<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended September 30, 1998
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to_______________
Commission File No. 000-23711
-----------------------------
Acsys, Inc.
-----------
(Exact name of registrant as specified in its charter)
Georgia 58-2299173
------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
75 Fourteenth Street, Suite 2200
Atlanta, GA 30309
----------- -----
(Address of principal executive offices) (ZIP Code)
404-817-9440
------------
(Registrant's telephone number, including area code)
Indicate by check X whether the registrant: (1) has filed all
reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
The number of outstanding shares of the registrant's Common Stock on
November 13, 1998 was 14,431,518.
================================================================================
<PAGE>
Acsys, Inc.
Table of Contents
-----------------
Item No. Page
- -------- ----
PART I - FINANCIAL INFORMATION
1. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Results of Operations
For the Three Months Ended September 30, 1998 and 1997 ......... 3
Condensed Consolidated Results of Operations for the Nine Months
ended September 30, 1998 and 1997 .............................. 4
Condensed Consolidated Balance Sheets as of
September 30, 1998 and December 31, 1997 ....................... 5
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1998 and 1997 .......... 6
Notes to Condensed Consolidated Financial Statements ............... 7
2. Management's Discussion and Analysis of Results of Operations
And Financial Condition ........................................ 13
3. Quantitative and Qualitative Disclosures About Market Risk ......... 19
PART II - OTHER INFORMATION
2. Changes in Securities and Use of Proceeds .......................... 20
4. Submission of Matters to a Vote of Security Holders ................ 20
6. Exhibits and Reports on Form 8-K ................................... 21
2
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Acsys, Inc. and Subsidiaries
Condensed Consolidated Results of Operations
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the three months ended
--------------------------
September 30,
-------------
1998 1997
------- -------
<S> <C> <C>
SERVICE REVENUES:
Temporary staffing .................................................... $29,525 $16,198
Permanent placement ................................................... 8,050 5,355
------- -------
Total service revenues ........................................... 37,575 21,553
DIRECT COST OF SERVICES, consisting of payroll, payroll taxes and
benefit costs for temporary employees ................................ 20,714 11,350
------- -------
Gross profit ..................................................... 16,861 10,203
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ............................... 12,436 7,977
AMORTIZATION AND DEPRECIATION .............................................. 502 230
------- -------
Operating income ................................................. 3,923 1,996
INTEREST EXPENSE, NET ...................................................... 402 209
------- -------
INCOME BEFORE INCOME TAXES ................................................. 3,521 1,787
INCOME TAXES (Note 3) ...................................................... 1,500 166
------- -------
NET INCOME ................................................................ $ 2,021 $ 1,621
======= =======
BASIC NET INCOME PER SHARE (Note 9) ........................................ $ 0.14 $ 0.11
======= =======
Shares used in computing basic net income per share ................ 14,430 10,661
======= =======
DILUTED INCOME PER SHARE (Note 9) .......................................... $ 0.14 $ 0.11
======= =======
Shares used in computing diluted net income per share .............. 14,744 10,749
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
Acsys, Inc. and Subsidiaries
Condensed Consolidated Results of Operations
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the nine months ended
-------------------------
September 30,
-------------
1998 1997
-------- --------
<S> <C> <C>
SERVICE REVENUES:
Temporary staffing ................................................... $ 69,564 $ 42,550
Permanent placement .................................................. 19,807 13,742
-------- --------
Total service revenues .......................................... 89,371 56,292
DIRECT COST OF SERVICES, consisting of payroll, payroll taxes
and benefit costs for temporary employees ........................... 48,768 29,863
-------- --------
Gross profit .................................................... 40,603 26,429
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES .............................. 32,969 21,063
COMBINATION EXPENSES (Note 6) ............................................ 1,730 1,722
SEVERANCE AND FRANCHISE TERMINATION COSTS (Note 6) ........................ 650 170
AMORTIZATION AND DEPRECIATION ............................................. 1,059 459
-------- --------
Operating income .............................................. 4,195 3,015
INTEREST EXPENSE, NET ..................................................... 466 588
-------- --------
INCOME BEFORE INCOME TAXES ................................................ 3,729 2,427
INCOME TAXES (Note 3) ..................................................... 5,185 580
-------- --------
NET (LOSS) INCOME ......................................................... $ (1,456) $ 1,847
======== ========
BASIC (LOSS) INCOME PER SHARE (Note 9) .................................... $ (0.10) $ 0.09
======== ========
Shares used in computing basic net (loss) income per share ........ 13,878 10,233
======== ========
DILUTED (LOSS) INCOME PER SHARE (Note 9) .................................. $ (0.10) $ 0.09
======== ========
Shares used in computing diluted net (loss) income per share ...... 13,878 10,321
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
Acsys, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
------------- ------------
1998 1997
------- -------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .............................................. $ 1,175 $ 370
Accounts receivable, net ............................................... 23,170 12,343
Prepaid expenses and other ............................................. 1,391 1,455
------- -------
Total current assets ................................................. 25,736 14,168
PROPERTY AND EQUIPMENT, net .................................................... 4,380 1,928
GOODWILL AND OTHER INTANGIBLE ASSETS, net ...................................... 54,567 15,783
DEFERRED INITIAL PUBLIC OFFERING COSTS ......................................... -- 1,200
DEFERRED INCOME TAXES .......................................................... -- 103
OTHER ASSETS ................................................................... 230 170
======= =======
Total assets .................................................... $84,913 $33,352
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdrafts ........................................................... $ -- $ 1,489
Current portion of long-term debt ......................................... 9,003 47
Accounts payable .......................................................... 1,391 774
Accrued liabilities ....................................................... 11,507 5,844
Deferred income taxes ..................................................... 402 1,093
Other current liabilities ................................................. 262 --
------- -------
Total current liabilities ............................................ 22,565 9,247
LONG-TERM DEBT ................................................................. 25,642 11,707
DEFERRED INCOME TAXES .......................................................... 2,726 --
OTHER LONG-TERM LIABILITIES .................................................... 284 377
------- -------
Total liabilities .................................................... 51,217 21,331
------- -------
COMMITMENTS AND CONTINGENCIES (Note 7)
REDEEMABLE COMMON STOCK, no par value, 122,012 shares
Issued and outstanding at December 31, 1997 .............................. -- 1,220
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,
14,422,038 and 11,191,564 shares issued and outstanding at September 30,
1998 and December 31, 1997, respectively .............................. 29,377 7,597
Retained earnings ........................................................ 4,319 3,204
------- -------
Total shareholders' equity ........................................... 33,696 10,801
======= =======
Total liabilities and shareholders' equity ........................... $84,913 $33,352
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
Acsys, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
For the nine months ended
-------------------------
September 30,
-------------
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ......................................................... $ (1,456) $ 1,847
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Amortization and depreciation ....................................... 1,059 459
Deferred income taxes ............................................... 1,899 616
Other ............................................................... -- 153
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable, net ............................................ (7,001) (3,286)
Prepaid expenses and other .......................................... 475 (377)
Other assets ........................................................ 15 15
Accounts payable .................................................... (67) 759
Accrued liabilities and other ....................................... 1,718 1,783
Other long-term liabilities ......................................... (93) --
-------- --------
Net cash (used in) provided by operating activities ............. (3,451) 1,969
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid for acquisitions ............................................ (34,260) (1,874)
Capital expenditures ...................................................... (2,341) (446)
-------- --------
Net cash used in investing activities ........................... (36,601) (2,320)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering, net of expenses .................... 20,170 --
Changes in bank overdrafts ................................................ (1,489) (133)
Net borrowings (repayments) of long term debt ............................. 22,891 1,856
Proceeds from exercise of employee stock options .......................... 96 --
Loan origination fees and expenses ........................................ (266) --
Distributions to shareholders ............................................. (545) (845)
Changes in restricted cash ................................................ -- 116
-------- --------
Net cash provided by financing activities ......................... 40,857 994
-------- --------
NET INCREASE IN CASH AND CASH
EQUIVALENTS ................................................................. 805 643
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................. 370 1,102
======== ========
CASH AND CASH EQUIVALENTS, END OF PERIOD ....................................... $ 1,175 $ 1,745
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
Acsys, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
1. Company Background
Acsys, Inc. (or "the Company") is one of the leading specialty professional
staffing firms in the United States.
In May 1997, the Company began combined operations with the acquisition of all
of the issued and outstanding common stock of Infinity Enterprises, Inc., David
C. Cooper & Associates, Inc., DCCA Professional Temporaries, Inc., Cama of
Tampa, Inc. ("Cama") and EKT, Inc. in exchange for shares of the Company's
Common Stock. Since May 1997, the Company has completed numerous acquisitions of
companies which provide temporary and permanent placement staffing services
primarily in the areas of accounting, finance and information technology.
The Company currently operates 40 offices principally throughout the Midwestern
and Eastern portions of the United States.
2. Basis of Presentation
The accompanying condensed consolidated financial statements are unaudited and
have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). Although the December 31, 1997
balance sheet was derived from audited financial statements, certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to SEC rules and regulations. The Company believes that the
financial statements include all adjustments of a normal and recurring nature
necessary to present fairly the results of operations, financial position and
cash flows for the periods presented. These financial statements should be read
in conjunction with the financial statements and notes thereto included in the
Company's annual report on Form 10-K. The condensed consolidated financial
statements include the accounts of the Company and its subsidiaries. All
material intercompany balances and transactions have been eliminated. There have
been no material changes in accounting policies from those stated in the
Company's Form 10-K. Interim results of operations are not necessarily
indicative of results to be expected for the entire year.
3. Initial Public Offering
In February 1998, the Company completed its initial public offering ("IPO") of
2,842,500 shares of common stock at a price of $8.50 per share, generating net
cash proceeds of approximately $20.2 million after deducting underwriters'
discount and offering costs.
In connection with the IPO, the Company terminated its S corporation status and
recorded in the first quarter of 1998 income tax expense and a corresponding net
deferred tax liability of approximately $3,000,000, representing the tax effect
of differences in bases in assets and liabilities for financial reporting and
income tax purposes.
The owner of 122,012 shares of redeemable common stock entered into a
contractual waiver of all redemption rights effective upon the IPO. Accordingly,
subsequent to the IPO, these shares have been reclassified as common stock.
7
<PAGE>
Acsys, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
4. Debt
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Revolving Credit Facility .......................................... $ 33,959 $ 11,050
Non-compete agreements with former shareholders of
Infinity Enterprises, Inc., maturing February 2009 ........ 1,042 1,116
Other .............................................................. 19 10
-------- --------
35,020 12,176
Less--Unamortized discount ......................................... (375) (422)
-------- --------
34,645 11,754
Less--Current portion .............................................. (9,003) (47)
======== ========
$ 25,642 $ 11,707
======== ========
</TABLE>
On June 29, 1998, the Company amended its Revolving Credit Facility (the "Credit
Facility"), increasing the amount available to be borrowed from $15.0 million to
$25.0 million and extending its maturity date from May 31, 2000 to June 30,
2002. In August 1998, in connection with the acquisition of Staffing Edge, Inc.
(See Note 5), the Company amended its Credit Facility, increasing the amount
available to be borrowed from $25.0 million to $40.0 million through January 1,
1999, after which availability under the Credit Facility will be reduced to
$25.0 million. As of September 30, 1998, the Company had borrowed approximately
$34.0 million under the credit facility, of which $9.0 million, representing the
amount which must be repaid or refinanced by January 1, 1999, has been
classified as current. In the event that the Company is unable to replace or
refinance the Credit Facility by January 1, 1999, the Company will attempt to
negotiate with the lenders for a modification of the Credit Facility. The
existing Credit Facility bears interest, at the election of the Company, at
either: (A) the greater of (i) the prime rate or (ii) the federal funds rate
plus 0.50%, plus in the case of either a prime rate or federal funds rate a
margin of up to 0.50% based upon the Company's leverage ratio; or (B) at LIBOR
plus a margin which ranges from 1.00% to 2.00% based upon the Company's leverage
ratio. Borrowings and other amounts due under the Credit Facility are
collateralized by all of the assets of the Company and its subsidiaries,
including a pledge of all of the stock of the Company's direct and indirect
subsidiaries. In addition, all borrowings and other amounts under the Credit
Facility are guaranteed by each of the Company's direct and indirect
subsidiaries.
The Credit Facility contains various financial and non-financial covenants. The
financial covenants include requirements relating to the Company's consolidated
leverage ratio, fixed charge coverage ratio, capitalization ratio and current
ratio. Other covenants include, without limitation, restrictions against the
Company and its subsidiaries from incurring debt, creating liens, transferring
or selling assets, making investments, making acquisitions and merging. In
addition, there is a prohibition against the payment of dividends on account of
the Company's capital stock.
8
<PAGE>
Acsys, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
5. Mergers, Acquisitions, and Pro Forma Financial Information
Pooling of Interests Transactions- The Company 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, DCCA
Professional Temporaries, Inc.; and EKT Inc. in exchange for 4,240,283 shares of
the Company's common stock. Subsequently in 1997 the Company acquired all of the
issued and outstanding common stock of Cama, Rylan Forbes Consulting Group, Inc.
and ACSYS Resources, Inc. in exchange for 4,252,937 shares of the Company's
Common Stock. On May 22, 1998, the Company acquired all of the equity interests
in Icon Search & Consulting ("ICON"), an Atlanta-based information technology
staffing company, in a stock-for-stock merger. Under the terms of the merger
agreement, ICON shareholders received 2,820,360 shares of Common Stock in
exchange for all of the equity interests in ICON. Each of these transactions
were accounted for as a pooling of interest and, accordingly, the financial
statements include the results of the acquired company for all periods
presented.
Purchase Accounting Transactions- In addition to the pooling of interests
transactions, the Company has completed four acquisitions that have been
accounted for under the purchase method of accounting. The results of operations
for these acquired companies are included from their respective date of
acquisition:
. ACSYS Resources, Inc. (prior to its acquisition by the Company) acquired
C.P.A. Search, Inc. and Career Placement Associates Inc. (together "C.P.A.
Staffing") on August 12, 1997.
. On March 31, 1998, the Company acquired all of the outstanding capital
stock of TGS Resource Group, Inc. ("Don Richard of Richmond"), a leading
accounting and finance staffing firm located in Richmond, Virginia.
. On July 1, 1998, the Company acquired all of the equity interests of KPD
Systems, Inc ("KPD"), an information technology staffing firm located on
Long Island, New York.
. On August 4, 1998, the Company acquired all of the equity interests of
Staffing Edge, Inc., a specialty professional staffing firm with offices
located throughout the Midwestern United States. The Company acquired the
equity interest of Staffing Edge in exchange for $22,510,000 in cash,
81,766 shares of the Company's common stock, assumption of debt of
$7,004,000 plus a contingent earnout based upon the future performance of
Staffing Edge which could aggregate up to $7,500,000. The Company financed
the cash portion of the acquisition with borrowings under its credit
facility. The Company recorded goodwill of $31,800,000, representing the
consideration paid in excess of the fair value of the underlying
identifiable net assets acquired, which will be amortized to future periods
over a 40 year period.
9
<PAGE>
Acsys, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
The following unaudited pro forma consolidated results of operations assume that
all of the above purchases occurred on January 1, 1997, and that the Company
incurred incremental interest expense on debt presumed to be incurred to fund
the acquisitions. Additionally, these pro forma results reflect (i) an
adjustment to officer and employee compensation based upon employment agreements
entered into upon the closing of certain of the Company's acquisitions.
Prior to February 5, 1998, the Company was an S corporation and not subject to
income taxes. These pro forma results include adjustments to reflect the company
as a taxable entity during all periods presented:
<TABLE>
<CAPTION>
(In thousands, except per share data)
----------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
----------------------------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Pro forma revenue $39,875 $28,691 $107,776 $78,864
Pro forma net income (loss) $954 $(1,047) $1,330 $(2,601)
Diluted earnings (loss) per share $0.06 $(0.13) $0.09 $(0.31)
Shares used in computing pro forma
diluted net income per share 14,775 11,464 14,473 11,463
</TABLE>
6. Combination, Severance and Franchise Termination Costs
Combination costs-In connection with it's merger with ICON, the Company recorded
a charge for combination expenses of $1,730,000 in the nine months ended
September 30, 1998 which consisted of investment banking, legal and accounting
fees, and other transaction costs associated with the merger.
Severance costs-During the nine months ended September 30, 1998 the Company made
the decision to centralize its corporate and administrative offices in Atlanta,
Georgia. The Company recorded a charge of $650,000 during the nine months ended
September 30, 1998 consisting principally of severance obligations as a result
of this decision.
Franchise termination costs-The Company recorded a charge of $170,000 during the
nine months ended September 30, 1997 in connection with a termination payment
pursuant to the terms of a franchise agreement.
7. Commitments and Contingencies
On November 13, 1997, a lawsuit was filed against the Company, Cama and the
former owner of Cama, Stephen S. Tutwiler by L. Robert Frank, Jr. and L. Robert
Frank & Associates, Inc. in the Circuit court of the Thirteenth Judicial
Circuit, Hillsborough County, Florida. The lawsuit alleges that the plaintiffs
and Mr. Tutwiler agreed to form a corporation to provide certain staffing
services; that such services were instead provided through a division of Cama;
and that the plaintiffs were entitled to a portion of the stock of Cama and thus
to a portion of the shares of Common Stock issued to Mr. Tutwiler when it
acquired Cama. The plaintiffs assert numerous claims, including breach of
contract, fraud, civil conspiracy and alleged misstatements and omissions
regarding the Company's ownership of Cama in a prospectus filed by the Company.
The plaintiffs seek to recover $27,000 allegedly due to the plaintiffs, their
alleged portion of Mr.
10
<PAGE>
Acsys, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
Tutwiler's shares of Common Stock, and compensatory and other damages. The
plaintiffs also seek an accounting and employment by the Company. The court has
ordered the plaintiffs and Mr. Tutwiler to arbitrate the allegations in the
lawsuit, which relate to their dispute, and has stayed the litigation of
plaintiffs' claims against Cama and the Company, pending resolution of the
arbitration between Mr. Tutwiler and plaintiffs. The plaintiffs have filed an
appeal of the order requiring them to arbitrate the claims against Mr. Tutwiler.
In the event the claims against the Company and Cama proceed, the Company
intends to vigorously defend against those claims. Due to the uncertainties of
litigation, the Company cannot predict the outcome of this matter. An adverse
result could have a material effect on the Company and result in a charge to the
statement of operations in the period in which the litigation is resolved. There
is no other pending litigation which the Company considers material.
8. Supplemental Cash Flow Information
During the nine months ended September 30, 1998 and 1997, the Company paid
interest expense of $370,000 and $602,000, respectively.
During the nine months ended September 30, 1998 and 1997, the Company paid
income taxes of $1,181,000 and $0, respectively.
9. Net (Loss) Income Per Share
The Company calculates net (loss) income per share under the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). SFAS 128 specifies the computation, presentation and disclosure required
for earnings per share including a dual presentation of "basic" and "diluted"
EPS. Basic EPS is computed by dividing net income by the weighted average number
of shares of common stock outstanding for the period. When dilutive, options are
included as share equivalents using the treasury stock method and are included
in the calculation of diluted per share data. For the three and nine months
ended September 30, 1997, the average number of shares outstanding excludes the
redeemable common shares, as the accretion on the redeemable common stock of
$454,000 and $932,000 is deducted in arriving at historical and pro forma net
(loss) income per share available to common shareholders.
10. Concentrations of Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of accounts receivable. The Company does not
require collateral or other securities to support customer accounts receivable.
No client accounted for more than 10% of the Company's revenues during the three
or nine months ended September 30, 1998 or of accounts receivable as of
September 30, 1998.
11. Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). This statement
requires that items that are components of comprehensive income, defined as the
total net income and all other non-owner changes in equity, be reported in a
financial statement that is displayed with the same prominence as other
financial statements.
11
<PAGE>
Acsys, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
- --------------------------------------------------------------------------------
SFAS No. 130 became effective for fiscal years beginning after December 31, 1997
and is now currently being applied by the Company. SFAS No. 130 requires
comparative financial statements provided for earlier periods to be reclassified
to reflect application of the provisions of this new standard. The Company has
determined that for the quarter ended September 30, 1998 and for the year ended
December 31, 1997, no items, other than net income, meeting the definition of
comprehensive income as specified in SFAS No. 130 existed in the financial
statements. As a result, no disclosure is necessary to comply with the standard.
In June 1997, the FASB issued Statement No. 131, "Disclosure About Segments of
an Enterprise and Related Information" ("SFAS No. 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 No. 131 will not have a material effect on the
Company's financial statements.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
This Management's Discussion and Analysis of Results of Operations and
Financial Condition contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended. These
statements relate to 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. Actual results could differ materially from those currently
anticipated as a result of a number of factors, including those listed in (a)
the "Risk Factors" section of the prospectus included in the Company's
Registration Statements on Form S-1 (Registration number 333-38465) as declared
effective by the SEC on February 5, 1998 and any such forms subsequently filed
thereafter, (b) Item 7, "Management's Discussion and Analysis of Results of
Operations and Financial Condition - Disclosure Regarding Forward Looking
Statements" in the Company's annual report on Form 10-K for 1997 and (c) any of
the Company's subsequent filings with the Commission. These factors include, but
are not limited to, the Company's brief combined operating history and its
ability to identify and acquire suitable acquisition candidates, to integrate
acquired companies into its operations, to implement internal control and
management, financial and operational reporting systems, and to manage risks
associated with opening new offices and offering new services.
1998 Acquisitions
- -----------------
On May 22, 1998, the Company acquired all of the equity interests in Icon Search
& Consulting ("ICON"), an Atlanta-based information technology staffing company,
in a stock-for-stock merger which has been accounted for under the pooling of
interests method of accounting. The company's financial statements have been
restated to include the accounts of ICON for all periods presented.
The Company has completed three acquisitions that have been accounted for under
the purchase method of accounting, (collectively, the "1998 Acquisitions") The
results of operations of these acquired companies are included in the Company's
results from their respective dates of acquisition:
. On March 31, 1998, the Company acquired all of the outstanding capital
stock of TGS Resource Group, Inc. ("Don Richard of Richmond"), an
accounting and finance staffing firm located in Richmond, Virginia.
. On July 1, 1998, the Company acquired all of the equity interests of KPD
Systems, Inc ("KPD"), an information technology staffing firm located on
Long Island, New York.
. On August 4, 1998, acquired all of the equity interests in Staffing Edge,
Inc. ("Staffing Edge"), a specialty professional staffing firm with offices
located throughout the Midwestern United States.
13
<PAGE>
Results of Operations
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service revenues:
Temporary staffing $ 29,525 $ 16,198 $ 69,564 $ 42,550
Permanent placement 8,050 5,355 19,807 13,742
---------------------------------------------------------------
Total service revenues 37,575 21,553 89,371 56,292
Direct cost of services 20,714 11,350 48,768 29,863
---------------------------------------------------------------
Gross Profit 16,861 10,203 40,603 26,429
Selling, general & administrative expenses 12,436 7,977 32,969 21,063
Combination expenses -- -- 1,730 1,722
Severance and franchise termination costs -- -- 650 170
Amortization and depreciation 502 230 1,059 459
---------------------------------------------------------------
Operating income 3,923 1,996 4,195 3,015
Interest expense, net 402 209 466 588
---------------------------------------------------------------
Income loss before income taxes 3,521 1,787 3,729 2,427
Income Taxes 1,500 166 5,185 580
---------------------------------------------------------------
Net Income (loss) $ 2,021 $ 1,621 $ (1,456) $ 1,847
===============================================================
</TABLE>
Historical Results for the Three Months Ended September 30, 1998 Compared to
Historical Results for the Three Months Ended September 30, 1997
Service Revenues. Total service revenues increased $16.0 million, or 74.3%,
to $37.6 million for the three months ended September 30, 1998 from $21.6
million for the corresponding period in 1997. Temporary staffing service
revenues increased $13.3 million, or 82.3%, to $29.5 million for the three
months ended September 30, 1998 as compared to $16.2 million for 1997. The
increase in temporary staffing service revenues is primarily attributable to the
effect of the 1998 Acquisitions, the growth of IT contract staffing, the
increase in billing rates and the impact of acquisitions. Also contributing to
the increase were higher bill rates and increased revenues from offices opened
in the fourth quarter of 1997. Permanent placement service revenues increased
$2.7 million, or 50.3%, to $8.1 million for the three months ended September 30,
1998 from $5.4 million for the corresponding period in 1997. Permanent placement
service revenues increased primarily due to an increase in the number of
permanent placements, an increase in placement fees and the 1998 Acquisitions.
Gross Profit. Gross profit increased $6.7 million, or 65.3%, to $16.9
million for the three months ended September 30, 1998 from $10.2 million for
1997. Gross profit as a percentage of service revenues decreased to 44.9% for
the third quarter of 1998 compared to 47.3% for the third quarter of 1997. The
gross profit percentage decline resulted from the decrease in 1998 of the higher
margin permanent placement revenues as a percentage of the total revenues and as
a result of the growth in 1998 of the information technology business which has
higher bill rates but lower gross margins than the rest of the Company's
business.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $4.4 million, or 55.9%, to $12.4 million for
the three months ended September 30, 1998 from $8.0 million
14
<PAGE>
for the three months ended September 30, 1997. As a percentage of revenues,
selling, general and administrative expenses were 33.1% for the three months
ended September 30, 1998 compared with 37.0% for the corresponding period in
1997. This decrease as a percentage of revenues is primarily attributable to the
fact that the three months ended September 30, 1997 had significant amounts of
owner's compensation and the corresponding period in 1998 had increased
efficiencies and the spreading of overhead costs over a substantially larger
revenue base.
Amortization and Depreciation. Amortization and depreciation for the three
months ended September 30, 1998 increased $272,000 from the corresponding period
of 1997. Amortization for the three months ended September 30, 1998 included
goodwill amortization expense as a result of the C.P.A. Staffing acquisition in
August 1997 and goodwill arising from the 1998 Acquisitions. Depreciation
expense in 1998 also increased as a result of capital expenditures in 1997 and
1998.
Interest Expense, net. For the three months ended September 30, 1998, the
Company recorded net interest expense of $402,000 consisting principally of
interest expense on the Company's Revolving Credit Facility and certain
noncompete and severance arrangements. For the three months ended September 30,
1997, the Company recorded net interest expense of $209,000 consisting
principally of interest expense on the Company's Revolving Credit Facility.
Income Tax Expense. For the three months ended September 30, 1998, the
Company recognized income tax expense of $1.5 million on pre-tax income of $3.5
million resulting in an effective tax rate of approximately 42.6%. Prior to
February 5, 1998, the Company was an S corporation and not subject to income
taxes. In 1997, the income tax provision relates exclusively to ICON, which for
federal income tax purposes was a C corporation subject to corporate income
taxes.
Net Income. On an historical basis, the Company recognized net income and a
net income per share of $2.0 million and $0.14, respectively for the three
months ended September 30, 1998 compared to net income and a net income per
share of $1.6 million and $0.11 for the corresponding period of 1997.
Historical Results for the Nine Months Ended September 30, 1998 Compared to
Historical Results for the Nine Months Ended September 30, 1997
Service Revenues. Total service revenues increased $33.1 million, or 58.8%,
to $89.4 million for the nine months ended September 30, 1998 from $56.3 million
for the corresponding period in 1997. Temporary staffing service revenues
increased $27.0 million, or 63.5%, to $69.6 million for the nine months ended
September 30, 1998 as compared to $42.6 million for 1997. The increase in
temporary staffing service revenues is primarily attributable to the growth of
IT contract staffing, the increase in billing rates and the impact of
acquisitions. Permanent placement service revenues increased $6.1 million, or
44.1%, to $19.8 million for the nine months ended September 30, 1998 from $13.7
million for 1997. Permanent placement service revenues increased primarily due
to increases in the number of permanent placements, the increase in placement
fees and the 1998 Acquisitions.
15
<PAGE>
Gross Profit. Gross profit increased $14.2 million, or 53.6%, to $40.6
million for the nine months ended September 30, 1998 from $26.4 million for
1997. Gross profit as a percentage of service revenues for the nine months ended
September 30, 1998 decreased to 45.4% of revenues compared to 46.9% of revenues
for 1997. The gross profit percentage decline resulted from the decrease in 1998
of the higher margin permanent placement revenues as a percentage of the total
revenues and as a result of the growth in 1998 of the information technology
business which has higher bill rates but lower margins than the rest of the
Company's business.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $11.9 million, or 56.5%, to $33.0 million for
the nine months ended September 30, 1998 from $21.1 million for the nine months
ended September 30, 1997. As a percentage of revenues, selling, general and
administrative expenses were 36.9% for the nine months ended September 30, 1998
compared with 37.4% for the corresponding period in 1997. This decrease as a
percentage of revenues is primarily attributable to the fact that the nine
months ended September 30, 1997 had significant amounts of owners' compensation
costs. Also contributing to the lower percentage was increased efficiencies and
the spreading of overhead costs over a substantially larger revenue base.
Combination Expenses. Combination expenses for the nine months ended
September 30, 1998 and 1997 were $1.7 million. These expenses included
transaction costs for the Company's mergers which have been accounted for under
the pooling of interests method and include investment banking, legal,
accounting and other fees.
Severance and Franchise Termination Costs. The Company recorded a charge of
$650,000 during the nine months ended September 30, 1998 consisting principally
of severance obligations resulting from the decision to consolidate its
corporate offices in Atlanta. For the corresponding period in 1997, the Company
recorded a charge of $170,000 related to the termination of a franchise
agreement.
Amortization and Depreciation. Amortization and depreciation for the nine
months ended September 30, 1998 increased $600,000 from the corresponding period
of 1997. Amortization and depreciation for the nine months ended September 30,
1998 includes goodwill amortization expense as a result of the C.P.A. Staffing
acquisition in August 1997 and the 1998 Acquisitions. Depreciation expense also
increased as a result of capital expenditures in 1997 and 1998.
Interest Expense, net. For the nine months ended September 30, 1998, the
Company recorded net interest expense of $466,000, consisting principally of
interest on borrowings under the Company's Credit Facility with NationsBank, NA,
and interest on noncompete and severance arrangements. For the nine months ended
September 30, 1997, the Company recorded net interest expense of $588,000
consisting principally of interest expense on the Company's Credit Facility and
other long term debt. In February 1998, the Company repaid the amount
outstanding under this Credit Facility with part of the proceeds of the IPO. The
Company subsequently renewed borrowings on its Credit Facility, primarily to
fund its August 1998 acquisition of Staffing Edge. See Liquidity and Capital
Resources Below.
Income Tax Expense. Prior to February 5, 1998, the Company was an S
corporation and not subject to income taxes. In connection with the IPO and the
termination of the Company's S corporation status, the Company recorded a tax
liability of approximately $3.0 million in the nine months ended September 30,
1998 to recognize income tax expense created by the Company's change to a C
corporation, which primarily relates to a change from the cash to accrual method
of accounting for income tax purposes. The Company is paying this deferred tax
liability over a four-year period. For 1997, the income tax provision relates
exclusively to ICON, which for federal income tax purposes was a C corporation
subject to corporate income taxes.
16
<PAGE>
Net Income. On an historical basis, the Company recognized a net loss and a
net loss per share $1.5 million and $0.10, respectively, for the nine months
ended September 30, 1998 compared to net income and net income per share of $1.8
million and $0.09, respectively, for the corresponding period of 1997. The
calculation of the net loss per share for the nine months ended September 30,
1997 reflects a reduction of $932,000 to net income available to common
shareholders for the accretion of the redeemable shares.
Liquidity and Capital Resources
- -------------------------------
Net cash used for operating activities was $3.5 million in the nine months
ended September 30, 1998. The use of cash is due to increased accounts
receivable and increases in other working capital requirements. For the
corresponding period of 1997, cash provided by operations was $2.0 million,
principally due to increases in accrued expenses and other liabilities.
Net cash used in investing activities during the nine months ended
September 30, 1998 was $36.6 million. Included in cash used for investing
activities was $34.3 million (net of cash acquired) paid in connection with the
1998 Acquisitions and $2.3 million used for capital expenditures for furniture,
fixtures and equipment. The Company will continue to make capital expenditures
throughout 1998 on information technology systems and equipment.
Net cash provided by financing activities was $40.9 million in the nine
months ended September 30, 1998. Upon completion of its IPO, the Company raised
$20.2 million net of expenses paid. The Company used approximately $11.1 million
to immediately repay its then current borrowings under its Credit Facility. The
Company subsequently borrowed approximately $31.0 million which was used to
consummate certain acquisitions (including the acquisition of Staffing Edge in
August 1998) and for working capital requirements. Additionally, during the nine
months ended September 30, 1998, the Company used $545,000 for shareholder
distributions related to certain pre-IPO S corporation tax liabilities.
The existing Credit Facility bears interest, at the election of the
Company, at either: (A) the greater of (i) the prime rate or (ii) the federal
funds rate plus 0.50%, plus in the case of either a prime rate or federal funds
rate a margin of up to 0.50% based upon the Company's leverage ratio; or (B) at
LIBOR plus a margin which ranges from 1.00% to 2.00% based upon the Company's
leverage ratio. Borrowings and other amounts due under the Credit Facility are
collateralized by all of the assets of the Company and its subsidiaries,
including a pledge of all of the stock of the Company's direct and indirect
subsidiaries. In addition, all borrowings and other amounts under the Credit
Facility are guaranteed by each of the Company's direct and indirect
subsidiaries.
The Credit Facility contains various financial and non-financial covenants.
The financial covenants include requirements relating to the Company's
consolidated leverage ratio, fixed charge coverage ratio, capitalization ratio
and current ratio. Other covenants include, without limitation, restrictions
against the Company and its subsidiaries from incurring debt, creating liens,
transferring or selling assets, making investments, making acquisitions and
merging. In addition, there is a prohibition against the payment of dividends on
account of the Company's capital stock.
17
<PAGE>
Principally as a result of the August 1998 acquisition of Staffing Edge, at
September 30, 1998 the outstanding balance under the Company's $40.0 million
Credit Facility was approximately $34.0 million. The amount available under the
Credit Facility will be reduced to $25.0 million on January 1, 1999.
Accordingly, at September 30, 1998, $9.0 million of the borrowings have been
classified as a current liability. The Company anticipates, as a result of its
operating results and borrowing capacity, that it will be able to refinance or
replace the existing Credit Facility with a larger borrowing facility. In the
event that the Company is unable to repay the amount necessary to reduce the
obligations under the Credit Facility to $25 million by January 1, 1999, the
Company will attempt to negotiate with the lenders for a modification of the
Credit Facility. Additionally, the Company believes that the funds currently
available on hand, funds to be provided by operations, funds available under the
existing Credit Facility and, after January 1, 1999, funds available under the
replaced, refinanced or renegotiated borrowing facility will be sufficient to
meet the Company's anticipated needs for working capital for the next twelve
months. There can be no assurance, however, that the Company will be able to
replace, refinance or renegotiate its Credit Facility. The Company's plan to
replace, refinance or renegotiate its Credit Facility and its estimate of the
time that funds will be sufficient to meet the Company's working capital 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 funds to fund
acquisitions. In addition, future acquisitions may require additional debt and
equity financing.
Year 2000 Computer Issues
- -------------------------
Introduction. The Year 2000 issue refers to the problems resulting from
many existing computer software programs and operating systems that use only two
digits rather than four to define the applicable year in a date field. These
programs were designed and developed without considering the impact of the
upcoming change in the century. If not corrected, many computer applications
could fail or create erroneous results by or at the Year 2000.
The Company's State of Readiness. The Company's key financial,
informational and operational systems are being assessed and detailed plans are
being developed to address system modifications required by March 1999. These
systems include information technology systems ("IT"). The Company has assessed
its major IT vendors and technology providers and is in the process of testing
its systems to determine Year 2000 compliance. In addition, the Company is in
the process of assessing its non-IT systems that utilize embedded technology
such as microcontrollers and reviewing them for Year 2000 compliance.
To operate it's business, the Company relies upon government agencies,
utility companies, providers of telecommunication services, suppliers, and other
third party service providers ("Primary Service Providers"), over which it can
assert little control. The Company's ability to conduct its core business is
dependent upon the ability of these Primary Service Providers to fix their Year
2000 issues to the extent they affect the Company. If the telecommunications
carriers, public utilities and other Primary Service Providers do not
appropriately rectify their Year 2000 issues, the Company's ability to conduct
its core business may be materially impacted, which could result in a material
adverse effect on the Company's financial condition. In addition, the Company's
customers may experience Year 2000 issues that could have a material adverse
affect on their business and their need for the Company's services, which in
turn could have a material adverse affect on the Company.
The Company has begun an assessment of all Primary Service Providers to
determine risk and assist in the development of contingency plans. This effort
is to be completed by March 1, 1999. In particular, the Company uses various
software packages in conducting and accounting for its temporary staffing,
permanent
18
<PAGE>
placement and general accounting operations. These packages, among other things,
track and accumulate temporary staff time and client billings, process staff
payroll, and produce financial statements and other financial data. The Company
uses software packages and hardware in certain locations that may not be Year
2000 compliant. The Company has the option either to purchase new Year 2000
compliant software from outside vendors or implement existing in-house Year 2000
compliant software, or to combine both approaches.
The Company expects that its information systems integration efforts will
enable it to be fully Year 2000 compliant although the Company cannot guarantee
that software represented by vendors to be Year 2000 compliant will in fact be
compliant. Further, certain Hub-Centers use third-party payroll processing
companies. Although the Company expects that such companies will be Year 2000
compliant, no assurances can be given in that regard. In pursuing its
acquisition strategy the Company could acquire an entity that is not Year 2000
compliant. Depending on the size of the entity acquired, noncompliance could
negatively affect the Company's results of operations.
Costs to Address the Company's Year 2000 Issues. The Company expenses costs
associated with Year 2000 system changes as the costs are incurred except for
system change costs that the Company would otherwise capitalize. To date, the
Company has incurred costs of approximately $500,000 in connection with its Year
2000 compliance plan ("Year 2000 Plan") and estimates it will spend an
additional $500,000 to complete its Year 2000 Plan. The financial impact of
these expenses has not been material, and the Company does not expect future
redemption costs to be material to the Company's consolidated financial position
or results of operations. However, the Company is unable to estimate the costs
that it may incur as a result of Year 2000 problems suffered by the parties with
which it deals, such as Primary Service Providers and customers, and there can
be no assurance that the Company will successfully address the Year 2000
problems present in its own systems.
Risks Presented by Year 2000 Problems. The Company has recently begun the
system integration testing phase of its Year 2000 Plan. However, until system
integration testing is substantially in process the Company cannot fully assess
the risks of its Year 2000 issue. As a result of system integration testing, the
Company may identify areas of its business that are at risk of Year 2000
disruption. The absence of any such determination at this point represents only
the status currently in the implementation of the Company's Year 2000 Plan, and
should not be construed to mean that there is no area of the Company's business
which is at risk of a Year 2000 related disruption. As noted above, many of the
Company's business critical Primary Service Providers and customers may not
appropriately address their Year 2000 issues, the result of which could have a
material adverse affect on the Company's financial condition and results of
operations.
The Company's Contingency Plans. The Company's Year 2000 Plan calls for the
development of contingency plans for areas of the business that are susceptible
to a substantive risk of a disruption resulting from a Year 2000 related event.
Because the Company has only recently begun system integration testing, and
accordingly has not fully assessed its risk from potential Year 2000 failures,
the Company has not yet developed detailed contingency plans specific to Year
2000 events for any specific area of business. The Company does, however,
maintain contingency plans, outside of the scope of the Year 2000 issue,
designed to address various other business interruptions. The Company is
prepared for the possibility that system integration testing may hereafter
identify certain areas of business at risk. Consistent with its Year 2000 Plan,
the Company will develop specific Year 2000 contingency plans for such areas of
business as and if such determinations are made.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
19
<PAGE>
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Sales of Unregistered Securities during the Quarter Ended September 30, 1998
The Company entered into that certain Agreement and Plan of Merger dated as
of July 1, 1998 by and among the Company, Acsys NY, Inc., KPD Systems, Inc. and
Howard Sapolsky, the sole shareholder of KPD Systems, Inc. Pursuant to such
agreement, a wholly-owned subsidiary of the Company merged with and into KPD,
and the Company issued a total of 77,504 shares of Common Stock to Mr. Sapolsky.
The Company entered into that certain Agreement and Plan of Merger dated as
of August 3, 1998, by and among the Company, SE Merger Subsidiary, Inc.,
Staffing Edge, Inc. and certain shareholders of Staffing Edge, Inc. Pursuant to
such agreement, Staffing Edge shareholders received an aggregate of $22,510,000
in cash, and 81,766 shares of the Company's common stock plus a contingent
earnout based upon the future performance of Staffing Edge, Inc. which could
aggregate up to $7,500,000. In addition, the Company assumed and subsequently
paid outstanding debt in the amount of $7,040,000 owed by Staffing Edge, Inc. to
certain of its creditors.
The issuance of securities described above was made in reliance on one or
more of the exemptions from registration under the Securities Act of 1933, as
amended, including those provided for by Section 4(2) and Regulation D
thereunder. The recipients of the securities in the above transactions
represented their intentions 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.
Use of Proceeds from the Company's Initial Public Offering in February 1998
On February 5, 1998, the Company's registration statement on Form S-1
(Commission File No. 333-38465) for the Company's initial public offering (the
"IPO") of its Common Stock, no par value, became effective. From February 5,
1998 through September 30, 1998, the Company incurred and paid underwriting
discounts of $1.7 million and other offering expenses of $2.3 million, resulting
in total expenses of $4.0 million.
The only payments to a director, officer, owner of 10% or more of the
Common Stock, or affiliate arising out of the IPO were to a company that is
wholly-owned by David C. Cooper, the Company's Chairman of the Board, and which
totaled $71,962 and were for the costs associated with the Company's use during
the IPO of an aircraft owned by that company.
The net proceeds to the Company from the IPO after payment of the above
expenses was $20.2 million. The Company used $11.8 million to reduce debt, $4.5
million for business acquisitions, $1.5 for fixed asset purchases and $2.4
million for working capital and general corporate purposes.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
20
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit
Number Description
- ------ -----------
10.1 Registration Rights Joinder Agreement dated July 1, 1998 by and among
the Company and Howard Sapolsky.
10.2 Registration Rights Joinder Agreement dated August 3, 1998 by and among
the Company and certain holders of capital stock of the Company.
10.3 Amendment No. 2 to Credit Amendment dated August 3, 1998 by and among
the Company, NationsBank, National Association as Lender and
NationsBank, National Association as Agent for the Lenders.
10.4 Employment Agreement between the Company and Brady W. Mullinax, Jr.,
dated as of August 21, 1998.
10.5 Non-qualified Stock Option Agreement between the Company and Brady W.
Mullinax, Jr., dated as of August 21, 1998.
10.6 Incentive Stock Option Agreement between the Company and Brady W.
Mullinax, Jr., dated as of August 21, 1998.
27 Financial Data Schedule.
(b) Reports on Form 8-K
On July 7, 1998 the Company filed a current report on Form 8-K dated
July 1, 1998. The Form 8-K reported under Item 5, Other Events, that
the Company acquired by merger all of the equity interests in KPD
Systems, Inc.
On August 5, 1998 the Company filed an amended Form 8-K providing the
financial statements required as a result of the Company's acquisition
of ICON in a stock-for-stock transaction which was initially filed
April 9, 1998 and dated March 31, 1998.
On August 19, 1998, the Company filed a current report on Form 8-K
dated August 4, 1998. The Form 8-K reported under Item 2, Acquisition
or Disposition of Assets, that the Company acquired all of the equity
interests in Staffing Edge, Inc. in accordance with an Agreement and
Plan of Merger dated August 3, 1998. The Company filed an amended Form
8-K/A providing the required financial statements on October 19, 1998.
21
<PAGE>
Acsys, Inc.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Acsys, Inc.
------------------------------------------------
(registrant)
Date: November 16, 1998 /s/ Brady Mullinax, Jr.
------------------ ------------------------------------------------
Brady Mullinax, Jr.
Chief Financial Officer
(the registrant's principal financial and
chief accounting officer, who is duly
authorized to sign this report)
22
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
10.1 Registration Rights Joinder Agreement dated July 1, 1998 by and among
the Company and Howard Sapolsky.
10.2 Registration Rights Joinder Agreement dated August 3, 1998 by and among
the Company and certain holders of capital stock of the Company.
10.3 Amendment No. 2 to Credit Amendment dated August 3, 1998 by and among
the Company, NationsBank, National Association as Lender and
NationsBank, National Association as Agent for the Lenders.
10.4 Employment Agreement between the Company and Brady W. Mullinax, Jr.,
dated as of August 21, 1998.
10.5 Non-qualified Stock Option Agreement between the Company and Brady W.
Mullinax, Jr., dated as of August 21, 1998.
10.6 Incentive Stock Option Agreement between the Company and Brady W.
Mullinax, Jr., dated as of August 21, 1998.
27 Financial Data Schedule.
23
<PAGE>
EXHIBIT 10.1
------------
REGISTRATION RIGHTS JOINDER AGREEMENT
THIS REGISTRATION RIGHTS JOINDER AGREEMENT (this "Agreement") is made and
entered into as of July 1, 1998, by and among Acsys, Inc., a Georgia corporation
(the "Company"), and the shareholder thereof whose signature appears below (the
"New Shareholder").
Premises
--------
The New Shareholder is a shareholder of the Company and as such desires to
derive the benefits and burdens associated with being a shareholder of the
Company.
The Company is party to an Amended and Restated Registration Rights
Agreement, dated as of September 3, 1997 (as the same may be further amended
from time to time, the "Registration Rights Agreement"), with the Company's
existing Shareholders ("Existing Shareholders") governing certain rights and
obligations of the Existing Shareholders as Shareholders of the Company, a copy
of which has been delivered to the New Shareholder and is attached hereto.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company and the New Shareholder hereby agree as
follows:
1. The Company and the New Shareholder agrees that, from and after the
purchase of the Company's common stock, no par value per share (the "Company
Common Stock"), by virtue of such New Shareholder's execution of this Agreement,
(i) the New Shareholder shall, without further action on the part of the Company
or the New Shareholder, become a party to the Registration Rights Agreement
subject to and bound by all the terms and provisions of the Registration Rights
Agreement, (ii) the shares of Company Common Stock received by the New
Shareholder in such purchase shall be "Merger Shares" for all purposes under the
Registration Rights Agreement, and (iii) the New Shareholder shall be a
"Shareholder" for purposes of the Registration Rights Agreement.
2. A legend in substantially the form required by Section 3.2 of the
Registration Rights Agreement shall appear on each certificate representing
shares of Company Common Stock issued to the New Shareholder pursuant to the
purchase of Company Common Stock.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed or caused this
Agreement to be executed by its duly authorized representative as an agreement
under seal as of the date first above written.
Acsys, Inc.
By: /s/ Timothy Mann, Jr.
------------------------------
Timothy Mann, Jr., Chief Executive Officer
NEW SHAREHOLDER:
/s/ Howard Sapolsky
----------------------------------
Howard Sapolsky
-2-
<PAGE>
EXHIBIT 10.2
REGISTRATION RIGHTS JOINDER AGREEMENT
-------------------------------------
THIS JOINDER AGREEMENT (this "Agreement") is made and entered into as
of August 3, 1998, by and among ACSYS, INC., a Georgia corporation (the
"Company"), and the shareholders thereof whose signatures appear below (the "New
Shareholders").
Premises
--------
Pursuant to an Agreement and Plan of Merger, dated as of August 3,
1998 (the "Merger Agreement"), by and among Acsys, SE Merger Subsidiary, Inc., a
Delaware corporation that is a wholly-owned subsidiary of Acsys ("Acquiror
Sub"), Staffing Edge, Inc., a Delaware corporation ("Staffing Edge"), and
certain stockholders of the Staffing Edge (each a "Stockholder" and collectively
the "Stockholders"), the New Shareholders have become shareholders of the
Company and as such desire to derive the benefits and burdens associated with
being a shareholder of the Company.
The Company is party to an Amended and Restated Registration Rights
Agreement, dated as of September 3, 1997 (as the same may be further amended
from time to time, the "Registration Rights Agreement"), with the Company's
existing shareholders ("Existing Shareholders") governing certain rights and
obligations of the Existing Shareholders as shareholders of the Company.
Capitalized terms used and not otherwise defined herein shall have the
respective meanings ascribed thereto in the Registration Rights Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Company and each New Shareholder hereby agree as
follows:
1. The Company and each of the New Shareholders agrees that, from and
after the Effective Time (as defined in the Merger Agreement), by virtue of such
New Shareholders' execution of this Agreement, (i) each of the New Shareholders
shall, without any further action on the part of the Company or either of the
New Shareholders, become parties to the Registration Rights Agreement subject to
and bound by all the terms and provisions of the Registration Rights Agreement
pursuant to Section 2.10 thereof, (ii) the shares of Company Common Stock
received by the New Shareholders in the Merger (as defined in the Merger
Agreement) shall be "Merger Shares" for all purposes under the Shareholders
Agreement, and (iii) each of the New Shareholders shall be a "Shareholder" for
purposes of the Shareholders Agreement. The Company represents and warrants to
the New Shareholders that the Board of Directors has approved this Agreement as
required by Section 2.10 of the Registration Rights Agreement.
2. A legend in substantially the form required by Section 3.2 of the
Registration Rights Agreement shall appear on each certificate representing
shares of
<PAGE>
Company Common Stock issued to the New Shareholders pursuant to the purchase of
Company Common Stock.
IN WITNESS WHEREOF, each of the parties hereto has executed or caused
this Agreement to be executed by its duly authorized representative as an
agreement under seal as of the date first above written.
ACSYS, INC.
By: /s/ Timothy Mann, Jr.
---------------------------------
Name: Timothy Mann, Jr.
Title: Chief Executive Officer
NEW SHAREHOLDERS:
/s/ Ronald R. Smith
------------------------------------
RONALD R. SMITH
/s/ Edward C. James
------------------------------------
EDWARD C. JAMES
/s/ Aaron Smith
------------------------------------
AARON SMITH
/s/ John Smidt
------------------------------------
JOHN SMIDT
-2-
<PAGE>
EXHIBIT 10.3
AMENDMENT NO. 2
TO THE CREDIT AGREEMENT
This AMENDMENT AGREEMENT (the "Amendment Agreement"), dated as of August 3,
1998 is made by and among ACSYS, INC. (formerly known as ICCE, INC.) a Georgia
corporation having its principal place of business in Atlanta, Georgia (the
"Borrower"), NATIONSBANK, NATIONAL ASSOCIATION, a national banking association
organized and existing under the laws of the United States, as Lender, and
NATIONSBANK, NATIONAL ASSOCIATION, in its capacity as agent for the Lenders (in
such capacity, the "Agent"). Capitalized terms used but not otherwise defined
herein shall have the meanings ascribed to such terms in the Credit Agreement
(as defined below).
WITNESSETH:
-----------
WHEREAS, the Borrower, the Agent and the Lenders have heretofore entered
into that certain Credit Agreement dated as of May 16, 1997 as amended by
Amendment No. I to the Credit Agreement dated June 29, 1998 (as further amended,
modified or restated from time to time, the "Credit Agreement") pursuant to
which the Lenders agreed to make a revolving credit facility to the Borrower;
and
WHEREAS, (i) the Agent and certain Subsidiaries (the "Original Guarantors")
have heretofore entered into a certain Guaranty Agreement dated as of May 16,
1997 (the "Original Guaranty Agreement") and (ii) the Agent and certain other
Subsidiaries (the "Subsequent Guarantors") (the Original Guarantors and the
Subsequent Guarantors being referred to hereinafter collectively as the
"Guarantors") have entered into subsequent Guaranty Agreements as required by
Section 7.19 of the Credit Agreement (the "Subsequent Guaranty Agreements") (the
Original Guaranty Agreement and the Subsequent Guaranty Agreements being
referred to hereinafter collectively as the "Guaranty Agreement"), pursuant to
which the Guarantors have guaranteed the Borrower's Obligations under the Credit
Agreement; and
WHEREAS, (i) the Agent, the Borrower and the Original Guarantors have
entered into a certain Security Agreement dated as of May 16, 1997 (the
"Original Security Agreement") and (ii) the Agent and the Subsequent Guarantors
have entered into subsequent Security Agreements as required by Section 7.19 of
the Credit Agreement, pursuant to which the Borrower and the Guarantors have
granted to the Agent for the benefit of the Secured Parties (as defined in the
Security Agreement) a security interest in certain of their personal property
and assets as collateral security for payment and performance of the Borrower's
Obligations under the Credit Agreement and the Guarantor's Obligations (as
defined in the Guaranty Agreement) under the Guaranty Agreement; and
WHEREAS, the Borrower has requested that the Agent and the Lenders amend
the Credit Agreement in the manner provided herein; and
<PAGE>
WHEREAS, upon the terms and conditions contained herein, the Agent and the
Lenders are willing to amend the Credit Agreement;
NOW, THEREFORE, in consideration of the premises and conditions herein set
forth, it is hereby agreed as follows:
1 . CREDIT AGREEMENT AMENDMENT. Subject to the conditions hereof, the
---------------------------
Credit Agreement is hereby amended, effective as of the date the conditions set
forth in Section 3 of this Amendment Agreement are satisfied, as follows:
(a) The following definitions are amended in their entirety so that as
amended they read as follows:
"'Total Revolving Credit Commitment' means (a) through January 1, 1999 a
principal amount equal to $40,000,000 and (b) at all times thereafter a
principal amount equal to $25,000,000, in each case as reduced from time to time
in accordance with Section 2.07."
2. WAIVER. (a) At the request of the Borrower, the Agent and the Lenders
--------
hereby waive the requirement of Section 7.19 with respect to KPD Systems, Inc.
until August 14, 1998.
(b) The Borrower, the Agent and the Lenders hereby agree that the
promissory note in the principal amount of $1,015,000 in favor of Patricia
Newton (the "Newton Note") is a seller note. The Agent and the Lenders hereby
waive until August 31, 1998 the requirement that the Newton Note be expressly
subordinated to the Borrower's Obligations on terms and conditions acceptable to
the Agent in its sole discretion; provide that if the Newton Note is not repaid
or subordinated on terms and conditions acceptable to the Agent in its sole
discretion by August 31, 1998, the Borrower shall be in Default.
The Borrower hereby acknowledges that the waivers contained herein are
granted by the Agent and the Lenders only for the limited purpose set forth
herein and each term and provision of the Credit Agreement and the other Loan
Documents continue in full force and effect except as specifically waived or
amended hereby. The waivers are granted only for the specific instances
specified herein and in no manner create a course of dealing or otherwise impair
the future ability of the Agent or the Lenders to declare a Default or Event of
Default under or otherwise enforce the terms of the Credit Agreement or any
other Loan Document with respect to any action or inaction of the Borrower or
any Guarantor not specifically waived or amended hereby.
3. REPRESENTATIONS AND WARRANTIES. In order to induce the Agent and the
-------------------------------
Lenders to enter into this Amendment Agreement, the Borrower hereby represents
and warrants that the Credit Agreement has been re-examined by the Borrower and
that except as disclosed by the Borrower in writing to the Lenders as of the
date hereof:
(a) The representations and warranties made by the Borrower in Article VI
thereof are true on and as of the date hereof (except for those representations
and warranties which expressly relate to an earlier date) except that the
financial statements referred to in
2
<PAGE>
Section 6.01(f) shall be those most recently furnished to each Lender pursuant
to Section 7.01;
------------
(b) There has been no material adverse change in the condition, financial
or otherwise, of the Borrower and its Subsidiaries since the Closing Date, other
than changes in the ordinary course of business, and no event has occurred which
could reasonably be likely to have a Material Adverse Effect; and
(c) No condition exists which would constitute a Default or an Event of
Default on the part of the Borrower under the Credit Agreement or the Notes,
either immediately or WITH THE LAPSE OF TIME OR the giving of notice, or both.
4. CONDITIONS PRECEDENT. The effectiveness of this Amendment Agreement is
---------------------
subject to the receipt by the Agent of the following:
(a) five counterparts of this Amendment Agreement duly executed by all
signatories hereto; and
(b) a promissory note duly executed by the Borrower in favor of each
Lender;
(c) copies of all additional agreements, instruments and documents which
the Agent may reasonably request, such documents, when appropriate, to be
certified by appropriate governmental authorities; and
(d) receipt of payment by the Agent for all its fees, costs and expenses
incurred in connection with the preparation, negotiation and execution of this
Amendment Agreement, including without limitation the reasonable fees and
disbursements of counsel to the Agent.
All proceedings of the Borrower relating to the matters provided for herein
shall be satisfactory to the Lenders, the Agent and their counsel.
5. ENTIRE AGREEMENT. This Amendment Agreement sets forth the entire
-----------------
understanding and agreement of the parties hereto in relation to the subject
matter hereof and supersedes any prior negotiations and agreements among the
parties relative to such subject matter. No promise, condition, representation
or warranty, express or implied, not herein set forth shall bind any party
hereto, and no one of them has relied on any such promise, condition,
representation or warranty. Each of the parties hereto acknowledges that, except
as in this Amendment Agreement otherwise expressly stated, no representations,
warranties or commitments, express or implied, have been made by any party to
the other. None of the terms or conditions of this Amendment Agreement may be
changed, modified, waived or canceled orally or otherwise, except by writing,
signed by all the parties hereto, specifying such change, modification, waiver
or cancellation of such terms or conditions, or of any proceeding or succeeding
breach thereof.
6. CONSENT OF GUARANTORS. The Guarantors have joined in the execution of
----------------------
this Amendment Agreement for the purposes of consenting hereto and for the
further purpose of
3
<PAGE>
confirming their guaranty of the Obligations of the Borrower as provided in the
Guaranty Agreement. Without limiting the generality of the foregoing, each
Guarantor acknowledges the increase in the amount of the Obligations as a result
of the terms of this Amendment Agreement.
7. FULL FORCE AND EFFECT OF AGREEMENT. Except as hereby specifically
-----------------------------------
amended, modified or supplemented, the Credit Agreement and all other Loan
Documents are hereby confirmed and ratified in all respects and shall remain in
full force and effect according to their respective terms.
8. COUNTERPARTS. This Amendment Agreement may be executed in any number of
-------------
counterparts, each of which shall be deemed an original as against any party
whose signature appears thereon, and all of which shall together constitute one
and the same instrument.
9. GOVERNING LAW. Section 11.10 of the Credit Agreement shall apply to
this Amendment Agreement.
10. ENFORCEABILITY. Should any one or more of the provisions of this
---------------
Amendment Agreement be determined to be illegal or unenforceable as to one or
more of the parties hereto, all other provisions nevertheless shall remain
effective and binding on the parties hereto.
11. CREDIT AGREEMENT. All references in any of the Loan Documents to the
-----------------
Credit Agreement shall mean and include the Credit Agreement as amended hereby.
12. SUCCESSORS AND ASSIGNS. This Amendment Agreement shall be binding upon
-----------------------
and inure to the benefit of each of the Borrower, the Lenders, the Agent and
their respective successors, assigns and legal representatives; provided,
---------
however, that the Borrower, without the prior written consent of the Lenders,
- --------
may not assign any rights, powers, duties or obligations hereunder.
[SIGNATURES ON FOLLOWING PAGES]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment Agreement
to be duly executed by their duly authorized officers, all as of the day and
year first above written.
ACSYS, INC.
WITNESS:
/s/ Aldo L. LaFiandra By: /s/ Timothy Mann, Jr.
- ----------------------- ------------------------
/s/ illegible Name: Timothy Mann, Jr.
- ----------------------- Title: President
-----------------
5
<PAGE>
GUARANTORS:
----------
DAVID C. COOPER AND ASSOCIATES, INC.
WITNESS:
/s/ Aldo L. LaFiandra By: /s/ Timothy Mann, Jr.
- -------------------------- ----------------------------------
Name: Timothy Mann, Jr.
/s/ illegible Title: President
- --------------------------
ACSYS FINANCIAL STAFFING, INC.
WITNESS:
/s/ Aldo L. LaFiandra By: /s/ Timothy Mann, Jr.
- -------------------------- -----------------------------------
Name: Timothy Mann, Jr.
/s/ illegible Title: President
- --------------------------
EKT, INC.
WITNESS:
/s/ Aldo L. LaFiandra By: /s/ Timothy Mann, Jr.
- -------------------------- -----------------------------------
Name: Timothy Mann, Jr.
/s/ illegible Title: President
- --------------------------
INFINITY ENTERPRISES, INC.
WITNESS:
/s/ Aldo L. LaFiandra By: /s/ Timothy Mann, Jr.
- -------------------------- -----------------------------------
Name: Timothy Mann, Jr.
/s/ illegible Title: President
- --------------------------
CAMA OF TAMPA, INC.
WITNESS:
/s/ Aldo L. LaFiandra By: /s/ Timothy Mann, Jr.
- -------------------------- -----------------------------------
Name: Timothy Mann, Jr.
/s/ illegible Title: President
- --------------------------
<PAGE>
ACSYS RESOURCES, INC.
WITNESS:
/s/ Aldo L. LaFiandra By: /s/ Timothy Mann, Jr.
- ----------------------- ------------------------
/s/ illegible Name: Timothy Mann, Jr.
- ----------------------- Title: President
-----------------
C.P.A. STAFFING, INC.
WITNESS
/s/ Aldo L. LaFiandra By: /s/ Timothy Mann, Jr.
- ----------------------- ------------------------
/s/ illegible Name: Timothy Mann, Jr.
- ----------------------- Title: President
-----------------
RYLAN FORBES CONSULTING GROUP, INC.
WITNESS
/s/ Aldo L. LaFiandra By: /s/ Timothy Mann, Jr.
- ----------------------- ------------------------
/s/ illegible Name: Timothy Mann, Jr.
- ----------------------- Title: President
-----------------
ICON SEARCH & CONSULTING, INC.
WITNESS
/s/ Aldo L. LaFiandra By: /s/ Timothy Mann, Jr.
- ----------------------- ------------------------
/s/ illegible Name: Timothy Mann, Jr.
- ----------------------- Title: President
-----------------
DRAMONDI, INC.
WITNESS
/s/ Aldo L. LaFiandra By: /s/ Timothy Mann, Jr.
- ----------------------- ------------------------
/s/ illegible Name: Timothy Mann, Jr.
- ----------------------- Title: President
-----------------
7
<PAGE>
Al INVESTMENTS, INC. WITNESS:
WITNESS
/s/ Denise L. McDonough By: /s/ Domenic L. Vacca
- ----------------------- ------------------------
Denise L. McDonough Name: Domenic L. Vacca
- ----------------------- Title: President
-----------------
8
<PAGE>
NATIONSBANK, NATIONAL ASSOCIATION,
as Agent and Lender
WITNESS
/s/ Cheryl Bailey By: /s/ Peter N. Knickerbocker
- ----------------------- ------------------------------
/s/ illegible Name: Peter N. Knickerbocker
- ----------------------- Title: Senior Vice President
-----------------------
9
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of August 21, 1998
(the "Effective Date"), by and between Acsys, Inc. (the "Company"), a Georgia
corporation, and Brady W. Mullinax, Jr., an individual resident of Georgia
("Executive").
WHEREAS, Executive is expected to make a significant contribution to the
success and development of the Company; and
WHEREAS, Executive is willing to render services to the Company and/or one
or more of its subsidiaries on the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by Executive and the Company
including, without limitation, the promises and covenants of the parties set
forth herein, the parties hereto, intending to be legally bound, hereby agree as
follows:
ARTICLE I
EMPLOYMENT
Section 1.1 Term of Employment. The term of Executive's employment
------------------
hereunder shall commence on the Effective Date and continue until December 31,
2000, unless earlier terminated as provided in this Agreement. At the end of
the initial term, this Agreement shall automatically renew for consecutive one-
year terms unless either party hereto gives written notice to the other of its
intent to terminate sixty (60) days prior to the end of any term.
Section 1.2 Duties and Responsibilities of Executive. Executive is hereby
----------------------------------------
employed full time as the Vice President - Finance, Chief Financial Officer and
Secretary of the Company. Executive shall devote his full time, energy, and
skill to such office and shall do and perform all services and acts necessary or
advisable to fulfill the duties of such office. In his capacity as an officer
of the Company, Executive shall report to the Chief Executive Officer of the
Company, and shall conduct and perform such additional services and activities
as may be determined from time to time by such superior officer which are normal
and customary for a similar executive of a similarly situated company.
Executive acknowledges that he has a duty of loyalty to the Company and shall
not engage in, directly and indirectly, any other business or activity that
could materially and adversely affect the Company's business or Executive's
ability to perform his duties under this Agreement, provided, however, that
Executive shall be free to participate in board, civic and charitable activities
so long as such activities do not unreasonably interfere with his duties and
responsibilities hereunder.
Section 1.3 Compensation. For services to be rendered by Executive under
------------
this Agreement, Company shall pay Executive as follows:
(a) Base Salary. Executive shall be paid a base salary of $200,000 per
-----------
annum payable in bi-weekly installments ("Base Salary"). At the sole discretion
of the Chief Executive Officer
<PAGE>
of the Company, Executive's Base Salary may be increased from time to time
throughout the term of this Agreement. At no time during the term hereof shall
Executive's Base Salary be decreased from the amount of the Base Salary then in
effect.
(b) Annual Bonus. Executive shall also be paid an annual bonus in the
------------
discretion of the Chief Executive Officer, provided, however, Executive shall
receive a minimum bonus of $20,000 for the period ended December 31, 1998 and a
minimum annual bonus equal to 20% of his Base Salary then in effect for calendar
years subsequent to 1998 ("Annual Bonus").
Section 1.4 Benefits.
--------
(a) Vacation. Executive shall be entitled to four weeks vacation
--------
annually during his employment by the Company (prorated for any partial year of
employment). Any vacation not used during any calendar year shall be forfeited,
except that one week's unused vacation may be carried forward to the year
following the year in which such vacation entitlement accrued.
(b) Life, Disability and Retirement Programs. Executive shall be
----------------------------------------
entitled to participate in any life, disability and retirement programs that are
generally offered to or provided for the senior management personnel of the
Company and its subsidiaries.
(c) Group Insurance. Executive shall be entitled to participate in such
---------------
group health and dental insurance programs (including spouse coverage) as may
from time to time be offered generally to all of the other members of the senior
management personnel of the Company and its subsidiaries.
Section 1.5 Business Expenses. Executive shall be entitled to
-----------------
reimbursement of all ordinary and necessary business expenses reasonably
incurred for business travel, communications, entertainment and meals in
connection with the performance of Executive's duties under this Agreement in
accordance with the Company's established policies for reimbursement of business
expenses. The Company expects Executive to attend and participate in continuing
education seminars and courses with respect to the staffing industry and
business management related to his duties, and the Company will reimburse all
ordinary and necessary expenses of such attendance and participation including
but not limited to the cost and expense associated with maintaining his
Certified Public Accountant license (including meeting continuing professional
education requirements) and membership in the Financial Executives Institute.
Such continuing education courses and seminars will be scheduled in conjunction
with the other officers of the Company to assure coordination of schedules. The
Company shall also pay the cost of a reserved parking space at the Company's
headquarters for Executive.
Section 1.6 Stock Options. Upon the Effective Date, the Company shall
-------------
grant to Executive options to acquire 150,000 shares of common stock of the
Company (the "Options") at an exercise price per share equal to the fair market
value of the stock on the date of grant. The Options shall be granted under the
Company's 1997 Stock Option Plan, shall be incentive stock
-2-
<PAGE>
option to the extent permitted by law, and shall vest as to 20,000 shares on the
date of grant, as to 30,000 shares on December 31, 1998, and as to 50,000 shares
on each of December 31, 1999 and 2000, respectively. The Options shall be
evidenced by one or more separate Stock Option Agreements having the terms
described above and otherwise having terms that are comparable to option awards
to other senior management personnel of the Company and its subsidiaries. During
the term of this Agreement, Executive will be granted additional options to
acquire common stock of the Company based on his performance, in a manner
comparable to the award of options to other senior management personnel of the
Company and its subsidiaries.
ARTICLE II
COVENANTS OF EXECUTIVE
Section 2.1 Confidentiality. Executive recognizes the interest of the
---------------
Company in maintaining the confidential nature of its proprietary and other
business and commercial information. In connection therewith, Executive
covenants that during the term of his employment with Company under this
Agreement, and for a period of one (1) year thereafter, Executive shall not,
directly or indirectly, except as authorized by the Board of Directors, publish,
disclose or use for his own benefit or for the benefit of a business or entity
(other than the Company) or otherwise, any secret or confidential matter, or
proprietary or other information not in the public domain that was acquired by
Executive during his employment, relating to the Company's, or any of its
subsidiaries' businesses, operations, customers, suppliers, products, employees,
financial affairs or industry practices, technology, know-how or intellectual
property or other similar information (the "Proprietary Information"). If and
to the extent that Proprietary Information also is a Trade Secret (as defined
under applicable law), the time limit provided in Section 2.5 shall apply to the
disclosure of such Proprietary Information.
Executive will abide by the Company's policies and regulations, as
established from time to time, for the protection of its Proprietary
Information. Executive acknowledges that all records, files, data, documents
and the like relating to suppliers, customers, costs, prices, systems, methods,
personnel, technology and other materials relating to the Company or its
affiliated entities shall be and remain the sole property of the Company and/or
such affiliated entity and shall, upon the request of the Company, turn over all
copies of such Proprietary Information to the Company (together with a written
statement certifying as to his compliance with the foregoing).
Section 2.2 Non-Solicitation of Customers. During the term of Executive's
-----------------------------
employment with the Company, and for a period of one (1) year thereafter,
Executive shall not directly or indirectly, through one or more intermediaries
or otherwise, solicit or attempt to solicit Customers, to induce or encourage
them to acquire or obtain from anyone other than the Company, service
competitive with or substitute for any Company Service. For purposes of this
Section 2.5, a "Customer" refers to any person or group of persons with whom
Employee has direct material contact during his employment with regard to
selling, delivery or support of Company Services, including servicing such
person's or group's account, during the period of two (2) years preceding
termination of Employee's employment; and "Company Services" refers
-3-
<PAGE>
to the services that the Company offered or sold within six (6) months prior to
the date of termination of Employee's employment.
Section 2.3 Non-Compete. During the term of Executive's employment with
-----------
the Company, and for a period of two (2) years thereafter, Executive shall not,
without the prior written consent of the Board of Directors, which consent may
be withheld at the sole discretion of the Board of Directors, engage or
participate in, as a business executive or equity owner of any business or
enterprise that directly competes in the Restricted Area with any line of
business in which (i) the Company was engaged at the time of termination of
Executive's employment with the Company and (ii) Executive was materially
involved with regard to the selling, delivery or support of services within such
line of business; provided, however, that nothing in this Section 2.3 shall
prohibit Executive from acquiring or holding, for investment purposes only, less
than five percent (5%) of the outstanding publicly traded securities of any
corporation which may compete directly or indirectly with the Company. For
purposes of this Section 2.3, the "Restricted Area" shall be the area that is
within a thirty (30) mile radius of the city of Atlanta, or such other city in
which the Company maintains an office at which Executive is located on the date
of termination of Executive's employment with the Company.
Section 2.4 Non-Solicitation of Employees. During the term of his
-----------------------------
employment with the Company, and for a period of one (1) year thereafter,
Executive shall not, directly or indirectly, through one or more intermediaries
or otherwise, employ, induce, solicit for employment, or assist others in
employing, inducing or soliciting for employment any individual who is at any
time during such period an employee of the Company for the purpose of providing
services that are the same or similar to the types of services offered or
engaged in by the Company or any of its subsidiaries.
Section 2.5 Trade Secrets. Executive shall not, at any time, either
-------------
during the term of his employment or after any termination of employment, use or
disclose any Trade Secrets (as defined under applicable law) of the Company, or
any of its subsidiaries, except in fulfillment of his duties as Executive during
his employment, for so long as the pertinent information or data remain Trade
Secrets, whether or not the Trade Secrets are in written or tangible form.
Section 2.6 Consideration. Executive acknowledges that his agreement to
-------------
the covenants provided in this Article II constitutes a major portion of the
consideration for the entry by the Company into this Agreement, and that the
Company's covenants under this Agreement are of direct and material benefit to
Executive and are good consideration for the covenants given herein. As
additional consideration for Executive's covenants as set forth in this Article
II, the Company shall pay to Executive the amount of $200,000, payable monthly
over the two-year period following Executive's termination of employment (the
"Covenant Fee"); provided, however, that the Covenant Fee will not be payable if
Executive is terminated for Cause (as defined below) or Executive resigns
without Good Reason (as defined below); and provided further that the obligation
to pay the Covenant Fee shall abate in the event Executive is found to be in
violation of any of the covenants set forth in this Article II. If at any time
prior to a Change in Control, Executive gives written notice of his probable
intention to terminate employment
-4-
<PAGE>
during the first 90 days after such Change in Control, the entire amount of the
Covenant Fee shall be deposited into escrow immediately prior to the Change in
Control. If Executive in fact terminates his employment during such 90-day
period, the escrowed funds will be paid to Executive over time, as provided in
this Section 2.6. If Executive does not terminate his employment during such 90-
day period, the escrowed funds will be released to the Company at the end of
such 90-day period, without prejudice to the Company's obligation to pay the
Covenant Fee when and if it later becomes due under Section 2.6. Any interest
earned on the escrowed funds during escrow will be paid to the Company.
Executive acknowledges that the Company has a present and future
expectation of business within the geographic areas served by the Company and
from the present and proposed customers of the Company. Executive acknowledges
the reasonableness of the term, geographic area and scope of the covenants set
forth in this Agreement, and agrees that he will not, in any action, suit or
other proceeding, deny the reasonableness of, or assert the unreasonableness of,
the premises, consideration or scope of the covenants set forth herein.
Executive further acknowledges that complying with the provisions contained in
this Agreement will not preclude him from engaging in a lawful profession, trade
or business, or from becoming gainfully employed.
ARTICLE III
TERMINATION OF EMPLOYMENT
Section 3.1 Termination by Company. Executive's employment may be
----------------------
terminated by the Company pursuant to this Section 3.1, by giving notice during
the term of this Agreement.
(a) Executive's employment shall terminate automatically upon
Executive's death or upon notice from the Chief Executive Officer in the event
of any disability which renders Executive incapable of performing his duties for
more than one hundred twenty (120) calendar days (termination under this Section
3.1(a) shall be deemed termination without Cause);
(b) The Company may terminate Executive's employment without Cause (as
defined below) at any time following a determination by the Board of Directors
to terminate Executive's employment (termination under this Section 3.1(b) shall
be deemed termination without Cause); or
(c) The Company may terminate Executive's employment Cause. For
purposes of this Agreement, "Cause" shall mean that Executive shall have:
(i) committed an intentional act of fraud, embezzlement or theft in
connection with his duties or in the course of his employment with the Company
which has a material adverse effect upon the Company;
(ii) inflicted intentional wrongful material damage to any material
asset of the Company or to the Company;
-5-
<PAGE>
(iii) intentionally and wrongfully violates Article II of this
Agreement, which violation has a material adverse effect upon the Company;
(iv) been convicted of a felony or any similar crime carrying a
prison term of at least one year (regardless of whether imprisonment is actually
imposed);
(v) a habitual and debilitating use of alcohol or drugs; or
(vi) failed to meet performance expectations which are reasonable
and consistent with Executive's position, as determined by the Company's Chief
Executive Officer, provided, however, that in the event of this subsection (vi)
--------
being the sole reason for termination for Cause, Executive shall have the cure
provisions and rights provided for in Section 3.1(d) hereof.
(d) In the event of a determination by the Company's Chief Executive
Officer that Executive has failed to meet performance expectations, the Company
shall furnish to Executive in writing a notice of proposed termination setting
forth a specific statement of the deficiencies in his performance. Executive
shall then have a period of ninety (90) days after the giving of such written
notice of proposed termination by the Company in which to attempt to effect a
cure of the specified deficiencies. If at the end of such ninety (90) day
period no such cure has been effected to the reasonable satisfaction of the
Chief Executive Officer of the Company or if Executive shall not have already
resigned for Good Reason (if applicable) as provided in Section 3.2, then
Executive's employment shall be terminated as of the end of such ninety (90) day
period. The Company shall be obligated to provide to Executive only one such
notice of proposed termination, and if subsequent to effecting a cure of
specified deficiencies Executive is determined by the Chief Executive Officer to
have again failed to meet performance expectations, then his employment may be
terminated immediately upon the Company's giving of notice of termination to
Executive which specifies his deficiencies in performance.
Section 3.2 Good Reason. Executive's employment may be terminated by
-----------
Executive for Good Reason or no reason. For purposes of this Agreement, "Good
Reason" shall mean the occurrence of any of the following events:
(a) a material breach by the Company of any material provision of this
Agreement, including, but not limited to, without the written consent of
Executive, (i) the assignment to Executive of any duties inconsistent with
Executive's position in the Company or (ii) a material adverse alteration in the
nature or status of Executive's responsibilities (including status, offices,
titles and reporting requirements); unless such events are fully corrected
within thirty (30) days following written notification by Executive to the
Company that he intends to terminate his employment hereunder for one of the
reasons set forth in this Section 3.2(a); or
(b) the Company's requiring the Executive to be based anywhere other
than the Atlanta, Georgia metropolitan area; or
-6-
<PAGE>
(c) any termination of the Executive's employment by the Company other
than for Cause, death or disability; or
(d) the occurrence of a "Change in Control" as defined below.
For purposes of this Agreement a "Change in Control" shall mean an event as a
result of which: (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Exchange At")), is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, except
that a person shall be deemed to have "beneficial ownership" of all securities
that such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 30% of the total voting power of the voting stock of the Company; (ii) the
Company consolidates with, or merges with or into another corporation or sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any person or any corporation consolidates
with, or merges with or into, the Company, in any such event pursuant to a
transaction in which the outstanding voting stock of the Company is changed into
or exchanged for cash, securities or other property, other than any such
transaction where (A) the outstanding voting stock of the Company is changed
into or exchanged for (x) voting stock of the surviving or transferee
corporation or (y) cash, securities (whether or not including voting stock) or
other property, and (B) the holders of the voting stock of the Company
immediately prior to such transaction own, directly or indirectly, not less than
70% of the voting power of the voting stock of the surviving corporation
immediately after such transaction; or (iii) individuals who at the date hereof
constitute the Board of the Company (together with any new directors whose
election by such Board or whose nomination for election by the stockholders of
the Company was approved by a vote of 66-2/3% of the directors then still in
office who were directors at the date hereof or whose election or nomination for
election was previously so approved) ceased for any reason to constitute a
majority of the Board of the Company then in office; or (iv) the Company is
liquidated or dissolved or adopts a plan of liquidation.
Section 3.3 Severance. For purposes of this Agreement, Executive's
---------
entitlement to any severance payments upon termination of his employment shall
be as set forth below:
(a) Termination Without Cause; Resignation for Good Reason. If
------------------------------------------------------
Executive is terminated without Cause or resigns for Good Reason at any time
during the term of this Agreement, the Company shall pay to the Executive in a
lump sum in cash within 30 days after the date of termination severance pay of a
lump sum equal to three times the sum of (i) his Base Salary then in effect,
plus (ii) the amount of Executive's Annual Bonus for the year prior to the year
in which such termination occurred, or, if such termination occurs during the
1998, Executive's minimum bonus for 1998. If at any time prior to a Change in
Control, the Executive gives written notice of his probable intention to
terminate employment during the first 90 days after such Change in Control,
there shall be deposited into escrow immediately prior to the Change in Control
the cash amounts payable to the Executive pursuant to Section 3.3(a) of this
Agreement. If the Executive in fact terminates his employment during such 90-day
period, the escrowed funds will be released to him at that time. If he does not
terminate his employment during such 90-day period, the
-7-
<PAGE>
escrowed funds will be released to the Company at the end of such 90-day period,
without prejudice to the Company's obligation to pay such amounts when and if
they later become due under Section 3.3(a). Any interest earned on the escrowed
funds during escrow will be paid to the Company.
(b) Voluntary Termination. Executive shall not be entitled to any
---------------------
severance pay if he voluntarily resigns other than for Good Reason, unless such
severance pay is approved by the Chief Executive Officer of the Company in his
sole discretion. Executive shall provide a minimum of thirty (30) days prior
notice to the Chief Executive Officer of his resignation. In the event
Executive shall provide thirty (30) days prior written notice of his intent to
resign, the Company may accept such resignation effective as of any date during
such thirty (30) day period as the Company deems appropriate, provided that
Executive shall receive from the Company his Base Salary and be entitled to
participate at the Company's expense in any Company-sponsored benefit programs
in which he was a participant as of the effective date of his resignation for
the duration of such thirty (30) day period.
(c) For Cause. Executive shall not be entitled to any severance pay
---------
whatsoever if his employment is terminated for Cause pursuant to Section 3.1(c)
of this Agreement, unless severance pay is approved by the Chief Executive
Officer of the Company in his sole discretion, provided, however, that Executive
shall receive any Base Salary that is accrued but unpaid up to the date of such
termination for Cause. Notwithstanding the foregoing sentence, if termination
is for Cause pursuant to Section 3.1(c)(vi), and is other than pursuant to a
Change in Control, then Executive shall be entitled to severance equal to his
Base Salary for the remainder of the then-current term of this Agreement, or
equal to one year's Base Salary at his then-current rate, whichever is greater.
Section 3.4 Limitation of Benefits.
----------------------
(a) Notwithstanding anything in this Agreement to the contrary, in the
event it shall be determined that any benefit, payment or distribution by the
Company to or for the benefit of Executive (whether payable or distributable
pursuant to the terms of this Agreement or otherwise) (such benefits, payments
or distributions are hereinafter referred to as "Payments") would, if paid, be
subject to the excise tax (the "Excise Tax") imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), then the aggregate
present value of the Payments shall be reduced (but not below zero) to an amount
expressed in present value that maximizes the aggregate present value of the
Payments without causing the Payments or any part thereof to be subject to the
Excise Tax and therefore nondeductible by the Company because of Section 280G of
the Code (the "Reduced Amount"). For purposes of this Section 3.4, present value
shall be determined in accordance with Section 280G(d)(4) of the Code. In the
event, after the exhaustion of all remedies, it is necessary to reduce the
Payments, the Executive shall direct which Payments are to be modified or
reduced, and the difference between the Payments and the Reduced Amount shall be
treated for all purposes as a loan to Executive, which Executive shall
-8-
<PAGE>
repay to the Company together with interest at the applicable Federal rate
provided for in Section 7872(f)(2) of the Code.
(b) All determinations required to be made under this Section 3.4,
including whether an Excise Tax would otherwise be imposed, whether the Payments
shall be reduced, the amount of the Reduced Amount, and the assumptions to be
utilized in arriving at such determinations, shall be made by Arthur Andersen
LLP or such other certified public accounting firm reasonably acceptable to the
Company as may be designated by Executive (the "Accounting Firm") which shall
provide detailed supporting calculations both to the Company and Executive
within 15 business days of the receipt of notice from Executive that a Payment
is due to be made, or such earlier time as is requested by the Company. All fees
and expenses of the Accounting Firm shall be borne solely by the Company. Any
determination by the Accounting Firm shall be binding upon the Company and
Executive. As a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Payments hereunder will have been unnecessarily
limited by this Section 3.4 ("Underpayment"), consistent with the calculations
required to be made hereunder. The Accounting Firm shall determine the amount of
the Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of Executive together with interest at
the applicable Federal rate provided for in Section 7872(f)(2) of the Code.
ARTICLE IV
GENERAL PROVISIONS
Section 4.1 Withholding of Taxes. The Company may withhold from any
--------------------
amounts payable under this Agreement all federal, state, city or other taxes and
withholdings as shall be required pursuant to any applicable law, rule or
regulation.
Section 4.2 Notice. For purposes of this Agreement, all communications
------
including, without limitation, notices, consents, requests or approvals,
provided for herein shall be in writing and shall be deemed to have been duly
given when personally delivered or five (5) business days after having been
mailed by United States registered mail or certified mail, return receipt
requested, postage prepaid, addressed to the Company (to the attention of the
Secretary of the Company) at its principal executive office or to Executive at
his principal residence, or to such other address as any party may have
furnished to the other in writing and in accordance herewith, except the notices
of change of address shall be effective only upon receipt.
Section 4.3 Validity; Severability. The covenants set forth in this
----------------------
Agreement are and shall be deemed and construed as separate and independent
covenants. It is not the intent of any party hereto to violate any public
policy of any jurisdiction in which this Agreement may be enforced. If any
term, covenant, condition or provision of this Agreement, or the application
thereof to any person or circumstance, shall to any extent be held invalid or
unenforceable by a court of competent jurisdiction because its duration, the
territory and/or the restricted activities are invalid or unreasonable in scope,
(i) each such term, covenant or provision of this Agreement
-9-
<PAGE>
shall be valid and be enforced to the fullest extent permitted by law, shall be
reformed to the extent (and only to the extent) necessary to make it valid,
enforceable and legal taking into consideration the reasonable concerns and
needs of the Company's business interests such that the intent of the Company,
in consummating the transactions contemplated by the Agreement, will not be
impaired, provided that such invalid or unenforceable term, covenant, condition
or provision shall be curtailed, limited or eliminated only to the extent
necessary to remove such invalidity or unenforceability with respect to the
applicable law as it shall then be applied, and (ii) the remainder of this
Agreement or the application of such term, covenant, condition or provision to
persons or circumstances other than those as to which it is held invalid or
unenforceable shall not be affected thereby.
Section 4.4 Remedies. The restrictions contained in Article II of this
--------
Agreement are considered by the parties hereto to be fair and reasonable and
necessary for the protection of the legitimate business interests of the
Company. It is recognized that damages in the event of breach of the provisions
of this Agreement by Executive would be difficult, if not impossible, to
ascertain, and it is therefore agreed that the Company, in addition to and
without limiting any other remedy or right it may have, shall have the right to
an injunction or other equitable relief in any court of competent jurisdiction,
enjoining any such breach. The existence of this right shall not preclude any
other rights and remedies at law or in equity which the Company may have. Any
violation of the restrictions contained in Article II of this Agreement shall
automatically toll and suspend the period of restraint for the amount of time
that the violation continues, provided that the Company seeks enforcement of
such restraint promptly after discovery of the violation. Executive agrees to
indemnify and hold harmless the Company from and against any loss, damage,
liability, cost or expense, including but not limited to reasonable attorneys
fees, suffered or incurred by the Company as and when incurred, by reason of, or
arising out of, any breach of the covenants contained in this Agreement.
Section 4.5 Entire Agreement. This Agreement supersedes any other
----------------
agreements, oral or written, between the parties with respect to the subject
matter hereof, and contains all of the agreements and understandings between the
parties with respect to the employment of Executive by the Company. Any waiver
or modification of any term of this Agreement shall be effective only if it is
set forth in a writing signed by both parties hereto.
Section 4.6 Successors and Binding Agreement.
--------------------------------
(a) This Agreement shall be binding upon and inure to the benefit of
the Company and any Successor of or to the Company, but shall not otherwise be
assignable or delegable by the Company. "Successor" shall mean any successor in
interest, including, without limitation, any entity, individual or group of
persons acquiring directly or indirectly all or substantially all of the
business or assets of the Company, as the case may be, whether by sale, merger,
consolidation, reorganization or otherwise.
-10-
<PAGE>
(b) The Company shall require any Successor to agree at the time of
becoming a Successor to perform this Agreement to the same extent as the
original parties would be required if no succession had occurred.
(c) This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors, administrators, heirs,
distributes and legatees.
(d) This Agreement is personal in nature and neither of the parties
shall, without the consent of the other, assign, transfer or delegate this
Agreement or any rights or obligations hereunder except as expressly provided in
this Section 4.6.
Section 4.7 Governing Law. This Agreement shall be governed by, and
-------------
construed and enforced in accordance with the laws of the State of Georgia
without regard to the choice of law rules utilized in that jurisdiction.
Section 4.8 Captions. The captions in this Agreement are solely for
--------
convenience of reference and shall not be given any effect in the construction
or interpretation of this Agreement.
Section 4.9 Miscellaneous. No provisions of this Agreement may be
-------------
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in a writing signed by Executive and the Company. No waiver by a
party hereto at any time of any breach by another party hereto or compliance
with any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provision or conditions
at the same or at any prior or subsequent time. Failure by the Company to
insist upon strict compliance with any of the terms, covenants or conditions
hereof shall not be deemed to be a waiver of such term, covenant or condition,
nor shall any relinquishment of any right of power hereunder by the Company any
one or more times be deemed a waiver or relinquishment of such right or power by
the Company at any other time or times.
Section 4.10 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same Agreement.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
"Company": "Executive"
ACSYS, INC.
BY: /s/ Timothy Mann, Jr. /s/ Brady W. Mullinax, Jr.
--------------------------------- ---------------------------------
TIMOTHY MANN, JR. BRADY W. MULLINAX, JR.
CHIEF EXECUTIVE OFFICER
-12-
<PAGE>
EXHIBIT 10.5
NON-QUALIFIED STOCK OPTION AGREEMENT
under the
ACSYS, INC.
AMENDED AND RESTATED 1997 STOCK OPTION PLAN
Optionee: Brady W. Mullinax, Jr.
---------------------------------------------
Number Shares Subject to Option: 123,563
----------------------
Exercise Price per Share: $ 11.125
-----------------------------
Date of Grant: August 21, 1998
----------------------------------------
1. Grant of Option. Acsys, Inc. (the "Company") hereby grants to the
---------------
Optionee named above (the "Optionee"), under the Acsys, Inc. Amended and
Restated 1997 Stock Option Plan (the "Plan"), an Non-Qualified Stock Option to
purchase, on the terms and conditions set forth in this agreement (this "Option
Agreement"), the number of shares indicated above of the Company's common stock
(the "Stock"), at the exercise price per share set forth above (the "Option").
Capitalized terms used herein and not otherwise defined shall have the meanings
assigned such terms in the Plan.
2. Vesting of Option.
-----------------
(a) Normal Vesting. Unless the exercisability of the Option is
--------------
accelerated in accordance with Section (b) below or otherwise, the Option shall
vest (become exercisable) in accordance with the following schedule:
<TABLE>
<CAPTION>
Number of Option
----------------
Date Shares Vested
---- -------------
<S> <C>
Date of Grant 16,298.82
December 31, 1998 24,712.60
December 31, 1999 41,275.79
December 31, 2000 41,275.79
</TABLE>
[ ]
(b) Change in Control. In the event of a Change in Control (as
-----------------
defined in Optionee's Employment Agreement), the Option shall become immediately
exercisable in
<PAGE>
full.
[ ]
[ ]
(c) Certain Terminations. In the event Optionee's employment with
--------------------
the Company is terminated by the Company without Cause (as defined in Optionee's
Employment Agreement) or by Optionee for Good Reason (as defined in Optionee's
Employment Agreement), the Option shall become immediately exercisable in full.
3. Period of Option and Limitations on Right to Exercise. The Option
-----------------------------------------------------
will, to the extent not previously exercised, lapse under the earliest of the
following circumstances; provided, however, that the Committee may, prior to the
lapse of the Option under the circumstances described in paragraphs (b), (c) and
(d) below, provide in writing that the Option will extend until a later date:
(a) The Option shall lapse as of 5:00 p.m., Eastern Time, on the
tenth anniversary of the date of grant (the "Expiration Date").
(b) The Option shall lapse three months after Optionee's termination
of employment for any reason other than Optionee's death or Permanent and
Total Disability.
(c) In the event of termination of employment because of Optionee's
Permanent and Total Disability, the Option shall lapse one year after the
date of the Optionee's termination of employment.
(d) If the Optionee dies while employed by the Company or any of its
Subsidiaries, or during the three-month period described in subsection (b)
above, or during the one-year period described in subsection (c) above, and
before the Option otherwise lapses, the Option shall lapse one year after
the date of the Optionee's death. Upon the Optionee's death, the Option
may be exercised by the Optionee's beneficiary.
If the Optionee or his beneficiary exercises an Option after termination of
employment, the Option may be exercised only with respect to the shares that
were otherwise vested on the Optionee's termination of employment.
4. Exercise of Option. The Option shall be exercised by written notice
------------------
directed to the Secretary of the Company at the principal executive offices of
the Company, in substantially the form attached hereto as Exhibit A, or such
other form as the Committee may approve. Such written notice shall be
accompanied by full payment in cash, shares of Stock previously acquired by the
Optionee, or any combination thereof, for the number of shares specified in such
written notice; provided, however, that if shares of Stock are used to pay the
exercise price, such shares must have been held by the Optionee for at least six
months. The Fair Market Value of the surrendered Stock as of the date of
-2-
<PAGE>
the exercise shall be determined in valuing Stock used in payment of the
exercise price. To the extent permitted under Regulation T of the Federal
Reserve Board, and subject to applicable securities laws, the Option may be
exercised through a broker in a so-called "cashless exercise" whereby the broker
sells the Option shares and delivers cash sales proceeds to the Company in
payment of the exercise price.
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. Subject to the terms of this Option Agreement, the Option may be
exercised at any time and without regard to any other option held by the
Optionee to purchase stock of the Company.
5. Limitation of Rights. The Option does not confer to the Optionee or
--------------------
the Optionee's personal representative any rights of a shareholder of the
Company unless and until shares of Stock are in fact issued to such person in
connection with the exercise of the Option. Nothing in this Option Agreement
shall interfere with or limit in any way the right of the Company or any
Subsidiary to terminate the Optionee's employment at any time, nor confer upon
the Optionee any right to continue in the employ of the Company or any
Subsidiary.
6. Stock Reserve. The Company shall at all times during the term of this
-------------
Option Agreement reserve and keep available such number of shares of Stock as
will be sufficient to satisfy the requirements of this Option Agreement.
7. Optionee's Covenant. The Optionee hereby agrees to use his best
-------------------
efforts to provide services to the Company in a workmanlike manner and to
promote the Company's interests.
8. Restrictions on Transfer and Pledge. The Option may not be pledged,
-----------------------------------
encumbered, or hypothecated to or in favor of any party other than the Company
or a Parent or Subsidiary, or be subject to any lien, obligation, or liability
of the Optionee to any other party other than the Company or a Parent or
Subsidiary. The Option is not assignable or transferable by the Optionee other
than by will or the laws of descent and distribution or pursuant to a Qualified
Domestic Relations Order. The Option may be exercised during the lifetime of
the Optionee only by the Optionee (or by Optionee's guardian or legal
representative, should one be appointed).
9. Plan Controls. The terms contained in the Plan are incorporated into
-------------
and made a part of this Option Agreement and this Option Agreement shall be
governed by and construed in accordance with the Plan. In the event of any
actual or alleged conflict between the provisions of the Plan and the provisions
of this Option Agreement, the provisions of the Plan shall be controlling and
determinative.
10. Successors. This Option Agreement shall be binding upon any successor
----------
of the Company, in accordance with the terms of this Option Agreement and the
Plan.
-3-
<PAGE>
11. Severability. If any one or more of the provisions contained in this
------------
Option Agreement are invalid, illegal or unenforceable, the other provisions of
this Option Agreement will be construed and enforced as if the invalid, illegal
or unenforceable provision had never been included.
12. Notice. Notices and communications under this Option Agreement must
------
be in writing and either personally delivered or sent by registered or certified
United States mail, return receipt requested, postage prepaid. Notices to the
Company must be addressed to:
Acsys, Inc.
75 14th Street
Atlanta, Georgia 30309
Attn: Secretary
or any other address designated by the Company in a written notice to the
Optionee. Notices to the Optionee will be directed to the address of the
Optionee then currently on file with the Company, or at any other address given
by the Optionee in a written notice to the Company.
13. Binding Agreement. This Agreement shall be binding upon the parties
-----------------
hereto and their representatives, successors and assigns.
14. Governing Law. This Agreement is executed and delivered in, and shall
-------------
be governed by the laws of, the State of Georgia.
15. Amendments. This Agreement may not be modified except in a writing
----------
executed by each of the parties hereto.
-4-
<PAGE>
IN WITNESS WHEREOF, Acsys, Inc., acting by and through its duly authorized
officers, has caused this Option Agreement to be executed, and the Optionee has
executed this Option Agreement, all as of the day and year first above written.
ACSYS, INC.
By: /s/ Timothy Mann, Jr.
------------------------------------------
Name: Timothy Mann, Jr.
Title: President and Chief Executive Officer
OPTIONEE:
/s/ Brady W. Mullinax, Jr.
----------------------------------------------
Brady W. Mullinax, Jr.
Address:
116 Huntington Road
----------------------------------------------
Atlanta, GA 30307
----------------------------------------------
-5-
<PAGE>
[ ]
EXHIBIT A
---------
NOTICE OF EXERCISE OF OPTION TO PURCHASE
COMMON STOCK OF
ACSYS, INC.
Name:
_________________________________
Address:
_________________________________
_________________________________
Date: ___________________________
Acsys, Inc.
75 14th Street
Atlanta, Georgia 30309
Attn: Secretary
Re: Exercise of Non-Qualified Stock Option
I elect to purchase ______________ shares of Common Stock of Acsys, Inc.
pursuant to the Acsys, Inc. Non-Qualified Stock Option Agreement dated
______________ and the Acsys, Inc. Amended and Restated 1997 Stock Option Plan.
The purchase will take place on the Exercise Date, which will be as soon as
practicable following the date this notice and all other necessary forms and
payments are received by the Company, unless I specify a later date (not to
exceed 30 days following the date of this notice).
On or before the Exercise Date, I will pay the full exercise price in the
form specified below (check one):
[ ] Cash Only: by delivering a certified or a cashier's check to Acsys,
---------
Inc. for $___________.
[ ] Cash and Shares: by delivering a certified or a cashier's check to
---------------
Acsys, Inc. for $_________ for the part of the exercise price. I will
pay the balance of the exercise price by delivering to the Company a
stock certificate with my endorsement for shares of Acsys Stock that I
have
<PAGE>
owned for at least six months. If the number of shares of Acsys
Stock represented by such stock certificate exceeds the number needed
to pay the exercise price (based on the Fair Market Value of the Acsys
Stock on the date of delivery), the Company will issue me a new stock
certificate for the excess.
[ ] Shares Only: by delivering to the Company a stock certificate with my
-----------
endorsement for shares of Acsys Stock that I have owned for at least
six months. If the number of shares of Acsys Stock represented by
such stock certificate exceeds the number needed to pay the exercise
price (based on the Fair Market Value of the Acsys Stock on the date
of delivery), the Company will issue me a new stock certificate for
the excess.
[ ] Cash From Broker: by delivering the purchase price from
----------------
_______________________, a broker, dealer or other "creditor" as
defined by Regulation T issued by the Board of Governors of the
Federal Reserve System (the "Broker"). I authorize the Company to
issue a stock certificate in the number of shares indicated above in
the name of the Broker in accordance with instructions received by the
Company from the Broker and to deliver such stock certificate directly
to the Broker (or to any other party specified in the instructions
from the Broker) upon receiving the exercise price from the Broker.
Please deliver the stock certificate to me (unless I have chosen to pay the
purchase price through a broker).
Very truly yours,
________________________
AGREED TO AND ACCEPTED:
ACSYS, INC.
By: _____________________________________
Title: __________________________________
Number of Option Shares
Exercised: ______________________________
Number of Option Shares
Remaining: ______________________________
Date: ___________________________________
-2-
<PAGE>
EXHIBIT 10.6
INCENTIVE STOCK OPTION AGREEMENT
under the
ACSYS, INC.
AMENDED AND RESTATED 1997 STOCK OPTION PLAN
Optionee: Brady W. Mullinax, Jr.
------------------------------------------
Number Shares Subject to Option: 26,437
--------------------------
Exercise Price per Share: $11.125
---------------------------------
Date of Grant: August 21, 1998
-------------------------------------------
1. Grant of Option. Acsys, Inc. (the "Company") hereby grants to the
---------------
Optionee named above (the "Optionee"), under the Acsys, Inc. Amended and
Restated 1997 Stock Option Plan (the "Plan"), an Incentive Stock Option to
purchase, on the terms and conditions set forth in this agreement (this "Option
Agreement"), the number of shares indicated above of the Company's common stock
(the "Stock"), at the exercise price per share set forth above (the "Option").
Capitalized terms used herein and not otherwise defined shall have the meanings
assigned such terms in the Plan.
2. Vesting of Option.
-----------------
(a) Normal Vesting. Unless the exercisability of the Option is
--------------
accelerated in accordance with Section (b) below or otherwise, the Option shall
vest (become exercisable) in accordance with the following schedule:
<TABLE>
<CAPTION>
Number of Option
----------------
Date Shares Vested
---- -------------
<S> <C>
Date of Grant 3,701.18
December 31, 1998 5,287.40
December 31, 1999 8,724.21
December 31, 2000 8,724.21
</TABLE>
[ ]
(b) Change in Control. In the event of a Change in Control (as
-----------------
defined in Optionee's Employment Agreement), the Option shall become immediately
exercisable in
<PAGE>
full.
[ ]
[ ]
(c) Certain Terminations. In the event Optionee's employment with
--------------------
the Company is terminated by the Company without Cause (as defined in Optionee's
Employment Agreement) or by Optionee for Good Reason (as defined in Optionee's
Employment Agreement), the Option shall become immediately exercisable in full.
3. Period of Option and Limitations on Right to Exercise. The Option
-----------------------------------------------------
will, to the extent not previously exercised, lapse under the earliest of the
following circumstances; provided, however, that the Committee may, prior to the
lapse of the Option under the circumstances described in paragraphs (b), (c) and
(d) below, provide in writing that the Option will extend until a later date,
but if Option is exercised after the dates specified in paragraphs (b), (c) and
(d) above, it will automatically become a Non-Qualified Stock Option:
(a) The Option shall lapse as of 5:00 p.m., Eastern Time, on the tenth
anniversary of the date of grant (the "Expiration Date").
(b) The Option shall lapse three months after Optionee's termination
of employment for any reason other than Optionee's death or Permanent and
Total Disability.
(c) In the event of termination of employment because of Optionee's
Permanent and Total Disability, the Option shall lapse one year after the
date of the Optionee's termination of employment.
(d) If the Optionee dies while employed by the Company or any of its
Subsidiaries, or during the three-month period described in subsection (b)
above, or during the one-year period described in subsection (c) above, and
before the Option otherwise lapses, the Option shall lapse one year after
the date of the Optionee's death. Upon the Optionee's death, the Option
may be exercised by the Optionee's beneficiary.
If the Optionee or his beneficiary exercises an Option after termination of
employment, the Option may be exercised only with respect to the shares that
were otherwise vested on the Optionee's termination of employment.
4. Exercise of Option. The Option shall be exercised by written notice
------------------
directed to the Secretary of the Company at the principal executive offices of
the Company, in substantially the form attached hereto as Exhibit A, or such
other form as the Committee may approve. Such written notice shall be
accompanied by full payment in cash, shares of Stock previously acquired by the
Optionee, or any combination thereof, for the number of shares specified in such
written notice; provided, however, that if shares of
-2-
<PAGE>
Stock are used to pay the exercise price, such shares must have been held by the
Optionee for at least six months. The Fair Market Value of the surrendered Stock
as of the date of the exercise shall be determined in valuing Stock used in
payment of the exercise price. To the extent permitted under Regulation T of the
Federal Reserve Board, and subject to applicable securities laws, the Option may
be exercised through a broker in a so-called "cashless exercise" whereby the
broker sells the Option shares and delivers cash sales proceeds to the Company
in payment of the exercise price.
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. Subject to the terms of this Option Agreement, the Option may be
exercised at any time and without regard to any other option held by the
Optionee to purchase stock of the Company.
5. Limitation of Rights. The Option does not confer to the Optionee or
--------------------
the Optionee's personal representative any rights of a shareholder of the
Company unless and until shares of Stock are in fact issued to such person in
connection with the exercise of the Option. Nothing in this Option Agreement
shall interfere with or limit in any way the right of the Company or any
Subsidiary to terminate the Optionee's employment at any time, nor confer upon
the Optionee any right to continue in the employ of the Company or any
Subsidiary.
6. Stock Reserve. The Company shall at all times during the term of this
-------------
Option Agreement reserve and keep available such number of shares of Stock as
will be sufficient to satisfy the requirements of this Option Agreement.
7. Optionee's Covenant. The Optionee hereby agrees to use his best
-------------------
efforts to provide services to the Company in a workmanlike manner and to
promote the Company's interests.
8. Restrictions on Transfer and Pledge. The Option may not be pledged,
-----------------------------------
encumbered, or hypothecated to or in favor of any party other than the Company
or a Parent or Subsidiary, or be subject to any lien, obligation, or liability
of the Optionee to any other party other than the Company or a Parent or
Subsidiary. The Option is not assignable or transferable by the Optionee other
than by will or the laws of descent and distribution or pursuant to a Qualified
Domestic Relations Order. The Option may be exercised during the lifetime of
the Optionee only by the Optionee (or by Optionee's guardian or legal
representative, should one be appointed).
9. Plan Controls. The terms contained in the Plan are incorporated into
-------------
and made a part of this Option Agreement and this Option Agreement shall be
governed by and construed in accordance with the Plan. In the event of any
actual or alleged conflict between the provisions of the Plan and the provisions
of this Option Agreement, the provisions of the Plan shall be controlling and
determinative.
-3-
<PAGE>
10. Successors. This Option Agreement shall be binding upon any successor
----------
of the Company, in accordance with the terms of this Option Agreement and the
Plan.
11. Severability. If any one or more of the provisions contained in this
------------
Option Agreement are invalid, illegal or unenforceable, the other provisions of
this Option Agreement will be construed and enforced as if the invalid, illegal
or unenforceable provision had never been included.
12. Notice. Notices and communications under this Option Agreement must
------
be in writing and either personally delivered or sent by registered or certified
United States mail, return receipt requested, postage prepaid. Notices to the
Company must be addressed to:
Acsys, Inc.
75 14th Street
Atlanta, Georgia 30309
Attn: Secretary
or any other address designated by the Company in a written notice to the
Optionee. Notices to the Optionee will be directed to the address of the
Optionee then currently on file with the Company, or at any other address given
by the Optionee in a written notice to the Company.
13. Binding Agreement. This Agreement shall be binding upon the parties
-----------------
hereto and their representatives, successors and assigns.
14. Governing Law. This Agreement is executed and delivered in, and shall
-------------
be governed by the laws of, the State of Georgia.
15. Amendments. This Agreement may not be modified except in a writing
----------
executed by each of the parties hereto.
-4-
<PAGE>
IN WITNESS WHEREOF, Acsys, Inc., acting by and through its duly authorized
officers, has caused this Option Agreement to be executed, and the Optionee has
executed this Option Agreement, all as of the day and year first above written.
ACSYS, INC.
By: /s/ Timothy Mann, Jr.
------------------------------------------
Name: Timothy Mann, Jr.
Title: President and Chief Executive Officer
OPTIONEE:
/s/ Brady W. Mullinax, Jr.
-----------------------------------------------
Brady W. Mullinax, Jr.
Address:
116 Huntingdon Road
----------------------------------------------
Atlanta, GA 30309
----------------------------------------------
-5-
<PAGE>
[ ]
EXHIBIT A
---------
[ ]
[ ]
NOTICE OF EXERCISE OF OPTION TO PURCHASE
[ ]
COMMON STOCK OF
[ ]
ACSYS, INC.
[ ]
[ ]
Name:
[ ]
[ ]
_________________________________
Address:
_________________________________
_________________________________
Date: ___________________________
Acsys, Inc.
75 14th Street
Atlanta, Georgia 30309
Attn: Secretary
Re: Exercise of Incentive Stock Option
I elect to purchase ______________ shares of Common Stock of Acsys, Inc.
pursuant to the Acsys, Inc. Incentive Stock Option Agreement dated
______________ and the Acsys, Inc. Amended and Restated 1997 Stock Option Plan.
The purchase will take place on the Exercise Date, which will be as soon as
practicable following the date this notice and all other necessary forms and
payments are received by the Company, unless I specify a later date (not to
exceed 30 days following the date of this notice).
On or before the Exercise Date, I will pay the full exercise price in the
form specified below (check one):
<PAGE>
[ ] Cash Only: by delivering a certified or a cashier's check to Acsys,
---------
Inc. for $___________.
[ ] Cash and Shares: by delivering a certified or a cashier's check to
---------------
Acsys, Inc. for $_________ for the part of the exercise price. I will
pay the balance of the exercise price by delivering to the Company a
stock certificate with my endorsement for shares of Acsys Stock that I
have owned for at least six months. If the number of shares of Acsys
Stock represented by such stock certificate exceeds the number needed
to pay the exercise price (based on the Fair Market Value of the Acsys
Stock on the date of delivery), the Company will issue me a new stock
certificate for the excess.
[ ] Shares Only: by delivering to the Company a stock certificate with my
-----------
endorsement for shares of Acsys Stock that I have owned for at least
six months. If the number of shares of Acsys Stock represented by such
stock certificate exceeds the number needed to pay the exercise price
(based on the Fair Market Value of the Acsys Stock on the date of
delivery), the Company will issue me a new stock certificate for the
excess.
[ ] Cash From Broker: by delivering the purchase price from
----------------
_______________________, a broker, dealer or other "creditor" as
defined by Regulation T issued by the Board of Governors of the
Federal Reserve System (the "Broker"). I authorize the Company to
issue a stock certificate in the number of shares indicated above in
the name of the Broker in accordance with instructions received by the
Company from the Broker and to deliver such stock certificate directly
to the Broker (or to any other party specified in the instructions
from the Broker) upon receiving the exercise price from the Broker.
Please deliver the stock certificate to me (unless I have chosen to pay the
purchase price through a broker).
Very truly yours,
________________________
AGREED TO AND ACCEPTED:
ACSYS, INC.
By: ___________________________________
Title: __________________________________
-2-
<PAGE>
Number of Option Shares
Exercised: ______________________________
Number of Option Shares
Remaining: ______________________________
Date: ___________________________________
-3-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM QUARTERLY
REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1998 FOR ACSYS, INC AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,175
<SECURITIES> 0
<RECEIVABLES> 24,026
<ALLOWANCES> 856
<INVENTORY> 0
<CURRENT-ASSETS> 25,736
<PP&E> 6,552
<DEPRECIATION> 2,171
<TOTAL-ASSETS> 84,913
<CURRENT-LIABILITIES> 22,565
<BONDS> 0
0
0
<COMMON> 29,377
<OTHER-SE> 4,319
<TOTAL-LIABILITY-AND-EQUITY> 84,913
<SALES> 89,371
<TOTAL-REVENUES> 89,371
<CGS> 48,768
<TOTAL-COSTS> 48,768
<OTHER-EXPENSES> 36,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 466
<INCOME-PRETAX> 3,729
<INCOME-TAX> 5,185
<INCOME-CONTINUING> (1,456)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,456)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
