executives concentrate on senior-level relationships and
national account management. Building and maintaining relationships with its
clients' senior executives and local operating personnel has been, and will
continue to be, an important operating philosophy for the Company.
Leverage National and International Coverage. As companies centralize
purchasing decisions and seek to reduce the number of vendors with whom they do
business, the ability of contract staffing providers to offer national and
international coverage is growing in importance. Through its operations in 60
offices in the United States and 23 offices in seven European countries, AHL is
able to service the multinational needs of its Fortune 1000 client base. The
Company believes its ability to provide a consistently high level of service at
numerous locations worldwide provides it with a significant competitive
advantage. The Company's four largest clients use AHL's services in both their
North American and European operations.
25
<PAGE> 29
Utilize Performance-Based Measurement Systems. The Company's goal is to
assume a leadership position in the adoption of technology-driven,
performance-based measurement systems which will further differentiate AHL in
the contract staffing industry in which quality measurement has not been
prevalent. The Company believes its efforts will enable it to become a preferred
vendor for its clients and attract additional clients. AHL has been developing
and will continue to develop systems to measure performance in order to
demonstrate the quality of the Company's services and productivity gains
achievable by outsourcing labor-intensive functions to the Company. For example,
in conjunction with United Airlines, the Company will be reengineering the
pre-departure screening process at Chicago's O'Hare Airport by measuring
passenger and baggage throughput, employee retention and labor utilization
rates. The goal of this reengineering effort is to quantify cost savings which
would be shared by United Airlines and the Company.
Continue Investment in Management and Systems. Historically, the Company
focused primarily on increasing revenues and expanding client relationships. In
December 1994, AHL made the strategic decision to strengthen its management team
and develop a corporate infrastructure to continue its growth strategy and
improve profitability. The Company has recruited senior and regional managers
with operating experience in a variety of industries. The Company continues to
invest substantial resources to develop budgeting, financial reporting, contract
control and human resource tracking systems designed to provide quality service
to its clients and to manage and effectively control all aspects of its
business. These systems represent a competitive advantage and are designed to
enable the Company to improve its profitability.
GROWTH STRATEGY
AHL believes there are significant opportunities to expand its business as
large corporations and other institutions outsource labor-intensive,
task-repetitive functions in order to focus on their core competencies. The
Company follows a disciplined model for growth, entering a new market only after
it has signed a contract with a client to provide specific services in that
market. Once an initial contract is awarded, the Company establishes an office
and begins building management depth in that market. After establishing
operations in a new market and demonstrating its ability to provide high quality
services, the Company has successfully leveraged its local infrastructure by
marketing additional services to its initial client and by providing services to
additional clients in that region. Key elements of the Company's growth strategy
include:
Penetrate Existing Accounts. The Company believes there are substantial
opportunities to expand relationships with existing clients by increasing the
number of client locations served by AHL as well as by cross-selling the full
range of the Company's services. The Company seeks to capitalize on the services
provided in one location of a client by providing its services to other
locations or operations, including foreign operations, of its clients. For
example, in 1993 the Company provided pre-departure screening for United
Airlines in three of its domestic hubs. As a result of the quality of its
service and its ability to provide national and international coverage, AHL now
provides pre-departure screening and a range of other services at all of
United's domestic hubs and at four European locations. The Company has targeted
approximately five new domestic and international markets to enter in 1997, with
each of these expansions arising from a contract it expects to receive from an
existing customer.
Expand Service Offerings. The Company believes its core labor management
competencies can be leveraged across a wide range of labor-intensive,
task-repetitive functions. The Company seeks to provide new value-added
services, which can increase the average account size and, more importantly,
strengthen long-term relationships with its clients. The Company believes that
it is well-positioned to deliver additional services to its clients such as
warehouse "pick and pack" and light assembly services. AHL is actively pursuing
partnership arrangements with its clients as a means of providing new services.
For example, AHL has recently entered into a joint venture with British Airways,
whereby the Company provides passenger and baggage check-in and other passenger
services for British Airways in Nice, France. The Company expects to enter into
similar
26
<PAGE> 30
arrangements with British Airways for other European locations. The Company did
not previously provide passenger check-in or baggage services for any of its
airline clients.
Obtain New Clients. To take advantage of the trend towards outsourcing of
non-core functions, the Company intends to target new clients that are
increasing their focus on core competencies and seeking cost-effective solutions
for labor-intensive functions. The Company believes it has a competitive
advantage in competing for new clients because of its reputation for quality
service, management depth, ability to provide a broad range of services and
national and international coverage. The Company recently hired a Vice President
of Marketing and is developing a new marketing program that focuses on national
accounts. During 1997, the Company intends to add seven sales representatives in
the United States and Europe to its existing 12-person sales force and, for the
first time, hire a national salesperson for shuttle bus services.
Explore Strategic Acquisitions. AHL intends to take advantage of the
fragmented nature of the contract staffing industry by seeking domestic and
international acquisitions, thereby leveraging the Company's existing
infrastructure and enabling the Company to expand its geographic coverage or
service offerings. The Company believes it has developed the management team and
systems to enable it to identify acquisition candidates and to successfully
acquire and integrate businesses. For example, in July 1996, the Company
acquired Intersec, a provider of industrial and governmental security services
in the mid-Atlantic region of the United States. In March 1992, Mr. Argenbright
acquired a portion of the passenger services operation of British Airways at
Heathrow Airport.
SERVICES PROVIDED
The following table presents information with respect to the percentage of
the Company's revenues by major service category for the periods shown:
<TABLE>
<CAPTION>
FISCAL YEARS
ENDED NINE MONTHS
DECEMBER 31, ENDED
------------- SEPTEMBER 30,
SERVICES PROVIDED 1994 1995 1996(1)
--------------------------------------------------------- ---- ---- -------------
<S> <C> <C> <C>
Passenger services:
Pre-departure screening and passenger profiling..... 56% 54% 51%
Other passenger services(2)......................... 4 4 5
Commercial security.................................... 22 22 26
Shuttle bus services................................... 8 8 9
Cargo handling......................................... 3 6 4
Other(3)............................................... 7 6 5
--- --- ---
Total.......................................... 100% 100% 100%
=== === ===
</TABLE>
- ---------------
(1) Includes revenues of Intersec, a provider of commercial security services
from the date of its acquisition in July 1996.
(2) Includes baggage claim and check, aircraft clean and search, lost baggage
delivery and replacement, sky cap, wheelchair assistance, escorting of
unaccompanied minors, inter-gate cart services and frequent flyer lounge
operation.
(3) Includes the terminated paratransit and municipal bus services in Florida.
Passenger Services.
Pre-Departure Screening and Passenger Profiling. The Company is the
largest provider of pre-departure screening services in the United States and a
leading provider of passenger services in Europe, with approximately 4,100
employees currently providing services at 33 airports in the United States and
21 airports in Europe. Pre-departure screening is a security approach maintained
at all commercial airports in the United States and the United Kingdom under
mandates of the FAA and the U.K. DOT and at many other airports throughout the
world under similar mandates of other
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<PAGE> 31
regulatory authorities. At pre-departure screening checkpoints, all passengers
and other airport patrons must physically pass through a device called a
magnetometer, designed to reveal the presence of metal objects, and all carry-on
baggage and other items carried into the concourse or gate area must pass
through an X-ray device to determine whether certain suspicious materials are
present. Major airports at which the Company provides pre-departure screening
services include Los Angeles International, New York -- Kennedy,
Washington -- National and Dulles, Denver International, Chicago -- O'Hare, San
Francisco, Orlando, Boston and Memphis in the United States.
In Europe, the Company provides a sophisticated passenger profiling
procedure which has been used by certain major European airlines for several
years at high-risk international airports in Europe and was mandated in 1994 by
the FAA for U.S. airlines' international flights from those airports. Passenger
profiling seeks to identify a potential threat before it materializes by means
of interviewing, document verification and behavioral analysis. This procedure
results in the classification of the vast majority of passengers as low risk,
thereby enabling more scrutiny to be focused on higher risk passengers. The
Company has been providing profiling services in Europe since 1992, currently
has over 300 employees providing these services and believes that if the FAA
were to mandate profiling in the United States, the Company would be
well-positioned to quickly implement profiling procedures for its U.S. clients.
See "-- Government Regulation." The Company has developed TOPS2 and OSCARGO,
proprietary state-of-the-art computer-based profiling systems to meet expected
future profiling requirements. Major airports at which the Company provides
passenger profiling services include London -- Heathrow and Gatwick,
Paris -- Charles de Gaulle, Frankfurt, Berlin, Dublin, Vienna and Zurich.
Other Passenger Services. Historically, airlines have utilized their own
employees to provide most passenger services but are increasingly seeking to
outsource support functions. The Company provides a variety of other passenger
services to its airline clients, including baggage claim and check in 22
airports in the United States and Europe, aircraft clean and search in four
European airports and lost baggage delivery or replacement services in 11
European airports. At 16 airports in the United States and Europe, the Company
provides an assortment of services including sky cap, wheelchair assistance,
escorting of unaccompanied minors, inter-gate cart services and frequent flyer
lounge operation (front desk, bartending and cleaning).
Commercial Security.
The Company provides uniformed security officer services, business and
facility access control, security consulting, special event security and
security assessment to a broad range of commercial and governmental clients. The
Company's security officers are used at office and government buildings,
airports, hospitals, distribution centers, sports arenas, museums and other
facilities. For aviation clients, the Company provides guarding and control of
airport entrances, checking of employee identification cards and baggage,
guarding and control of employee parking lots and under-the-wing guarding of
parked aircraft in Europe.
Depending on the needs of the client, security officers are on premises,
often around-the-clock, to provide facility security, access control, personnel
security checks and traffic and parking control and to guard against fire,
theft, sabotage and safety hazards. The Company's security officers are trained
to respond appropriately to emergency situations and report fires, intrusions,
natural disasters, work accidents and medical crises to appropriate authorities.
Fewer than one percent of the Company's security personnel are armed. See "Risk
Factors -- Liabilities for Client and Employee Actions and Other Claims."
Shuttle Bus Services.
The Company provides dedicated, fixed route shuttle bus services in 10
locations within the United States and two locations in the United Kingdom
through its fleet of approximately 400 leased shuttle bus vehicles, which
generally seat between 15 and 50 passengers. Under all of its shuttle bus
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<PAGE> 32
contracts, the Company provides the shuttle bus and the driver. During fiscal
1996, AHL vehicles traveled more than seven million miles and operated for more
than 700,000 hours. For example, AHL currently provides (i) campus shuttle
services at The Georgia Institute of Technology, Emory University and The
American School in London, (ii) corporate shuttle services between various
facilities of The Coca-Cola Company, Delta Air Lines and the Federal Reserve
Bank in Atlanta, (iii) public parking shuttle services for the Memphis/Shelby
County Airport Authority and the Nashville Airport Authority, (iv) aviation
employee transportation services from employee parking lots for Delta Air Lines
(Los Angeles, Cincinnati, Atlanta and New York) and Federal Express (Memphis,
Indianapolis and Newark) and (v) airside crew and passenger transport at
Heathrow Airport.
Cargo Handling.
The Company's cargo handling services include preparing cargo and mail for
flight through sorting and packaging, as well as transporting the cargo and mail
to and from airplanes in hub markets, such as Cincinnati and New York. In other
markets, such as Las Vegas and Washington, D.C., the Company provides the actual
staffing of customer counters and data input into the airline's cargo computer
system, in addition to handling the cargo. Cargo services are provided in these
other markets pursuant to outsourcing arrangements, under which the Company
manages the entire process for its clients. The Company processes air cargo for
several of its major aviation clients, including Delta Air Lines in New York,
Cincinnati, Washington D.C. and Seattle, and for United Airlines, Alaska
Airlines, America Trans Air, and Royal Airlines in Las Vegas. The Company also
provides cargo services to Air China and SwissAir in New York and Cathay Pacific
and Vanguard in Seattle pursuant to subcontracts from Delta Air Lines. In
addition to cargo handling, the Company provides U.S. Postal Service mail
handling for Delta Air Lines in Cincinnati and New York.
Other.
The Company provides polygraph training and testing services, conducts
investigations such as criminal and background checks, and provides facility
receptionists at commercial locations. The Company utilizes its polygraph
testing and background check services in its own hiring process. The Company has
provided paratransit and municipal bus services, but in 1996, made the decision
to terminate these services. The Company terminated its Tampa paratransit
business in the fall of 1996.
Contract Terms.
The Company's services are provided under contracts, typically having terms
of one to five years, which provide the Company with a source of significant
recurring revenues. Although the terms of the Company's contracts vary
significantly, clients generally agree that the Company will provide a stated
service level and agree to pay the Company an hourly rate for services provided.
Certain of the Company's clients, especially in the cargo services area, are
billed a fixed dollar amount per month for services performed. Under some
contracts, the Company is entitled to rate increases when there are increases in
the Federal minimum wage, although most of the Company's employees are paid at
rates in excess of the Federal minimum wage. Most contracts have multi-year
terms and are generally terminable by either party upon 30 to 90 days written
notice. However, since 1994, less than 2% of the Company's clients have
terminated contracts prior to expiration. Most of the contracts entered into by
the Company have been renewed or extended upon the expiration of their original
terms, with the Company having experienced an average retention rate of
approximately 98% of clients and 92% of contract billable hours over the last
three fiscal years. The Company's security officer services are generally
provided under contracts in which AHL assumes responsibility to employ, schedule
and pay all security officers and provide uniforms, equipment, training,
supervision, fringe benefits, bonding and workers' compensation insurance. The
Company's contracts typically provide that the Company will indemnify the client
from and against any claims for personal injury or death to any
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<PAGE> 33
person (other than an employee of the client) and for damage to any property
arising out of the acts or omissions of the Company unless the claim results
from any negligent act of the client.
Joint Venture with British Airways.
In 1996, the Company and British Airways created a joint venture to provide
passenger and baggage check-in and other passenger services for British Airways
in Nice, France. The joint venture entered into a management services agreement
with ADI under which ADI manages all of these services for the joint venture.
The management services agreement terminates in June 2001.
Clients.
AHL's ten largest clients in fiscal 1995 (excluding the terminated Florida
transportation operations), which accounted for an aggregate of 62.5% of the
Company's revenues, were Delta Air Lines, British Airways, United Airlines,
Federal Express, the United States government, American Airlines, Northwest
Airlines, Georgia Power, The Coca-Cola Company and the Nashville Airport
Authority. During fiscal 1995, Delta Air Lines, British Airways, United Airlines
and Federal Express accounted for 23.6%, 15.7%, 10.5% and 3.7% of the Company's
revenues, respectively, through an aggregate of 79 contracts and, together,
represented 53.5% of the Company's revenues. As of December 31, 1996, the
Company had approximately 400 contracts with approximately 986 clients. The
Company has 14 contracts in the United States and seven contracts in Europe that
provide annual revenues in excess of $2 million each. See "Risk
Factors -- Reliance on Major Clients."
CASE STUDIES
The Company has built strong relationships with a number of Fortune 1000
and other large, multinational companies. The following case studies demonstrate
the Company's ability to effectively utilize its operating and growth strategies
to develop its relationships with its clients.
British Airways. The Company established its relationship with British
Airways when Mr. Argenbright acquired a portion of the airline's passenger
service operation at Heathrow Airport in March 1992. In the following year,
British Airways awarded AHL additional Heathrow service contracts to provide
under-the-wing guarding of parked aircraft as well as clean and search and
passenger profiling services. The Company subsequently was awarded similar
British Airways service contracts at Gatwick and 16 additional airports
throughout the United Kingdom and in France and Germany. Contemporaneously, AHL
began providing airport services to other international air carriers at these
locations. In 1995 and 1996, AHL was awarded contracts for pre-departure
screening services for British Airways in both Detroit and Philadelphia. Most
recently, British Airways and the Company formed a joint venture to provide
passenger and baggage check-in and other passenger services for British Airways
in Nice, France.
Federal Express. In August 1986, the Company began providing shuttle bus
services for Federal Express employees at the Memphis airport. The services
provided by the Company were expanded in August 1994 to include pre-departure
screening of Federal Express' crews. Currently, the Company provides shuttle bus
and/or pre-departure screening services for Federal Express in Atlanta,
Indianapolis, Cincinnati, Newark, Paris and Manila. In 1993, AHL was selected
from a pool of 3,500 vendors as Federal Express' Service Provider of the Year.
Delta Air Lines. The Company began its relationship with Delta Air Lines
in the early 1980s when it began providing shuttle bus services at Delta's
Atlanta headquarters complex. Over the past 15 years, AHL has significantly
expanded both the services it provides Delta as well as the number of locations
at which they are provided. In 1986, the Company began performing pre-departure
screening services for Delta in Orlando. Today, AHL provides pre-departure
screening for the airline in New York -- Kennedy, Los Angeles, Washington, D.C.,
Orlando, Boston, Little Rock and West Palm Beach. In Los Angeles, the Company
has expanded its services to include sky cap, wheelchair assistance, baggage
handling and inter-gate carts. Furthermore, the Company now provides passen-
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<PAGE> 34
ger services for Delta at seven airports in four European countries, including
Paris -- Charles de Gaulle, Vienna, London -- Gatwick and Warsaw. Similarly,
Delta awarded the Company a cargo handling contract for New York in 1992 and
thereafter for Washington, D.C., Cincinnati and Seattle.
America Online. AHL was initially hired by America Online to provide
commercial security services at its Northern Virginia headquarters in May 1996.
The Company now provides commercial security services at America Online's
Jacksonville, Tucson and Albuquerque locations. In February 1997, the Company is
scheduled to begin these services in Oklahoma City and Salt Lake City. The
America Online contracts demonstrate the success of the Company's new national
account sales program. America Online recently designated AHL as its preferred
national security provider.
SALES AND MARKETING
Building and maintaining relationships with personnel at various levels of
its clients' organizations, including relationships with both senior executives
and local operating personnel has been, and will continue to be, an important
operating philosophy for the Company. The Company uses these relationships to
market its services to potential clients through individuals having senior
management and local operating responsibilities. AHL targets large corporations
and institutions that have significant contract staffing needs for
labor-intensive, task-repetitive functions. The Company has a local sales force
of 12 representatives located in AHL's regional offices in New York, Atlanta,
Florida, Memphis, Washington, D.C. and Los Angeles, and in 1997 intends to add
five local sales representatives in the United States, two in Europe and, for
the first time, a national sales representative for shuttle bus services. The
Company's eight regional vice presidents are each responsible for two or three
districts. Regional and district managers also have sales responsibilities and a
portion of their incentive compensation is dependent on meeting sales goals.
In 1996, the Company began to develop a national sales and marketing
strategy, under which the Company focuses on improving the consistency of its
sales approach. Furthermore, the Company has designated certain senior managers
as responsible for specific national account relationships with specific large
clients and intends to add a Vice President of National Accounts during 1997.
The Company recently hired a Vice President of Marketing and Strategic
Planning to lead the Company's sales and marketing initiatives. These
initiatives include the development of branded services, strategic partnering
through national accounts, positioning AHL as a full service provider capable of
reducing a client's total costs by establishing performance-based quality
measurement systems, creating national, regional and local marketing plans, and
coordinating the Company's participation in trade shows. In 1996, the Company
began conducting in-house sales seminars, at which regional, district and
national account managers, along with the Company's local sales personnel, focus
on how to sell services to larger accounts.
WORKFORCE MANAGEMENT
The Company's core competencies include recruiting, hiring, training,
motivating and managing the large numbers of personnel required to provide many
of the support services needed by its clients. The Company's district managers
have ongoing responsibility for hiring, recruiting and training the Company's
local workforce.
Recruiting. The Company has developed innovative recruiting methods that
have been particularly effective in reaching targeted pools of prospective
employees, in addition to utilizing traditional recruiting methods such as job
fairs, trade journals, local advertising, and interviewing at vocational
schools. After analyzing the demographics of each market, the Company seeks to
establish relationships with community groups and leaders. For example, in a
number of markets, the Company has found that senior citizens are an excellent
source of potential employees for its pre-departure screening services and
recruiters frequently visit senior citizen centers. The Company leverages these
community relationships to provide a feeder into the Company's employment pool
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<PAGE> 35
and believes that current Company employees serve as effective recruiters for
the Company. The Company believes these methods are more cost-effective than
more traditional recruiting methods.
Hiring. In 1996, the Company recruited, hired and trained over 9,000
full-time employees to provide services for its clients. Within the United
States, every employee must complete a written application and provide proof of
citizenship or resident alien status and is subject to a ten-year background
check, which is conducted internally by the Company. Unlike many of its
competitors, the Company requires mandatory pre-employment drug testing for all
employees. Employees stationed at airport checkpoint screening monitors are
subject to psychological testing.
In Europe, the Company screens potential applicants through a telephone
interview, and each potential employee must complete a written application and
undergo an interview that includes vision, hearing and psychological testing. An
initial one-year background check is required for every new employee. Each
European employee is hired subject to a three month probationary period and
continuity of employment is subject to a 20-year background check. Where legally
permitted, employees in certain European countries are also subject to random
drug testing.
Training. The Company provides in-house classroom and on-the-job training
programs for its hourly personnel through videos, guest lecturers and full-time
trainers who are employed at the Company's major district locations. The Company
is in the process of establishing performance measures to improve job focus and
accountability, create a quality audit process and implement "best practices and
procedures" in the Company's field operations. The Company intends to gain ISO
9000 certification for all U.S. operations and is already ISO 9002-certified in
the United Kingdom. The Company is the only organization approved by the U.K.
DOT to provide aviation security training to personnel of the U.K. DOT, the
agency that regulates aviation security matters in the United Kingdom.
Retention. The Company believes that employee retention is critical to
lowering operating costs and providing high quality service to its clients.
Accordingly, the Company places significant emphasis on programs to motivate its
employees and reduce employee turnover. Since inception, the Company has been
able to provide quality service and expand its business despite the high
employee turnover that is inherent in low wage, task-repetitive positions. The
Company's "110% Club" recognizes employees for superior attendance, attitude,
appearance and performance. Members receive quarterly bonuses and other rewards,
and are recognized throughout the Company. The Company's pre-departure screening
employees receive bonuses for detecting weapons and other illegal objects at
airport security checkpoints, including those detected during FAA-mandated
tests.
Field Management. The Company has developed a management structure under
which significant workforce decisions are made at the local level, thereby
requiring field managers to assume responsibility for recruiting, hiring and
retention. The Company's bonus system for district managers is based upon
achievement of specific performance objectives, including revenue, gross margin
and net contribution, new business and client retention and losses and claims
incurred. District managers can earn bonuses of up to 35% of their base
compensation by achieving all of their objectives established annually by the
Company. As an added incentive, the Company intends to establish a stock option
plan for key corporate and field staff following this offering.
Employees. As of December 31, 1996, the Company had approximately 13,000
employees. A total of 1,285 of the Company's security employees working at New
York -- Kennedy, 789 working at Chicago -- O'Hare and 34 working at government
facilities in the Washington, D.C. area are covered by collective bargaining
agreements. Each of these agreements was assumed by the Company in connection
with an acquisition or an outsourcing contract previously held by another
vendor. In 1996, unions initiated three efforts to organize certain Company
employees, each of which failed to receive sufficient support to require an
election. The Company considers its relations with its employees to be good.
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STRUCTURE AND INTEGRATION OF ACQUISITIONS
Since 1992, the Company has completed three acquisitions. In March 1992,
Mr. Argenbright acquired a portion of the passenger services operation of
British Airways at Heathrow Airport. The Company has used ADI as a platform to
expand its operations in Europe. In August 1993, ADI acquired Express Baggage
Reclaim Services Limited, a provider of lost baggage delivery and replacement
services in the United Kingdom. In July 1996, the Company acquired Intersec, a
provider of commercial and governmental security services in the mid-Atlantic
region of the United States. The Intersec acquisition added employees in a
region where the Company had strong field management. Intersec's billing,
payroll, cash management and general ledger functions were fully integrated into
the Company's operations within 120 days after completion of the acquisition.
The Company's intends to seek acquisitions which will build density in the
Company's existing markets, add geographic coverage to the Company's existing
businesses, broaden the Company's service offerings and expand the Company's
client base. Through acquisitions of smaller operations providing the same type
of services already provided by the Company, AHL believes it can leverage its
existing management and systems infrastructure and increase its market share in
locations at which the Company already has an established presence. In most
instances, these operations can be integrated into the Company's existing
operations, resulting in elimination of duplicative overhead and operating
costs. The Company also intends to seek larger acquisitions that will enable it
to enter new markets, provide new services and complement its client base. The
Company will seek to efficiently implement AHL's operating strategies at larger
acquired companies while retaining talented existing management of those
companies.
MANAGEMENT INFORMATION SYSTEMS
The Company has invested, and intends to continue to invest, substantial
resources to develop systems that will enable it to deliver quality customer
service, centrally manage its operations and achieve substantial cost savings.
The Company recently completed installation of a management information system,
which integrates the Company's financial, human resources, general ledger,
payables, receivables and payroll functions. The system completes budgeting,
forecasting and monthly profit and loss statements on a contract-by-contract
basis. In 1996, the Company brought the payroll function in-house, resulting in
estimated annual savings of approximately $225,000. The Company has networked
its corporate offices and all regional and district offices in the United States
and has E-mail capability to all U.S. offices and its London headquarters. The
Company has also made significant investments to upgrade field computers and has
leased two HP9000 systems which are run parallel to prevent downtime and give
the Company the capacity needed to handle anticipated future growth.
The Company has designated $1.0 million of the proceeds of this offering
for enhancements to management information systems. Systems initiatives in 1997
include computerized timekeeping and payroll for hourly employees through a
"swipecard" system, and real-time links with the Company's European operations.
The Company expects the swipecard system to enable AHL to develop performance
measurements for its customers and to allow the Company to prepare customer
bills from the data input by the swipecards. This system should also enable the
Company to improve scheduling to reduce the amount of non-billable overtime.
COMPETITION
The contract staffing industry is extremely competitive and highly
fragmented, with limited barriers to entry. Companies within the contract
staffing industry compete on the basis of the quality of service provided, their
ability to provide national and international services, the range of services
offered, as well as price. The Company believes its competitive advantages
include its reputation for providing high quality service and its ability to
serve large clients in the United States and Europe.
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Most of the Company's competitors offer a more limited range of services and
focus on a few specific industries.
The Company competes in international, national, regional and local markets
with outsourcing companies, specialized contract service providers and in-house
organizations that provide services to potential clients and third parties.
AHL's principal competitors include, in the aviation services industry, ICTS
International N.V., Globe Aviation Securities Corporation and International
Total Services, Inc. and, in the commercial security industry, are Borg-Warner
Security Corporation, Guardsmark, Inc. and The Wackenhut Corporation. The
Company's shuttle bus services compete primarily with numerous local and
regional companies. Certain of the Company's competitors and potential
competitors have significantly greater financial resources and larger operations
than the Company.
GOVERNMENT REGULATION
Current Regulations Relating to Aviation Security. Aviation security in
the United States is subject to regulations and directives issued by the FAA.
Under current regulations, responsibility for aviation security is shared
between the FAA and various other federal, state and local agencies and industry
participants (which include air carriers and airport authorities as well as
independent contractors that perform services for or on behalf of these industry
participants.) The FAA conducts threat and vulnerability assessments and,
through its regulatory authority, directs the aviation industry to implement
measures that address existing and anticipated threat situations. The FAA also
tests security measures at airports to assess vulnerabilities in current airport
security systems.
Under FAA regulations, each air carrier and airport authority must adopt
and carry out an FAA-approved security program that provides for the safety of
persons and property traveling in air transportation against acts of criminal
violence and aircraft piracy. Air carriers are responsible for providing
security measures for all people and items connected with their aircraft,
including passengers, baggage, and maintenance and flight crews. Airport
authorities are responsible for maintaining a secure environment on airport
grounds and for providing law enforcement support and training.
Each security program adopted by an airline must include: (i) the screening
of passengers and their carry-on baggage, and other persons having access to
controlled areas, to prevent the carriage aboard aircraft of weapons or
explosive devices, (ii) controlling access to aircraft, checked baggage and
cargo, (iii) appropriate controls on shipping of cargo and (iv) security
inspection of any aircraft left unattended.
Airlines may utilize either their own employees or third-party contractors
to carry out their security programs. Effective January 31, 1996, pre-departure
screeners must undergo a 10-year criminal and employment background check and a
five-year employment verification, with the employer required to maintain
records of these investigations throughout the term of employment. Screeners
operating X-ray systems must receive initial and recurrent training in the
detection of weapons and other dangerous articles.
From time to time, the FAA issues directives requiring the implementation
of specific actions by air carriers and airport authorities. For example,
following the destruction of TWA flight 800 in July 1996, the FAA began to
require additional passenger profiling for specified types of flights, matching
of passengers and checked baggage, additional searching of aircraft cabins and
cargo areas, additional physical searches of carry-on items and other enhanced
security measures.
Generally, European standards for aviation security are more stringent than
those currently in effect in the United States. Passengers are subject to more
comprehensive "profiling" and review of documents; parked aircraft must be
guarded, searched and cleaned in accordance with applicable regulations;
passenger baggage is subject to match procedures as well as random X-ray and
hand searches; commercial cargo is guarded and subject to random X-ray searches;
and airline employees and other crews are subject to additional security
measures. The FAA requires that U.S. airlines utilize similar passenger
profiling programs in their European operations.
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Recent Developments Relating to Aviation Security. Several recent
initiatives by United States governmental authorities and industry participants
have considered or recommended significant changes in regulatory requirements
relating to aviation security. These recent initiatives have been undertaken by
the United States Congress, through provisions of the Federal Aviation
Reauthorization Act of 1996 (the "1996 Act"); the Gore Commission, which was
established in July 1996 and published its initial report on September 9, 1996;
and the Aviation Security Advisory Committee ("ASAC"), a committee of government
and industry participants that commenced efforts to strengthen domestic aviation
security in July 1996 and issued its recommendations on December 12, 1996. Each
of these groups has considered issues that have ranged from the fundamental
structure of, and sharing of responsibilities relating to, aviation security to
specific near-term measures that could be implemented to improve aviation
security.
The Gore Commission, which was formed following the destruction of TWA
Flight 800 in July 1996, includes the heads of various federal agencies and is
charged with making recommendations as to how the partnership between the U.S.
government and industry participants can achieve improved aviation security. The
Gore Commission issued its initial report on September 9, 1996, and recommended:
(i) development of uniform performance standards for the selection, training and
certification of pre-departure screening companies; (ii) matching of passengers
and checked baggage at selected airports to determine how this process should be
implemented on a nationwide basis; (iii) the continued development and
implementation of an automated passenger profiling system; and (iv) utilization
of U.S. Customs Service personnel and computer systems to complement the efforts
of the FAA and other federal agencies. The Commission has indicated that it will
issue its final report by February 1, 1997.
The 1996 Act requires that the FAA conduct a study and report to Congress
on whether to transfer certain responsibilities of air carriers to either
airport authorities or to the federal government or whether to provide for some
other sharing of current responsibilities. This report has not yet been issued
by the FAA. However, the Company believes that the FAA is likely to follow the
final recommendation to be released by the Gore Commission, as described above.
The Act directs the FAA to "certify" companies that provide pre-departure
screening, continue to assist air carriers in developing computer-assisted
passenger profiling programs, assess programs for matching of passengers and
checked baggage that are currently being utilized in the industry on a test
basis, and report on changes to enhance and supplement the screening and
inspection of cargo and mail shipments.
ASAC was formed following the crash of Pan Am flight 103 in 1989 and is
charged with coordinating the flow of aviation security information and
countermeasures within the United States. ASAC includes representatives of
numerous federal agencies, associations of industry participants and public
interest groups and is chaired by the FAA's Director of Civil Aviation Security.
In July 1996, ASAC began to undertake an effort to strengthen the domestic
aviation security "baseline" and formed a working group to recommend specific
measures. In its report issued on December 12, 1996, ASAC recommended that no
change be made in the current structure or assignment of responsibilities for
aviation security. ASAC did recommend that the FAA initiate rulemaking
procedures for "certification" of security contractors and made numerous
recommendations with respect to specific aviation security measures, which are
generally consistent with those proposed by the Gore Commission.
Other Applicable Regulations. Airport authorities in many foreign
countries require that companies receive licenses in order to be able to perform
services at the airport and limit the number of licenses that are issued. The
Company is also required to maintain various licenses and permits from state and
local government authorities in order to provide commercial security, shuttle
bus and certain other services.
RISK MANAGEMENT AND SAFETY
Because the Company's business is labor intensive, workers' compensation is
a significant operating expense for the Company in the United States. In
addition, the Company is exposed to
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possible claims by its clients' customers or employees, alleging discrimination
or harassment by the Company's employees. The Company is also exposed to
liability for the acts or negligence of its employees while on assignment that
cause personal injury or damage, as well as claims of misuse of client
proprietary information or theft of client property. The Company has adopted
policies and procedures intended to reduce its exposure to these risks.
The Company maintains insurance against these risks with policy limits it
considers sufficient, subject to self insurance of $250,000 per incident and an
aggregate stop-loss. In addition, the Company maintains aviation liability
insurance of $500 million per incident. The Company establishes reserves in its
financial statements for the estimated costs of pending claims as well as the
estimated costs of incurred but not yet reported claims. The reserve for these
unreported claims is based on prior experience. The Company's reserves are
periodically revised, as necessary, based on developments related to pending
claims. As of December 31, 1996, the Company's reserve for workers' compensation
claims was $3.2 million.
The Company recently hired a professional risk management specialist. The
new risk manager, with the assistance of the Company's regional managers, is
responsible for claims management and the establishment of appropriate reserves
for the deductible portion of claims. Additionally, in the first quarter of
1997, the Company plans to implement a number of new risk control strategies.
These include establishing a risk allocation program which will provide local
managers with financial incentives to improve safety performance by decreasing
the number of workplace accidents. The Company also intends to implement
quarterly safety committee meetings with its local managers and field employees,
conduct defensive driving training sessions for its transportation employees,
conduct routine safety inspections of local work sites and instruct personnel in
proper lifting techniques in an effort to reduce the number of preventable
accidents.
EQUIPMENT AND FACILITIES
As of December 31, 1996, the Company operated a fleet of approximately 400
shuttle bus vehicles, which generally seat between 15 and 50 passengers. All of
these vehicles are leased, with lease terms that generally match the term of the
contract for which the vehicles are provided. In the event of early termination
of a contract, certain of the Company's clients are required to assume liability
for the vehicle leases.
The Company performs its own vehicle maintenance at each major location
through a separate maintenance division. Preventive maintenance is provided at
defined mileage intervals. Each maintenance shop has experience with all
maintenance and repair requirements for the Company's fleet, including air
conditioning and component maintenance. The Company has made reduction in bus
maintenance expense a corporate initiative for 1997. AHL intends to develop
national volume vendor accounts, reduce the number of mechanics, implement an
automated national maintenance and parts inventory system, and improve driver
and management training.
The Company maintains 83 offices in various metropolitan areas in the
United States and Europe. The Company's executive headquarters and corporate
operations are located in Atlanta, Georgia in leased facilities consisting of
approximately 3,700 and 15,200 square feet of office space, respectively. The
initial term of the executive headquarters lease expires in November 2001. In
February 1997, the Company will acquire the corporate operations building from
Mr. Argenbright, along with its regional offices in Orlando and Memphis. See
"Management -- Compensation Committee Interlocks and Insider Participation." In
addition, the Company's regional offices each consist of between 150 and 6,350
square feet. The Company believes its facilities are adequate to meet its needs
for the foreseeable future.
LITIGATION
From time to time, the Company is involved in routine legal proceedings
incidental to the conduct of its business. In the opinion of management, the
litigation, individually or in the aggregate, to which the Company is currently
a party is not likely to have a material adverse effect on the Company's results
of operations or financial condition.
36
<PAGE> 40
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The Company's executive officers, directors and key employees are as
follows:
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS AND DIRECTORS: AGE POSITION
- ---------------------------------------- --- ----------------------------------------
<S> <C> <C>
Frank A. Argenbright, Jr. ......... 48 Chairman and Co-Chief Executive Officer
Edwin R. Mellett................... 57 Vice Chairman and Co-Chief Executive
Officer
David L. Gamsey.................... 39 Chief Financial Officer
Thomas J. Marano................... 46 President and Chief Operating Officer -
Argenbright Holdings Limited
A. Trevor Warburton................ 54 Managing Director - The ADI Group
Limited
Robert McCullough(1)............... 54 Director
Hamish Leslie Melville(1).......... 52 Director
KEY EMPLOYEES:
- ---------------
Henry F. Anthony................... 45 Vice President of Human Resources -
Argenbright Holdings Limited
Nicholas G. Bailey................. 46 Finance Director - The ADI Group Limited
L. Celeste Bottorff................ 43 Vice President of Marketing and
Strategic Planning - Argenbright
Holdings Limited
Nigel D.J. Cotton.................. 44 Human Resources Director - The ADI Group
Limited
Daniel E. DiGiusto................. 45 Senior Vice President of Field
Operations - Argenbright Holdings
Limited
</TABLE>
- ---------------
(1) To be added upon consummation of this offering.
Mr. Argenbright founded the Company in 1979 and has been its Chairman and
Chief Executive Officer since that time. Mr. Argenbright graduated from the
Owner/President Management Program at Harvard Business School in 1991.
Mr. Mellett has been Vice Chairman and Co-Chief Executive Officer of the
Company since December 1994 and served on the Company's Advisory Board during
1994. From 1993 to 1994, he was a consultant and private investor. From 1984 to
1992, Mr. Mellett was Senior Vice President of The Coca-Cola Company, serving
also as President of Coca-Cola Northern Europe from 1990 to 1992 and President
of Coca-Cola USA from 1986 to 1988. From 1972 to 1984, Mr. Mellett was President
of the Food Services Division of PepsiCo.
Mr. Gamsey has been Chief Financial Officer of the Company since September
1995. From 1988 to September 1995, Mr. Gamsey was a Managing Director of
Investment Banking of Price Waterhouse LLP. From 1987 to 1988, Mr. Gamsey was
Chief Financial Officer of Visiontech, Inc., and from 1979 to 1987, Mr. Gamsey
was a Senior Audit Manager for Arthur Andersen LLP. Mr. Gamsey is a certified
public accountant.
Mr. Marano has been President and Chief Operating Officer - Argenbright
Holdings Limited, the holding company for the Company's U.S. operations, since
July 1995. From 1990 to June 1995, Mr. Marano was Vice President and a Global
Customer Director for The Coca-Cola Company, and from 1986 to 1990, he was Vice
President of U.S. Sales, Fountain Division, of The Coca-Cola Company. From 1985
to 1986, Mr. Marano was Vice President of U.S. Sales of Apple Computer.
37
<PAGE> 41
Mr. Warburton has been Managing Director - The ADI Group Limited, the
holding company for the Company's European operations, since January 1993. From
1990 to 1992, Mr. Warburton was Senior Vice President of Ground Services for
Ogden Aviation Services. From 1989 to 1990, he was Operations Director for Ogden
Aviation Services at London-Gatwick. From 1987 to 1989, he was head of Ground
Operations for British Airways at London-Gatwick, and from 1961 to 1987, he held
a number of senior management positions with British Caledonian Airways.
Mr. McCullough will become a director of the Company upon the consummation
of this offering. Mr. McCullough has been Chief Financial Officer and member of
the Board of Directors of AMVESCO PLC (formerly INVESCO PLC) since April 1996.
He was a partner for Arthur Andersen LLP from 1974 until April 1996.
Mr. Melville will become a director of the Company upon the consummation of
this offering. Mr. Melville has been Chairman of Scottish Woodlands Limited
since 1992. He was Chairman of Dunedin Fund Managers Limited from 1992 to 1995,
Chairman and Chief Executive Officer of Capel Cure Myers Capital Management from
1988 to 1991 and Founder and Chief Executive of Enskilda Securities from 1982 to
1987. Mr. Melville is a director of Fleming Mercantile Investment Trust PLC,
Mithras Investment Trust PLC, Old Mutual South Africa Trust plc, Persimmon plc
and the Scottish Investment Trust PLC. He is also Chairman of the National Trust
for Scotland.
Mr. Anthony has been Vice President of Human Resources - Argenbright
Holdings Limited since January 1996. From 1993 to 1995, Mr. Anthony was Vice
President of Human Resources of National Linen Service. From 1989 to 1993, Mr.
Anthony was Vice President of Human Resources for BET Plant Services, Inc.
Mr. Bailey has been Finance Director - The ADI Group Limited since May
1995. From January 1994 to April 1995, he worked in Kazakhstan establishing the
financial operations for Tengizchevroil, a joint venture between the Government
of Kazakhstan and Chevron Petroleum. From 1992 to 1993, Mr. Bailey was an
independent consultant to the airline industry. Prior thereto, Mr. Bailey held a
number of positions in the airline industry. Mr. Bailey is a Chartered
Accountant.
Ms. Bottorff has been Vice President of Marketing and Strategic
Planning - Argenbright Holdings Limited since September 1996. From 1994 to 1996,
Ms. Bottorff was Marketing Director of The Atlanta Journal-Constitution. From
1990 to 1994, Ms. Bottorff was Director of Strategic Planning of Holiday Inn
Worldwide. From 1987 to 1990, she was Manager of Field Planning for The
Coca-Cola Company, and from 1983 to 1987, she was an Engagement Manager for
McKinsey & Co., Inc.
Mr. Cotton has been Human Resources Director - The ADI Group Limited since
August 1993. From 1989 to 1992, he was Head of Human Resources - United Kingdom
for Ericsson plc., and during 1988, he was a Personnel Manager with British
Airways. Prior thereto, he was employed by British Caledonian Airways.
Mr. DiGiusto has been Senior Vice President of Field
Operations - Argenbright Holdings Limited since 1989. From 1974 to 1989, Mr.
DiGiusto was employed by Burns International Security, most recently as its
Northeast Division Vice President.
Upon consummation of the offering, the Company will establish an Audit
Committee and Compensation Committee of the Board of Directors. A majority of
the members of the Audit and Compensation Committees will be independent
directors.
COMPENSATION OF DIRECTORS
To date, directors have not received compensation for their service as
directors. Following this offering, the Company intends to pay its independent
directors $10,000 annually plus $1,000 for each Board meeting attended and $500
for each committee meeting attended. In addition, directors will be reimbursed
for expenses incurred in connection with attendance at Board and committee
meetings. The Company intends to grant to each independent director options to
purchase 5,000
38
<PAGE> 42
shares of Common Stock at the initial offering price concurrently with the
consummation of this offering. See "--Employee Benefit Plans--Stock Option
Plan."
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Mellett,
Marano and Gamsey. The agreement with Mr. Mellett expires on December 1, 2000,
and the agreements with Messrs. Marano and Gamsey expire on December 1, 2001
(the "Expiration Date"). Each agreement also may be terminated by the Company
with or without cause or upon the employee's death or inability to perform his
duties on account of a disability for a period of three months during any
consecutive twelve month period or by the employee. If any agreement is
terminated by the Company prior to the Expiration Date, except for cause or upon
the employee's death or disability, the Company must continue to pay the
employee's base salary and bonus for one year (six months with respect to Mr.
Gamsey) from the date of termination. The agreements provide for annual base
salaries of $200,000, $250,000 and $165,000 for Messrs. Mellett, Marano and
Gamsey, respectively, and for annual bonuses dependent upon the Company's
financial performance and achievement of personal objectives established for
each employee by the Board of Directors. Mr. Marano's salary will be increased
to $300,000 on July 1, 1997 or, if earlier, upon the achievement of a specified
revenue level by Argenbright. Each agreement also contains two-year
noncompetition and nonsolicitation provisions.
The Company also has an employment agreement with Mr. Warburton. The
agreement is indefinite in length but may be terminated (i) immediately by the
Company for cause, (ii) by the Company on December 31 of any year with or
without cause provided that the Company gives at least twelve months prior
written notice, (iii) automatically upon Mr. Warburton's sixtieth birthday or
(iv) by Mr. Warburton at any time provided that he gives at least six months
prior written notice. The agreement provides for an annual base salary of
$144,000 and for an annual bonus dependent upon the Company's financial
performance and achievement of personal objectives established for Mr. Warburton
by the Board of Directors. The agreement also contains one-year noncompetition
and nonsolicitation provisions.
Substantially all of the employees of ADI have also entered into employment
agreements. In addition, substantially all of the Company's officers and
managers sign a noncompetition agreement as a condition to their employment.
39
<PAGE> 43
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the aggregate
compensation earned by the Co-Chief Executive Officers and the other three
highest paid executive officers (collectively, the "Named Executive Officers")
for services rendered in all capacities to the Company during the fiscal year
ended December 31, 1996:
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
ANNUAL COMPENSATION ------------
--------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($)
--------- --------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Frank A. Argenbright, Jr...... $600,000 (1) $ -- $ 200,388(2) -- $12,000(3)
Chairman and Co-Chief
Executive Officer
Edwin R. Mellett.............. 160,577 100,000 -- 322,500 --
Vice-Chairman and Co-Chief
Executive Officer
Thomas J. Marano.............. 250,000 125,000 -- 268,750 --
President and Chief
Operating Officer --
Argenbright Holdings
Limited
David L. Gamsey............... 153,173 65,000 -- 107,500 --
Chief Financial Officer
A. Trevor Warburton........... 144,000 45,000 -- -- 27,176(4)
Managing Director --
The ADI Group
</TABLE>
- ---------------
(1) Effective January 1, 1997, Mr. Argenbright's annual salary was reduced to
$350,000.
(2) Includes approximately $55,000 relating to club dues and initiation fees.
Effective January 1, 1997, other annual compensation will be significantly
reduced as the Company has revised its expense reimbursement policies.
(3) Represents life insurance premiums paid by the Company.
(4) Represents medical and life insurance payments and contributions to Mr.
Warburton's pension plan.
OPTION GRANTS
The following table sets forth information regarding option grants during
fiscal 1996 to each of the Named Executive Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------
% OF
TOTAL POTENTIAL REALIZABLE
OPTIONS VALUE AT ASSUMED ANNUAL
NUMBER OF GRANTED RATES OF STOCK PRICE
SECURITIES TO APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES EXERCISE TERM
OPTIONS IN FISCAL PRICE EXPIRATION ------------------------
GRANTED(#) 1996 ($/SH) DATE 5%($) 10%($)
---------- --------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Frank A. Argenbright, Jr..... -- -- -- -- -- --
Edwin R. Mellett............. 107,500 15.4% $ 4.64 10/15/06 $ 313,693 $ 794,959
215,000 30.8 11.76 12/01/06 1,590,097 4,029,618
Thomas J. Marano............. 268,750 38.4 11.76 12/01/06 1,987,621 5,037,023
David L. Gamsey.............. 107,500 15.4 11.76 12/01/06 795,049 2,014,809
A. Trevor Warburton.......... -- -- -- -- -- --
</TABLE>
40
<PAGE> 44
OPTION HOLDINGS
The following table sets forth certain information concerning the value of
unexercised options held by each of the Named Executive Officers as of December
31, 1996:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1996 AT DECEMBER 31, 1996(1)
----------------------------- -----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Frank A. Argenbright, Jr................ -- -- -- --
Edwin R. Mellett........................ 161,250 161,250 $ 765,400 --
Thomas J. Marano........................ 53,750 215,000 -- --
David L. Gamsey......................... 21,500 86,000 -- --
A. Trevor Warburton(2).................. -- -- -- --
</TABLE>
- ---------------
(1) Based on a fair market value of $11.76 per share as of December 31, 1996, as
determined by the Board of Directors.
(2) Concurrently with the consummation of this offering, the Company intends to
grant to Mr. Warburton options to purchase Common Stock at the initial
public offering price.
EMPLOYEE BENEFIT PLANS
Stock Option Plan. The Company's stock option plan (the "Stock Option
Plan") provides for the award of incentive stock options to officers and
employees of the Company and non-qualified stock options to independent
directors of the Company. AHL has reserved 376,250 shares of Common Stock for
issuance under the Stock Option Plan. The Plan will be administered by the
Compensation Committee of the Board of Directors. The purchase price of Common
Stock upon exercise of incentive stock options must not be less than the fair
market value of the Common Stock on the date of grant or, in the case of
incentive stock options issued to holders of more than 10% or greater of the
outstanding voting securities of the Company, 110% of fair market value on the
date of grant. The maximum term of any incentive stock option is ten years, or
five years in the case of options granted to 10% or greater shareholders. The
aggregate fair market value on the date of the grant of the stock for which
incentive stock options are exercisable for the first time by an employee during
any calendar year may not exceed $100,000. Options are exercisable over a period
of time in accordance with the terms of option agreements entered into at the
time of grant. Options granted under the Stock Option Plan are generally
nontransferable by the optionee and, unless otherwise determined by the
Committee, must be exercised by the optionee during the period of the optionee's
employment or service with the Company.
Employee Stock Purchase Plan. Following consummation of this offering, the
Company intends to adopt an Employee Stock Purchase Plan, pursuant to which
employees will be able to purchase shares of Common Stock through a payroll
deduction program.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1996, the Company did not have a compensation committee
of the Board of Directors. Executive officer compensation decisions were made by
Messrs. Argenbright and Mellett.
On February 1, 1997, pursuant to the Reorganization, Mr. Argenbright
contributed all of the outstanding shares of common stock of Argenbright and ADI
to the Company in exchange for 8,352,430 shares of Common Stock of the Company
and $5,000 in cash.
In March 1989, the Company borrowed $650,000 from Mr. Argenbright as
evidenced by a subordinated promissory note due January 12, 1999 at an interest
rate of 12% per annum. The Company used the proceeds of the loan for general
working capital purposes. The outstanding balance was approximately $528,000 at
December 31, 1996. The Company paid interest of $78,000 in each of the last
three years. On February 1, 1997, Mr. Argenbright contributed this note to the
41
<PAGE> 45
Company as part of the Reorganization, along with certain Company-occupied
offices and facilities in Atlanta, Orlando and Memphis and other assets. These
properties were transferred at their book values (which are less than their
appraised values). In connection with this transaction, the Company assumed the
associated mortgage debt of approximately $2.5 million. The Company was a
guarantor of certain of these mortgages.
Through the end of December, 1996, the Company periodically made loans to
unrelated businesses which are solely owned by Mr. Argenbright in the aggregate
principal amount of approximately $428,000. In addition, Mr. Argenbright has
periodically borrowed money from the Company which aggregated approximately
$450,000. These loans, which do not bear interest, were unsecured and are
repayable on demand. The Company has adopted a policy, effective upon the
consummation of this offering prohibiting loans (other than travel advances in
the ordinary course of business) to its executive officers, directors and
principal shareholders unless such loans first are approved by the Compensation
Committee, which must determine that such loans are in the best interests of the
Company. Any loans made will bear interest at a rate and be on such terms as
determined by the Compensation Committee to be fair to the Company. Mr.
Argenbright intends to repay all of such indebtedness within 30 days of the
consummation of this offering.
During the fiscal years 1994, 1995 and 1996, the Company purchased uniforms
for approximately $1.3 million, $1.4 million and $2.0 million, respectively,
from ASAP Uniform Co., a company that is 20% owned by AHL. During the fiscal
years ended 1994, 1995 and 1996, the Company made rent payments of approximately
$461,000, $435,000 and $372,000, respectively, to Argenbright Office Park, a
company that is wholly-owned by Mr. Argenbright. The Company believes that the
terms of the lease were no less favorable than could be obtained from an
unaffiliated third party.
Amounts outstanding under the Credit Facility are personally guaranteed by
Mr. Argenbright. The Company expects this guarantee to be released following
consummation of the offering.
Any future transactions between the Company and its officers, directors or
principal shareholders will be approved by a majority of the disinterested
members of the Board of Directors.
CERTAIN TRANSACTIONS
See "Management -- Compensation Committee Interlocks and Insider
Participation" for a description of certain transactions between the Company and
its affiliates.
42
<PAGE> 46
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information with respect to beneficial
ownership of the Common Stock as of the date of this Prospectus and as adjusted
for the sale of shares offered hereby by (i) each person who beneficially owns
more than 5% of the Common Stock; (ii) each of the Company's directors; (iii)
each Named Executive Officer and (iv) all executive officers and directors of
the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OWNED
NUMBER OF SHARES ---------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OWNED(1) OFFERING OFFERING
- ------------------------------------------------ -------------------- -------- --------
<S> <C> <C> <C>
Frank A. Argenbright, Jr.(2).................... 8,353,430 100.0% 78.8%
Edwin R. Mellett(3)............................. 161,250 1.9 1.5
Thomas J. Marano(3)............................. 53,750 * *
David L. Gamsey(3).............................. 21,500 * *
A. Trevor Warburton............................. -- -- --
All directors and executive officers as a group
(7 persons)................................... 8,589,930 100.0 79.2
</TABLE>
- ---------------
* Less than 1.0%.
(1) Includes shares of Common Stock that may be acquired upon the exercise of
stock options exercisable within 60 days. Each person named above has sole
voting and dispositive power with respect to all shares listed opposite
such person's name, except as otherwise noted.
(2) Includes 522,090 shares beneficially owned by Argenbright Partners, L.P., of
which a limited liability company managed by Mr. Argenbright and his spouse
is the general partner. If the Underwriters exercise the over-allotment
option to purchase up to 337,500 shares from Mr. Argenbright in full, Mr.
Argenbright will beneficially own 8,015,930 shares of Common Stock, or
75.6% of the outstanding Common Stock of the Company. Mr. Argenbright's
address is c/o AHL Services, Inc., Atlanta Financial Center, 3353 Peachtree
Road, Northeast, Suite 1120, North Tower, Atlanta, Georgia 30026.
(3) Represents shares of Common Stock of the Company issuable pursuant to
currently exercisable options.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue 55,000,000 shares of capital stock
consisting of 50,000,000 shares of Common Stock, par value $.01 per share, and
5,000,000 shares of preferred stock, no par value. Immediately prior to the date
of this offering, 8,353,430 shares of Common Stock were outstanding, 698,750
shares of Common Stock were issuable pursuant to outstanding options to purchase
Common Stock granted to certain of the Company's Named Executive Officers and
146,185 shares of Common Stock were issuable pursuant to a redeemable warrant to
purchase Common Stock (which the Company intends to repurchase upon consummation
of this offering).
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
on which the holders of Common Stock are entitled to vote and do not have any
cumulative voting rights. Subject to the prior rights of any outstanding
preferred stock, each outstanding share of Common Stock is entitled to
participate equally in any distribution of net assets made to the shareholders
in liquidation of the Company and is entitled to participate equally in
dividends as and when declared by the Board of Directors. There are no
redemption, sinking fund, conversion, or preemptive rights with respect to
43
<PAGE> 47
the shares of Common Stock. All outstanding shares of Common Stock are fully
paid and non-assessable.
PREFERRED STOCK
The Board of Directors of the Company generally has the power to issue
shares of preferred stock without shareholder approval. The Board of Directors
is authorized to establish the rights, preferences and limitations of the
undesignated stock and to divide such shares into one or more classes, with or
without voting rights. The ability of the Board of Directors to issue additional
shares could impede or deter an unsolicited tender offer or takeover proposal
regarding the Company. Shares of undesignated stock could be issued with terms,
provisions and rights which would make more difficult and, therefore, less
likely, a takeover of the Company not approved by the Board of Directors. The
rights of the holders of the Common Stock could be adversely affected by the
future issuance of Preferred Stock. The Company has no current plans to issue
any Preferred Stock.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF ARTICLES OF INCORPORATION AND BYLAWS
The Company's Amended and Restated Articles of Incorporation and Bylaws
provide for a five member Board of Directors to be elected to staggered one, two
and three year terms and, thereafter, for successive three year terms. In
addition, directors may only be removed from office for cause upon a vote of 80%
of the Common Stock outstanding. The Articles of Incorporation and Bylaws also
provide that they may not be amended in certain respects except pursuant to the
vote of 80% of the Common Stock outstanding. These provisions of the Articles of
Incorporation and Bylaws could discourage potential acquisition proposals and
could delay or prevent a change in control of the Company.
GEORGIA ANTI-TAKEOVER STATUTES
The Georgia Business Combination Code restricts certain business
combinations with "interested shareholders" and contains fair price requirements
applicable to certain mergers with certain "interested shareholders" that are
summarized below. The restrictions imposed by these statutes will not apply to a
corporation unless it elects to be governed by these statutes. The Company has
elected to be covered by such restrictions.
The Georgia business combination statute regulates business combinations
such as mergers, consolidations, share exchanges and asset purchases where the
acquired business has at least 100 shareholders residing in Georgia and has its
principal office in Georgia, and where the acquiror became an "interested
shareholder" of the corporation, unless either (i) the transaction resulting in
such acquiror becoming an "interested shareholder" or the business combination
received the approval of the corporation's board of directors prior to the date
on which the acquiror became an "interested shareholder", or (ii) the acquiror
became the owner of at least 90% of the outstanding voting stock of the
corporation (excluding shares held by directors, officers and affiliates of the
corporation and shares held by certain other persons) in the same transaction in
which the acquiror became an "interested shareholder." For purposes of this
statute, an "interested shareholder" generally is any person who directly or
indirectly, alone or in concert with others, beneficially owns or controls 10%
or more of the voting power of the outstanding voting shares of the corporation.
The statute prohibits business combinations with an unapproved "interested
shareholder" for a period of five years after the date on which such person
became an "interested shareholder." The statute restricting business
combinations is broad in its scope and is designed to inhibit unfriendly
acquisitions.
The Georgia fair price statute prohibits certain business combinations
between a Georgia business corporation and an "interested shareholder" unless
(i) certain "fair price" criteria are satisfied, (ii) the business combination
is unanimously approved by the continuing directors, (iii) the business
combination is recommended by at least two-thirds of the continuing directors
44
<PAGE> 48
and approved by a majority of the votes entitled to be cast by holders of voting
shares, other than voting shares beneficially owned by the "interested
shareholder," or (iv) the interested shareholder has been such for at least
three years and has not increased his ownership position in such three-year
period by more than one percent in any twelve-month period. The fair price
statute is designed to inhibit unfriendly acquisitions that do not satisfy the
specified "fair price" requirements.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is First Union
Shareholder Services.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 10,603,430 shares
of Common Stock outstanding. Of these shares, the 2,250,000 shares sold in this
offering will be freely tradable without restriction or further registration
under the Securities Act, unless purchased by "affiliates" of the Company, as
defined under the Securities Act.
The remaining 8,353,430 shares of Common Stock are "restricted shares" and
are subject to restrictions under the Securities Act and lock-up agreements. Mr.
Argenbright, who beneficially owns all of the outstanding shares of Common
Stock, as well as all persons holding currently exercisable stock options, have
agreed not to sell, offer for sale, or otherwise dispose of any Common Stock for
a period of 180 days from the date of this prospectus without the prior written
consent of Alex. Brown & Sons Incorporated. Beginning 180 days after the date of
this Prospectus, all of these restricted shares will become available for sale
in the public market, subject to the volume and other limitations of Rule 144.
In general, under Rule 144, a person (or person whose shares are
aggregated) who has beneficially owned Restricted Shares for at least two years,
including a person who may be deemed an affiliate of the Company, is entitled to
sell within any three-month period a number of shares of Common Stock that does
not exceed the greater of 1% of the then-outstanding shares of Common Stock
(approximately 106,034 shares after giving effect to this offering) or the
average weekly trading volume of the Common Stock on the Nasdaq Stock Market
during the four calendar weeks preceding such sale. Sale under Rule 144 are
subject to certain restrictions relating to manner of sale, notice and the
availability of current public information about the Company. A person who has
not been an affiliate of the Company at any time during the 90 days preceding a
sale and who has beneficially owned shares for at least three years would be
entitled to sell such shares without regard to the volume limitations, manner of
sale provisions and other requirements of Rule 144.
Within 180 days from the consummation of the offering, the Company intends
to file one or more registration statements on Form S-8 under the Securities Act
to register all shares of Common Stock subject to outstanding options or future
grants under the Company's Stock Option Plan. These registration statements are
expected to become effective upon filing, and shares covered by these
registration statements will be eligible for sale after the lock-up agreements
with the Underwriters have expired.
Prior to this offering, there has been no public market for the Common
Stock and no prediction can be made of the effect that the sale or availability
for sale of shares of Common Stock will have on the market price of the Common
Stock. Nevertheless, sales of substantial amounts of such shares in the public
market, or the perception that such sales could occur, could adversely affect
the market price of the Common Stock and could impair the Company's future
ability to raise capital through an offering of its equity securities.
45
<PAGE> 49
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), through their representatives,
Alex. Brown & Sons Incorporated and The Robinson-Humphrey Company, Inc. (the
"Representatives"), have severally agreed to purchase from the Company the
following respective number of shares of Common Stock at the initial public
offering price less the underwriting discounts and commissions set forth on the
cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------------------------------------------------------------------- ---------
<S> <C>
Alex. Brown & Sons Incorporated..........................................
The Robinson-Humphrey Company, Inc. .....................................
---------
Total.......................................................... 2,250,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all of the shares of the Common Stock offered hereby
if any of such shares are purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the initial public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $ per share.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to certain other dealers. After commencement of
this offering, the offering price and other selling terms may be changed by the
Representatives.
The Selling Shareholder has granted to the Underwriters an option,
exercisable not later than 30 days after the date of this Prospectus, to
purchase up to 337,500 additional shares of Common Stock at the initial public
offering price less the underwriting discounts and commissions set forth on the
cover page of this Prospectus. To the extent that the Underwriters exercise such
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage thereof that the number of shares of Common
Stock to be purchased by it shown in the above table bears to 2,250,000 and the
certain Selling Shareholder will be obligated, pursuant to the option, to sell
such shares to the Underwriters. The Underwriters may exercise such option only
to cover over-allotments made in connection with the sale of Common Stock
offered hereby. If purchased, the Underwriters will offer such additional shares
on the same terms as those on which the 2,250,000 shares are being offered.
The Underwriting Agreement contains covenants of indemnity and contribution
among the Underwriters, the Company and the Selling Shareholder regarding
certain liabilities, including liabilities under the Securities Act.
The Company has agreed not to sell or offer for sale any shares of Common
Stock or any options, rights or warrants with respect to any Common Stock for a
period of 180 days from the date of this Prospectus without the prior written
consent of Alex. Brown & Sons Incorporated. Mr. Argenbright, who beneficially
owns all of the outstanding shares of Common Stock, as well as all persons
holding
46
<PAGE> 50
currently exercisable stock options, have agreed not to sell, offer for sale or
otherwise dispose of any Common Stock for a period of 180 days from the date of
this Prospectus without the prior written consent of Alex. Brown & Sons
Incorporated.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock has
been determined by negotiations between the Company and the Representatives.
Among the factors considered in such negotiations were prevailing market
conditions, the results of operations of the Company in recent periods, the
market capitalizations and stages of development of other companies which the
Company and the Representatives believed to be comparable to the Company,
estimates of the business potential of the Company, the present state of the
Company's development and other factors deemed relevant by the Company and the
Representatives.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by King & Spalding, Atlanta, Georgia. Certain legal matters in
connection with this offering will be passed upon for the Underwriters by Piper
& Marbury L.L.P., Baltimore, Maryland.
EXPERTS
The financial statements included in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, (the
"Commission"), a Registration Statement on Form S-1 (together with all
Amendments, schedules and exhibits thereto, the "Registration Statement") under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock, reference is made to the Registration Statement. Statements contained in
this Prospectus as to the contents of any contract, agreement, or other document
referred to are not necessarily complete, and in each instance reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement may be inspected without charge at the Commission's
principal offices in Washington, D.C., and copies of all or any part of the
Registration Statement, of which this Prospectus forms a part, each such
statement being qualified in all respects by such reference. The Registration
Statement may be inspected without charge at the public reference facilities
maintained by the Securities and Exchange Commission in Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and the following regional offices of the
Commission: 13th Floor, Seven World Trade Center, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission, Washington, D.C. at prescribed rates. The
Registration Statement may also be obtained through the Commission's Internet
address at "http://www.sec.gov".
47
<PAGE> 51
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Combined Balance Sheets as of December 31, 1994 and 1995 and September 30, 1996
(Unaudited)......................................................................... F-3
Combined Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995
and the Nine Months Ended September 30, 1995 and 1996 (Unaudited)................... F-4
Combined Statements of Shareholder's Equity for the Years Ended December 31, 1993,
1994 and 1995 and the Nine Months Ended September 30, 1996 (Unaudited).............. F-5
Combined Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995
and the Nine Months Ended September 30, 1995 and 1996 (Unaudited)................... F-6
Notes to Combined Financial Statements................................................ F-7
</TABLE>
F-1
<PAGE> 52
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AHL Services:
We have audited the accompanying combined balance sheets of ARGENBRIGHT
HOLDINGS LIMITED (a Georgia corporation) AND THE ADI GROUP LIMITED (an English
corporation) (collectively "AHL SERVICES") as of December 31, 1994 and 1995 and
the related combined statements of operations, shareholder's equity, and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AHL Services as of December
31, 1994 and 1995 and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 8, 1996
F-2
<PAGE> 53
AHL SERVICES
COMBINED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1994 1995 1996
------- ------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash..................................................... $ 1,210 $ 1,169 $ 1,685
Restricted cash.......................................... 735 2,287 0
Accounts receivable, less allowance for doubtful accounts
of $172, $200 and $299 in 1994, 1995 and 1996,
respectively.......................................... 17,496 27,452 34,980
Due from related parties................................. 33 113 350
Uniforms in service, net................................. 1,439 1,388 1,377
Prepaid expenses and other............................... 2,621 1,548 1,750
------- ------- -------
Total current assets............................. 23,534 33,957 40,142
------- ------- -------
PROPERTY AND EQUIPMENT, net of accumulated depreciation of
$4,947, $6,846 and $8,191 in 1994, 1995 and 1996,
respectively............................................. 4,520 5,282 5,284
------- ------- -------
INTANGIBLES, net of accumulated amortization of $171, $211
and $365 in 1994, 1995 and 1996, respectively............ 327 380 4,214
------- ------- -------
DEFERRED INCOME TAXES...................................... 246 595 955
------- ------- -------
OTHER ASSETS............................................... 467 473 325
------- ------- -------
$29,094 $40,687 $50,920
======= ======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable......................................... $ 4,609 $ 4,199 $ 5,215
Accrued payroll and other liabilities.................... 8,500 11,260 13,109
Current portion of self-insurance reserves............... 155 440 665
Income taxes payable..................................... 1,840 3,580 1,835
Current portion of long-term debt........................ 8,913 1,089 1,527
Deferred income taxes.................................... 280 173 47
------- ------- -------
Total current liabilities........................ 24,297 20,741 22,398
------- ------- -------
LONG-TERM DEBT, less current portion....................... 787 13,959 19,285
------- ------- -------
SELF-INSURANCE RESERVES, less current portion.............. 618 1,760 2,660
------- ------- -------
DEFERRED INCOME TAXES...................................... 490 0 0
------- ------- -------
DEBT GUARANTEES, COMMITMENTS AND CONTINGENCIES (Notes 6, 7
and 9)
REDEEMABLE WARRANT......................................... 0 0 662
------- ------- -------
NOTE PAYABLE TO SHAREHOLDER................................ 650 650 650
------- ------- -------
SHAREHOLDER'S EQUITY:
Common stock, $1 par value; 50,000 shares authorized, 500
shares issued and outstanding in 1994, 1995 and
1996.................................................. 1 1 1
Common stock, no par value; 5,000,000 shares authorized,
296,868 shares issued and outstanding in 1994, 1995
and 1996.............................................. 0 0 0
Cumulative translation adjustment........................ 18 2 26
Retained earnings........................................ 2,431 3,869 5,688
Due from shareholder..................................... (198) (295) (450)
------- ------- -------
Shareholder's equity, net............................. 2,252 3,577 5,265
------- ------- -------
$29,094 $40,687 $50,920
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
F-3
<PAGE> 54
AHL SERVICES
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------- -----------------------------
1993 1994 1995 1995 1996
------------ ------------- ------------- ------------- -------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
REVENUES....................... $104,143 $ 123,234 $ 168,601 $ 123,119 $ 150,482
OPERATING EXPENSES:
Cost of services............. 78,019 91,873 124,491 90,693 111,336
Field operating.............. 18,284 20,931 30,328 22,133 26,873
Corporate general and
administrative............. 6,796 8,797 10,938 7,943 8,420
------- -------- -------- -------- --------
Total operating
expenses............ 103,099 121,601 165,757 120,769 146,629
------- -------- -------- -------- --------
OPERATING INCOME............... 1,044 1,633 2,844 2,350 3,853
INTEREST EXPENSE, net.......... 593 904 1,309 868 1,159
OTHER (INCOME), net............ (89) (26) (820) (35) (219)
------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES..... 540 755 2,355 1,517 2,913
INCOME TAX PROVISION........... 700 627 917 591 1,050
------- -------- -------- -------- --------
NET INCOME (LOSS).............. $ (160) $ 128 $ 1,438 $ 926 $ 1,863
======= ======== ======== ======== ========
PRO FORMA NET INCOME PER COMMON
AND COMMON EQUIVALENT SHARES
(UNAUDITED).................. $ 0.17 $ 0.22
======== ========
PRO FORMA WEIGHTED AVERAGE
COMMON AND COMMON EQUIVALENT
SHARES (UNAUDITED)........... 8,646 8,646
======== ========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-4
<PAGE> 55
AHL SERVICES
COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994, 1995 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
ARGENBRIGHT ADI
COMMON STOCK COMMON STOCK CUMULATIVE
--------------- ---------------- TRANSLATION RETAINED DUE FROM
SHARES AMOUNT SHARES AMOUNT ADJUSTMENT EARNINGS SHAREHOLDER TOTAL
------ ------ ------- ------ ---------- -------- ----------- ------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1992...................... 500 $1 0 $0 $ 0 $2,463 $ (21) $2,443
(Increase) in due from
shareholder............. 0 0 0 0 0 0 (177) (177)
Incorporation of ADI...... 0 0 296,868 0 0 0 0 0
Translation adjustment.... 0 0 0 0 17 0 0 17
Net (loss)................ 0 0 0 0 0 (160) 0 (160)
--- --- ------- --- ---- ------ ----- ------
BALANCE, December 31,
1993...................... 500 1 296,868 0 17 2,303 (198) 2,123
Translation adjustment.... 0 0 0 0 1 0 0 1
Net income................ 0 0 0 0 0 128 0 128
--- --- ------- --- ---- ------ ----- ------
BALANCE, December 31,
1994...................... 500 1 296,868 0 18 2,431 (198) 2,252
(Increase) in due from
shareholder............. 0 0 0 0 0 0 (97) (97)
Translation adjustment.... 0 0 0 0 (16) 0 0 (16)
Net income................ 0 0 0 0 0 1,438 0 1,438
--- --- ------- --- ---- ------ ----- ------
BALANCE, December 31,
1995...................... 500 1 296,868 0 2 3,869 (295) 3,577
(Increase) in due from
shareholder............. 0 0 0 0 0 0 (155) (155)
Accretion of put
warrants................ 0 0 0 0 0 (44) 0 (44)
Translation adjustment.... 0 0 0 0 24 0 0 24
Net income................ 0 0 0 0 0 1,863 0 1,863
--- --- ------- --- ---- ------ ----- ------
BALANCE, September 30, 1996
(unaudited)............... 500 $1 296,868 $0 $ 26 $5,688 $(450) $5,265
=== === ======= === ==== ====== ===== ======
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-5
<PAGE> 56
AHL SERVICES
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................... $ (160) $ 128 $ 1,438 $ 926 $ 1,863
------- ------- ------- ------- -------
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization....................... 1,065 2,060 3,897 2,832 3,058
Loss (gain) on sales of subsidiary.................. 6 0 (823) 0 (245)
Loss on sales of assets............................. 8 6 0 0 0
Amortization of debt discount....................... 0 0 0 0 62
Minority interest in net income..................... 18 (32) (26) 0 0
Changes in assets and liabilities:
Accounts receivable, net.......................... (3,751) (2,630) (12,511) (7,549) (8,196)
Due from related parties.......................... 32 (40) 305 193 (3)
Uniforms in service, net.......................... (404) (1,006) (1,912) (1,432) (1,399)
Prepaid expenses and other........................ (2,040) (3,738) 1,343 (673) 2,662
Accounts payable.................................. 1,299 1,685 (343) (1,954) 791
Accrued payroll and other liabilities............. 1,541 3,114 2,844 5,286 1,779
Self-insurance reserves........................... 0 773 1,427 1,171 1,125
Income taxes payable.............................. (211) 118 1,769 (1,320) (1,746)
Deferred income taxes............................. 805 (306) (949) (2) (418)
------- ------- ------- ------- -------
Total adjustments............................... (1,632) 4 (4,979) (3,448) (2,530)
------- ------- ------- ------- -------
Net cash (used in) provided by operating
activities................................... (1,792) 132 (3,541) (2,522) (667)
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net.............. (3,025) (1,254) (2,571) (911) (1,101)
Proceeds from sale of subsidiary...................... 20 0 975 0 245
Purchase of Intersec.................................. 0 0 0 0 (2,500)
Purchase of Express Baggage........................... (419) 0 0 0 0
Other activities, net................................. (83) 77 0 0 0
------- ------- ------- ------- -------
Net cash (used in) investing activities......... (3,507) (1,177) (1,596) (911) (3,356)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt........................... (625) (1,550) (909) (342) (1,291)
Borrowings (repayments) under line of credit.......... 4,213 2,965 (7,679) 3,908 2,264
Proceeds from refinancing of debt..................... 0 0 13,965 0 0
Proceeds from issuance of long-term debt.............. 2,858 0 0 0 3,884
(Increase) decrease in due from shareholder........... (177) 0 (97) 198 (155)
Repayment of note payable to shareholder.............. 0 (200) 0 0 0
Payment of debt issuance costs........................ 0 (149) (166) 0 (183)
------- ------- ------- ------- -------
Net cash provided by financing activities....... 6,269 1,066 5,114 3,764 4,519
------- ------- ------- ------- -------
EFFECT OF EXCHANGE RATES ON CASH........................ 0 53 (18) (28) 20
------- ------- ------- ------- -------
NET CHANGE IN CASH...................................... 970 74 (41) 303 516
CASH AT BEGINNING OF PERIOD............................. 166 1,136 1,210 1,210 1,169
------- ------- ------- ------- -------
CASH AT END OF PERIOD................................... $ 1,136 $ 1,210 $ 1,169 $ 1,513 $ 1,685
======= ======= ======= ======= =======
CASH PAID DURING THE PERIOD FOR:
Interest.............................................. $ 556 $ 827 $ 1,381 $ 713 $ 915
======= ======= ======= ======= =======
Income taxes.......................................... $ 217 $ 791 $ 562 $ 553 $ 1,737
======= ======= ======= ======= =======
NONCASH INVESTING AND FINANCING ACTIVITIES:
Equipment purchases under capital lease obligations... $ 65 $ 413 $ 530 $ 292 $ 250
======= ======= ======= ======= =======
Redeemable warrant issued in connection with Sirrom
Notes............................................... $ 0 $ 0 $ 0 $ 0 $ 618
======= ======= ======= ======= =======
Accretion of redeemable warrant....................... $ 0 $ 0 $ 0 $ 0 $ 44
======= ======= ======= ======= =======
Notes issued for Intersec acquisition................. $ 0 $ 0 $ 0 $ 0 $ 1,155
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-6
<PAGE> 57
AHL SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 (UNAUDITED)
1. DESCRIPTION OF THE BUSINESS
The accompanying AHL Services financial statements represent the
combination of the consolidated financial statements of Argenbright Holdings
Limited ("Argenbright") and The ADI Group Limited and its predecessor entities
("ADI") (Note 4) (collectively, "AHL" or the "Company"). The Company provides
pre-departure screening, passenger profiling, commercial security, shuttle bus,
cargo handling and other services primarily throughout the United States, the
United Kingdom, France and Germany to various customers, including airlines,
governmental entities, corporations and other enterprises. Frank A. Argenbright,
Jr. (the "sole shareholder") beneficially owns all of the outstanding shares of
Common Stock of both Argenbright and ADI.
In the first quarter of 1997, the Company is planning an initial public
offering (the "Offering") of its Common Stock. In connection with the planned
Offering, Mr. Argenbright will contribute all of the outstanding shares of
Common Stock of Argenbright and ADI to AHL (the "Recapitalization"). Effective
with the anticipated Recapitalization on February 1, 1997, the capital structure
of AHL will consist of 50,000,000 shares authorized, 8,353,430 shares issued and
outstanding of $.01 par value Common Stock and 5,000,000 shares authorized, 0
shares issued and outstanding of no par value preferred stock. Pro forma shares
outstanding and all other reference to pro forma shares of Common Stock give
effect to the revised capital structure.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The accompanying combined financial statements include the accounts of
Argenbright and its wholly-owned subsidiaries and ADI and its wholly-owned
subsidiaries. All significant intercompany accounts have been eliminated.
FISCAL YEAR-END
Argenbright maintains its books using a 52-/53-week fiscal year ending on
the last Friday in December. Fiscal year 1993 contains 53 weeks, and fiscal
years 1994 and 1995 contain 52 weeks. ADI's fiscal year-end is December 31. For
purposes of the combined financial statements, the year-end is stated as of
December 31. For purposes of interim data, Argenbright uses 13 weeks in each of
its quarters, while ADI uses three-month periods. Therefore, the end of
Argenbright's third quarter was September 27, 1996, and ADI's was September 30,
1996. The impact of the use of different year-end and quarter-end dates is
immaterial.
PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments with original
purchase maturities of three months or less.
F-7
<PAGE> 58
AHL SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
RESTRICTED CASH
During 1994 and 1995, the Company was required to maintain an insurance
collateral account. The cash, which was held in an interest-bearing trust
account, was restricted to offset any potential claims. In January 1996, the
account was closed, and the cash was returned to the Company and applied against
the outstanding line of credit. The collateral account was satisfied with
letters of credit.
UNIFORMS IN SERVICE
Uniforms in service are recorded at cost and are amortized over their
estimated useful life of 18 months.
START-UP COSTS
One-time, nonrecurring and incremental out-of-pocket expenditures directly
related to and incurred during the start-up phase of new major contracts,
typically 3 to 6 months, are deferred and amortized on a straight-line basis
over a period not to exceed 12 months. Amortization begins upon the conclusion
of the start-up period. Capitalized start-up costs were $0, $0 and $112,000 at
December 31, 1994, December 31, 1995 and September 30, 1996, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, less accumulated depreciation
and amortization. Depreciation and amortization are provided using the
straight-line method over estimated useful lives of 2 to 10 years for office
furniture and equipment and transportation equipment and 25 years for buildings.
Leasehold improvements are amortized over the lesser of their useful lives or
the lives of the related leases.
At December 31, 1994 and 1995, property and equipment was comprised of the
following items:
<TABLE>
<CAPTION>
1994 1995
------ ------
(IN THOUSANDS)
<S> <C> <C>
Buildings and leasehold improvements............................. $1,286 $1,345
Office furniture and equipment................................... 4,005 5,313
Transportation equipment......................................... 4,176 5,470
------ ------
9,467 12,128
Less accumulated depreciation and amortization................... 4,947 6,846
------ ------
$4,520 $5,282
====== ======
</TABLE>
OTHER INTANGIBLES
Goodwill and other intangibles are amortized using the straight-line method
over periods ranging up to 40 years. Amortization expense for goodwill and other
intangibles was $37,000, $184,000, $153,000 and $220,000 for the years ended
December 31, 1993, 1994, and 1995 and the nine months ended September 30, 1996,
respectively.
ACCOUNTS PAYABLE
Accounts payable include book overdrafts created by outstanding checks. At
December 31, 1994 and 1995, the book overdrafts totaled $1,984,000 and
$1,564,000, respectively.
F-8
<PAGE> 59
AHL SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION
The Company recognizes revenues as services are performed. At December 31,
1994 and 1995, the Company recorded $6,285,000 and $7,843,000, respectively, of
unbilled revenues, which is included in accounts receivable.
INTERIM FINANCIAL INFORMATION
The accompanying combined financial statements as of September 30, 1996 and
for the nine-month periods ended September 30, 1995 and 1996 are unaudited. In
the opinion of management, these financial statements reflect all adjustments,
consisting only of normal and recurring adjustments, necessary for a fair
presentation of the financial statements. The results of operations for the
nine-month period ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the full year.
PRO FORMA NET INCOME PER SHARE (UNAUDITED)
Pro forma net income per share is computed using the weighted average
number of shares of Common Stock and dilutive common stock equivalent shares
("CSEs") from stock options (including options discussed in Note 11) and
warrants (using the treasury stock method). Pursuant to the Securities and
Exchange Commission Staff Accounting Bulletins, Common Stock and CSEs issued at
prices below the expected public offering price during the 12-month period prior
to the Company's planned Offering have been included in the calculation as if
they were outstanding for all periods prior to the Offering, regardless of
whether they are dilutive (using the treasury stock method). Net income is not
reduced by the $44,000 provision for accretion of redeemable warrants redemption
value because the calculation assumes that the related Common Stock was
outstanding in lieu of the Redeemable Warrant (Notes 6 and 9).
LONG-LIVED ASSETS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The Company's adoption of SFAS No. 121 in the first quarter of 1996 did not have
a material impact on the Company's financial statements.
FOREIGN CURRENCY TRANSLATION
All asset and liability accounts of foreign subsidiaries are translated
into U.S. dollars at the rate of exchange in effect at the balance sheet date.
Shareholder's equity is translated at historical rates. All income statement
accounts of foreign subsidiaries are translated at average exchange rates during
the year. Resulting translation adjustments arising from these translations are
charged or credited directly to shareholder's equity. Gains or losses on foreign
currency transactions are included in income as incurred.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The book values of cash, trade accounts receivable and trade accounts
payable approximate their fair values principally because of the short-term
maturities of these instruments. The fair value of the Company's long-term debt
is estimated based on current rates offered to the Company for debt of similar
terms and maturities. Under this method, the Company's fair value of long-term
debt was not significantly different than the stated value at December 31, 1994
and 1995.
F-9
<PAGE> 60
AHL SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
SIGNIFICANT CUSTOMER CONCENTRATION
During the years ended December 31, 1993, 1994, and 1995, the following
clients individually accounted for more than 10% of the Company's revenues:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1993 1994 1995
---- ---- ----
(PERCENT OF TOTAL
REVENUES)
<S> <C> <C> <C>
Customer A.................................................... 33.6% 29.1% 23.6%
Customer B.................................................... * 16.6 15.7
Customer C.................................................... * * 10.5
</TABLE>
- ---------------
* Accounted for less than 10% of total revenues for the period indicated.
In addition, a substantial portion of the Company's revenues is from the
above clients in the aviation industry. As of December 31, 1994 and 1995,
approximately 26.9% and 40.4%, respectively, of the Company's accounts
receivable were from three clients. The Company's policy does not require
significant collateral or other security to support such receivables.
3. SALE OF SUBSIDIARY
In October 1995, the Company sold substantially all of the assets of
Intergram, Inc., Argenbright's wholly-owned subsidiary which provided drug
testing, for $1,300,000, of which $975,000 was received in cash and the
remaining $325,000 was in the form of a note receivable. During fiscal 1995, the
cash portion of the sale resulted in a gain of $823,000, which is reflected in
the accompanying statements of operations as other income, net in 1995. The
balance of the gain reflected by the note receivable of $325,000 is being
recognized as proceeds are received. The note was due in four equal quarterly
installments of $81,250 commencing February 1996. For the nine months ended
September 30, 1996, payments of $245,000 were received on the note, which has
been recorded as other income, net in the accompanying statements of operations.
4. ACQUISITIONS
In March 1992, the Company began its European operations through a
predecessor entity to ADI by acquiring a contract to perform aviation security
services for British Airways plc at Heathrow and Gatwick airports. From March
1992 until July 1993, the European operations operated as branches of United
States S-corporations. In July 1993, the S-corporations were merged into ADI
through a tax free exchange. The accompanying statements of operations contain
the results of ADI and its predecessor entities since the commencement of
operations in March 1992.
In August 1993, ADI acquired the assets of Express Baggage Reclaim Services
Limited ("Express Baggage") for $419,000. The transaction was accounted for as a
purchase. Intangibles of $419,000 were recognized in connection with the
purchase that are being amortized over 5 years. The accompanying statements of
operations contain the results of Express Baggage since August 1993.
In July 1996, the Company acquired Intersec, Inc. ("Intersec") for
$2,500,000 in cash and $1,155,000 in the form of notes payable. The transaction
was accounted for as a purchase. Intangibles of approximately $3,605,000 were
recognized in connection with the purchase, of which $325,000 was allocated to
identifiable intangibles that are being amortized over 5 to 10 years and
$3,280,000 was allocated to goodwill that is being amortized over 40 years. The
combined financial statements include the operating results of Intersec from the
date of acquisition.
F-10
<PAGE> 61
AHL SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES
The income tax provision (benefit) consists of the following as of December
31, 1993, 1994 and 1995:
<TABLE>
<CAPTION>
1993 1994 1995
----- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.................................................... $ 85 $265 $ 861
State...................................................... 29 165 153
Foreign.................................................... (208) 181 852
----- ---- ------
(94) 611 1,866
----- ---- ------
Deferred:
United States.............................................. 85 (50) (630)
Foreign.................................................... 709 66 (319)
----- ---- ------
794 16 (949)
----- ---- ------
Total.............................................. $ 700 $627 $ 917
===== ==== ======
</TABLE>
The reconciliation of the federal statutory rate to the Company's effective
tax provision is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
----- ---- ----
<S> <C> <C> <C>
Statutory federal tax rate................................... 34.0% 34.0% 34.0%
State income taxes, net of federal benefit................... 5.4 8.6 2.5
Effect of foreign losses and foreign taxes greater than U.S.
statutory federal rate..................................... 89.3 22.8 0.0
Other........................................................ 0.9 17.6 2.4
----- ---- ----
Total.............................................. 129.6% 83.0% 38.9%
===== ==== ====
</TABLE>
Deferred income taxes reflect the tax consequences on future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts. The tax effect of significant temporary differences
representing deferred tax assets and liabilities is as follows as of December
31, 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
------- ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts............................. $ 70 $ 80
Targeted jobs tax credit.................................... 132 141
Self-insurance reserves..................................... 313 880
------- ------
515 1,101
------- ------
Deferred tax liabilities:
Tax depreciation in excess of book.......................... (136) (85)
Prepaid expenses currently deductible....................... (413) (429)
Other....................................................... (490) (165)
------- ------
(1,039) (679)
------- ------
Net deferred tax asset (liability).................. $ (524) $ 422
======= ======
</TABLE>
F-11
<PAGE> 62
AHL SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
At December 31, 1994 and 1995 and September 30, 1996, long-term debt
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1994 1995 1996
------ ------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Revolving lines of credit, interest at prime (8.5% at
December 31, 1995) with a LIBOR option at LIBOR plus
2.5% (8.19% at December 31, 1995), due in full in
December 1998.......................................... $8,995 $12,166 $14,449
Term note, interest at prime plus .75% (9.25% at December
31, 1995) with a LIBOR option at LIBOR plus 3.0% (8.69%
at December 31, 1995), payable in 36 equal monthly
installments through December 1998..................... 0 1,500 667
Subordinated notes payable to Sirrom Capital Corporation
("Sirrom" or "Sirrom Notes"), interest at 13.5%,
principal of $3,500,000 due July 9, 2001, secured by a
second security interest in substantially all of the
assets of Argenbright.................................. 0 0 3,012
Subordinated notes payable to former owners of Intersec,
interest at 9%, payable in varying installments through
April 1998............................................. 0 0 1,155
Transportation and other equipment notes payable,
interest ranging from 7% to 15%, payable monthly
through 2001, secured by related equipment............. 591 1,357 1,500
Other.................................................... 114 25 29
------ ------- -------
9,700 15,048 20,812
Less current portion..................................... 8,913 1,089 1,527
------ ------- -------
$ 787 $13,959 $ 19,285
====== ======= =======
</TABLE>
Future aggregate annual maturities of long-term debt are as follows as of
December 31, 1995:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996................................................................. $ 1,089
1997................................................................. 928
1998................................................................. 12,795
1999................................................................. 56
2000 and thereafter.................................................. 180
-------
$ 15,048
=======
</TABLE>
On December 22, 1995, the Company refinanced its revolving line of credit
("revolver"), raising the availability to $25,000,000, of which $20,000,000 is
denominated in U.S. dollars and $5,000,000 is denominated in either U.S. dollars
or pounds sterling, at the Company's option. At December 31, 1995, $12,166,000
was outstanding and $12,834,000 was available under the revolver. In January
1996, $3,320,000 of the availability was utilized via the issuance of letters of
credit in connection with the Company's insurance program. Concurrent with the
issuance of the letters of credit, restricted cash of $2,287,000 was returned to
the Company and applied against the revolver.
F-12
<PAGE> 63
AHL SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Borrowings are based on a percentage of accounts receivable. Any unpaid balance
on the revolver is due upon expiration of the agreement in December 1998. The
revolver is secured by substantially all of the Company's assets. In addition,
the revolver is subject to certain restrictive covenants, including maintaining
minimum tangible net worth and a specified debt-to-net worth ratio, and is
personally guaranteed by the Company's chairman and sole shareholder. In
connection with the refinancing, the Company entered into a term note agreement
with financial covenants and other restrictions similar to the revolver.
The Sirrom Notes were issued in July 1996 for $3,500,000. As discussed in
Note 8, a warrant ("Redeemable Warrant") to purchase 3.5% of Argenbright's
common shares at $.01 per share was issued with the notes (before adjustment
associated with the anticipated February 1, 1997 Recapitalization). The value of
this warrant was determined to be $618,000 based on the relative fair value of
the warrant to the notes. A corresponding amount of the proceeds that has been
allocated to the warrant has been accounted for as a debt discount and is being
amortized over the expected life of the related notes using the effective
interest method. At September 30, 1996, the unamortized debt discount amounted
to $488,000.
Under the terms of a contract with a major airline customer, the customer
will buy all buses used by the Company to serve the customer if the customer
terminates the contract prior to the expiration date, which has been extended
through 1997. The purchase price paid by the customer for each bus would be
equal to the remaining balance owed by the Company on debt secured by the bus or
$500, whichever is greater. The related debt balance at December 31, 1994 and
1995 totaled $382,000 and $239,000, respectively, and is included in
transportation equipment notes payable.
See Note 7 regarding the Company's guarantee of outstanding debt of the
Company's chairman and sole shareholder.
7. RELATED-PARTY TRANSACTIONS
The note payable to shareholder at December 31, 1994 and 1995 consists of a
$650,000 subordinated note payable to the Company's chairman and sole
shareholder, due in full on March 23, 1999, including interest at 12%. The
Company incurred interest expense of $78,000 in 1994 and 1995 related to the
aforementioned note.
In addition to the note payable discussed above, the Company has other
transactions with the Company's chairman and sole shareholder and other
companies related by common ownership, including Argenbright Investments, Inc.,
Argenbright Leasing, Inc., and Gold's Gym. Significant related-party
transactions during 1993, 1994 and 1995 are as follows:
- Unsecured, noninterest-bearing advances were made to the Company's
chairman and sole shareholder totaling $198,000 and $295,000 at December
31, 1994 and 1995, respectively, which are included in due from
shareholder, a component of shareholder's equity, in the accompanying
balance sheets.
- Unsecured, noninterest-bearing advances were made to an affiliate
totaling $0 and $105,000 at December 31, 1994 and 1995 and are included in
due from related parties in the accompanying balance sheets.
F-13
<PAGE> 64
AHL SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
- Certain real estate is leased from the Company's chairman and sole
shareholder under informal agreements. Actual rental expense related to
these agreements was $424,000, $461,000 and $435,000 for the years ended
December 31, 1993, 1994, and 1995, respectively. The outstanding mortgage
payable on the real estate was $2,867,000 and $2,535,000 as of December
31, 1995 and September 30, 1996, respectively, and is collateralized by
the real estate and guaranteed by Argenbright.
- The Company has an unsecured promissory note from Argenbright
Investments, Inc. with a balance of $33,000 and $8,000 as of December 31,
1994 and 1995, respectively, bearing interest at a rate of 10.5% per
annum. The note is due in equal monthly installments through April 1,
1996.
- The Company's chairman and sole shareholder has personally guaranteed the
revolver, the term note and the Sirrom Notes, as described in Note 6.
8. REDEEMABLE WARRANT
In connection with issuance of the Sirrom Notes (Note 6), the Company
issued a Redeemable Warrant to purchase 3.5% of Argenbright's common shares
(146,185 pro forma shares of AHL at September 30, 1996, as adjusted for the
anticipated Recapitalization), at an exercise price of $.01 per share. In the
event that the notes remain outstanding on December 31, 1997, Sirrom receives an
additional warrant to purchase 1% of Argenbright's shares. Beginning July 30,
1998, warrants to purchase additional shares accrue at 1% per year until
prepayment or maturity of the notes. The Company has the right to repurchase the
warrant through December 31, 1997 for a purchase price of $750,000.
Sirrom also has the option to require the Company to redeem the warrant
beginning in 2001 for fair value, as defined. The excess of the redemption value
over the carrying value is being accrued by periodic charges to retained
earnings over the redemption period. This accretion amounted to $44,000 for the
nine months ended September 30, 1996.
9. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office space, transportation equipment and office
equipment from unrelated parties under lease agreements expiring through
December 1999. Rental expense under these operating leases was $1,510,000,
$3,071,000 and $4,390,000 in 1993, 1994 and 1995, respectively.
Future minimum lease payments for noncancelable leases, including leases
with the Company's chairman and sole shareholder discussed in Note 7, were as
follows at December 31, 1995:
<TABLE>
<CAPTION>
YEAR ENDING: (IN THOUSANDS)
<S> <C>
1996............................................................... $4,070
1997............................................................... 2,774
1998............................................................... 1,294
1999............................................................... 837
2000............................................................... 555
</TABLE>
PERFORMANCE BONDS
At December 31, 1995, the Company has outstanding performance bonds of
$2,225,000.
F-14
<PAGE> 65
AHL SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
INSURANCE
In 1994, Argenbright began participating in partially self-insured,
large-deductible workers' compensation, auto and health insurance plans.
Argenbright's exposure is limited per occurrence ($250,000 for workers'
compensation and auto liability) and in the aggregate. Reserves are estimated
for both reported and unreported claims. Revisions to estimated reserves are
recorded in the periods in which they become known. Estimated self-insurance
reserves as of December 31, 1994 and 1995 totaling $773,000 and $2,200,000,
respectively, represent management's best estimate. While there can be no
assurance that actual future claims will not exceed the amount of the Company's
reserves, in the opinion of the Company's management, any future adjustments to
estimated reserves included in the accompanying balance sheets will not have a
material impact on the financial statements.
The Company is exposed to liability for the acts or negligence of its
employees while on assignment that cause personal injury or damages, as well as
claims of misuse of client proprietary information or theft of client property.
As a provider of security services, the Company faces potential liability claims
in the event of any terrorist attempt or other criminal activity which occurs on
any airline or premises subject to the Company's security services. The Company
has policies, guidelines and insurance to reduce its exposure to these risks.
DEFERRED COMPENSATION
In September 1996, Argenbright entered into a non-qualified deferred
compensation arrangement with certain eligible employees by which they could
elect to defer a specified portion of their compensation. The participant may
choose among several investment options, but returns are not guaranteed. As of
September 30, 1996, the Company has no obligation under the plan.
BENEFIT PLAN
In April 1996, Argenbright began a 401(k) plan covering salaried employees,
excluding highly compensated employees, who were employed as of such date.
Employees who were not employed as of April 1, 1996 must complete one year of
service to become eligible. Participants may contribute up to 15% of their
compensation to the plan. The Company has the discretion to match these
contributions. As of September 30, 1996, no company contributions have been made
to the plan.
LITIGATION
The Company is involved in various routine litigation arising in the
ordinary course of business. After consultation with its legal counsel,
management is of the opinion that the resolution of these matters will not have
a material effect on the combined results of operations or financial condition
of the Company.
F-15
<PAGE> 66
AHL SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
10. OPERATIONS BY GEOGRAPHICAL AREA
The following table presents information regarding the Company's different
geographical regions based on the historical operations of the Company as of
December 31, 1993, 1994 and 1995:
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
United States..................................... $ 66,744 $ 81,256 $107,388
Europe............................................ 37,399 41,978 61,213
------- -------- --------
$104,143 $123,234 $168,601
======= ======== ========
Operating income:
United States..................................... $ 778 $ 1,316 $ 1,208
Europe............................................ 266 317 1,636
------- -------- --------
$ 1,044 $ 1,633 $ 2,844
======= ======== ========
Capital expenditures:
United States..................................... $ 876 $ 683 $ 1,143
Europe............................................ 2,149 571 1,428
------- -------- --------
$ 3,025 $ 1,254 $ 2,571
======= ======== ========
Identifiable assets:
United States..................................... $ 14,111 $ 18,232 $ 27,681
Europe............................................ 6,925 10,862 13,006
------- -------- --------
$ 21,036 $ 29,094 $ 40,687
======= ======== ========
</TABLE>
11. SUBSEQUENT EVENTS (UNAUDITED)
INITIAL PUBLIC OFFERING
In the first quarter of 1997, the Company is planning an initial public
offering of its Common Stock. The Company plans to issue 2,250,000 shares at an
estimated initial public offering price of $12.50 to $14.50 per share. There can
be, however, no assurance that the Offering will be completed at a per share
price within the estimated range, or at all.
STOCK OPTIONS
In October 1996, the Company issued nonqualified stock options to purchase
107,500 common shares at $4.64 per share. The options became exercisable on
December 31, 1996.
In December 1996, the Company issued nonqualified stock options to purchase
591,250 common shares at $11.76 per share. The options become exercisable in
varying percentages over four years.
Prior to the planned Offering, the Company will adopt a stock incentive
plan (the "Plan"), under which the Company may grant 376,250 incentive or
nonqualified common stock options to directors and full-time employees. Options
will be granted at an exercise price which is not less than fair market value as
estimated by the Board of Directors and will become exercisable as determined by
the Board of Directors, generally 4 to 5 years. Options granted under the Plan
will expire 10 years from the date of grant.
F-16
<PAGE> 67
AHL SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
EMPLOYMENT AGREEMENTS
In December 1996, the Company entered into employment agreements with three
officers which expire through December 1, 2001. If any agreement is terminated
by the Company prior to the expiration date, except for cause or upon the
employee's death or disability, the Company must continue to pay the employee's
base salary and bonus for up to one year. The agreements provide for annual-base
salaries of up to $300,000.
CONTRIBUTION OF REAL ESTATE
Effective February 1, 1997, the Company's chairman and sole shareholder
plans to contribute certain real estate and other properties, with a net
carrying value of $1,666,000 as of September 30, 1996, and the related mortgage
notes payable, with an outstanding balance of $2,535,000 as of September 30,
1996, to the Company. Simultaneously, the Company's chairman and sole
shareholder will contribute the note payable to shareholder, which had a balance
of $650,000 as of September 30, 1996. The net result of these transactions will
be a reduction of shareholders' equity of approximately $219,000.
EMPLOYEE STOCK PURCHASE PLAN
Subsequent to the planned Offering, the Company intends to adopt an
employee stock purchase plan.
F-17
<PAGE> 68
APPENDIX II
CAPTIONS FOR PICTURES ON INSIDE BACK COVER
PICTURE A:
"AHL'S CENTRAL CONTROL ROOM EMPLOYEES MONITOR PASSENGER ACTIVITY AT
LONDON'S HEATHROW AIRPORT."
PICTURE B:
"AN AHL EMPLOYEE UTILIZES THE LATEST TECHNOLOGY TO SCREEN BAGS AT
WASHINGTON DULLES AIRPORT."
PICTURE C:
"AHL OPERATES SHUTTLE BUS SERVICES FOR STUDENTS AT UNIVERSITY CAMPUSES
AS WELL AS FOR CORPORATIONS SUCH AS THE COCA-COLA COMPANY."
PICTURE D:
"AHL PROVIDES CARGO SERVICES IN BOTH THE UNITED STATES AND EUROPE."
PICTURE E:
"WHEELCHAIR AND SKY CAP SERVICES ARE AMONG MULTIPLE PASSENGER SERVICE
FUNCTIONS PERFORMED BY AHL FOR UNITED AIRLINES AND OTHER MAJOR AIRLINE
CUSTOMERS."
PICTURE F:
"AHL OPERATES A SHUTTLE BUS SYSTEM WHICH TRANSPORTS DELTA'S EMPLOYEES
FROM THEIR CARS TO THEIR STATIONS WITHIN THE AIRPORT COMPLEX."
<PAGE> 69
------------------------------------------------------
------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN
ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 12
Dividend Policy....................... 12
Dilution.............................. 13
Capitalization........................ 14
Selected Combined Financial and
Operating Data...................... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 24
Management............................ 37
Certain Transactions.................. 42
Principal and Selling Shareholders.... 43
Description of Capital Stock.......... 43
Shares Eligible for Future Sale....... 45
Underwriting.......................... 46
Legal Matters......................... 47
Experts............................... 47
Additional Information................ 47
Index to Combined Financial
Statements.......................... F-1
</TABLE>
------------------
UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK
OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
2,250,000 SHARES
AHL SERVICES, INC.
COMMON STOCK
LOGO
-----------------------
PROSPECTUS
-----------------------
ALEX. BROWN & SONS
INCORPORATED
THE ROBINSON-HUMPHREY
COMPANY, INC.
, 1997
------------------------------------------------------
------------------------------------------------------
<PAGE> 70
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder. Except
for the SEC registration fee and NASD filing fee, all amounts are estimates.
<TABLE>
<S> <C>
SEC registration fee............................................................. $ 11,370
----------
NASD filing fee.................................................................. 4,252
----------
Nasdaq National Market Listing Fee............................................... *
----------
Accounting fees and expenses..................................................... *
----------
Legal fees and expenses.......................................................... *
----------
Blue Sky fees and expenses (including counsel fees).............................. *
----------
Printing and Engraving expenses.................................................. *
----------
Transfer Agent and Registrar fees and expenses................................... *
----------
Miscellaneous Expenses........................................................... *
----------
Total.................................................................. $600,000
==========
</TABLE>
- ---------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Georgia Business Corporation Code permits a corporation to eliminate or
limit the personal liability of a director to the corporation or its
shareholders for monetary damages for breach of duty of care or other duty as a
director, provided that no provisions shall eliminate or limit the liability of
a director: (A) for any appropriation, in violation of his duties, of any
business opportunity of the corporation; (B) for acts or omissions which involve
intentional misconduct or a knowing violation of law; (C) for unlawful corporate
distributions; or (D) for any transaction from which the director received an
improper personal benefit. This provision pertains only to breaches of duty by
directors in their capacity as directors (and not in any other corporate
capacity, such as officers) and limits liability only for breaches of fiduciary
duties under Georgia corporate law (and not for violation of other laws, such as
the Federal securities laws). The Company's Amended and Restated Articles of
Incorporation (the "Restated Articles") exonerate the Company's directors from
monetary liability to the extent permitted by this statutory provision.
The Company's Restated Articles and Amended and Restated Bylaws (the
"Restated Bylaws") also provide that the Company shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (including any action by or in the right of the Company), by
reason of the fact that such person is or was a director or officer of the
Company, or is or was serving at the request of the Company as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including reasonable attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding, if such person acted
in good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Company (and with respect to any criminal
action or proceeding, if such person had no reasonable cause to believe such
person's conduct was unlawful), to the maximum extent permitted by, and in the
manner provided by, the Georgia Business Corporation Code. In addition, the
Restated Bylaws provide that the Company will advance to its directors or
officers reasonable expenses of any such proceeding.
II-1
<PAGE> 71
Notwithstanding any provision of the Company's Restated Articles and
Restated Bylaws to the contrary, the Georgia Business Corporation Code provides
that the Company shall not indemnify a director or officer for any liability
incurred in a proceeding in which the director is adjudged liable to the Company
or is subjected to injunctive relief in favor of the Company: (1) for any
appropriation, in violation of his duties, of any business opportunity of the
Company; (2) for acts or omissions which involve intentional misconduct or a
knowing violation of law; (3) for unlawful corporate distributions; (4) for any
transaction from which the director or officer received an improper personal
benefit.
Section 8 of the Underwriting Agreement filed as Exhibit 1.1 hereto also
contains certain provisions pursuant to which certain officers, directors and
controlling persons of the Company may be entitled to be indemnified by the
underwriters named therein.
The Company has purchased insurance with respect to, among other things,
any liabilities that may accrue under the statutory provisions referred to
above.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On January 10, 1997, the Company issued 1,000 shares of common stock to Mr.
Argenbright in connection with the Company's formation. This issuance was exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933 (the
"Securities Act").
On February 1, 1997, the Company issued 8,352,430 shares of common stock to
Mr. Argenbright and his affiliates in exchange for all of the outstanding shares
of Argenbright and ADI. This issuance was exempt from registration pursuant to
Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S> <C>
1.1* -- Form of Underwriting Agreement
3.1* -- Amended and Restated Articles of Incorporation of the Company
3.2* -- Amended and Restated Bylaws of the Company
4.1* -- Specimen Common Stock Certificate
4.2* -- 1997 Stock Incentive Plan
5.1* -- Opinion of King and Spalding as to the legality of the Common Stock being
registered
10.1* -- Restated Employment Agreement between the Company and Edwin R. Mellett
dated as of December 1, 1996
10.2* -- Restated Employment Agreement between the Company and Thomas J. Marano
dated as of December 1, 1996
10.3* -- Restated Employment Agreement between the Company and David L. Gamsey
dated as of December 1, 1996
10.4* -- Director's Service Agreement between The ADI Group Limited and Alan Trevor
Warburton dated as of January 1, 1993
11.1 -- Computation of Pro Forma Earnings Per Share
23.1* -- Consent of King and Spalding (contained in Exhibit 5.1)
23.2 -- Consent of Arthur Andersen LLP
</TABLE>
II-2
<PAGE> 72
<TABLE>
<CAPTION>
EXHIBIT
NUMBER NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S> <C>
24.1 -- Powers of Attorney (contained on signature page)
27.1 -- Financial data schedule (for SEC filing purposes only)
99.1 -- Consent of Robert McCullough to be named as a Director
99.2 -- Consent of Hamish Leslie Melville to be named as a Director
</TABLE>
- ---------------
* To be filed by amendment
(b) Financial Statement Schedules.
Not Applicable
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act of 1933 (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered hereunder,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE> 73
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, State of Georgia, on January 24, 1997.
AHL SERVICES, INC.
By: FRANK A. ARGENBRIGHT, JR.
------------------------------------
Frank A. Argenbright, Jr.
Chairman and Co-Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Frank A. Argenbright, Jr., Edwin R. Mellett and
David L. Gamsey, and each of them, his or her true and lawful attorney-in-fact
and agents, with full power of substitution and resubstitution, from such person
and in each person's name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to the Registration
Statement, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission and to sign
and file any other registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------- -----------------
<C> <S> <C>
FRANK A. ARGENBRIGHT, JR. Chairman and Co-Chief January 24, 1997
- --------------------------------------------- Executive Officer
Frank A. Argenbright, Jr. (Principal Executive
Officer)
EDWIN R. MELLETT Vice Chairman and Co-Chief January 24, 1997
- --------------------------------------------- Executive Officer
Edwin R. Mellett
DAVID L. GAMSEY Chief Financial Officer January 24, 1997
- --------------------------------------------- (Principal Financial and
David L. Gamsey Principal Accounting
Officer)
</TABLE>
II-4
<PAGE> 1
EXHIBIT 11.1
AHL SERVICES
COMPUTATION OF PRO FORMA EARNINGS PER SHARE
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
PRIMARY AND FULLY DILUTED
Pro forma net income............................ $1,438 $1,863
====== ======
Weighted average Common Stock outstanding
during the period............................. 8,353 8,353
Cheap Stock (1)................................. 293 293
Dilutive effect of common stock equivalents..... 0 0
------ ------
Total.......................................... 8,646 8,646
====== ======
Per share amount................................ $ 0.17 $ 0.22
====== ======
</TABLE>
- --------------------
(1) Pursuant to Securities and Exchange Commission Accounting Bulletin No.
83, common stock and common stock equivalents issued at prices below the
assumed initial public offering price per share ("cheap stock") during
the twelve months immediately preceding the initial filing date of the
Company's Registration Statement for its public offering have been
included as outstanding for all periods presented, regardless of whether
they are antidilutive.
<PAGE> 1
EXHIBIT 23.2
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 22, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AHL SERVICES, INC. FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,685
<SECURITIES> 0
<RECEIVABLES> 35,279
<ALLOWANCES> 299
<INVENTORY> 0
<CURRENT-ASSETS> 40,142
<PP&E> 13,475
<DEPRECIATION> 8,191
<TOTAL-ASSETS> 50,920
<CURRENT-LIABILITIES> 22,398
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 5,264
<TOTAL-LIABILITY-AND-EQUITY> 50,920
<SALES> 150,482
<TOTAL-REVENUES> 150,482
<CGS> 111,336
<TOTAL-COSTS> 111,336
<OTHER-EXPENSES> 35,293
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,159
<INCOME-PRETAX> 2,913
<INCOME-TAX> 1,050
<INCOME-CONTINUING> 1,863
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,863
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
<PAGE> 1
EXHIBIT 99.1
CONSENT TO BE NAMED AS
DIRECTOR NOMINEE
The undersigned hereby consents to be named in the Registration Statement
on Forms S-1 to which this Consent has been filed as an exhibit as a person who
shall become a Director of AHL Services, Inc. following the completion of the
offering to which said Registration Statement pertains.
/s/ Robert McCullough
----------------------------
Robert McCullough
Date: January 16, 1997
------------------
<PAGE> 1
EXHIBIT 99.2
CONSENT TO BE NAMED AS
DIRECTOR NOMINEE
The undersigned hereby consents to be named in the Registration Statement
on Form S-1 to which this Consent has been filed as an exhibit as a person who
shall become a Director of AHL Services, Inc. following the completion of the
offering to which said Registration Statement pertains.
/s/ Hamish Leslie Melville
-------------------------------------
Hamish Leslie Melville
Date: January 17, 1997
----------------
