<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 4, 1997
REGISTRATION NO. 333-38465
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ACSYS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 7363 58-2299173
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
TIMOTHY MANN, JR.
CHIEF EXECUTIVE OFFICER
ACSYS, INC.
2000 PENNSYLVANIA AVENUE, N.W.
SUITE 7650
WASHINGTON, D.C. 20006
(202) 872-0303
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES AND AGENT FOR SERVICE)
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COPIES TO:
GLENN W. STURM, ESQ. ERIC A. STERN, ESQ.
CHARLES D. VAUGHN, ESQ. MICHAEL A. BELL, ESQ.
C. RUSSELL PICKERING, ESQ. LATHAM & WATKINS
NELSON MULLINS RILEY & SCARBOROUGH, 1001 PENNSYLVANIA AVENUE, N.W.
L.L.P. SUITE 1300
FIRST UNION PLAZA, SUITE 1400 WASHINGTON, D.C. 20004
999 PEACHTREE STREET, N.E. (202) 637-2200
ATLANTA, GEORGIA 30309
(404) 817-6000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
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 any 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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. [_]
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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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 THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID
SECTION 8(A) MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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, DATED DECEMBER 4, 1997
PROSPECTUS
2,750,000 SHARES
[LOGO OF ACSYS, INC.]
COMMON STOCK
Of the 2,750,000 shares of common stock, no par value (the "Common Stock")
offered hereby (the "Offering"), 2,330,000 shares are being offered by ACSYS,
Inc. (the "Company") and 420,000 shares are being offered by certain
shareholders of the Company (the "Selling Shareholders"). See "Principal and
Selling Shareholders." The Company will not receive any of the proceeds from
the sale of the shares by the Selling Shareholders. See "Use of Proceeds."
Prior to the Offering there has been no public market for the Common Stock.
It is currently anticipated that the initial public offering price for the
Common Stock will be between $9.00 and $11.00 per share. See "Underwriting" for
information relating to the determination of the initial public offering price.
Application has been made for quotation of the Common Stock on the Nasdaq
Stock Market's National Market under the symbol "ACSY."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
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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.
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<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) SHAREHOLDERS
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<S> <C> <C> <C> <C>
Per Share........................ $ $ $ $
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Total (3)........................ $ $ $ $
</TABLE>
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(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain civil liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated Offering expenses of $1,600,000 payable by the
Company.
(3) The Company has granted the Underwriters a 30-day over-allotment option to
purchase up to 412,500 additional shares of Common Stock on the same terms
and conditions as set forth above. If all such shares are purchased by the
Underwriters, the total Price to Public will be $ , the total
Underwriting Discount will be $ and the total Proceeds to Company will
be $ . See "Underwriting."
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The shares of Common Stock are offered subject to receipt and acceptance by
the Underwriters, to prior sale and to the Underwriters' right to reject orders
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that certificates for the shares of Common Stock will be
available for delivery on or about , 1998.
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J.C.Bradford&Co. Janney Montgomery Scott Inc.
, 1997.
<PAGE>
[COLOR MAP OF THE EASTERN UNITED STATES REFLECTING THE OUTLINES OF THE STATES
AND DETAILS OF THE COMPANY'S LOCATIONS]
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THE COMPANY INTENDS TO FURNISH ITS SHAREHOLDERS WITH ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS AUDITED BY INDEPENDENT PUBLIC ACCOUNTANTS AND
WITH QUARTERLY REPORTS CONTAINING UNAUDITED SUMMARY FINANCIAL INFORMATION FOR
EACH OF THE FIRST THREE QUARTERS OF EACH FISCAL YEAR.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN THE
COMMON STOCK, AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the Consolidated Financial
Statements and the related Notes thereto appearing elsewhere in this
Prospectus. Unless otherwise indicated, the information contained in this
Prospectus assumes (i) no exercise of the Underwriters' over-allotment option,
and (ii) a public offering price of $10.00 per share. The term "Company" as
used in this Prospectus means ACSYS, Inc. and its subsidiaries on a
consolidated basis.
THE COMPANY
ACSYS, Inc. is one of the leading accounting and finance temporary staffing
and permanent placement firms in the United States. The Company operates 16
offices serving the Atlanta, Charlotte, Central New Jersey, Orlando,
Philadelphia, Tampa and Washington, D.C. metropolitan markets. The Company was
formed in March 1997 and since its formation has acquired seven accounting and
finance specialty professional staffing companies which had operating histories
ranging from five to 23 years with an average operating history of 15 years.
The Company's goal is to build a national specialty professional staffing
business with offices in major United States metropolitan markets. The
Company's clients include Fortune 1000 companies, middle market companies,
governmental agencies and nonprofit organizations.
The Company's operating strategy is based on a focus on client relationships
and its philosophy that the central function of corporate management is to
support the staffing consultants who directly interact with clients. The
Company carries out its strategy through its decentralized "Hub-Center"
management model, which the Company believes fosters an entrepreneurial
environment. Hub-Centers, located in major metropolitan markets, are managed by
Division Presidents who are responsible for achieving the Company's operational
and financial goals and have significant latitude over such matters as hiring,
recruiting, compensation, pricing and sales management. Division Presidents are
supported by the Company's corporate services which include advertising,
marketing, public relations, management information systems support, training,
human resources, accounting and other back office functions. The Company
believes that its decentralized management structure enables it to be more
responsive to its clients' needs. Further, the Company believes that its
specialty professional focus makes it more attractive to staffing consultants
and temporary and permanent placement candidates.
The Company's goal is to build a national specialty professional staffing
business with offices in major United States metropolitan markets by pursuing
strategic acquisitions, enhancing and expanding existing offices, introducing
new services and opening new offices. The Company seeks to acquire specialty
professional staffing businesses with strong management and a significant
presence in what the Company believes to be desirable, growing markets. The
Company believes it will have a strategic advantage in competing for
acquisitions based on (i) its focus on the specialty professional staffing
segment of the staffing industry; (ii) the personal relationships of its senior
executives with managers and owners of other specialty professional staffing
firms; (iii) the Company's entrepreneurial operating environment and Hub-Center
management model; (iv) the Company's merger and acquisition execution
capabilities; and (v) the Company's greater visibility and resources as a
public company. The Company plans to enhance and expand its existing offices by
adding quality personnel, pursuing new clients, expanding relationships with
its current clients and replicating its most successful sales, marketing and
business techniques in offices that are not currently using those techniques.
The Company also intends to introduce new specialty professional staffing
services in addition to its core accounting and finance staffing services. For
example, the Company recently introduced information technology ("IT") staffing
in several locations. The Company may develop or expand new services internally
by leveraging its existing staffing expertise and specialty professional
staffing reputation or it may acquire existing businesses that offer such new
specialty professional staffing services. Furthermore, the Company intends to
grow by opening new offices in both its current markets and new geographic
markets.
The Company derived 72.9% and 77.1% of its pro forma service revenues from
its temporary staffing operations for the nine months ended September 30, 1997
and the year ended December 31, 1996, respectively. Within the temporary
staffing sector, the Company competes primarily in the specialty professional
segment which, based on the Staffing Industry Report, had 1996 revenues of $5.0
billion and is projected to grow 22% in
1997. The specialty professional segment includes services such as accounting
and finance, legal, laboratory and
3
<PAGE>
other professional staffing services but excludes IT staffing. The IT segment
of the temporary staffing sector had 1996 revenues of $11.7 billion and is
projected to grow 27% in 1997. The IT segment includes services such as
consulting, systems and network integration and support, and supplemental
staffing. Specialty professional and IT staffing assignments generally have
profit margins greater than those of traditional clerical and light industrial
temporary staffing assignments. The Company believes that organizations are
increasingly accepting the idea of using specialty professional temporary
employees in traditional permanent professional roles and are planning to use
such employees as a continuing corporate strategy. Furthermore, traditional
accounting and finance services that were historically performed internally are
being outsourced.
The Company also operates in the placement and search sector of the staffing
industry, which had 1996 revenues of $9.1 billion and is projected to grow 14%
in 1997. The Company derived 27.1% and 22.9% of its pro forma service revenues
from its permanent placement operations for the nine months ended September 30,
1997 and the year ended December 31, 1996, respectively. Permanent placement
firms fulfill their clients' needs by identifying, evaluating and recommending
qualified candidates for positions. The Company believes that companies have
become increasingly reliant on permanent placement firms for several reasons,
including the increased difficulty of finding talented candidates, the reduced
costs and increased efficiency of outsourcing the recruiting process, and the
ability of placement firms to provide objective feedback on candidates and
advice regarding the appropriate qualifications and compensation for a
particular position.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Compa-
ny............................... 2,330,000 shares
Common Stock offered by the Sell-
ing Shareholders................. 420,000 shares(1)
Common Stock to be outstanding af-
ter the Offering................. 10,823,220 shares(2)
Use of proceeds by the Company.... Repay indebtedness, enhance management
information systems and for working capital
and general corporate purposes, including
acquisitions and opening new offices.
See "Use of Proceeds."
Proposed Nasdaq National Market
symbol........................... ACSY
</TABLE>
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(1) See "Principal and Selling Shareholders" and "Description of Capital
Stock."
(2) Excludes 2,000,000 shares of Common Stock reserved for issuance under the
Company's 1997 Amended and Restated Stock Option Plan (the "Option Plan"),
of which options to purchase 244,820 shares of Common Stock have been
granted and were exercisable at September 30, 1997 with a weighted average
exercise price of $5.61 per share. The Company intends to grant options to
purchase approximately 950,000 shares of Common Stock upon consummation of
this Offering at an exercise price equal to the initial public offering
price per share. See "Management -- 1997 Stock Option Plan."
----------------
Prior to the closing of this Offering, the Company expects to distribute to
its shareholders an amount which approximates such shareholders' unpaid federal
and state income taxes on the Company's taxable income for the period the
Company was treated as an S corporation (the "Distribution"). The Company
estimates that the amount of the Distribution would have been approximately
$800,000 if the closing of the Offering had occurred on September 30, 1997;
that amount is reflected in the Consolidated Financial Statements. The
termination of the Company's S corporation status will also result in the
Company recording a nonrecurring income tax expense and a corresponding net
deferred income tax liability (the "Deferred Tax Liability"). This amount would
have been approximately $2.6 million if the termination of S corporation status
had occurred on September 30, 1997. The actual amounts of the Distribution and
the Deferred Tax Liability will be determined as of the date of the termination
of the Company's S corporation status. As a result of the Deferred Tax
Liability, the Company expects to incur a net loss for the quarter, and
possibly the year, in which the Company's S corporation status is terminated.
See "Prior S Corporation Status" and "Use of Proceeds."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------- ------------------------------------
PRO FORMA PRO FORMA PRO FORMA
1994 1995 1996 1996(2) 1996 1997 1996(2) 1997(2)
------- ------- ------- --------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DA-
TA(1):
Total service reve-
nues................. $27,395 $34,485 $45,908 $52,411 $33,801 $42,010 $38,543 $46,566
Gross profit.......... 13,370 16,753 23,035 25,486 16,990 22,182 18,775 23,906
Operating income...... 2,043 3,117 3,031 5,152 2,966 1,713 3,844 5,040
Income before income
taxes................ 1,190 2,252 2,228 4,172 2,300 1,125 3,045 4,346
Pro forma net income
(loss), as adjusted
for income taxes(3).. $ 1,247 $ 2,336 $ (14) $ 1,705 $ 2,434
Pro forma net income
(loss) per share, as
adjusted for income
taxes(3)(4).......... $ 0.14 $ 0.27 $ (0.13) $ 0.20 $ 0.28
Weighted average
common shares
outstanding(4)....... 7,259 8,601 7,373 8,601 8,601
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------
PRO FORMA,
PRO AS
ACTUAL FORMA(5) ADJUSTED(5)(6)
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<S> <C> <C> <C>
BALANCE SHEET DATA(1):
Cash and cash equivalents............ $1,547 $1,547 $9,666
Working capital...................... 5,413 4,816 13,835
Total assets......................... 28,632 28,632 36,751
Long-term debt, including current ma-
turities ........................... 11,868 11,868 718
Redeemable Common Stock.............. 1,220 -- --
Shareholders' equity................. 9,518 8,171 28,240
</TABLE>
- --------------------
(1) All of the financial data set forth above have been restated to give effect
to the Company's acquisitions of the Acquired Companies other than C.P.A.
Staffing. The Company's acquisitions, other than C.P.A. Staffing, have been
accounted for under the pooling of interests method of accounting. Includes
results of operations of Don Richard Associates of Washington and Don
Richard Associates of Tampa from March 1, 1994 and January 1, 1996,
respectively, the dates of their formation. See Note 1 of Notes to
Consolidated Financial Statements. See "The Company."
(2) The Company acquired AcSys Resources, Inc. ("AcSys Resources") in September
1997. AcSys Resources had previously acquired C.P.A. Staffing in August
1997 in a transaction accounted for under the purchase method of
accounting. The pro forma operations data reflect the Company's operations
as if AcSys Resources' purchase of C.P.A. Staffing had occurred on January
1, 1996. In addition, the pro forma operations data reflect (i) the
elimination of expenses incurred in connection with the Company's
acquisitions (the "Combination Expenses"), (ii) an adjustment to
compensation expense for the difference between actual compensation paid to
certain owners of the Acquired Companies (including C.P.A. Staffing) and a
key employee and the compensation negotiated in conjunction with such
acquisitions and (iii) income tax expense computed as if the Company had
terminated its status as an S corporation as of January 1, 1996. See Pro
Forma Consolidated Financial Statements.
(3) The Company has operated as an S corporation for income tax purposes since
inception and will terminate such status in connection with this Offering.
See Note 2 of Notes to Consolidated Financial Statements for information
concerning the computation of the income taxes. See "Prior S Corporation
Status" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
(4) See Note 2 of Notes to Consolidated Financial Statements and Note 5 of
Notes to Pro Forma Consolidated Financial Statements for a discussion of
the computations of pro forma net income (loss) per share, as adjusted for
income taxes.
(5) The pro forma balance sheet data reflect (i) the Deferred Tax Liability
described in "Prior S Corporation Status" and (ii) the elimination of
certain redemption rights related to 122,012 shares of Common Stock (the
"Redeemable Common Stock") held by a former owner of AcSys Resources. See
"Certain Transactions" and Pro Forma Consolidated Financial Statements.
(6) Adjusted to reflect the sale of 2,330,000 shares of Common Stock offered by
the Company hereby and the application of the estimated net proceeds
therefrom. See "Prior S Corporation Status," "Use of Proceeds" and
"Capitalization."
5
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. In addition to the other information in this Prospectus, the
following factors should be considered carefully in evaluating an investment in
the Common Stock offered hereby. This Prospectus contains "forward-looking
statements" relating to, without limitation, future economic performance, plans
and objectives of management for future operations and projections of revenues
and other financial items that are based on the beliefs of the Company's
management, as well as assumptions made by, and information currently available
to, the Company's management. The words "expect," "estimate," "anticipate,"
"believe" and similar expressions and variations thereof are intended to
identify forward-looking statements. The cautionary statements set forth in
this "Risk Factors" section and elsewhere in this Prospectus identify important
factors with respect to such forward-looking statements, including certain
risks and uncertainties, that could cause actual results to differ materially
from those in such forward-looking statements.
BRIEF COMBINED OPERATING HISTORY
The Company was incorporated in March 1997 and acquired the Acquired
Companies in transactions that occurred from May 1997 to September 1997. The
members of the Company's senior management have worked together and managed the
Company as a combined business for only a short time. There can be no assurance
that management will be able to oversee the Company and effectively implement
the Company's operating or growth strategies or that the Company will be able
to achieve any cost savings or effectively manage the combined enterprise. The
Company's historical financial results cover periods when the Company was not
under common control or management and, therefore, may not be indicative of the
Company's future financial or operating results. The Company's inability to
integrate the Acquired Companies could have a material adverse effect on the
Company's business, operating results and financial condition and could make it
unlikely that the Company's operations and strategies will be successful. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Management" and "Certain Transactions."
ABILITY TO ACHIEVE AND MANAGE GROWTH
The Company intends to grow through acquisitions and internal growth,
including opening new offices. There can be no assurance that the Company will
be able to expand its market presence in its current locations or successfully
enter other markets through acquisitions or the opening of new offices. The
Company's ability to grow will depend on a number of factors, including the
availability of capital to fund acquisitions, existing and emerging
competition, the ability to maintain sufficient profit margins despite pricing
pressures and the strength of demand for temporary and permanent employees in
the Company's markets. The Company must also manage costs in a changing
regulatory environment, adapt its infrastructure and systems to accommodate
growth and recruit and train additional qualified personnel. The Company's
failure or inability to implement and manage its growth strategy successfully
may have a material adverse effect on the Company's business, operating results
and financial condition.
ACQUISITION RISKS
There can be no assurance that the Company will be able to successfully
identify suitable acquisition candidates, complete acquisitions or integrate
acquired businesses into its operations. Once integrated, acquired companies
may not achieve levels of revenues, profitability or productivity comparable to
those of the Company's existing locations or otherwise perform as expected.
Acquisitions also involve special risks, including risks associated with
unanticipated problems, liabilities and contingencies, diversion of management
attention and possible adverse effects on earnings resulting from increased
goodwill amortization, increased interest costs, the issuance of additional
securities and difficulties related to the integration of the acquired
business, some or all of which could have a material adverse effect on the
Company's business, operating results and financial condition. The Company is
unable to predict whether or when any prospective acquisition candidate will
become available or the likelihood that any acquisition will be completed. In
addition, the value of Common Stock held by shareholders at the time of any
acquisition may be diluted if the Company issues Common Stock to complete such
acquisition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources," "Business --
Growth Strategy" and "Description of Capital Stock."
6
<PAGE>
RISKS ASSOCIATED WITH OPENING NEW OFFICES
The Company also intends to grow by opening new offices. The Company
anticipates that new offices initially will produce significant operating
losses and will place demands on the Company's operational, administrative and
financial resources. In addition, the Company's future performance and
profitability will depend, in part, on its ability to successfully attract and
retain qualified personnel to manage the growth and operations of the new
offices. The Company has limited experience in opening new offices to date,
and there can be no assurance that the Company's new offices will be
successful. The opening of additional offices, individually or in the
aggregate, may have a material adverse effect on the Company's business,
operating results and financial condition. See "Business -- Growth Strategy."
RISKS ASSOCIATED WITH NEW SERVICES
The Company also intends to grow by offering services other than those
presently provided by the Company. The Company's ability to successfully
develop new services depends on a number of factors, including its ability to
identify and effectively integrate new services into the Company's existing
operating structure. The identification and offering of new services in which
the Company has little or no experience or expertise could result in diversion
of management's attention and place significant demands on the Company's
operational, administrative and financial resources. There can be no assurance
that the Company will be successful in offering new services or that such
services will not have a material adverse effect upon the Company's business,
operating results and financial condition. See "Business -- Growth Strategy"
and "Business -- Services."
DEPENDENCE ON AVAILABILITY OF QUALIFIED PERSONNEL
The Company depends on its ability to attract and retain candidates and
staffing consultants who possess the skills and experience necessary to meet
the requirements of its clients. Competition for individuals with proven
skills in finance and accounting is intense. There can be no assurance that
qualified personnel will continue to be available to the Company in sufficient
numbers and on economic terms acceptable to the Company. The inability to
attract and retain such qualified personnel could have a material adverse
effect on the Company's business, operating results and financial condition.
See "Business -- Operating Strategy."
DEPENDENCE ON KEY CLIENTS
Substantially all of the Company's contracts to perform services may be
cancelled or modified by the Company's clients at will without penalty. No one
client accounted for more than 4.5% of the Company's pro forma service
revenues for the year ended December 31, 1996 or the nine months ended
September 30, 1997. For the year ended December 31, 1996 and the nine months
ended September 30, 1997, the Company's six largest clients accounted for
approximately 13.2% and 14.1%, respectively, of the Company's pro forma
service revenues. The loss of or a material reduction in revenues from one or
more large clients could have a material adverse effect on the Company's
business, operating results and financial condition.
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Common Stock offered hereby will experience immediate dilution
in the pro forma net tangible book value per share of Common Stock of $8.85
per share. See "Dilution."
EFFECT OF ECONOMIC FLUCTUATIONS
Demand for staffing services is significantly affected by the general level
of economic activity and unemployment in the United States. During periods of
slowed economic activity, the use of permanent placement firms tends to
decline significantly and many companies also reduce their use of temporary
employees. In addition, the Company may experience more competitive pricing
pressure during such periods of economic downturn. Therefore, any significant
economic downturn could have a material adverse effect on the Company's
business, operating results and financial condition.
7
<PAGE>
COMPETITIVE MARKET
The staffing industry is highly competitive, with limited barriers to entry.
The Company competes for employees, candidates, clients and acquisitions in
national, regional and local markets with full service and specialized
staffing companies. A significant number of competitors have greater
marketing, financial and other resources than the Company and could provide
new or increased competition to the Company. Price competition in the staffing
industry is intense and pricing pressures from competitors and customers are
increasing. The Company expects that the level of competition will remain high
in the future, which could limit the Company's ability to maintain or increase
its market share or maintain adequate gross profits, either of which could
have a material adverse effect on the Company's business, operating results
and financial condition. There can be no assurance that the Company will
compete effectively with existing or potential competitors, or that
competition, particularly from companies with greater financial resources than
the Company, will not have a material adverse effect on the Company's
business, operating results and financial condition. See "Business -- The
Staffing Industry" and "Business -- Competition."
DEPENDENCE ON MANAGEMENT
The continued growth and success of the Company's business is highly
dependent upon the continued services of its management, including David C.
Cooper, Chairman of the Board; Timothy Mann, Jr., Chief Executive Officer;
Edward S. Baumstein, President and Chief Operating Officer; and Beth Monroe-
Chase, Chief Development Officer. Currently, the loss of the services of one
or more of these key individuals could have a material adverse effect upon the
Company's business, operating results and financial condition. The loss of the
services of one or more of Messrs. Cooper, Mann or Ms. Monroe-Chase would
trigger an event of default under the Company's $15 million revolving credit
facility (the "Credit Facility"). The Company has entered into preliminary
discussions with its lender to amend the Credit Facility to eliminate this
provision upon the closing of the Offering. The Company does not maintain key
person insurance policies on the lives of any of these individuals. The
Company's continued growth also will depend upon its ability to attract and
retain additional skilled management personnel. See "Management."
INCREASED COSTS FROM GOVERNMENT REGULATION
The Company is required to pay a number of federal, state and local payroll
and related costs, including unemployment taxes, workers' compensation and
insurance, FICA, and Medicare, for its employees and personnel. Significant
increases in the effective rates of any payroll related costs likely would
have a material adverse effect upon the Company. The Company's costs could
also increase as a result of health care reforms or the possible imposition of
additional requirements and restrictions related to the placement of
personnel. Federal and state legislative proposals have included provisions
extending health insurance benefits to personnel who currently do not receive
such benefits. There can be no assurance that the Company will be able to
increase the fees charged to its clients in a timely manner and in a
sufficient amount to cover increased costs, if any such proposals are adopted.
There is also no assurance that the Company will be able to adapt to future
regulatory changes made by the Internal Revenue Service, the Department of
Labor, or other state and federal regulatory agencies. The Company's inability
to increase its fees or adapt to future regulatory changes could have a
material adverse effect upon the Company's business, operating results and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
INDUSTRY RISKS
Temporary staffing services providers employ and place people generally in
the workplace of other businesses. Attendant risks of such activity include
possible claims of discrimination and harassment, employment of illegal
aliens, violations of wage and hour requirements, errors and omissions of its
temporary employees, and, particularly for the actions of professionals (e.g.,
accountants), misuse of client proprietary information, misappropriation of
funds, other criminal activity or torts and other similar claims. In some
instances the Company, pursuant to a written contract, has agreed to indemnify
clients against some or all of the foregoing matters. Moreover, in certain
circumstances, the Company may be held responsible for the actions at a
workplace of persons not under the Company's direct control. Although the
Company historically has not had any significant problems in this area, there
can be no assurance that the Company will not experience such problems in the
future or that the Company's insurance, if any, will be sufficient in amount
or scope to cover
8
<PAGE>
any such liability. The failure of any Company employee or personnel to
observe the Company's policies and guidelines, relevant client policies and
guidelines, or applicable federal, state or local laws, rules and regulations,
or other circumstances that cannot be predicted, could have a material adverse
effect upon the Company's business, operating results and financial condition.
Temporary staffing services providers are also affected by fluctuations and
interruptions in the business of their clients. For example, inclement weather
or work stoppages, which may require clients to close or reduce their hours of
operation, could have a material adverse effect on the Company's business,
operating results and financial condition.
NO PRIOR PUBLIC MARKET
Before 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
continue following the Offering or that the market price of the Common Stock
will not decline below the initial public offering price. The initial public
offering price for the Common Stock will be determined by negotiation between
the Company and the Representatives (as defined herein) based on several
factors and may not be indicative of the market price for the Common Stock
after this Offering. See "Underwriting."
VOLATILITY OF STOCK PRICE; POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The Company believes that various factors such as general economic
conditions and changes or volatility in the financial markets, changing market
conditions in the accounting and finance industry and quarterly or annual
variations in the Company's financial results, some of which are unrelated to
the Company's performance, could cause the market price of the Common Stock to
fluctuate substantially. In particular, quarterly revenues are difficult to
forecast, and the Company's expense levels are based, in part, on its
expectations as to future revenues. If revenue levels are below expectations,
the Company may be unable or unwilling to reduce expenses proportionately and
operating results would likely be adversely affected. As a result, the Company
believes that period-to-period comparisons of its results of operations are
not necessarily meaningful and should not be relied upon as indications of
future performance. Due to all of the foregoing factors, it is likely that in
some future quarter the Company's operating results will be below the
expectations of public market analysts and investors. In such event, the
market price of the Common Stock would likely be materially adversely
affected.
EXPECTED LOSSES AS A RESULT OF NONRECURRING INCOME TAX CHARGE
As a result of the termination of its S corporation status in connection
with this Offering, the Company will record a nonrecurring income tax expense
and a corresponding net deferred income tax liability. This amount would have
been approximately $2.6 million if the termination of S corporation status had
occurred on September 30, 1997, but the actual amount will be adjusted based
on the tax effect of differences in the bases in assets and liabilities for
financial reporting and income tax purposes as of the date of the termination
of S corporation status. The Company will pay the tax liability over a four-
year period. As a result of this tax liability, the Company expects to incur a
net loss for the quarter, and possibly the year, in which the Company's S
corporation status is terminated. See "Prior S Corporation Status" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON MARKET PRICE
A substantial number of outstanding shares of Common Stock, as well as
shares of Common Stock issuable on exercise of stock options granted or to be
granted under the Option Plan, are or will be eligible for future sale in the
public market at prescribed times pursuant to Rule 144 under the Securities
Act of 1933, as amended (the "Securities Act"). Sales of such shares in the
public market, or the perception that such sales may occur, could adversely
affect the market price of the Common Stock or impair the Company's ability to
raise additional capital in the future through the sale of equity securities.
Upon completion of the Offering, there will be 10,823,220
9
<PAGE>
outstanding shares of Common Stock (11,235,720 outstanding shares if the
Underwriters' over-allotment option is exercised). In addition, the Company
currently has outstanding options to purchase 244,820 shares of Common Stock
and anticipates that it will grant options to purchase approximately 950,000
shares of Common Stock prior to completion of the Offering. Of the total
shares to be outstanding after the Offering, the 2,750,000 shares of Common
Stock sold in the Offering (3,162,500 shares if the Underwriters' over-
allotment option is exercised in full) will be freely tradable by persons
other than "affiliates" of the Company without restriction under the
Securities Act. The remaining 8,073,220 shares of Common Stock will be
"restricted" securities within the meaning of Rule 144 under the Securities
Act and may not be sold in the absence of registration under the Securities
Act unless an exemption from registration is available, including the
exemptions contained in Rule 144. All current shareholders of the Company have
agreed not to sell, contract to sell, or otherwise dispose of any shares of
the Common Stock currently owned by them for a period of 180 days after the
date of this Prospectus without the prior written consent of J.C. Bradford &
Co. The Company plans to register the shares issuable upon exercise of options
granted under the Option Plan and, upon such registration, such shares will be
eligible for resale in the public market unless such resale is contractually
restricted. In addition, the Company plans to register up to an additional
2,000,000 shares of its Common Stock with the Securities and Exchange
Commission under the Securities Act as soon as practicable after completion of
this Offering for use by the Company as all or a portion of the consideration
to be paid in future acquisitions. These shares may be freely tradable after
their issuance, unless the sale of such shares is contractually restricted.
See "Management -- 1997 Stock Option Plan," "Shares Eligible for Future Sale"
and "Underwriting."
VOTING CONTROL BY MANAGEMENT
After the Offering, the executive officers and directors of the Company will
own approximately 49.6% of the outstanding Common Stock (approximately 47.8%
if the Underwriters' over-allotment option is exercised in full; these
percentages do not reflect currently exercisable options held by such
persons). As a result, the executive officers and directors of the Company,
voting together, will as a practical matter be able to control the outcome of
matters requiring a shareholder vote, including the election of directors,
adopting or amending provisions of the Company's Articles of Incorporation and
Bylaws, and approving certain mergers or other similar transactions, such as
sales of substantially all the Company's assets. Purchasers in this Offering
will become minority shareholders of the Company and will be unable to control
the management or business policies of the Company. See "Management" and
"Principal and Selling Shareholders."
INTANGIBLE ASSETS
As of September 30, 1997, approximately $15.8 million, or 55.2%, of the
Company's pro forma total assets were intangible assets. This amount is likely
to increase as the Company acquires other staffing companies in the future.
Any impairment or write-off of such assets could have a material adverse
effect on the Company's earnings, business, operating results and financial
condition.
POTENTIAL ANTI-TAKEOVER EFFECTS OF ARTICLES OF INCORPORATION, BYLAWS, THE
GEORGIA BUSINESS CORPORATION CODE AND EMPLOYMENT AGREEMENTS
The Company's Articles of Incorporation and Bylaws, the Georgia Business
Corporation Code (the "GBCC") and employment agreements between the Company
and its executive officers contain certain provisions that could have the
effect of delaying, deferring or preventing an unsolicited change in the
control of the Company, which may adversely affect the market price of the
Common Stock or the ability of shareholders to participate in a transaction in
which they might otherwise receive a premium for their shares over the then-
current market price. The Company's Articles of Incorporation authorize the
Board of Directors to issue preferred stock ("Preferred Stock") without
shareholder approval and on such terms as the Board of Directors may
determine. Although no shares of Preferred Stock are currently outstanding and
the Company has no present plans to issue any shares of Preferred Stock, the
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of holders of any Preferred Stock that may be issued
in the future. See "Description of Capital Stock -- Preferred Stock." The
Company's Bylaws provide that special meetings of
10
<PAGE>
shareholders may be called by shareholders only upon a written request made by
the holders of a majority of the votes entitled to be cast on an issue and
require compliance with certain advance notice procedures to bring business
before an annual meeting of shareholders and to nominate directors. The "fair
price" and "business combinations" statutes under the GBCC may restrict
certain business combinations by interested shareholders. See "Description of
Capital Stock-- Anti-Takeover Provisions and Georgia Law." The Company's
executive officers have entered into employment agreements with the Company
that contain change in control provisions. The change in control provisions
may hinder, delay, deter or prevent a tender offer, proxy contest or other
attempted takeover because the covered employees can terminate their
employment if such provisions are triggered and thereby receive severance pay
of a lump sum equal to three times the sum of (i) such officer's annual salary
then in effect plus (ii) the amount of such officer's bonus as calculated
based on the results of operations for the twelve months prior to such
termination. See "Management -- Executive Compensation; Employment Agreements;
Covenants Not to Compete."
DIVIDEND POLICY; RESTRICTIONS ON PAYMENT
The Company currently anticipates that after completion of this Offering all
of its earnings will be retained for development and expansion of its
business. The Company does not anticipate paying any cash dividends in the
foreseeable future. In addition, the Credit Facility prohibits the payment of
cash dividends without the lender's consent. See "Prior S Corporation Status"
and "Dividend Policy."
11
<PAGE>
THE COMPANY
ACSYS, Inc., a Georgia corporation, is one of the leading providers of
accounting and finance temporary staffing and permanent placement services in
the United States. The Company was formed in March 1997 as a result of the
personal and professional relationships among the key executives and owners of
David C. Cooper & Associates (David C. Cooper) and Don Richard Associates of
Washington (Beth Monroe-Chase and Mark E. Strassman), which culminated in the
Company's acquisition of their respective firms in May 1997 and the
commencement of combined operations. Since its formation, the Company has
acquired seven temporary staffing businesses (the "Acquired Companies") as
summarized in the table below. For a description of the transactions pursuant
to which certain of these businesses were acquired, see "Certain
Transactions -- Acquisitions." The Company maintains its principal executive
offices at 2000 Pennsylvania Avenue, N.W., Suite 7650, Washington, D.C. 20006,
and its telephone number is (202) 872-0303. The Company maintains various
sites on the Internet's world wide web. Information contained in the Company's
world wide web sites shall not be deemed to be part of this Prospectus.
Industry information presented is based on sources which the Company believes
to be reliable but has not independently verified.
Certain information regarding these acquisitions is summarized in the
following table:
<TABLE>
<CAPTION>
DATE YEAR 1996
ACQUIRED COMPANY ACQUIRED FOUNDED (1) REVENUES LOCATIONS (2)
- ---------------- ---------- ----------- ------------- ------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Infinity Enterprises, Inc. May 1997 1974 $17.0 Bethesda, MD
d/b/a Don Richard Associates of Washington Tyson's Corner, VA
("Don Richard Associates of Washington")(3) Washington, DC
David C. Cooper & Associates, Inc. and May 1997 1980 7.8 Atlanta, GA
DCCA Professional Temporaries, Inc.
(together, "David C. Cooper & Associates")
EKT, Inc. May 1997 1974 2.8 Charlotte, NC
d/b/a Don Richard Associates of Charlotte
("Don Richard Associates of Charlotte")(3)
Cama of Tampa, Inc. May 1997 1987 2.5 Tampa, FL
d/b/a Don Richard Associates of Tampa
("Don Richard Associates of Tampa")(3)
Rylan Forbes Consulting Group, Inc. July 1997 1992 1.4 Edison, NJ
("Rylan Forbes") Philadelphia, PA
C.P.A. Staffing, Inc., Aug. 1997 1990 6.5 Atlanta, GA
C.P.A. Search Inc. and
Career Placement Associates, Inc.
(together, "C.P.A. Staffing")(4)
AcSys Resources, Inc. Sept. 1997 1977 14.4(5) Cherry Hill, NJ
("AcSys Resources") Edison, NJ
Lancaster, PA
Philadelphia, PA
Princeton, NJ
Wayne, PA
Wilmington, DE
</TABLE>
- ---------------------
(1) Reflects year of founding of each of the Acquired Companies or its
predecessor.
(2) Locations at time of acquisition by the Company.
(3) "Don Richard Associates" is a federally registered trademark of Don
Richard Associates International, Inc., an unaffiliated company. The
Company owns the rights to the names "Don Richard Associates of
Washington" and "Don Richard Associates of Charlotte" in the areas where
the Company currently operates under such names. The Company's rights to
use the name "Don Richard Associates of Tampa" expire in May 1999.
(4) Acquired by AcSys Resources in August 1997 and merged into C.P.A.
Staffing, Inc. prior to the Company's acquisition of AcSys Resources.
(5) Does not include revenues of C.P.A. Staffing.
12
<PAGE>
PRIOR S CORPORATION STATUS
Because the Company has been an S corporation for federal and certain state
income tax purposes, the Company's income has been allocated and taxable to
the Company's individual shareholders rather than to the Company. The Company
will terminate its S corporation status prior to the closing of this Offering
and will thereafter be taxed as a C corporation for federal and state income
tax purposes. Prior to the termination of the Company's S corporation status,
the Company expects to make the Distribution to its shareholders. The
Distribution will approximate the amount that such shareholders will need to
fund the payment of federal and state income taxes payable on the Company's
taxable income during the period the Company was an S corporation. The Company
estimates that the amount of the Distribution would have been approximately
$800,000 if the termination of the Company's S corporation status had occurred
on September 30, 1997. The actual amount of the Distribution will reflect the
Company's taxable income through the termination of its S corporation status.
A portion of the proceeds of the Offering will be used to repay indebtedness
incurred under the Credit Facility to make the Distribution. See "Use of
Proceeds" and Note 2 of Notes to Consolidated Financial Statements. The
Company's shareholders have agreed to indemnify the Company for any federal,
state and other income taxes (including interest) incurred by the Company for
the period for which it reported its taxable income as an S corporation.
In addition, as a result of the termination of its S corporation status in
connection with this Offering, the Company will record a nonrecurring income
tax expense and a corresponding net deferred income tax liability (the
"Deferred Tax Liability"). The amount of the Deferred Tax Liability would have
been approximately $2.6 million if the termination of the Company's S
corporation status had occurred on September 30, 1997, but the actual amount
will be adjusted based on the tax effect of differences in the bases in assets
and liabilities for financial reporting and income tax purposes as of the date
of the termination of S corporation status. The Company will pay the Deferred
Tax Liability over a four-year period. As a result of the Deferred Tax
Liability, the Company expects to incur a net loss for the quarter, and
possibly the year, in which the Company's S corporation status is terminated.
DIVIDEND POLICY
Prior to the closing of the Offering, the Company expects to make the
Distribution to existing shareholders. See "Prior S Corporation Status." The
Company does not anticipate paying any cash dividends on its Common Stock in
the foreseeable future because it intends to retain its earnings, if any, to
finance the expansion of its business and for general corporate purposes,
including future acquisitions. Any payment of future dividends will be at the
discretion of the Board of Directors and will depend upon, among other things,
the Company's earnings, financial condition, capital requirements, level of
indebtedness, contractual restrictions with respect to the payment of
dividends and other factors that the Company's Board of Directors deems
relevant. The Credit Facility currently prohibits the payment of dividends
without the lender's consent.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,330,000 shares of
Common Stock offered by the Company in this Offering are estimated to be
approximately $20.1 million, after deducting underwriting discounts and other
offering expenses, all of which are payable by the Company. The Company will
not receive any proceeds from the sale of the shares offered by the Selling
Shareholders. See "Principal and Selling Shareholders."
The Company intends to use the net proceeds of this Offering as follows: (i)
approximately $11.5 million to repay the outstanding indebtedness under the
Credit Facility (including indebtedness incurred to fund the Distribution);
(ii) approximately $1.0 million for capital expenditures, primarily to enhance
management information systems; and (iii) the balance of the net proceeds,
expected to be approximately $7.6 million, for working capital and general
corporate purposes, including acquisitions and opening new offices. The
Company estimates that the amount borrowed under the Credit Facility to fund
the Distribution would have been approximately $800,000 if the termination of
the Company's S corporation status had occurred on September 30, 1997. The
actual amount of the Distribution will reflect the Company's taxable income
through the date of termination of its S corporation status. See "Prior S
Corporation Status."
The outstanding indebtedness under the Credit Facility was used to pay
certain obligations of the Acquired Companies. Interest on the Credit Facility
is due quarterly and outstanding principal is due on May 31, 2000. Interest is
payable at a rate equal to, at the election of the Company, either: (A) the
greater of (i) the prime rate or (ii) the federal funds rate plus 0.5%, plus a
variable amount between 0% and 0.75%; or (B) LIBOR plus a variable amount
between 1.25% and 2.5%. The Credit Facility is secured by substantially all
assets of the Company and a pledge of 100% of the stock of all subsidiaries.
As of November 21, 1997, the amount outstanding under the Credit Facility was
approximately $10.7 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
The Company continues to evaluate potential acquisitions and carry on
discussions with several potential acquisition candidates. The Company is not
currently a party to any binding agreements or commitments with respect to any
such acquisitions. There can be no assurance that any acquisitions will be
consummated on terms favorable to the Company, if at all. Pending application
of the net proceeds as described above, the Company intends to invest the net
proceeds in short-term, interest-bearing, investment grade securities. See
"Risk Factors -- Substantial Discretion of Management Concerning Use of
Proceeds" and "Business -- Growth Strategy."
14
<PAGE>
DILUTION
The pro forma deficit in net tangible book value of the Company at September
30, 1997 was $7.6 million, or $0.90 per share. See Pro Forma Consolidated
Financial Statements. The pro forma deficit in net tangible book value per
share represents the amount by which the Company's total liabilities exceed
the Company's net tangible assets divided by the pro forma number of shares of
Common Stock outstanding. After giving effect to the sale of the 2,330,000
shares of Common Stock offered by the Company in this Offering and the
application of the net proceeds as set forth under "Use of Proceeds," the
Company's pro forma net tangible book value as of September 30, 1997 would
have been $12.4 million, or $1.15 per share, representing an immediate
increase of $2.05 in net tangible book value per share to existing
shareholders and an immediate dilution of $8.85 in net tangible book value per
share to persons purchasing shares in the Offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $10.00
Pro forma deficit in net tangible book value per share
before this Offering..................................... $(0.90)
Increase per share attributable to the sale of shares of-
fered hereby............................................. 2.05
------
Pro forma net tangible book value per share after this Of-
fering..................................................... 1.15
------
Dilution in net tangible book value per share to new invest-
ors(1)..................................................... $ 8.85
======
</TABLE>
- ---------------------
(1) Dilution is determined by subtracting pro forma net tangible book value
per share after this Offering from the assumed initial public offering
price of $10.00 per share.
The following table sets forth the number of shares of the Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid by the Company's existing shareholders and to be paid by new
investors in this Offering, and before deducting estimated Offering expenses
and underwriting discounts.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders.......... 8,493,220 78.5% $ 774,096 3.2% $ 0.09
New investors.................. 2,330,000 21.5 23,300,000 96.8 10.00
---------- ----- ----------- -----
Total........................ 10,823,220 100.0% $24,074,096 100.0%
========== ===== =========== =====
</TABLE>
Sales by Selling Shareholders in this Offering will reduce the number of
shares held by existing shareholders to 8,073,220, or 74.6%, and will increase
the number of shares to be held by new investors to 2,750,000, or 25.4%, of
the total number of shares of the Common Stock to be outstanding after this
Offering (3,162,500 shares, or 28.1%, if the Underwriters over-allotment
option is exercised in full). See "Principal and Selling Shareholders."
The foregoing tables assume no exercise of outstanding stock options. At
September 30, 1997, there were outstanding options to purchase 244,820 shares
of Common Stock at a weighted average exercise price of $5.61 per share. See
Note 8 of Notes to Consolidated Financial Statements. The Company also plans
to grant options to purchase approximately 950,000 shares of Common Stock to
substantially all of its full-time internal staff employees upon consummation
of the Offering.
15
<PAGE>
CAPITALIZATION
The following table sets forth the Company's capitalization at September 30,
1997: (i) on an historical basis; (ii) on a pro forma basis giving effect to
the termination of the Company's S corporation status and the elimination of
certain Common Stock redemption rights in connection with the Offering; and
(iii) on a pro forma as adjusted basis to give effect to the sale by the
Company of 2,330,000 shares of Common Stock offered hereby and the application
of the net proceeds therefrom. See "Selected Consolidated Financial Data" and
"Use of Proceeds." This table should be read in conjunction with the
Consolidated Financial Statements and the related Notes thereto, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the other financial information appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------------
PRO FORMA,
ACTUAL PRO FORMA (1) AS ADJUSTED
------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, including current maturi-
ties........................................ $11,868 $11,868 $ 718
------- ------- -------
Redeemable Common Stock, 122,012 shares is-
sued and outstanding ....................... 1,220 -- --
------- ------- -------
Shareholders' equity:
Preferred Stock, no par value, 5,000,000
shares authorized, no shares issued and
outstanding............................... -- -- --
Common Stock, no par value, 45,000,000
shares authorized, 8,371,208 shares issued
and outstanding (actual), 8,493,220 shares
(pro forma) and 10,823,220 shares (pro
forma, as adjusted) (2)................... 7,577 8,171 28,240
Retained earnings.......................... 1,941 -- --
------- ------- -------
Total shareholders' equity............... 9,518 8,171 28,240
------- ------- -------
Total capitalization................... $22,606 $20,039 $28,958
======= ======= =======
</TABLE>
- ---------------------
(1) The pro forma financial data have been prepared to reflect (i) the effects
of the termination of the Company's S corporation status, including the
Deferred Tax Liability and the resetting of retained earnings and (ii) the
elimination of certain redemption rights related to the Redeemable Common
Stock in connection with the Offering. See "Prior S Corporation Status,"
"Use of Proceeds" and Pro Forma Consolidated Financial Statements.
(2) Excludes 2,000,000 shares of Common Stock reserved for issuance under the
Option Plan, of which options to purchase 244,820 shares of Common Stock
have been granted and were exercisable at September 30, 1997 with a
weighted average exercise price of $5.61 per share. The Company intends to
grant options to purchase an aggregate of approximately 950,000 shares of
Common Stock upon consummation of this Offering at an exercise price equal
to the initial public offering price per share. See "Management -- 1997
Stock Option Plan."
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
All of the financial data set forth below has been restated to give effect
to the Company's acquisitions of the Acquired Companies (other than C.P.A.
Staffing), each of which has been accounted for under the pooling of interests
method of accounting. See "The Company." Prior to the Offering, the Company
was an S corporation; accordingly, certain financial data may not be
comparable to or indicative of post-Offering results. The following table
contains certain financial and operating data and is qualified by the more
detailed Consolidated Financial Statements and Notes thereto included
elsewhere in this Prospectus. The Balance Sheet Data as of December 31, 1995
and 1996 and September 30, 1997 and the Statements of Operations Data for the
years ended December 31, 1994, 1995 and 1996 and the nine months ended
September 30, 1997 were derived from the Consolidated Financial Statements and
Notes thereto that have been audited by Arthur Andersen LLP, independent
public accountants, and are included elsewhere in this Prospectus. The Balance
Sheet Data as of December 31, 1992, 1993 and 1994 and the Statements of
Operations Data for the years ended December 31, 1992 and 1993 and the nine
months ended September 30, 1996 have been derived from the unaudited financial
statements of the Company which, in the opinion of management, have been
prepared on the same basis as the audited financial statements and include all
adjustments, consisting of normal recurring adjustments, which management
considers necessary for a fair presentation of the selected financial data
shown. The financial data shown for the nine months ended September 30, 1997
are not necessarily indicative of the results to be expected for the entire
year ending December 31, 1997. The financial data shown below should be read
in conjunction with the Consolidated Financial Statements and the related
Notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------- -----------------------------------
PRO FORMA PRO FORMA PRO FORMA
1992 1993 1994 1995 1996 1996(2) 1996 1997 1996(2) 1997(2)
------- ------- ------- ------- ------- --------- ------- ------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA(1):
Service revenues:
Temporary staffing..... $ 8,387 $10,664 $21,151 $26,566 $34,757 $40,410 $25,605 $29,938 $29,779 $33,953
Permanent placement.... 3,641 4,338 6,244 7,919 11,151 12,001 8,196 12,072 8,764 12,613
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total service
revenues............ 12,028 15,002 27,395 34,485 45,908 52,411 33,801 42,010 38,543 46,566
Direct cost of
services.............. 5,832 7,679 14,025 17,732 22,873 26,925 16,811 19,828 19,768 22,660
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit......... 6,196 7,323 13,370 16,753 23,035 25,486 16,990 22,182 18,775 23,906
Selling, general and
administrative
expenses.............. 5,252 6,991 10,218 12,796 18,776 18,868 12,937 18,160 13,665 18,127
Combination expenses... -- -- -- -- -- -- -- 1,722 -- --
Amortization and
depreciation.......... 33 33 547 674 661 899 520 417 699 569
Severance and franchise
termination costs..... -- -- 562 166 567 567 567 170 567 170
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income..... 911 299 2,043 3,117 3,031 5,152 2,966 1,713 3,844 5,040
Other expense.......... 31 70 853 865 804 980 666 588 799 694
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes.......... $ 880 $ 229 $ 1,190 $ 2,252 2,227 4,172 $ 2,300 1,125 3,045 4,346
======= ======= ======= ======= =======
Pro forma income taxes
(3)................... 980 1,836 1,139 1,340 1,912
------- ------- ------- ------- -------
Pro forma net income
(loss) (3)............ $ 1,247 $ 2,336 $ (14) $ 1,705 $ 2,434
======= ======= ======= ======= =======
Pro forma net income
(loss) per share (3).. $ 0.14 $ 0.27 $(0.13) $ 0.20 $ 0.28
======= ======= ======= ======= =======
Weighted average common
shares outstanding
(4)................... 7,259 8,601 7,373 8,601 8,601
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1997
------------------------------------- -------------------------------
PRO FORMA,
PRO AS
1992 1993 1994 1995 1996 ACTUAL FORMA(5) ADJUSTED(5)(6)
------ ------ ------- ------- ------- ------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(1):
Working capital........ $ 398 $ 692 $ 1,483 $ 2,077 $ 3,555 $ 5,413 $ 4,816 $13,835
Total assets........... 2,493 2,499 12,757 13,873 15,855 28,632 28,632 36,751
Long-term debt,
including current
maturities............ 1,096 843 9,925 8,905 8,847 11,868 11,868 718
Redeemable Common
Stock................. -- -- -- -- 288 1,220 -- --
Shareholders' equity... 351 266 914 2,448 3,313 9,518 8,171 28,240
</TABLE>
17
<PAGE>
- -------------------
(1) All of the financial data set forth above have been restated to give
effect to the Company's acquisitions of the Acquired Companies other than
C.P.A. Staffing. The Company's acquisitions, other than C.P.A. Staffing,
have been accounted for under the pooling of interests method of
accounting. See "The Company." Includes results of operations of Don
Richard Associates of Washington and Don Richard Associates of Tampa from
March 1, 1994 and January 1, 1996, respectively, the dates of their
formation. See Note 1 of Notes to Consolidated Financial Statements.
(2) The Company acquired AcSys Resources in September 1997. AcSys Resources
had previously acquired C.P.A. Staffing in August 1997 in a transaction
accounted for under the purchase method of accounting. The pro forma
operations data reflect the Company's operations as if AcSys Resources'
purchase of C.P.A. Staffing had occurred on January 1, 1996. In addition,
the pro forma operations data reflect (i) the elimination of the
Combination Expenses, (ii) an adjustment to compensation expense for the
difference between actual compensation paid to certain owners of the
Acquired Companies (including C.P.A. Staffing) and a key employee and the
compensation negotiated in conjunction with such acquisitions and (iii)
income tax expense computed as if the Company had terminated its status as
an S corporation as of January 1, 1996. See Pro Forma Consolidated
Financial Statements.
(3) The Company has operated as an S corporation for income tax purposes since
inception and will terminate such status in connection with this Offering.
See Note 2 of Notes to Consolidated Financial Statements for information
concerning the computation of the income taxes, as adjusted for income
taxes. See "Prior S Corporation Status" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(4) See Note 2 of Notes to Consolidated Financial Statements and Note 5 of
Notes to Pro Forma Consolidated Financial Statements for a discussion of
the computations of pro forma net income (loss) per share, as adjusted for
income taxes.
(5) The pro forma balance sheet data reflect (i) the Deferred Tax Liability
described in "Prior S Corporation Status" and (ii) the elimination of
certain redemption rights related to the Redeemable Common Stock. See Pro
Forma Consolidated Financial Statements.
(6) Adjusted to reflect the sale of 2,330,000 shares of Common Stock offered
by the Company hereby and the application of the estimated net proceeds
therefrom. See "Prior S Corporation Status," "Use of Proceeds" and
"Capitalization."
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains certain forward-looking statements relating to,
without limitation, future economic performance, plans and objectives of
management for future operations and projections of revenues and other
financial items that are based on the beliefs of the Company's management, as
well as assumptions made by, and information currently available to, the
Company's management. The cautionary statements set forth in the "Risk
Factors" section and elsewhere in this Prospectus identify important factors
with respect to such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to differ materially from those
in such forward-looking statements. See "Risk Factors" for a discussion of
factors that could cause or contribute to such material differences. The
following discussion should be read in connection with the Consolidated
Financial Statements and the related Notes thereto included elsewhere in this
Prospectus.
INTRODUCTION
ACSYS, Inc. is one of the leading accounting and finance temporary staffing
and permanent placement firms in the United States. The Company operates 16
offices serving the Atlanta, Charlotte, Central New Jersey, Orlando,
Philadelphia, Tampa and Washington, D.C. metropolitan markets. The Company was
formed in March 1997 and since its formation has acquired the Acquired
Companies, which had an average operating history of 15 years.
Each of the Company's acquisitions, other than C.P.A. Staffing, was
accounted for as a pooling of interests. Prior to its combination with the
Company in September 1997, AcSys Resources acquired C.P.A. Staffing in August
1997 in a transaction that was accounted for as a purchase. The Company's
historical financial statements have been restated to reflect the results of
operations and financial positions of the Acquired Companies (other than
C.P.A. Staffing). The results of operations for the year ended December 31,
1994 include the results of operations of Don Richard Associates of Washington
for the 10 months ended December 31, 1994. The results of operations of Don
Richard Associates of Tampa are included for the periods beginning on January
1, 1996, and the results of operations of C.P.A. Staffing are included
beginning August 12, 1997. As a result, historical combined results may not be
comparable to or indicative of future performance. The Company's revenues and
expenses may be significantly affected by the number and timing of the
acquisition of additional businesses or the opening of additional offices. The
timing of such expansion activities may also affect period-to-period
comparisons.
Temporary staffing service revenues are recognized based on hours worked by
assigned personnel. Generally, the Company bills its clients a fixed sum per
hour for the hours its temporary employees work. Temporary personnel placed by
the Company are generally Company employees; accordingly, the Company is
responsible for workers' compensation, unemployment compensation insurance,
Medicare and Social Security taxes and general payroll expenses. These
expenses are included within direct cost of services. Because the Company pays
its temporary employees only for the hours they actually work, wages for the
Company's temporary personnel are a variable cost that increases or decreases
in proportion to service revenues. The Company's gross profit is determined by
deducting the direct cost of services from the Company's service revenues.
Some of the temporary employees placed by the Company may decide to accept an
offer of permanent employment from the client and thereby "convert" the
temporary position to a permanent position, and a fee is generally paid to the
Company. Such fees are included in temporary staffing revenues herein.
Permanent placement service revenues are recognized when the employment
offer and acceptance has occurred and the candidate's employment start date
has been established. The Company's fee is usually structured as a percentage
of the placed candidate's first-year annual compensation. Generally, if a
candidate placed by the Company is terminated or resigns during a specified
guaranty period (typically 90-180 days), the Company either fills the position
without further charge or provides a prorated refund. The primary costs
associated with permanent placement service revenues are sales commissions to
staffing consultants. Commissions vary proportionately with permanent
placement service revenues. Consistent with industry practices, the Company
classifies all costs associated with permanent placement services as selling,
general and administrative expenses. Other selling, general and administrative
expenses include payroll for management and administrative employees, office
occupancy costs, sales and marketing expenses and other general and
administrative costs.
19
<PAGE>
Prior to their acquisition by the Company, the Acquired Companies were
managed as private companies with significant equity ownership by management.
The results of operations of the Company reflect the S corporation tax
structures of the Acquired Companies (except for Don Richard Associates of
Charlotte, a C corporation) which influenced, among other things, the
historical levels of their owners' compensation. The income taxes related to
Don Richard Associates of Charlotte are immaterial to the Consolidated
Financial Statements and are included in other expenses therein. The former
owners of the Acquired Companies agreed to adjustments in their compensation
and benefits, effective as of the dates of the respective acquisitions. The
following results of operations do not include those contractual compensation
adjustments.
The Company will terminate its S corporation status and become a C
corporation in connection with this Offering. Prior to the closing of this
Offering, the Company expects to make the Distribution to its shareholders.
The Distribution will approximate the amount that such shareholders will need
to fund the payment of federal and state income taxes payable on the Company's
taxable income during the period the Company was an S corporation. The Company
estimates that the amount of the Distribution would have been approximately
$800,000 if the termination of the Company's S corporation status had occurred
on September 30, 1997; this amount is reflected in the Consolidated Financial
Statements. The actual amount of the Distribution will reflect the Company's
taxable income through the termination of the Company's S corporation status.
As a result of the termination of its S corporation status in connection
with this Offering, the Company will record the Deferred Tax Liability. The
amount of the Deferred Tax Liability would have been approximately $2.6
million if the termination of the Company's S corporation status had occurred
on September 30, 1997. The actual amount will be adjusted based on the tax
effect of differences in the bases in assets and liabilities for financial
reporting and income tax purposes as of the date of the termination of S
corporation status. The Company will pay the Deferred Tax Liability over a
four-year period. As a result of the Deferred Tax Liability, the Company
expects to incur a net loss for the quarter, and possibly the year, in which
the Company's S corporation status is terminated. See "Prior S Corporation
Status" and "Use of Proceeds."
RESULTS OF OPERATIONS
The following table sets forth the percentage of service revenues
represented by certain items in the Company's consolidated statements of
income for the indicated periods.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Service revenues:
Temporary staffing .......... 77.2% 77.0% 75.7% 75.8% 71.3%
Permanent placement ......... 22.8 23.0 24.3 24.2 28.7
------- ------- ------- -------- --------
Total service revenues..... 100.0 100.0 100.0 100.0 100.0
Direct cost of services........ 51.2 51.4 49.8 49.7 47.2
------- ------- ------- -------- --------
Gross profit................. 48.8 48.6 50.2 50.3 52.8
Selling, general and
administrative expenses....... 37.3 37.1 40.9 38.3 43.2
Combination Expenses........... -- -- -- -- 4.1
Amortization and depreciation.. 2.0 2.0 1.4 1.5 1.0
Severance and franchise
termination costs............. 2.1 0.5 1.2 1.7 0.4
------- ------- ------- -------- --------
Operating income............. 7.4 9.0 6.7 8.8 4.1
Other expense.................. 3.1 2.5 1.8 2.0 1.4
------- ------- ------- -------- --------
Income before income taxes..... 4.3% 6.5% 4.9% 6.8% 2.7%
======= ======= ======= ======== ========
</TABLE>
20
<PAGE>
RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO RESULTS FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1996
Service Revenues. Service revenues increased $8.2 million, or 24.3%, to
$42.0 million in the first nine months of 1997 from $33.8 million in the first
nine months of 1996. Temporary staffing service revenues increased $4.3
million, or 16.9%, to $29.9 million in the first nine months of 1997 from
$25.6 million in the first nine months of 1996. Professional temporary
staffing service revenues increased $5.0 million, or 22.8%, to $26.7 million
in the first nine months of 1997 from $21.7 million in the first nine months
of 1996, and clerical temporary staffing service revenues decreased $626,000,
or 16.3%, to $3.2 million in the first nine months of 1997 from $3.8 million
in the first nine months of 1996. Temporary staffing service revenues
increased primarily as a result of increased billings to existing clients, the
addition of new clients, increased revenues from offices opened in 1996 and
1995 and increased billing rates. This increase was offset by the Company's
elimination of certain high-volume, low-margin temporary staffing service
assignments in its Tampa and Charlotte Hub-Centers. Permanent placement
service revenues increased $3.9 million, or 47.3%, to $12.1 million in the
first nine months of 1997 from $8.2 million in the first nine months of 1996.
Permanent placement service revenues increased primarily due to increases in
permanent placements, the number of consultants, the productivity of
consultants and billings to existing clients. In addition, service revenues
for the first nine months of 1997 include service revenues of C.P.A. Staffing
from its acquisition date of August 12, 1997.
Gross Profit. Gross profit increased $5.2 million, or 30.6%, to $22.2
million in the first nine months of 1997 from $17.0 million in the first nine
months of 1996. Gross profit as a percentage of service revenues increased to
52.8% in the first nine months of 1997 from 50.3% in the first nine months of
1996, primarily due to an increase in the percentage of service revenues
derived from permanent placement services which increased to 28.7% of total
service revenues in the first nine months of 1997 from 24.2% in the first nine
months of 1996. Permanent placement service revenues generate higher gross
profits than temporary staffing service revenues because sales commissions and
other costs associated with permanent placement services are included in
selling, general and administrative expenses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $5.2 million, or 40.4%, to $18.2 million in
the first nine months of 1997 from $12.9 million in the first nine months of
1996. Approximately $1.0 million of the increase was the result of an increase
in owners' compensation and $2.0 million of the increase was attributable to
sales commissions associated with the increase in service revenues. Owners'
compensation was adjusted upon the Company's acquisition of each of the
Acquired Companies. In addition, the Company incurred expenses in the first
nine months of 1997 in connection with the addition of personnel to support
the Company's increased sales and marketing efforts and the introduction of IT
temporary staffing services. As a result of the above factors, selling,
general and administrative expenses as a percentage of revenues increased to
43.2% in the first nine months of 1997 from 38.3% in the first nine months of
1996.
Combination Expenses. In the first nine months of 1997, the Company
recognized an expense of $1.7 million, or 4.1% of service revenues, for legal,
accounting and other related expenses in connection with the acquisitions of
the Acquired Companies.
Amortization and Depreciation. Amortization and depreciation decreased
$104,000, or 19.9%, to $417,000 in the first nine months of 1997 from $520,000
in the first nine months of 1996 because the amortization of a non-compete
agreement was completed in 1996. This decrease was offset by an increase in
amortization of goodwill acquired in the acquisition of C.P.A. Staffing, the
amortization of capitalized costs associated with the Credit Facility and
depreciation of office equipment and furniture.
Severance and Franchise Termination Costs. In the first nine months of 1996,
the Company incurred $459,000 in severance payments to a former employee of
AcSys Resources in connection with his departure from the Company. The Company
incurred no severance costs in the first nine months of 1997. In the first
nine months of 1997, Don Richard Associates of Tampa terminated its franchise
agreement and made a one-time payment to
21
<PAGE>
the franchisor of $170,000. Prior to May 31, 1994, AcSys Resources operated
under a franchise agreement, which provided for various marketing and royalty
payments to the franchisor based on revenues. Effective May 31, 1994, AcSys
Resources and the franchisor entered into an agreement (the "AcSys Franchise
Termination Agreement") which terminated the franchise agreement and provided
for payments to the franchisor of $360,000, which were made and recorded as an
expense in 1994. In addition, AcSys Resources was required to pay to the
franchisor 1% of revenues for the period June 1, 1994 through May 31, 1995,
and 2% of revenues for the period June 1, 1995 through May 31, 1996. In the
first nine months of 1996, the Company incurred $108,000 of franchise
termination costs under the AcSys Franchise Termination Agreement. Because the
obligations under the AcSys Franchise Termination Agreement were satisfied in
1996, the Company did not incur such costs in the first nine months of 1997.
The Company is not currently a party to any franchise agreements.
Operating Income. As a result of the above factors, operating income
decreased $1.3 million, or 42.2%, to $1.7 million in the first nine months of
1997 from $3.0 million in the first nine months of 1996. Operating income as a
percentage of service revenues decreased to 4.1% in the first nine months of
1997 from 8.8% in the first nine months of 1996.
Other Expense. Other expense, which is primarily comprised of net interest
expense, decreased to $588,000 in the first nine months of 1997 from $666,000
in the first nine months of 1996.
Income Before Income Taxes. As a result of the above factors, income before
income taxes decreased $1.2 million, or 51.1%, to $1.1 million in the first
nine months of 1997 from $2.3 million in the first nine months of 1996. Income
before income taxes as a percentage of service revenues decreased to 2.7% in
the first nine months of 1997 from 6.8% in the first nine months of 1996.
RESULTS FOR 1996 COMPARED TO RESULTS FOR 1995
Service Revenues. Service revenues increased $11.4 million, or 33.1%, to
$45.9 million in 1996 from $34.5 million in 1995. Temporary staffing service
revenues increased $8.2 million, or 30.8%, to $34.8 million in 1996 from $26.6
million in 1995. The increase in temporary staffing service revenues is
primarily a result of increased billings to existing clients, the addition of
new clients, increased billing rates and increased revenues from offices
opened in 1996 and 1995. Permanent placement service revenues increased $3.2
million, or 40.8%, to $11.2 million in 1996 from $7.9 million in 1995.
Permanent placement service revenues increased primarily due to an increase in
the number of permanent placements made in 1996, additional permanent
placement consultants and increased productivity. In addition, 1996 service
revenues reflect $2.5 million in total service revenues from Don Richard
Associates of Tampa. Due to a change in ownership of Don Richard Associates of
Tampa as of January 1, 1996, the Company's operating results for 1995 do not
include the operating results of that entity.
Gross Profit. Gross profit increased $6.3 million, or 37.5%, to $23.0
million in 1996 from $16.8 million in 1995. Gross profit as a percentage of
service revenues increased to 50.2% in 1996 from 48.6% in 1995, primarily
because permanent placement service revenues comprised a larger portion of
total service revenues, increasing to 24.3% of total service revenues in 1996
from 23.0% in 1995. The Company's direct cost of services as a percentage of
temporary staffing service revenues decreased to 65.8% in 1996 from 66.7% in
1995, primarily as a result of the Company's focus on higher gross margin
temporary staffing assignments and increased billing rates.
22
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $6.0 million, or 46.7%, to $18.8 million in
1996 from $12.8 million in 1995. Approximately $2.1 million of the increase
was attributable to sales commissions associated with the increase in
permanent placement revenues, and $1.4 million was the result of an increase
in owners' compensation of the Acquired Companies. In addition, 1996 selling,
general and administrative expenses reflect the expenses of Don Richard
Associates of Tampa whereas 1995 selling, general and administrative expenses
do not. Selling, general and administrative expenses also increased as a
result of corporate expenses incurred in 1996 to support the Company's growth.
Selling, general and administrative expenses as a percentage of service
revenues increased to 40.9% in 1996 from 37.1% in 1995, due to the increase in
owners' compensation and an increase in sales commission rates.
Amortization and Depreciation. Amortization and depreciation decreased
$13,000, or 1.9%, to $661,000 in 1996 from $674,000 in 1995.
Severance and Franchise Termination Costs. In 1996, the Company incurred
$459,000 in severance payments to a former employee of AcSys Resources in
connection with his departure from the Company and $108,000 of costs
associated with the AcSys Franchise Termination Agreement, compared with
$166,000 of franchise termination costs in 1995.
Operating Income. As a result of the above factors, operating income
decreased $86,000, or 2.8%, to $3.0 million in 1996 from $3.1 million in 1995.
Operating income as a percentage of service revenues decreased to 6.7% in 1996
from 9.0% in 1995.
Other Expense. Other expense, which is primarily comprised of net interest
expense, decreased to $803,000 in 1996 from $865,000 in 1995 principally due
to lower average debt levels.
Income Before Income Taxes. As a result of the above factors, income before
income taxes decreased $24,000, or 1.1%, to $2.2 million in 1996 from $2.3
million in 1995. Income before income taxes as a percentage of service
revenues decreased to 4.9% in 1996 from 6.5% in 1995.
RESULTS FOR 1995 COMPARED TO RESULTS FOR 1994
Service Revenues. Service revenues increased $7.1 million, or 25.9%, to
$34.5 million in 1995 from $27.4 million in 1994. Temporary staffing service
revenues increased $5.4 million, or 25.6%, to $26.6 million in 1995 from $21.2
million in 1994. The increase in temporary staffing service revenues was
primarily due to the opening of new offices, improved marketing strategies and
changes in operating procedures including the implementation of consultant
training to improve productivity. Permanent placement service revenues
increased $1.7 million, or 26.8%, to $7.9 million in 1995 from $6.2 million in
1994. The increase in permanent placement service revenues is primarily due to
an increase in the number of permanent placements made in 1995, additional
permanent placement consultants and increased productivity. In addition, 1995
service revenues reflect 12 months of service revenues from Don Richard
Associates of Washington as compared to only 10 months of service revenues in
1994.
Gross Profit. Gross profit increased $3.4 million, or 25.3%, to $16.8
million in 1995 from $13.4 million in 1994. Gross profit as a percentage of
service revenues remained relatively constant at 48.6% for 1995 compared to
48.8% in 1994.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $2.6 million, or 25.2%, to $12.8 million in
1995 from $10.2 million in 1994. Approximately $894,000 of the increase was
attributable to sales commissions associated with the increase in permanent
placement revenues. In addition, the Company incurred 12 months of selling,
general and administrative expenses at Don Richard Associates of Washington in
1995 as compared to only 10 months of selling, general and administrative
expenses in 1994. To a lesser extent, the increase was due to the addition of
consultants. Selling, general and administrative expenses as a percentage of
service revenues decreased slightly to 37.1% in 1995 from 37.3% in 1994.
23
<PAGE>
Amortization and Depreciation. Amortization and depreciation increased
$128,000, or 23.3%, to $674,000 in 1995 from $547,000 in 1994. The increase
resulted from depreciation related to capital expenditures for information
technology systems made at the beginning of 1995 and the end of 1994 and a
full year of amortization of intangible assets acquired in connection with the
acquisition of the Don Richard Associates of Washington operations in 1994.
Severance and Franchise Termination Costs. In 1995, the Company incurred
$166,000 of costs associated with the AcSys Franchise Termination Agreement
compared with $561,000 of franchise termination costs in 1994. No severance
payments were made in either 1995 or 1994.
Operating Income. As a result of the above factors, operating income
increased $1.1 million, or 52.6%, to $3.1 million in 1995 from $2.0 million in
1994. Operating income as a percentage of service revenues increased to 9.0%
in 1995 from 7.4% in 1994.
Other Expense. Other expense, which is primarily comprised of net interest
expense, increased to $865,000 in 1995 from $853,000 in 1994.
Income Before Income Taxes. As a result of the above factors, income before
income taxes increased $1.1 million, or 89.2%, to $2.3 million in 1995 from
$1.2 million in 1994. Income before income taxes as a percentage of service
revenues increased to 6.5% in 1995 from 4.3% in 1994.
UNAUDITED QUARTERLY RESULTS
The following table sets forth certain unaudited consolidated quarterly
operating information of the Company for the seven quarters in the period from
January 1, 1996 to September 30, 1997. This information has been prepared on
the same basis as the Consolidated Financial Statements contained elsewhere in
this Prospectus and, in the opinion of management, includes all adjustments,
consisting solely of normal and recurring adjustments, necessary for the fair
presentation of the information for the periods presented. The financial data
shown below should be read in conjunction with the Consolidated Financial
Statements and the related Notes thereto. Results for any previous quarter are
not necessarily indicative of results for the full year or for any future
quarter.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996 1997 1997 1997
--------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Service revenues:
Temporary staffing..... $ 8,132 $ 8,700 $ 8,772 $ 9,153 $ 9,361 $ 9,718 $10,858
Permanent placement.... 2,518 2,862 2,817 2,954 3,520 3,756 4,797
------- ------- ------- ------- ------- ------- -------
Total service reve-
nues................. 10,650 11,562 11,589 12,107 12,881 13,474 15,655
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $1.4 million, $2.8 million and
$1.9 million in 1994, 1995 and 1996 and $2.4 million and $1.6 million for the
nine months ended September 30, 1996 and 1997, respectively. The decrease in
cash provided by operating activities for the nine months ended September 30,
1997 as compared to the nine months ended September 30, 1996 was due to a
decrease in net income and an increase in accounts receivable, partially
offset by an increase in accrued liabilities. The reduction in net cash
provided by operating activities in 1996 as compared to 1995 was primarily due
to a significant increase in accounts receivable in 1996.
24
<PAGE>
The increase in net cash provided by operating activities in 1995 as compared
to 1994 was due to higher net income before amortization and depreciation in
1995.
Net cash used in investing activities was $126,000, $274,000, $487,000 and
$2.3 million in 1994, 1995, 1996 and the first nine months of 1997,
respectively. Cash used in investing activities for the periods presented was
attributable to the acquisition of C.P.A. Staffing for the nine month period
ended September 30, 1997 and capital expenditures, including computer and
telecommunications equipment, furniture and office equipment. The Company
expects to make capital expenditures of $1.0 million, primarily to enhance
management information systems.
Net cash provided by financing activities was $1.2 million for the nine
month period ended September 30, 1997 and was primarily attributable to
borrowings for the acquisition of C.P.A. Staffing. Net cash used in financing
activities was $669,000, $1.8 million and $1.8 million in 1994, 1995 and 1996,
respectively. Cash used in financing activities for these periods was
primarily attributable to net repayments of long-term debt and capital lease
obligations and distributions to shareholders.
The Company's principal uses of cash are to fund temporary employee payroll
expense and employer related payroll taxes; investment in capital equipment
such as IT systems; start-up expenses of new offices; expansion of services
offered; and costs relating to unusual transactions such as acquisitions,
severance and franchise termination costs and the Deferred Tax Liability,
which will be paid over a four-year period. Temporary employees are paid
weekly, and customer remittances are generally received by the Company within
45 days from the time work was performed by temporary employees. Expansion of
the Company's services requires expenditures for marketing and personnel costs
at varied levels up to six months in advance of generating any service
revenues. In addition, for the first nine months of 1997, approximately
$900,000 of cash was used to pay Combination Expenses and costs related to
obtaining the Credit Facility.
The Company entered into the Credit Facility on May 16, 1997. Borrowings
under the Credit Facility are available for working capital and other
corporate purposes, including acquisitions; have been used to repay certain
debt of the Acquired Companies and to pay for expenses incurred in connection
with acquisitions; and will be available to make the Distribution. Interest on
the Credit Facility is due quarterly, and outstanding principal is due on May
31, 2000. Interest is payable at a rate equal to, at the election of the
Company, either: (A) the greater of (i) the prime rate or (ii) the federal
funds rate plus 0.5%, plus a variable amount between 0% and 0.75%; or (B)
LIBOR plus a variable amount between 1.25% and 2.5%. At November 21, 1997 the
Company owed $10.7 million in principal on the Credit Facility. The Credit
Facility contains covenants requiring the maintenance of certain financial
ratios and specified net worth and limiting the incurrence of additional
indebtedness, the sale of substantial assets, consolidations or mergers by the
Company and the payment of dividends. The Credit Facility is secured by all
assets of the Company and a pledge of 100% of the stock of all subsidiaries,
which have guaranteed the repayment of indebtedness under the Credit Facility.
The net proceeds from the Offering, after deducting underwriting discounts
and offering expenses, are expected to total approximately $20.1 million. The
Company intends to use the net proceeds of this Offering as follows: (i)
approximately $11.5 million (including indebtedness incurred to fund the
Distribution) to repay the outstanding indebtedness under the Credit Facility;
(ii) approximately $1.0 million for capital expenditures, primarily to enhance
management information systems; and (iii) the balance of the net proceeds,
expected to be approximately $7.6 million, for working capital and general
corporate purposes, including acquisitions and opening new offices. The
Company also intends to register up to an additional 2,000,000 shares of its
Common Stock as soon as practicable after completion of this Offering to use
as consideration in connection with future acquisitions.
While there can be no assurance, the Company believes that the proceeds of
this Offering, funds currently available on hand, funds to be provided by
operations and funds available under the Credit Facility will be sufficient to
meet the Company's anticipated needs for working capital for the next twelve
months. The Company's estimate of the time that the proceeds of this Offering,
funds currently on hand, funds provided by operations and funds available
under the Credit Facility will be sufficient to meet the Company's working
capital
25
<PAGE>
needs is a forward-looking statement that is subject to risks and
uncertainties. Actual results and working capital needs could differ
materially from those estimated due to a number of factors, including the use
of such proceeds to fund acquisitions. In addition, acquisitions may require
additional debt and equity financing.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement No. 128, "Earnings Per Share." This statement establishes
standards for computing and presenting earnings per share and is effective for
financial statements issued for periods ending after December 15, 1997.
Earlier application of this statement is not permitted and, upon adoption,
requires restatement (as applicable), of all prior-period earnings per share
data presented. Management believes that the implementation of this standard
will not have a material effect on the Company's calculation of earnings per
share.
In February 1997, the FASB issued Statement No. 129, "Disclosure of
Information about Capital Structure." This statement establishes standards for
disclosing information about an entity's capital structure. Management intends
to comply with the disclosure requirements of this statement, which are
effective for periods ending after December 15, 1997. Management believes that
the implementation of this standard will not have a material effect on the
Company's financial statements.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). This statement requires companies to classify items of
other comprehensive income by their nature in a financial statement and
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. SFAS 130 is effective for financial
statements issued for fiscal years beginning after December 15, 1997.
Management believes that SFAS 130 will not have a material effect on the
Company's financial statements.
In June 1997, the FASB issued Statement No. 131, "Disclosure About Segments
of an Enterprise and Related Information" ("SFAS 131"). This statement
establishes additional standards for segment reporting in the financial
statements and is effective for fiscal years beginning after December 15,
1997. Management believes that SFAS 131 will not have a material effect on the
Company's financial statements.
26
<PAGE>
BUSINESS
GENERAL
ACSYS, Inc. is one of the leading accounting and finance temporary staffing
and permanent placement firms in the United States. The Company operates 16
offices serving the Atlanta, Charlotte, Central New Jersey, Orlando,
Philadelphia, Tampa and Washington, D.C. metropolitan markets. Since its
formation in March 1997, the Company has acquired seven accounting and finance
specialty professional staffing companies which had operating histories ranging
from five to 23 years with an average operating history of 15 years. The
Company's goal is to build a national specialty professional staffing business
with offices in major United States metropolitan markets. The Company's clients
include Fortune 1000 companies, middle market companies, governmental agencies
and nonprofit organizations.
The Company's operating strategy is based on a focus on client relationships
and its philosophy that the central function of corporate management is to
support the staffing consultants who directly interact with clients. The
Company carries out its strategy through its decentralized "Hub-Center"
management model, which the Company believes fosters an entrepreneurial
environment. Hub-Centers, located in major metropolitan markets, are managed by
Division Presidents who are responsible for achieving the Company's operational
and financial goals and have significant latitude over such matters as hiring,
recruiting, compensation, pricing and sales management. Division Presidents are
supported by the Company's corporate services which include advertising,
marketing, public relations, management information systems support, training,
human resources, accounting and other back office functions. The Company
believes that its decentralized management structure enables it to be more
responsive to its clients' needs. Further, the Company believes that its
specialty professional focus makes it more attractive to staffing consultants
and temporary and permanent placement candidates.
The Company's goal is to build a national specialty professional staffing
business with offices in major United States metropolitan markets by pursuing
strategic acquisitions, enhancing and expanding existing offices, introducing
new services and opening new offices. The Company seeks to acquire specialty
professional staffing businesses with strong management and a significant
presence in what the Company believes to be desirable, growing markets. The
Company believes it will have a strategic advantage in competing for
acquisitions based on (i) its focus on the specialty professional staffing
segment of the staffing industry; (ii) the personal relationships of its senior
executives with managers and owners of other specialty professional staffing
firms; (iii) the Company's entrepreneurial operating environment and Hub-Center
management model; (iv) the Company's merger and acquisition execution
capabilities; and (v) the Company's greater visibility and resources as a
public company. The Company plans to enhance and expand its existing offices by
adding quality personnel, pursuing new clients, expanding relationships with
its current clients and replicating its most successful sales, marketing and
business techniques in offices that are not currently using those techniques.
The Company also intends to introduce new specialty professional staffing
services in addition to its core accounting and finance staffing services. For
example, the Company recently introduced IT staffing in several locations. The
Company may develop or expand new services internally by leveraging its
existing staffing expertise and specialty professional staffing reputation or
it may acquire existing businesses that offer such new specialty professional
staffing services. Furthermore, the Company intends to grow by opening new
offices in both its current markets and new geographic markets.
THE STAFFING INDUSTRY
The staffing industry generally consists of companies which provide four
basic services to clients: temporary staffing, placement and search,
professional employer organization services and outplacement. Based on
information from the Staffing Industry Report, staffing industry revenues
increased from approximately $31.4 billion in 1991 to approximately $74.4
billion in 1996, representing a compound annual growth rate of 19%. According
to industry sources, in 1996 the staffing industry employed approximately 5.2
million people per day, or approximately 4% of the entire United States
workforce. While the industry has undergone consolidation in the last few
years, it remains fragmented with over 9,300 temporary staffing firms and over
3,400 placement and search firms. Within the overall staffing industry, the
Company primarily provides services in the temporary staffing sector, which had
1996 revenues of $47.1 billion and grew from 1991 revenues of $21.5 billion
27
<PAGE>
representing a compound annual growth rate of 17%. The Company also provides
services in the placement and search sector, which had 1996 revenues of $9.1
billion and grew from 1991 revenues of $4.2 billion also representing a
compound annual growth rate of 17%.
The Company's temporary staffing services are currently focused on the
accounting and finance portion of the specialty professional segment, which
had 1996 revenues of $5.0 billion, representing 11% of the $47.1 billion
temporary staffing sector. The Staffing Industry Report recently estimated
that the specialty professional segment will grow 22% in 1997. In addition to
accounting and finance, the specialty professional segment, as defined by the
Staffing Industry Report, includes legal, laboratory and other professional
staffing services (excluding IT and technical services). The specialty
professional segment is one of the fastest growing segments of the temporary
staffing sector, with profit margins greater than those of the traditional
clerical and light industrial temporary staffing business. The Company has
also recently begun to offer IT staffing services. The IT/technical segment of
the temporary staffing sector had 1996 revenues of $11.7 billion, representing
25% of the temporary staffing sector, and is expected to grow 27% in 1997.
This segment includes IT services such as consulting, systems and network
integration and support, and IT supplemental staffing.
Temporary staffing has become widely accepted as a valuable tool for
managing personnel costs and for meeting specialized or fluctuating employment
requirements. Temporary staffing companies offer a means of dealing with
uneven or peak work loads caused by such predictable events as vacations, tax
work, month-end activities, special projects, and seasonal increases in work
volume, and such unpredictable events as illnesses, resignations and
emergencies. In addition, employees increasingly look to temporary assignments
as a way to build experience, make contacts, and receive training and valuable
exposure to a variety of work settings, as well as a means to gain full-time
employment. The Company believes that more companies are not only accepting
the idea of using professional temporary employees in traditional permanent
professional roles, but are planning to use such employees as a continuing
corporate strategy. Furthermore, traditional accounting services that were
historically performed internally are being outsourced.
The placement and search sector of the staffing industry had 1996 revenues
of $9.1 billion, representing 12% of the staffing industry. This sector is
expected to grow 14% in 1997, according to the Staffing Industry Report.
Personnel placed by companies in this sector cover a wide range of industries
and a variety of position levels. Placement and search firms fulfill their
clients' needs by identifying, evaluating and recommending qualified
candidates for positions. Placement and search firms are generally
characterized as either retained search or contingency placement, depending
upon how their fees are determined. Retained search firms receive a retainer
at the outset of an assignment, whereas contingency firms, such as the
Company, receive compensation upon successful completion of a search and
placement of a recommended candidate. Contingency firms typically fill mid-
level positions for a fee equal to a percentage of the candidate's first year
annual salary.
The Company believes that companies have become increasingly reliant on
placement and search firms for a number of reasons. The continued strength and
growth of the economy has reduced the pool of available specialty
professionals and increased the difficulty of finding talented candidates.
Professional employee turnover has increased as more employees spend their
careers with a number of different organizations in various locations. Many
companies are outsourcing non-core activities, such as recruiting, to reduce
costs and increase efficiencies. A permanent placement firm may also serve in
a consultative role to the client by providing objective feedback on
candidates and advice regarding profile and compensation for a particular
position.
The Company believes that a number of factors may increase demand for
specialty professional temporary staffing and permanent placement services.
These factors include:
. Use of temporary employees to fill higher-skilled positions.
. Employers' difficulty locating qualified employees.
. Desire of employers to utilize candidates with the latest training and
current skill sets demanded in the increasingly technology-reliant
business environment.
. Trend to outsource non-core functions to reduce costs and increase
efficiencies.
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<PAGE>
. Employment candidates' attraction to industry-focused specialty service
providers.
. Employment candidates seeking more flexibility and opportunities to gain
experience in a variety of work settings.
OPERATING STRATEGY
The key elements of the Company's operating strategy are as follows:
Focus on Specialty Professional Markets. The Company focuses on staffing
positions that require specialized skills such as accounting, finance and
banking. The Company believes that its years of experience, recognized local
brand names, reputation for client service and the industry expertise of its
staffing consultants give it a competitive advantage. For example, many of the
Company's staffing consultants are certified public accountants. The Company
believes that these specialized characteristics also provide an opportunity
for the Company to generate higher margins than those of traditional clerical
and light industrial staffing companies.
Emphasize Client Relationships. The Company believes that client
relationships and the staffing consultants who are responsible for developing
and maintaining those relationships are the Company's most important assets.
These consultants are encouraged to respond directly and innovatively to
satisfy clients' staffing needs, and the Company has built its corporate level
services to support its consultants in that effort. Moreover, the Company
believes that the central function of management, including the Company's
senior executive team, is to support the consultants who directly interact
with the client.
Foster Entrepreneurial Environment with Hub-Center Management Model. The
Company employs a decentralized operating strategy which it has termed its
Hub-Center management model. The Company's operations in each market,
including any satellite offices in that market, are managed by local managers
called Division Presidents. The Company believes it has a strong market share
in each of its major markets largely due to the commitment, ability and
creativity of the Division Presidents who drive each local business. The
Company fosters this entrepreneurial environment by giving its Division
Presidents the authority to respond quickly and creatively to client needs.
Division Presidents are responsible for achieving operational and financial
objectives, including revenues and earnings growth, and have authority over
hiring, recruiting, compensation, pricing and sales management. The Company
believes that this coupling of accountability and authority, combined with the
support of the Company's corporate level support services, enables its
Division Presidents to compete successfully in the local marketplace. The
Company also believes this entrepreneurial environment allows the Company to
attract talented managers and successfully serve its clients' needs.
Provide Corporate Level Support. The Company's philosophy is that the
central function of corporate management is to support the staffing
consultants who directly interact with clients. The Company offers its
Division Presidents corporate level support to lessen their administrative
burden and allow them to focus on servicing clients and growing the business.
These support functions include advertising, marketing, public relations,
management information systems support, training, human resources, accounting
and other back office functions. The Company's corporate management has
identified and continues to identify "best practices" for its Division
Presidents to use in their day-to-day operations.
29
<PAGE>
The Company's focus on client relationships and its philosophy of servicing
those relationships with its Hub-Center management model and corporate level
support is graphically depicted as follows:
[GRAPHIC DISPLAY OF THE COMPANY'S HUB-CENTERED MANAGEMENT
AND CORPORATE LEVEL SUPPORT STRUCTURE]
Attract, Motivate and Retain Staffing Consultants with Specialty
Professional Skills. The Company places great emphasis on attracting,
motivating and retaining highly-skilled staffing consultants. The staffing
industry has generally been characterized by a high degree of employee
turnover. The Company believes its decentralized, entrepreneurial environment
and focus on the specialty professional market enhance the attractiveness of
the Company to staffing consultants. In addition, the Company believes that
its compensation policies effectively motivate its personnel. The Company also
plans to grant stock options to substantially all of its operating personnel
upon consummation of the Offering, which the Company believes will further
motivate its operating personnel.
GROWTH STRATEGY
The Company's goal is to build a national specialty professional staffing
business with offices in major United States metropolitan markets. The key
elements of its growth strategy in order of relative importance are as
follows:
Pursue Strategic Acquisitions. The Company intends to acquire accounting and
finance temporary staffing and permanent placement businesses and other
specialty professional staffing businesses, such as IT and legal staffing
companies. The Company seeks acquisition candidates with characteristics such
as attractive geographic market locations, strong market shares, recognized
local brand names and new or expanded specialties that can be added to the
Company's existing services. The Company also focuses on acquisition targets
that have strong management teams and complementary cultures. The Company
believes it will have a strategic advantage in competing for acquisitions
based on (i) its focus on the specialty professional staffing segment of the
staffing industry; (ii) the personal relationships of its key executives with
managers and owners of other specialty professional staffing firms; (iii) the
Company's entrepreneurial operating environment and Hub-Center management
model; (iv) the Company's merger and acquisition execution capabilities; and
(v) the Company's greater visibility and resources as a public company. To
accomplish acquisitions, the Company plans to use equity, debt, available cash
and combinations of all three as consideration. In addition, the Company
intends to register up to 2,000,000 additional shares of its Common Stock as
soon as practicable after the completion of the Offering for use in future
acquisitions. See "Acquisitions."
Enhance and Expand Existing Offices. The Company plans to develop and expand
its current offices by adding temporary staffing and permanent placement
consultants, pursuing new clients, expanding current client relationships,
cross-marketing temporary and permanent services, and replicating successful
sales, marketing and business techniques in offices that are not currently
using those techniques. The Company relies on its Division Presidents to drive
this internal growth and to determine which sales, marketing and business
techniques are most appropriate for their respective local markets.
30
<PAGE>
Introduce New Services. The Company plans to develop new specialty
professional staffing services internally by leveraging its existing expertise
and reputation in specialty professional staffing services, particularly in
markets where the Company's clients have solicited the Company for those new
services. Examples of the Company's internal development of new service
offerings are its recent commencement of IT staffing services in several
offices, with plans to offer IT services in other offices, and ACSYS Advantage
Accountant, a program in which the Company seeks to staff higher-end positions
such as chief financial officers and controllers on an interim basis. The
Company currently has several new service development projects in process,
including: professional sales permanent placement; litigation support;
outsourced internal audit function; and vendor-on-premise, contract services
or project management. All of these potential new services are currently
offered only on a limited basis, and there can be no assurance that they will
be offered throughout the Company. The Company may also acquire specialty
staffing services firms with new or expanded services and market those
services through its existing offices.
Open New Offices. The Company has opened three offices since its formation
and plans to continue to grow its business by opening new offices. The Company
will open two types of new offices, spin-offs from existing offices and "de
novo" offices. A spin-off office is opened in an existing geographic market by
breaking a branch office in two. The purpose of such an office opening is to
provide the Company greater geographic coverage and increased market
penetration at a low marginal cost. The Company has recently opened two spin-
off offices, one in Alexandria, Virginia (a spin-off from the Company's
existing Tyson's Corner, Virginia office), and one in Landover, Maryland (a
spin-off from the Company's Washington, D.C. office). The Company will also
open de novo offices that will represent the Company's initial presence in new
geographic markets. The Company recently opened a de novo office in Orlando,
Florida. The Company has established a team of experienced management
personnel led by Beth Monroe-Chase, the Company's Chief Development Officer,
who will lead the Company's future de novo office opening efforts and oversee
the management of these new offices until they reach a level of performance
the Company believes is sufficient to allow them to operate as stand-alone
Hub-Centers led by a Division President.
SERVICES
The Company currently offers the following services:
Accounting and Finance Temporary Staffing. The Company's accounting and
finance temporary staffing operations are the core of the Company's business
and accounted for approximately 68.5% and 66.1% of its pro forma service
revenues in 1996 and the first nine months of 1997, respectively. The Company
provides temporary staffing services to clients in a variety of industries,
such as telecommunications, banking, manufacturing and government. Its
temporary staffing clients are principally Fortune 1000 companies, middle
market companies, governmental agencies and nonprofit organizations. Some of
the temporary employees placed by the Company may decide to accept an offer of
permanent employment from the client and thereby "convert" the temporary
position to a permanent position. During a typical week, the Company has more
than 1,000 accounting and finance temporary personnel on assignment at an
average bill rate for temporary staffing employees of approximately $21 per
hour.
Accounting and Finance Permanent Placement. The Company's accounting and
finance permanent placement business accounted for 22.9% and 27.1% of its pro
forma service revenues in 1996 and the first nine months of 1997,
respectively. The Company's permanent placement business specializes in
placing mid-level accounting, financial, tax and banking personnel in
permanent positions with a diverse mix of companies ranging from small
businesses and nonprofit organizations to Fortune 1000 companies.
Substantially all of the Company's permanent placement business is on a
contingency basis; thus, the Company is not compensated for a permanent
placement assignment unless a candidate recommended by the Company is hired by
a client. Fees for successful permanent placements are paid only by the
employer and are generally equal to a percentage of the new employee's first-
year annual compensation. Generally, if a candidate placed by the Company is
terminated or resigns during a specified guaranty period (typically 90-180
days), the Company either fills the position without further charge or
provides a prorated refund. The Company placed a total of 1,509 permanent
placement candidates during 1996 and 1,394 candidates during the first nine
months of 1997, respectively. The
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Company's average placement fee was approximately $7,900 and $9,000 in 1996
and the first nine months of 1997, respectively, on a pro forma basis.
Types of positions in which the Company places temporary staffing employees
and permanent candidates include:
<TABLE>
<S> <C>
. Accounting Managers . Budget Analysts
. Chief Financial Officers . Controllers and Assistant Controllers
. Cost Accountants . Credit and Collections Personnel
. Financial Analysts . Financial Reporting Specialists
. Internal Audit Personnel . Staff and Senior Accountants
. Tax Accountants . Treasurers
</TABLE>
Information Technology. The Company began offering IT staffing services in
the third quarter of 1997 in its Philadelphia, Central New Jersey, Charlotte
and Tampa Hub-Centers. The Company generally offers both IT temporary staffing
and IT permanent placement services. The Company is leveraging its existing
client contacts in the accounting and finance area by seeking to fill their IT
staffing needs as well. The Company may expand its IT business into other
offices and also may acquire other IT staffing firms as it seeks to diversify
its staffing services.
Other Staffing Services. The Company's corporate staffing services place
temporary office and administrative personnel, ranging from executive
assistants to office managers. The Company began offering these services in
its Washington, D.C. Hub-Center in response to clients' desire to staff
candidates with a stronger base of skills than those typically available from
other staffing providers. These services accounted for 8.6% and 6.8% of the
Company's pro forma service revenues in 1996 and the first nine months of
1997, respectively, and are included under temporary staffing service revenues
in the Consolidated Financial Statements.
ACQUISITIONS
A key element of the Company's growth strategy is to acquire accounting and
finance and other specialty professional staffing businesses. While the
industry has undergone significant consolidation in the last few years, it
remains a fragmented market with over 9,300 temporary staffing firms and over
3,400 placement and search firms. To accomplish acquisitions, the Company
plans to use equity, debt, available cash and combinations of all three as
consideration. In addition, the Company intends to register up to 2,000,000
additional shares of its Common Stock as soon as practicable after the
completion of the Offering for use in future acquisitions. The Company
believes that it will have a strategic advantage in competing for acquisitions
as a result of: (i) its focus on the specialty professional staffing segment
of the staffing industry; (ii) the personal relationships of its key
executives with managers and owners of other professional staffing firms;
(iii) the Company's decentralized, entrepreneurial operating environment and
Hub-Center management model; (iv) the Company's merger and acquisition
execution capabilities; and (v) the Company's greater visibility and resources
as a public company.
The Company believes that its focus on the specialty professional segment of
the staffing industry gives it a strategic advantage in attracting acquisition
candidates that prefer to affiliate with a professionally-focused company
rather than a traditional clerical and light industrial-based staffing
company. A number of the members of the Company's management have been active
or currently hold leadership positions in national and regional specialty
professional staffing trade associations, including the American Association
of Finance and Accounting, a national association of privately held accounting
and finance staffing firms. In addition, members of the Company's management
have previous work experience with national staffing companies or "Big Six"
accounting firms. As a result, these persons have developed personal
relationships with the owners of many independent specialty professional
staffing firms. The Company also believes that its commitment to maintaining a
strong professional permanent placement business will give it a strategic
advantage in attracting acquisition candidates whose businesses have a
permanent placement focus. Furthermore, the Company believes it can use its
temporary staffing expertise to build significant temporary staffing
businesses from these established professional permanent placement bases.
The Company has established an internal integration team led by its Chief
Executive Officer that is charged with quickly and cost effectively
integrating acquired companies into the Company's operating environment. An
32
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immediate integration goal will be to consolidate back office administrative
functions to allow local management to devote more time and attention to
increased sales and profitability.
The Company will generally make two kinds of acquisitions --"platform"
acquisitions and "tuck-under" acquisitions. A platform acquisition represents
the Company's entry into a new geographic market through the acquisition of a
company that has a material share of its sector of the specialty professional
staffing business in that market and which will serve as a Hub-Center for that
market. Most of these companies' clients are likely to be middle market
businesses but may also include Fortune 1000 companies. In addition, a
platform acquisition may increase the Company's services and provide the base
from which to introduce such services into the Company's other locations.
Tuck-under acquisitions are acquisitions of smaller companies that fit well
with the Company's existing locations and present growth opportunities via
synergies with the Company's existing business. Such acquisitions may present
an alternative to opening a spin-off office.
Since its formation in March 1997 the Company has acquired seven accounting
and finance staffing companies. The Acquired Companies are described briefly
below.
Don Richard Associates of Washington. Effective May 1997, the Company
acquired Don Richard Associates of Washington, which operated three offices in
metropolitan Washington providing accounting and finance temporary staffing
and permanent placement services and corporate staffing services primarily to
Fortune 1000 businesses, middle market companies, governmental agencies and
nonprofit organizations. For the year ended December 31, 1996, Don Richard
Associates of Washington had service revenues of $17.0 million.
David C. Cooper & Associates. Effective May 1997, the Company acquired David
C. Cooper & Associates, which operated an Atlanta, Georgia office providing
accounting and finance temporary staffing and permanent placement services
primarily to Fortune 1000 and middle market companies. For the year ended
December 31, 1996, David C. Cooper & Associates had service revenues of $7.8
million.
Don Richard Associates of Charlotte. Effective May 1997, the Company
acquired Don Richard Associates of Charlotte, which operated a Charlotte,
North Carolina office providing accounting and finance temporary staffing and
permanent placement services and IT staffing services primarily to Fortune
1000 and middle market companies. For the year ended December 31, 1996, Don
Richard Associates of Charlotte had service revenues of $2.8 million.
Don Richard Associates of Tampa. Effective May 1997, the Company acquired
Don Richard Associates of Tampa, which operated a Tampa, Florida office
providing accounting and finance temporary staffing and permanent placement
services and IT staffing services primarily to Fortune 1000 and middle market
companies. For the year ended December 31, 1996, Don Richard Associates of
Tampa had service revenues of $2.5 million.
Rylan Forbes. Effective July 1997, the Company acquired Rylan Forbes, which
operated two offices in Philadelphia and Central New Jersey providing
accounting and finance temporary staffing and permanent placement services
primarily to Fortune 1000 and middle market companies. For the year ended
December 31, 1996, Rylan Forbes had service revenues of $1.4 million.
C.P.A. Staffing. Effective August 1997, AcSys Resources acquired C.P.A.
Staffing, which operated an Atlanta, Georgia office providing accounting and
finance temporary staffing and permanent placement services primarily to
Fortune 1000 and middle market companies. For the year ended December 31,
1996, C.P.A. Staffing had service revenues of $6.5 million.
AcSys Resources. Effective September 1997, the Company acquired AcSys
Resources, which operated seven offices in Pennsylvania, New Jersey and
Delaware providing accounting and finance temporary staffing and permanent
placement services and IT staffing services primarily to Fortune 1000 and
middle market companies. For the year ended December 31, 1996, AcSys Resources
had service revenues of $14.4 million.
HUB-CENTER MANAGEMENT MODEL
The Company's decentralized operating strategy uses a Hub-Center management
model in which the Company's operations in each market are managed by Division
Presidents. See "-- Operating Strategy -- Foster
33
<PAGE>
Entrepreneurial Environment with Hub-Center Management Model." The Company's
current Hub-Centers, offices and 1996 pro forma service revenues for each Hub-
Center are listed below:
<TABLE>
<CAPTION>
1996 PRO FORMA
HUB-CENTER OFFICES REVENUES
------------------ ------------------ --------------
(IN MILLIONS)
<S> <C> <C>
Washington, DC Washington, DC $17.0
Tyson's Corner, VA
Bethesda, MD
Alexandria, VA(1)
Landover, MD(1)
Atlanta, GA Atlanta, GA 14.3
Philadelphia, PA Philadelphia, PA 13.2
Wayne, PA
Lancaster, PA
Cherry Hill, NJ
Wilmington, DE
Charlotte, NC Charlotte, NC 2.8
Central New Jersey Edison, NJ 2.6
Princeton, NJ
Tampa, FL Tampa, FL 2.5
Orlando, FL(2)
</TABLE>
- ---------------------
(1) Spin-off offices opened in 1997.
(2) De novo office opened in 1997.
CORPORATE SUPPORT SERVICES
The Company offers or is planning to offer the following corporate level
support functions to its Hub-Centers:
Training. The Company offers its staffing consultants and other employees a
two week orientation and training period as well as ongoing courses offering
instruction and training in client service and development, team building,
management techniques and employment law. The primary objective is to teach
employees how to build client relationships and manage others utilizing proven
business techniques. With respect to its Division Presidents in particular,
the Company seeks talented and motivated managers to serve as Division
Presidents and believes that its entrepreneurial Hub-Center operating
philosophy requires its Division Presidents to be exceptionally strong
managers and leaders. The Company seeks to cultivate these qualities in its
Division Presidents by using both training materials developed in-house and
outside consultants to conduct training sessions. In addition, the Company is
creating a company-wide database of "best practices" for its Division
Presidents to use in their day-to-day operations.
Information Systems. The Company has a management information systems
department that is actively reviewing its IT assets and needs and currently
plans to maintain and enhance each of the systems now in place. The Company is
in the process of implementing technology systems in each of the Acquired
Companies to provide several back office support functions. The Company is
building a corporate "Intranet" to facilitate the sharing of corporate
resources. The Company is also migrating to a common desktop computing office
suite platform.
Advertising, Marketing and Public Relations. The Company has developed and
continues to develop a full range of advertising, marketing and public
relations services, including development of classified advertising, regional
print advertising campaigns, radio advertising, premiums, public relations,
direct mail and promotions. These programs focus on both clients and
employment candidates.
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<PAGE>
Risk Management. The Company is centralizing the risk management function
and is reviewing its insurance coverage in an effort to maintain adequate
coverage at a reasonable cost. In addition, as part of its training effort,
the Company conducts seminars on pertinent topics (particularly employment
law-related matters) for its employees to help educate its work force and
reduce the Company's exposure to losses.
Human Resources. The Company has a human resources team designed and
committed to establishing and maintaining systems that assist and enhance
employee work-life, while helping to ensure the growth and health of the
organization as a whole. The Human Resources department is full-service with
responsibility for employee relations, compensation, training and development
and employee benefits. Because of the unique nature of the staffing industry,
Human Resources is also responsible for compliance issues in the recruitment
process. The Human Resources department structure is decentralized with a core
staff working at the corporate office combined with regional Human Resources
consultants strategically placed in key markets to provide local, in-person
assistance and support.
Legal Services. The Company is centralizing its legal services function and
is developing detailed policies regarding the retention of legal counsel and
certain guidelines within which Division Presidents are limited in making
decisions relating to legal issues.
Treasury Management. The Company has centralized its treasury management
function by establishing a lock box cash management system. In this system,
all customer payments are received at a central location maintained by the
Company's bank. The Company believes this system results in better internal
control by centralizing the cash collection portion of the revenue cycle.
Accounting. All accounting functions, including management financial
information, are being centralized. The processing of customer invoices and
temporary employee payroll, which are critical to customer service, will
remain in the Hub-Centers. Division Presidents will be unencumbered by routine
accounting matters and will be supplied with timely and accurate financial
information allowing them to focus on operations and results.
RECRUITING
The Company uses a variety of methods to recruit qualified temporary
staffing and permanent placement candidates. The Company's primary recruiting
methods are networking and direct solicitation by staffing consultants. The
Company also has recruiting managers in several offices whose primary
responsibility is to market the Company's services to potential candidates.
Other recruiting methods include: advertising in newspaper classified ads and
in various other print media, including Yellow Pages and local and national
trade journals; advertising on radio; maintaining an Internet website;
recruiting on college campuses; participating in job fairs; offering referral
bonuses for new temporary employees; conducting direct mail campaigns; and
maintaining a good reputation and high visibility within the community through
community service. The Company receives a significant number of referrals from
past candidates due to its professional reputation, quality service and the
draw of the Company's permanent placement practice. Furthermore, the Company
believes that candidates are attracted to the Company by the number and
quality of the positions the Company has available, and that the availability
of good candidates increases its client base.
LOCAL SALES AND MARKETING
The Company emphasizes local sales and marketing efforts, which are
generally conducted by each Hub-Center. In addition to the Company's Division
Presidents and staffing consultants, the Company has 25 salespersons in its
Hub-Centers whose primary responsibility is to market the Company's services
to potential new clients. The Company's client-oriented advertising primarily
consists of print advertisements in national newspapers, Yellow Pages,
magazines and trade journals; and radio advertisements. Direct marketing
through mail and telephone solicitation also constitutes a significant portion
of the Company's total advertising. The Company also seeks endorsements and
affiliations with local and regional accounting and finance professional
35
<PAGE>
organizations and conducts public relations activities designed to enhance
recognition of the Company and its services. Local employees are encouraged to
be active in civic organizations and industry trade groups.
EMPLOYEES
The Company had 218 full-time internal staff employees as of November 15,
1997. Temporary employees placed by the Company are the Company's employees
while they are working on assignments. Neither the Company's internal staff
nor its temporary employees are represented by a collective bargaining
agreement. Hourly wages for the Company's temporary employees are determined
according to market conditions. The Company pays mandated costs of employment,
including the employer's share of social security taxes (FICA), federal and
state unemployment taxes, unemployment compensation insurance, general payroll
expenses and workers' compensation insurance. The Company offers access to
various insurance programs and benefits to its temporary employees. The
Company believes its employee relations are satisfactory.
COMPETITION
The staffing industry is highly competitive, with limited barriers to entry.
The Company believes that availability and quality of employment candidates,
reliability of service and price of services are the most significant
competitive factors in the specialty professional staffing sector. The Company
believes it derives a competitive advantage from its long experience with and
commitment to the specialty professional staffing market, its strong local
market presence and reputation, and its various marketing activities. A number
of firms offer services similar to the Company's on a national, regional or
local basis. The Company competes for clients, candidates and acquisitions
with many local and regional companies and also faces competition from a
number of international and national specialty professional staffing companies
that include Robert Half International Inc., Romac International, Inc.,
Accountants, Inc., Source Services, Inc. and Accountants On Call, as well as
professional staffing divisions of larger general staffing firms, such as
Interim Services Inc., Norrell, Inc. and Olsten Corporation. These firms have
materially greater financial and operating resources than the Company.
SERVICE MARKS AND TRADENAMES
The Company operates under the following tradenames and service marks: AcSys
Resources, Inc.(R), the AcSys Resources, Inc. logo, AcSys Resources, Inc.
Providing the Perfect Fit(R), C.P.A. Staffing, David C. Cooper &
Associates(R), DCCA Professional Temporaries, DCCA(R), the DCC&A logo, Rylan
Forbes Consulting Group, Signature Staffing, Don Richard Associates of
Charlotte, Don Richard Associates of Tampa, and Don Richard Associates of
Washington, D.C. "Don Richard Associates" is a federally registered trademark
of Don Richard Associates International, Inc., an unaffiliated company which
formerly owned Don Richard Associates of Washington and Don Richard Associates
of Charlotte and was the former franchisor for Don Richard Associates of
Tampa. By agreement with Don Richard Associates International, Inc., the
Company owns the rights to the name "Don Richard Associates of Washington" and
"Don Richard Associates of Charlotte" in the areas where the Company operates
under such names. The Company's rights to use the name "Don Richard Associates
of Tampa" expire in May 1999. Such territories are excluded from the federal
trademark registration held by Don Richard Associates International, Inc.
FACILITIES
The Company owns no real property. It leases its corporate office and all of
its local offices. The Company believes its facilities are adequate for its
needs and does not anticipate any material difficulty in replacing such
facilities or securing facilities for new offices.
LEGAL PROCEEDINGS
On November 13, 1997, a lawsuit was filed against the Company, Cama of
Tampa, Inc. ("Cama") and Stephen S. Tutwiler ("Tutwiler") by L. Robert Frank,
Jr. ("Frank") and L. Robert Frank & Associates, Inc. in the Circuit Court of
the Thirteenth Judicial Circuit, Hillsborough County, Florida. The lawsuit
alleges Frank and Tutwiler agreed to form a corporation owned one half by each
to provide IT staffing services; that such services
36
<PAGE>
were instead provided through a division of Cama; and that Frank was entitled
to a portion of the stock of Cama and thus to a portion of the 131,143 shares
of Common Stock issued to Tutwiler when it acquired Cama. The plaintiffs assert
numerous claims, including fraud, civil conspiracy and alleged misstatements
and omissions in this Prospectus regarding the Company's ownership of Cama. The
plaintiffs seek to recover $27,000 allegedly due to Frank, his alleged portion
of Tutwiler's shares of Common Stock, and compensatory and other damages. Frank
also seeks an accounting and employment by the Company. The Company intends to
vigorously defend the plaintiffs' allegations. There is no other pending
litigation which the Company considers material.
37
<PAGE>
MANAGEMENT
The directors and executive officers of the Company and their ages and
positions as of November 21, 1997 are as follows:
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
David C. Cooper......... 41 Chairman of the Board
Timothy Mann, Jr........ 32 Chief Executive Officer and Director
Edward S. Baumstein..... 42 President, Chief Operating Officer and Director
Chief Development Officer, Executive Vice President and
Beth Monroe-Chase....... 46 Director
Mark E. Strassman....... 36 Director
John R. Ficquette....... 43 Director
Harry J. Sauer.......... 46 Director
Lester E. Gallagher,
III.................... 41 Chief Financial Officer
</TABLE>
BIOGRAPHICAL INFORMATION FOR EXECUTIVE OFFICERS AND DIRECTORS
David C. Cooper has served as the Chairman of the Board of Directors of the
Company since its formation and Division President--Atlanta since September
1997. Mr. Cooper founded David C. Cooper & Associates in 1980 and served as its
president until May 1997. Mr. Cooper received his Bachelor of Business
Administration degree in Accounting from the University of Georgia. Mr. Cooper
is a past president of the American Association of Accounting and Finance, a
national network of independently owned accounting and finance permanent
placement and temporary staffing businesses.
Timothy Mann, Jr. has served as Chief Executive Officer of the Company since
October 1997 and a Director since its formation. Prior to his becoming Chief
Executive Officer, Mr. Mann served the Company in various roles. From 1992
until 1997, Mr. Mann was an attorney engaged in the private practice of law,
most recently with Alston & Bird, LLP in Atlanta, Georgia. Mr. Mann has
extensive staffing industry experience, having served as issuer's counsel in a
number of staffing industry public equity offerings and as buyer's counsel in a
number of staffing industry mergers and acquisitions. Mr. Mann's experience
also includes service in the audit division of Arthur Andersen LLP. Mr. Mann
received his J.D. cum laude from the University of Georgia and his Bachelor of
Science Degree in Accounting from the University of Florida.
Edward S. Baumstein has served as President of the Company since October 1997
and as the Chief Operating Officer and a Director of the Company since
September 1997. Mr. Baumstein served as the president and chief executive
officer of AcSys Resources from 1994 until September 1997 and had served in
various positions since he joined AcSys Resources in 1983. Prior to joining
AcSys Resources, Mr. Baumstein was with Price Waterhouse. He received his
B.B.A. in Accounting from Temple University and is a certified public
accountant.
Beth Monroe-Chase has served as a Director of the Company since its
formation. She served as Chief Operating Officer from the Company's formation
until September 1997, when she became the Company's Chief Development Officer
and Executive Vice President. Ms. Monroe-Chase was one of the founders of Don
Richard Associates of Washington and from 1994 until the formation of the
Company served as its president. Ms. Monroe-Chase served as the director of
sales from 1992 to 1994 and as managing director from 1993 to 1994 for the
predecessor of Don Richard Associates of Washington (which also operated under
that name). Her previous staffing industry experience includes service as an
area manager for Staff Builders and as a regional manager with TeleSec
Staffing.
38
<PAGE>
Mark E. Strassman has served as a Director of the Company since its
formation. Mr. Strassman served as the President of the Company from its
formation until October 1997. Mr. Strassman was one of the founders of Don
Richard Associates of Washington and served as its chief executive officer from
1994 until May 1997. From 1987 until 1994, Mr. Strassman served in a variety of
capacities with the predecessor to Don Richard Associates of Washington (which
also operated under that name), most recently as managing director. Prior to
1987, Mr. Strassman was a tax consultant at the national accounting firm of
Grant Thornton. He received his Bachelor of Science degree from Drexel
University and is a certified public accountant.
John R. Ficquette has served as a Director of the Company since September
1997. Mr. Ficquette was a shareholder and officer of C.P.A. Staffing from 1990
until its acquisition by AcSys Resources. His responsibilities at C.P.A.
Staffing included client development, training, system development and
administration. Mr. Ficquette received his Bachelor of Science Degree in
Business Administration from the University of Alabama.
Harry J. Sauer has served as a Director of the Company and as the Division
President--Philadelphia since September 1997. Mr. Sauer has worked in the
staffing industry since 1977, when he co-founded AcSys Resources. He served in
various positions with AcSys Resources, most recently as chief operating
officer. Mr. Sauer received his Bachelor of Arts in Political Science from
American University and his M.B.A. from Boston College. Mr. Sauer has served as
the president of Hillel of Greater Philadelphia and as a board member of
several nonprofit organizations.
Lester E. Gallagher, III has served as the Company's Chief Financial Officer
since September 1997. From 1994 through the AcSys Resources acquisition, Mr.
Gallagher served as the chief financial officer of AcSys Resources. From 1990
to 1994, he was a manager with Coopers & Lybrand LLP. Mr. Gallagher received
his Bachelor of Science in Accounting from Villanova University and is a
certified public accountant.
BOARD OF DIRECTORS
The number of directors on the Board of Directors is currently fixed at
seven. Directors of the Company are elected at the annual meeting of
shareholders. Executive officers are appointed by the Board of Directors.
Directors and executive officers of the Company are elected or appointed to
serve until they resign or are removed or are otherwise disqualified to serve,
or until their successors are elected and qualified at the next annual meeting
of shareholders. The Company intends to add two directors who are not executive
officers of the Company (the "Outside Directors") within 90 days after listing
on the Nasdaq National Market. It will be necessary for the Company to appoint
these Outside Directors within the 90-day period to maintain its Nasdaq
National Market listing. Failure to appoint such Outside Directors could result
in delisting of the Common Stock from the Nasdaq National Market.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors intends to establish an Audit Committee, a
Compensation Committee and an Executive Committee. The members of each
committee are expected to be determined at the first meeting of the Board of
Directors following the closing of the Offering. The members of the Audit and
Compensation Committees will consist solely of Outside Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors intends to establish a Compensation Committee at the
first meeting of the Board of Directors following the closing of the Offering.
The Board of Directors has not previously had a Compensation Committee, and the
functions of the Compensation Committee historically have been performed by the
Board of Directors. See "-- Committees of the Board of Directors."
39
<PAGE>
DIRECTOR COMPENSATION
Directors who are employees of the Company do not receive additional
compensation for serving as directors. Each director who is not an employee of
the Company ("Non-Employee Directors") will receive $1,000 for each meeting of
the Board of Directors attended and for each meeting of a committee of the
Board of Directors (unless the committee meeting is held on the same day as a
meeting of the Board of Directors). All directors of the Company are reimbursed
for out-of-pocket expenses incurred in attending meetings of the Board of
Directors or its committees and for other expenses incurred in their capacity
as Directors.
The Company will grant to each Non-Employee Director, upon his or her initial
appointment to the Board of Directors, a stock option to purchase 50,000 shares
of Common Stock pursuant to the Option Plan. In addition, the Company will
grant to each Non-Employee Director, once each quarter during the Non-Employee
Director's term as a director, options to purchase 4,000 shares, with a
lifetime cap of 150,000 shares per Non-Employee Director. The option price will
be equal to the fair market value at the date of each grant, and each option
will have a 10-year term. One third of the options will vest on each of the
first three anniversaries of the date of grant, provided that all unvested
options will vest upon a change in control of the Company (as defined in the
option agreement) or the death of the Non-Employee Director.
EXECUTIVE COMPENSATION; EMPLOYMENT AGREEMENTS; COVENANTS NOT TO COMPETE
The Company was incorporated in March 1997 and conducted no operations in
1996. The Company anticipates that during 1997 its most highly compensated
executive officers will be Ms. Monroe-Chase and Messrs. Cooper, Mann, Baumstein
and Gallagher (the "Named Executive Officers").
Each of Messrs. Cooper, Mann, Baumstein and Ms. Monroe-Chase have entered
into employment agreements with the Company that provide for an annual base
salary of $200,000. Each executive officer (except Messrs. Mann and Gallagher)
will also receive a bonus to be agreed upon and based upon certain performance
criteria as set forth in his or her agreement. Mr. Mann's agreement provides
for an annual bonus equal to 2.0% of the year-to-year increase in the Company's
earnings before interest, taxes, depreciation and amortization, and the grant
of stock options as described under "-- Option Grants." Mr. Gallagher's
agreement provides for an annual base salary of $125,000, such bonus as the
Board of Directors may determine up to an amount equal to 15% of his then-
current base salary, and the grant of stock options as described under "--
Option Grants." None of the Company's executive officers is expected to receive
perquisites the value of which exceeds the lesser of $50,000 or 10% of the
salary and bonus of such executive. Executive bonuses for 1997 have not yet
been determined.
Each employment agreement for the Named Executive Officers is for a term of
three years and continues thereafter for additional one year terms until either
the Company or the executive officer elects not to renew the agreement. Each of
these agreements provides that, in the event of a termination of employment
either (i) by the Company without cause (as defined in the agreement) or (ii)
by the employee following a change in control (as defined in the agreement) or
a breach by the Company of such executive's employment agreement or the
registration rights agreement described in "Description of Capital Stock --
Registration Rights," such executive officer will be entitled to receive from
the Company a lump sum severance payment equal to three times the sum of his or
her then-current annual salary plus the amount of his or her bonus calculated
using the results of the operations of the Company for the twelve months prior
to such termination. In such event, the non-compete provisions discussed below
would not apply to such executive officer. If an executive officer resigns for
any other reason, such executive officer will be entitled to receive from the
Company a lump sum severance payment equal to his or her then current annual
salary. If an executive is terminated upon a determination by the Board of
Directors that such executive officer failed to meet performance expectations,
then such executive officer will be entitled to receive a lump sum severance
payment equal to his or her base salary for the greater of the remainder of the
term of his or her employment agreement or one year.
Each Named Executive Officer employment agreement contains a covenant not to
compete with the Company for a period of two years immediately following
termination of employment and an obligation not to solicit any employees or
customers of the Company for a period of one year following termination of
employment.
40
<PAGE>
OPTION GRANTS
The Company has granted and agreed to grant stock options to two of the Named
Executive Officers, Timothy Mann, Jr. and Lester E. Gallagher, III, as
described below.
Timothy Mann, Jr. Pursuant to Mr. Mann's employment agreement, the Company
has granted him options to purchase 135,198 shares of Common Stock at an
exercise price of $8.00 per share, the fair market value of the Common Stock on
the date of the grant as determined by the Board based upon the report of an
independent appraiser. These options are fully vested and have a 10-year term.
In addition, also pursuant to Mr. Mann's employment agreement, the Company has
agreed to grant to Mr. Mann, upon the effective date of the Offering, options
to purchase a number of additional shares of Common Stock equal to 1% of the
shares of Common Stock outstanding on the date of the Offering, assuming the
Underwriters' over-allotment option is exercised in full, at an exercise price
equal to the public offering price of the shares sold in the Offering.
Therefore, upon the effective date of the Offering the Company will grant to
Mr. Mann options to purchase 112,357 shares of Common Stock at an exercise
price equal to the offering price of shares in the Offering. One-half of these
options vest on each of the first two anniversaries of the effective date of
the Offering, and the options have a 10-year term. All of Mr. Mann's unvested
options vest immediately if he is terminated without cause or resigns for good
reason or upon a change in control (as such terms are defined in his employment
agreement).
Lester E. Gallagher, III. In January 1997 AcSys Resources granted options to
Mr. Gallagher that were converted into options to purchase 18,771 shares of
Common Stock at a price of $2.66 per share in connection with the Company's
acquisition of AcSys Resources. These options are fully vested and expire in
2006. In addition, pursuant to Mr. Gallagher's employment agreement, the
Company has agreed to grant to him, upon the effective date of the Offering,
options to purchase 66,229 shares of Common Stock at an exercise price equal to
the offering price of shares in the Offering. One third of these options vest
on each of first, second and third anniversaries of the effective date of the
Offering. All of Mr. Gallagher's unvested options vest immediately if he is
terminated without cause or resigns for good reason or upon a change in control
(as such terms are defined in his employment agreement).
1997 STOCK OPTION PLAN
The Board of Directors and the Company's shareholders approved the Option
Plan which became effective in May 1997. The purpose of the Option Plan is to
advance the interests of the Company and its shareholders by affording certain
employees and directors of the Company, as well as key consultants and advisors
to the Company, an opportunity to acquire or increase their proprietary
interests in the Company. The objective of the issuance of stock options under
the Option Plan is to promote the growth and profitability of the Company
because the optionees will be provided with an additional incentive to achieve
the Company's objectives through participation in its success and growth and by
encouraging their continued association with or service to the Company. The
Company intends to grant options to purchase approximately 950,000 shares of
Common Stock to substantially all of its full-time internal staff employees
upon consummation of this Offering at an exercise price equal to the initial
public offering price per share.
Awards under the Option Plan are granted by the Board of Directors but will
be granted by the Compensation Committee of the Board of Directors when it is
established. Awards under the Option Plan may include incentive stock options
("ISOs") and/or non-qualified stock options ("NQSOs"). The Compensation
Committee of the Board of Directors will administer the Option Plan and
generally has discretion to determine the terms of an option grant, including
the number of option shares, option price, term, vesting schedule, the post-
termination exercise period and whether the grant will be an ISO or NQSO.
Notwithstanding this discretion: (i) the number of shares subject to options
granted to any individual in any calendar year may not exceed 500,000 shares;
(ii) if an option is intended to be an ISO and is granted to a shareholder
holding more than 10% of the combined voting power of all classes of the
Company's stock or of its parent or subsidiary on the date of the grant of the
option, the option price per share of Common Stock may not be less than 100% of
the fair market value of such share at the time of grant or 110% of the fair
market value of such shares; and (iii) the term of any option may not exceed 10
years, or 5 years if the option is intended to be an ISO and is granted to a
shareholder owning more than 10% of total combined voting power of all classes
of stock on the date of the grant of the option.
41
<PAGE>
The maximum number of shares of Common Stock that currently may be subject to
outstanding options, determined immediately after the grant of any option, is
2,000,000 shares. The Option Plan provides that the number of shares of Common
Stock available for issuance thereunder shall be automatically increased on the
first trading day of each calendar year by the lesser of (i) three percent of
the number of shares outstanding on the preceding trading day or (ii) 500,000
shares. Shares of Common Stock which are attributable to awards which have
expired, terminated or been canceled or forfeited during any calendar year are
available for issuance or use in connection with future awards during such
calendar year.
The Option Plan will remain in effect until terminated by the Board of
Directors. No ISO may be granted after May 2007. The Option Plan may be amended
by the Board of Directors without the consent of the shareholders of the
Company, except that any amendment, although effective when made, will be
subject to shareholder approval within one year after approval by the Board of
Directors if the amendment increases the total number of shares issuable
pursuant to ISOs or changes the class of employees eligible to receive ISOs
that may participate in the Option Plan.
The Omnibus Budget Reconciliation Act of 1993 added Section 162(m) to the
Internal Revenues Code of 1986, as amended. Section 162(m) generally disallows
a public company's tax deduction for compensation to the chief executive
officer and four other most highly compensated executive officers in excess of
$1,000,000 in any tax year beginning on or after January 1, 1994. Compensation
that qualifies as "performance-based compensation" is excluded from the
$1,000,000 deductibility cap, and therefore remains fully deductible by the
company that pays it. The Company intends that options granted with an exercise
price at least equal to 100% of fair market value of the underlying stock at
the date of grant will qualify as such "performance-based compensation,"
although other awards under the Option Plan may not so qualify.
42
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of November 30, 1997 and as adjusted
to reflect the sale of the Common Stock offered hereby with respect to: (i)
each of the Company's directors and Named Executive Officers; (ii) all
executive officers and directors of the Company as a group; and (iii) each
person known by the Company to own beneficially more than 5% of the Common
Stock. Each of the holders listed below has sole voting power and investment
power over the shares beneficially owned. Each of the persons known by the
Company to beneficially own more than 5% of the Common Stock has an address in
care of the Company's principal offices.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED AFTER
OWNED PRIOR TO OFFERING(1) NUMBER OF THE OFFERING(1)
------------------------------- SHARES --------------------
NAME NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
- ---- --------------- ------------------------ --------- ----------
<S> <C> <C> <C> <C> <C>
DIRECTORS, EXECUTIVE OF-
FICERS AND 5% SHARE-
HOLDERS
David C. Cooper......... 1,573,714 18.5% -- 1,573,714 14.5%
Timothy Mann, Jr.(2).... 135,198 1.6 -- 135,198 1.2
Edward S. Baumstein..... 993,521 11.7 -- 993,521 9.2
Beth Monroe-Chase....... 671,143 7.9 50,000 621,143 5.7
Lester E. Gallagher,
III(3)................. 18,771 * -- 18,771 *
John R. Ficquette....... 609,637 7.2 -- 609,637 5.6
Harry J. Sauer.......... 993,521 11.7 -- 993,521 9.2
Mark E. Strassman....... 671,143 7.9 90,000 581,143 5.4
Louis Boohaker.......... 609,637 7.2 -- 609,637 5.6
Kevin W. Cole........... 447,428 5.3 100,000 347,428 3.2
Rosemarie Mahoney....... 447,428 5.3 100,000 347,428 3.2
All directors and execu-
tive officers as a
group (8 persons)(4)... 5,666,648 66.7 5,526,648 51.1
OTHER SELLING SHAREHOLD-
ERS
Joseph Stauffer......... 231,146 2.7 20,000 211,146 2.0
Teresa Gordon........... 149,142 1.8 15,000 134,142 1.2
Edward K. Turner........ 131,143 1.5 25,000 106,143 *
Stephen Tutwiler........ 131,143 1.5 20,000 111,143 1.0
</TABLE>
- ---------------------
* Less than 1%.
(1) Shares Beneficially Owned is calculated assuming 8,493,220 shares of Common
Stock were outstanding on November 30, 1997 and 10,823,220 shares of Common
Stock will be outstanding immediately after the Offering. This percentage
also includes Common Stock of which such individual has the right to
acquire beneficial ownership within sixty days of November 30, 1997,
including but not limited to the exercise of an option; however, such
Common Stock shall not be deemed outstanding for the purpose of computing
the percentage owned by any other individual. See "Underwriting."
(2) Comprised of currently exercisable options held by Mr. Mann to purchase a
total of 135,198 shares of Common Stock. See "Management -- Option Grants."
(3) Comprised of currently exercisable options held by Mr. Gallagher to
purchase a total of 18,771 shares of Common Stock. See "Management --
Option Grants."
(4) Includes currently exercisable options to purchase a total of 153,969
shares of Common Stock.
43
<PAGE>
CERTAIN TRANSACTIONS
ACQUISITIONS
Since the Company's formation in March 1997, it has acquired seven accounting
and finance professional staffing companies. All of the Acquired Companies now
operate as wholly-owned subsidiaries of the Company. In certain of these
acquisitions persons who were previously shareholders of Acquired Companies who
are now executive officers, directors or holders of at least 5% of the
Company's outstanding Common Stock received consideration from the Company in
connection with the applicable acquisition. The following table summarizes the
total number of shares of Common Stock issued by the Company to such persons in
those acquisitions:
<TABLE>
<CAPTION>
SHARES OF
COMPANY COMMON STOCK
- ------- ------------
<S> <C>
David C. Cooper & Associates....................................... 1,573,714
Don Richard Associates of Washington............................... 2,237,142
AcSys Resources.................................................... 3,206,316
---------
Total............................................................ 7,017,172
=========
</TABLE>
These acquisitions are described in more detail below:
David C. Cooper & Associates. David C. Cooper received 1,573,714 shares of
Common Stock in connection with the mergers of wholly-owned subsidiaries of the
Company with and into David C. Cooper & Associates in May 1997.
Don Richard Associates of Washington. The following directors, executive
officers and/or 5% shareholders received shares of Common Stock in connection
with the merger of a wholly-owned subsidiary of the Company with and into Don
Richard Associates of Washington in May 1997: Mark E. Strassman -- 671,143
shares; Beth Monroe-Chase -- 671,143 shares; Kevin W. Cole -- 447,428 shares;
and Rosemarie Mahoney -- 447,428 shares. Other Don Richard Associates of
Washington shareholders who are not directors, executive officers and/or 5%
shareholders received the balance of 298,284 shares issued by the Company. The
Company has entered into an employment agreement with Mr. Strassman, a director
of the Company, under which Mr. Strassman will consult with the Company's
senior management at an annual base salary of $200,000. The employment
agreement is otherwise substantially similar to the employment agreements for
the Named Executive Officers, except that upon its termination Mr. Strassman
will continue to be paid the same compensation and benefits through November
2000 instead of receiving a lump-sum severance payment.
AcSys Resources. The following directors, executive officers and/or 5%
shareholders received shares of Common Stock in connection with the AcSys
Resources merger in September 1997: Edward S. Baumstein -- 993,521 shares;
Harry J. Sauer -- 993,521 shares; John R. Ficquette -- 609,637 shares; and
Louis Boohaker -- 609,637 shares. Certain of those shares are currently in
escrow to secure certain representations and warranties in the merger agreement
and are anticipated to be released on approximately March 1, 1998, as follows:
Mr. Baumstein -- 35,023 shares; Mr. Sauer -- 35,023 shares; Mr. Ficquette --
21,491 shares; and Mr. Boohaker -- 21,491 shares. Other AcSys Resources
shareholders who are not directors, executive officers and/or 5% shareholders
received the balance of 453,186 shares issued by the Company. In addition, the
Company owes Messrs. Baumstein and Sauer approximately $79,000 and $63,000,
respectively, for compensation earned prior to the Company's acquisition of
AcSys Resources but not yet paid. These obligations are payable on demand.
Albert Detorre, a former shareholder of AcSys Resources, has the contractual
right (the "Put Right") to require the Company to purchase 122,012 shares of
the Company's Common Stock that he received in connection with the AcSys
Resources acquisition (which includes 4,302 shares currently in escrow to
secure certain representations and warranties in the merger agreement and which
are anticipated to be released on approximately March 1, 1998) at a price equal
to the "fair market value" of such shares at the time Mr. Detorre exercises
such right. In connection with this Offering, Mr. Detorre has agreed to waive
the Put Right. In addition,
44
<PAGE>
the Company is obligated to pay Mr. Detorre $500,000 if the closing of this
Offering occurs before December 14, 1997. Management expects that the Offering
will close after this date. See Note 8 of Notes to Consolidated Financial
Statements.
Prior to their acquisition by the Company, certain of the Acquired Companies
incurred indebtedness that was personally guaranteed by their shareholders. As
of November 21, 1997, the Company had borrowed an aggregate of approximately
$10.3 million under the Credit Facility to repay such indebtedness upon the
acquisition of such Acquired Companies. Obligations which are guaranteed by
certain of the Company's current shareholders having a principal balance of
approximately $1.1 million remain outstanding. See Note 3 of Notes to
Consolidated Financial Statements.
COMPANY POLICY
Following the closing of this Offering, all transactions with the Company's
shareholders, officers and directors or their affiliates, if any, will be
subject to the approval of a majority of the independent and disinterested
Outside Directors and will be conducted on terms no less favorable than could
be obtained from unaffiliated third parties on an arm's-length basis.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 45,000,000 shares of
Common Stock without par value and 5,000,000 shares of Preferred Stock without
par value. The following description of the terms and provisions of the shares
of stock of the Company and certain other matters does not purport to be
complete and is subject to and qualified in its entirety by reference to the
applicable provisions of the GBCC and the Company's Articles of Incorporation
and Bylaws.
COMMON STOCK
Each holder of shares of Common Stock is entitled to one vote at
shareholders' meetings for each share held. The Company's Articles of
Incorporation provide for cumulative voting for the election of directors.
Subject to the prior rights of any series of Preferred Stock that may be
issued, holders of shares of Common Stock are entitled to receive, pro rata,
such dividends as may be declared by the Board of Directors out of funds
legally available therefor, and are also entitled to share, pro rata, in any
other distributions to the shareholders. The Company anticipates that for the
foreseeable future its earnings will be retained for the operation and
expansion of its business and that it will not pay cash dividends. See
"Dividend Policy." There are no redemption or sinking fund provisions
applicable to the Common Stock. The Credit Facility prohibits the payment of
dividends without the lender's prior consent. Holders of shares of Common Stock
do not have any preemptive rights or other rights to subscribe for additional
shares. The outstanding shares of Common Stock are, and the shares sold by the
Company pursuant to this Offering will be, when issued and paid for, fully paid
and non-assessable.
PREFERRED STOCK
Under the Articles of Incorporation, the Board of Directors may issue,
without any further action by the shareholders, up to 5,000,000 shares of
Preferred Stock of one or more series, including any preferences, conversion
and other rights, voting powers, restrictions, limitations, qualifications and
terms and conditions of redemption as shall be set forth in resolutions adopted
by the Board of Directors. The designation of any Preferred Stock with greater
rights, privileges and preferences than those applicable to the Common Stock
may adversely affect the voting power, market price and other rights and
privileges of the Common Stock, and may hinder or delay the removal of
directors, attempted tender offers, proxy contests or takeovers, or other
attempts to change control of the Company, some or all of which may be desired
by holders of the Common Stock.
45
<PAGE>
Articles of amendment must be filed with the Georgia Secretary of State prior
to the issuance of any shares of Preferred Stock of the applicable series.
REMOVAL OF THE BOARD OF DIRECTORS; NO CLASSIFICATION OF THE BOARD
The entire Board of Directors or any individual director may be removed with
cause by the shareholders. Directors may not be removed without cause. The
Board of Directors is not divided into classes, and the terms of office of all
of the Directors expire at the next annual meeting of shareholders.
SPECIAL MEETINGS
Under the Bylaws, special meetings of the shareholders may be called by
shareholders only if such shareholders hold outstanding shares representing a
majority of all votes entitled to be cast on any issue proposed to be
considered at any such special meeting.
ADVANCE NOTICE OF NEW BUSINESS AND DIRECTOR NOMINATIONS
The Company's Bylaws provide that, with respect to an annual meeting of
shareholders, the proposal of business to be considered by shareholders and
nominations of persons for election to the Board of Directors may be made only
(i) by or at the direction of the Board of Directors, the Chairman of the Board
or the President, or (ii) by a shareholder who has complied with the advance
notice procedures set forth in the Company's Bylaws.
INDEMNIFICATION AND LIMITATION OF LIABILITY
The Articles of Incorporation eliminate, subject to certain exceptions, the
personal liability of a director to the Company or its shareholders for
monetary damage for breaches of such director's duty of care or other duties as
a director. The Articles do not provide for the elimination of or any
limitation on the personal liability of a director for (i) any appropriation,
in violation of the director's duties, of any business opportunity of the
Company, (ii) acts or omissions that involve intentional misconduct or a
knowing violation of law, (iii) unlawful corporate distributions, or (iv) any
transactions from which the director derived an improper personal benefit. The
Articles of Incorporation of the Company further provide that if the GBCC is
amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Company shall be eliminated or limited to the fullest extent permitted by the
GBCC, as amended, without further action by the shareholders. These provisions
of the Articles of Incorporation will limit the remedies available to a
shareholder in the event of breaches of any director's duties to such
shareholder or the Company.
The Company's Bylaws require the Company to indemnify and hold harmless any
director 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 or suit by or
in the right of the Company) because he or she is or was a director of the
Company, against expenses (including, but not limited to, attorney's fees and
disbursements, court costs and expert witness fees), and against judgments,
fines, penalties, and amounts paid in settlement incurred by him or her in
connection with the action, suit or proceeding. Indemnification would be
disallowed under any circumstances where indemnification may not be authorized
by action of the Board of Directors, the shareholders or otherwise.
The Company has entered into separate indemnification agreements with each of
its directors and executive officers, whereby the Company agreed, among other
things, to provide for indemnification and advancement of expenses in a manner
and subject to terms and conditions similar to those set forth in the Bylaws.
These agreements also provide that the Company shall purchase and maintain
liability insurance for the benefit of its directors and executive officers.
These agreements may not be abrogated by action of the shareholders. There is
no pending litigation or proceeding involving a director, officer, employee or
other agent of the Company as to which indemnification is being sought, nor is
the Company aware of any pending or threatened litigation that may result in
claims for indemnification by any director, officer, employee or other agent.
The Company has also agreed to hold the shareholders harmless from, against and
in respect of federal income tax liabilities, including interest and penalties
imposed thereon (and any state and local income tax liabilities as provided by
applicable law), if any, incurred by the shareholders as a result of a final
determination of an adjustment (by reason of an amended return, claim for
refund, audit, judicial decision or otherwise) to the taxable income of the
Company for any period during the time the Company was treated as an S
Corporation for federal and state income tax purposes which results in a
decrease for any such period in the Company's taxable income and a
corresponding increase for any such period in the taxable income of the
shareholders. See "Prior S Corporation Status."
46
<PAGE>
REGISTRATION RIGHTS
The Company's current shareholders have the right in the event the Company
proposes to register under the Securities Act any Common Stock for its own
account or for the account of others, subject to certain exceptions, to require
the Company to include their shares in the registration, subject to the right
of any managing underwriter of any such offering to exclude some or all of the
shares for marketing reasons. In addition, through September 3, 1999, and upon
the affirmative vote of the holders of at least 2,123,305 shares of Common
Stock issued by the Company prior to the date of the Offering, these
shareholders have certain limited demand registration rights to require the
Company to register shares held by them, provided that the aggregate estimated
public offering price of all shares to be sold in the offering is at least
$5,000,000 and that any such demand must be accompanied by either (i) the
written consent of (a) David C. Cooper, (b) either Mark E. Strassman or Beth
Monroe-Chase and (c) either Edward S. Baumstein or Harry J. Sauer to a
registration pursuant to such request, or (ii) a written valuation from a
reputable investment banking firm that is a member of the New York Stock
Exchange which opines that the value of the Company in an offering made
pursuant to such request would be at least $100 million.
The Company generally is required to bear the expense relating to the sale of
the shareholders' securities under these registration rights, except for
underwriting discounts and commissions, and in certain cases the fees and
expenses of the shareholders' counsel and filing fees related to the
registration statement. The Company also is obligated to indemnify the
shareholders whose shares are included in any of the Company's registrations
against certain losses and liabilities, including liabilities under the
Securities Act and state securities laws. Each of the shareholders will be
required to waive his or her right to include in this Offering shares which are
not being sold in this Offering.
ANTI-TAKEOVER PROVISIONS AND GEORGIA LAW
The Articles of Incorporation contain provisions that could have the effect
delaying, deferring or preventing an unsolicited change in control of the
Company.
Issuance of Preferred Stock. The Board of Directors has the power to issue
5,000,000 shares of Preferred Stock, in one or more classes or series and with
such rights and preferences as determined by the Board of Directors, all
without shareholder approval. Because the Board of Directors has the power to
establish the preferences and rights of each class or series of Preferred
Stock, it may afford the holders in any series of Preferred Stock preferences,
powers and rights, voting or otherwise, senior to the rights of holders of
Common Stock. The Board of Directors has no present plans to issue any shares
of Preferred Stock.
Georgia Anti-Takeover Statutes. The GBCC generally restricts a company from
entering into certain business combinations with an interested shareholder
(which is defined as any person or entity that is the beneficial owner of at
least 10% of the company's voting stock) or its affiliates for a period of five
years after the date on which such shareholder became an interested
shareholder, unless (i) the transaction is approved by the board of directors
of the company prior to the date such person became an interested shareholder,
(ii) the interested shareholder acquires 90% of the company's voting stock in
the same transaction in which it exceeds 10%, or (iii) subsequent to becoming
an interested shareholder, such shareholder acquires 90% of the company's
voting stock and the business combination is approved by the holders of a
majority of the voting stock entitled to vote thereon (the "Business
Combination Statute"). The GBCC provides that the Business Combination Statute
will not apply unless the bylaws of the corporation specifically provide that
the Business Combination Statute is applicable to the corporation. The Company
has not elected to be covered by such statute, but it could do so by action of
the Board of Directors at any time.
The GBCC also contains provisions that impose certain fair price and other
procedural requirements applicable to certain business combinations (the "Fair
Price Statute") with any person who owns 10% or more of the common stock (an
"interested shareholder"). These statutory requirements restrict business
combinations with, and accumulations of shares of voting stock of, certain
Georgia corporations. The Fair Price Statute will apply to a company only if
the company elects to be covered by the restrictions imposed by these statutes.
The Company has elected to be covered by the Fair Price Statute.
TRANSFER AGENT AND REGISTER
The transfer agent and registrar for the Common Stock is SunTrust Bank,
Atlanta, Georgia.
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 10,823,220 shares of
Common Stock outstanding. The 2,750,000 shares sold in this Offering (3,162,500
shares if the Underwriters over-allotment option is exercised in full) will be
freely tradable by persons other than affiliates of the Company, without
restriction. The remaining 8,073,220 shares of Common Stock will be
"restricted" securities within the meaning of Rule 144 under the Securities Act
and may not be sold in the absence of registration under the Securities Act
unless an exemption from registration is available, including exemptions
contained in Rule 144. Of this amount, 5,375,838 shares will be beneficially
owned by persons who are affiliates of the Company and, commencing 90 days
after the date of this Prospectus, would be eligible for public sale pursuant
to Rule 144, subject to the volume restrictions discussed below. The Company
and all current shareholders of the Company, however, have agreed not to sell
or otherwise dispose of any shares of Common Stock for a period of 180 days
after the date of this Prospectus without the prior written consent of the J.C.
Bradford & Co., except that the Company may issue shares of Common Stock in
connection with acquisitions or upon the exercise of options granted under the
Option Plan. See "Underwriting." These shareholders, however, have the right in
the event the Company proposes to register under the Securities Act any Common
Stock for its own account or for the account of others, subject to certain
exceptions, to require the Company to include their shares in the registration,
subject to the right of any managing underwriter of any such offering to
exclude some or all of the shares for marketing reasons. In addition, through
September 3, 1999, and upon the affirmative vote of the holders of at least
2,123,305 shares of Common Stock issued by the Company prior to the date of the
Offering, these shareholders have certain limited demand registration rights to
require the Company to register shares held by them, provided that the
aggregate estimated public offering price of all shares to be sold in the
offering is at least $5,000,000 and that any such demand must be accompanied by
either (i) the written consent of (a) David C. Cooper, (b) either Mark E.
Strassman or Beth Monroe-Chase and (c) either Edward S. Baumstein or Harry J.
Sauer to a registration pursuant to such request, or (ii) a written valuation
from a reputable investment banking firm that is a member of the New York Stock
Exchange which opines that the value of the Company in an offering made
pursuant to such request would be at least $100 million.
In general, under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated) who has beneficially owned his or her shares of Common
Stock for at least one year (including the prior holding period of any prior
owner other than an affiliate) is entitled to sell within any three-month
period that number of shares which does not exceed the greater of 1% of the
outstanding shares of Common Stock and the average weekly trading volume during
the four calendar weeks preceding each such sale. Sales under Rule 144 are also
subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not deemed an "affiliate" of the
Company for at least three months and who has beneficially owned shares for at
least two years (including the holding period of any prior owner other than an
affiliate) would be entitled to sell such shares under Rule 144 without regard
to the limitations described above. Rule 144 defines "affiliate" of a company
as a person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such company.
Affiliates of a company generally include its directors, officers and principal
shareholders.
The Company intends to grant under the Option Plan options to purchase up to
an aggregate of 2,000,000 shares of Common Stock. The Company intends to
register the shares issuable upon exercise of options granted under the Option
Plan. Upon such registration, such shares will be eligible for resale in the
public market without restrictions by persons who are not affiliates of the
Company, and to the extent they are held by affiliates, pursuant to Rule 144
without observance of the holding period requirements.
As soon as practical after the closing of this Offering, the Company intends
to register up to 2,000,000 shares of its Common Stock under the Securities Act
for use by the Company in connection with future
48
<PAGE>
acquisitions. These shares will generally be freely tradable after their
issuance, unless the sale thereof is contractually restricted. The registration
rights described above do not apply to the registration statement related to
these 2,000,000 shares.
Prior to this Offering, there has been no public market for the Common Stock,
and no prediction can be made as to the effect, if any, that the sale of shares
or the availability of shares for sale will have on the market price prevailing
from time to time. Nevertheless, sales of substantial amounts of Common Stock
in the public market could adversely affect prevailing market prices and the
ability of the Company to raise equity capital in the future.
49
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company and the Selling Shareholders have agreed to sell to each of the
Underwriters listed below, and the Underwriters, for whom J.C. Bradford & Co.
and Janney Montgomery Scott Inc. are acting as representatives (the
"Representatives"), have severally agreed to purchase, the respective number of
shares of the Common Stock set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER
NAME OF UNDERWRITER OF SHARES
------------------- ---------
<S> <C>
J.C. Bradford & Co...............................................
Janney Montgomery Scott Inc. ....................................
---------
Total.......................................................... 2,750,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
their counsel and to various other conditions. The Underwriters are obligated
to purchase all the shares of the Common Stock offered hereby, excluding shares
covered by the over-allotment option granted to the Underwriters, if any such
shares are purchased.
The Company and the Selling Shareholders have been advised by the
Representatives that the Underwriters propose to offer the 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 of not in
excess of $ per share, and that the Underwriters and such dealers may
reallow a concession of not in excess of $ per share to other dealers. The
public offering price and concessions and reallowances to dealers may be
changed by the Representatives after the initial public offering.
The Company has granted to the Underwriters an option, exercisable within 30
days after the date of the initial public offering, to purchase up to an
additional 412,500 shares of Common Stock to cover over-allotments, at the same
price per share to be paid by the Underwriters for the other shares offered
hereby. If the Underwriters purchase any such additional shares pursuant to
this option, each of the Underwriters will be committed to purchase such
additional shares in approximately the same proportion as set forth in the
above table. The Underwriters may purchase such shares only to cover over-
allotments, if any, in connection with the offering.
The Company, the Selling Shareholders and the Underwriters have agreed to
indemnify, or to contribute to payments made by, each other against certain
civil liabilities, including certain civil liabilities under the Securities
Act.
Before the offering, there has been no public market for the Common Stock.
The initial public offering price for the Common Stock was determined by
negotiation among the Company, the Selling Shareholders and the
Representatives. The factors considered in determining the initial public
offering price include the history of and prospects for the business in which
the Company operates, past and present operations, revenues and earnings of
50
<PAGE>
the Company and the trend of such earnings, the prospects for such earnings,
the general condition of the securities markets at the time of the offering and
the demand for similar securities of reasonably comparable companies.
In August 1997, AcSys Resources borrowed $650,000 from Janney Montgomery
Scott Inc. ("Janney") pursuant to a promissory note issued in conjunction with
AcSys Resources' acquisition of C.P.A. Staffing. The note carried an interest
rate of 8.5% and was paid in full in September 1997 upon the Company's
acquisition of AcSys Resources. In October 1996, Janney was engaged to serve as
a financial advisor to AcSys Resources. In consideration of its financial
advisory services, Janney earned $384,000 (including reimbursement of out-of-
pocket expenses) from the Company in connection with the acquisition by the
Company of AcSys Resources.
The Representatives have informed the Company and the Selling Shareholders
that the Underwriters do not intend to make sales to any accounts over which
they exercise discretionary authority.
The Company and all of its existing shareholders have agreed not to sell,
contract to sell or otherwise dispose of any shares of the Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of J.C. Bradford & Co. See "Shares Eligible for Future Sale."
In connection with the Offering, the Underwriters may purchase and sell the
Common Stock in the open market, which transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created by the Underwriters in connection with the Offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the Common Stock, and syndicate
short positions involve the sale by the Underwriters of a greater number of
shares of Common Stock than they are required to purchase from the Company in
the Offering. The Underwriters also may impose a penalty bid, whereby selling
concessions allowed to syndicate members or other broker-dealers in respect of
the securities sold in the Offering for their account may be reclaimed by the
syndicate if such securities are repurchased by the syndicate in stabilizing or
covering transactions. These activities may stabilize, maintain or otherwise
affect the market price of the Common Stock, which may be higher than the price
that might otherwise prevail in the open market; and these activities, if
commenced, may be discontinued at any time. These transactions may be effected
on the Nasdaq National Market, in over-the-counter market or otherwise.
The Underwriters have reserved up to 137,500 shares for sale at the initial
public offering price to certain consultants, employees, clients and other
persons associated with the Company. The number of shares of Common Stock
available for sale to the general public will be reduced to the extent any of
such persons purchase such reserved shares. Any reserved shares not so
purchased will be offered by the Underwriters to the general public on the same
basis as the other shares of Common Stock offered hereby.
LEGAL MATTERS
The validity of shares of Common Stock offered hereby is being passed upon
for the Company by Nelson Mullins Riley & Scarborough, L.L.P., Atlanta,
Georgia. Certain legal matters related to this Offering will be passed upon for
the Underwriters by Latham & Watkins, Washington, D.C.
EXPERTS
The audited financial statements included elsewhere in this Prospectus 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 giving such reports.
51
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission through the Electronic Data
Gathering and Retrieval ("EDGAR") system a registration statement on Form S-1
(together with all amendments, exhibits and schedules thereto, the
"Registration Statement") under the Securities Act with respect to the
Securities offered by this Prospectus. This Prospectus does not contain all of
the information set forth in such Registration Statement, certain parts of
which have been omitted in accordance with the rules and regulations of the
Commission. Statements contained in this Prospectus as to the contents of any
contract 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 of which this Prospectus forms a
part. For further information, reference is made to such registration
statement, including the exhibits thereto, which may be inspected without
charge at the Commission's principal office at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549; and at the following Regional Offices of the
Commission, except that copies of the exhibits may not be available at certain
of the Regional Offices: Chicago Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and New York Regional Office, 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of all or any part
of such material may be obtained from the Commission at 450 Fifth Street, N.W.
Room 1024, Washington, D.C. 20549, upon payment of certain fees prescribed by
the Commission. The Commission maintains a World Wide Web site on the Internet
at http://www.sec.gov that contains reports, proxy, information statements, and
registration statements and other information filed with the Commission through
the EDGAR system.
The Company is not presently a reporting company and does not file reports or
other information with the Commission. On the effective date of the
Registration Statement under the Securities Act, however, the Company will
become a reporting company. Further, the Company will register its securities
under the Exchange Act. Accordingly, the Company will become subject to the
additional reporting requirements of the Exchange Act and in accordance
therewith will file reports, proxy statements and other information with the
Commission. In addition, after the completion of this offering, the Company
intends to furnish its shareholders with annual reports containing audited
financial statements and with quarterly reports containing unaudited summary
financial information for each of the first three quarters of each fiscal year.
52
<PAGE>
ACSYS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED):
Basis of Presentation................................................... F-2
Pro Forma Consolidated Balance Sheet.................................... F-3
Pro Forma Consolidated Statements of Operations......................... F-4
Notes to Pro Forma Consolidated Financial Statements.................... F-7
ACSYS, INC. AND SUBSIDIARIES:
Report of Independent Public Accountants................................ F-9
Consolidated Balance Sheets............................................. F-10
Consolidated Statements of Operations................................... F-11
Consolidated Statements of Redeemable Common Stock and Shareholders' Eq-
uity................................................................... F-12
Consolidated Statements of Cash Flows................................... F-13
Notes to Consolidated Financial Statements.............................. F-14
C.P.A. STAFFING, INC. AND AFFILIATES:
Report of Independent Public Accountants................................ F-23
Combined Balance Sheets................................................. F-24
Combined Statements of Operations....................................... F-25
Combined Statements of Shareholders' Equity............................. F-26
Combined Statements of Cash Flows....................................... F-27
Notes to Combined Financial Statements.................................. F-28
</TABLE>
F-1
<PAGE>
ACSYS, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
(UNAUDITED)
ACSYS, Inc. (the "Company") was formed on March 10, 1997. On May 16, 1997,
the Company acquired all of the issued and outstanding common stock of
Infinity Enterprises, Inc.; David C. Cooper & Associates, Inc.; DCCA
Professional Temporaries, Inc.; and EKT, Inc. in exchange for shares of the
Company's Common Stock. The Company also acquired all of the issued and
outstanding common stock of Cama of Tampa, Inc., Rylan Forbes Consulting
Group, Inc. ("Rylan Forbes") and AcSys Resources, Inc. ("AcSys Resources"), on
May 19, 1997, July 25, 1997 and September 3, 1997, respectively, in the same
manner. The above acquisitions have been accounted for under the pooling of
interests method of accounting. The historical financial statements of the
Company have been restated to include the accounts and operating results of
the acquired companies for all dates and periods prior to the combinations,
except for Infinity Enterprises, Inc. and Cama of Tampa, Inc., which are
reflected only from their respective dates of formation of March 1, 1994 and
January 1, 1996, respectively.
Prior to the acquisition of AcSys Resources by the Company, AcSys Resources
acquired C.P.A. Staffing, Inc., C.P.A. Search, Inc. and Career Placement
Associates, Inc. (together, "C.P.A. Staffing") on August 12, 1997. The
acquisition was accounted for under the purchase method of accounting and is
reflected in the financial statements of the Company from the date of
acquisition. The accompanying pro forma financial statements give effect to
the acquisition of C.P.A. Staffing, the Offering and certain other pro forma
adjustments. See Notes to Pro Forma Consolidated Financial Statements.
The pro forma balance sheet gives effect to the Offering as if it had
occurred on September 30, 1997. The pro forma statements of operations give
effect to the acquisition of C.P.A. Staffing and the Offering as if they had
occurred on January 1, 1996. See Notes to Pro Forma Consolidated Financial
Statements.
The pro forma adjustments are based on estimates, available information and
certain assumptions that management deems appropriate. The pro forma financial
data do not purport to represent what the Company's financial position or
results of operations would actually have been if such transactions had
occurred on those dates and are not necessarily representative of the
Company's financial position or results of operations for any future period.
The pro forma financial statements should be read in conjunction with the
other financial statements and notes thereto included elsewhere in this
Prospectus. See "Risk Factors" included elsewhere herein.
F-2
<PAGE>
ACSYS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA OFFERING PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
----------- ------------ ----------- ----------- -----------
(NOTE 1) (NOTE 3) (NOTE 3)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equiva-
lents................. $ 1,546,748 $ -- $ 1,546,748 $ 8,119,030 $ 9,665,778
Accounts receivable,
net................... 9,505,695 -- 9,505,695 -- 9,505,695
Prepaid expenses and
other................. 508,235 -- 508,235 -- 508,235
----------- ---------- ----------- ----------- -----------
Total current as-
sets................ 11,560,678 -- 11,560,678 8,119,030 19,679,708
PROPERTY AND EQUIPMENT,
net.................... 1,172,787 -- 1,172,787 -- 1,172,787
GOODWILL AND OTHER
INTANGIBLE ASSETS,
net.................... 15,790,370 15,790,370 -- 15,790,370
OTHER ASSETS............ 107,672 -- 107,672 -- 107,672
----------- ---------- ----------- ----------- -----------
$28,631,507 $ -- $28,631,507 $ 8,119,030 $36,750,537
=========== ========== =========== =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdrafts........ $ 131,481 $ -- $ 131,481 $ -- $ 131,481
Current portion of
long-term debt........ 151,360 151,360 (99,970) 51,390
Accounts payable....... 560,584 -- 560,584 -- 560,584
Accrued liabilities.... 5,214,545 -- 5,214,545 (800,000) 4,414,545
Deferred income tax-
es.................... -- 597,000 597,000 -- 597,000
Other current liabili-
ties.................. 89,880 -- 89,880 -- 89,880
----------- ---------- ----------- ----------- -----------
Total current liabil-
ities............... 6,147,850 597,000 6,744,850 (899,970) 5,844,880
----------- ---------- ----------- ----------- -----------
LONG-TERM DEBT.......... 11,717,076 -- 11,717,076 (11,050,000) 667,076
----------- ---------- ----------- ----------- -----------
DEFERRED INCOME TAXES... -- 1,970,000 1,970,000 -- 1,970,000
----------- ---------- ----------- ----------- -----------
OTHER LONG-TERM
LIABILITIES............ 28,230 -- 28,230 -- 28,230
----------- ---------- ----------- ----------- -----------
REDEEMABLE COMMON STOCK,
no par value, 122,012
shares issued and
outstanding............ 1,220,120 (1,220,120) -- -- --
----------- ---------- ----------- ----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock, no
par value, 5,000,000
shares authorized, no
shares issued or out-
standing.............. -- -- -- -- --
Common stock, no par
value, 45,000,000
shares authorized,
8,371,208 shares
issued and
outstanding (actual),
8,493,220 (pro forma)
and 10,823,220 (pro
forma as adjusted).... 7,577,393 593,958 8,171,351 20,069,000 28,240,351
Retained earnings...... 1,940,838 (1,940,838) -- -- --
----------- ---------- ----------- ----------- -----------
Total shareholders'
equity.............. 9,518,231 (1,346,880) 8,171,351 20,069,000 28,240,351
----------- ---------- ----------- ----------- -----------
$28,631,507 $ -- $28,631,507 $ 8,119,030 $36,750,537
=========== ========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
ACSYS, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------
C.P.A. PRO FORMA PRO FORMA OFFERING PRO FORMA
ACSYS, INC. STAFFING ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
----------- --------------- ----------- ----------- ----------- -----------
(NOTE 1) (NOTES 1 AND 2) (NOTE 4) (NOTE 4)
<S> <C> <C> <C> <C> <C> <C>
SERVICE REVENUES:
Temporary staffing..... $34,756,945 $5,653,164 $ -- $40,410,109 $ -- $40,410,109
Permanent placement.... 11,151,319 849,404 -- 12,000,723 -- 12,000,723
----------- ---------- ---------- ----------- -------- -----------
Total service reve-
nues................ 45,908,264 6,502,568 -- 52,410,832 -- 52,410,832
DIRECT COST OF SERVICES,
consisting of payroll,
payroll taxes and
insurance costs for
temporary employees.... 22,873,091 4,051,962 -- 26,925,053 -- 26,925,053
----------- ---------- ---------- ----------- -------- -----------
Gross profit......... 23,035,173 2,450,606 -- 25,485,779 -- 25,485,779
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 18,776,444 1,378,626 (1,287,175)(f) 18,867,895 -- 18,867,895
AMORTIZATION AND
DEPRECIATION........... 661,377 22,663 215,184 (i) 899,224 -- 899,224
SEVERANCE AND FRANCHISE
TERMINATION COSTS...... 566,512 -- -- 566,512 -- 566,512
----------- ---------- ---------- ----------- -------- -----------
Operating income..... 3,030,840 1,049,317 1,071,991 5,152,148 -- 5,152,148
OTHER INCOME (EXPENSE):
Interest income........ 73,729 -- -- 73,729 -- 73,729
Interest expense....... (872,958) -- (177,000)(k) (1,049,958) 950,314 (l) (99,644)
Other.................. (4,099) -- -- (4,099) -- (4,099)
----------- ---------- ---------- ----------- -------- -----------
Income before income
taxes............... 2,227,512 1,049,317 894,991 4,171,820 950,314 5,122,134
PRO FORMA INCOME TAXES.. -- -- 1,835,601 (h) 1,835,601 418,138 (h) 2,253,739
----------- ---------- ---------- ----------- -------- -----------
NET INCOME.............. $ 2,227,512 $1,049,317 $(940,610) $ 2,336,219 $532,176 $ 2,868,395
=========== ========== ========== =========== ======== ===========
PRO FORMA NET INCOME PER
SHARE.................. $ 0.27 $ 0.29
=========== ===========
WEIGHTED AVERAGE SHARES
USED IN COMPUTING PRO
FORMA NET INCOME PER
SHARE (Note 5)......... 8,600,722 9,925,192
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
ACSYS, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------
C.P.A. PRO FORMA PRO FORMA OFFERING PRO FORMA
ACSYS, INC. STAFFING ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
----------- --------------- ----------- ----------- ----------- -----------
(NOTE 1) (NOTES 1 AND 2) (NOTE 4) (NOTE 4)
<S> <C> <C> <C> <C> <C> <C>
SERVICE REVENUES:
Temporary staffing..... $25,604,446 $4,174,342 $ -- $29,778,788 $ -- $29,778,788
Permanent placement.... 8,196,271 568,333 -- 8,764,604 -- 8,764,604
----------- ---------- ----------- ----------- -------- -----------
Total service reve-
nues................ 33,800,717 4,742,675 -- 38,543,392 -- 38,543,392
DIRECT COST OF SERVICES,
consisting of payroll,
payroll taxes and
insurance costs for
temporary employees.... 16,810,415 2,958,257 -- 19,768,672 -- 19,768,672
----------- ---------- ----------- ----------- -------- -----------
Gross profit......... 16,990,302 1,784,418 -- 18,774,720 -- 18,774,720
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 12,937,309 1,044,830 (317,170)(f) 13,664,969 -- 13,664,969
COMBINATION EXPENSES.... -- -- -- -- -- --
AMORTIZATION AND
DEPRECIATION........... 520,280 16,995 161,846(i) 699,121 -- 699,121
SEVERANCE AND FRANCHISE
TERMINATION COSTS...... 566,512 -- -- 566,512 -- 566,512
----------- ---------- ----------- ----------- -------- -----------
Operating income..... 2,966,201 722,593 155,324 3,844,118 -- 3,844,118
OTHER INCOME (EXPENSE):
Interest income........ 47,305 -- -- 47,305 -- 47,305
Interest expense....... (647,469) -- (133,185)(k) (780,654) 727,916(l) (52,738)
Other.................. (66,104) -- -- (66,104) -- (66,104)
----------- ---------- ----------- ----------- -------- -----------
Income before income
taxes............... 2,299,933 722,593 22,139 3,044,665 727,916 3,772,581
PRO FORMA INCOME TAXES.. -- -- 1,339,653 (h) 1,339,653 320,283(h) 1,659,936
----------- ---------- ----------- ----------- -------- -----------
NET INCOME.............. $ 2,299,933 $ 722,593 $(1,317,514) $ 1,705,012 $407,633 $ 2,112,645
=========== ========== =========== =========== ======== ===========
PRO FORMA NET INCOME PER
SHARE.................. $ 0.20 $ 0.21
=========== ===========
WEIGHTED AVERAGE SHARES
USED IN COMPUTING PRO
FORMA NET INCOME PER
SHARE (Note 5)......... 8,600,722 9,925,192
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
ACSYS, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------
C.P.A. PRO FORMA PRO FORMA OFFERING PRO FORMA
ACSYS, INC. STAFFING ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
----------- --------------- ----------- ----------- ----------- -----------
(NOTE 1) (NOTES 1 AND 2) (NOTE 4) (NOTE 4)
<S> <C> <C> <C> <C> <C> <C>
SERVICE REVENUES:
Temporary staffing..... $29,937,397 $4,015,890 $ -- $33,953,287 $ -- $33,953,287
Permanent placement.... 12,072,290 540,620 -- 12,612,910 -- 12,612,910
----------- ---------- ---------- ----------- -------- -----------
Total service reve-
nues................ 42,009,687 4,556,510 -- 46,566,197 -- 46,566,197
DIRECT COST OF SERVICES,
consisting of payroll,
payroll taxes and
insurance costs for
temporary employees.... 19,827,965 2,832,357 -- 22,660,322 -- 22,660,322
----------- ---------- ---------- ----------- -------- -----------
Gross profit......... 22,181,722 1,724,153 -- 23,905,875 -- 23,905,875
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 18,159,688 1,679,590 (1,712,301)(f)(j) 18,126,977 -- 18,126,977
COMBINATION EXPENSES.... 1,722,334 -- (1,722,334)(g) -- -- --
AMORTIZATION AND
DEPRECIATION........... 416,628 20,995 131,612 (i) 569,235 -- 569,235
SEVERANCE AND FRANCHISE
TERMINATION COSTS...... 170,000 -- -- 170,000 -- 170,000
----------- ---------- ---------- ----------- -------- -----------
Operating income..... 1,713,072 23,568 3,303,023 5,039,663 -- 5,039,663
OTHER INCOME (EXPENSE):
Interest income........ 31,635 -- -- 31,635 -- 31,635
Interest expense....... (595,671) -- (105,273)(k) (700,944) 655,839 (l) (45,105)
Other.................. (24,306) -- -- (24,306) -- (24,306)
----------- ---------- ---------- ----------- -------- -----------
Income before income
taxes............... 1,124,730 23,568 3,197,750 4,346,048 655,839 5,001,887
PRO FORMA INCOME TAXES.. -- -- 1,912,261 (h) 1,912,261 288,569 (h) 2,200,830
----------- ---------- ---------- ----------- -------- -----------
NET INCOME.............. $ 1,124,730 $ 23,568 $1,285,489 $ 2,433,787 $367,270 $ 2,801,057
=========== ========== ========== =========== ======== ===========
PRO FORMA NET INCOME PER
SHARE.................. $ 0.28 $ 0.28
=========== ===========
WEIGHTED AVERAGE SHARES
USED IN COMPUTING PRO
FORMA NET INCOME PER
SHARE (Note 5)......... 8,600,722 9,925,192
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
ACSYS, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL:
The accompanying pro forma information presents the pro forma financial
position of the Company as of September 30, 1997 and the pro forma results of
operations for the year ended December 31, 1996 and the nine months ended
September 30, 1996 and 1997.
The historical financial statements of the Company were derived from the
historical statements of operations for the year ended December 31, 1996 and
the nine months ended September 30, 1996 and 1997 and the historical balance
sheet as of September 30, 1997. The historical statements of operations of
C.P.A. Staffing were derived from the historical statements of operations of
C.P.A. Staffing for the year ended December 31, 1996, the nine months ended
September 30, 1996 and the period from January 1, 1997 through the date of its
acquisition on August 12, 1997. See the financial statements and notes thereto
for the Company and C.P.A. Staffing included elsewhere in this Prospectus.
2. ACQUISITION OF C.P.A. STAFFING:
Prior to the acquisition of AcSys Resources by the Company, AcSys Resources
acquired C.P.A. Staffing on August 12, 1997. The acquisition was accounted for
under the purchase method of accounting. The total purchase price was
approximately $9,700,000 and consisted of cash of $1,900,000, 1,219,274 shares
of Common Stock with a fair market value of $7,700,000 and transaction costs
of $144,000. The purchase price was allocated to the assets acquired and
liabilities assumed. The $8,600,000 excess of the purchase price over
estimated fair value of the net assets acquired was recorded as goodwill.
3. ADJUSTMENTS TO PRO FORMA CONSOLIDATED BALANCE SHEET:
The following table summarizes the pro forma adjustments to the balance
sheet as of September 30, 1997:
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS OFFERING ADJUSTMENTS
----------------------------------------------- ----------------------------------------
(A) (B) (C) TOTAL (D) (E) TOTAL
---------- ---------- -------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents............ $ -- $ -- $ -- $ -- $20,069,000 $(11,949,970) $ 8,119,030
========== ========== ======== ========== =========== ============ ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current portion of long-
term debt.............. $ -- $ -- $ -- $ -- $ -- $ (99,970) $ (99,970)
Accrued liabilities..... -- -- -- -- -- (800,000) (800,000)
Deferred income taxes... -- 597,000 -- 597,000 -- -- --
---------- ---------- -------- ---------- ----------- ------------ -----------
Total current
liabilities........... -- 597,000 -- 597,000 -- (899,970) (899,970)
---------- ---------- -------- ---------- ----------- ------------ -----------
Long-term debt.......... -- -- -- -- -- (11,050,000) (11,050,000)
---------- ---------- -------- ---------- ----------- ------------ -----------
Deferred income taxes... -- 1,970,000 -- 1,970,000 -- -- --
---------- ---------- -------- ---------- ----------- ------------ -----------
Redeemable Common
Stock.................. (1,220,120) -- -- (1,220,120) -- -- --
---------- ---------- -------- ---------- ----------- ------------ -----------
Shareholders' equity:
Common Stock............ 1,220,120 -- (626,162) 593,958 20,069,000 -- 20,069,000
Retained earnings....... -- (2,567,000) 626,162 (1,940,838) -- -- --
---------- ---------- -------- ---------- ----------- ------------ -----------
Total shareholders'
equity................ 1,220,120 (2,567,000) -- (1,346,880) 20,069,000 -- 20,069,000
---------- ---------- -------- ---------- ----------- ------------ -----------
Total liabilities and
shareholders' equity.. $ -- $ -- $ -- $ -- $20,069,000 $(11,949,970) $ 8,119,030
========== ========== ======== ========== =========== ============ ===========
</TABLE>
(a) Reflects the elimination of certain Common Stock redemption rights in
connection with the Offering.
(b) The Company operates as an S corporation and will terminate such status in
connection with the Offering. Upon the termination of S corporation
status, the Company will record a deferred income tax provision of
approximately $2,567,000 for the tax effect of the differences in the
bases of assets and liabilities for financial reporting and income tax
purposes. This deferred tax provision will be recorded in the quarter in
which the Offering is completed.
(c) Reflects the resetting of retained earnings in connection with the
termination of the Company's S corporation status.
(d) Reflects the net proceeds from the sale by the Company of 2,330,000 shares
of Common stock in the Offering at $10 per share, estimated to be
approximately $20,069,000 (after deducting underwriting discounts and
commissions and estimated offering expenses).
F-7
<PAGE>
ACSYS, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(e) Reflects the use of a portion of the net proceeds of the Offering to
reduce long-term debt of $11,149,970 and to pay accrued distributions of
$800,000 for income taxes on S corporation earnings through September 30,
1997.
4. ADJUSTMENTS TO THE PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS:
(f) Reflects an adjustment of $1,287,175, $342,203 and $1,009,836 for the year
ended December 31, 1996 and the nine months ended September 30, 1996 and
1997, respectively, to officer and employee compensation based on
employment agreements entered into upon the closing of the acquisitions.
This adjustment does not reflect discretionary bonuses which may be paid
to these individuals.
(g) Reflects the elimination of the combination expenses.
(h) Reflects the provision for income taxes as if the Company was a C
corporation during the periods presented.
(i) Reflects the amortization expense for the goodwill recorded in connection
with the acquisition of C.P.A. Staffing. The goodwill is being amortized
on a straight-line basis over an estimated life of 40 years.
(j) Reflects the elimination of the non-recurring, non-cash charge of $702,465
relating to the acquisition of C.P.A. Staffing.
(k) Reflects additional interest expense on the borrowings incurred to finance
the cash portion of the C.P.A. Staffing purchase price.
(l) Reflects the elimination of interest expense resulting from the reduction
of debt utilizing a portion of the net proceeds of the Offering.
5. PRO FORMA NET INCOME PER SHARE:
The shares used in computing pro forma net income per share are as follows:
<TABLE>
<S> <C>
Outstanding shares of Common Stock................................ 8,493,220
Common Stock equivalents for stock options granted................ 107,502
---------
Pro forma shares................................................ 8,600,722
Shares issued in the Offering necessary to pay expenses of the
Offering, repay indebtedness and pay distributions to certain
shareholders for income taxes on S corporation earnings.......... 1,324,470
---------
Pro forma, as adjusted shares................................... 9,925,192
=========
</TABLE>
The remaining shares to be sold in the Offering have been excluded. Options
that will be issued upon the Offering are also excluded.
Pursuant to the requirements of the Securities and Exchange Commission,
common stock equivalents issued by the Company during the twelve months
preceding the Offering are included in the calculation of the shares used in
computing pro forma net income per share as if they were outstanding for all
periods presented using the treasury stock method. As of September 30, 1997,
there were 244,820 options issued and outstanding, all of which were issued
within 12 months preceding the offering.
The Company accounts for its option grants under APB Opinion No. 25,
"Accounting for Stock Issued to Employees" and includes a disclosure of the
fair value based method of accounting for stock-based compensation plans in
accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123). Had the Company
recognized compensation cost for its stock option grants consistent with the
provisions of SFAS 123, and assuming the 950,000 options issued upon the
Offering are considered outstanding on January 1, 1997 with an exercise price
of $10 per share, the following pro forma as adjusted net income per share
would have resulted:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1997
------------------
<S> <C>
Pro forma net income (loss):
As Adjusted............................................. $2,801,057
==========
Per SFAS 123............................................ $ (774,860)
==========
Pro forma net income (loss) per Common Share:
As Adjusted............................................. $ .28
==========
Per SFAS 123............................................ $ (.08)
==========
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model, with a risk-free interest rate of
6.5%, a volatility of 55%, no expected dividend yield and an expected life of
five years.
F-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ACSYS, Inc.:
We have audited the accompanying consolidated balance sheets of ACSYS, Inc.
(a Georgia corporation) and subsidiaries as of December 31, 1995 and 1996 and
September 30, 1997, and the related consolidated statements of operations,
redeemable common stock and shareholders' equity and cash flows for each of
the three years in the period ended December 31, 1996 and the nine months
ended September 30, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of ACSYS, Inc.
and subsidiaries as of December 31, 1995 and 1996 and September 30, 1997, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996 and the nine months ended
September 30, 1997, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Philadelphia, PA,
November 14, 1997
F-9
<PAGE>
ACSYS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------ SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............ $ 1,431,531 $ 1,061,662 $ 1,546,748
Restricted cash...................... -- 116,434 --
Accounts receivable, net of
allowances of $166,251, $280,825 and
$416,766............................ 4,547,323 6,219,127 9,505,695
Prepaid expenses and other........... 72,252 245,876 508,235
----------- ----------- -----------
Total current assets............... 6,051,106 7,643,099 11,560,678
PROPERTY AND EQUIPMENT, net............ 488,437 852,784 1,172,787
GOODWILL AND OTHER INTANGIBLE ASSETS,
net................................... 7,092,980 7,126,478 15,790,370
OTHER ASSETS........................... 240,309 232,781 107,672
----------- ----------- -----------
$13,872,832 $15,855,142 $28,631,507
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdrafts...................... $ 7,393 $ 264,699 $ 131,481
Lines of credit...................... 550,000 925,000 --
Current portion of long-term debt.... 1,470,151 721,746 151,360
Accounts payable..................... 289,559 347,664 560,584
Accrued liabilities.................. 1,574,156 1,792,754 5,214,545
Other current liabilities............ 83,235 36,474 89,880
----------- ----------- -----------
Total current liabilities.......... 3,974,494 4,088,337 6,147,850
----------- ----------- -----------
LONG-TERM DEBT......................... 7,435,177 8,125,008 11,717,076
----------- ----------- -----------
OTHER LONG-TERM LIABILITIES............ 15,067 40,842 28,230
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 4)
REDEEMABLE COMMON STOCK, no par value,
122,012 shares issued and
outstanding........................... -- 287,946 1,220,120
----------- ----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value,
5,000,000 shares authorized, no
shares issued or outstanding........ -- -- --
Common stock, no par value,
45,000,000 shares authorized,
7,273,946, 7,151,934 and 8,371,208
shares issued and outstanding,
respectively........................ 124,770 510,604 7,577,393
Retained earnings.................... 2,454,231 3,391,812 1,940,838
Treasury stock, at cost.............. (130,907) (589,407) --
----------- ----------- -----------
Total shareholders' equity......... 2,448,094 3,313,009 9,518,231
----------- ----------- -----------
$13,872,832 $15,855,142 $28,631,507
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-10
<PAGE>
ACSYS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31 SEPTEMBER 30
------------------------------------- --------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- --------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SERVICE REVENUES:
Temporary staffing.... $21,150,942 $26,565,734 $34,756,945 $25,604,446 $29,937,397
Permanent placement... 6,243,700 7,919,043 11,151,319 8,196,271 12,072,290
----------- ----------- ----------- ------------ ------------
Total service reve-
nues............... 27,394,642 34,484,777 45,908,264 33,800,717 42,009,687
DIRECT COST OF SERVICES,
consisting of payroll,
payroll taxes and
insurance costs for
temporary employees.... 14,025,196 17,731,610 22,873,091 16,810,415 19,827,965
----------- ----------- ----------- ------------ ------------
Gross profit........ 13,369,446 16,753,167 23,035,173 16,990,302 22,181,722
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 10,218,230 12,795,347 18,776,444 12,937,309 18,159,688
COMBINATION EXPENSES.... -- -- -- -- 1,722,334
AMORTIZATION AND
DEPRECIATION........... 546,723 674,312 661,377 520,280 416,628
SEVERANCE AND FRANCHISE
TERMINATION COSTS...... 561,429 166,394 566,512 566,512 170,000
----------- ----------- ----------- ------------ ------------
Operating income.... 2,043,064 3,117,114 3,030,840 2,966,201 1,713,072
OTHER INCOME (EXPENSE):
Interest income....... 20,627 64,039 73,729 47,305 31,635
Interest expense...... (851,966) (890,133) (872,958) (647,469) (595,671)
Other ................ (21,589) (39,132) (4,099) (66,104) (24,306)
----------- ----------- ----------- ------------ ------------
NET INCOME ............. $ 1,190,136 $ 2,251,888 $ 2,227,512 $ 2,299,933 $ 1,124,730
=========== =========== =========== ============ ============
PRO FORMA DATA
(UNAUDITED) (Note 2):
Historical net income,
as reported.......... $ 2,227,512 $ 1,124,730
Pro forma income
taxes................ 980,105 1,138,826
----------- ------------
Pro forma net income
(loss)............... $ 1,247,407 $ (14,096)
=========== ============
Pro forma net income
(loss) per share..... $ 0.14 $ (0.13)
=========== ============
Weighted average
shares used in
computing pro forma
net income (loss) per
share................ 7,259,436 7,373,210
=========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-11
<PAGE>
ACSYS, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE COMMON STOCK
AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
--------------------------------------------------------
REDEEMABLE
COMMON STOCK COMMON STOCK
------------------ ---------------------
RETAINED TREASURY
SHARES AMOUNT SHARES AMOUNT EARNINGS STOCK TOTAL
------- ---------- --------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1994................... -- $ -- 7,273,946 $ 124,770 $ 273,175 $(130,907) $ 267,038
Distributions to
shareholders.......... -- -- -- -- (543,307) -- (543,307)
Net income............. -- -- -- -- 1,190,136 -- 1,190,136
------- ---------- --------- ---------- ---------- --------- ----------
BALANCE, DECEMBER 31,
1994................... -- -- 7,273,946 124,770 920,004 (130,907) 913,867
Distributions to
shareholders.......... -- -- -- -- (717,661) -- (717,661)
Net income............. -- -- -- -- 2,251,888 -- 2,251,888
------- ---------- --------- ---------- ---------- --------- ----------
BALANCE, DECEMBER 31,
1995................... -- -- 7,273,946 124,770 2,454,231 (130,907) 2,448,094
Assumption of debt
accounted for as a
distribution.......... -- -- -- -- (300,000) -- (300,000)
Push down of new
accounting basis in
purchase transaction.. -- -- -- 300,000 -- -- 300,000
Contributions from
shareholders.......... -- -- -- 150,000 -- -- 150,000
Distributions to
shareholders.......... -- -- -- -- (766,151) -- (766,151)
Purchase of Common
Stock in connection
with redemption
agreement (Note 8).... 122,012 64,166 (122,012) (64,166) -- (458,500) (522,666)
Accretion of redeemable
Common Stock to
redemption value...... -- 223,780 -- -- (223,780) -- (223,780)
Net income............. -- -- -- -- 2,227,512 -- 2,227,512
------- ---------- --------- ---------- ---------- --------- ----------
BALANCE, DECEMBER 31,
1996................... 122,012 287,946 7,151,934 510,604 3,391,812 (589,407) 3,313,009
Distributions to
shareholders.......... -- -- -- -- (1,643,530) -- (1,643,530)
Issuance of Common
Stock in connection
with the acquisition
of C.P.A. Staffing.... -- -- 1,219,274 7,066,789 -- 589,407 7,656,196
Accretion of redeemable
Common Stock to
redemption value...... -- 932,174 -- -- (932,174) -- (932,174)
Net income............. -- -- -- -- 1,124,730 -- 1,124,730
------- ---------- --------- ---------- ---------- --------- ----------
BALANCE, SEPTEMBER 30,
1997................... 122,012 $1,220,120 8,371,208 $7,577,393 $1,940,838 $ -- $9,518,231
======= ========== ========= ========== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-12
<PAGE>
ACSYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31 SEPTEMBER 30
------------------------------------ ---------------------------
1994 1995 1996 1996 1997
---------- ----------- ----------- ---------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income............. $1,190,136 $ 2,251,888 $ 2,227,512 $ 2,299,933 $ 1,124,730
Adjustments to
reconcile net income
to net cash provided
by operating
activities--
Amortization and
depreciation......... 546,723 674,312 661,377 520,280 416,628
Loss on property
disposal............. -- -- -- 1,990 7,931
Change in deferred
rent liability....... (30,879) (30,463) (45,530) (20,585) 89,880
Imputed interest...... 57,000 73,000 71,000 52,992 58,122
Non-cash severance
charge............... -- -- 458,500 458,500 --
Changes in operating
assets and
liabilities:
Accounts receivable,
net.................. (667,202) (839,201) (1,483,465) (918,269) (2,163,064)
Prepaid expenses and
other................ (26,278) 13,878 (162,876) (142,157) (367,938)
Accounts payable...... 39,593 99,023 38,269 58,807 144,261
Accrued liabilities
and other............ 299,892 523,786 143,100 64,127 2,248,090
---------- ----------- ----------- ------------ ------------
Net cash provided by
operating activi-
ties................ 1,408,985 2,766,223 1,907,887 2,375,618 1,558,640
---------- ----------- ----------- ------------ ------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Net cash paid for
acquisition of C.P.A.
Staffing.............. -- -- -- -- (1,873,803)
Capital expenditures... (125,956) (273,509) (487,494) (403,739) (377,997)
---------- ----------- ----------- ------------ ------------
Net cash used in in-
vesting activities.. (125,956) (273,509) (487,494) (403,739) (2,251,800)
---------- ----------- ----------- ------------ ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Changes in bank
overdrafts............ 68,731 (128,864) 224,688 92,229 (133,218)
Net borrowings
(repayments) on lines
of credit............. 110,282 177,000 325,500 166,076 (925,000)
Proceeds from long-term
debt.................. 250,000 79,973 326,325 182,500 12,207,200
Repayments of long-term
debt ................. (604,645) (1,235,674) (1,811,370) (1,368,617) (9,243,640)
Changes in restricted
cash.................. -- -- (89,254) (68) 116,434
Net borrowings
(repayments) of notes
payable to
shareholders.......... 50,000 -- (150,000) -- --
Shareholder
contributions......... -- -- 150,000 -- --
Distributions to
shareholders.......... (543,307) (717,661) (766,151) (443,785) (843,530)
---------- ----------- ----------- ------------ ------------
Net cash provided by
(used in) financing
activities.......... (668,939) (1,825,226) (1,790,262) (1,371,665) 1,178,246
---------- ----------- ----------- ------------ ------------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ 614,090 667,488 (369,869) 600,214 485,086
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD.............. 149,953 764,043 1,431,531 1,431,531 1,061,662
---------- ----------- ----------- ------------ ------------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD................. $ 764,043 $ 1,431,531 $ 1,061,662 $ 2,031,745 $ 1,546,748
========== =========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-13
<PAGE>
ACSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED)
1. DESCRIPTION OF BUSINESS:
ACSYS, Inc. (the "Company") is an accounting and finance staffing firm that
operates offices primarily located in major metropolitan areas in the eastern
United States.
The Company was formed on March 10, 1997 and effected a business combination
on May 16, 1997 in which it acquired all of the issued and outstanding common
stock of Infinity Enterprises, Inc.; David C. Cooper & Associates, Inc.; DCCA
Professional Temporaries, Inc.; and EKT, Inc. in exchange for 4,240,283 shares
of the Company's Common Stock (the "May 16 Pooling"). Subsequent to the May 16
Pooling, the Company acquired all of the issued and outstanding common stock
of the following companies, in the same manner:
<TABLE>
<CAPTION>
NAME ACQUISITION DATE SHARES ISSUED
---- ----------------- -------------
<S> <C> <C>
Cama of Tampa, Inc....................... May 19, 1997 131,143
Rylan Forbes Consulting Group, Inc....... July 25, 1997 462,292
AcSys Resources, Inc..................... September 3, 1997 3,659,502
</TABLE>
The business combinations referred to above have been accounted for under
the pooling of interests method of accounting. Thus, the accompanying
financial statements have been restated to include the accounts and operating
results of the combined companies for all dates and periods prior to the
combinations, except for Infinity Enterprises, Inc. and Cama of Tampa, Inc.,
which are reflected only from their respective dates of formation of March 1,
1994 and January 1, 1996, respectively (see Note 2).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL STATEMENTS
The consolidated statement of operations for the nine months ended September
30, 1996 is unaudited and, in the opinion of management of the Company,
includes all normal recurring adjustments necessary for a fair presentation of
the results for the interim period. The results of operations for the nine
months ended September 30, 1997 are not necessarily indicative of the results
to be expected for the full year.
RISKS AND UNCERTAINTIES
The Company's future results of operations involve a number of risks and
uncertainties. Factors that could affect the Company's future operating
results and cause actual results to vary materially from expectations include,
but are not limited to, the Company's brief operating history, the competitive
market for temporary staffing services, dependence on availability of
qualified personnel, dependence on key personnel and risks associated with
opening new offices and offering new services.
Credit risk with respect to accounts receivable is dispersed due to the
nature of the business, the large number of customers, and the diversity of
industries serviced. At December 31, 1995 and 1996 and September 30, 1997, no
one customer represented greater than 10% of accounts receivable or greater
than 10% of revenues for the periods then ended.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. All significant
intercompany transactions and accounts have been eliminated.
F-14
<PAGE>
ACSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers cash on deposit with financial institutions and all
highly liquid investments purchased with an original maturity of three months
or less to be cash equivalents. At the balance sheet dates, cash equivalents
were comprised primarily of investments in money market funds and certificates
of deposit.
RESTRICTED CASH
Restricted cash represents funds held by a financing institution as
collateral for a line of credit.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are depreciated using the straight-line method over the shorter
of the estimated useful life of the asset or the remaining term of the lease.
<TABLE>
<CAPTION>
DECEMBER 31
---------------------- SEPTEMBER 30,
USEFUL LIVES 1995 1996 1997
------------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Office equipment........... 3-7 years $ 765,817 $1,090,574 $ 1,510,616
Office furniture and fix-
tures..................... 3-7 years 259,443 401,638 542,582
Leasehold improvements..... 7 years 1,389 155,237 161,277
---------- ---------- -----------
1,026,649 1,647,449 2,214,475
Less-- Accumulated depreci-
ation..................... (538,212) (794,665) (1,041,688)
---------- ---------- -----------
$ 488,437 $ 852,784 $ 1,172,787
========== ========== ===========
</TABLE>
Depreciation expense for the years ended December 31, 1994, 1995 and 1996,
and the nine months ended September 30, 1996 and 1997 was $73,322, $116,231,
$252,090, $143,950 and $216,915, respectively.
INTANGIBLE ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------- SEPTEMBER 30,
1995 1996 1997
----------- ---------- -------------
<S> <C> <C> <C>
Goodwill................................. $ 7,200,000 $7,642,785 $16,274,559
Non-compete agreements................... 815,939 -- --
Deferred financing costs................. -- -- 231,831
Other.................................... 108,523 8,523 8,523
----------- ---------- -----------
8,124,462 7,651,308 16,514,913
Less-- Accumulated amortization.......... (1,031,482) (524,830) (724,543)
----------- ---------- -----------
$ 7,092,980 $7,126,478 $15,790,370
=========== ========== ===========
</TABLE>
Goodwill was recorded in connection with the acquisition on February 28,
1994 of certain assets of a predecessor by Infinity Enterprises, Inc., the
acquisition on January 1, 1996 of common stock from the previous shareholders
of Cama of Tampa, Inc. and the acquisition on August 12, 1997 of C.P.A.
Staffing (see Note 9). Goodwill is being amortized on a straight-line basis
over 40 years.
The non-compete agreements were entered into on February 28, 1994 between
Infinity Enterprises, Inc. and its predecessor and were amortized on a
straight-line basis over 30 months.
Deferred financing costs are being amortized over the three-year term of the
credit facility (see Note 3).
Amortization expense for the intangible assets for the years ended December
31, 1994, 1995 and 1996 and for the nine months ended September 30, 1996 and
1997 was $473,401, $558,081, $409,287, $376,330 and $199,713, respectively.
F-15
<PAGE>
ACSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
LONG-LIVED ASSETS
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 121 "Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by the Company be
reviewed for possible impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If
changes in circumstances indicate that the carrying amount of an asset that an
entity expects to hold and use may not be recoverable, future cash flows
expected to result from the use of the asset and its disposition must be
estimated. If the undiscounted value of the future cash flows is less than the
carrying amount of the asset, an impairment will be recognized. Management
believes that there has been no impairment of long-lived assets as of
September 30, 1997.
ACCRUED LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31
--------------------- SEPTEMBER 30,
1995 1996 1997
---------- ---------- -------------
<S> <C> <C> <C>
Salaries and commissions................. $ 532,314 $ 515,701 $2,590,590
Combination costs........................ -- -- 1,044,574
Payroll taxes............................ 470,808 439,310 340,817
Shareholder distributions................ -- -- 800,000
Other.................................... 571,034 837,743 438,564
---------- ---------- ----------
$1,574,156 $1,792,754 $5,214,545
========== ========== ==========
</TABLE>
REVENUE RECOGNITION
The Company recognizes permanent placement revenues when the employment
offer and acceptance has occurred and the candidate's employment start date
has been established. Revenues from permanent placements are reported in the
statements of operations net of estimated adjustments due to placed candidates
that terminate employment within the Company's guarantee period (generally 90-
180 days). The net adjustment in each of the periods presented is immaterial.
The Company recognizes temporary staffing revenues when the services are
performed.
GROSS PROFIT
Gross profit is determined by deducting the direct cost of services for
temporary staffing revenues (temporary and contract personnel payroll, payroll
taxes and insurance costs) from total service revenues. The primary costs
associated with permanent placement revenues are sales commissions, which
increase in proportion with service revenue from permanent placements.
Consistent with industry practice, these costs are included in selling,
general and administrative expenses.
SUPPLEMENTAL CASH FLOW INFORMATION
For the years ended December 31, 1994, 1995 and 1996 and the nine months
ended September 30, 1996 and 1997, the Company paid interest of $764,768,
$919,280, $865,417, $646,962 and $601,989, respectively. The Company financed
equipment purchases under capital leases of $61,219 and $100,000 for the years
ended December 31, 1995 and 1996, respectively, and purchased Common Stock for
debt in the amount of $442,785 for the year ended December 31, 1996.
F-16
<PAGE>
ACSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table displays the net noncash assets that were acquired in
August 1997 in connection with the acquisition of C.P.A. Staffing (see Note
9):
<TABLE>
<S> <C>
Noncash assets (liabilities)
Accounts receivable........................................... $ 1,123,504
Prepaid expenses and other.................................... 1,143
Property and equipment........................................ 166,852
Goodwill...................................................... 8,631,774
Accounts payable.............................................. (68,659)
Accrued liabilities........................................... (324,615)
-----------
Net noncash assets acquired................................... 9,529,999
Common stock issued........................................... (7,656,196)
-----------
Net cash paid for acquisition............................... $ 1,873,803
===========
</TABLE>
INCOME TAXES
The Company is an S corporation for federal and state income tax reporting
purposes. As such, all taxable income and loss of the Company is included in
the shareholders' tax returns. If the S corporation status had been terminated
as of September 30, 1997, the Company would have recorded a net deferred tax
liability of approximately $2,567,000 representing the tax effect of
differences in the bases in assets and liabilities for financial reporting and
income tax purposes. The differences primarily relate to the use of the cash
basis of accounting for tax purposes and the accrual basis of accounting for
financial reporting purposes, as well as differences in depreciation and
amortization methods. Pro forma income taxes represent the income tax expense
that would have resulted if the Company was a C corporation for the periods
presented.
PRO FORMA NET INCOME (LOSS) PER SHARE
Pro forma net income (loss) per Common share was calculated by dividing pro
forma net income (loss) available to Common shareholders by the weighted
average number of shares outstanding of 7,259,436 for the year ended December
31, 1996 and 7,373,210 for the nine months ended September 30, 1997, which
include Common Stock equivalents of 107,502, unless otherwise anti-dilutive.
The average number of shares outstanding excludes the redeemable Common
shares, as the accretion on the redeemable Common Stock of $223,780 for the
year ended December 31, 1996 and $932,174 for the nine months ended September
30, 1997, is deducted in arriving at pro forma net income (loss) available to
Common shareholders. The average number of shares outstanding has been
retroactively restated to include the shares issued for the business
combinations accounted for as poolings of interests.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Management believes that the carrying amounts of certain financial
instruments, including cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses approximate their fair values as of each
balance sheet date given the relatively short maturity of these instruments.
The fair values of long-term debt instruments have been estimated by
discounting future cash flows based on the current interest rate environment
and remaining term to maturity.
F-17
<PAGE>
ACSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement No. 128, "Earnings per share." This statement establishes
standards for computing and presenting earnings per share and is effective for
financial statements issued for periods ending after December 15, 1997.
Earlier application of this statement is not permitted and, upon adoption,
requires restatement (as applicable) of all prior-period earnings per share
data presented. Management believes that the implementation of this standard
will not have a material effect on the Company's calculation of earnings per
share.
In February 1997, the FASB issued Statement No. 129, "Disclosure of
Information about Capital Structure." This statement establishes standards for
disclosing information about an entity's capital structure. Management intends
to comply with the disclosure requirements of this statement, which are
effective for periods ending after December 15, 1997. Management believes that
the implementation of this standard will not have a material effect on the
Company's financial statements.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). This statement requires companies to classify items of
other comprehensive income by their nature in a financial statement and
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. SFAS 130 is effective for financial
statements issued for fiscal years beginning after December 15, 1997.
Management believes that SFAS 130 will not have a material effect on the
Company's financial statements.
In June 1997, the FASB issued Statement No. 131, "Disclosure About Segments
of an Enterprise and Related Information" ("SFAS 131"). This statement
establishes additional standards for segment reporting in the financial
statements and is effective for fiscal years beginning after December 15,
1997. Management believes that SFAS 131 will not have a material effect on the
Company's financial statements.
3. DEBT:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------- SEPTEMBER 30,
1995 1996 1997
----------- ---------- -------------
<S> <C> <C> <C>
Revolving line of credit............... $ -- $ -- $11,050,000
Note payable to former shareholder of
Infinity Enterprises, Inc., repaid in
May 1997.............................. 7,484,396 6,444,831 --
Non-compete agreements with former
shareholders of Infinity Enterprises,
Inc., maturing February 2009, with
monthly payments of $8,333............ 1,316,667 1,216,667 1,141,667
Non-compete agreements with former
owners of EKT, Inc., repaid in May
1997.................................. 227,367 111,371 --
Term notes payable to former
shareholders of Cama of Tampa, Inc.,
repaid in May 1997.................... -- 300,000 --
Term loans payable to a bank, repaid in
September 1997........................ -- 256,659 --
Term loan payable to a bank, repaid in
February 1996......................... 162,493 -- --
Due to former shareholders of AcSys Re-
sources, Inc., repaid in September
1997.................................. 111,563 717,000 --
Capitalized lease obligations.......... 52,218 130,664 14,942
Loans due to shareholders of AcSys Re-
sources, Inc.......................... 79,973 92,770 99,970
Other ................................. 37,572 73,057 --
----------- ---------- -----------
9,472,249 9,343,019 12,306,579
Less--Unamortized discount............. (566,921) (496,265) (438,143)
----------- ---------- -----------
8,905,328 8,846,754 11,868,436
Less--Current portion.................. (1,470,151) (721,746) (151,360)
----------- ---------- -----------
$ 7,435,177 $8,125,008 $11,717,076
=========== ========== ===========
</TABLE>
F-18
<PAGE>
ACSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On May 16, 1997, the Company entered into an agreement with a bank which
provides for a $15,000,000 Revolving Credit Facility (the "Credit Facility")
to be repaid on May 31, 2000. The Company can draw on the Credit Facility in
increments of $250,000 or more. The Company can elect at the time of its draws
to pay interest at either: (A) the greater of (i) the bank's prime rate or
(ii) the federal funds rate plus 0.5%, plus a margin which ranges up to 0.75%;
or (B) at LIBOR plus a margin, which ranges from 1.25% to 2.50%. Borrowings
under the Credit Facility are collateralized by all of the assets of the
Company and a pledge of all of the stock of its subsidiaries. The Credit
Facility also contains various financial and non-financial covenants. At
September 30, 1997, the Company had outstanding borrowings under the Credit
Facility of $11,050,000 and for the nine months ended September 30, 1997
incurred $237,461 of interest expense under the Credit Facility.
The Company has discounted the non-compete obligations and certain other
notes payable to reflect their fair market value based on average borrowing
rates available to the Company. The rate used to determine the discount was
approximately 9.25%. The discount is being amortized over the term of the
notes using the effective interest rate method. Amortization expense included
in interest expense in the accompanying statements of operations for the years
ended December 31, 1994, 1995 and 1996, and for the nine months ended
September 30, 1996 and 1997 was $57,000, $73,000, $71,000, $53,000 and
$58,000, respectively.
The obligations under the non-compete agreements with former shareholders
are secured by certain property and equipment and Common Stock of the Company,
and are personally guaranteed by certain shareholders of the Company.
Annual maturities of long-term debt as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997........................................................... $ 789,541
1998........................................................... 669,601
1999........................................................... 620,490
2000........................................................... 277,478
2001........................................................... 323,652
Thereafter..................................................... 6,662,257
----------
$9,343,019
==========
</TABLE>
In 1995 and 1996, the Company entered into capital leases for equipment with
terms ranging from two to three years. The implicit interest rates under these
leases range from 5% to 15%. The present value of the minimum lease payments
as of December 31, 1996 is as follows:
<TABLE>
<S> <C>
Total minimum lease payments................................... $ 149,728
Less-- Amounts representing interest........................... (19,064)
---------
Present value of minimum lease payments........................ $ 130,664
=========
</TABLE>
The Company had four separate line of credit agreements with different
banks, which provided for maximum borrowings of $1,200,000. These lines bore
interest at rates between 9.25% and 10.0% as of December 31, 1996. At December
31, 1995 and 1996, the Company had outstanding borrowings under these lines of
$550,000 and $925,000, respectively. Interest expense under these lines was
$66,700, $108,000 and $48,300 for the years ended December 31, 1995 and 1996
and for the nine months ended September 30, 1997, respectively. Three of these
lines were repaid in May 1997 and the fourth line was repaid in September 1997
with borrowings under the Credit Facility.
F-19
<PAGE>
ACSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. COMMITMENTS AND CONTINGENCIES:
In connection with the business combinations, the Company entered into
employment agreements with certain shareholders who are also officers or
employees of the Company. The employment agreements provide for a guaranteed
base salary over a three-year period and a discretionary bonus to be
determined by the Board of Directors. For the years ending December 31, 1997,
1998, 1999 and 2000, the Company is obligated to pay $1,352,500, $2,575,000,
$2,575,000, and $1,222,500, respectively, in salaries under these agreements.
The agreements contain non-compete covenants and can be terminated based on
certain events, as defined. In addition, the agreements provide for lump sum
payments equal to three times current salary upon certain triggering events
such as a change in control, among other events.
The Company leases office space under noncancellable operating leases.
Certain leases require additional payments for taxes and operating expenses
and provide for renewal options. Future minimum payments required under
operating leases that have an initial or remaining noncancellable lease term
in excess of one year at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997........................................................... $ 912,764
1998........................................................... 699,971
1999........................................................... 661,520
2000........................................................... 555,221
2001........................................................... 409,652
Thereafter..................................................... 588,068
----------
$3,827,196
==========
</TABLE>
Rent expense for the years ended December 31, 1994, 1995 and 1996, and for
the nine months ended September 30, 1996 and 1997 was $636,195, $720,815,
$919,732, $714,372 and $729,074, respectively.
The Company is subject to various claims and legal actions that arise in the
ordinary course of business. In the opinion of management, based in part on
consultation with legal counsel, the ultimate resolution of these matters will
be adequately covered by insurance or will not have a materially adverse
effect on the Company's financial position, liquidity or results of
operations.
5. TERMINATION OF FRANCHISE AGREEMENTS:
Prior to May 31, 1994, AcSys Resources operated as a franchisee under a
franchise agreement, which provided for various marketing and royalty payments
to the franchisor based on revenues. Effective May 31, 1994, AcSys Resources
and the franchisor terminated the agreement. The termination agreement
provided for payments to the franchisor of $360,000, which were made and
recorded as an expense in 1994. In addition, AcSys Resources was required to
pay to the franchisor 1% of revenues for the period June 1, 1994 through May
31, 1995, and 2% of revenues for the period June 1, 1995 through May 31, 1996,
resulting in an expense of $201,000 in 1994, $166,000 in 1995, and $108,000 in
1996. In May 1997, Cama of Tampa, Inc. terminated its franchise agreement and
made a one-time payment to the franchisor of $170,000, which was recorded as
an expense for the nine months ended September 30, 1997. Costs under the
franchise termination agreements and severance expense (see Note 8) have been
recorded as a separate line item in the accompanying consolidated statements
of operations.
6. RETIREMENT SAVINGS PLAN:
AcSys Resources has a defined contribution retirement plan for the benefit
of all eligible employees. The plan qualifies under Section 401(k) of the
Internal Revenue Code and allows for eligible employees to contribute
F-20
<PAGE>
ACSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
to the plan up to 15% of their pretax compensation, subject to the maximum
contributions allowed by the Internal Revenue Code. The plan provides for
discretionary matching contributions by AcSys Resources based on a percentage
of the participant's contributions to the plan and a discretionary profit
sharing contribution based on employee compensation. AcSys Resources made
$17,911, $23,083 and $30,449 in 1994, 1995 and 1996, respectively, in matching
contributions and no discretionary contributions were made to the plan.
7. RELATED PARTIES:
At December 31, 1995 and 1996, AcSys Resources had loans due from its
shareholders of $69,720 and $61,567, respectively, at an interest rate of 5%.
The loans are due on demand. These loans are included in other assets in the
accompanying consolidated balance sheets. In addition, AcSys Resources owes
three shareholders a total of $197,638 at September 30, 1997 for compensation
earned but not paid.
8. CAPITAL TRANSACTIONS:
REDEMPTION AND SEVERANCE AGREEMENTS
In September 1996, AcSys Resources entered into a Stock Redemption Agreement
with one of its shareholders. Under this agreement, AcSys Resources
repurchased a portion of the shares owned by this shareholder for $458,500. An
additional $500,000 will be paid to the shareholder if AcSys Resources closes
an initial public offering of its common stock prior to December 14, 1997.
Management expects that the offering will close after this date. The
shareholder can require AcSys Resources to repurchase his remaining 122,012
shares of Common Stock at a price based on an earnings formula defined in the
Stock Redemption Agreement. In connection with the Stock Redemption Agreement,
AcSys Resources and the shareholder entered into a severance agreement. Under
this agreement, the shareholder is to receive $458,500, which was charged to
expense in 1996. An initial payment of $200,000 was made to the shareholder
upon execution of the agreements, with the remaining $717,000 payable in equal
semi-monthly installments beginning in January 1997. In September 1997, the
remaining balance was repaid by the Company.
STOCK OPTION PLAN
In May 1997, the Company established the 1997 Stock Option Plan (the "Option
Plan"). The maximum number of shares of Common Stock that currently may be
subject to outstanding options, determined immediately after the grant of any
option, is 2,000,000 shares. The Option Plan provides that the number of
shares of Common Stock available for issuance thereunder shall be
automatically increased on the first trading day of each calendar year by the
lesser of (i) three percent of the number of shares outstanding on the
preceding trading day or (ii) 500,000 shares. Shares of Common Stock which are
attributable to awards which have expired, terminated or been canceled or
forfeited during any calendar year are available for issuance or use in
connection with future awards during such calendar year.
In January 1997, AcSys Resources issued stock options under the AcSys
Resources 1996 Equity Compensation Plan (the "AcSys Resources Plan") to its
officers and employees. In September 1997, the AcSys Resources Plan stock
options were exchanged for 111,687 stock options under the Company's Plan at
an exercise price of $2.66 per share. The exchange ratio was based on the
exchange ratio used to effect the merger between AcSys Resources and the
Company on September 3, 1997. In connection with this merger, these options
became fully vested in accordance with the change of control provision
included in the AcSys Resources Plan. In May 1997, the Company issued 97,698
non-qualified stock options and 37,500 qualified stock options to an officer
of the Company at an exercise price of $8.00 per share.
As of September 30, 1997, there were 244,820 stock options outstanding and
exercisable under the Plan with a weighted average exercise price of $5.61 per
share.
F-21
<PAGE>
ACSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company accounts for its option plan under APB Opinion No. 25,
"Accounting for Stock Issued to Employees." In 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123). SFAS 123 established a
fair value based method of accounting for stock-based compensation plans. SFAS
123 requires that an employer's financial statements include certain
disclosures about stock-based employee compensation arrangements regardless of
the method used to account for the plan. Had the Company recognized
compensation cost for its stock option plans consistent with the provisions of
SFAS 123, the following pro forma net loss per Common share for the nine
months ended September 30, 1997 would have resulted:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER
30, 1997
-----------------
<S> <C>
Pro forma net loss:
As reported........................................... $ (14,096)
=========
Per SFAS 123.......................................... $(242,704)
=========
Pro forma net loss per Common Share:
As reported........................................... $ (0.13)
=========
Per SFAS 123.......................................... $ (0.16)
=========
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model, with a risk-free interest rate of
6.5%, no expected dividend yield and an expected life of five years. As of
September 30, 1997, the weighted average fair value of the options outstanding
was $1.56 per option.
9. ACQUISITION OF C.P.A. STAFFING:
AcSys Resources acquired C.P.A. Staffing, Inc., C.P.A. Search, Inc. and
Career Placement Associates, Inc. (together, "C.P.A. Staffing") on August 12,
1997. The acquisition was accounted for under the purchase method of
accounting. The total purchase price was approximately $9,700,000 and
consisted of cash of $1,900,000, 1,219,274 shares of Common Stock with a fair
market value of $7,700,000 and transaction costs of $144,000. The purchase
price was allocated to the assets acquired and liabilities assumed. The
$8,600,000 excess of the purchase price over the estimated fair market value
of the net assets acquired was recorded as goodwill and is being amortized on
a straight-line basis over 40 years.
The following table summarizes the unaudited pro forma results of operations
of the Company for the years ended December 31, 1995 and 1996 and the nine
months ended September 30, 1997, assuming that the acquisition of C.P.A.
Staffing had occurred on January 1, 1995:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31
--------------------------- FOR THE NINE MONTHS
1995 1996 ENDED SEPTEMBER 30, 1997
------------- ------------- ------------------------
<S> <C> <C> <C>
Service Revenues........ $ 40,018,158 $ 52,410,832 $ 46,566,197
Operating income........ 3,851,457 3,864,973 2,307,493
Net income.............. 2,852,474 2,884,645 1,613,878
</TABLE>
F-22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To C.P.A. Staffing, Inc., C.P.A. Search, Inc. and Career Placement Associates,
Inc.:
We have audited the accompanying combined balance sheets of C.P.A. Staffing,
Inc., C.P.A. Search, Inc. and Career Placement Associates, Inc. (Georgia
corporations) as of December 31, 1996 and August 12, 1997, and the related
combined statements of operations, shareholders' equity and cash flows for the
year ended December 31, 1996, and for the period from January 1, 1997 to
August 12, 1997. These financial statements are the responsibility of the
Companies' 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 combined financial position of C.P.A. Staffing,
Inc., C.P.A. Search, Inc. and Career Placement Associates, Inc. as of December
31, 1996 and August 12, 1997, and the results of their operations and their
cash flows for the year ended December 31, 1996 and for the period from
January 1, 1997 to August 12, 1997, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Philadelphia, PA,
October 3, 1997
F-23
<PAGE>
C.P.A. STAFFING, INC., C.P.A. SEARCH, INC.
AND CAREER PLACEMENT ASSOCIATES, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 12,
1996 1997
------------ ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 3,627 $ 40,246
Accounts receivable, net of allowances of $25,000.... 884,985 1,123,504
Prepaid expenses..................................... -- 1,143
---------- ----------
Total current assets............................... 888,612 1,164,893
PROPERTY AND EQUIPMENT, net............................ 138,387 166,852
---------- ----------
$1,026,999 $1,331,745
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................................... $ 25,198 $ 68,659
Accrued salaries, commissions, and benefits.......... 161,363 180,615
---------- ----------
Total current liabilities.......................... 186,561 249,274
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY (Note 8):
Common stock......................................... 1,900 1,900
Additional paid in capital........................... -- 702,465
Retained earnings.................................... 853,258 392,826
Treasury stock, at cost.............................. (14,720) (14,720)
---------- ----------
Total shareholders' equity......................... 840,438 1,082,471
---------- ----------
$1,026,999 $1,331,745
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-24
<PAGE>
C.P.A. STAFFING, INC., C.P.A. SEARCH, INC.
AND CAREER PLACEMENT ASSOCIATES, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD
FROM
FOR THE JANUARY 1,
YEAR ENDED 1997 TO
DECEMBER 31, AUGUST 12,
1996 1997
------------ ----------
<S> <C> <C>
SERVICE REVENUES:
Temporary staffing................................... $5,653,164 $4,015,890
Permanent placement.................................. 849,404 540,620
---------- ----------
Total service revenues............................. 6,502,568 4,556,510
DIRECT COSTS OF SERVICES, consisting of payroll, pay-
roll taxes and insurance costs for temporary employ-
ees................................................... 4,051,962 2,832,357
---------- ----------
Gross profit....................................... 2,450,606 1,724,153
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........... 1,378,626 1,679,590
DEPRECIATION........................................... 22,663 20,995
---------- ----------
NET INCOME............................................. $1,049,317 $ 23,568
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-25
<PAGE>
C.P.A. STAFFING, INC., C.P.A. SEARCH, INC.
AND CAREER PLACEMENT ASSOCIATES, INC.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID IN RETAINED TREASURY SHAREHOLDERS'
STOCK CAPITAL EARNINGS STOCK EQUITY
------ ---------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1996................... $1,900 $ -- $ 518,941 $ (14,720) $ 506,121
Distributions to
shareholders......... -- -- (715,000) -- (715,000)
Net income............ -- -- 1,049,317 -- 1,049,317
------ -------- ---------- --------- ----------
BALANCE, DECEMBER 31,
1996................... 1,900 -- 853,258 (14,720) 840,438
Contribution from
shareholders......... -- 702,465 -- -- 702,465
Distributions to
shareholders......... -- -- (484,000) -- (484,000)
Net income............ -- -- 23,568 -- 23,568
------ -------- ---------- --------- ----------
BALANCE, AUGUST 12,
1997................... $1,900 $702,465 $ 392,826 $ (14,720) $1,082,471
====== ======== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-26
<PAGE>
C.P.A. STAFFING, INC., C.P.A. SEARCH, INC.
AND CAREER PLACEMENT ASSOCIATES, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
FOR THE JANUARY 1,
YEAR ENDED 1997 TO
DECEMBER 31, AUGUST 12,
1996 1997
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $1,049,317 $ 23,568
Adjustments to reconcile net income to net cash
provided by
operating activities--
Depreciation........................................ 22,663 20,995
Non-cash compensation charge (Note 7)............... -- 702,465
Changes in assets and liabilities--
Accounts receivable................................ (347,967) (238,519)
Prepaid expenses................................... -- (1,143)
Accounts payable................................... 5,922 43,461
Accrued salaries, commissions, and benefits........ 65,467 19,252
---------- ---------
Net cash provided by operating activities......... 795,402 570,079
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.................. (86,139) (49,460)
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholders........................ (715,000) (484,000)
---------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... (5,737) 36,619
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........ 9,364 3,627
---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.............. $ 3,627 $ 40,246
========== =========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest............................... $ 4,424 $ 4,886
========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-27
<PAGE>
C.P.A. STAFFING, INC., C.P.A. SEARCH, INC.
AND CAREER PLACEMENT ASSOCIATES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS:
C.P.A. Staffing, Inc., C.P.A. Search, Inc. and Career Placement Associates,
Inc. (together, the "Company"), specialize in the placement of temporary and
permanent employees in the accounting, banking, finance and information
technology fields. The Company's primary market is Atlanta, Georgia.
On August 12, 1997, an agreement and plan of merger was entered into among
AcSys Resources, Inc. ("AcSys"), the Company and the shareholders of the
Company, whereby AcSys agreed to purchase all of the outstanding common stock
of the Company for approximately $9,600,000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF COMBINATION
The financial statements reflect the combined financial position, results of
operations and cash flows of C.P.A. Staffing, Inc., C.P.A. Search, Inc. and
Career Placement Associates, Inc. The companies are engaged in related
operations and are owned, in the same percentages, by the same shareholders.
The financial statements reflect the elimination of all significant
intercompany accounts and transactions.
REVENUE RECOGNITION
The Company recognizes permanent placement revenues when the employment
offer and acceptance has occurred and the candidate's employment start date
has been established. Revenue from permanent placements is reported in the
combined statements of operations net of estimated adjustments due to placed
candidates that terminate employment within the Company's guarantee period
(generally 90 days). The net adjustment in each of the periods presented is
immaterial. The Company recognizes temporary staffing revenues when the
services are performed.
GROSS PROFIT
Gross profit is determined by deducting the direct cost of services for
temporary staffing revenues (temporary and contract personnel payroll, payroll
taxes and insurance costs) from total service revenues. The primary costs
associated with permanent placement revenues are sales commissions, which
increase in proportion with service revenue from permanent placements.
Consistent with industry practice, these costs are included in selling,
general and administrative expenses.
CASH AND CASH EQUIVALENTS
The Company considers cash on deposit with financial institutions and all
highly liquid investments purchased with an original maturity of three months
or less to be cash equivalents. At December 31, 1996 and August 12, 1997, cash
equivalents consisted primarily of investments in money market funds.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of the assets, which are
generally five to seven years for furniture, computer and office equipment.
INCOME TAXES
The Company is an S corporation and, as such, the Company is not subject to
federal and state income taxes and all taxable income and loss of the Company
is included in the shareholders' tax returns.
F-28
<PAGE>
C.P.A. STAFFING, INC., C.P.A. SEARCH, INC.
AND CAREER PLACEMENT ASSOCIATES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
In the event of the termination of the S corporation status, the Company
would be required to record a deferred tax liability of approximately $367,000
as of August 12, 1997, in accordance with the provisions of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
LONG-LIVED ASSETS
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 121 "Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by the Company be
reviewed for possible impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If
changes in circumstances indicate that the carrying amount of an asset that an
entity expects to hold and use may not be recoverable, future cash flows
expected to result from the use of the asset and its disposition must be
estimated. If the undiscounted value of the future cash flows is less than the
carrying amount of the asset, an impairment will be recognized.
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 12,
1996 1997
------------ ----------
<S> <C> <C>
Computer equipment................................... $113,783 $155,044
Furniture and office equipment....................... 63,007 71,206
-------- --------
176,790 226,250
Less--Accumulated depreciation....................... (38,403) (59,398)
-------- --------
$138,387 $166,852
======== ========
</TABLE>
4. LINE OF CREDIT:
The Company has a revolving line of credit with a bank, which provides for
maximum borrowings of $250,000. Borrowings under the line are limited to 75%
of accounts receivable, as defined. The line is collateralized by
substantially all of the assets of the Company and is personally guaranteed by
the Company's shareholders. Interest on borrowings is payable monthly and
accrues at prime plus 1.50%. The line of credit expires in April 1998. At
December 31, 1996 and August 12, 1997, there were no borrowings on the line.
The maximum borrowed under the line in 1996 was $30,000 and the average amount
outstanding was approximately $4,000. The maximum borrowed under the line
during the period ended August 12, 1997 was $150,000 and the average amount
outstanding during this period was approximately $8,500. Interest expense for
the year ended December 31, 1996 and for the period ended August 12, 1997 was
not material.
F-29
<PAGE>
C.P.A. STAFFING, INC., C.P.A. SEARCH, INC.
AND CAREER PLACEMENT ASSOCIATES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
5. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT:
For the year ended December 31, 1996, the Company had three customers which
accounted for 22%, 17% and 11% of total service revenues. For the period from
January 1, 1997 to August 12, 1997, the same three customers accounted for
17%, 17% and 11% of revenues. At December 31, 1996, the Company had two
customers which accounted for 31% and 12% of accounts receivable. At August
12, 1997, the Company had two customers which accounted for 24% and 13% of
accounts receivable.
6. COMMITMENTS AND CONTINGENCIES:
The Company leases office space and equipment under operating leases through
October 31, 2001. Rent expense, was approximately $32,000 and $34,000, for the
year ended December 31, 1996 and for the period from January 1, 1997 to August
12, 1997, respectively. Future minimum lease payments under the Company's
operating leases for the years ended December 31 are as follows:
<TABLE>
<S> <C>
1997.............................................................. $52,559
1998.............................................................. 77,562
1999.............................................................. 92,850
2000.............................................................. 94,503
2001.............................................................. 80,556
</TABLE>
The Company is party to various claims and other matters arising in the
normal course of business. In the opinion of management, the outcome of these
matters will not have a material adverse effect on the Company's financial
position or results of operations.
7. EMPLOYEE AGREEMENT:
In July 1996, the Company entered into an agreement with an employee which
provides for a cash payment in the event of the sale of the Company, as
defined. The cash payment is based on performance criteria and is limited to
10% of the staffing company's sale price, less any amount paid to the employee
under the termination clause of the agreement. As a result of the sale of the
Company's common stock on August 12, 1997 (see Note 1), the Company issued a
$280,000 demand note and a $422,465 note, payable over seven years with 8%
interest, as full consideration under this agreement. Both notes were assumed
by the shareholders of the Company. This assumption was recorded as a capital
contribution by the shareholders in the accompanying financial statements.
8. COMMON STOCK:
<TABLE>
<CAPTION>
PAR VALUE AUTHORIZED ISSUED OUTSTANDING
--------- ---------- ------ -----------
<S> <C> <C> <C> <C>
C.P.A. Staffing, Inc................ $ 1 10,000 200 200
C.P.A. Search, Inc.................. $ 1 10,000 200 200
Career Placement Associates, Inc.... $ -- 10,000 1,500 1,000
</TABLE>
In 1993, the Company repurchased 500 shares of Career Placement Associates,
Inc. common stock for $14,720.
F-30
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPEC-
TUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY
ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SE-
CURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAW-
FUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PRO-
SPECTUS 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.
UNTIL , 1998 ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEAL-
ERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
The Company.............................................................. 12
Prior S Corporation Status............................................... 13
Dividend Policy.......................................................... 13
Use of Proceeds.......................................................... 14
Dilution................................................................. 15
Capitalization........................................................... 16
Selected Consolidated Financial Data..................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 27
Management............................................................... 38
Principal and Selling Shareholders....................................... 43
Certain Transactions..................................................... 44
Description of Capital Stock............................................. 45
Shares Eligible for Future Sale.......................................... 48
Underwriting............................................................. 50
Legal Matters............................................................ 51
Experts.................................................................. 51
Available Information.................................................... 52
Index to Financial Statements............................................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,750,000 SHARES
[ACSYS, INC. LOGO]
COMMON STOCK
---------------
PROSPECTUS
---------------
J.C.Bradford&Co.
Janney Montgomery Scott Inc.
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with the
Offering described in the Registration Statement:
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 10,542
NASD Fees....................................................... 3,979
Nasdaq Fees..................................................... 15,000
Blue Sky Fees and Expenses...................................... 10,000
Printing and Engraving.......................................... 100,000
Legal Fees and Expenses......................................... 500,000
Accounting Fees and Expenses.................................... 885,000
Transfer Agent Fees............................................. 7,500
Miscellaneous Expenses.......................................... 67,979
----------
Total:........................................................ $1,600,000*
==========
</TABLE>
- ---------------------
* All amounts other than the SEC Registration Fee and NASD Fees reflect
Company estimates.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation eliminate, subject to certain
limited exceptions, the personal liability of a director to the Company or its
shareholders for monetary damage for any breach of duty as a director. There
is no elimination of liability for (i) a breach of duty involving
appropriation of a business opportunity of the Company; (ii) an act or
omission which involves intentional misconduct or a knowing violation of law;
(iii) any transaction from which the director derives an improper personal
benefit; or (iv) as to any payments of a dividend or any other type of
distribution that is illegal under Section 14-2-832 of the Georgia Business
Corporation Code (the "GBCC"). In addition, if at any time the GBCC is amended
to authorize further elimination or limitation of the personal liability of a
director, then the liability of each director of the Company shall be
eliminated or limited to the fullest extent permitted by such provisions, as
so amended, without further action by the shareholders, unless the provisions
of the GBCC require such action. The provision does not limit the right of the
Company or its shareholders to seek injunctive or other equitable relief not
involving payments in the nature of monetary damages.
The Company's bylaws contain certain provisions which provide
indemnification to directors of the Company that is broader than the
protection expressly mandated in Sections 14-2-852 and 14-2-857 of the GBCC.
To the extent that a director or officer of the Company has been successful,
on the merits or otherwise, in the defense of any action or proceeding brought
by reason of the fact that such person was a director or officer of the
Company, Sections 14-2-852 and 14-2-857 of the GBCC would require the Company
to indemnify such persons against expenses (including attorney's fees)
actually and reasonably incurred in connection therewith. The GBCC expressly
allows the Company to provide for greater indemnification rights to its
officers and directors, subject to shareholder approval.
The indemnification provisions in the Company's bylaws require the Company
to indemnify and hold harmless any director 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 or suit by or in the right of the Company) because he or
she is or was a director of the Company, against expenses (including, but not
limited to, attorney's fees and disbursements, court costs and expert witness
fees), and against judgments, fines, penalties, and amounts paid in settlement
incurred by him or her in connection with the action, suit or proceeding.
Indemnification would be disallowed under any circumstances where
indemnification may not be authorized by action of the Board of Directors, the
shareholders or otherwise. The Board of Directors of
II-1
<PAGE>
the Company also has the authority to extend to officers, employees and agents
the same indemnification rights held by directors, subject to all the
accompanying conditions and obligations. Indemnified persons would also be
entitled to have the Company advance expenses prior to the final disposition
of the proceeding. If it is ultimately determined that they are not entitled
to indemnification, however, such amounts would be repaid. Insofar as
indemnification for liability arising under the Securities Act may be
permitted to officers and directors of the Company pursuant to the foregoing
provisions, the Company has been informed 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.
The Company has entered into separate indemnification agreements with each
of its directors and executive officers, whereby the Company agreed, among
other things, to provide for indemnification and advancement of expenses in a
manner and subject to terms and conditions similar to those set forth in the
Bylaws. These agreements also provide that the Company shall purchase and
maintain liability insurance for the benefit of its directors and exeuctive
officers. These agreements may not be abrogated by action of the shareholders.
There is no pending litigation or proceeding involving a director, officer,
employee or other agent of the Company as to which indemnification is being
sought, nor is the Company aware of any pending or threatened litigation that
may result in claims for indemnification by any director, officer, employee or
other agent. The Company has also agreed to hold the shareholders harmless
from, against and in respect of federal income tax liabilities, including
interest and penalties imposed thereon (and any state and local income tax
liabilities as provided by applicable law), if any, incurred by the
shareholders as a result of a final determination of an adjustment (by reason
of an amended return, claim for refund, audit, judicial decision or otherwise)
to the taxable income of the Company for any period which results in a
decrease for any period in the Company's taxable income and a corresponding
increase for any period in the taxable income of the shareholders.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
No securities which were not registered under the Securities Act have been
sold by the Company within the past three years except for the following:
(i) The Company entered into that certain Agreement and Plan of
Reorganization dated as of April 16, 1997 by and among the Company, and
David C. Cooper & Associates, Inc. ("Cooper"), DCCA Professional
Temporaries, Inc. ("DCCA"), EKT, Inc. ("EKT"), Infinity Enterprises, Inc.
("Infinity"), certain subsidiaries of the Company, and the shareholders of
Cooper, DCCA, EKT, and Infinity. Pursuant to such agreement, four wholly-
owned subsidiaries of the Company were merged with and into each of Cooper,
DCCA, EKT and Infinity. Upon the effectiveness of each such merger on May
16, 1997, all of the issued and outstanding stock of each of Cooper, DCCA,
EKT, and Infinity was converted into stock of the Company, and the Company
issued an aggregate of 4,240,283 shares of Common Stock to the shareholders
of Cooper, DCCA, EKT, and Infinity.
(ii) The Company entered into that certain Agreement and Plan of
Reorganization dated as of April 24, 1997 by and among the Company, Cama of
Tampa, Inc., Cama Acquisition, Inc. and Stephen S. Tutwiler. Pursuant to
such agreement, Cama Acquisition, Inc., a wholly-owned subsidiary of the
Company, merged with and into Cama of Tampa, Inc. Upon the effectiveness of
such merger on May 19, 1997, all of the issued and outstanding stock of
Cama of Tampa was converted into stock of the Company, and the Company
issued 131,143 shares of Common Stock to the sole shareholder of Cama of
Tampa.
(iii) The Company entered into that certain Agreement and Plan of Merger
dated as of July 25, 1997 by and among the Company, Rylan Forbes Consulting
Group, Inc. and the shareholders of Rylan Forbes Consulting Group, Inc.
named therein. Pursuant to such agreement, the Company acquired all of the
equity interest of Rylan Forbes in exchange for 462,292 shares of Common
Stock.
(iv) The Company entered into that certain Agreement and Plan of Merger
dated as of September 3, 1997 by and among the Company, AcSys Resources and
the shareholders of AcSys Resources named therein. Pursuant to such
agreement, the Company acquired all of the equity interest of AcSys
Resources in
II-2
<PAGE>
exchange for 3,659,502 shares of Common Stock (including 129,005 shares
currently in escrow to secure certain representations and warranties of the
former AcSys Resources shareholders). Also pursuant to such agreement, the
Company issued options to acquire an aggregate of 111,687 shares of Common
Stock to holders of options to acquire AcSys Resources' common stock.
(v) The Company entered into an employment agreement dated March 10, 1997
with the Company's Chief Executive Officer pursuant to which the Company
has granted (or will grant, upon the effective date of this registration
statement) options to acquire an aggregate of 246,755 shares of Common
Stock. The Company also entered into an employment agreement dated
September 3, 1997 with the Company's Chief Financial Officer pursuant to
which the Company agreed to grant options to acquire 66,229 shares of
Common Stock upon the effective date of this registration statement.
The issuance of securities described above was made in reliance on one or
more of the exemptions from registration under the Securities Act, including
those provided for by Section 4(2), Regulation D and Rule 701 thereunder. The
recipients of the securities in the above transactions represented their
intention to acquire the securities for investment purposes only and not with
a view to or for the sale in connection with any distribution thereof, and
appropriate legends were affixed to the share certificates issued in such
transactions. The recipients of these securities had adequate access, through
their relationship with the Company, to information about the Company.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------------------
<C> <S>
1.1 Form of Underwriting Agreement.**
2.1 Agreement and Plan of Reorganization dated as of April 16, 1997 by and
among the Company and David C. Cooper & Associates, Inc., DCCA
Professional Temporaries, Inc., EKT, Inc., and Infinity Enterprises,
Inc., and Cooper Acquisition, Inc., DCCA Acquisition, Inc., EKT
Acquisition, Inc., and Infinity Acquisition, Inc., and the shareholders
named therein.*
2.2 Agreement and Plan of Reorganization dated as of April 24, 1997 by and
among the Company, Cama of Tampa, Inc., Cama Acquisition, Inc. and
Stephen S. Tutwiler.*
2.3 Agreement and Plan of Merger by and among the Company, RFCG Merger
Subsidiary, Inc., Rylan Forbes Consulting Group, Inc., and the
shareholders of Rylan Forbes Consulting Group, Inc. dated as of July 25,
1997.*
2.4 Agreement and Plan of Merger by and among the Company, the shareholders
of the Company, AcSys Resources, Inc., ASRI Merger Subsidiary, Inc. and
the shareholders of AcSys Resources, Inc. dated as of September 3,
1997.*
2.5 Agreement and Plan of Merger among ACSYS Resources, Inc., ACSYS Staffing
Acquisition Corp., ACSYS Search Acquisition Corp., ACSYS Career
Acquisition Corp., and C.P.A. Staffing, Inc., C.P.A. Search, Inc.,
Career Placement Associates, Inc. and John Ficquette and Louis Boohaker
dated as of August 12, 1997.*
3.1 Articles of Incorporation of the Company.*
3.2 Bylaws of the Company.*
4.1 Specimen Common Stock Certificate.
5.1 Opinion of Nelson Mullins Riley & Scarborough, L.L.P.
10.1 Amended and Restated 1997 Stock Option Plan of the Company.
10.2 [Deleted]
10.3 Employment Agreement by and between the Company and Timothy Mann, Jr.
dated March 12, 1997.*
10.4 Amendment No. 1 to Employment Agreement by and between the Company and
Timothy Mann, Jr. dated September 3, 1997.*
10.5 Amendment No. 2 to Employment Agreement by and between the Company and
Timothy Mann, Jr. dated October 14, 1997.*
10.6 Employment Agreement by and between the Company and Edward S. Baumstein
dated August 1997.*
10.7 Amendment No. 1 to Employment Agreement by and between the Company and
Edward S. Baumstein dated as of October 14, 1997.*
10.8 Stock Option Agreement by and between the Company and Timothy Mann, Jr.
dated May 19, 1997.*
10.9 Stock Option Agreement by and between the Company and Timothy Mann, Jr.
dated May 19, 1997.*
10.10 Employment Agreement by and between the Company and Lester E. Gallagher
dated September 3, 1997.*
10.11 Form of Employment Agreement between the Company and key employees.*
10.12 Amended and Restated Registration Rights Agreement dated as of September
3, 1997 by and among the Company and certain holders of the capital
stock of the Company.*
10.13 Revolving Credit Agreement dated May 16, 1997 by and among the Company
and certain lenders.
10.14 Form of Indemnification Agreement entered into between the Company and
its directors and officers.*
10.15 Form of S Corporation Tax Allocation and Indemnification Agreement
entered into between the Company and certain of its shareholders.*
10.16 Nonqualified Stock Option Grant dated as of January 30, 1997 by AcSys
Resources, Inc. to Les Gallagher.*
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
21.1 Subsidiaries of the Company.*
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Nelson Mullins Riley & Scarborough, L.L.P. (filed as part
of Exhibit 5.1).
24.1 Power of Attorney.*
27.1 Financial Data Schedule for periods ending December 31, 1996 and
September 30, 1997 (for SEC use only).
</TABLE>
- ---------------------
*Previously filed.
**To be filed by amendment.
(B)FINANCIAL STATEMENT SCHEDULES
Schedule II: Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes to provide to the underwriter at the closing
specified in the underwriting agreement, certificates in such denominations
and registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Company 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 Company 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 Company 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-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ATLANTA, STATE OF
GEORGIA, ON DECEMBER 3, 1997.
ACSYS, Inc.
/s/ Timothy Mann, Jr.
By: ___________________________________
TIMOTHY MANN, JR.
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS PRE-
EFFECTIVE AMENDMENT TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
Chairman of the
* Board of Directors December 3,
- ------------------------------------ 1997
DAVID C. COOPER
/s/ Timothy Mann, Jr. Chief Executive
- ------------------------------------ Officer and December 3,
TIMOTHY MANN, JR. Director 1997
(Principal
Executive Officer)
President, Chief
* Operating Officer December 3,
- ------------------------------------ and Director 1997
EDWARD S. BAUMSTEIN
Chief Development
* Officer, Executive December 3,
- ------------------------------------ Vice President and 1997
BETH MONROE-CHASE Director
/s/ Lester E. Gallagher Chief Financial
- ------------------------------------ Officer (Principal December 3,
LESTER GALLAGHER Financial and 1997
Accounting
Officer)
Director
* December 3,
- ------------------------------------ 1997
JOHN FICQUETTE
II-6
<PAGE>
SIGNATURE TITLE DATE
Director
* December 3,
- ------------------------------------- 1997
HARRY J. SAUER
Director
* December 3,
- ------------------------------------- 1997
MARK E. STRASSMAN
* By: /s/ Timothy Mann, Jr.
---------------------------------
TIMOTHY MANN, JR.
ATTORNEY-IN-FACT PURSUANT
TO POWER OF ATTORNEY GRANTED
IN REGISTRATION STATEMENT
(NO. 333-38465) AS FILED
ON OCTOBER 22, 1997.
II-7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To AcSys, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of AcSys, Inc. and Subsidiaries included
in this Registration Statement and have issued our report thereon dated
November 14, 1997. Our audit was made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The schedule listed in Item
16(b) of the Registration Statement is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Philadelphia, PA,
November 14, 1997
S-1
<PAGE>
ACSYS, INC.
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
CHARGED TO
BEGINNING COSTS AND ENDING
DESCRIPTION BALANCE EXPENSES DEDUCTIONS BALANCE
----------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
1994
Allowance for doubtful accounts...... $ 4,800 146,224 (64,024) $ 87,000
1995
Allowance for doubtful accounts...... $ 87,000 153,551 (74,300) $ 166,251
1996
Allowance for doubtful accounts...... $ 166,251 286,212 (171,638) $ 280,825
SEPTEMBER 30, 1997
Allowance for doubtful accounts...... $ 280,825 216,413 (80,472) $ 416,766
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.**
2.1 Agreement and Plan of Reorganization dated as of April 16, 1997 by and
among the Company and David C. Cooper & Associates, Inc., DCCA
Professional Temporaries, Inc., EKT, Inc., and Infinity Enterprises,
Inc., and Cooper Acquisition, Inc., DCCA Acquisition, Inc., EKT
Acquisition, Inc., and Infinity Acquisition, Inc., and the shareholders
named therein.*
2.2 Agreement and Plan of Reorganization dated as of April 24, 1997 by and
among the Company, Cama of Tampa, Inc., Cama Acquisition, Inc. and
Stephen S. Tutwiler.*
2.3 Agreement and Plan of Merger by and among the Company, RFCG Merger
Subsidiary, Inc., Rylan Forbes Consulting Group, Inc., and the
shareholders of Rylan Forbes Consulting Group, Inc. dated as of July 25,
1997.*
2.4 Agreement and Plan of Merger by and among the Company, the shareholders
of the Company, AcSys Resources, Inc., ASRI Merger Subsidiary, Inc. and
the shareholders of AcSys Resources, Inc. dated as of September 3,
1997.*
2.5 Agreement and Plan of Merger among ACSYS Resources, Inc., ACSYS Staffing
Acquisition Corp., ACSYS Search Acquisition Corp., ACSYS Career
Acquisition Corp., and C.P.A. Staffing, Inc., C.P.A. Search, Inc.,
Career Placement Associates, Inc. and John Ficquette and Louis Boohaker
dated as of August 12, 1997.*
3.1 Articles of Incorporation of the Company.*
3.2 Bylaws of the Company.*
4.1 Specimen Common Stock Certificate.
5.1 Opinion of Nelson Mullins Riley & Scarborough, L.L.P.
10.1 Amended and Restated 1997 Stock Option Plan of the Company.
10.2 [Deleted]
10.3 Employment Agreement by and between the Company and Timothy Mann, Jr.
dated March 12, 1997.*
10.4 Amendment No. 1 to Employment Agreement by and between the Company and
Timothy Mann, Jr. dated September 3, 1997.*
10.5 Amendment No. 2 to Employment Agreement by and between the Company and
Timothy Mann, Jr. dated October 14, 1997.*
10.6 Employment Agreement by and between the Company and Edward S. Baumstein
dated August 1997.*
10.7 Amendment No. 1 to Employment Agreement by and between the Company and
Edward S. Baumstein dated as of October 14, 1997.*
10.8 Stock Option Agreement by and between the Company and Timothy Mann, Jr.
dated May 19, 1997.*
10.9 Stock Option Agreement by and between the Company and Timothy Mann, Jr.
dated May 19, 1997.*
10.10 Employment Agreement by and between the Company and Lester E. Gallagher
dated September 3, 1997.*
10.11 Form of Employment Agreement between the Company and key employees.*
10.12 Amended and Restated Registration Rights Agreement dated as of September
3, 1997 by and among the Company and certain holders of the capital
stock of the Company.*
10.13 Revolving Credit Agreement dated May 16, 1997 by and among the Company
and certain lenders.
10.14 Form of Indemnification Agreement entered into between the Company and
its directors and officers.*
10.15 Form of S Corporation Tax Allocation and Indemnification Agreement
entered into between the Company and certain of its shareholders.*
10.16 Nonqualified Stock Option Grant dated as of January 30, 1997 by AcSys
Resources, Inc. to Les Gallagher.*
</TABLE>
<PAGE>
<TABLE>
<C> <S>
21.1 Subsidiaries of the Company.*
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Nelson Mullins Riley & Scarborough, L.L.P. (filed as part of
Exhibit 5.1).
24.1 Power of Attorney.*
27.1 Financial Data Schedule for periods ending December 31, 1996 and
September 30, 1997 (for SEC use only).
</TABLE>
- ---------------------
* Previously filed.
** To be filed by amendment.
<PAGE>
ACS
<TABLE>
<CAPTION>
<S> <C> <C>
COMMON STOCK NO PAR VALUE
[ACSYS, INC. LOGO APPEARS HERE]
INCORPORATED UNDER THE LAWS OF THE STATE OF GEORGIA
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP C230732
</TABLE>
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
ACSYS, INC.
transferable on the books of the Corporation in person or by duly authorized
attorney, upon the surrender of this certificate properly endorsed. This
certificate is not valid unless countersigned by the Transfer Agent and
registered by the Registrar.
Witness the facsimile signatures of its duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED:
SUNTRUST BANK, ATLANTA
TRANSFER AGENT
AND REGISTRAR
BY
----------------------------- ----------------------- ----------------------
AUTHORIZED SIGNATURE CHIEF EXECUTIVE OFFICER CHAIRMAN OF THE BOARD
AND SECRETARY
<PAGE>
ACSYS, INC.
The Corporation will furnish without charge to each stockholder who so
requests a statement or summary of the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof which the Corporation is authorized to issue and of the
qualifications, limitations or restrictions of such preferences and/or rights.
Such request may be made to the office of the Secretary of the Corporation or
the Transfer Agent named on the face of this Certificate.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT Custodian
-------------------- -------------------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act
----------------------------------------------------
(State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer
-------------------------
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
| |
| |
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- -----------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
------------------------------------
----------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
----------------------------------------
SIGNATURE(S) GUARANTEED: THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
Exhibit 5.1
[Nelson Mullins Riley & Scarborough Letterhead]
ACSYS, Inc.
2000 Pennsylvania Avenue, N.W.
Suite 7650
Washington, D.C. 20006
Gentlemen:
We have acted as counsel to ACSYS, Inc. (the "Company") in connection with
the filing of a Registration Statement on Form S-1 (Reg. No. 333-38465) (the
"Registration Statement") under the Securities Act of 1933, covering the
offering of up to 3,162,500 shares (the "Shares") of the Company's Common
Stock, no par value per share. In connection therewith, we have examined such
corporate records, certificates of public officials and other documents and
records as we have considered necessary or proper for the purpose of this
opinion.
This opinion is limited by and is in accordance with, the January 1, 1992,
edition of the Interpretive Standards applicable to Legal Opinions to Third
Parties in Corporate Transactions adopted by the Legal Opinion Committee of the
Corporate and Banking Law Section of the State Bar of Georgia.
Based on the foregoing, and having regard to legal considerations which we
deem relevant, we are of the opinion that the Shares, when purchased, issued
and delivered as described in the Registration Statement, will be legally
issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Prospectus contained in the Registration Statement.
Very truly yours,
/s/ Nelson Mullins Riley & Scarborough,
L.L.P.
NELSON MULLINS RILEY & SCARBOROUGH, L.L.P.
Exhibit A
ACSYS, INC.
AMENDED AND RESTATED 1997 STOCK OPTION PLAN
<PAGE>
ACSYS, INC.
AMENDED AND RESTATED
1997 STOCK OPTION PLAN
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS 1
ARTICLE II
THE PLAN 5
2.1 Name 5
2.2 Purpose 5
2.3 Effective Date 5
ARTICLE III
PARTICIPANTS 5
ARTICLE IV
ADMINISTRATION 5
4.1 Duties and Powers of the Committee 5
4.2 Interpretation; Rules 6
4.3 No Liability 6
4.4 Majority Rule 6
4.5 Company Assistance 6
ARTICLE V
SHARES OF STOCK SUBJECT TO PLAN 6
5.1 Limitations 6
5.2 Antidilution 7
ARTICLE VI
OPTIONS 8
6.1 Types of Options Granted 8
6.2 Option Grant and Agreement 9
6.3 Optionee Limitations 9
6.4 $100,000 Limitation 9
6.5 Exercise Price 10
6.6 Exercise Period 10
6.7 Option Exercise 10
6.8 Nontransferability of Option 11
6.9 Termination of Employment or Service 12
6.10 Employment Rights 12
6.11 Certain Successor Options 12
6.12 Effect of Change in Control 12
ARTICLE VII
STOCK CERTIFICATES 15
ARTICLE VIII
TERMINATION AND AMENDMENT 16
8.1 Termination and Amendment 16
8.2 Effect on Grantee's Rights 16
ARTICLE IX
RELATIONSHIP TO OTHER COMPENSATION PLANS 16
ARTICLE X
MISCELLANEOUS 16
10.1 Replacement or Amended Grants 16
10.2 Forfeiture for Competition 16
10.3 Plan Binding on Successors 17
10.4 Singular, Plural; Gender 17
10.5 Headings, etc., No Part of Plan 17
10.6 Interpretation 17
EXHIBIT A i
SCHEDULE A vi
SCHEDULE B vii
<PAGE>
ACSYS, INC.
AMENDED AND RESTATED
1997 STOCK OPTION PLAN
ARTICLE I
DEFINITIONS
As used herein, the following terms have the following meanings unless the
context clearly indicates to the contrary:
"Board" shall mean the Board of Directors of the Company.
"Cause" shall mean theft or destruction of property of the
Company, a Parent, or a Subsidiary, disregard of Company
rules or policies, or conduct evincing willful or wanton
disregard of the interests of the Company. Such
determination shall be made by the Committee based on
information presented by the Company and the Employee and
shall be final and binding on all parties hereto.
"Change in Control" shall mean the occurrence of either of
the following events:
(i) A change in the composition of the Board of Directors
as a result of which fewer than one-half of the incumbent
directors are directors who either:
(A) Had been directors of the Company 24
months prior to such change; or
(B) Were elected, or nominated for
election, to the Board of Directors
with the affirmative votes of at least
a majority of the directors who had
been directors of the Company 24 months
prior to such change and who were still
in office at the time of the election
or nomination; or
(ii) Any "person" (as such term is used in sections
13(d) and 14(d) of the Exchange Act), other than
any person who is a shareholder of the Company on
or before the effective date of the Plan, by the
acquisition or aggregation of securities is or
becomes the beneficial owner, directly or
indirectly, of securities of the Company
representing 50 percent or more of the combined
voting power of the Company's then outstanding
securities ordinarily (and apart from rights
accruing under special circumstances) having the
right to vote at elections of directors (the
"Base Capital Stock"); except that any change in
the relative beneficial ownership of the
Company's securities by any person resulting
solely from a reduction in the aggregate number
of outstanding shares of Base Capital Stock, and
any decrease thereafter in such person's
ownership of securities, shall be disregarded
until such person increases in any manner,
directly or indirectly, such person's beneficial
ownership of any securities of the Company.
"Code" shall mean the United States Internal Revenue Code
of 1986, as amended, including effective date and
transition rules (whether or not codified). Any reference
herein to a specific section of the Code shall be deemed to
include a reference to any corresponding provision of
future law.
"Committee" shall mean a committee of at least two
Directors appointed from time to time by the Board, having
the duties and authority set forth herein in addition to
any other authority granted by the Board. In selecting the
Committee, the Board shall consider (i) the benefits under
Section 162(m) of the Code of having a Committee composed
of "outside directors" (as that term is defined in the
Code) for certain grants of Options to highly compensated
executives, and (ii) the benefits under Rule 16b-3 of
having a Committee composed of either the entire Board or a
Committee of at least two Directors who are Non-Employee
Directors for Options granted to or held by any Section 16
Insider. At any time that the Board shall not have
appointed a committee as described above, any reference
herein to the Committee shall mean the Board.
"Company" shall mean ACSYS, Inc., a Georgia corporation.
"Director" shall mean a member of the Board and any person
who is an advisory or honorary director of the Company if
such person is considered a director for purposes of
Section 16 of the Exchange Act, as determined by reference
to such Section 16 and to the rules, regulations, judicial
decisions, and interpretative or "no-action" positions with
respect thereto of the Securities and Exchange Commission,
as the same may be in effect or set forth from time to
time.
"Employee" shall mean an employee of the Employer.
"Employer" shall mean the corporation that employs an
Optionee.
"Exchange Act" shall mean the Securities Exchange Act of
1934. Any reference herein to a specific section of the
Exchange Act shall be deemed to include a reference to any
corresponding provision of future law.
"Exercise Price" shall mean the price at which an Optionee
may purchase a share of Stock under a Stock Option
Agreement.
"Fair Market Value" on any date shall mean (i) the closing
sales price of the Stock, regular way, on such date on the
national securities exchange having the greatest volume of
trading in the Stock during the thirty-day period preceding
the day the value is to be determined or, if such exchange
was not open for trading on such date, the next preceding
date on which it was open; (ii) if the Stock is not traded
on any national securities exchange, the average of the
closing high bid and low asked prices of the Stock on the
over-the-counter market on the day such value is to be
determined, or in the absence of closing bids on such day,
the closing bids on the next preceding day on which there
were bids; or (iii) if the Stock also is not traded on the
over-the-counter market, the fair market value as
determined in good faith by the Board or the Committee
based on such relevant facts as may be available to the
Board, which may include opinions of independent experts,
the price at which recent sales have been made, the book
value of the Stock, and the Company's current and future
earnings.
"Incentive Stock Option" shall mean an option to purchase
any stock of the Company, which complies with and is
subject to the terms, limitations and conditions of Section
422 of the Code and any regulations promulgated with
respect thereto.
"Non-Employee Director" shall have the meaning set forth in
Rule 16b-3 under the Exchange Act, as the same may be in
effect from time to time, or in any successor rule thereto,
and shall be determined for all purposes under the Plan
according to interpretative or "no-action" positions with
respect thereto issued by the Securities and Exchange
Commission.
"Officer" shall mean a person who constitutes an officer of
the Company for the purposes of Section 16 of the Exchange
Act, as determined by reference to such Section 16 and to
the rules, regulations, judicial decisions, and
interpretative or "no-action" positions with respect
thereto of the Securities and Exchange Commission, as the
same may be in effect or set forth from time to time.
"Option" shall mean an option, whether or not an Incentive
Stock Option, to purchase Stock granted pursuant to the
provisions of Article VI hereof.
"Optionee" shall mean a person to whom an Option has been
granted hereunder.
"Parent" shall mean any corporation (other than the
Employer) in an unbroken chain of corporations ending with
the Employer if, at the time of the grant (or modification)
of the Option, each of the corporations other than the
Employer owns stock possessing 50 percent or more of the
total combined voting power of the classes of stock in one
of the other corporations in such chain.
"Permanent and Total Disability" shall have the same
meaning as given to that term by Code Section 22(e)(3) and
any regulations or rulings promulgated thereunder.
"Plan" shall mean the ACSYS, Inc. 1997 Stock Option Plan,
the terms of which are set forth herein.
"Purchasable" shall refer to Stock which may be purchased
by an Optionee under the terms of this Plan on or after a
certain date specified in the applicable Stock Option
Agreement.
"Qualified Domestic Relations Order" shall have the meaning
set forth in the Code or in the Employee Retirement Income
Security Act of 1974, or the rules and regulations
promulgated under the Code or such Act.
"Section 16 Insider" shall mean any person who is subject
to the provisions of Section 16 of the Exchange Act, as
provided in Rule 16a-2 promulgated pursuant to the Exchange
Act.
"Stock" shall mean the Common Stock of the Company or, in
the event that the outstanding shares of Stock are
hereafter changed into or exchanged for shares of a
different stock or securities of the Company or some other
entity, such other stock or securities.
"Stock Option Agreement" shall mean an agreement between
the Company and an Optionee under which the Optionee may
purchase Stock hereunder, a sample form of which is
attached hereto as Exhibit A (which form may be varied by
the Committee in granting an Option).
"Subsidiary" shall mean any corporation (other than the
Employer) in an unbroken chain of corporations beginning
with the Employer if, at the time of the grant (or
modification) of the Option, each of the corporations other
than the last corporation in the unbroken chain owns stock
possessing 50 percent or more of the total combined voting
power of all classes of stock in one of the other
corporations in such chain.
<PAGE>
ARTICLE II
THE PLAN
2.1 Name. This Plan shall be known as the "ACSYS, Inc. 1997 Stock
Option Plan."
2.2 Purpose. The purpose of the Plan is to advance the interests of the
Company, its Subsidiaries and its shareholders by affording certain employees
and Directors of the Company and its Subsidiaries, as well as key consultants
and advisors to the Company or any Subsidiary, an opportunity to acquire or
increase their proprietary interests in the Company. The objective of the
issuance of Options is to promote the growth and profitability of the Company
and its Subsidiaries because the Optionees will be provided with an additional
incentive to achieve the Company's objectives through participation in its
success and growth and by encouraging their continued association with or
service to the Company.
2.3 Effective Date. The Plan shall become effective on May 22, 1997;
provided, however, that if the shareholders of the Company have not approved
the Plan on or prior to the first anniversary of such effective date, then all
options granted under the Plan shall be non-Incentive Stock Options.
ARTICLE III
PARTICIPANTS
The class of persons eligible to participate in the Plan shall consist of
all persons whose participation in the Plan the Committee determines to be in
the best interests of the Company which shall include, but not be limited to,
all Directors and employees, including but not limited to executive personnel,
of the Company or any Subsidiary, as well as key consultants and advisors to
the Company or any Subsidiary.
ARTICLE IV
ADMINISTRATION
4.1 Duties and Powers of the Committee. The Plan shall be administered
by the Committee. The Committee shall select one of its members as its
Chairman and shall hold its meetings at such times and places as it may
determine. The Committee shall keep minutes of its meetings and shall make
such rules and regulations for the conduct of its business as it may deem
necessary. The Committee shall have the power to act by unanimous written
consent in lieu of a meeting, and to meet telephonically. In administering the
Plan, the Committee's actions and determinations shall be binding on all
interested parties. The Committee shall have the power to grant Options in
accordance with the provisions of the Plan and may grant Options singly, in
combination, or in tandem. Subject to the provisions of the Plan, the
Committee shall have the discretion and authority to determine those
individuals to whom Options will be granted, the number of shares of Stock
subject to each Option, such other matters as are specified herein, and any
other terms and conditions of a Stock Option Agreement. The Committee shall
also have the discretion and authority to delegate to any Officer its powers to
grant Options under the Plan to any person who is an employee of the Company
but not an Officer or Director. To the extent not inconsistent with the
provisions of the Plan, the Committee may give an Optionee an election to
surrender an Option in exchange for the grant of a new Option, and shall have
the authority to amend or modify an outstanding Stock Option Agreement, or to
waive any provision thereof, provided that the Optionee consents to such
action.
4.2 Interpretation; Rules. Subject to the express provisions of the
Plan, the Committee also shall have complete authority to interpret the Plan,
to prescribe, amend, and rescind rules and regulations relating to it, to
determine the details and provisions of each Stock Option Agreement, and to
make all other determinations necessary or advisable for the administration of
the Plan, including, without limitation, the amending or altering of the Plan
and any Options granted hereunder as may be required to comply with or to
conform to any federal, state, or local laws or regulations.
4.3 No Liability. Neither any member of the Board nor any member of the
Committee shall be liable to any person for any act or determination made in
good faith with respect to the Plan or any Option granted hereunder.
4.4 Majority Rule. A majority of the members of the Committee shall
constitute a quorum, and any action taken by a majority at a meeting at which a
quorum is present, or any action taken without a meeting evidenced by a writing
executed by all the members of the Committee, shall constitute the action of
the Committee.
4.5 Company Assistance. The Company shall supply full and timely
information to the Committee on all matters relating to eligible persons, their
employment, death, retirement, disability, or other termination of employment,
and such other pertinent facts as the Committee may require. The Company shall
furnish the Committee with such clerical and other assistance as is necessary
in the performance of its duties.
ARTICLE V
SHARES OF STOCK SUBJECT TO PLAN
5.1 Limitations. Subject to any antidilution adjustment pursuant to the
provisions of Section 5.2 hereof, the maximum number of shares of Stock that
may be issued hereunder shall be 2,000,000, and not more than 500,000 shares of
Stock may be made subject to Options to any individual in the aggregate in any
one fiscal year of the Company, such limitation to be applied in a manner
consistent with the requirements of, and only to the extent required for
compliance with, the exclusion from the limitation on deductibility of
compensation under Section 162(m) of the Code. The number of shares of Stock
available for issuance hereunder shall automatically increase on the first
trading day each calendar year beginning January 1, 1998, by an amount equal to
three percent (3%) of the shares of Stock outstanding on the trading day
immediately preceding January 1; but in no event shall any such annual increase
exceed 500,000 shares. Any or all shares of Stock subject to the Plan may be
issued in any combination of Incentive Stock Options or non-Incentive Stock
Options, and the amount of Stock subject to the Plan may be increased from time
to time in accordance with Article VIII, provided that the total number of
shares of Stock issuable pursuant to Incentive Stock Options may not be
increased to more than 2,000,000 (other than pursuant to anti-dilution
adjustments) without shareholder approval. Shares subject to an Option may be
either authorized and unissued shares or shares issued and later acquired by
the Company. The shares covered by any unexercised portion of an Option that
has terminated for any reason (except as set forth in the following paragraph)
may again be optioned under the Plan, and such shares shall not be considered
as having been optioned or issued in computing the number of shares of Stock
remaining available for option hereunder.
If Options are issued in respect of options to acquire stock of any entity
acquired, by merger or otherwise, by the Company (or any Subsidiary of the
Company), to the extent that such issuance shall not be inconsistent with the
terms, limitations and conditions of Code Section 422 or Rule 16b-3 under the
Exchange Act, the aggregate number of shares of Stock for which Options may be
granted hereunder shall automatically be increased by the number of shares
subject to the Options so issued; provided, however, that the aggregate number
of shares of Stock for which Options may be granted hereunder shall
automatically be decreased by the number of shares covered by any unexercised
portion of an Option so issued that has terminated for any reason, and the
shares subject to any such unexercised portion may not be optioned to any other
person.
5.2 Antidilution.
(a) If (x) the outstanding shares of Stock are changed into or
exchanged for a different number or kind of shares or other securities of the
Company by reason of merger, consolidation, reorganization, recapitalization,
reclassification, combination or exchange of shares, or stock split or stock
dividend, (y) any spin-off, split-off or other distribution of assets
materially affects the price of the Company's stock, or (z) there is any
assumption and conversion to the Plan by the Company of an acquired company's
outstanding option grants, then:
(i) the aggregate number and kind of shares of Stock
for which Options may be granted hereunder shall be
adjusted proportionately by the Committee; and
(ii) the rights of Optionees (concerning the number
of shares subject to Options and the Exercise Price) under
outstanding Options shall be adjusted proportionately by
the Committee.
(b) If the Company shall be a party to any reorganization in which
it does not survive, involving merger, consolidation, or acquisition of the
stock or substantially all the assets of the Company, the Committee, in its
discretion, may:
(i) notwithstanding other provisions hereof, declare
that all Options granted under the Plan shall become
exercisable immediately notwithstanding the provisions of
the respective Stock Option Agreements regarding
exercisability, that all such Options shall terminate 30
days after the Committee gives written notice of the
immediate right to exercise all such Options and of the
decision to terminate all Options not exercised within such
30-day period, and that all then-remaining restrictions
pertaining to Options shall immediately lapse; and/or
(ii) notify all Optionees that all Options granted
under the Plan shall be assumed by the successor
corporation or substituted on an equitable basis with
options issued by such successor corporation.
(c) If the Company is to be liquidated or dissolved in connection
with a reorganization described in Section 5.2(b), the provisions of such
Section shall apply. In all other instances, the adoption of a plan of
dissolution or liquidation of the Company shall, notwithstanding other
provisions hereof, cause every Option outstanding under the Plan to terminate
to the extent not exercised prior to the adoption of the plan of dissolution or
liquidation by the shareholders, provided that, notwithstanding other
provisions hereof, the Committee may declare all Options granted under the Plan
to be exercisable at any time on or before the fifth business day following
such adoption notwithstanding the provisions of the respective Stock Option
Agreements regarding exercisability.
(d) The adjustments described in paragraphs (a) through (c) of
this Section 5.2, and the manner of their application, shall be determined
solely by the Committee, and any such adjustment may provide for the elimination
of fractional share interests; provided, however, that any adjustment made by
the Board or the Committee shall be made in a manner that will not cause an
Incentive Stock Option to be other than an Incentive Stock Option under
applicable statutory and regulatory provisions. The adjustments required under
this Article V shall apply to any successors of the Company and shall be made
regardless of the number or type of successive events requiring such
adjustments.
ARTICLE VI
OPTIONS
6.1 Types of Options Granted. The Committee may, under this Plan, grant
either Incentive Stock Options or Options which do not qualify as Incentive
Stock Options. Within the limitations provided in this Plan, both types of
Options may be granted to the same person at the same time, or at different
times, under different terms and conditions, as long as the terms and
conditions of each Option are consistent with the provisions of the Plan.
Without limitation of the foregoing, Options may be granted subject to
conditions based on the financial performance of the Company or any other
factor the Committee deems relevant.
6.2 Option Grant and Agreement. Each Option granted hereunder shall be
evidenced by minutes of a meeting or the written consent of the Committee and
by a written Stock Option Agreement executed by the Company and the Optionee.
The terms of the Option, including the Option's duration, time or times of
exercise, exercise price, whether the Option is intended to be an Incentive
Stock Option, and whether the Option is to be accompanied by the right to
receive a Reload Option, shall be stated in the Stock Option Agreement. No
Incentive Stock Option may be granted more than ten years after the earlier to
occur of the effective date of the Plan or the date the Plan is approved by the
Company's shareholders.
Separate Stock Option Agreements may be used for Options intended to be
Incentive Stock Options and those not so intended, but any failure to use such
separate agreements shall not invalidate, or otherwise adversely affect the
Optionee's interest in, the Options evidenced thereby.
6.3 Optionee Limitations. The Committee shall not grant an Incentive
Stock Option to any person who, at the time the Incentive Stock Option is
granted:
(a) is not an employee of the Company or any of its Subsidiaries;
or
(b) owns or is considered to own stock possessing at least 10% of
the total combined voting power of all classes of stock of the Company or any
of its Parent or Subsidiary corporations; provided, however, that this
limitation shall not apply if at the time an Incentive Stock Option is granted
the Exercise Price is at least 110% of the Fair Market Value of the Stock
subject to such Option and such Option by its terms would not be exercisable
after five years from the date on which the Option is granted. For the purpose
of this subsection (b), a person shall be considered to own: (i) the stock
owned, directly or indirectly, by or for his or her brothers and sisters
(whether by whole or half blood), spouse, ancestors and lineal descendants;
(ii) the stock owned, directly or indirectly, by or for a corporation,
partnership, estate, or trust in proportion to such person's stock interest,
partnership interest or beneficial interest therein; and (iii) the stock which
such person may purchase under any outstanding options of the Employer or of
any Parent or Subsidiary of the Employer.
6.4 $100,000 Limitation. Except as provided below, the Committee shall
not grant an Incentive Stock Option to, or modify the exercise provisions of
outstanding Incentive Stock Options held by, any person who, at the time the
Incentive Stock Option is granted (or modified), would thereby receive or hold
any Incentive Stock Options of the Employer and any Parent or Subsidiary of the
Employer, such that the aggregate Fair Market Value (determined as of the
respective dates of grant or modification of each option) of the stock with
respect to which such Incentive Stock Options are exercisable for the first
time during any calendar year is in excess of $100,000 (or such other limit as
may be prescribed by the Code from time to time); provided that the foregoing
restriction on modification of outstanding Incentive Stock Options shall not
preclude the Committee from modifying an outstanding Incentive Stock Option if,
as a result of such modification and with the consent of the Optionee, such
Option no longer constitutes an Incentive Stock Option; and provided that, if
the $100,000 limitation (or such other limitation prescribed by the Code)
described in this Section 6.4 is exceeded, the Incentive Stock Option, the
granting or modification of which resulted in the exceeding of such limit,
shall be treated as an Incentive Stock Option up to the limitation and the
excess shall be treated as an Option not qualifying as an Incentive Stock
Option.
6.5 Exercise Price. The Exercise Price of the Stock subject to each
Option shall be determined by the Committee. Subject to the provisions of
Section 6.3(b) hereof, the Exercise Price of an Incentive Stock Option shall
not be less than the Fair Market Value of the Stock as of the date the Option
is granted (or in the case of an Incentive Stock Option that is subsequently
modified, on the date of such modification).
6.6 Exercise Period. The period for the exercise of each Option granted
hereunder shall be determined by the Committee, but the Stock Option Agreement
with respect to each Option intended to be an Incentive Stock Option shall
provide that such Option shall not be exercisable after the expiration of ten
years from the date of grant (or modification) of the Option.
6.7 Option Exercise.
(a) Unless otherwise provided in the Stock Option Agreement or
Section 6.6 hereof, an Option may be exercised at any time or from time to time
during the term of the Option as to any or all full shares which have become
Purchasable under the provisions of the Option, but not at any time as to fewer
than 100 shares unless the remaining shares that have become so Purchasable are
fewer than 100 shares. The Committee shall have the authority to prescribe in
any Stock Option Agreement that the Option may be exercised only in accordance
with a vesting schedule during the term of the Option.
(b) An Option shall be exercised by (i) delivery to the Company at
its principal office a written notice of exercise with respect to a specified
number of shares of Stock and (ii) payment to the Company at that office of the
full amount of the Exercise Price for such number of shares in accordance with
Section 6.7(c). If requested by an Optionee, an Option may be exercised with
the involvement of a stockbroker in accordance with the federal margin rules
set forth in Regulation T (in which case the certificates representing the
underlying shares will be delivered by the Company directly to the
stockbroker).
(c) The Exercise Price is to be paid in full in cash upon the
exercise of the Option and the Company shall not be required to deliver
certificates for the shares purchased until such payment has been made;
provided, however, that in lieu of cash, all or any portion of the Exercise
Price may be paid by tendering to the Company shares of Stock duly endorsed for
transfer and owned by the Optionee, or by authorization to the Company to
withhold shares of Stock otherwise issuable upon exercise of the Option, in
each case to be credited against the Exercise Price at the Fair Market Value of
such shares on the date of exercise (however, no fractional shares may be so
transferred, and the Company shall not be obligated to make any cash payments
in consideration of any excess of the aggregate Fair Market Value of shares
transferred over the aggregate Exercise Price); provided further, that the
Board may provide in a Stock Option Agreement (or may otherwise determine in
its sole discretion at the time of exercise) that, in lieu of cash or shares,
all or a portion of the Exercise Price may be paid by the Optionee's execution
of a recourse note equal to the Exercise Price or relevant portion thereof,
subject to compliance with applicable state and federal laws, rules and
regulations.
(d) In addition to and at the time of payment of the Exercise
Price, the Optionee shall pay to the Company in cash the full amount of any
federal, state, and local income, employment, or other withholding taxes
applicable to the taxable income of such Optionee resulting from such exercise;
provided, however, that in the discretion of the Committee any Stock Option
Agreement may provide that all or any portion of such tax obligations,
together with additional taxes not exceeding the actual additional taxes to
be owed by the Optionee as a result of such exercise, may, upon the irrevocable
election of the Optionee, be paid by tendering to the Company whole shares of
Stock duly endorsed for transfer and owned by the Optionee, or by authorization
to the Company to withhold shares of Stock otherwise issuable upon exercise of
the Option, in either case in that number of shares having a Fair Market Value
on the date of exercise equal to the amount of such taxes thereby being paid,
and subject to such restrictions as to the approval and timing of any such elec-
tion as the Committee may from time to time determine to be necessary or
appropriate to satisfy the conditions of the exemption set forth in Rule 16b-3
under the Exchange Act, if such rule is applicable.
(e) The holder of an Option shall not have any of the rights of a
shareholder with respect to the shares of Stock subject to the Option until
such shares have been issued and transferred to the Optionee upon the exercise
of the Option.
6.8 Nontransferability of Option. No Option shall be transferable by an
Optionee other than by will or the laws of descent and distribution or, in the
case of non-Incentive Stock Options, pursuant to a Qualified Domestic Relations
Order, and no Option shall be transferable by an Optionee who is a Section 16
Insider prior to shareholder approval of the Plan. During the lifetime of an
Optionee, Options shall be exercisable only by such Optionee (or by such
Optionee's guardian or legal representative, should one be appointed).
6.9 Termination of Employment or Service. The Committee shall have the
power to specify, with respect to the Options granted to a particular Optionee,
the effect upon such Optionee's right to exercise an Option of termination of
such Optionee's employment or service under various circumstances, which effect
may include immediate or deferred termination of such Optionee's rights under
an Option, or acceleration of the date at which an Option may be exercised in
full; provided, however, that in no event may an Incentive Stock Option be
exercised after the expiration of ten years from the date of grant thereof.
6.10 Employment Rights. Nothing in the Plan or in any Stock Option
Agreement shall confer on any person any right to continue in the employ of the
Company or any of its Subsidiaries, or shall interfere in any way with the
right of the Company or any of its Subsidiaries to terminate such person's
employment at any time.
6.11 Certain Successor Options. To the extent not inconsistent with the
terms, limitations and conditions of Code Section 422 and any regulations
promulgated with respect thereto, an Option issued in respect of an option held
by an employee to acquire stock of any entity acquired, by merger or otherwise,
by the Company (or any Subsidiary of the Company) may contain terms that differ
from those stated in this Article VI, but solely to the extent necessary to
preserve for any such employee the rights and benefits contained in such
predecessor option, or to satisfy the requirements of Code Section 424(a).
6.12 Effect of Change in Control. The Committee may determine, at the
time of granting an Option or thereafter, that such Option shall become
exercisable on an accelerated basis in the event that a Change in Control
occurs with respect to the Company (and the Committee shall have the discretion
to modify the definition of a Change in Control in a particular Option
Agreement). If the Committee finds that there is a reasonable possibility
that, within the succeeding six months, a Change in Control will occur with
respect to the Company, then the Committee may determine that all outstanding
Options shall be exercisable on an accelerated basis.
ARTICLE VII
STOCK CERTIFICATES
The Company shall not be required to issue or deliver any certificate for
shares of Stock purchased upon the exercise of any Option granted hereunder or
any portion thereof, prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which the Stock is then listed;
(b) The completion of any registration or other qualification of such
shares which the Committee shall deem necessary or advisable under any federal
or state law or under the rulings or regulations of the Securities and Exchange
Commission or any other governmental regulatory body;
(c) The obtaining of any approval or other clearance from any federal or
state governmental agency or body which the Committee shall determine to be
necessary or advisable; and
(d) The lapse of such reasonable period of time following the exercise
of the Option as the Board from time to time may establish for reasons of
administrative convenience.
Stock certificates issued and delivered to the Optionees shall bear such
restrictive legends as the Company shall deem necessary or advisable pursuant
to applicable federal and state securities laws.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination and Amendment. The Board may at any time terminate the
Plan; provided, however, that the Board (unless its actions are approved or
ratified by the shareholders of the Company within twelve months of the date
that the Board amends the Plan) may not amend the Plan to:
(a) Increase the total number of shares of Stock issuable pursuant
to Incentive Stock Options under the Plan, except as contemplated in Section
5.2 hereof; or
(b) Change the class of employees eligible to receive Incentive
Stock Options that may participate in the Plan.
8.2 Effect on Optionee's Rights. No termination, amendment, or
modification of the Plan shall affect adversely an Optionee's rights under a
Stock Option Agreement without the consent of the Optionee or his legal
representative.
<PAGE>
ARTICLE IX
RELATIONSHIP TO OTHER COMPENSATION PLANS
The adoption of the Plan shall not affect any other stock option,
incentive, or other compensation plans in effect for the Company or any of its
Subsidiaries; nor shall the adoption of the Plan preclude the Company or any of
its Subsidiaries from establishing any other form of incentive or other
compensation plan for employees or Directors of the Company or any of its
Subsidiaries.
ARTICLE X
MISCELLANEOUS
10.1 Replacement or Amended Grants. At the sole discretion of the
Committee, and subject to the terms of the Plan, the Committee may modify
outstanding Options or accept the surrender of outstanding Options and grant
new Options in substitution for them. No modification of an Option shall
adversely affect an Optionee's rights under a Stock Option Agreement, however,
without the consent of the Optionee or his legal representative.
10.2 Forfeiture for Competition. If an Optionee provides services to a
competitor of the Company or any of its Subsidiaries, whether as an employee,
officer, director, independent contractor, consultant, agent, or otherwise,
such services being of a nature that can reasonably be expected to involve the
skills and experience used or developed by the Optionee while an Employee, then
that Optionee's rights under any Options outstanding hereunder shall be
forfeited and terminated, subject in each case to a determination to the
contrary by the Committee.
10.3 Plan Binding on Successors. The Plan shall be binding upon the
successors and assigns of the Company.
10.4 Singular, Plural; Gender Whenever used herein, nouns in the singu-
lar shall include the plural, and the masculine pronoun shall include the
feminine gender.
10.5 Headings, etc., No Part of Plan. Headings of Articles and Sections
hereof are inserted for convenience and reference; they do not constitute part
of the Plan.
10.6 Interpretation. With respect to Section 16 Insiders, transactions
under this Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the Exchange Act. To the extent any provision of
the Plan or action by the Plan administrators fails to so comply, it shall be
deemed void to the extent permitted by law and deemed advisable by the Plan
administrators.
* * * * *
<PAGE>
Exhibit A to
ACSYS, Inc.
1997 Stock Option Plan -
Form of Stock Option
Agreement
ACSYS, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement"), entered into as of this
______ day of _______________, ______, is by and between ACSYS, Inc., a Georgia
corporation (the "Company"), and ________________________________________ (the
"Optionee").
WHEREAS, on May ____, 1997, the Board of Directors of the Company adopted
a stock option plan known as the "ACSYS, Inc. 1997 Stock Option Plan" (the
"Plan"), and recommended that the Plan be approved by the Company's
shareholders; and
WHEREAS, the Committee has granted the Optionee a stock option to purchase
the number of shares of the Company's common stock as set forth below, and in
consideration of the granting of that stock option the Optionee intends to
remain in the employ of the Company; and
WHEREAS, the Company and the Optionee desire to enter into a written
agreement with respect to such option in accordance with the Plan.
NOW, THEREFORE, as an employment incentive and to encourage stock
ownership, and also in consideration of the mutual covenants contained herein,
the parties hereto agree as follows.
1. Incorporation of Plan. This option is granted pursuant to the
provisions of the Plan and the terms and definitions of the Plan are
incorporated herein by reference and made a part hereof. A copy of the Plan
has been delivered to, and receipt is hereby acknowledged by, the Optionee.
2. Grant of Option. Subject to the terms, restrictions, limitations and
conditions stated herein, the Company hereby evidences its grant to the
Optionee, not in lieu of salary or other compensation, of the right and option
(the "Option") to purchase all or any part of the number of shares of the
Company's Common Stock (the "Stock"), set forth on Schedule A attached hereto
and incorporated herein by reference. The Option shall be exercisable in the
amounts and at the time specified on Schedule A. The Option shall expire and
shall not be exercisable on and after the date specified on Schedule A or on
such earlier date as determined pursuant to Section 8, 9, or 10 hereof.
Schedule A states whether the Option is intended to be an Incentive Stock
Option.
3. Purchase Price. The price per share to be paid by the Optionee for
the shares subject to this Option (the "Exercise Price") shall be as specified
on Schedule A, which price shall be an amount not less than the Fair Market
Value of a share of Stock as of the Date of Grant (as defined in Section 11
below) if the Option is an Incentive Stock Option.
4. Exercise Terms. The Optionee must exercise the Option for at least
the lesser of 100 shares or the number of shares of Purchasable Stock as to
which the Option remains unexercised. If this Option is not exercised with
respect to all or any part of the shares subject to this Option prior to its
expiration, the shares with respect to which this Option was not exercised
shall no longer be subject to this Option.
5. Option Non-Transferable. No Option shall be transferable by an
Optionee other than by will or the laws of descent and distribution or, in the
case of non-Incentive Stock Options, pursuant to a Qualified Domestic Relations
Order, and no Option shall be transferable by an Optionee who is a Section 16
Insider prior to shareholder approval of the Plan. During the lifetime of an
Optionee, Options shall be exercisable only by such Optionee (or by such
Optionee's guardian or legal representative, should one be appointed).
6. Notice of Exercise of Option. This Option may be exercised by the
Optionee, or by the Optionee's administrators, executors or personal
representatives, by a written notice (in substantially the form of the Notice
of Exercise attached hereto as Schedule B) signed by the Optionee, or by such
administrators, executors or personal representatives, and delivered or mailed
to the Company as specified in Section 14 hereof to the attention of the
President or such other officer as the Company may designate. Any such notice
shall (a) specify the number of shares of Stock which the Optionee or the
Optionee's administrators, executors or personal representatives, as the case
may be, then elects to purchase hereunder, (b) contain such information as may
be reasonably required pursuant to Section 12 hereof, and (c) be accompanied by
(i) a certified or cashier's check payable to the Company in payment of the
total Exercise Price applicable to such shares as provided herein, (ii) shares
of Stock owned by the Optionee, and duly endorsed or accompanied by stock
transfer powers, having a Fair Market Value equal to the total Exercise Price
applicable to the shares then being purchased hereunder, or (iii) a certified
or cashier's check accompanied by the number of shares of Stock whose Fair
Market Value when added to the amount of the check equals the total Exercise
Price applicable to the shares then being purchased hereunder. Upon receipt of
any such notice and accompanying payment, and subject to the terms hereof, the
Company agrees to issue to the Optionee or the Optionee's administrators,
executors or personal representatives, as the case may be, stock certificates
for the number of shares specified in such notice registered in the name of the
person exercising this Option.
7. Adjustment in Option. The number of Shares subject to this Option,
the Exercise Price and other matters are subject to adjustment during the term
of this Option in accordance with Section 5.2 of the Plan.
8. Termination of Employment.
(a) Except as otherwise specified in Schedule A hereto, in the event of
the termination of the Optionee's employment with the Company or any of its
Subsidiaries, other than a termination that is either (i) for cause, (ii)
voluntary on the part of the Optionee and without written consent of the
Company, or (iii) for reasons of death or disability or retirement, the
Optionee may exercise this Option at any time within 30 days after such
termination to the extent of the number of shares which were Purchasable
hereunder at the date of such termination.
(b) Except as specified in Schedule A attached hereto, in the event of a
termination of the Optionee's employment that is either (i) for cause or (ii)
voluntary on the part of the Optionee and without the written consent of the
Company, this Option, to the extent not previously exercised, shall terminate
immediately and shall not thereafter be or become exercisable.
(c) Unless and to the extent otherwise provided in Exhibit A hereto, in
the event of the retirement of the Optionee at the normal retirement date as
prescribed from time to time by the Company or any Subsidiary, the Optionee
shall continue to have the right to exercise any Options for shares which were
Purchasable at the date of the Optionee's retirement provided that, on the date
which is three months after the date of retirement, the Options will become
void and unexercisable unless on the date of retirement the Optionee enters
into a noncompete agreement with the Company and continues to comply with such
noncompete agreement. This Option does not confer upon the Optionee any right
with respect to continuance of employment by the Company or by any of its
Subsidiaries. This Option shall not be affected by any change of employment so
long as the Optionee continues to be an employee of the Company or one of its
Subsidiaries.
9. Disabled Optionee. In the event of termination of employment because
of the Optionee's becoming a Disabled Optionee, the Optionee (or his or her
personal representative) may exercise this Option, within a period ending on
the earlier of (a) the last day of the one year period following the Optionee's
death or (b) the expiration date of this Option, to the extent of the number of
shares which were Purchasable hereunder at the date of such termination.
10. Death of Optionee. Except as otherwise set forth in Schedule A with
respect to the rights of the Optionee upon termination of employment under
Section 8(a) above, in the event of the Optionee's death while employed by the
Company or any of its Subsidiaries or within three months after a termination
of such employment (if such termination was neither (i) for cause nor (ii)
voluntary on the part of the Optionee and without the written consent of the
Company), the appropriate persons described in Section 6 hereof or persons to
whom all or a portion of this Option is transferred in accordance with Section
5 hereof may exercise this Option at any time within a period ending on the
earlier of (a) the last day of the one year period following the Optionee's
death or (b) the expiration date of this Option. If the Optionee was an
employee of the Company or any of its Subsidiaries at the time of death, this
Option may be so exercised to the extent of the number of shares that were
Purchasable hereunder at the date of death. If the Optionee's employment
terminated prior to his or her death, this Option may be exercised only to the
extent of the number of shares covered by this Option which were Purchasable
hereunder at the date of such termination.
11. Date of Grant. This Option was granted by the Board of Directors of
the Company on the date set forth in Schedule A (the "Date of Grant").
12. Compliance with Regulatory Matters. The Optionee acknowledges that
the issuance of capital stock of the Company is subject to limitations imposed
by federal and state law and the Optionee hereby agrees that the Company shall
not be obligated to issue any shares of Stock upon exercise of this Option that
would cause the Company to violate law or any rule, regulation, order or
consent decree of any regulatory authority (including without limitation the
Securities and Exchange Commission) having jurisdiction over the affairs of the
Company. The Optionee agrees that the Optionee will provide the Company with
such information as is reasonably requested by the Company or its counsel to
determine whether the issuance of Stock complies with the provisions described
by this Section 12.
13. Disposition of Shares. In order to obtain certain tax benefits
afforded to Incentive Stock Options under Section 422 of the Code, the shares
purchased pursuant to the exercise of an Incentive Stock Option must not be
transferred by the Optionee except pursuant to the Optionee's will, or the laws
of descent and distribution, until the later of two years after the grant of
such Incentive Stock Option or one year after the transfer of the shares to the
Optionee exercise of such Incentive Stock Option.
14. Confidential Information and Trade Secrets. During the Optionee's
employment with the Company, the Optionee has had and will have access to
Proprietary Information of the Company and/or its Parents and Subsidiaries.
During the Optionee's employment with the Company or any of its Parents or
Subsidiaries, and for a period of two years thereafter, Optionee (i) shall hold
all Proprietary Information in confidence, (ii) shall use the Proprietary
Information solely in furtherance of the business of the Company as required by
the Optionee's employment, and (iii) shall not disclose, publish or make use of
such knowledge or information for any other reason without the express written
consent of the Company. Upon the termination of the Optionee's employment with
the Company for any reason, the Optionee shall immediately return to the
Company any and all copies of all Proprietary Information, and shall not retain
or remove any secret or confidential information of any type or description
without the express written consent of the Company. "Proprietary Information"
as used herein means all of the temporary help lists, customer lists, supplier
lists, price lists, financial information, operating manual and forms, plans,
notes, computer programs, systems and software (including, without limitation,
documentation and related source and object codes), and other knowledge and
information of a confidential or proprietary nature regarding the business of
the Company and its Parents and Subsidiaries. Proprietary Information shall
not include any information which enters the public domain in the absence of a
breach by any party of any confidentiality obligations to the Company or its
Subsidiaries.
15. Noncompetition. The Company is engaged in providing short-term and
long-term outsourcing, technical and professional staffing services, and
professional placement services. In consideration of the rights granted to the
Optionee hereunder, the Optionee agrees that, during the Optionee's employment
with the Company or any of its Parents or Subsidiaries and for a period of two
years thereafter, the Optionee shall not (without the prior written consent of
the Company), for his own benefit or for the benefit of others, directly or
indirectly, engage in, have any equity or profit interest in, or render
services of any executive, marketing, sales, administrative, supervisory, or
consulting nature within the Territory to any business which competes with the
business activities being directly engaged in by the Company in the Territory
as of the date on which the Optionee's employment is terminated. As used
herein, the "Territory" shall mean the twenty-five mile radius surrounding any
office of the Company or any of its Parents or Subsidiaries to which the
Optionee is assigned or for which the Optionee does a substantial amount of
work during his employment with the Company or any of its Parents or
Subsidiaries. Notwithstanding anything contained herein to the contrary, the
Optionee shall not be prohibited from owning, directly or indirectly, up to 5%
of the outstanding equity interests of any company whose stock is publicly
traded.
16. Non-Solicitation of Customers. The Company's list of its customers
and the nature of its relationship with such customers are among the most
valuable assets of the Company. During the Optionee's employment with the
Company and for a period of two years thereafter, the Optionee shall not
contact or solicit business from any active or prospective customer of the
Company or its Parents or Subsidiaries with whom the Optionee had personal
contact during his employment with the Company or any of its Parents or
Subsidiaries.
17. Non-Solicitation of Employees. The Optionee shall not solicit to
employ, on his own behalf or on behalf of any other person, firm or
corporation, any person who was employed during the Optionee's employment with
the Company or any Parent or Subsidiary and who has not thereafter ceased to be
employed by the Company or a Parent or Subsidiary for a period of at least one
year.
18. Severability. The provisions of this Agreement are intended to be
reasonable and not to violate the public policies of the jurisdictions in which
it is to be enforced. If a judicial determination is made that any of the
provisions of this Agreement constitutes an unreasonable or otherwise
unenforceable restriction against the Optionee, such provision shall be
modified to the extent necessary to render such provision reasonable and
enforceable, including reducing the terms or geographic extent of such
provision, if necessary.
19. Miscellaneous.
(a) This Agreement shall be binding upon the parties hereto and their
representatives, successors and assigns.
(b) This Agreement is executed and delivered in, and shall be governed by
the laws of, the State of Georgia.
(c) Any requests or notices to be given hereunder shall be deemed given,
and any elections or exercises to be made or accomplished shall be deemed made
or accomplished, upon actual delivery thereof to the designated recipient, or
three days after deposit thereof in the United States mail, registered, return
receipt requested and postage prepaid, addressed, if to the Optionee, at the
address set forth below and, if to the Company, to the executive offices of the
Company at [insert the then current address].
(d) This Agreement may not be modified except in a writing executed by
each of the parties hereto.
IN WITNESS WHEREOF, the Board of Directors of the Company has caused this
Stock Option Agreement to be executed on behalf of the Company and the
Company's seal to be affixed hereto and attested by the Secretary or an
Assistant Secretary of the Company, and the Optionee has executed this Stock
Option Agreement under seal, all as of the day and year first above written.
ACSYS, Inc. OPTIONEE
By:_____________________________ By:_________________________________
Name:_____________________ Name:_________________________
Address:__________________ Address:______________________
ATTEST:_________________________
________________________________
Secretary/Assistant Secretary
[SEAL]
<PAGE>
SCHEDULE A
TO
STOCK OPTION AGREEMENT
BETWEEN
ACSYS, INC.
AND
________________________________
Dated: ___________________
1. Number of Shares Subject to Option: _________________ Shares.
2. This Option (Check one) [ ] is [ ] is not an Incentive Stock Option.
3. Option Exercise Price: $__________ per Share.
4. Date of Grant: _____________________
5. Option Vesting Schedule:
Check one:
( ) Options are exercisable with respect to all
shares on or after the date hereof
( ) Options are exercisable with respect to the
number of shares indicated below on or after the
date indicated next to the number of shares:
No. of Shares Vesting Date
6. Option Exercise Period:
Check One:
( ) All options expire and are void unless exercised
on or before ________________ ____, ______.
( ) Options expire and are void unless exercised on
or before the date indicated next to the number
of shares:
No. of Shares Expiration Date
7. Effect of Termination of Employment of Optionee (if different from that
set forth in Sections 8 and 10 of the Stock Option Agreement):
<PAGE>
SCHEDULE B
NOTICE OF EXERCISE
The undersigned hereby notifies ACSYS, Inc. (the "Company") of this
election to exercise the undersigned's stock option to purchase _____________
shares of the Company's common stock (the "Common Stock"), pursuant to the
Stock Option Agreement (the "Agreement") between the undersigned and the
Company dated ____________________, ______. Accompanying this Notice is (1) a
certified or a cashier's check in the amount of $__________ payable to the
Company, and/or (2) _________ shares of the Company's Common Stock presently
owned by the undersigned and duly endorsed or accompanied by stock transfer
powers, having an aggregate Fair Market Value (as defined in the ACSYS, Inc.
1997 Stock Option Plan) as of the date hereof of $___________, such amounts
being equal, in the aggregate, to the purchase price per share set forth in
Section 3 of the Agreement multiplied by the number of shares being purchased
hereby (in each instance subject to appropriate adjustment pursuant to Section
5.2 of the Agreement).
IN WITNESS WHEREOF, the undersigned has set his hand and seal, this
______ day of _______________, ______.
OPTIONEE [OR OPTIONEE'S
ADMINISTRATOR,
EXECUTOR OR PERSONAL
REPRESENTATIVE]
__________________________________________
Signature
__________________________________________
Name and Position (if other than Optionee)
REVOLVING CREDIT AGREEMENT
by and among
ICCE, INC., as Borrower,
and
NATIONSBANK, NATIONAL ASSOCIATION,
as Agent
and
THE LENDERS PARTY HERETO FROM TIME TO TIME
May 16, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I Definitions and Terms
1.01 Definitions 2
1.02 Accounting Terms 21
1.03 Cross References 21
1.04 Headings and References 21
1.05 Accounting and Financial Determinations 21
1.06 General Provisions Relating to Definitions 22
1.07 Attorneys' Fees 22
1.08 References to Time 22
ARTICLE II The Loans
2.01 Revolving Credit Facility 23
2.02 Payment of Interest 24
2.03 Payment of Principal 25
2.04 Non-Conforming Payments 25
2.05 Bank Account 25
2.06 Notes 25
2.07 Reductions 26
2.08 Conversions and Elections of Subsequent Interest
Periods 26
2.09 Pro Rata Payments 26
2.10 Unused Fee 27
2.11 Deficiency Advances 27
2.12 Use of Proceeds 27
ARTICLE III Change in Circumstances
3.01 Increased Cost and Reduced Return 28
3.02 Limitation on Types of Loans 29
3.03 Illegality 30
3.04 Treatment of Affected Loans 30
3.05 Compensation 30
3.06 Taxes 31
3.07 Replacement Banks 33
ARTICLE IV Security
4.01 Security 34
4.02 Further Assurances 34
ARTICLE V Conditions to Making Loans
5.01 Conditions of Initial Advance and Issuance of
Letters of Credit 35
5.02 Conditions of Loans 36
ARTICLE VI Representations and Warranties
6.01 Representations and Warranties 38
ARTICLE VII Affirmative Covenants
7.01 Financial Reports, Etc 45
7.02 Maintain Properties 46
7.03 Existence, Qualification, Etc 46
7.04 Regulations and Taxes 47
7.05 Insurance 47
7.06 True Books 47
7.07 Pay Indebtedness to Lenders and Perform Other
Covenants 47
7.08 Right of Inspection 47
7.09 Observe all Laws 47
7.10 Officer's Knowledge of Default 47
7.11 Suits or Other Proceedings 48
7.12 Notice of Discharge of Hazardous Material or
Environmental Complaint 48
7.13 Environmental Compliance 48
7.14 Indemnification 48
7.15 Further Assurances 48
7.16 ERISA Requirement 49
7.17 Continued Operations 49
7.18 Use of Proceeds 49
7.19 New Subsidiaries 49
7.20 Acquisition B 50
ARTICLE VIII Negative Covenants
8.01 Consolidated Leverage Ratio 52
8.02 Consolidated Fixed Charge Coverage Ratio 52
8.03 Consolidated Capitalization Ratio 52
8.04 Consolidated Current Ratio 52
8.05 Indebtedness 52
8.06 Transfer of Assets 53
8.07 Investments; Acquisitions 53
8.08 Liens 54
8.09 Dividends or Distributions 54
8.10 Merger or Consolidation 55
8.11 Change in Control 55
8.12 Transactions with Affiliates 55
8.13 ERISA 55
8.14 Dissolution, etc 56
8.15 Rate Hedging Obligations 56
ARTICLE IX Events of Default and Acceleration
9.01 Events of Default 57
9.02 Agent to Act 60
9.03 Cumulative Rights 60
9.04 No Waiver 60
9.05 Allocation of Proceeds 60
ARTICLE X The Agent
10.01 Appointment, Powers and Immunities 62
10.02 Reliance by Agent 62
10.03 Defaults 63
10.04 Rights as Lender 63
10.05 Indemnification 63
10.06 Non-Reliance on Agent and Other Lenders 64
10.07 Resignation of Agent 64
10.08 Fees 64
ARTICLE XI Miscellaneous
11.01 Assignments and Participations 65
11.02 Notices 66
11.03 Right of Setoff; Adjustments 68
11.04 Survival 68
11.05 Expenses 68
11.06 Amendments and Waivers 70
11.07 Counterparts 70
11.08 Waivers by Borrower 70
11.09 Termination 70
11.10 Governing Law 71
11.11 Severability 71
11.12 Entire Agreement 71
11.13 Agreement Controls 71
11.14 Usury Savings Clause 71
<PAGE>
REVOLVING CREDIT AGREEMENT
THIS REVOLVING CREDIT AGREEMENT, dated as of the 16th day of May, 1997
(the "Agreement"), is made by and among:
ICCE, INC., a Georgia corporation having its principal place of business
in Atlanta, Georgia (the "Borrower"); and
NATIONSBANK, NATIONAL ASSOCIATION, a national banking association
organized and existing under the laws of the United States of America and
having a principal place of business in Charlotte, North Carolina
("NationsBank") and each other Eligible Assignee which may hereafter execute
and deliver an instrument of assignment with respect to this Agreement pursuant
to Section 11.01 (hereinafter NationsBank and such other lenders may be
referred to individually as a "Lender" or collectively as the "Lenders"); and
NATIONSBANK, NATIONAL ASSOCIATION, in its capacity as agent for the
Lenders (in such capacity, the "Agent").
W I T N E S S E T H:
WHEREAS, the Borrower has requested that the Lenders make available to the
Borrower a revolving credit facility of up to $15,000,000, the proceeds of
which are to be used as provided in Section 2.12 hereof; and
WHEREAS, the Lenders are willing to make such revolving credit facility
available to the Borrower upon the terms and conditions set forth herein;
NOW, THEREFORE, the Borrower, the Lenders and the Agent hereby agree as
follows:
<PAGE>
ARTICLE I
Definitions and Terms
1.01 Definitions. For the purposes of this Agreement, in addition to the
definitions set forth above, the following terms shall have the respective
meanings set forth below:
"Acquire" or "Acquisition", as applied to a Person, means the
acquiring or acquisition of a controlling interest in such Person by
purchase (including all or substantially all of the assets),
exchange, issuance of stock or other securities, or by merger,
reorganization or other method.
"Acquired Companies" means each of David C. Cooper and
Associates, Inc., a Georgia corporation ("Cooper"), DCCA Professional
Temporaries, Inc., a Georgia corporation ("DCCA"), EKT, Inc., a North
Carolina corporation ("EKT"), Infinity Enterprises, Inc., a Maryland
corporation ("Infinity"), and Cama of Tampa, Inc., a Florida
corporation ("Cama").
"Acquisition A" means the Acquisition of Cooper, DCCA, EKT and
Infinity pursuant to the terms of Merger Agreement A.
"Acquisition B" means the Acquisition of Cama pursuant to the
terms of Merger Agreement B.
"Adjusted Consolidated EBITDA" means Consolidated EBITDA;
provided, however, that with respect to any Acquisition which occurs
within the Four-Quarter Period for which the computation thereof is
being made, Consolidated EBITDA shall be adjusted by adding the
lesser of (i) $500,000 or (ii) historical pro forma reductions in
compensation expense that are substantiated by employment contracts;
provided, however, that with respect to an Acquisition which is
accounted for as a "purchase", for the Four-Quarter Period following
the date of such Acquisition, the Consolidated EBITDA shall include
the results of operations of the Person or assets so acquired which
amounts shall be determined on an historical pro forma basis for the
Four-Quarter Period preceding or including the date of such
Acquisition as if such Acquisition had been consummated as a "pooling
of interest", plus to the extent applicable, any adjustments made in
accordance with Securities and Exchange Commission Rule 17 CFR
210.11-02.
"Advance" means a borrowing under the Revolving Credit Facility,
consisting of the aggregate principal amount of a Base Loan or a
Eurodollar Loan, as the case may be.
"Affiliate" means a Person (i) which directly or indirectly
through one or more intermediaries controls, or is controlled by, or
is under common control with the Borrower; (ii) which beneficially
owns or holds 10% or more of any class of the outstanding voting
stock (or in the case of a Person which is not a corporation, 10% or
more of the equity interest) of the Borrower; or (iii) 10% or more of
any class of the outstanding voting stock of which is beneficially
owned or held by the Borrower, provided, however, at the time the
Borrower registers any security issued by it pursuant to the
Securities Act of 1933, as amended, the figure "10%" used in this
definition shall automatically change to "5%" without further
action. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through ownership of
voting stock, by contract or otherwise.
"Applicable Commitment Percentage" means, with respect to each
Lender at any time, a fraction, the numerator of which shall be such
Lender's Revolving Credit Commitment and the denominator of which
shall be the Total Revolving Credit Commitment, which Applicable
Commitment Percentage for each Lender as of the Closing Date is as
set forth in Exhibit A; provided that the Applicable Commitment
Percentage of each Lender shall be increased or decreased to reflect
any assignments to or by such Lender effected in accordance with
Section 11.01.
"Applicable Lending Office" means, for each Lender and for each
Type of Loan, the "Lending Office" of such Lender (or of an affiliate
of such Lender) designated for such Type of Loan on the signature
pages hereof or such other office of such Lender (or an affiliate of
such Lender) as such Lender may from time to time specify to the
Agent and the Borrower by written notice in accordance with the terms
hereof as the office by which its Loans of such Type are to be made
and maintained.
"Applicable Margin" means that percent per annum set forth below
which shall be based upon the Consolidated Leverage Ratio for the
Four-Quarter Period most recently ended as specified below:
<TABLE>
<CAPTION>
Tier Consolidated Leverage Ratio Applicable Applicable
Margin for Margin for
Base Loan Eurodollar
Loans
<S> <C> <C> <C>
I Less than 1.50 to 1.00 0.00% 1.25%
II Equal to or greater than 1.50 to 1.00 0.00% 1.75%
and less than 2.00 to 1.00
III Equal to or greater than 2.00 to 1.00 0.25% 2.00%
and less than 2.50 to 1.00
IV Equal to or greater than 2.50 to 1.00 0.50% 2.25%
and less than 2.75 to 1.00
V Equal to or greater than 2.75 to 1.00 0.75% 2.50%
and less than 3.00 to 1.00
</TABLE>
The Applicable Margin shall be established at the end of each fiscal
quarter of the Borrower (each, a "Determination Date"). Any change
in the Applicable Margin following each Determination Date shall be
determined based upon the computations set forth in the Compliance
Certificate furnished to the Agent pursuant to Section 7.01(a)(ii)
and Section 7.01(b)(ii), subject to review and approval of such
computations by the Agent, shall be effective commencing on the date
following the date such Compliance Certificate is received (or, if
earlier, the date such Compliance Certificate was required to be
delivered) until the date following the date on which a new
Compliance Certificate is delivered or is required to be delivered,
whichever shall first occur; provided, however, if the Borrower shall
fail to deliver any such Compliance Certificate within the time
period required by Section 7.01, then the Applicable Margin shall be
Tier V until the appropriate Compliance Certificate is so delivered.
From the Closing Date to the date next following the date the first
Compliance Certificate is received, the Applicable Margin shall be
Tier IV.
"Assignment and Acceptance" shall mean an Assignment and
Acceptance substantially in the form of Exhibit B (with blanks
appropriately filled in) delivered to the Agent in connection with an
assignment of a Lender's interest under this Agreement pursuant to
Section 11.01.
"Authorized Representative" means any of the President, any Vice
President, the Chief Financial Officer, or the Controller of the
Borrower or any other person expressly designated by the Board of
Directors of the Borrower (or the appropriate committee thereof) as
an Authorized Representative of the Borrower, as set forth from time
to time in a certificate in the form attached hereto as Exhibit C.
"Base Loan" means any Loan for which the rate of interest is
determined by reference to the Base Rate.
"Base Rate" means, for any day, the rate per annum equal to the
sum of (a) the greater of (i) the Prime Rate for such day or (ii) the
Federal Funds Rate for such day plus 0.5% and (b) the Applicable
Margin for Base Loans. Any change in the Base Rate due to a change
in the Prime Rate or Federal Funds Rate shall be effective on the
effective date of such change in the Prime Rate or Federal Funds
Rate.
"Board" means the Board of Governors of the Federal Reserve
System (or any successor body).
"Borrowing Notice" means the notice delivered by an Authorized
Representative in connection with an Advance under the Revolving
Credit Facility in the form attached hereto as Exhibit D.
"Business Day" means, (i) with respect to any Base Loan, any day
which is not a Saturday, Sunday or a day on which banks in the States
of New York and North Carolina are authorized or obligated by law,
executive order or governmental decree to be closed, and (ii) with
respect to any Eurodollar Loan, any day which is a Business Day as
described above, and on which the relevant international financial
markets are open for the transaction of business contemplated by this
Agreement in London, England, New York, New York and Charlotte, North
Carolina.
"Capital Expenditures" means, with respect to the Borrower and
its Subsidiaries, for any period the sum of (without duplication) all
expenditures (whether paid in cash or accrued as liabilities) by the
Borrower or any Subsidiary during such period for items that would be
classified as "property, plant or equipment" or comparable items on
the consolidated balance sheet of the Borrower and its Subsidiaries,
including without limitation all transactional costs incurred in
connection with such expenditures provided the same have been
capitalized, excluding, however, the amount of any Capital
Expenditures paid for with proceeds of casualty insurance.
"Capital Leases" means all leases which have been or should be
capitalized in accordance with Generally Accepted Accounting
Principles as in effect from time to time including Statement No. 13
of the Financial Accounting Standards Board and any successor
thereof.
"Change of Control" means, at any time:
(i) any "person" or "group" (each as used in Sections 13(d)(3)
and (14(d)(2) of the Exchange Act), other than Persons owning 30% or
more of the Voting Stock of the Borrower on the Closing Date, either
(A) becomes the "beneficial owner" (as defined in Rule 13d-3 of the
Exchange Act), directly or indirectly, of Voting Stock of the
Borrower (or securities convertible into or exchangeable for such
Voting Stock) representing 30% or more of the combined voting power
of all Voting Stock of the Borrower (on a fully diluted basis) or (B)
otherwise has the ability, directly or indirectly, to elect a
majority of the board of directors of the Borrower;
(ii) during any period of up to 24 consecutive months,
commencing on the Closing Date, individuals who at the beginning of
such 24-month period were directors of the Borrower shall cease for
any reason (other than the death, disability or retirement of an
officer of the Borrower that is serving as a director at such time so
long as another officer of the Borrower replaces such Person as a
director) to constitute a majority of the board of directors of the
Borrower;
(iii) any two of Beth Monroe Chase, David C. Cooper, Timothy
Mann, or Mark Strassman shall cease to be executive officers of the
Borrower for any reason (other than their death or disability); or
(iv) any Person or two or more Persons, other than those
Persons listed in clause (iii) hereof, acting in concert shall have
acquired by contract or otherwise, or shall have entered into a
contract or arrangement that, upon consummation thereof, will result
in its or their acquisition of the power to exercise, directly or
indirectly, a controlling influence on the management or policies of
the Borrower. The registration and sale by the Borrower of any
security issued by it pursuant to the Securities Act of 1933, as amended,
shall not constitute a Change in Control.
"Closing Date" means the date as of which this Agreement is
executed by the Borrower, the Agent and the Lender and on which the
conditions set forth in Section 5.01 hereof have been satisfied.
"Code" means the Internal Revenue Code of 1986, as amended, any
successor provision or provisions and any regulations promulgated
thereunder.
"Collateral" means, collectively, all property of the Borrower,
any Subsidiary or any other Person in which the Agent or any Lender
is granted a Lien as security for all or any portion of the
Obligations under any Security Instrument.
"Consistent Basis" in reference to the application of Generally
Accepted Accounting Principles means the accounting principles
observed in the period referred to are comparable in all material
respects to those applied in the preparation of the audited financial
statements of the Borrower and its Subsidiaries referred to in
Section 6.01(f)(i) hereof.
"Consolidated Capitalization Ratio" means, as of the date of
computation thereof, the ratio of (i) Consolidated Funded
Indebtedness to (ii) the sum of Consolidated Funded Indebtedness and
Consolidated Shareholders' Equity.
"Consolidated Current Assets" means, as of the date of
computation thereof, cash and all other assets of the Borrower and
its Subsidiaries which are expected to be realized in cash, sold in
the ordinary course of business, or consumed within one year or which
would be classified as a current asset, all determined on a
consolidated basis in accordance with GAAP applied on a Consistent
Basis.
"Consolidated Current Liabilities" means all liabilities of the
Borrower and its Subsidiaries which by their terms are payable within
one year (including Indebtedness payable on demand or maturing not
more than one year from the date of computation and the current
portion of Indebtedness having a maturity date in excess of one year)
all determined on a consolidated basis in accordance with GAAP
applied on a Consistent Basis.
"Consolidated Current Ratio" means, as of the date of
computation thereof, the ratio of Consolidated Current Assets
(determined as at such date) to Consolidated Current Liabilities
(determined as at such date).
"Consolidated EBITDA" means, with respect to the Borrower and
its Subsidiaries for the Four-Quarter Period ending on the date of
computation thereof, the sum of, without duplication, (i)
Consolidated Net Income, (ii) Consolidated Interest Expense, (iii)
state and federal taxes on income (to the extent paid or accrued by
the Borrower and its Subsidiaries), (iv) amortization, and (v)
depreciation all determined on a consolidated basis in accordance
with GAAP applied on a Consistent Basis.
"Consolidated EBITDAR" means, with respect to the Borrower and
its Subsidiaries for the Four-Quarter Period ending on the date of
computation thereof, the sum of (i) Consolidated EBITDA plus (ii)
Consolidated Rental Expense.
"Consolidated Fixed Charge Coverage Ratio" means, with respect
to the Borrower and its Subsidiaries for the Four-Quarter Period
ending on the date of computation thereof, the ratio of (a)
Consolidated EBITDAR less Capital Expenditures for such period to (b)
Consolidated Fixed Charges.
"Consolidated Fixed Charges" means, with respect to Borrower and
its Subsidiaries, for the Four-Quarter Period ending on the date of
computation thereof, the sum of, without duplication, (i)
Consolidated Interest Expense, (ii) income taxes paid or accrued
during such period, (iii) Consolidated Rental Expense, (iv) dividends
and distributions permitted under Section 8.09, and (v) required
principal payments of Consolidated Funded Indebtedness, including,
without duplication, payments required to be made with respect to
Capital Leases all determined on a consolidated basis in accordance
with GAAP applied on a Consistent Basis.
"Consolidated Funded Indebtedness" means, as of the date of
computation thereof, Indebtedness for Money Borrowed of the Borrower
and its Subsidiaries and any liability associated with an earn-out
obligation arising in connection with an Acquisition which is
recorded as a liability on the consolidated balance sheet of the
Borrower and its Subsidiaries all as determined on a consolidated
basis in accordance with Generally Accepted Accounting Principles
applied on a Consistent Basis.
"Consolidated Interest Expense" means, with respect to the
Borrower and its Subsidiaries for the Four-Quarter Period ending on
the date of computation thereof, the gross interest expense of the
Borrower and its Subsidiaries, including without limitation (i) the
amortization of debt discounts, (ii) the amortization of all fees
(including, without limitation, fees payable in respect of a Swap
Agreement and letters of credit) payable in connection with the
incurrence of Indebtedness to the extent included in interest
expense, and (iii) the portion of any liabilities incurred in
connection with Capital Leases allocable to interest expense, all
determined on a consolidated basis in accordance with Generally
Accepted Accounting Principles applied on a Consistent Basis.
"Consolidated Leverage Ratio" means, as of the date of
computation thereof, the ratio of Consolidated Funded Indebtedness to
Adjusted Consolidated EBITDA.
"Consolidated Net Income" means, with respect to the Borrower
and its Subsidiaries for the Four-Quarter Period ending on the date
of computation thereof, the gross revenues from operations of the
Borrower and its Subsidiaries less all operating and non-operating
expenses of the Borrower and its Subsidiaries including taxes on
income, all determined on a consolidated basis in accordance with
Generally Accepted Accounting Principles applied on a Consistent
Basis; but excluding as income: (i) net gains on the sale, conversion
or other disposition of capital assets, (ii) net gains on the
acquisition, retirement, sale or other disposition of capital stock
and other securities of the Borrower or its Subsidiaries, (iii) net
gains on the collection of proceeds of life insurance policies, (iv)
any write-up of any asset, and (v) any other net gain or credit of an
extraordinary nature as determined in accordance with Generally
Accepted Accounting Principles applied on a Consistent Basis.
"Consolidated Rental Expense" means, with respect to the
Borrower and its Subsidiaries for the Four-Quarter Period ending on
the date of computation thereof, the aggregate amount of all fixed
payments (including as such all payments which the lessee is
obligated to make to the lessor on termination of the lease or
surrender of the leased property) payable by the Borrower or any of
its Subsidiaries, as lessee or sublessee under any lease of real or
personal property and shall include any amounts required to be paid
by the Borrower or any of its Subsidiaries (whether or not designated
as rents or additional rents) on account of maintenance, repairs,
insurance, taxes and similar charges.
"Consolidated Shareholders' Equity" means, as of the date of
computation thereof, the consolidated shareholders' equity as
determined in accordance with Generally Accepted Accounting
Principles applied on a Consistent Basis (excluding any upward
adjustment after the Closing Date due to revaluation of assets).
"Contingent Obligation" of any Person means all contingent
liabilities required (or which, upon the creation or incurring
thereof, would be required) to be included in the consolidated
financial statements of such Person in accordance with Generally
Accepted Accounting Principles applied on a Consistent Basis, as
defined by Statement No. 5 of the Financial Accounting Standards
Board, and any obligation of such Person guaranteeing or in effect
guaranteeing any Indebtedness, dividend or other obligation of any
other Person (the "primary obligor") in any manner, whether directly
or indirectly, including obligations of such Person however incurred:
(1) to purchase such Indebtedness or other obligation
or any property or assets constituting security therefor;
(2) to advance or supply funds in any manner (i) for
the purchase or payment of such Indebtedness or other
obligation, or (ii) to maintain a minimum working capital,
net worth or other balance sheet condition or any income
statement condition of the primary obligor;
(3) to grant or convey any lien, security interest,
pledge, charge or other encumbrance on any property or
assets of such Person to secure payment of such
Indebtedness or other obligation;
(4) to lease property or to purchase securities or
other property or services primarily for the purpose of
assuring the owner or holder of such Indebtedness or
obligation of the ability of the primary obligor to make
payment of such Indebtedness or other obligation; or
(5) otherwise to assure the owner of the Indebtedness
or such obligation of the primary obligor against loss in
respect thereof;
with respect to Contingent Obligations, such liabilities shall be
computed at the amount which, in light of all the facts and
circumstances existing at the time, represent the present value of
the amount which can reasonably be expected to become an actual or
matured liability.
"Continue", "Continuation" and "Continued" shall refer to the
continuation pursuant to Section 2.08 hereof of a Eurodollar Loan
from one Interest Period to the next Interest Period.
"Convert", "Conversion" and "Converted" shall refer to a
conversion pursuant to Section 2.08 or Article IV of one Type of Loan
into another Type of Loan.
"Cost of Acquisition" means, as at the date of entering into any
agreement to Acquire any Person, the sum of the following without
duplication: (i) any cash or other property or the face amount of
any debt instrument given as consideration; (ii) any Indebtedness or
liabilities assumed by the Borrower or its Subsidiaries in connection
with such Acquisition, including accounts payable and other current
liabilities and (iii) all amounts paid or payable in respect of
covenants not to compete, consulting agreements and other affiliated
contracts in connection with such Acquisition; provided, however,
that the Cost of Acquisition shall not include the value of the
capital stock of the Borrower to be transferred in connection
therewith.
"Default" means any event or condition which, with the giving or
receipt of notice or lapse of time or both, would constitute an Event
of Default hereunder.
"Default Rate" means (i) with respect to each Eurodollar Loan,
until the end of the Interest Period applicable thereto, a rate of
two percent (2%) above the Tier V Eurodollar Rate applicable to such
Loan, and thereafter at a rate of interest per annum which shall be
two percent (2%) above the Tier V Base Rate, (ii) with respect to
Base Loans, at a rate of interest per annum which shall be two
percent (2%) above the Tier V Base Rate and (iii) in any case, the
maximum rate permitted by applicable law, if lower.
"Dollars" and the symbol "$" means dollars constituting legal
tender for the payment of public and private debts in the United
States of America;
"Eligible Assignee" means (i) a Lender; (ii) an affiliate of a
Lender; and (iii) any other financial institution approved by the
Agent and, unless an Event of Default has occurred and is continuing
at the time any assignment is effected in accordance with Section
11.01, the Borrower, such approval not to be unreasonably withheld or
delayed by the Borrower and such approval to be deemed given by the
Borrower if no objection is received by the assigning Lender and the
Agent from the Borrower within two Business Days after written notice
of such proposed assignment has been provided by the assigning Lender
to the Borrower; provided, however, that if the Borrower would be
subject to increased costs or a tax withholding requirement under
Article III as a result of any assignment to an Eligible Assignee,
the Borrower may withhold consent; provided, further, that neither
the Borrower nor an affiliate of the Borrower shall qualify as an
Eligible Assignee.
"Eligible Securities" means the following obligations and any
other obligations previously approved in writing by the Agent:
(a) Government Securities;
(b) obligations of any corporation organized under the laws of
any state of the United States of America or under the laws of any
other nation, payable in the United States of America, expressed to
mature not later than 92 days following the date of issuance thereof
and rated in an investment grade rating category by S&P and Moody's;
(c) interest bearing demand or time deposits issued by a Lender
or certificates of deposit maturing within one year from the date of
issuance thereof and issued by a bank or trust company organized
under the laws of the United States or of any state thereof having
capital surplus and undivided profits aggregating at least
$400,000,000 and being rated A-3 or better by S&P or A or better by
Moody's;
(d) Repurchase Agreements;
(e) Pre-Refunded Municipal Obligations;
(f) shares of mutual funds which invest in obligations
described in paragraphs (a) through (g) above, the shares of which
mutual funds are at all times rated "AAA" by S&P;
(g) asset-backed remarketed certificates of participation
representing a fractional undivided interest in the assets of a
trust, which certificates are rated at least "A-1" by S&P and "P-1"
by Moody's;
(h) tax-exempt or taxable adjustable rate preferred stock
issued by a Person having a rating of its long term unsecured debt of
"A" or better by S&P or "A-3" or better by Moody's; and
(i) at the time the Borrower registers any security issued by
it pursuant to the Securities Act of 1933, as amended, obligations
permitted under an investment policy approved by the Borrower's
directors and the Agent.
"Environmental Laws" means any federal, state or local statute,
law, ordinance, code, rule, regulation, order, decree, permit or
license regulating, relating to, or imposing liability or standards
of conduct concerning, any environmental matters or conditions,
environmental protection or conservation, including without
limitation, the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended; the Superfund Amendments and
Reauthorization Act of 1986, as amended; the Resource Conservation
and Recovery Act, as amended; the Toxic Substances Control Act, as
amended; the Clean Air Act, as amended; the Clean Water Act, as
amended; together with all regulations promulgated thereunder, and
any other "Superfund" or "Superlien" law.
"ERISA" means, at any date, the Employee Retirement Income
Security Act of 1974, as amended, and the regulations thereunder, all
as the same shall be in effect at such date.
"Eurodollar Loan" means a Loan for which the rate of interest is
determined by reference to the Eurodollar Rate.
"Eurodollar Reserve Requirement" means, at any time, the maximum
rate at which reserves (including, without limitation, any marginal,
special, supplemental, or emergency reserves) are required to be
maintained under regulations issued from time to time by the Board of
Governors of the Federal Reserve System (or any successor) by member
banks of the Federal Reserve System against "Eurocurrency
liabilities" (as such term is used in Regulation D). Without
limiting the effect of the foregoing, the Reserve Requirement shall
reflect any other reserves required to be maintained by such member
banks with respect to (i) any category of liabilities which includes
deposits by reference to which the Eurodollar Rate is to be
determined, or (ii) any category of extensions of credit or other
assets which include Eurodollar Loans. The Eurodollar Rate shall be
adjusted automatically on and as of the effective date of any change
in the Eurodollar Reserve Percentage.
"Eurodollar Rate" means, for the Interest Period for any
Eurodollar Loan, the rate of interest per annum calculated according
to the following formula:
Eurodollar Interbank Offered Rate Applicable
Rate = 1-Eurodollar Reserve + Margin
Requirement
"Event of Default" means any of the occurrences set forth as
such in Section 9.01 hereof.
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to
the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by
Federal funds brokers on such day, as published by the Federal
Reserve Bank of New York on the Business Day next succeeding such
day; provided that (a) if such day is not a Business Day, the Federal
Funds Rate for such day shall be such rate on such transactions on
the next preceding Business Day as so published on the next
succeeding Business Day, and (b) if no such rate is so published on
such next succeeding Business Day, the Federal Funds Rate for such
day shall be the average rate charged to the Agent (in its individual
capacity) on such day on such transactions as determined by the
Agent.
"Fiscal Year" means the twelve month fiscal period of the
Borrower and its Subsidiaries commencing on January 1 of each
calendar year and ending on December 31 of each calendar year.
"Four-Quarter Period" means a period of four full consecutive
fiscal quarter periods, taken together as one accounting period.
"GAAP" or "Generally Accepted Accounting Principles" means those
principles of accounting set forth in pronouncements of the Financial
Accounting Standards Board, the American Institute of Certified
Public Accountants or which have other substantial authoritative
support and are applicable in the circumstances as of the date of a
report, as such principles are from time to time supplemented and
amended.
"Government Securities" means direct obligations of, or
obligations the timely payment of principal and interest on which are
fully and unconditionally guaranteed by, the United States of
America.
"Governmental Authority" shall mean any Federal, state,
municipal, national or other governmental department, commission,
board, bureau, agency or instrumentality or political subdivision
thereof or any entity or officer exercising executive, legislative or
judicial, regulatory or administrative functions of or pertaining to
any government or any court, in each case whether of a state of the
United States, the United States or a foreign governmental entity.
"Guarantors" means the Subsidiaries of the Borrower who are
required to execute and deliver to the Agent a Guaranty Agreement at
the Closing Date or thereafter pursuant to Section 7.19 hereof.
"Guaranty Agreement" means the Guaranty and Suretyship Agreement
of the Guarantors of even date herewith (or, as to Guaranties
delivered pursuant to Section 7.19 hereof, dated as of the date of
delivery thereof) in favor of the Agent, for the benefit of the
Lenders, as the same may be amended, modified or supplemented.
"Hazardous Material" means and includes any pollutant,
contaminant or hazardous, toxic or dangerous waste, substance or
material (including, without limitation petroleum products, asbestos-
containing material and lead), the generation, handling, storage,
disposal, treatment, release, discharge or emission of which is
subject to any Environmental Law.
"Indebtedness" means with respect to any Person, without
duplication, all Indebtedness for Money Borrowed, all indebtedness of
such Person for the acquisition of property, all indebtedness secured
by any Lien on the property of such Person whether or not such
indebtedness is assumed, all liability of such Person by way of
endorsements (other than for collection or deposit in the ordinary
course of business), all Contingent Obligations, all letters of
credit, all Rate Hedging Obligations and other items which in
accordance with Generally Accepted Accounting Principles is
classified as a liability on a balance sheet other than accrued
expenses and accrued taxes; but excluding all accounts payable in the
ordinary course of business so long as payment therefor is due within
one year; provided that in no event shall the term Indebtedness
include partners' capital, surplus and retained earnings, minority
interest in Persons, lease obligations (other than pursuant to
Capital Leases), reserves for current and deferred income taxes and
investment credits, other deferred credits and reserves, and deferred
compensation obligations.
"Indebtedness for Money Borrowed" means all indebtedness in
respect of money borrowed, including without limitation all Capital
Leases and the deferred purchase price of any property or asset,
evidenced by a promissory note, bond or similar written obligation
for the payment of money (including, but not limited to, conditional
sales or similar title retention agreements).
"Interbank Offered Rate" means, with respect to any Eurodollar
Loan, for the Interest Period applicable thereto, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing
on Telerate Page 3750 (or any successor page) as the London interbank
offered rate for deposits in Dollars at approximately 11:00 a.m.
(London time) two Business Days prior to the first day of such
Interest Period for a term comparable to such Interest Period. If
for any reason such rate is not available, the term "Interbank
Offered Rate" shall mean, for any Eurodollar Loan for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary,
the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the
London interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) two Business Days prior to the
first day of such Interest Period for a term comparable to such
Interest Period; provided, however, if more than one rate is
specified on Reuters Screen LIBO Page, the applicable rate shall be
the arithmetic mean of all such rates.
"Interest Period" for each Eurodollar Loan means a period
commencing on the date such Eurodollar Loan is made or Converted and
each subsequent period commencing on the last day of the immediately
preceding Interest Period for such Eurodollar Loan, and ending, at
the Borrower's option, on the date one, two, three or six months
thereafter as notified to the Agent by the Authorized Representative
three (3) Business Days prior to the beginning of such Interest
Period; provided, that,
(i) if the Authorized Representative fails to notify
the Agent of the length of an Interest Period three (3)
Business Days prior to the first day of such Interest
Period, the Loan for which such Interest Period was to be
determined shall be deemed to be a Base Loan as of the
first day thereof;
(ii) if an Interest Period for a Eurodollar Loan
would end on a day which is not a Business Day such
Interest Period shall be extended to the next Business Day
(unless such extension would cause the applicable Interest
Period to end in the succeeding calendar month, in which
case such Interest Period shall end on the next preceding
Business Day);
(iii) any Interest Period which begins on the last
Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar
month at the end of such Interest Period) shall end on the
last Business Day of a calendar month;
(iv) no Interest Period shall extend past the
Revolving Credit Termination Date; and
(v) on any day there shall not be in effect more
than five (5) Interest Periods.
"Interest Rate Selection Notice" means the written notice
delivered by an Authorized Representative in connection with the
election of a subsequent Interest Period for any Eurodollar Loan or
to Convert a Loan or Loans of any Type hereunder, as such election or
conversion shall be otherwise permitted herein. Any Interest Rate
Selection Notice shall be binding on and irrevocable by the Borrower
and in the form attached hereto as Exhibit E and incorporated herein
by reference.
"Lien" means any interest in property securing any obligation
owed to, or a claim by, a Person other than the owner of the
property, whether such interest is based on the common law, statute
or contract, and including but not limited to the lien or security
interest arising from a mortgage, encumbrance, pledge, security
agreement, conditional sale or trust receipt or a lease, consignment
or bailment for security purposes. For the purposes of this
Agreement, the Borrower and its Subsidiaries shall be deemed to be
the owners of any property which any of them have acquired or hold
subject to a conditional sale agreement, financing lease, or other
arrangement pursuant to which title to the property has been retained
by or vested in some other Person for security purposes.
"Loan" or "Loans" means any borrowing under the Revolving Credit
Facility.
"Loan Documents" means this Agreement, the Notes, the Guaranty
Agreements, the Security Instruments and all other instruments and
documents heretofore or hereafter executed or delivered to and in
favor of the Agent for the benefit of the Lenders in connection with
the Loans made and transactions contemplated under this Agreement, as
the same may be amended, modified or supplemented from the time to
time.
"Loan Parties" means the Borrower and the Guarantors.
"Material Adverse Effect" means a material adverse effect on (i)
the business, properties, operations or condition, financial or
otherwise, of the Borrower or any of its Subsidiaries taken as a
whole, (ii) the ability of any Loan Party to pay or perform its
respective obligations, liabilities and indebtedness under the Loan
Documents as such payment or performance becomes due in accordance
with the terms thereof, or (iii) the rights, powers, and remedies of
the Agent or any Lender under any Loan Document or the validity,
legality or enforceability thereof (including for purposes of clauses
(ii) and (iii) the imposition of burdensome conditions thereon).
"Merger Agreement A" means the Agreement and Plan of
Reorganization dated as of April 16, 1997 by and among the Borrower,
Cooper, DCCA, EKT, Infinity and the other parties thereto.
"Merger Agreement B" means the Agreement and Plan of
Reorganization dated as of April 27, 1997 by and among the Borrower,
Cama and the other parties thereto.
"Merger Agreements" means, collectively, Merger Agreement A and
Merger Agreement B.
"Moody's" means Moody's Investors Service, Inc., a Delaware
corporation.
"Multi-employer Plan" means an employee pension benefit plan
covered by Title IV of ERISA and in respect of which the Borrower or
any Subsidiary is an "employer" as described in Section 4001(b) of
ERISA, which is also a multi-employer plan as defined in Section
4001(a)(3) of ERISA;
"Notes" means collectively, the promissory notes of the Borrower
evidencing Loans executed and delivered to the Lenders as provided in
Section 2.06 hereof substantially in the form attached hereto as
Exhibit F, with appropriate insertions as to amounts, dates and names
of Lenders.
"Obligations" means the obligations, liabilities and
Indebtedness of the Borrower with respect to (i) the principal and
interest on the Loans as evidenced by the Notes, (ii) all liabilities
of Borrower to the Lenders which arise under a Swap Agreement, and
(iii) the payment and performance of all other obligations,
liabilities and Indebtedness of the Borrower to the Lenders
hereunder, under any one or more of the other Loan Documents or with
respect to the Loans.
"Outstanding" means, as of any date of determination, the
aggregate principal amount of all Loans then outstanding and all
interest accrued thereon.
"Permitted Liens" means:
(a) Liens created under the Security Instruments in favor of
the Agent and the Lenders, and otherwise existing as of the date
hereof and as set forth in Schedule 6.01(g);
(b) Liens imposed by law for taxes, assessments or charges of
any Governmental Authority for claims not yet due or which are being
contested in good faith by appropriate proceedings diligently
conducted and with respect to which adequate reserves or other
appropriate provisions are being maintained in accordance with GAAP
and which liens are not yet enforceable against other creditors;
(c) statutory Liens of landlords and liens of carriers,
warehousemen, mechanics, materialmen and other Liens imposed by law
or created in the ordinary course of business and in existence less
than 90 days from the date of creation thereof for amounts note yet
due or which are being contested in good faith by appropriate
proceedings diligently conducted and with respect to which adequate
reserves or other appropriate provisions are being maintained in
accordance with GAAP and which Liens are not yet enforceable against
other creditors;
(d) Liens incurred or deposits made in the ordinary course of
business (including, without limitation, surety bonds and appeal
bonds) in connection with workers' compensation, unemployment
insurance and other types of social security benefits or to secure
the performance of tenders, bids, leases, contracts (other than for
the repayment of Indebtedness) statutory obligations and other
similar obligations or arising as a result of progress payments under
government contracts;
(e) any Lien existing on any properties of any corporation at
the time it becomes a Subsidiary of the Borrower pursuant to Section
7.19, or existing prior to the time of Acquisition upon any
properties acquired by the Borrower or any Subsidiary as permitted
herein, whether or not assumed by the Borrower or such Subsidiary;
(f) pledges or deposits for the purpose of securing a stay or
discharge in the course of any legal proceeding arising in the course
of ordinary business and which could not reasonably be expected to
have a Material Adverse Effect;
(g) Liens consisting of encumbrances in the nature of zoning
restrictions, easements, rights and restrictions of record on the use
of real property on the date of Acquisition thereof which do not
materially detract from the value of such property or impair the use
thereof;
(h) any Lien in favor of the United States of America or any
department or agency thereof, or in favor of any state government or
political subdivision thereof, or in favor of a prime contractor
under a government contract of the United States, or of any state
government or any political subdivision thereof, and, in each case,
resulting from acceptance of partial, progress, advance or other
payments in the ordinary course of business under government
contracts of the United States, or of any state government or any
political subdivision thereof, or subcontracts thereunder;
(i) Liens securing Indebtedness permitted under Section 8.05
hereof; and
(j) any Lien renewing, extending, refinancing or refunding any
Lien permitted by clauses (a) through (i) above; provided, however,
that the principal amount secured is not increased, the maturity is
not accelerated, and the Lien is not extended to any other
properties.
"Person" means an individual, partnership, corporation, limited
liability company, trust, unincorporated organization, association,
joint venture or a government or agency or political subdivision
thereof.
"Pledge Agreement" means, collectively (or individually as the
context may indicate), (i) that certain Stock Pledge Agreement dated
as of the date hereof between the Borrower and the Agent for the
benefit of the Agent and the Lenders and (ii) any additional Stock
Pledge Agreement delivered to the Agent pursuant to Section 7.19 as
hereafter amended, supplemented or replaced from time to time.
"Pledged Stock" has the meaning given to such term in the Pledge
Agreement.
"Pre-Refunded Municipal Obligations" means obligations of any
state of the United States of America or of any municipal corporation
or other public body organized under the laws of any such state which
are rated, based on the escrow, in the highest investment rating
category by both S&P and Moody's and which have been irrevocably
called for redemption and advance refunded through the deposit in
escrow of Government Securities or other debt securities which are
(i) not callable at the option of the issuer thereof prior to
maturity, (ii) irrevocably pledged solely to the payment of all
principal and interest on such obligations as the same becomes due
and (iii) in a principal amount and bear such rate or rates of
interest as shall be sufficient to pay in full all principal of,
interest, and premium, if any, on such obligations as the same
becomes due as verified by a nationally recognized firm of certified
public accountants.
"Prime Rate" means the per annum rate of interest established
from time to time by NationsBank as its prime rate, which rate may
not be the lowest rate of interest charged by NationsBank to its
customers.
"Principal Office" means the office of the Agent presently
located at 6610 Rockledge Drive, MD2-600-03-02, Bethesda, Maryland
20817 Attention:Ms. Barbara Levy, or such other office and address as
the Agent may from time to time designate in writing.
"Rate Hedging Obligations" means any and all obligations of the
Borrower, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals,
extensions and modifications thereof and substitutions therefor),
under (a) any and all agreements, devices or arrangements designed to
protect at least one of the parties thereto from the fluctuations of
interest rates, exchange rates or forward rates applicable to such
party's assets, liabilities or exchange transactions, including, but
not limited to, dollar-denominated or cross-currency interest rate
exchange agreements, forward currency exchange agreements, interest
rate cap or collar protection agreements, forward rate currency or
interest rate options, puts, warrants and those commonly known as
interest rate "swap" agreements; and (b) any and all cancellations,
buybacks, reversals, terminations or assignments of any of the
foregoing.
"Regulation D" means Regulation D of the Board as the same may
be amended or supplemented from time to time.
"Repurchase Agreement" means a repurchase agreement entered into
with any financial institution whose debt obligations or commercial
paper are rated "A" by either of S&P or Moody's or "A-1" by S&P or
"P-1" by Moody's.
"Required Lenders" means, as of any date, Lenders on such date
having Credit Exposures (as defined below) aggregating at least 51%
of the aggregate Credit Exposures of all the Lenders on such date.
For purposes of the preceding sentence, the amount of the "Credit
Exposure" of each Lender shall be equal at all times (a) other than
following the occurrence and during the continuance of an Event of
Default, to its Revolving Credit Commitment, and (b) following the
occurrence and during the continuance of an Event of Default, to the
aggregate principal amount of the Loans owing to such Lender plus the
aggregate unutilized amounts of such Lender's Revolving Credit
Commitment.
"Revolving Credit Commitment" means, with respect to each
Lender, the obligation of such Lender to make Advances to the
Borrower up to an aggregate principal amount at any one time
outstanding equal to such Lender's Applicable Commitment Percentage
of the Total Revolving Credit Commitment.
"Revolving Credit Facility" means the facility described in
Article II hereof providing for Loans to the Borrower by the Lenders
in the aggregate principal amount of up to the Total Revolving Credit
Commitment.
"Revolving Credit Termination Date" means (i) May 31, 2000 or
(ii) such earlier date of termination of Lenders' obligations
pursuant to Section 9.01 upon the occurrence of an Event of Default,
or (iii) such date as the Borrower may voluntarily permanently
terminate the Revolving Credit Facility by payment in full of all
Obligations.
"S&P" means Standard & Poor's, a division of McGraw-Hill
Companies;
"Security Agreement" means, collectively (or individually as the
context may indicate) (i) the Security Agreement dated as of the date
hereof by the Borrower to the Agent, and (ii) any additional Security
Agreement delivered to the Agent pursuant to Section 7.19, as
hereafter modified, amended or supplemented from time to time.
"Security Instruments" means, collectively, the Pledge
Agreement, the Security Agreement and all other agreements,
instruments and other documents, whether now existing or hereafter in
effect, pursuant to which the Borrower or any Subsidiary shall grant
or convey to the Agent or the Lenders a Lien in property as security
for all or any portion of the Obligations, as any of them may be
amended, modified or supplemented from time to time.
"Single Employer Plan" means any employee pension benefit plan
covered by Title IV of ERISA and in respect of which the Borrower or
any Subsidiary is an "employer" as described in Section 4001(b) of
ERISA, which is not a Multi-employer Plan.
"Solvent" means, when used with respect to any Person, that at
the time of determination:
(i) the fair value of its assets is in excess of the
total amount of its liabilities, including, without
limitation, Contingent Obligations; and
(ii) it is then able and expects to be able to pay
its debts as they mature; and
(iii) it has capital sufficient to carry on its
business as conducted and as proposed to be conducted.
"Subsidiary" means any corporation or other entity in which more
than 50% of its outstanding voting stock or more than 50% of all
equity interests is owned directly or indirectly by the Borrower
and/or by one or more of the Borrower's Subsidiaries.
"Swap Agreement" means one or more agreements with respect to
Indebtedness evidenced by the Notes between the Borrower and a
Lender, on terms mutually acceptable to such Borrower and such
Lender, which agreements create Rate Hedging Obligations.
"Total Revolving Credit Commitment" means (i) from the Closing
Date through May 31, 1999 a principal amount equal to $15,000,000,
and (ii) after May 31, 1999, if Consolidated EBITDA for the Fiscal
Year ended December 31, 1998 does not exceed $6,000,000, a principal
amount of $12,000,000 unless the Required Lenders shall have elected
otherwise, as reduced from time to time in accordance with
Section 2.7.
"Type" shall mean any type of Loan (i.e., a Base Loan or
Eurodollar Loan).
"Unused Fee" means that percent per annum set forth below, which
shall be based upon the Consolidated Leverage Ratio for the Four-
Quarter Period most recently ended as set forth below:
<TABLE>
<CAPTION>
Tier Consolidated Leverage Ratio Unused Fee
<S> <C> <C>
I Less than 2.00 to 1.00 0.250%
II Equal to or greater than 2.00 to 1.00 0.375%
and less than 3.00 to 1.00
</TABLE>
The Unused Fee shall be established at the end of each fiscal quarter
of the Borrower (the "Determination Date"). Any change in the Unused
Fee following each Determination Date shall be determined based upon
the computations set forth in the Compliance Certificate furnished to
the Agent pursuant to Section 7.01(a)(ii) and Section 7.01(b)(ii),
subject to review and approval of such computations by the Agent and
shall be effective commencing on the date following the date such
Compliance Certificate is received (or, ir earlier, the date such
certificate was required to be delivered) until the date following
the date on which a new Compliance Certificate is delivered or is
required to be delivered, whichever shall first occur; provided,
however, if the Borrower shall fail to deliver any such Compliance
Certificate within the time period required by Section 7.01, then the
Unused Fee shall be Tier II. From the Closing Date to the date next
following the date the first Compliance Certificate is received, the
Unused Fee shall be Tier II.
1.02 Accounting Terms. All accounting terms not specifically defined
herein shall have the meanings assigned to such terms and shall be interpreted
in accordance with Generally Accepted Accounting Principles applied on a
Consistent Basis.
1.03 Cross References. Unless otherwise specified, references in this
Agreement and in each Loan Document to any Article or Section are references to
such Article or Section of this Agreement or such Loan Document, as the case
may be, and, unless otherwise specified, references in any Article, Section or
definition to any clause are references to such clause of such Section, Article
or definition.
1.04 Headings and References. The headings of the Articles and Sections
of this Agreement are inserted for convenience of reference only and are not
intended to be a part of, or to affect the meaning or interpretation of this
Agreement. Words such as "hereof", "hereunder", "herein" and words of similar
import shall refer to this Agreement in its entirety and not to any particular
Section or provisions hereof, unless so expressly specified. As used herein,
the singular shall include the plural, and the masculine shall include the
feminine or a neutral gender, and vice versa, whenever the context requires.
1.05 Accounting and Financial Determinations. Where the character or
amount of any asset or liability or item of income or expense is required to be
determined, or any accounting computation is required to be made, for the
purpose of this Agreement, such determination or calculation shall, to the
extent applicable, be made in accordance with Generally Accepted Accounting
Principles applied on a Consistent Basis except insofar as:
(a) the Borrower shall have elected (with the concurrence of
its independent public accountant and upon prior written notification
to the Lenders) to adopt more recently promulgated Generally Accepted
Accounting Principles (which election shall continue to be effective
for subsequent years); and
(b) the Agent and the Required Lenders shall have consented to
such election (it being understood that such consent may be
conditioned upon the implementation of such changes to Section 7.01
as appropriate to reflect such adoption of more recently promulgated
Generally Accepted Accounting Principles and it being further
understood that such consent shall be deemed to have been given upon
the implementation of such changes).
Upon a change in Generally Accepted Accounting Principles which becomes
effective after the Closing Date which would have a material effect on the
Company's consolidated financial statements and the assets and liabilities
reflected therein or otherwise affect the calculation or the application of the
covenants contained in Article VIII hereof and the determination of the
Applicable Margin and the Unused Fee, such change shall not be given effect for
purposes hereof until sixty (60) days from the otherwise effective date of such
change. Prior to such effectiveness the Agent, the Lenders and the Borrower
shall in good faith negotiate to amend the pertinent provisions of this
Agreement to account for such change to the extent appropriate to effect the
substance thereof as of the Closing Date. If such an amendment is not entered
into with respect to any such change, such change shall not be given effect for
purposes hereof.
1.06 General Provisions Relating to Definitions. Terms for which meanings
are defined in this Agreement shall apply equally to the singular and plural
forms of the terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms. The term
"including" means including, without limiting the generality of any description
preceding such term. Each reference herein to any Person shall include a
reference to such Person's successors and assigns. References to any
instrument defined in this Agreement refer to such instrument as originally
executed or, if subsequently varied, replaced or supplemented from time to
time, as so varied, replaced or supplemented and in effect at the relevant time
of reference thereto.
1.07 Attorneys' Fees. Whenever any provision in this Agreement or any of
the other Loan Documents refers to the obligation of the Borrower or any
Guarantor to reimburse the Agent or any Lender for attorneys' fees incurred by
such Person, the Borrower and any Guarantor shall only be required to
reimburse such Persons for the reasonable and actual attorney's fees incurred
and shall not be responsible for any attorneys' fees imposed by statute based
upon any percentage of outstanding indebtedness.
1.08 References to Time. Unless otherwise indicated, all references to
any time in this Agreement or any of the Loan Documents shall be deemed
references to Charlotte, North Carolina time.
ARTICLE II
The Loans
2.01 Revolving Credit Facility
(a) Commitment. Subject to the terms and conditions of this
Agreement, each Lender agrees to make Advances to the Borrower, from
time to time from the Closing Date until the Revolving Credit
Termination Date on a pro rata basis as to the total borrowing
requested by the Borrower under the Revolving Credit Facility on any
day determined by its Applicable Commitment Percentage of the Total
Revolving Credit Commitment up to but not exceeding the Revolving
Credit Commitment of such Lender, provided, however, that the Lenders
will not be required and shall have no obligation to make any Advance
(i) so long as a Default or an Event of Default has occurred and is
continuing or (ii) if the Agent (in accordance with the terms of this
Agreement) has accelerated the maturity of the Notes as a result of
an Event of Default; provided further, however, that immediately
after giving effect to each Advance, the principal amount of
Outstandings shall not exceed the Total Revolving Credit Commitment.
Within such limits, the Borrower may borrow, repay and reborrow
hereunder, on a Business Day from the Closing Date until, but (as to
borrowings and reborrowings) not including, the Revolving Credit
Termination Date; provided, however, that (x) no Eurodollar Loan
shall be made which has an Interest Period that extends beyond the
Revolving Credit Termination Date and (y) each Eurodollar Loan may,
subject to the provisions of Section 2.08, be repaid only on the last
day of the Interest Period with respect thereto unless such payment
is accompanied by the additional payment, if any, required by Section
3.05.
(b) Amounts. The aggregate unpaid principal amount of the
Outstandings shall not exceed at any time, an amount equal to the
Total Revolving Credit Commitment. Each Loan hereunder and each
Conversion under Section 2.08 shall be in an amount of at least
$250,000 or such greater amount which is an integral multiple of
$50,000.
(c) Advances. (i) An Authorized Representative shall give the
Agent (A) at least three (3) Business Days' irrevocable written
notice by telefacsimile transmission of a Borrowing Notice or
Interest Rate Selection Notice (as applicable) with appropriate
insertions, effective upon receipt, of each Loan that is a Eurodollar
Loan (whether representing an additional borrowing hereunder or the
Conversion of borrowing hereunder from Base Loans to Eurodollar Loans
or the Continuation of a Eurodollar Loan for an additional Interest
Period) prior to 10:30 A.M. Charlotte, North Carolina time and (B)
irrevocable written notice by telefacsimile transmission of a
Borrowing Notice or Interest Rate Selection Notice (as applicable)
with appropriate insertions, effective upon receipt, of each Loan
that is a Base Loan (whether representing an additional borrowing
hereunder or the Conversion of borrowing hereunder from Eurodollar
Loans to Base Loans) prior to 10:30 A.M. Charlotte, North Carolina
time on the day of such proposed Loan. Each such notice shall
specify the amount of the borrowing, the Type (Base or Eurodollar),
the date of borrowing and, if a Eurodollar Loan, the Interest Period
to be used in the computation of interest. Notice of receipt of
such Borrowing Notice or Interest Rate Selection Notice, as the case
may be, together with the amount of each Lender's portion of an
Advance requested thereunder, shall be provided by the Agent to each
Lender by telefacsimile transmission with reasonable promptness, but
(provided the Agent shall have received such notice by 10:30 A.M.)
not later than 1:00 P.M. on the same day as the Agent's receipt of
such notice.
(ii) Not later than 2:00 P.M. Charlotte, North Carolina time on
the date specified for each borrowing under this Section 2.01, each
Lender shall, pursuant to the terms and subject to the conditions of
this Agreement, make the amount of the Advance or Advances to be made
by it on such day available by wire transfer to the Agent in the
amount of its pro rata share, determined according to such Lender's
Applicable Commitment Percentage of the Loan or Loans to be made on
such day. Such wire transfer shall be directed to the Agent at the
Principal Office and shall be in the form of Dollars constituting
immediately available funds. The amount so received by the Agent
shall, subject to the terms and conditions of this Agreement, be made
available to the Borrower by delivery of the proceeds thereof to a
demand deposit account which may be maintained at one or more offices
of the Agent or an agent of the Agent or as shall be directed in the
applicable Borrowing Notice by the Authorized Representative and
reasonably acceptable to the Agent.
(iii) The Borrower shall have the option to elect the duration
of the initial and any subsequent Interest Periods and to Convert the
Loans in accordance with Section 2.08. Eurodollar Loans and Base
Loans may be outstanding at the same time, provided, however, there
shall not be outstanding at any one time Eurodollar Loans having more
than five (5) different Interest Periods. If the Agent does not
receive a Borrowing Notice or an Interest Rate Selection Notice
giving notice of election of the duration of an Interest Period or of
Conversion of any Loan to or Continuation of a Loan as a Eurodollar
Loan by the time prescribed by Section 2.01(c) or 2.08, the Borrower
shall be deemed to have elected to Convert such Loan to (or Continue
such Loan as) a Base Loan until the Borrower notifies the Agent in
accordance with Section 2.08.
2.02 Payment of Interest. (a) The Borrower shall pay interest to the
Agent at the Principal Office for the account of each Lender on the outstanding
and unpaid principal amount of each Loan made by such Lender for the period
commencing on the date of such Loan until such Loan shall be due at the
Eurodollar Rate or the Base Rate, as elected or deemed elected by the Borrower
or otherwise applicable to such Loan as herein provided, provided, however,
that if any amount shall not be paid when due (at maturity, by acceleration or
otherwise), all amounts outstanding hereunder shall bear interest thereafter at
the Default Rate from the date such amount was due and payable until the date
such amount is paid in full.
(b) Interest on each Loan shall be computed on the basis of a year of 360
days and calculated for the actual number of days elapsed. Interest on each
Loan shall be paid (i) quarterly in arrears on the last Business Day of each
March, June, September and December, commencing June 30, 1997, on each Base
Loan, (ii) on the last day of the applicable Interest Period for each
Eurodollar Loan and, if any Interest Period extends for more than three
months, at intervals of three months after the first day of the Interest Period
in respect of the related Eurodollar Loan and (iii) upon payment in full of the
principal amount of the Loan at the Revolving Credit Termination Date.
2.03 Payment of Principal. The principal amount of the Outstandings shall
be due and payable to the Agent for the benefit of each Lender in full on the
Revolving Credit Termination Date, or earlier as herein expressly provided.
The principal amount of Eurodollar Loans may only be prepaid at the end of the
applicable Interest Period, unless the Borrower shall pay to the Agent for the
account of the Lenders the amount, if any, required under Section 3.05. The
Borrower shall furnish the Agent written notice of its intention to make a
principal payment prior to 11:00 A.M. Charlotte, North Carolina time on the
date of such payment. All payments of principal on Loans shall be in the
amount of $250,000 or such greater amount which is an integral multiple of
$50,000.
2.04 Non-Conforming Payments. (a) Each payment of principal (including
any prepayment) and payment of interest and fees, and any other amount required
to be paid to the Lenders with respect to the Loans, shall be made to the Agent
at the Principal Office, for the account of each Lender, in Dollars and in
immediately available funds before 12:30 P.M. Charlotte, North Carolina time on
the date such payment is due. The Agent may, but shall not be obligated to,
debit the amount of any such payment which is not made by such time to any
ordinary deposit account, if any, of the Borrower with the Agent.
(b) The Agent shall deem any payment made by or on behalf of the Borrower
hereunder that is not made both in Dollars and in immediately available funds
and prior to 12:30 P.M. Charlotte, North Carolina time on the date such payment
is due to be a non-conforming payment. Any such payment shall not be deemed to
be received by the Agent until the first Business Day on which such funds were
available prior to 12:30 P.M. Charlotte, North Carolina time. Any non-
conforming payment may constitute or become a Default or Event of Default.
Interest shall continue to accrue on any principal as to which a non-conforming
payment is made until the first Business Day on which such funds were available
prior to 12:30 P.M. Charlotte, North Carolina time at the Default Rate from the
date such amount was due and payable.
(c) In the event that any payment hereunder or under the Notes becomes
due and payable on a day other than a Business Day, then such due date shall be
extended to the next succeeding Business Day unless provided otherwise under
clause (ii) of the definition of "Interest Period"; provided that interest
shall continue to accrue during the period of any such extension and provided
further, that in no event shall any such due date be extended beyond the
Revolving Credit Termination Date.
2.05 Bank Account. The Borrower shall continuously maintain an account
with the Agent for the purposes herein contemplated.
2.06 Notes. Loans made by each Lender, shall be evidenced by, and be
repayable with interest in accordance with the terms of, the Note payable to
the order of such Lender in the amount of its Applicable Commitment Percentage
of the Total Revolving Credit Commitment, which Note shall be dated the Closing
Date or such later date pursuant to an Assignment and Acceptance and shall be
duly completed, executed and delivered by each Borrower.
2.07 Reductions. The Borrower shall, by notice from an Authorized
Representative, have the right from time to time (but not more frequently than
once during each fiscal quarter), upon not less than two (2) Business Days'
written notice to the Agent to reduce the Total Revolving Credit Commitment.
Each such reduction shall be in the aggregate amount of $1,000,000 or such
greater amount which is in an integral multiple of $500,000, or the entire
remaining Total Revolving Credit Commitment. No such reduction shall result in
the payment of any Eurodollar Loan other than on the last day of the Interest
Period of such Loan unless such prepayment is accompanied by amounts due, if
any, under Section 3.05. Each reduction of the Total Revolving Credit
Commitment shall be accompanied by payment of the Loans to the extent that the
Outstandings exceed the Total Revolving Credit Commitment, after giving effect
to such reduction, together with accrued and unpaid interest on the amounts
prepaid.
2.08 Conversions and Elections of Subsequent Interest Periods. Provided
that no Default or Event of Default shall have occurred and be continuing and
subject to the limitations set forth below and in Article III hereof, the
Borrower may:
(a) upon delivery, effective upon receipt, of a properly
completed Interest Rate Selection Notice to the Agent on or before
10:30 A.M. Charlotte, North Carolina time on any Business Day,
Convert all or a part of Eurodollar Loans to Base Loans on the last
day of the Interest Period for such Eurodollar Loans; and
(b) upon delivery, effective upon receipt, of a properly
completed Interest Rate Selection Notice to the Agent on or before
10:30 A.M. three (3) Business Days' prior to the date of such
election or Conversion:
(i) elect a subsequent Interest Period for all or a
portion of Eurodollar Loans to begin on the last day of the
then current Interest Period for such Eurodollar Loans; and
(ii) Convert Base Loans to Eurodollar Loans on any
Business Day.
Each election and Conversion pursuant to this Section 2.08 shall be
subject to the limitations on Eurodollar Loans set forth in the definition of
"Interest Period" herein and in Section 2.01 and Article III. The Agent shall
give written notice to each Lender of such notice of election or Conversion
prior to 2:00 P.M. on the day such notice of election or Conversion is
received. All such Continuations or Conversions of Loans shall be effected pro
rata based on the Applicable Commitment Percentages of the Lenders.
2.09 Pro Rata Payments. Except as otherwise provided herein, (a) each
payment and prepayment on account of the principal of and interest on the Loans
and the fees described in Section 2.10 hereof shall be made to the Agent in the
aggregate amount payable to the Lenders for the account of the Lenders pro rata
based on their Applicable Commitment Percentages, (b) all payments to be made
by the Borrower for the account of each of the Lenders on account of
principal, interest and fees, shall be made without set-off or counterclaim,
and (c) the Agent will distribute such payments when received to the Lenders as
provided for herein.
2.10 Unused Fee. For the period beginning on the Closing Date and ending
on the Revolving Credit Termination Date (or such earlier date on which the
Revolving Credit Facility has terminated), the Borrower agrees to pay to the
Agent, for the pro rata benefit of the Lenders based on their Applicable
Commitment Percentages an Unused Fee equal to the Unused Fee per annum times
the daily amount by which the Total Revolving Credit Commitment exceeds the
average daily Outstandings. Such payments of fees provided for in this Section
shall be due in arrears on the last Business Day of each March, June, September
and December beginning June 30, 1997 to and on the Revolving Credit Termination
Date (or such earlier date on which the Revolving Credit Facility has
terminated). Such fee shall be calculated on the basis of a year of 360 days
for the actual number of days elapsed.
2.11 Deficiency Advances. No Lender shall be responsible for any default
of any other Lender in respect to such other Lender's obligation to make any
Loan hereunder nor shall the Revolving Credit Commitment of any Lender
hereunder be increased as a result of such default of any other Lender.
Without limiting the generality of the foregoing, in the event any Lender shall
fail to advance funds to the Borrower as herein provided, the Agent may in its
discretion, but shall not be obligated to, advance under the Note in its favor
as a Lender evidencing Loans all or any portion of such amount or amounts
(each, a "deficiency advance") and shall thereafter be entitled to payments of
principal of and interest on such deficiency advance in the same manner and at
the same interest rate or rates to which such other Lender would have been
entitled had it made such advance under its Note; provided that, upon payment
to the Agent from such other Lender of the entire outstanding amount of each
such deficiency advance, together with accrued and unpaid interest thereon,
from the most recent date or dates interest was paid to the Agent by the
Borrower on each Loan comprising the deficiency advance at the interest rate
per annum for overnight borrowing by the Agent from the Federal Reserve Bank,
then such payment shall be credited against the Note of the Agent evidencing
Loans in full payment of such deficiency advance and the Borrower shall be
deemed to have borrowed the amount of such deficiency advance from such other
Lender as of the most recent date or dates, as the case may be, upon which any
payments of interest were made by the Borrower thereon.
2.12 Use of Proceeds. The proceeds of the Loans made pursuant to the
Revolving Credit Facility hereunder shall be used by the Borrower to (i)
refinance existing seller notes of up to $7,000,000, (ii) fund working capital
needs of the Borrower of up to $3,000,000, and (iii) finance Acquisitions
permitted herein.
ARTICLE III
Change in Circumstances
3.01 Increased Cost and Reduced Return.
(a) If, after the date hereof, the adoption of any applicable
law, rule, or regulation, or any change in any applicable law, rule,
or regulation, or any change in the interpretation or administration
thereof by any governmental authority, central bank, or comparable
agency charged with the interpretation or administration thereof, or
compliance by any Lender (or its Applicable Lending Office) with any
request or directive (whether or not having the force of law) of any
such governmental authority, central bank, or comparable agency:
(i) shall subject such Lender (or its Applicable
Lending Office) to any tax, duty, or other charge with
respect to any Eurodollar Loans, its Note, or its
obligation to make Eurodollar Loans, or change the basis of
taxation of any amounts payable to such Lender (or its
Applicable Lending Office) under this Agreement or its Note
in respect of any Eurodollar Loans (other than taxes
imposed on the overall net income of such Lender by the
jurisdiction in which such Lender has its principal office
or such Applicable Lending Office or franchise taxes);
(ii) shall impose, modify, or deem applicable any
reserve, special deposit, assessment, or similar
requirement (other than the Eurodollar Reserve Requirement
utilized in the determination of the Eurodollar Rate)
relating to any extensions of credit or other assets of, or
any deposits with or other liabilities or commitments of,
such Lender (or its Applicable Lending Office), including
the Revolving Credit Commitment of such Lender hereunder;
or
(iii) shall impose on such Lender (or its Applicable
Lending Office) or on the London interbank market any other
condition affecting this Agreement or its Note or any of
such extensions of credit or liabilities or commitments;
and the result of any of the foregoing is to increase the cost to
such Lender (or its Applicable Lending Office) of making, Converting
into, Continuing, or maintaining any Eurodollar Loans or to reduce
any sum received or receivable by such Lender (or its Applicable
Lending Office) under this Agreement or its Note with respect to any
Eurodollar Loans, then the Borrower shall pay to such Lender on
demand such amount or amounts as will compensate such Lender for such
increased cost or reduction. If any Lender requests compensation by
the Borrower under this Section 3.01(a), the Borrower may, by notice
to such Lender (with a copy to the Agent), suspend the obligation of
such Lender to make or Continue Loans of the Type with respect to
which such compensation is requested, or to Convert Loans of any
other Type into Loans of such Type, until the event or condition
giving rise to such request ceases to be in effect (in which case the
provisions of Section 3.04 shall be applicable); provided that such
suspension shall not affect the right of such Lender to receive the
compensation so requested.
(b) If, after the date hereof, any Lender shall have determined
that the adoption of any applicable law, rule, or regulation
regarding capital adequacy or any change therein or in the
interpretation or administration thereof by any governmental
authority, central bank, or comparable agency charged with the
interpretation or administration thereof, or any request or directive
regarding capital adequacy (whether or not having the force of law)
of any such governmental authority, central bank, or comparable
agency, has or would have the effect of reducing the rate of return
on the capital of such Lender or any corporation controlling such
Lender as a consequence of such Lender's obligations hereunder to a
level below that which such Lender or such corporation could have
achieved but for such adoption, change, request, or directive (taking
into consideration its policies with respect to capital adequacy),
then from time to time upon demand the Borrower shall pay to such
Lender such additional amount or amounts as will compensate such
Lender for such reduction.
(c) Each Lender shall promptly notify the Borrower and the
Agent of any event of which it has knowledge, occurring after the
date hereof, which will entitle such Lender to compensation pursuant
to this Section 3.01 and will designate a different Applicable
Lending Office if such designation will avoid the need for, or reduce
the amount of, such compensation and will not, in the reasonable
judgment of such Lender, be otherwise disadvantageous to it. Any
Lender claiming compensation under this Section 3.01 shall prior to
such collection furnish to the Borrower and the Agent a statement
setting forth the additional amount or amounts to be paid to it
hereunder which shall be conclusive in the absence of manifest error.
In determining such amount, such Lender may use any reasonable
averaging and attribution methods.
3.02 Limitation on Types of Loans. If on or prior to the first day of any
Interest Period for any Eurodollar Loan;
(a) the Agent determines (which determination shall be
conclusive absent manifest error) that by reason of circumstances
affecting the relevant market, adequate and reasonable means do not
exist for ascertaining the Eurodollar Rate for such Interest Period;
or
(b) the Required Lenders determine (which determination shall
be conclusive) and notify the Agent that the Eurodollar Rate will not
adequately and fairly reflect the cost to the Lenders of funding
Eurodollar Loans for such Interest Period;
then the Agent shall give the Borrower prompt notice thereof specifying the
relevant Type of Loans and the relevant amounts or periods, and so long as such
condition remains in effect, the Lenders shall be under no obligation to make
additional Loans of such Type, Continue Loans of such Type, or to Convert Loans
of any other Type into Loans of such Type and the Borrower shall, on the last
day(s) of the then current Interest Period(s) for the outstanding Loans of the
affected Type, either prepay such Loans or Convert such Loans into another Type
of Loan in accordance with the terms of this Agreement.
3.03 Illegality. Notwithstanding any other provision of this Agreement,
in the event that it becomes unlawful for any Lender or its Applicable Lending
Office to make, maintain, or fund Eurodollar Loans hereunder, then such Lender
shall promptly notify the Borrower thereof and such Lender's obligation to make
or Continue Eurodollar Loans and to Convert other Types of Loans into
Eurodollar Loans shall be suspended until such time as such Lender may again
make, maintain, and fund Eurodollar Loans (in which case the provisions of
Section 3.04 shall be applicable).
3.04 Treatment of Affected Loans. If the obligation of any Lender to make
a particular Eurodollar Loan or to Continue, or to Convert Loans of any other
Type into, Loans of a particular Type shall be suspended pursuant to Section
3.01 or 3.03 hereof (Loans of such Type being herein called "Affected Loans"
and such Type being herein called the "Affected Type"), such Lender's Affected
Loans shall be automatically Converted into Base Loans on the last day(s) of
the then current Interest Period(s) for Affected Loans (or, in the case of a
Conversion required by Section 3.03 hereof, on such earlier date as such Lender
may specify to the Borrower with a copy to the Agent) and, unless and until
such Lender gives notice as provided below that the circumstances specified in
Section 3.01 or 3.03 hereof that gave rise to such Conversion no longer exist:
(a) to the extent that such Lender's Affected Loans have been
so Converted, all payments and prepayments of principal that would
otherwise be applied to such Lender's Affected Loans shall be applied
instead to its Base Loans; and
(b) all Loans that would otherwise be made or Continued by such
Lender as Loans of the Affected Type shall be made or Continued
instead as Base Loans, and all Loans of such Lender that would
otherwise be Converted into Loans of the Affected Type shall be
Converted instead into (or shall remain as) Base Loans.
If such Lender gives notice to the Borrower (with a copy to the Agent) that the
circumstances specified in Section 3.01 or 3.03 hereof that gave rise to the
Conversion of such Lender's Affected Loans pursuant to this Section 3.04 no
longer exist (which such Lender agrees to do promptly upon such circumstances
ceasing to exist) at a time when Loans of the Affected Type made by other
Lenders are outstanding, such Lender's Base Loans shall be automatically
Converted, on the first day(s) of the next succeeding Interest Period(s) for
such outstanding Loans of the Affected Type, to the extent necessary so that,
after giving effect thereto, all Loans held by the Lenders holding Loans of the
Affected Type and by such Lender are held pro rata (as to principal amounts,
Types, and Interest Periods) in accordance with their respective Commitments.
3.05 Compensation. Upon the request of any Lender, the Borrower shall pay
to such Lender such amount or amounts as shall be sufficient (in the reasonable
opinion of such Lender) to compensate it for any loss, cost, or expense
(including loss of anticipated profits) incurred by it as a result of:
(a) any payment, prepayment, or Conversion of a Eurodollar Loan
for any reason (including, without limitation, the acceleration of
the Loans pursuant to Section 9.01) on a date other than the last day
of the Interest Period for such Loan; or
(b) any failure by the Borrower for any reason (including,
without limitation, the failure of any condition precedent specified
in Article V to be satisfied) to borrow, Convert, Continue, or prepay
a Eurodollar Loan on the date for such borrowing, Conversion,
Continuation, or prepayment specified in the relevant notice of
borrowing, prepayment, Continuation, or Conversion under this
Agreement.
3.06 Taxes. (a) Any and all payments by the Borrower to or for the
account of any Lender or the Agent hereunder or under any other Loan Document
shall be made free and clear of and without deduction for any and all present
or future taxes, duties, levies, imposts, deductions, charges or withholdings,
and all liabilities with respect thereto, excluding, in the case of each Lender
and the Agent, taxes imposed on its income, and franchise taxes imposed on it,
by the jurisdiction under the laws of which such Lender (or its Applicable
Lending Office) or the Agent (as the case may be) is organized or any political
subdivision thereof (all such non-excluded taxes, duties, levies, imposts,
deductions, charges, withholdings, and liabilities being hereinafter referred
to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes
from or in respect of any sum payable under this Agreement or any other Loan
Document to any Lender or the Agent, (i) the sum payable shall be increased as
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 3.06) such Lender or
the Agent receives an amount equal to the sum it would have received had no
such deductions been made, (ii) the Borrower shall make such deductions, (iii)
the Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law, and (iv) the
Borrower shall furnish to the Agent, at its address referred to in Section
11.02, the original or a certified copy of a receipt evidencing payment
thereof.
(b) In addition, the Borrower agrees to pay any and all present or future
stamp or documentary taxes and any other excise or property taxes or charges or
similar levies which arise from any payment made under this Agreement or any
other Loan Document or from the execution or delivery of, or otherwise with
respect to, this Agreement or any other Loan Document (hereinafter referred to
as "Other Taxes").
(c) The Borrower agrees to indemnify each Lender and the Agent for the
full amount of Taxes and Other Taxes (including, without limitation, any Taxes
or Other Taxes imposed or asserted by any jurisdiction on amounts payable under
this Section 3.06) paid by such Lender or the Agent (as the case may be) and
any liability (including penalties, interest, and expenses) arising therefrom
or with respect thereto.
(d) Each Lender organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Lender listed on the signature pages hereof and
on or prior to the date on which it becomes a Lender in the case of each other
Lender, and from time to time thereafter if requested in writing by the
Borrower or the Agent (but only so long as such Lender remains lawfully able to
do so), shall provide the Borrower and the Agent with (i) Internal Revenue
Service Form 1001 or 4224, as appropriate, or any successor form prescribed by
the Internal Revenue Service, certifying that such Lender is entitled to
benefits under an income tax treaty to which the United States is a party which
reduces the rate of withholding tax on payments of interest or certifying that
the income receivable pursuant to this Agreement is effectively connected with
the conduct of a trade or business in the United States, (ii) Internal Revenue
Service Form W-8 or W-9, as appropriate, or any successor form prescribed by
the Internal Revenue Service, and (iii) any other form or certificate required
by any taxing authority (including any certificate required by Sections 871(h)
and 881(c) of the Internal Revenue Code), certifying that such Lender is
entitled to an exemption from or a reduced rate of tax on payments pursuant to
this Agreement or any of the other Loan Documents.
(e) or any period with respect to which a Lender has failed to provide
the Borrower and the Agent with the appropriate form pursuant to Section
3.06(d) (unless such failure is due to a change in treaty, law, or regulation
occurring subsequent to the date on which a form originally was required to be
provided), such Lender shall not be entitled to indemnification under Section
3.06(a) or 3.06(b) with respect to Taxes imposed by the United States;
provided, however, that should a Lender, which is otherwise exempt from or
subject to a reduced rate of withholding tax, become subject to Taxes because
of its failure to deliver a form required hereunder, the Borrower shall take
such steps as such Lender shall reasonably request to assist such Lender to
recover such Taxes.
(f) If the Borrower is required to pay additional amounts to or for the
account of any Lender pursuant to this Section 3.06, then such Lender will
agree to use reasonable efforts to change the jurisdiction of its Applicable
Lending Office so as to eliminate or reduce any such additional payment which
may thereafter accrue if such change, in the judgment of such Lender, is not
otherwise disadvantageous to such Lender.
(g) Within thirty (30) days after the date of any payment of Taxes, the
Borrower shall furnish to the Agent the original or a certified copy of a
receipt evidencing such payment.
(h) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 3.06 shall survive the termination of the Commitments and the
payment in full of the Notes.
(i) To the extent that the payment of any Lender's Taxes by the Borrower
in accordance with this Section 3.06 gives rise from time to time a Tax Benefit
(as hereinafter defined) to such Lender in any jurisdiction other than the
jurisdiction which imposed such Taxes, such Lender shall pay to the Borrower
the amount of each such Tax Benefit so recognized or received. The amount of
each Tax Benefit and, therefore, payment to the Borrower will be determined
from time to time by the relevant Lender in its sole discretion, which
determination shall be binding and conclusive on all parties hereto. Each such
payment will be due and payable by such Lender to the Borrower within a
reasonable time after the filing of the income tax return in which such Tax
Benefit is recognized or, in the case of any tax refund, after the refund is
received; provided, however, if at any time thereafter such Lender is required
to rescind such Tax Benefit or such Tax Benefit is otherwise disallowed or
nullified, the Borrower shall promptly, after notice thereof from such Lender,
repay to such Lender the amount of such Tax Benefit previously paid to the
Borrower and rescinded, disallowed or nullified. For purposes of this Section
3.06(i), "Tax Benefit" shall mean the amount by which any Lender's income tax
liability for the taxable period in question is reduced below what would have
been payable had the Borrower not been required to pay the Lender's Taxes. In
the case of any dispute with respect to the amount of any payment, the Borrower
shall have no right to any offset or withholding of payments with respect to
future payments due to any Lender under this Agreement or the Notes.
3.07 Replacement Banks. The Borrower may, in its sole discretion, on ten
(10) Business Days' prior written notice to the Agent and a Lender, cause a
Lender who has incurred increased costs or is unable to make Eurodollar Loans
to (and such Lender shall) assign, pursuant to Section 11.01, all of its rights
and obligations under this Agreement to an Eligible Assignee designated by the
Borrower which is willing to become a Lender for a purchase price equal to the
outstanding principal amount of the Loans payable to such Lender plus any
accrued but unpaid interest on such Loans, any accrued but unpaid fees with
respect to such Lender's Revolving Credit Commitment and any other amount
payable to such Lender under this Agreement; provided, however, that any
expenses or other amounts which would be owing to such Lender pursuant to any
indemnification provision hereof (including, if applicable, Section 3.05) shall
be payable to by the Borrower as if the Borrower had prepaid the Loans of such
Lender rather than such Lender having assigned its interest hereunder. The
Borrower or the assignee shall pay the applicable processing fee under Section
11.01.
ARTICLE IV
Security
4.01 Security. As security for the full and timely payment and
performance of all Obligations, the Loan Parties shall on or before the Closing
Date do all things necessary in the opinion of the Agent and its counsel to
grant to the Agent for the benefit of the Lenders a duly perfected first
priority security interest in all Collateral subject to no prior Lien (other
than Permitted Liens) or other encumbrance or restriction on transfer (other
than restrictions on transfer imposed by applicable securities laws).
4.02 Further Assurances. At the request of the Agent, the Borrower will
or will cause its Subsidiaries, as the case may be, to execute, by its duly
authorized officers, alone or with the Agent, any certificate, instrument,
statement or document, or to procure any such certificate, instrument,
statement or document, or to take such other action (and pay all connected
costs) which the Agent reasonably deems necessary from time to time to create,
continue or preserve the liens and security interests in Collateral (and the
perfection and priority thereof) of the Agent contemplated hereby and by the
other Loan Documents.
ARTICLE V
Conditions to Making Loans
5.01 Conditions of Initial Advance. The obligation of the Lenders to make
the initial Advance pursuant to this Agreement is subject to the conditions
precedent that the Agent shall have received on the Closing Date, in form and
substance satisfactory to the Agent and the Lenders, the following:
(a) executed originals of each of this Agreement, the Note and
the other Loan Documents, together with all schedules and exhibits
thereto;
(b) the pledged stock and stock powers executed in blank;
(c) favorable written opinions of special counsel to the Loan
Parties dated the Closing Date, addressed to the Lender substantially
in the form of Exhibit I attached hereto;
(d) resolutions of the boards of directors or other appropriate
governing body (or of the appropriate committee thereof) of the Loan
Parties certified by its secretary or assistant secretary as of the
Closing Date, appointing (in the case of the Borrower) the initial
Authorized Representative and approving and adopting the Loan
Documents to be executed by such Person, and authorizing the
execution and delivery thereof;
(e) specimen signatures of officers of each of the Loan Parties
executing the Loan Documents on behalf of such Person, certified by
the secretary or assistant secretary of the Borrower or Guarantor, as
applicable;
(f) the charter documents and bylaws of each of the Loan
Parties, certified by the secretary or assistant secretary of such
Guarantor;
(g) certificates issued as of a recent date by the Secretaries
of State of the jurisdiction of incorporation of each of the Loan
Parties as to the due existence and good standing of the Borrower and
each Guarantor therein;
(h) appropriate certificates of qualification to do business,
good standing and, where appropriate, authority to conduct business
under assumed name, issued in respect of each of the Loan Parties as
of a recent date by the Secretary of State or comparable official of
each jurisdiction in which the failure to be qualified to do business
or authorized so to conduct business could materially adversely
affect the business, operations or conditions, financial or
otherwise, of the Borrower or any Guarantor;
(i) receipt by the Agent and the Lenders of such fees and other
consideration as may be required by the terms of the commitment to
lend;
(j) notice of appointment of the initial Authorized
Representative;
(k) evidence of insurance required by the Loan Documents;
(l) evidence that all of the conditions required for the filing
of the articles of merger pursuant to the terms of Merger Agreement A
have been satisfied and evidence that all consents and approvals of
third parties, including those required in Section 9.8 of Merger
Agreement A and listed on Schedule 5.22 thereto, have been obtained;
and
(m) such other information, documents, instruments,
certificates and opinions as the Agent may reasonably request on or
prior to the Closing Date in connection with the consummation of the
transactions contemplated hereby.
5.02 Conditions of Loans. The obligations of the Lenders to make any
Loans hereunder on or subsequent to the Closing Date are subject to the
satisfaction of the following conditions:
(a) the Agent shall have received a Borrowing Notice if
required by Article II hereof;
(b) the representations and warranties of the Borrower set
forth in Article VI hereof and in each of the other Loan Documents
shall be true and correct in all material respects on and as of the
date of such Advance with the same effect as though such represen-
tations and warranties had been made on and as of such date, except
to the extent that such representations and warranties expressly
relate to an earlier date and except that the financial statements
referred to in Section 6.01(f)(i) shall be deemed to be those
financial statements most recently delivered to the Agent and the
Lenders pursuant to Section 7.01 hereof;
(c) at the time of, and after giving effect to, each such
Advance, no Default or Event of Default specified in Article IX
hereof, shall have occurred and be continuing; and
(d) immediately after giving effect to a Loan, Outstandings
shall not exceed the Total Revolving Credit Commitment and the
principal balance of all outstanding Loans for each Lender shall not
exceed such Lender's Revolving Credit Commitment; and
(e) in the good faith judgment of the Agent and the Lenders,
there shall not have occurred or become known to the Agent or the
Lenders any event, condition, situation or status that has had or
could reasonably be expected to result in a Material Adverse Effect.
ARTICLE VI
Representations and Warranties
6.01 Representations and Warranties. The Borrower represents and warrants
with respect to itself and each Subsidiary(which representations and warranties
shall survive the delivery of the documents mentioned herein and the making of
Loans), that:
(a) Organization and Authority.
(i) the Borrower is a corporation duly organized and
validly existing under the laws of the jurisdiction of its
incorporation;
(ii) the Borrower (x) has the requisite power and
authority to own its properties and assets and to carry on
its business as now being conducted and as contemplated in
the Loan Documents, and (y) is qualified to do business in
every jurisdiction in which failure so to qualify would
have a material adverse effect on the business or
operations taken as a whole of the Borrower;
(iii) the Borrower has the power and authority to
execute, deliver and perform this Agreement and the Notes,
and to borrow hereunder, and to execute, deliver and
perform each of the other Loan Documents to which it is a
party; and
(iv) each Guarantor has the power and authority to
execute, deliver and perform the Guaranty Agreement and
each of the other Loan Documents to which it is a party;
(v) when executed and delivered, each of the Loan
Documents to which any Loan Party is a party will be the
legal, valid and binding obligation or agreement of such
Loan Party, enforceable against such Loan Party in
accordance with its terms, subject to the effect of any
applicable bankruptcy, moratorium, insolvency,
reorganization or other similar law affecting the
enforceability of creditors' rights generally, to the
effect of general principles of equity which may limit the
availability of equitable remedies (whether in a proceeding
at law or in equity).
(b) Loan Documents. The execution, delivery and performance by
the Loan Parties of each of the Loan Documents to which it is a
party:
(i) have been duly authorized by all requisite
corporate action (including any required shareholder
approval) of each of the Loan Parties required for the
lawful execution, delivery and performance thereof;
(ii) do not violate any provisions of (1) applicable
law, rule or regulation, (2) any order of any court or
other agency of government binding on the Loan Parties or
their respective properties, or (3) the charter documents
or by-laws of the Loan Parties;
(iii) does not and will not be in conflict with,
result in a breach of or constitute an event of default, or
an event which, with notice or lapse of time, or both,
would constitute an event of default, under any indenture,
agreement or other instrument to which the Loan Parties are
a party, or by which the properties or assets of the Loan
Parties are bound;
(iv) does not and will not result in the creation or
imposition of any Lien, charge or encumbrance of any nature
whatsoever upon any of the properties or assets of the Loan
Parties except any liens in favor of the Agent for the
benefit of the Lenders created by the Loan Documents.
(c) Solvency. The Borrower is Solvent after giving effect to
the transactions contemplated by this Agreement and the other Loan
Documents.
(d) Subsidiaries and Stockholders. The Borrower has no
Subsidiaries other than those Persons listed as Subsidiaries in
Schedule 6.01(d) hereto; Schedule 6.01(d) to this Agreement states as
of the date hereof the principal place of business of the Borrower
and each Subsidiary, the authorized and issued capitalization of each
Subsidiary listed thereon, the number of shares or other equity
interests of each class of capital stock or interest issued and
outstanding of each such Subsidiary and the number and/or percentage
of outstanding shares or other equity interest (including options,
warrants and other rights to acquire any interest) of each such class
of capital stock or equity interest owned by Borrower or by any such
Subsidiary; the outstanding shares or other equity interests of each
such Subsidiary have been duly authorized and validly issued and are
fully paid and nonassessable; and Borrower and each such Subsidiary
owns beneficially and of record all the shares and other interests it
is listed as owning in Schedule 6.01(d), free and clear of any Lien
other than Liens created hereby.
(e) Ownership Interests. Borrower owns no interest in any
Person other than the Persons listed in Schedule 6.01(d) hereto and
Eligible Securities;
(f) Financial Condition. (i) The Borrower has heretofore
furnished to the Agent for the benefit of the Lenders balance sheets
of each of the Acquired Companies as at December 31, 1995, and
December 31, 1996 and the notes thereto and the related statements of
income, stockholders' equity and cash flows for the Fiscal Years then
ended, balance sheets of the Acquired Companies as of March 31, 1997,
and the related statements of income, stockholders' equity and cash
flows, in each case without notes, for and as of the three month
period then ended. Except as set forth therein, such financial
statements (including the notes thereto) present fairly the financial
condition of each of the Acquired Companies as of the end of such
Fiscal Years and the three month period and results of their
operations and the changes in their stockholders' equity for the
Fiscal Years and interim period then ended, all in conformity with
Generally Accepted Accounting Principles applied on a Consistent
Basis, subject however, in the case of unaudited interim statements
to year end adjustments;
(ii) The Borrower has heretofore furnished to the
Agent for the benefit of the Lenders pro forma historical
balance sheets of Borrower and its Subsidiaries as at
December 31, 1995 and December 31, 1996 and the notes
thereto and the related pro forma historical statements of
income, stockholders' equity and cash flows for the Fiscal
Years ended December 31, 1994, December 31, 1995 and
December 31, 1996. Except as set forth therein, such
financial statements (including the notes thereto) present
fairly the financial condition of the Borrower and its
Subsidiaries as of the end of such Fiscal Years and the
results of operations and the changes in their
stockholders' equity for the Fiscal Years then ended as if
the Acquired Companies had been Acquired on the dates of
such financial statements all in conformity with GAAP
applied on a Consistent Basis.
(iii) since March 31, 1997, there has been no material
adverse change in the condition, financial or otherwise, of
the Borrower and its Subsidiaries considered as a whole or
in the businesses, properties and operations of the
Borrower and its Subsidiaries, considered as a whole, nor
have such businesses or properties, considered as a whole,
been materially adversely affected as a result of any fire,
explosion, earthquake, accident, strike, lockout,
combination of workers, flood, embargo or act of God;
(iv) except as set forth in the financial statements
referred to in Section 6.01(f)(i) or in Schedule 6.01(f) or
Schedule 6.01(j) hereto, neither Borrower nor any
Subsidiary has incurred, other than in the ordinary course
of business and professional fees associated with the
transactions contemplated under the Merger Agreements and
this Agreement, any material indebtedness, obligations,
commitments or other liability contingent or otherwise
which remain outstanding or unsatisfied;
(g) Title to Properties. The Borrower has title to all its
real and personal properties, subject to no transfer restrictions or
Liens of any kind, except for Permitted Liens;
(h) Taxes. The Borrower and each Subsidiary has filed or
caused to be filed all federal, state and local tax returns which are
required to be filed by it and except for taxes and assessments being
contested in good faith and against which reserves satisfactory to
the Borrower's independent certified public accountants have been
established, has paid or caused to be paid all taxes as shown on said
returns or on any assessment received by it, to the extent that such
taxes have become due;
(i) Other Agreements. Except as set forth on Schedule 6.01(i),
neither the Borrower nor any Subsidiary is
(i) a party to any judgment, order, decree or any
agreement or instrument or subject to restrictions
materially adversely affecting the business, properties or
assets, operation or condition (financial or otherwise) of
the Borrower or any Subsidiary considered as a whole; or
(ii) in default in the performance, observance or
fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument to
which the Borrower or any Subsidiary is a party, which
default has, or if not remedied within any applicable grace
period could have, a material adverse effect on the
business, operations or condition, financial or otherwise,
of the Borrower or any Subsidiary considered as a whole;
(j) Litigation. Except as set forth in Schedule 6.01(j)
hereto, there is no action, suit or proceeding at law or in equity or
by or before any governmental instrumentality or agency or arbitral
body pending, or, to the knowledge of the Borrower, threatened by or
against the Borrower or any Subsidiary or affecting the Borrower or
any Subsidiary or any properties or rights of the Borrower or any
Subsidiary, which could reasonably be expected to materially
adversely affect the financial condition, business or operations of
the Borrower or any Subsidiary considered as a whole;
(k) Margin Stock. The proceeds of the borrowings made pursuant
to Article II hereof will be used by the Borrower only for the
purposes set forth in Section 2.12 hereof. None of such proceeds
will be used, directly or indirectly, for the purpose of purchasing
or carrying any margin stock or for the purpose of reducing or
retiring any Indebtedness which was originally incurred to purchase
or carry margin stock or for any other purpose which might constitute
any of the Loans under this Agreement a "purpose credit" within the
meaning of said Regulation U or Regulation X (12 C.F.R. Part 224) of
the Board. Neither the Borrower nor any agent acting in its behalf
has taken or will take any action which might cause this Agreement or
any of the documents or instruments delivered pursuant hereto to
violate any regulation of the Board or to violate the Securities
Exchange Act of 1934, as amended, or the Securities Act of 1933, as
amended, or any state securities laws, in each case as in effect on
the date hereof;
(l) Investment Company. Neither the Borrower nor any
Subsidiary is an "investment company," or an "affiliated person" of,
or "promoter" or "principal underwriter" for, an "investment
company," as such terms are defined in the Investment Company Act of
1940, as amended (15 U.S.C. Section 80a-1, et seq.). The application
of the proceeds of the Loans and repayment thereof by the Borrower
and the performance by the Borrower of the transactions contemplated
by this Agreement will not violate any provision of said Act, or any
rule, regulation or order issued by the Securities and Exchange
Commission thereunder, in each case as in effect on the date hereof;
(m) Patents, Etc. The Borrower and each Subsidiary owns or has
the right to use, under valid license agreements or otherwise, all
material patents, licenses, franchises, trademarks, trademark rights,
trade names, trade name rights, trade secrets and copyrights
necessary to the conduct of its business as now conducted, without
known conflict with any patent, license, franchise, trademark, trade
secrets and confidential commercial or proprietary information, trade
name, copyright, rights to trade secrets or other proprietary rights
of any other Person which could reasonably be expected to result in a
Material Adverse Effect;
(n) No Untrue Statement. Neither this Agreement nor any other
Loan Document or certificate or document executed and delivered by or
on behalf of the Borrower or any Loan Party in accordance with or
pursuant to any Loan Document contains any misrepresentation or
untrue statement of material fact or omits to state a material fact
necessary, in light of the circumstance under which it was made, in
order to make any such representation or statement contained therein
not misleading in any material respect;
(o) No Consents, Etc. Neither the respective businesses or
properties of the Borrower or any Subsidiary, nor any relationship
between the Borrower or any Subsidiary and any other Person, nor any
circumstance in connection with the execution, delivery and
performance of the Loan Documents and the transactions contemplated
hereby is such as to require a consent, approval or authorization of,
or filing, registration or qualification with, any governmental or
other authority or any other Person on the part of the Borrower or
any Subsidiary as a condition to the execution, delivery and
performance of, or consummation of the transactions contemplated by,
this Agreement or the other Loan Documents or if so, such consent,
approval, authorization, filing, registration or qualification has
been obtained or effected, as the case may be;
(p) ERISA.
(i) None of the employee benefit plans maintained at any
time by the Borrower or any Subsidiary or the trusts created
thereunder has engaged in a prohibited transaction which could
subject any such employee benefit plan or trust to a material tax or
penalty on prohibited transactions imposed under Internal Revenue
Code Section 4975 or ERISA;
(ii) None of the employee benefit plans maintained at any
time by the Borrower or any Subsidiary which are employee pension
benefit plans and which are subject to Title IV of ERISA or the
trusts created thereunder has been terminated so as to result in a
material liability of the Borrower or any Subsidiary under ERISA nor
has any such employee benefit plan of the Borrower or any Subsidiary
incurred any material liability to the Pension Benefit Guaranty
Corporation established pursuant to ERISA, other than for required
insurance which has been paid or is not yet due and payable; neither
the Borrower nor any Subsidiary has withdrawn from or caused a
partial withdrawal to occur with respect to any Multi-employer Plan
resulting in any assessed and unpaid withdrawal liability; the
Borrower and each Subsidiary has made or provided for all
contributions to all such employee pension benefit plans which they
maintain and which are required as of the end of the most recent
fiscal year under each such plan; neither the Borrower nor any
Subsidiary has incurred any accumulated funding deficiency with
respect to any such plan, whether or not waived; nor has there been
any reportable event, or other event or condition, which presents a
material risk of termination of any such employee benefit plan by
such Pension Benefit Guaranty Corporation which could reasonably be
expected to have a Material Adverse Effect;
(iii) The present value of all vested accrued benefits
under the employee pension benefit plans which are subject to Title
IV of ERISA, maintained by the Borrower or any Subsidiary did not, as
of the most recent valuation date for each such plan, exceed the then
current value of the assets of such employee benefit plans allocable
to such benefits;
(iv) The consummation of the Loans provided for in
Article II will not involve any prohibited transaction under ERISA
which is not subject to a statutory or administrative exemption;
(v) To the best of the Borrower's knowledge, each
employee pension benefit plan subject to Title IV of ERISA,
maintained by the Borrower or any Subsidiary, has been administered
in accordance with its terms in all material respects and is in
compliance in all material respects with all applicable requirements
of ERISA and other applicable laws, regulations and rules;
(vi) There has been no withdrawal liability incurred and
unpaid with respect to any Multi-employer Plan to which the Borrower
or any Subsidiary is or was a contributor which could reasonably be
expected to have a Material Adverse Effect;
(vii) As used in this Agreement, the terms "employee
benefit plan," "employee pension benefit plan," "accumulated funding
deficiency," "reportable event," and "accrued benefits" shall have
the respective meanings assigned to them in ERISA, and the term
"prohibited transaction" shall have the meaning assigned to it in
Code Section 4975 and ERISA;
(viii) Neither the Borrower nor any Subsidiary has any
liability not disclosed on any of the financial statements furnished
to the Lenders pursuant to Section 6.01(f) hereof, contingent or
otherwise, under any plan or program or the equivalent for unfunded
post-retirement benefits, including pension, medical and death
benefits, which liability would have a Material Adverse Effect on the
financial condition of the Borrower and its Subsidiaries.
(q) No Default. As of the date hereof, there does not exist
any Default or Event of Default hereunder;
(r) Hazardous Materials. The Borrower and each Subsidiary is
in compliance with all applicable Environmental Laws in all material
respects. Neither the Borrower nor any Subsidiary has been notified
of any action, suit, proceeding or investigation which calls into
question compliance by the Borrower or any Subsidiary with any
Environmental Laws or which seeks to suspend, revoke or terminate any
license, permit or approval necessary for the generation, handling,
storage, treatment or disposal of any Hazardous Material which could
reasonably be expected to have a Material Adverse Effect;
(s) RICO. Neither the Borrower nor any Subsidiary is engaged
in and has not engaged in any course of conduct that could subject
any of their respective properties to any Lien, seizure or other
forfeiture under any criminal law, racketeer influenced and corrupt
organizations law, civil or criminal, or other similar laws;
(t) Employment Matters. Except as set forth on Schedule
6.01(t), the Borrower and each Subsidiary is in compliance in all
material respects with all applicable laws, rules and regulations
pertaining to labor or employment matters, including without
limitation those pertaining to wages, hours, occupational safety and
taxation and there is neither pending or threatened any material
litigation, administrative proceeding nor, to the knowledge of the
Borrower, any investigation, in respect of such matters which could
reasonably be expected to have a Material Adverse Effect.
ARTICLE VII
Affirmative Covenants
Until the Obligations have been paid and satisfied in full and this
Agreement has been terminated in accordance with the terms hereof, unless the
Required Lenders shall otherwise consent in writing, the Borrower will and will
cause each Subsidiary to:
7.01 Financial Reports, Etc. (a) as soon as practical and in any event
within 120 days after the end of each Fiscal Year of the Borrower, deliver or
cause to be delivered to the Agent and each Lender (i) consolidated and
consolidating balances sheet of the Borrower and its Subsidiaries, and the
notes thereto, and the related consolidated and consolidating statements of
income, stockholders' equity and cash flows and the respective notes thereto,
for such Fiscal Year, setting forth comparative financial statements for the
preceding Fiscal Year, all prepared in accordance with Generally Accepted
Accounting Principles applied on a Consistent Basis and containing opinions of
(in the case of such consolidated statements) independent certified public
accountants selected by the Borrower and approved by the Agent, which are
unqualified; and (ii) a certificate of an Authorized Representative
demonstrating compliance with Sections 8.01, 8.02, 8.03, and 8.04 of this
Agreement, which certificate shall be in the form attached hereto as Exhibit J;
(b) as soon as practical and in any event within 45 days after the end of
each fiscal quarter (except the last of the Fiscal Year), deliver to the Agent
and each Lender (i) consolidated and consolidating balance sheets of the
Borrower and its Subsidiaries as of the end of such reporting period, the
related consolidated and consolidating statements of income, stockholders'
equity for such reporting period and for the period from the beginning of the
Fiscal Year through the end of such reporting period, accompanied by a
certificate of an Authorized Representative to the effect that such financial
statements present fairly the financial position of the Borrower and its
Subsidiaries as of the end of such reporting period and the results of their
operations and the changes in their financial position for such reporting
period, in conformity with the standards set forth in Section 6.01(f)(i) with
respect to interim financials and (ii) a certificate of an Authorized
Representative containing computations for such quarter comparable to that
required pursuant to Section 7.01(a)(ii);
(c) together with each delivery of the financial statements required by
Section 7.01(a)(i) hereof, deliver to the Agent and each Lender a letter from
the Borrower's accountants specified in Section 7.01(a)(i) hereof stating that
in performing the audit necessary to render an opinion on the financial
statements delivered under Section 7.01(a)(i), they obtained no knowledge of
any Default or Event of Default by the Borrower or any Subsidiary in the
fulfillment of the terms and provisions of this Agreement insofar as they
relate to financial matters (which at the date of such statement remains
uncured); and if the accountants have obtained knowledge of such Default or
Event of Default, a statement specifying the nature and period of existence
thereof;
(d) promptly upon their becoming available to the Borrower, the Borrower
shall deliver to the Agent and each Lender a copy of (i) all regular or special
reports or effective registration statements which Borrower or any Subsidiary
shall file with the Securities and Exchange Commission (or any successor
thereto) or any securities exchange, (ii) any proxy statement distributed by
the Borrower to its shareholders, bondholders or the financial community in
general, and (iii) any management letter or other report submitted to the
Borrower or any of its Subsidiaries by independent accountants in connection
with any annual, interim or special audit of the Borrower or any of its
Subsidiaries;
(e) as soon as practical and in any event within 30 days after the end of
each Fiscal Year of the Borrower, deliver to the Agent and each Lender a
capital and operating expense budget and consolidated financial projections for
the Borrower and its Subsidiaries for the next Fiscal Year, prepared in
accordance with GAAP applied on a Consistent Basis;
(f) as soon as practical and in any event within 45 days following the
end of each fiscal quarter, deliver to the Agent and each Lender an accounts
receivable and accounts payable aging report in form and detail acceptable to
the Agent;
(g) promptly, from time to time, deliver or cause to be delivered to the
Agent and each Lender such other information regarding the Borrower's and any
Subsidiary's operations, business affairs and financial condition as the Agent
or such Lender may reasonably request;
The Agent and the Lenders are hereby authorized to deliver a copy of any
such financial or other information delivered hereunder to the Lenders (or any
affiliate of any Lender) or to the Agent, to any Governmental Authority having
jurisdiction over the Agent or any of the Lenders pursuant to any written
request therefor or in the ordinary course of examination of loan files, or to
any other Person who shall acquire or consider the assignment of, or
acquisition of any participation interest in, any Obligation permitted by this
Agreement subject to the terms of Section 11.15.
7.02 Maintain Properties. Maintain all material properties necessary to
its operations in good working order and condition (ordinary wear and tear
excepted) and make all needed repairs, replacements and renewals as are
necessary to conduct its business in accordance with customary business
practices.
7.03 Existence, Qualification, Etc. Do or cause to be done all things
necessary to preserve and keep in full force and effect its existence and all
material rights and franchises, trade names, trademarks and permits and
maintain its license or qualification to do business as a foreign corporation
and good standing in each jurisdiction in which the failure to so maintain or
qualify would have a material adverse affect on the Borrower or its
Subsidiaries considered as a whole.
7.04 Regulations and Taxes. Comply with or contest in good faith all
material statutes and governmental regulations and pay all material taxes,
assessments, governmental charges, claims for labor, supplies, rent and any
other obligation which, if unpaid, might become a Lien against any of its
properties except liabilities being contested in good faith and against which
adequate reserves have been established in accordance with Generally Accepted
Accounting Principles.
7.05 Insurance. (i) Keep all of its insurable properties adequately
insured at all times with responsible insurance carriers against loss or damage
by fire and other hazards to the extent and in the manner customarily insured
against by similar businesses owning such properties similarly situated, (ii)
maintain general public liability insurance at all times with responsible
insurance carriers against liability on account of damage to persons and
property having such limits, deductibles, exclusions and co-insurance and other
provisions providing no less coverage than that specified in Schedule 7.05
attached hereto, such insurance policies to be in form satisfactory to the
Agent, (iii) maintain insurance under all applicable workers' compensation laws
(or in the alternative, maintain required reserves if self-insured for workers'
compensation purposes), and (iv) maintain insurance on all Collateral as
required by the Security Agreement.
7.06 True Books. Keep true books of record and account in which full,
true and correct entries will be made of all of its dealings and transactions,
and set up on its books such reserves as may be required by Generally Accepted
Accounting Principles with respect to doubtful accounts and all taxes,
assessments, charges, levies and claims and with respect to its business in
general, and include such reserves in interim as well as year-end financial
statements.
7.07 Pay Indebtedness to Lenders and Perform Other Covenants. (a) Make
full and timely payment of the principal of and interest on the Notes and all
other Obligations whether now existing or hereafter arising; and (b) duly
comply with all the terms and covenants contained in all Loan Documents and
other instruments and documents given to the Agent or the Lenders pursuant
hereto or thereto.
7.08 Right of Inspection. Permit the Agent and any Lender and
accountants, attorneys or other consultants designated by the Agent and any
Lender at the Agent or any Lender's expense to visit and inspect any of the
properties, corporate books and financial reports of the Borrower and its
Subsidiaries, and to discuss their respective affairs, finances and accounts
with their principal executive officers and independent certified public
accountants, all at times reasonably convenient to the Borrower, at reasonable
intervals and with reasonable prior notice.
7.09 Observe all Laws. Conform to and duly observe in all material
respects all laws, rules and regulations and all other valid requirements of
any regulatory authority with respect to the conduct of its business.
7.10 Officer's Knowledge of Default. Upon the President, any Vice
President, the Chief Financial Officer or the Controller of the Borrower
obtaining knowledge of any Default or Event of Default hereunder or under any
other obligation of the Borrower or any Subsidiary described in Section
9.01(e), cause such officer or an Authorized Representative to promptly notify
the Agent of the nature thereof, the period of existence thereof, and what
action the Borrower proposes to take with respect thereto.
7.11 Suits or Other Proceedings. Upon the President, any Vice President,
the Chief Financial Officer or the Controller of the Borrower obtaining
knowledge of any litigation or other proceedings being instituted against the
Borrower or any Subsidiary, or any attachment, levy, execution or other process
being instituted against any assets of the Borrower or any Subsidiary, in an
amount greater than $100,000 not otherwise covered by insurance, promptly
deliver to the Agent written notice thereof stating the nature and status of
such litigation, dispute, proceeding, levy, execution or other process.
7.12 Notice of Discharge of Hazardous Material or Environmental Complaint.
Promptly provide to the Agent true, accurate and complete copies of any and all
notices, complaints, orders, directives, claims, or citations received by the
Borrower or any Subsidiary relating to any material (a) violation or alleged
violation by the Borrower or any Subsidiary of any applicable Environmental
Laws or OSHA; (b) release or threatened release by the Borrower or any
Subsidiary of any Hazardous Material, except where occurring legally; or (c)
liability or alleged liability of the Borrower or any Subsidiary for the costs
of cleaning up, removing, remediating or responding to a release of Hazardous
Materials.
7.13 Environmental Compliance. If the Borrower or any Subsidiary shall
receive notice from any governmental authority that the Borrower or any
Subsidiary has violated any applicable Environmental Laws, the Borrower shall
to the extent required by law and after expiration of all valid appeals and
administrative proceedings (and in any event within the time period permitted
by the applicable governmental authority) remove or remedy, or cause the
applicable Subsidiary to remove or remedy, such violation.
7.14 Indemnification. The Borrower hereby agrees to defend, indemnify and
hold the Agent and each Lender and each of their affiliates and their
respective officers, directors, employees, agents, and advisors (each, an
"Indemnified Party") harmless from and against any and all claims, losses,
liabilities, damages and expenses (including, without limitation, cleanup costs
and reasonable attorneys' fees) arising directly or indirectly from, out of or
by reason of the handling, storage, treatment, emission or disposal of any
Hazardous Material by or in respect of the Borrower or any Subsidiary or
property owned or leased or operated by the Borrower or any Subsidiary, except
to the extent such claim, loss, liability, damage or expense is found in a
final, non-appealable judgment by a court of competent jurisdiction to have
resulted from such Indemnified Party's gross negligence or willful misconduct.
The provisions of this Section 7.14 shall survive repayment of the Obligations,
occurrence of the Revolving Credit Termination Date and expiration or
termination of this Agreement.
7.15 Further Assurances. At its cost and expense, upon request of the
Agent, duly execute and deliver or cause to be duly executed and delivered, to
the Agent such further instruments, documents, certificates, financing and
continuation statements, and do and cause to be done such further acts that may
be reasonably necessary or advisable in the reasonable opinion of the Agent to
carry out more effectively the provisions and purposes of this Agreement and
the other Loan Documents.
7.16 ERISA Requirement. Comply in all material respects with all
requirements of ERISA applicable to it and furnish to the Agent as soon as
possible and in any event (i) within thirty (30) days after the Borrower knows
or has reason to know that any reportable event with respect to any employee
benefit plan subject to Title IV of ERISA maintained by the Borrower or any
Subsidiary which could give rise to termination or the imposition of any
material tax or penalty has occurred, written statement of an Authorized
Representative describing in reasonable detail such reportable event and any
action which the Borrower or applicable Subsidiary proposes to take with
respect thereto, together with a copy of the notice of such reportable event
given to the Pension Benefit Guaranty Corporation ("PBGC") or a statement that
said notice will be filed with the annual report of the United States
Department of Labor with respect to such plan if such filing has been
authorized, (ii) promptly after receipt thereof, a copy of any notice that the
Borrower or any Subsidiary may receive from the PBGC relating to the intention
of the PBGC to terminate any employee benefit plan or plans of the Borrower or
any Subsidiary or to appoint a trustee to administer any such plan, and (iii)
within 10 days after a filing with the PBGC pursuant to Section 412(n) of the
Code of a notice of failure to make a required installment or other payment
with respect to a plan, a certificate of an Authorized Representative setting
forth details as to such failure and the action that the Borrower or its
affected Subsidiary, as applicable, proposes to take with respect thereto,
together with a copy of such notice given to the PBGC.
7.17 Continued Operations. Continue at all times (i) to conduct its
business and engage principally in a line or lines of business involving the
furnishing of personnel related services, and (ii) preserve, protect and
maintain free from Liens its material patents, copyrights, licenses,
trademarks, trademark rights, trade names, trade name rights, trade secrets and
know-how necessary or materially useful in the conduct of its operations,
except to the extent Borrower or its Subsidiaries is otherwise permitted
hereunder to dispose of assets.
7.18 Use of Proceeds. Use the proceeds of the Loans solely for the
purposes specified in Section 2.12 hereof.
7.19 New Subsidiaries. (a) Within thirty (30) days of the acquisition or
creation of any Subsidiary cause to be delivered to the Lender each of the
following:
(i) a Guaranty Agreement substantially in the form
attached hereto as Exhibit K;
(ii) (A) to the extent required by Section 7.19(b) hereof,
the Pledged Stock, together with duly executed stock powers in blank
affixed thereto, and (B) if such Collateral shall be owned by a
Subsidiary who has not then executed and delivered to the Agent a
security instrument from the owner of such Collateral granting a Lien
to the Agent in such Collateral, a Pledge Agreement substantially
similar in form and content to that executed and delivered by the
Borrower as of the Closing Date, with appropriate revisions as to the
identity of the pledgor and securing the obligations of such pledgor
under its Guaranty Agreement;
(iii) an opinion of counsel to the Subsidiary dated as
of the date of delivery of the Guaranty Agreement provided
in the foregoing clause (i) and addressed to the Agent and
the Lenders, in form and substance reasonably acceptable to
the Agent (which opinion may include assumptions and
qualifications of similar effect to those contained in the
opinions of counsel delivered pursuant to Section 6.01(b)
hereof), to the effect that:
(A) such Subsidiary is duly organized, validly
existing and in good standing in the jurisdiction of its
organization, has the requisite power and authority to own
its properties and conduct its business as then owned and
then proposed to be conducted; and
(B) the execution, delivery and performance of the
Guaranty Agreement and other Loan Documents described in
clause (i) and (ii) of this Section 7.19 to which such
Subsidiary is a signatory have been duly authorized by all
requisite corporate action (including any required
shareholder approval), such agreements have been duly
executed and delivered and constitute valid and binding
obligations of such Subsidiary, enforceable against such
Subsidiary in accordance with their terms, subject to the
effect of any applicable bankruptcy, moratorium,
insolvency, reorganization or other similar law affecting
the enforceability of creditors' rights generally and to
the effect of general principles of equity which may limit
the availability of equitable remedies (whether in a
proceeding at law or in equity); and
(iv) current copies of the charter documents,
including partnership agreements and certificate of
limited partnership, if applicable, and bylaws of such
Subsidiary, minutes of duly called and conducted meetings
(or duly effected consent actions) of the Board of
Directors, partners, or appropriate committees thereof
(and, if required by such charter documents, bylaws or by
applicable laws, of the shareholders or partners) of such
Subsidiary authorizing the actions and the execution and
delivery of documents described in clause (i) of this
Section 7.19 and evidence satisfactory to the Agent
(confirmation of the receipt of which will be provided by
the Agent) that such Subsidiary is Solvent as of such date
and after giving effect to the Guaranty Agreement.
(b) Cause at all times the Agent to have a duly perfected first
priority security interest in all of the issued and outstanding
capital stock of each Subsidiary.
7.20 Acquisition B. Cause the consummation of Acquisition B pursuant to
the terms of Merger Agreement B on or before May 31, 1997 and, at such time as
Acquisition B is consummated update all schedules to this Agreement.
ARTICLE VIII
Negative Covenants
Until the Obligations have been paid and satisfied in full and this
Agreement has been terminated in accordance with the terms hereof, unless the
Required Lenders shall otherwise consent in writing, the Borrower will not, nor
will it permit any Subsidiary to:
8.01 Consolidated Leverage Ratio. Permit at the end of each fiscal
quarter the Consolidated Leverage Ratio to exceed 3.00 to 1.00.
8.02 Consolidated Fixed Charge Coverage Ratio. Permit at the end of each
fiscal quarter the Consolidated Fixed Charge Ratio to be less than 2.00 to
1.00.
8.03 Consolidated Capitalization Ratio. Permit at any time during the
periods set forth below the Consolidated Capitalization Ratio to exceed that
set forth below opposite such period:
Period Ratio
(a) Closing Date through 12/31/97 0.75 to 1.00
(b) Thereafter 0.55 to 1.00
8.04 Consolidated Current Ratio. Permit at the end of each fiscal quarter
the Consolidated Current Ratio to be less than 1.40 to 1.00.
8.05 Indebtedness. Incur, create, assume or permit to exist any
Indebtedness, howsoever evidenced, except
(a) Indebtedness existing as of the date hereof and as set
forth in Schedule 6.01(f) attached hereto and incorporated herein by
reference and any renewal or refinancings thereof so long as such
renewal or refinancing does not increase the principal amount or
accelerate the maturity of such Indebtedness;
(b) the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of
business;
(c) Indebtedness arising under this Agreement;
(d) indebtedness related to Capital Leases and purchase money
Indebtedness not to exceed $200,000 in the aggregate outstanding at
any time;
(e) Indebtedness incurred in connection with an Acquisition
approved by the Required Lenders pursuant to the terms of Section
8.07(iv)(D);
(f) intercompany Indebtedness permitted under Section 8.07(v);
(g) the guaranty of the Non-Competition Agreement set forth as
item number 2 on Schedule 6.01(f); and
(h) additional outstanding Indebtedness of up to an aggregate
principal amount of $100,000.00.
For purposes of determining the amount of Indebtedness incurred in connection
with an Acquisition, any Indebtedness which under Generally Accepted Accounting
Principles must be recorded as a liability on the consolidated balance sheet of
the Borrower, whether or not constituting a Contingent Obligation or
Indebtedness for Money Borrowed, shall be deemed Indebtedness at 100% of the
amount thereof for purposes of this Section 8.06, and to the extent such
Indebtedness is not so required to be recorded as a liability, it shall not be
deemed Indebtedness for purposes of this Section 8.06.
8.06 Transfer of Assets. Sell, lease, transfer or otherwise dispose of
(i) any interest in any Guarantor, or (ii) any other asset of Borrower or any
Guarantor except (a) assets sold in the ordinary course of business, (b) assets
which are worn out, obsolete or no longer necessary, or (c) assets transferred
among the Loan Parties.
8.07 Investments; Acquisitions. Purchase, own, invest in or otherwise
Acquire, directly or indirectly, any stock or other securities or all or
substantially all of the assets, or make or permit to exist any interest
whatsoever in any other Person or permit to exist any loans or advances to any
Person; provided, however, the Borrower and its Subsidiaries may maintain
investments or invest in or Acquire
(i) Eligible Securities;
(ii) investments existing as of the date hereof and
as set forth in Schedule 6.01(d) attached hereto;
(iii) accounts receivable arising and trade credit
granted in the ordinary course of business and any
securities received in satisfaction or partial satisfaction
thereof in connection with accounts of financially troubled
Persons to the extent reasonably necessary in order to
prevent or limit loss;
(iv) Acquisitions so long as (A) the Person to be (or
whose assets are to be) Acquired does not oppose such
Acquisition and the line or lines of business of the Person
to be Acquired are substantially the same as one or more
line or lines of business conducted by the Borrower and its
Subsidiaries or compliments the existing business of the
Borrower and its Subsidiaries, (B) no Default or Event of
Default shall have occurred and be continuing either
immediately prior to or immediately after giving effect to
such Acquisition and the Borrower shall have furnished to
the Agent (x) proforma historical financial statements as
of the end of the most recently ended Fiscal Year of the
Borrower and the most recently ended fiscal quarter, if
applicable, giving effect to such Acquisition and
containing adjustments to Consolidated EBITDA as set forth
in the definition of Adjusted Consolidated EBITDA and (y) a
Compliance Certificate in the form of Exhibit J prepared on
an historical proforma basis giving effect to such
Acquisition, which Compliance Certificate shall demonstrate
that no Default or Event of Default would exist immediately
after giving effect thereto based on the use of Adjusted
Consolidated EBITDA for purposes of compliance with
Sections 8.01 and 8.02, (C) the Person Acquired shall be a
wholly-owned Subsidiary, or be merged into the Borrower or
a wholly-owned Subsidiary (or if assets are being Acquired,
the acquiror shall be the Borrower or a wholly-owned
Subsidiary), (D) if the Person to be (or whose assets are
to be ) Acquired is domiciled outside the United States of
America or if the Cost of Acquisition shall (x) exceed
$2,000,000 for any single Acquisition or (y) cause the
aggregate Cost of Acquisitions over the life of the
Revolving Credit Facility to exceed $4,000,000, the consent
of the Required Lenders shall be required, and (E) copies
of all legal and financial information and documentation,
which, in the Agent's reasonable judgment is required to
evaluate any proposed Acquisition, shall be delivered to
the Agent ten (10) Business Days prior to any Acquisition;
(v) loans and advances to and investments in
Subsidiaries so long as such Subsidiary shall be a
Guarantor or shall become a Guarantor pursuant to Section
7.19;
(vi) investments in the form of ownership of the
capital stock of any Subsidiary; and
(vii) guarantees of any Indebtedness of a Subsidiary
permitted under Section 8.05 hereof.
8.08 Liens. Incur, create or permit to exist any pledge, Lien, charge or
other encumbrance of any nature whatsoever with respect to any property or
assets of the Borrower or any Subsidiary to secure Indebtedness owed to any
other Person, other than Permitted Liens.
8.09 Dividends or Distributions. Declare or pay any dividends (other than
those payable solely in capital stock) or distribution in reduction of capital
or otherwise in respect of any equity interest, or purchase, redeem or
otherwise retire any such equity interest except (a) the Borrower may make
distributions to stockholders in an amount equal to the lesser of (i) the
amount of each stockholder's income tax liability payable by reason of the
operations of the Borrower and its Subsidiaries or (ii) fifty percent (50%) of
Consolidated Net Income before income taxes, and (b) Subsidiaries may pay
dividends to the Borrower.
8.10 Merger or Consolidation. (a) Consolidate with or merge into any
other Person, or (b) permit any other Person to merge into it; or (c)
liquidate, wind-up or dissolve or sell, transfer or lease or otherwise dispose
of all or a substantial part of its assets (other than sales in the ordinary
course of business); provided, however, (i) any Subsidiary of the Borrower may
merge or transfer all or substantially all of its assets into or consolidate
with any wholly-owned Subsidiary of the Borrower or any Guarantor who has
secured its Guaranty, (ii) any Person may merge with the Borrower or a wholly-
owned Subsidiary if the Borrower or such Subsidiary shall be the survivor
thereof and such merger shall not cause, create or result in the occurrence on
any Default or Event of Default hereunder.
8.11 Change in Control. Cause, suffer or permit any Change of Control.
8.12 Transactions with Affiliates. Enter into any transaction after the
date hereof, including, without limitation, the purchase, sale, leasing or
exchange of property, real or personal, or the rendering of any service, with
any Affiliate of the Borrower (other than a Subsidiary), except (a) that such
Persons may render services to the Borrower or its Subsidiaries for
compensation at the same rates generally paid by Persons engaged in the same or
similar businesses for the same or similar services (including directors'
fees), (b) in the ordinary course of and pursuant to the reasonable
requirements of the Borrower's (or any Subsidiary's) business consistent with
past practice of the Borrower and its Subsidiaries, (c) the Borrower or any
Subsidiary may rent a certain aircraft owned by Aviation Leasing, Inc., an
affiliate of David C. Cooper, so long as the rental payments thereunder do not
exceed $50,000 in any fiscal year, and (d) the Employment Agreements identified
on Schedule 8.12 hereof.
8.13 ERISA. With respect to all employee pension benefit plans maintained
by the Borrower or any Subsidiary:
(i) terminate any of such employee pension benefit
plans so as to incur any liability to the Pension Benefit
Guaranty Corporation established pursuant to ERISA;
(ii) allow or suffer to exist any prohibited
transaction involving any of such employee pension benefit
plans or any trust created thereunder which would subject
the Borrower or a Subsidiary to any material tax or penalty
or other liability on prohibited transactions imposed under
Internal Revenue Code Section 4975 or ERISA;
(iii) fail to pay to any such employee pension benefit
plan any contribution which it is obligated to pay under
the terms of such plan;
(iv) allow or suffer to exist any accumulated funding
deficiency, whether or not waived, with respect to any such
employee pension benefit plan;
(v) allow or suffer to exist any occurrence of a
reportable event or any other event or condition, which
presents a material risk of termination by the Pension
Benefit Guaranty Corporation of any such employee pension
benefit plan that is a Single Employer Plan, which
termination could result in any liability to the Pension
Benefit Guaranty Corporation; or
(vi) incur any withdrawal liability with respect to
any Multi-employer Plan.
8.14 Dissolution, etc. Wind up, liquidate or dissolve (voluntarily or
involuntarily) or commence or suffer any proceedings seeking any such winding
up, liquidation or dissolution, except in connection with the merger or
consolidation of Subsidiaries into each other or into a Borrower permitted
pursuant to Section 8.10.
8.15 Rate Hedging Obligations. Incur any Rate Hedging Obligations or
enter into any agreements, arrangements, devices or instruments relating to
Rate Hedging Obligations, except pursuant to a Swap Agreement.
ARTICLE IX
Events of Default and Acceleration
9.01 Events of Default. If any one or more of the following events
(herein called "Events of Default") shall occur for any reason whatsoever (and
whether such occurrence shall be voluntary or involuntary or come about or be
effected by operation of law or pursuant to or in compliance with any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body), that is to say:
(a) if default shall be made in the due and punctual payment of
the principal of any Loan or other Obligation, when and as the same
shall be due and payable whether pursuant to any provision of Article
II hereof, at maturity, by acceleration or otherwise; or
(b) if default shall be made in the due and punctual payment of
any amount of interest on any Loan or of any fees or other amounts
payable to any of the Lenders under the Loan Documents on the date on
which the same shall be due and payable; or
(c) if default shall be made in the performance or observance
of any covenant set forth in Sections 7.06, 7.07(a), 7.08, 7.10,
7.19, or Article VIII hereof (except that in the case of Section
8.05, 8.07(i), 8.08 and 8.12 such default shall continue for a period
of ten (10) days after the occurrence thereof);
(d) if a default shall be made in the performance or observance
of, or shall occur under, any covenant, agreement or provision
contained in this Agreement or the Notes (other than as described in
clauses (a), (b) or (c) above) and such default shall continue for 30
or more days after the earlier of receipt of notice of such default
by the Authorized Representative from the Agent or the Borrower
becomes aware of such default, or if a default shall be made in the
performance or observance of, or shall occur under, any covenant,
agreement or provision contained in any of the other Loan Documents
(beyond any applicable grace period, if any, contained therein) or in
any instrument or document delivered to the Agent or the Lenders in
connection with or pursuant to this Agreement or any of the
Obligations evidencing or creating any obligation or guaranty in
favor of the Agent or any of the Lenders, or if any Loan Document
ceases to be in full force and effect (other than by reason of any
action by the Agent), or if without the written consent of the
Required Lenders, this Agreement or any other Loan Document shall be
disaffirmed or shall terminate, be terminable or be terminated or
become void or unenforceable for any reason whatsoever (other than in
accordance with its terms in the absence of default or by reason of
any action by the Agent or the Lenders); or
(e) if a default shall occur, which is not waived, (i) in the
payment of any principal, interest, premium or other amounts with
respect to any Indebtedness (other than the Loans) of the Borrower or
of any Subsidiary in an amount not less than $50,000 in the aggregate
outstanding, or (ii) in the performance, observance or fulfillment of
any term or covenant contained in any agreement or instrument under
or pursuant to which any such Indebtedness may have been issued,
created, assumed, guaranteed or secured by the Borrower or any
Subsidiary, and such default shall continue for more than the period
of grace, if any, therein specified, or if such default shall permit
the holder of any such Indebtedness to accelerate the maturity
thereof; or
(f) if any representation, warranty or other statement of fact
contained herein or any other Loan Document or in any writing,
certificate, report or statement at any time furnished to the Agent
or any of the Lenders by or on behalf of the Borrower or any
Subsidiary pursuant to or in connection with this Agreement or the
other Loan Documents, or otherwise, shall be false or misleading in
any material respect when given; or
(g) if the Borrower or any Subsidiary shall be unable to pay
its debts generally as they become due; file a petition to take
advantage of any insolvency statute; make an assignment for the
benefit of its creditors; commence a proceeding for the appointment
of a receiver, trustee, liquidator or conservator of itself or of the
whole or any substantial part of its property; file a petition or
answer seeking reorganization or arrangement or similar relief under
the federal bankruptcy laws or any other applicable law or statute;
or
(h) if a court of competent jurisdiction shall enter an order,
judgment or decree appointing a custodian, receiver, trustee,
liquidator or conservator of the Borrower or any Subsidiary or of the
whole or any substantial part of its properties and such order,
judgment or decree continues unstayed and in effect for a period of
sixty (60) days, or approve a petition filed against the Borrower or
any Subsidiary seeking reorganization or arrangement or similar
relief under the federal bankruptcy laws or any other applicable law
or statute of the United States of America or any state, which
petition is not dismissed within sixty (60) days; or if, under the
provisions of any other law for the relief or aid of debtors, a court
of competent jurisdiction shall assume custody or control of the
Borrower or any Subsidiary or of the whole or any substantial part of
its properties, which control is not relinquished within sixty (60)
days; or if there is commenced against the Borrower or any Subsidiary
any proceeding or petition seeking reorganization, arrangement or
similar relief under the federal bankruptcy laws or any other
applicable law or statute of the United States of America or any
state which proceeding or petition remains undismissed for a period
of sixty (60) days; or if the Borrower or any Subsidiary takes any
action to indicate its consent to or approval of any such proceeding
or petition; or
(i) if (i) any judgment where the amount not covered by
insurance (or the amount as to which the insurer denies liability) is
in excess of $50,000 is rendered against the Borrower or any
Subsidiary, or (ii) there is any attachment, injunction or execution
against any of the Borrower's or any Subsidiary's properties for any
amount in excess of $50,000; and such judgment, attachment,
injunction or execution has not been either paid, stayed, discharged,
bonded or dismissed for a period of thirty (30) days; or
(j) if the Borrower or any Subsidiary shall, other than in the
ordinary course of business (as determined by past practices),
suspend all or any part of its operations material to the conduct of
the business of the Borrower and the Subsidiaries, taken as a whole;
or
(k) if the Borrower or any Subsidiary shall breach any of the
terms or conditions of any agreement under which any Rate Hedging
Obligation permitted pursuant to Section 8.15 is created and such
breach shall continue beyond any grace period, if any, relating
thereto pursuant to the terms of such Obligation, or the Borrower or
any Subsidiary shall disaffirm or seek to disaffirm any such
agreement or any of its obligations thereunder; or
(l) if at any time the Agent shall not be in receipt of the
Guaranty Agreement or any other Loan Document required under Section
7.19 within the time set forth thereunder;
then, and in any such event and at any time thereafter, if such Event of
Default or any other Event of Default shall have not been waived,
(A) either or both of the following actions may be
taken: (i) the Agent, with the consent of the Required
Lenders may, and at the direction of the Required Lenders
shall, declare any obligation of the Lenders to make
further Loans terminated, whereupon the obligation of the
Lenders to make further Loans hereunder shall terminate
immediately, and (ii) the Agent shall, at the direction of
the Required Lenders declare by notice to the Borrower any
or all of the Obligations to be immediately due and
payable, and the same, including all interest accrued
thereon and all other obligations of the Borrower to the
Lenders, shall forthwith become immediately due and payable
without presentment, demand, protest, notice or other
formality of any kind, all of which are hereby expressly
waived, anything contained herein or in any instrument
evidencing the Obligations to the contrary notwithstanding;
provided, however, that notwithstanding the above, if there
shall occur an Event of Default under clause (g) or (h)
above, then the obligation of the Lenders to make Loans
hereunder shall automatically terminate and any and all of
the Obligations shall be immediately due and payable
without the necessity of any action by the Agent or the
Required Lenders or notice to the Agent or the Lenders;
(B) The Agent and each of the Lenders shall have all
of the rights and remedies available under the Loan
Documents or under any applicable law.
9.02 Agent to Act. In case any one or more Events of Default shall occur
and not have been waived, the Agent may, and at the direction of the Required
Lenders shall, proceed to protect and enforce its rights or remedies either by
suit in equity or by action at law, or both, whether for the specific
performance of any covenant, agreement or other provision contained herein or
in any other Loan Document, or to enforce the payment of the Obligations or any
other legal or equitable right or remedy.
9.03 Cumulative Rights. No right or remedy herein conferred upon the
Agent is intended to be exclusive of any other rights or remedies contained
herein or in any other Loan Document, and every such right or remedy shall be
cumulative and shall be in addition to every other such right or remedy
contained herein and therein or now or hereafter existing at law or in equity
or by statute, or otherwise.
9.04 No Waiver. No course of dealing between the Borrower and any Lender
or the Agent or any failure or delay on the part of any Lender or the Agent in
exercising any rights or remedies under any Loan Document or otherwise
available to it shall operate as a waiver of any rights or remedies and no
single or partial exercise of any rights or remedies shall operate as a waiver
or preclude the exercise of any other rights or remedies hereunder or of the
same right or remedy on a future occasion.
9.05 Allocation of Proceeds. If an Event of Default has occurred and not
been waived, and the maturity of the Notes has been accelerated pursuant to
Article IX hereof, all payments received by the Agent hereunder, in respect of
any principal of or interest on the Obligations or any other amounts payable by
the Borrower hereunder, shall be applied by the Agent in the following order:
(a) amounts due to the Lenders pursuant to Sections 2.09, 3.03,
3.04 and 11.05;
(b) amounts due to the Agent pursuant to Section 10.08;
(c) payments of interest on the Loans to be applied for the
ratable benefit of the Lenders;
(d) payments of principal of the Loans to be applied for the
ratable benefit of the Lenders;
(e) amounts due to the Lenders pursuant to Section 7.14;
(f) payments of all other amounts due under any of the Loan
Documents, if any, to be applied for the ratable benefit of the
Lenders;
(g) amounts due to any of the Lenders in respect of Obligations
consisting of liabilities under any Swap Agreement with any of the
Lenders on a pro rata basis according to the amounts owed; and
(h) any surplus remaining after application as provided for
herein, to the Borrower or otherwise as may be required by applicable
law.
ARTICLE X
The Agent
10.01 Appointment, Powers and Immunities. Each Lender hereby
irrevocably appoints and authorizes the Agent to act as its agent under this
Agreement and the other Loan Documents with such powers and discretion as are
specifically delegated to the Agent by the terms of this Agreement and the
other Loan Documents, together with such other powers as are reasonably
incidental thereto. The Agent (which term as used in this sentence and in
Section 10.05 and the first sentence of Section 10.06 hereof shall include its
affiliates and its own and its affiliates' officers, directors, employees, and
agents): (a) shall not have any duties or responsibilities except those
expressly set forth in this Agreement and shall not be a trustee or fiduciary
for any Lender; (b) shall not be responsible to the Lenders for any recital,
statement, representation, or warranty (whether written or oral) made in or in
connection with any Loan Document or any certificate or other document referred
to or provided for in, or received by any of them under, any Loan Document, or
for the value, validity, effectiveness, genuineness, enforceability, or
sufficiency of any Loan Document, or any other document referred to or provided
for therein or for any failure by any Loan Party or any other Person to perform
any of its obligations thereunder; (c) shall not be responsible for or have any
duty to ascertain, inquire into, or verify the performance or observance of
any covenants or agreements by any Loan Party or the satisfaction of any
condition or to inspect the property (including the books and records) of any
Loan Party or any of its Subsidiaries or affiliates; (d) shall not be required
to initiate or conduct any litigation or collection proceedings under any Loan
Document; and (e) shall not be responsible for any action taken or omitted to
be taken by it under or in connection with any Loan Document, except for its
own gross negligence or willful misconduct. The Agent may employ agents and
attorneys-in-fact and shall not be responsible for the negligence or misconduct
of any such agents or attorneys-in-fact selected by it with reasonable care.
Notwithstanding any provision of this Agreement to the contrary, so long as
NationsBank is the sole Lender, the term "Agent" shall mean NationsBank as
Lender.
10.02 Reliance by Agent. The Agent shall be entitled to rely upon any
certification, notice, instrument, writing, or other communication (including,
without limitation, any thereof by telephone or telefacsimile) believed by it
to be genuine and correct and to have been signed, sent or made by or on behalf
of the proper Person or Persons, and upon advice and statements of legal
counsel (including counsel for any Loan Party), independent accountants, and
other experts selected by the Agent. The Agent may deem and treat the payee of
any Note as the holder thereof for all purposes hereof unless and until the
Agent receives and accepts an Assignment and Acceptance executed in accordance
with Section 11.01 hereof. As to any matters not expressly provided for by
this Agreement, the Agent shall not be required to exercise any discretion or
take any action, but shall be required to act or to refrain from acting (and
shall be fully protected in so acting or refraining from acting) upon the
instructions of the Required Lenders, and such instructions shall be binding on
all of the Lenders; provided, however, that the Agent shall not be required to
take any action that exposes the Agent to personal liability or that is
contrary to any Loan Document or applicable law or unless it shall first be
indemnified to its satisfaction by the Lenders against any and all liability
and expense which may be incurred by it by reason of taking any such action.
10.03 Defaults. The Agent shall not be deemed to have knowledge or
notice of the occurrence of a Default or Event of Default unless the Agent has
received written notice from a Lender or the Borrower specifying such Default
or Event of Default and stating that such notice is a "Notice of Default". In
the event that the Agent receives such a notice of the occurrence of a Default
or Event of Default, the Agent shall give prompt notice thereof to the Lenders.
The Agent shall (subject to Section 10.02 hereof) take such action with respect
to such Default or Event of Default as shall reasonably be directed by the
Required Lenders, provided that, unless and until the Agent shall have received
such directions, the Agent may (but shall not be obligated to) take such
action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable in the best interest of the
Lenders.
10.04 Rights as Lender. With respect to its Revolving Credit
Commitment and the Loans made by it, NationsBank (and any successor acting as
Agent) in its capacity as a Lender hereunder shall have the same rights and
powers hereunder as any other Lender and may exercise the same as though it
were not acting as the Agent, and the term "Lender" or "Lenders" shall, unless
the context otherwise indicates, include the Agent in its individual capacity.
NationsBank (and any successor acting as Agent) and its affiliates may (without
having to account therefor to any Lender) accept deposits from, lend money to,
make investments in, provide services to, and generally engage in any kind of
lending, trust, or other business with any Loan Party or any of its
Subsidiaries or affiliates as if it were not acting as Agent, and NationsBank
(and any successor acting as Agent) and its affiliates may accept fees and
other consideration from any Loan Party or any of its Subsidiaries or
affiliates for services in connection with this Agreement or otherwise without
having to account for the same to the Lenders.
10.05 Indemnification. The Lenders agree to indemnify the Agent (to
the extent not reimbursed under Section 11.05 hereof, but without limiting the
obligations of the Borrower under such Section) ratably in accordance with
their respective Revolving Credit Commitments, for any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses (including attorneys' fees), or disbursements of any kind and nature
whatsoever that may be imposed on, incurred by or asserted against the Agent
(including by any Lender) in any way relating to or arising out of any Loan
Document or the transactions contemplated thereby or any action taken or
omitted by the Agent under any Loan Document; provided that no Lender shall be
liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the Person to be indemnified. Without
limitation of the foregoing, each Lender agrees to reimburse the Agent promptly
upon demand for its ratable share of any costs of expenses payable by the
Borrower under Section 11.05, to the extent that the Agent is not promptly
reimbursed for such costs and expenses by the Borrower. The agreements
contained in this Section shall survive payment in full of the Loans and all
other amounts payable under this Agreement.
10.06 Non-Reliance on Agent and Other Lenders. Each Lender agrees
that it has, independently and without reliance on the Agent or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Loan Parties and their
Subsidiaries and decision to enter into this Agreement and that it will,
independently and without reliance upon the Agent or any other Lender, and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own analysis and decisions in taking or not taking
action under the Loan Documents. Except for notices, reports, and other
documents and information expressly required to be furnished to the Lenders by
the Agent hereunder, the Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the affairs,
financial condition, or business of any Loan Party or any of its Subsidiaries
or affiliates that may come into the possession of the Agent or any of its
affiliates.
10.07 Resignation of Agent. The Agent may resign at any time by
giving notice thereof to the Lenders and the Borrower. Upon any such
resignation, the Required Lenders shall have the right to appoint a successor
Agent. If no successor Agent shall have been so appointed by the Required
Lenders and shall have accepted such appointment within thirty (30) days after
the retiring Agent's giving of notice of resignation, then the retiring Agent
may, on behalf of the Lenders, appoint a successor Agent which shall be a
commercial bank organized under the laws of the United States of America having
combined capital and surplus of at least $500,000,000. Upon the acceptance of
any appointment as Agent hereunder by a successor, such successor shall
thereupon succeed to and become vested with all the rights, powers, discretion,
privileges, and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder. After any retiring
Agent's resignation hereunder as Agent, the provisions of this Article X shall
continue in effect for its benefit in respect of any actions taken or omitted
to be taken by it while it was acting as Agent.
10.08 Fees. When and if there shall be more than one Lender under
this Agreement, the Borrower agrees to pay to the Agent, for its individual
account, an annual Agent's fee as from time to time agreed to by the Borrower
and Agent in writing.
ARTICLE XI
Miscellaneous
11.01 Assignments and Participations. (a) Each Lender may assign to
one or more Eligible Assignees all or a portion of its rights and obligations
under this Agreement (including, without limitation, all or a portion of its
Loans, its Notes, and its Revolving Credit Commitment); provided, however, that
(i) each such assignment shall be to an Eligible
Assignee;
(ii) except in the case of an assignment to another
Lender or an assignment of all of a Lender's rights and
obligations under this Agreement, any such partial
assignment shall be in an amount at least equal to
$2,500,000 or an integral multiple of $500,000 in excess
thereof;
(iii) each such assignment by a Lender shall be of a
constant, and not varying, percentage of all of its rights
and obligations under this Agreement and the Notes; and
(iv) the parties to such assignment shall execute and
deliver to the Agent for its acceptance an Assignment and
Acceptance in the form of Exhibit B hereto, together with
any Notes subject to such assignment and a processing fee
of $3,500; provided that such fee is not to be charged to
the Borrower unless the assignment is made pursuant to
Section 3.07 hereof.
Upon execution, delivery, and acceptance of such Assignment and Acceptance, the
assignee thereunder shall be a party hereto and, to the extent of such
assignment, have the obligations, rights, and benefits of a Lender hereunder
and the assigning Lender shall, to the extent of such assignment, relinquish
its rights and be released from its obligations under this Agreement. Upon the
consummation of any assignment pursuant to this Section 11.01, the assignor,
the Agent and the Borrower shall make appropriate arrangements so that, if
required, new Notes are issued to the assignor and the assignee. If the
assignee is not incorporated under the laws of the United States of America or
a state thereof, it shall deliver to the Borrower and the Agent certification
as to exemption from deduction or withholding of Taxes in accordance with
Section 3.06.
(b) The Agent shall maintain at its address referred to in Section 11.02
a copy of each Assignment and Acceptance delivered to and accepted by it and a
register for the recordation of the names and addresses of the Lenders and the
Revolving Credit Commitment of, and principal amount of the Loans owing to,
each Lender from time to time (the "Register"). The entries in the Register
shall be conclusive and binding for all purposes, absent manifest error, and
the Borrower, the Agent and the Lenders may treat each Person whose name is
recorded in the Register as a Lender hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower or
any Lender at any reasonable time and from time to time upon reasonable prior
notice.
(c) Upon its receipt of an Assignment and Acceptance executed by the
parties thereto, together with any Note subject to such assignment and payment
of the processing fee, the Agent shall, if such Assignment and Acceptance has
been completed and is in substantially the form of Exhibit B hereto, (i) accept
such Assignment and Acceptance, (ii) record the information contained therein
in the Register and (iii) give prompt notice thereof to the parties thereto.
(d) Each Lender may sell participations (at no cost to the Borrower) to
one or more Persons in all or a portion of its rights and obligations under
this Agreement (including all or a portion of its Revolving Credit Commitment
and its Loans); provided, however, that (i) such participation shall be in an
amount at least equal to $1,000,000 or an integral multiple of $500,000 in
excess thereof, (ii) such Lender's obligations under this Agreement shall
remain unchanged, (iii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations, (iv) the
participant shall be entitled to the benefit of the yield protection provisions
contained in Article III and the right of set-off contained in Section 11.03,
and (v) the Borrower shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement, and such Lender shall retain the sole right to enforce the
obligations of the Borrower relating to its Loans and its Note and to approve
any amendment, modification, or waiver of any provision of this Agreement
(other than amendments, modifications, or waivers decreasing the amount of
principal of or the rate at which interest is payable on such Loans or Note,
extending any scheduled principal payment date or date fixed for the payment of
interest on such Loans or Note, or extending its Revolving Credit Commitment,
or releasing all or substantially all of the Collateral).
(e) Notwithstanding any other provision set forth in this Agreement, any
Lender may at any time assign and pledge all or any portion of its Loans and
its Note to any Federal Reserve Bank as collateral security pursuant to
Regulation A and any Operating Circular issued by such Federal Reserve Bank.
No such assignment shall release the assigning Lender from its obligations
hereunder.
(f) Any Lender may furnish any information concerning the Borrower or any
of its Subsidiaries in the possession of such Lender from time to time to
assignees and participants (including prospective assignees and participants).
(g) The Borrower may not assign any rights, powers, duties or obligations
under this Agreement or the other Loan Documents without the prior written
consent of all the Lenders.
11.02 Notices. Any notice shall be conclusively deemed to have been
received by any party hereto and be effective on the day on which delivered to
such party (against receipt therefor) at the address set forth below or such
other address as such party shall specify to the other parties in writing (or,
in the case of telephonic notice or notice by telefacsimile, telegram or telex
(where the receipt of such message is verified by return) expressly provided
for hereunder, when received during normal business hours at such telephone,
telefacsimile or telex number as may from time to time be specified in written
or oral notice to the other parties hereto or otherwise received), or by
overnight courier or express mail on the day following the date sent, addressed
to such party at said address:
(a) if to the Borrower:
ICCE, Inc.
Five Concourse Parkway
Suite 2700
Atlanta, Georgia 30328
Attention: Timothy Mann, Jr.
Telephone: (770) 395-0014
Telefacsimile: (770) 395-6521
(b) if to the Agent:
NationsBank, National Association
MD2-600-03-02
6610 Rockledge Drive
Bethesda, Maryland 20817
Attention: Ms. Barbara Levy
Telephone: (301) 493-7256
Telefacsimile: (301) 571-9098
with a copy to:
NationsBank, National Association
MD2-600-03-02
6610 Rockledge Drive
Bethesda, Maryland 20817
Attention: Commercial Lending
(c) if to any Lender:
At the addresses set forth on the signature pages hereof and on
the signature pages of each Assignment and Acceptance;
(d) If to any other Loan Party, at the address set forth on the
signature page of the Loan Document executed by such Loan Party.
11.03 Right of Setoff; Adjustments. (a) Upon the occurrence and
during the continuance of any Event of Default, each Lender (and each of its
affiliates) is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by such Lender (or any of its affiliates)
to or for the credit or the account of the Borrower against any and all of the
obligations of the Borrower now or hereafter existing under this Agreement and
the Notes held by such Lender, irrespective of whether such Lender shall have
made any demand under this Agreement or such Notes and although such
obligations may be unmatured. Each Lender agrees promptly to notify the
Borrower after any such set-off and application made by such Lender; provided,
however, that the failure to give such notice shall not affect the validity of
such set-off and application. The rights of each Lender under this Section are
in addition to other rights and remedies (including, without limitation, other
rights of set-off) that such Lender may have.
(b) If any Lender (a "benefitted Lender") shall at any time receive any
payment of all or part of the Loans owing to it, or interest thereon, or
receive any Collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, or otherwise), in a greater proportion than any such
payment to or Collateral received by any other Lender, if any, in respect of
such other Lender's Loans owing to it, or interest thereon, such benefitted
Lender shall purchase for cash from the other Lenders a participating interest
in such portion of each such other Lender's Loans owing to it, or shall provide
such other Lenders with the benefits of any such Collateral, or the proceeds
thereof, as shall be necessary to cause such benefitted Lender to share the
excess payment or benefits of such Collateral or proceeds ratably with each of
the Lenders; provided, however, that if all or any portion of such excess
payment or benefits is thereafter recovered from such benefitted Lender, such
purchase shall be rescinded, and the purchase price and benefits returned, to
the extent of such recovery, but without interest. The Borrower agrees that
any Lender so purchasing a participation from a Lender pursuant to this Section
11.03 may, to the fullest extent permitted by law, exercise all of its rights
of payment (including the right of set-off) with respect to such participation
as fully as if such Person were the direct creditor of the Borrower in the
amount of such participation.
11.04 Survival. All covenants, agreements, representations and
warranties made herein shall survive the making by the Lenders of the Loans and
the execution and delivery to the Lenders of this Agreement and the Notes and
shall continue in full force and effect so long as any of Obligations remain
outstanding or any Lender has any commitment hereunder or the Borrower has
continuing obligations hereunder unless otherwise provided herein. Whenever in
this Agreement, any of the parties hereto is referred to, such reference shall
be deemed to include the successors and permitted assigns of such party and all
covenants, provisions and agreements by or on behalf of the Borrower which are
contained in this Agreement, the Notes and the other Loan Documents shall inure
to the benefit of the successors and permitted assigns of the Lenders or any of
them.
11.05 Expenses. The Borrower agrees
(a) to pay or reimburse the Agent for all its reasonable and
customary out-of-pocket costs and expenses incurred in connection
with the preparation, negotiation and execution of, this Agreement or
any of the other Loan Documents (including travel expenses relating
to closing), and the consummation of the transactions contemplated
hereby and thereby, including, without limitation, the reasonable and
customary fees and disbursements of counsel to the Agent as well as
all such expenses and costs arising in connection with any amendment,
supplement or modification to this Agreement or any other Loan
Documents,
(b) to pay or reimburse the Agent and the Lenders for all their
reasonable costs and expenses incurred in connection with the
enforcement (only from and after the occurrence and continuation of a
Default or Event of Default) or preservation of any rights under this
Agreement and the other Loan Documents, including without limitation,
the reasonable fees and disbursements of its counsel,
(c) to pay, indemnify and hold the Agent and the Lenders
harmless from any and all recording and filing fees and any and all
liabilities with respect to, or resulting from any failure to pay or
delay in paying, documentary, stamp, excise and other similar taxes,
if any, which may be payable or determined to be payable in
connection with the execution and delivery of this Agreement or any
other Loan Documents, or consummation of any amendment, supplement or
modification of, or any waiver or consent under or in respect of,
this Agreement or any other Loan Documents, and
(d) to pay, indemnify, and hold the Agent and the Lenders
harmless from and against any and all other liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever with
respect to the execution, delivery, enforcement, performance and
administration of this Agreement, the other Loan Documents and any
indemnity agreement or undertaking made by the Agent or any Lender to
facilitate the processing of checks, payroll or otherwise, of
Borrower, or in any respect relating to the transactions contemplated
hereby or thereby, (all the foregoing, collectively, the "indemnified
liabilities"); provided, however, that the Borrower shall have no
obligation hereunder with respect to indemnified liabilities arising
from (i) the willful misconduct or gross negligence of or the willful
breach of the Loan Documents by the party seeking indemnification,
(ii) legal proceedings commenced against the Agent or any Lender by
any security holder or creditor thereof arising out of and based upon
rights afforded any such security holder or creditor solely in its
capacity as such, (iii) any taxes imposed upon the Agent or any
Lender other than the documentary, stamp, excise and similar taxes
described in clause (c) above or any tax which would be payable to
Lender by Borrower pursuant to Article III hereof, it being
understood that the Lenders shall have the affirmative obligation, so
long as no Default or Event of Default exists hereunder, to take all
reasonable steps to ensure such documentary, stamp or similar taxes
are not required to be paid, (iv) taxes imposed and costs and
expenses incurred as a result of a transfer or assignment of any
Note, participation or assignment of a portion of a Lender's rights
or (v) any transfer taxes, costs, fees or expenses incurred in
connection with any transfer of the Notes. The agreements in this
subsection shall survive repayment of the Notes and all other
Obligations hereunder and termination of this Agreement.
11.06 Amendments and Waivers. Any provision of this Agreement or any
other Loan Document may be amended or waived if, but only if, such amendment or
waiver is in writing and is signed by the Borrower and the Required Lenders
(and, if Article X or the rights or duties of the Agent are affected thereby,
by the Agent); provided that no such amendment or waiver shall, unless signed
by all the Lenders (i) increase the Revolving Credit Commitments of the
Lenders, (ii) reduce the principal of or rate of interest on any Loan or any
fees or other amounts payable hereunder, (iii) postpone any date fixed for the
payment of any scheduled installment of principal of or interest on any Loan or
any fees or other amounts payable hereunder or for termination of any Revolving
Credit Commitment, (iv) change the percentage of the Revolving Credit
Commitments or of the unpaid principal amount of the Notes, or the number of
Lenders, which shall be required for the Lenders or any of them to take any
action under this Section or any other provision of this Agreement or (v)
release any Guarantor or all or substantially all of the Collateral.
11.07 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such fully-executed counterpart.
11.08 Waivers by Borrower. In any litigation in any court with
respect to, in connection with, or arising out of this Agreement, the Loans,
any of the Notes, any of the other Loan Documents, the Obligations, or any
instrument or document delivered pursuant to this Agreement or the other Loan
Documents, or the validity, protection, interpretation, collection or
enforcement thereof, or any other claim or dispute howsoever arising between
the Borrower and the Agent and any Lender, the Borrower and the Agent and the
Lenders hereby waive, to the extent permitted by applicable law, trial by jury
in connection with any such litigation.
11.09 Termination. The termination of this Agreement shall not affect
any rights of the Borrower, the Agent or the Lenders or any obligation of the
Borrower, the Agent or the Lenders, arising prior to the effective date of such
termination, and the provisions hereof shall continue to be fully operative
until all transactions entered into or rights created or obligations incurred
prior to such termination have been fully disposed of, concluded or liquidated
and the Obligations arising prior to or after such termination have been
irrevocably paid in full. The rights granted to the Agent for the benefit of
the Lenders hereunder and under the other Loan Documents shall continue in full
force and effect, notwithstanding the termination of this Agreement, until all
of the Obligations have been paid in full after the termination hereof (other
than Obligations in the nature of continuing indemnities or expense
reimbursement obligations not yet due and payable) or the Borrower has
furnished the Agent and the Lenders with an indemnification satisfactory to the
Lender with respect thereto. All representations, warranties, covenants,
waivers and agreements contained herein shall survive termination hereof until
payment in full of the Obligations unless otherwise provided herein.
Notwithstanding the foregoing, if after receipt of any payment of all or any
part of the Obligations, any Lender is for any reason compelled to surrender
such payment to any Person because such payment is determined to be void or
voidable as a preference, impermissible setoff, a diversion of trust funds or
for any other reason, this Agreement shall continue in full force and the
Borrower shall be liable to, and shall indemnify and hold such Lender harmless
for, the amount of such payment surrendered until the Lenders shall have been
finally and irrevocably paid in full. The provisions of the foregoing sentence
shall be and remain effective notwithstanding any contrary action which may
have been taken by the Lender in reliance upon such payment, and any such
contrary action so taken shall be without prejudice to the Lender's rights
under this Agreement and shall be deemed to have been conditioned upon such
payment having become final and irrevocable.
11.10 Governing Law. ALL DOCUMENTS EXECUTED PURSUANT TO THE
TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING, WITHOUT LIMITATION, THIS AGREEMENT
AND EACH OF THE LOAN DOCUMENTS SHALL BE DEEMED TO BE CONTRACTS MADE UNDER, AND
FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS AND
JUDICIAL DECISIONS OF THE STATE OF GEORGIA; PROVIDED THAT THIS SECTION 11.10
SHALL NOT AFFECT THE APPLICABILITY OF, AND INTERPRETATION OR CONSTRUCTION OF
APPROPRIATE TERMS AND PROVISIONS UNDER THE UNIFORM COMMERCIAL CODE OF ANY
JURISDICTION WHICH GOVERN THE LIENS ON ANY OF THE COLLATERAL. THE BORROWER AND
THE AGENT HEREBY SUBMIT TO THE JURISDICTION AND VENUE OF THE STATE AND FEDERAL
COURTS OF GEORGIA FOR THE PURPOSES OF RESOLVING DISPUTES HEREUNDER OR FOR THE
PURPOSES OF COLLECTION.
11.11 Severability. If any provision of this Agreement or the other
Loan Documents shall be determined to be illegal or invalid as to one or more
of the parties hereto, then such provision shall remain in effect with respect
to all parties, if any, as to whom such provision is neither illegal nor
invalid, and in any event all other provisions hereof shall remain effective
and binding on the parties hereto.
11.12 Entire Agreement. This Agreement, together with the other Loan
Documents, constitutes the entire agreement between the parties with respect to
the subject matter hereof and supersedes all previous proposals, negotiations,
representations, commitments and other communications between or among the
parties, both oral and written, with respect thereto.
11.13 Agreement Controls. In the event that any term of any of the
Loan Documents other than this Agreement conflicts with any term of this
Agreement, the terms and provisions of this Agreement shall control.
11.14 Usury Savings Clause. Notwithstanding any other provision
herein, the aggregate interest rate charged under any of the Notes, including
all charges or fees in connection therewith deemed in the nature of interest
under applicable law shall not exceed the Highest Lawful Rate (as such term is
defined below). If the rate of interest (determined without regard to the
preceding sentence) under this Agreement at any time exceeds the Highest Lawful
Rate (as defined below), the outstanding amount of the Loans made hereunder
shall bear interest at the Highest Lawful Rate until the total amount of
interest due hereunder equals the amount of interest which would have been due
hereunder if the stated rates of interest set forth in this Agreement had at
all times been in effect. In addition, if when the Loans made hereunder are
repaid in full the total interest due hereunder (taking into account the
increase provided for above) is less than the total amount of interest which
would have been due hereunder if the stated rates of interest set forth in this
Agreement had at all times been in effect, then to the extent permitted by law,
the Borrower shall pay to the Agent an amount equal to the difference between
the amount of interest paid and the amount of interest which would have been
paid if the Highest Lawful Rate had at all times been in effect.
Notwithstanding the foregoing, it is the intention of the Lenders and the
Borrower to conform strictly to any applicable usury laws. Accordingly, if any
Lender contracts for, charges, or receives any consideration which constitutes
interest in excess of the Highest Lawful Rate, then any such excess shall be
canceled automatically and, if previously paid, shall at such Lender's option
be applied to the outstanding amount of the Loans made hereunder or be refunded
to the Borrower. As used in this paragraph, the term "Highest Lawful Rate"
means the maximum lawful interest rate, if any, that at any time or from time
to time may be contracted for, charged, or received under the laws applicable
to such Lender which are presently in effect or, to the extent allowed by law,
under such applicable laws which may hereafter be in effect and which allow a
higher maximum nonusurious interest rate than applicable laws now allow.
11.15 Confidentiality. The Agent and each Lender (each, a "Lending
Party") agrees to keep confidential any information furnished or made available
to it by the Borrower pursuant to this Agreement that is marked confidential;
provided that nothing herein shall prevent any Lending Party from disclosing
such information (a) to any other Lending Party or any affiliate of any Lending
Party, or any officer, director, employee, agent or advisor of any Lending
Party or affiliate of any Lending Party, (b) to any other Person if reasonably
incidental to the administration of the credit facility provided herein, (c) as
required by any law, rule, or regulation, (d) upon the order of any court or
administrative agency, (e) upon the request or demand of any regulatory agency
or authority, (f) that is or becomes available to the public or that is or
becomes available to any Lending party other than as a result of a disclosure
by any Lending Party prohibited by this Agreement, (g) in connection with any
litigation to which such Lending Party or any of its affiliates may be a party,
(h) to the extent necessary in connection with the exercise of any remedy under
this Agreement or any other Loan Document, and (i) subject to provisions
substantially similar to those contained in this Section 11.15, to any actual
or proposed participant or assignee.
[Signatures on following pages]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
made, executed and delivered by their duly authorized officers as of the day
and year first above written.
ICCE, INC.
By: /s/ Timothy Mann, Jr.
Name: Timothy Mann, Jr.
Title: President
<PAGE>
NATIONSBANK, NATIONAL ASSOCIATION,
as Agent
By: /s/ Barbara P. Levy
Name: Barbara Levy
Title: Vice President
<PAGE>
NATIONSBANK, NATIONAL ASSOCIATION,
as a Lender
By: /s/ Barbara P. Levy
Name: Barbara Levy
Title: Vice President
Lending Office:
NationsBank, National Association
MD2-600-03-02
6610 Rockledge Drive
Bethesda, Maryland 20817
Attention: Commercial Lending
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN LLP APPEARS HERE]
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
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 S-1
Registration Statement.
/s/ Arthur Andersen LLP
Philadelphia, PA
December 3, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF ACSYS, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<CASH> 1,178,096 1,546,748
<SECURITIES> 0 0
<RECEIVABLES> 6,499,952 9,922,461
<ALLOWANCES> 280,825 416,766
<INVENTORY> 0 0
<CURRENT-ASSETS> 7,643,099 11,560,678
<PP&E> 1,647,449 2,214,475
<DEPRECIATION> 794,665 1,041,688
<TOTAL-ASSETS> 15,855,142 28,631,507
<CURRENT-LIABILITIES> 4,088,337 6,147,850
<BONDS> 0 0
0 0
0 0
<COMMON> 510,604 7,577,393
<OTHER-SE> 2,802,405 1,940,838
<TOTAL-LIABILITY-AND-EQUITY> 15,855,142 28,631,507
<SALES> 45,908,264 42,009,687
<TOTAL-REVENUES> 45,908,264 42,009,687
<CGS> 22,873,091 19,827,965
<TOTAL-COSTS> 20,004,333 20,468,650
<OTHER-EXPENSES> (69,630) (7,329)
<LOSS-PROVISION> 286,212 216,413
<INTEREST-EXPENSE> 872,958 595,671
<INCOME-PRETAX> 2,227,512 1,124,730
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 2,227,512 1,124,730
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,227,512 1,124,730
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
