<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 13, 1998
REGISTRATION NO. 333-38465
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
PRE-EFFECTIVE AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
ACSYS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 7363 58-2299173
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
TIMOTHY MANN, JR.
CHIEF EXECUTIVE OFFICER
ACSYS, INC.
2000 PENNSYLVANIA AVENUE, N.W.
SUITE 7650
WASHINGTON, D.C. 20006
(202) 872-0303
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES AND AGENT FOR SERVICE)
---------------
COPIES TO:
GLENN W. STURM, ESQ. ERIC A. STERN, ESQ.
CHARLES D. VAUGHN, ESQ. MICHAEL A. BELL, ESQ.
C. RUSSELL PICKERING, ESQ. LATHAM & WATKINS
NELSON MULLINS RILEY & SCARBOROUGH, 1001 PENNSYLVANIA AVENUE, N.W.
L.L.P. SUITE 1300
FIRST UNION PLAZA, SUITE 1400 WASHINGTON, D.C. 20004
999 PEACHTREE STREET, N.E. (202) 637-2200
ATLANTA, GEORGIA 30309
(404) 817-6000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for any offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
---------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
---------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
---------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID
SECTION 8(A) MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 13, 1998
PROSPECTUS
2,750,000 SHARES
LOGO
[LOGO OF ACSYS APPEARS HERE]
COMMON STOCK
Of the 2,750,000 shares of common stock, no par value (the "Common Stock")
offered hereby (the "Offering"), 2,430,000 shares are being offered by ACSYS,
Inc. (the "Company") and 320,000 shares are being offered by certain
shareholders of the Company (the "Selling Shareholders"). See "Principal and
Selling Shareholders." The Company will not receive any of the proceeds from
the sale of the shares by the Selling Shareholders. See "Use of Proceeds."
Prior to the Offering there has been no public market for the Common Stock.
It is currently anticipated that the initial public offering price for the
Common Stock will be between $8.00 and $9.00 per share. See "Underwriting" for
information relating to the determination of the initial public offering price.
The Common Stock has been approved for listing on the Nasdaq Stock Market's
National Market under the symbol "ACSY."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) SHAREHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share........................ $ $ $ $
- --------------------------------------------------------------------------------
Total (3)........................ $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain civil liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated Offering expenses of $2,000,000 payable by the
Company.
(3) The Company has granted the Underwriters a 30-day over-allotment option to
purchase up to 412,500 additional shares of Common Stock on the same terms
and conditions as set forth above. If all such shares are purchased by the
Underwriters, the total Price to Public will be $ , the total
Underwriting Discount will be $ and the total Proceeds to Company will
be $ . See "Underwriting."
-----------
The shares of Common Stock are offered subject to receipt and acceptance by
the Underwriters, to prior sale and to the Underwriters' right to reject orders
in whole or in part and to withdraw or cancel the offer without notice. It is
expected that certificates for the shares of Common Stock will be available for
delivery on or about , 1998.
-----------
J.C.Bradford&Co. Janney Montgomery Scott Inc.
, 1998.
<PAGE>
LOGO
[COLOR MAP OF THE EASTERN UNITED STATES REFLECTING THE OUTLINES OF THE STATES
AND DETAILS OF THE COMPANY'S OFFICES]
----------------
THE COMPANY INTENDS TO FURNISH ITS SHAREHOLDERS WITH ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS AUDITED BY INDEPENDENT PUBLIC ACCOUNTANTS AND
WITH QUARTERLY REPORTS CONTAINING UNAUDITED SUMMARY FINANCIAL INFORMATION FOR
EACH OF THE FIRST THREE QUARTERS OF EACH FISCAL YEAR.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN THE
COMMON STOCK, AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the Consolidated Financial
Statements and the related Notes thereto appearing elsewhere in this
Prospectus. Unless otherwise indicated, the information contained in this
Prospectus assumes (i) no exercise of the Underwriters' over-allotment option,
and (ii) a public offering price of $8.50 per share. The term "Company" as used
in this Prospectus means ACSYS, Inc. and its subsidiaries on a consolidated
basis.
THE COMPANY
ACSYS, Inc. is one of the leading accounting and finance temporary staffing
and permanent placement firms in the United States. The Company operates 16
offices serving the Atlanta, Charlotte, Central New Jersey, Orlando,
Philadelphia, Tampa and Washington, D.C. metropolitan markets. The Company was
formed in March 1997 and since its formation has acquired seven accounting and
finance specialty professional staffing companies which had operating histories
ranging from five to 23 years with an average operating history of 15 years.
The Company's goal is to build a national specialty professional staffing
business with offices in major United States metropolitan markets. The
Company's clients include Fortune 1000 companies, middle market companies,
governmental agencies and nonprofit organizations.
The Company's operating strategy is based on a focus on client relationships
and its philosophy that the central function of corporate management is to
support the staffing consultants who directly interact with clients. The
Company carries out its strategy through its decentralized "Hub-Center"
management model, which the Company believes fosters an entrepreneurial
environment. Hub-Centers, located in major metropolitan markets, are managed by
Division Presidents who are responsible for achieving the Company's operational
and financial goals and have significant latitude over such matters as hiring,
recruiting, compensation, pricing and sales management. Division Presidents are
supported by the Company's corporate services which include advertising,
marketing, public relations, management information systems support, training,
human resources, accounting and other back office functions. The Company
believes that its decentralized management structure enables it to be more
responsive to its clients' needs. Further, the Company believes that its
specialty professional focus makes it more attractive to staffing consultants
and temporary and permanent placement candidates.
The Company's goal is to build a national specialty professional staffing
business with offices in major United States metropolitan markets by pursuing
strategic acquisitions, enhancing and expanding existing offices, introducing
new services and opening new offices. The Company seeks to acquire specialty
professional staffing businesses with strong management and a significant
presence in what the Company believes to be desirable, growing markets. The
Company believes it will have a strategic advantage in competing for
acquisitions based on: (i) its focus on the specialty professional staffing
segment of the staffing industry; (ii) the personal relationships of its senior
executives with managers and owners of other specialty professional staffing
firms; (iii) the Company's entrepreneurial operating environment and Hub-Center
management model; (iv) the Company's merger and acquisition execution
capabilities; and (v) the Company's greater visibility and resources as a
public company. The Company plans to enhance and expand its existing offices by
adding quality personnel, pursuing new clients, expanding relationships with
its current clients and replicating its most successful sales, marketing and
business techniques in offices that are not currently using those techniques.
The Company also intends to introduce new specialty professional staffing
services in addition to its core accounting and finance staffing services. For
example, the Company recently introduced information technology ("IT") staffing
in several locations. The Company may develop or expand new services internally
by leveraging its existing staffing expertise and specialty professional
staffing reputation or it may acquire existing businesses that offer such new
specialty professional staffing services. Furthermore, the Company intends to
grow by opening new offices in both its current markets and new geographic
markets.
The Company derived 72.9% and 77.1% of its pro forma service revenues from
its temporary staffing operations for the nine months ended September 30, 1997
and the year ended December 31, 1996, respectively. Within the temporary
staffing sector, the Company competes primarily in the specialty professional
segment
3
<PAGE>
which, based on the Staffing Industry Report, had 1996 revenues of $5.0 billion
and was projected to grow 22% in 1997. The specialty professional segment
includes services such as accounting and finance, legal, laboratory and other
professional staffing services but excludes IT staffing. The IT segment of the
temporary staffing sector had 1996 revenues of $11.7 billion and was projected
to grow 27% in 1997. The IT segment includes services such as consulting,
systems and network integration and support, and supplemental staffing.
Specialty professional and IT staffing assignments generally have profit
margins greater than those of traditional clerical and light industrial
temporary staffing assignments. The Company believes that organizations are
increasingly accepting the idea of using specialty professional temporary
employees in traditional permanent professional roles and are planning to use
such employees as a continuing corporate strategy. Furthermore, traditional
accounting and finance services that were historically performed internally are
being outsourced.
The Company also operates in the placement and search sector of the staffing
industry, which had 1996 revenues of $9.1 billion and was projected to grow 14%
in 1997. The Company derived 27.1% and 22.9% of its pro forma service revenues
from its permanent placement operations for the nine months ended September 30,
1997 and the year ended December 31, 1996, respectively. Permanent placement
firms fulfill their clients' needs by identifying, evaluating and recommending
qualified candidates for positions. The Company believes that companies have
become increasingly reliant on permanent placement firms for several reasons,
including the increased difficulty of finding talented candidates, the reduced
costs and increased efficiency of outsourcing the recruiting process, and the
ability of placement firms to provide objective feedback on candidates and
advice regarding the appropriate qualifications and compensation for a
particular position.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Compa-
ny............................... 2,430,000 shares
Common Stock offered by the Sell-
ing Shareholders................. 320,000 shares(1)
Common Stock to be outstanding af-
ter the Offering................. 10,923,220 shares(2)
Use of proceeds by the Company.... Repay indebtedness, enhance management
information systems and for working capital
and general corporate purposes, including
acquisitions and opening new offices.
See "Use of Proceeds."
Nasdaq National Market symbol..... ACSY
</TABLE>
- --------------------
(1) See "Principal and Selling Shareholders" and "Description of Capital
Stock."
(2) Excludes 2,000,000 shares of Common Stock reserved for issuance under the
Company's 1997 Amended and Restated Stock Option Plan (the "Option Plan")
and 109,622 shares of Common Stock reserved for issuance under options
otherwise outstanding. Options to purchase 244,820 shares of Common Stock
have been granted and were exercisable at September 30, 1997 with a
weighted average exercise price of $5.61 per share. The Company intends to
grant options to purchase approximately 950,000 shares of Common Stock upon
consummation of this Offering at an exercise price equal to the initial
public offering price per share. See "Management -- 1997 Stock Option
Plan."
----------------
Prior to the closing of this Offering, the Company expects to distribute to
its shareholders an amount which approximates such shareholders' unpaid federal
and state income taxes on the Company's taxable income for the period the
Company was treated as an S corporation (the "Distribution"). The Company
estimates that the amount of the Distribution would have been approximately
$800,000 if the closing of the Offering had occurred on September 30, 1997;
that amount is reflected in the Consolidated Financial Statements. The
termination of the Company's S corporation status will also result in the
Company recording a nonrecurring income tax expense and a corresponding net
deferred income tax liability (the "Deferred Tax Liability"). This amount would
have been approximately $2.6 million if the termination of S corporation status
had occurred on September 30, 1997. The actual amounts of the Distribution and
the Deferred Tax Liability will be determined as of the date of the termination
of the Company's S corporation status. As a result of the Deferred Tax
Liability, the Company expects to incur a net loss for the quarter, and
possibly the year, in which the Company's S corporation status is terminated.
See "Prior S Corporation Status" and "Use of Proceeds."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------- ------------------------------------
PRO FORMA PRO FORMA PRO FORMA
1994 1995 1996 1996(2) 1996 1997 1996(2) 1997(2)
------- ------- ------- --------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DA-
TA(1):
Total service reve-
nues................. $27,395 $34,485 $45,908 $52,411 $33,801 $42,010 $38,543 $46,566
Gross profit.......... 13,370 16,753 23,035 25,486 16,990 22,182 18,775 23,906
Operating income...... 2,043 3,117 3,031 5,152 2,966 1,713 3,844 5,040
Income before income
taxes................ 1,190 2,252 2,228 4,172 2,300 1,125 3,045 4,346
Pro forma net income
(loss), as adjusted
for income taxes(3).. $ 1,247 $ 2,336 $ (14) $ 1,705 $ 2,434
Pro forma net income
(loss) per share, as
adjusted for income
taxes(3)(4).......... $ 0.14 $ 0.27 $ (0.13) $ 0.20 $ 0.28
Weighted average
common shares
outstanding(4)....... 7,235 8,576 7,373 8,576 8,576
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------------
PRO FORMA,
PRO AS
ACTUAL FORMA(5) ADJUSTED(5)(6)
------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(1):
Cash and cash equivalents............ $ 1,547 $ 1,547 $ 6,806
Working capital...................... 5,413 4,816 10,975
Total assets......................... 28,632 28,632 33,891
Long-term debt, including current ma-
turities ........................... 11,868 11,868 718
Redeemable Common Stock.............. 1,220 -- --
Shareholders' equity................. 9,518 8,171 25,381
</TABLE>
- --------------------
(1) All of the financial data set forth above have been restated to give effect
to the Company's acquisitions of the Acquired Companies other than C.P.A.
Staffing. The Company's acquisitions, other than C.P.A. Staffing, have been
accounted for under the pooling of interests method of accounting. Includes
results of operations of Don Richard Associates of Washington and Don
Richard Associates of Tampa from March 1, 1994 and January 1, 1996,
respectively, the dates of their formation. See Note 1 of Notes to
Consolidated Financial Statements. See "The Company."
(2) The Company acquired AcSys Resources, Inc. ("AcSys Resources") in September
1997. AcSys Resources had previously acquired C.P.A. Staffing in August
1997 in a transaction accounted for under the purchase method of
accounting. The pro forma operations data reflect the Company's operations
as if AcSys Resources' purchase of C.P.A. Staffing had occurred on January
1, 1996. In addition, the pro forma operations data reflect (i) the
elimination of expenses incurred in connection with the Company's
acquisitions (the "Combination Expenses"), (ii) an adjustment to
compensation expense for the difference between actual compensation paid to
certain owners of the Acquired Companies (including C.P.A. Staffing) and a
key employee and the compensation negotiated in conjunction with such
acquisitions and (iii) income tax expense computed as if the Company had
terminated its status as an S corporation as of January 1, 1996. See Pro
Forma Consolidated Financial Statements.
(3) The Company has operated as an S corporation for income tax purposes since
inception and will terminate such status in connection with this Offering.
See Note 2 of Notes to Consolidated Financial Statements for information
concerning the computation of the income taxes. See "Prior S Corporation
Status" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
(4) See Note 2 of Notes to Consolidated Financial Statements and Note 5 of
Notes to Pro Forma Consolidated Financial Statements for a discussion of
the computations of pro forma net income (loss) per share, as adjusted for
income taxes.
(5) The pro forma balance sheet data reflect (i) the Deferred Tax Liability
described in "Prior S Corporation Status" and (ii) the elimination of
certain redemption rights related to 122,012 shares of Common Stock (the
"Redeemable Common Stock") held by a former owner of AcSys Resources. See
"Certain Transactions" and Pro Forma Consolidated Financial Statements.
(6) Adjusted to reflect the sale of 2,430,000 shares of Common Stock offered by
the Company hereby and the application of the estimated net proceeds
therefrom. See "Prior S Corporation Status," "Use of Proceeds" and
"Capitalization."
5
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. In addition to the other information in this Prospectus, the
following factors should be considered carefully in evaluating an investment
in the Common Stock offered hereby. This Prospectus contains "forward-looking
statements" relating to, without limitation, future economic performance,
plans and objectives of management for future operations and projections of
revenues and other financial items that are based on the beliefs of the
Company's management, as well as assumptions made by, and information
currently available to, the Company's management. The words "expect,"
"estimate," "anticipate," "believe" and similar expressions and variations
thereof are intended to identify forward-looking statements. The cautionary
statements set forth in this "Risk Factors" section and elsewhere in this
Prospectus identify important factors with respect to such forward-looking
statements, including certain risks and uncertainties, that could cause actual
results to differ materially from those in such forward-looking statements.
BRIEF COMBINED OPERATING HISTORY
The Company was incorporated in March 1997 and acquired the Acquired
Companies in transactions that occurred from May 1997 to September 1997. The
members of the Company's senior management have worked together and managed
the Company as a combined business for only a short time. There can be no
assurance that management will be able to oversee the Company and effectively
implement the Company's operating or growth strategies or that the Company
will be able to achieve any cost savings or effectively manage the combined
enterprise. The Company's historical financial results cover periods when the
Company was not under common control or management and, therefore, may not be
indicative of the Company's future financial or operating results. The
Company's inability to integrate the Acquired Companies could have a material
adverse effect on the Company's business, operating results and financial
condition and could make it unlikely that the Company's operations and
strategies will be successful. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Management" and "Certain
Transactions."
ABILITY TO ACHIEVE AND MANAGE GROWTH
The Company intends to grow through acquisitions and internal growth,
including opening new offices. There can be no assurance that the Company will
be able to expand its market presence in its current locations or successfully
enter other markets through acquisitions or the opening of new offices. The
Company's ability to grow will depend on a number of factors, including the
availability of capital to fund acquisitions, existing and emerging
competition, the ability to maintain sufficient profit margins despite pricing
pressures and the strength of demand for temporary and permanent employees in
the Company's markets. The Company must also manage costs in a changing
regulatory environment, adapt its infrastructure and systems to accommodate
growth and recruit and train additional qualified personnel. Implementation of
the Company's acquisition and internal growth strategies, including
integrating acquired companies, introducing new services and opening new
offices, may divert management's attention, and the costs associated with such
activities may adversely affect the Company's profitability. The Company's
failure or inability to implement and manage its growth strategy successfully
may have a material adverse effect on the Company's business, operating
results and financial condition. See " -- Expected Losses" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
ACQUISITION RISKS
There can be no assurance that the Company will be able to successfully
identify suitable acquisition candidates, complete acquisitions or integrate
acquired businesses into its operations. Once integrated, acquired companies
may not achieve levels of revenues, profitability or productivity comparable
to those of the Company's existing locations or otherwise perform as expected.
Acquisitions also involve special risks, including risks associated with
unanticipated problems, liabilities and contingencies, diversion of management
attention and possible adverse effects on earnings resulting from increased
goodwill amortization, increased interest costs, the issuance of additional
securities and difficulties related to the integration of the acquired
business, some or
6
<PAGE>
all of which could have a material adverse effect on the Company's business,
operating results and financial condition. The Company is unable to predict
whether or when any prospective acquisition candidate will become available or
the likelihood that any acquisition will be completed. In addition, the value
of Common Stock held by shareholders at the time of any acquisition may be
diluted if the Company issues Common Stock to complete such acquisition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Business -- Growth Strategy,"
"Business -- Legal Proceedings" and "Description of Capital Stock."
RISKS ASSOCIATED WITH OPENING NEW OFFICES
The Company also intends to grow by opening new offices. The Company
anticipates that new offices initially will produce significant operating
losses and will place demands on the Company's operational, administrative and
financial resources. In addition, the Company's future performance and
profitability will depend, in part, on its ability to successfully attract and
retain qualified personnel to manage the growth and operations of the new
offices. The Company has limited experience in opening new offices to date,
and there can be no assurance that the Company's new offices will be
successful. The opening of additional offices, individually or in the
aggregate, may have a material adverse effect on the Company's business,
operating results and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business --
Growth Strategy."
RISKS ASSOCIATED WITH NEW SERVICES
The Company also intends to grow by offering services other than those
presently provided by the Company. The Company's ability to successfully
develop new services depends on a number of factors, including its ability to
identify and effectively integrate new services into the Company's existing
operating structure. The identification and offering of new services in which
the Company has little or no experience or expertise could result in diversion
of management's attention, place significant demands on the Company's
operational, administrative and financial resources and produce operating
losses. There can be no assurance that the Company will be successful in
offering new services or that such services will not have a material adverse
effect upon the Company's business, operating results and financial condition.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Business -- Growth Strategy" and "Business -- Services."
DEPENDENCE ON AVAILABILITY OF QUALIFIED PERSONNEL
The Company depends on its ability to attract and retain candidates and
staffing consultants who possess the skills and experience necessary to meet
the requirements of its clients. Competition for individuals with proven
skills in finance and accounting is intense. There can be no assurance that
qualified personnel will continue to be available to the Company in sufficient
numbers and on economic terms acceptable to the Company. The inability to
attract and retain such qualified personnel could have a material adverse
effect on the Company's business, operating results and financial condition.
See "Business -- Operating Strategy."
EXPECTED LOSSES
As a result of the restructuring of the employment relationship with one of
the Company's former officers, the Company will record a nonrecurring expense
of approximately $512,000 in the quarter ended December 31, 1997. The Company
anticipates that this expense, when coupled with increased operating expenses
incurred to support the Company's growth and integrate the Acquired Companies,
will result in an operating loss for such quarter of as much as $500,000.
Furthermore, as a result of the termination of its S corporation status in
connection with this Offering, the Company will record a nonrecurring income
tax expense and a corresponding net deferred income tax liability. This amount
would have been approximately $2.6 million if the termination of S corporation
status had occurred on September 30, 1997, but the actual amount will be
adjusted based on the tax effect of differences in the bases in assets and
liabilities for financial reporting and income tax purposes as of the date of
the termination of S corporation status. The Company will pay the tax
liability over a four-year period.
7
<PAGE>
As a result of this tax liability, the Company expects to incur a net loss for
the quarter, and possibly the year, in which the Company's S corporation
status is terminated. See "Prior S Corporation Status," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Certain Transactions -- Acquisitions -- Don Richard Associates of
Washington."
DEPENDENCE ON KEY CLIENTS
Substantially all of the Company's contracts to perform services may be
cancelled or modified by the Company's clients at will without penalty. No one
client accounted for more than 4.5% of the Company's pro forma service
revenues for the year ended December 31, 1996 or the nine months ended
September 30, 1997. For the year ended December 31, 1996 and the nine months
ended September 30, 1997, the Company's six largest clients accounted for
approximately 13.2% and 14.1%, respectively, of the Company's pro forma
service revenues. The loss of or a material reduction in revenues from one or
more large clients could have a material adverse effect on the Company's
business, operating results and financial condition.
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Common Stock offered hereby will experience immediate dilution
in the pro forma net tangible book value per share of Common Stock of $7.62
per share. See "Dilution."
EFFECT OF ECONOMIC FLUCTUATIONS
Demand for staffing services is significantly affected by the general level
of economic activity and unemployment in the United States. During periods of
slowed economic activity, the use of permanent placement firms tends to
decline significantly and many companies also reduce their use of temporary
employees. In addition, the Company may experience more competitive pricing
pressure during such periods of economic downturn. Therefore, any significant
economic downturn could have a material adverse effect on the Company's
business, operating results and financial condition.
COMPETITIVE MARKET
The staffing industry is highly competitive, with limited barriers to entry.
The Company competes for employees, candidates, clients and acquisitions in
national, regional and local markets with full service and specialized
staffing companies. A significant number of competitors have greater
marketing, financial and other resources than the Company and could provide
new or increased competition to the Company. Price competition in the staffing
industry is intense and pricing pressures from competitors and customers are
increasing. The Company expects that the level of competition will remain high
in the future, which could limit the Company's ability to maintain or increase
its market share or maintain adequate gross profits, either of which could
have a material adverse effect on the Company's business, operating results
and financial condition. There can be no assurance that the Company will
compete effectively with existing or potential competitors, or that
competition, particularly from companies with greater financial resources than
the Company, will not have a material adverse effect on the Company's
business, operating results and financial condition. See "Business -- The
Staffing Industry" and "Business -- Competition."
DEPENDENCE ON MANAGEMENT
The continued growth and success of the Company's business is highly
dependent upon the continued services of its management, including David C.
Cooper, Chairman of the Board; Timothy Mann, Jr., Chief Executive Officer;
Edward S. Baumstein, President and Chief Operating Officer; and Beth Monroe-
Chase, Chief Development Officer. Currently, the loss of the services of one
or more of these key individuals could have a material adverse effect upon the
Company's business, operating results and financial condition. The loss of the
services of one or more of Messrs. Cooper, Mann or Ms. Monroe-Chase would
trigger an event of default under the Company's $15 million revolving credit
facility (the "Credit Facility"). The Company has entered into preliminary
discussions with its lender to amend the Credit Facility to eliminate this
provision upon the closing
8
<PAGE>
of the Offering. The Company does not maintain key person insurance policies
on the lives of any of these individuals. The Company's continued growth also
will depend upon its ability to attract and retain additional skilled
management personnel. See "Management."
INCREASED COSTS FROM GOVERNMENT REGULATION
The Company is required to pay a number of federal, state and local payroll
and related costs, including unemployment taxes, workers' compensation and
insurance, FICA, and Medicare, for its employees and personnel. Significant
increases in the effective rates of any payroll related costs likely would
have a material adverse effect upon the Company. The Company's costs could
also increase as a result of health care reforms or the possible imposition of
additional requirements and restrictions related to the placement of
personnel. Federal and state legislative proposals have included provisions
extending health insurance benefits to personnel who currently do not receive
such benefits. There can be no assurance that the Company will be able to
increase the fees charged to its clients in a timely manner and in a
sufficient amount to cover increased costs, if any such proposals are adopted.
There is also no assurance that the Company will be able to adapt to future
regulatory changes made by the Internal Revenue Service, the Department of
Labor, or other state and federal regulatory agencies. The Company's inability
to increase its fees or adapt to future regulatory changes could have a
material adverse effect upon the Company's business, operating results and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
INDUSTRY RISKS
Temporary staffing services providers employ and place people generally in
the workplace of other businesses. Attendant risks of such activity include
possible claims of discrimination and harassment, employment of illegal
aliens, violations of wage and hour requirements, errors and omissions of its
temporary employees, and, particularly for the actions of professionals (e.g.,
accountants), misuse of client proprietary information, misappropriation of
funds, other criminal activity or torts and other similar claims. In some
instances the Company, pursuant to a written contract, has agreed to indemnify
clients against some or all of the foregoing matters. Moreover, in certain
circumstances, the Company may be held responsible for the actions at a
workplace of persons not under the Company's direct control. Although the
Company historically has not had any significant problems in this area, there
can be no assurance that the Company will not experience such problems in the
future or that the Company's insurance, if any, will be sufficient in amount
or scope to cover any such liability. The failure of any Company employee or
personnel to observe the Company's policies and guidelines, relevant client
policies and guidelines, or applicable federal, state or local laws, rules and
regulations, or other circumstances that cannot be predicted, could have a
material adverse effect upon the Company's business, operating results and
financial condition. Temporary staffing services providers are also affected
by fluctuations and interruptions in the business of their clients. For
example, inclement weather or work stoppages, which may require clients to
close or reduce their hours of operation, could have a material adverse effect
on the Company's business, operating results and financial condition.
NO PRIOR PUBLIC MARKET
Before this Offering, there has been no public market for the Common Stock
and there can be no assurance that an active trading market will develop or
continue following the Offering or that the market price of the Common Stock
will not decline below the initial public offering price. The initial public
offering price for the Common Stock will be determined by negotiation between
the Company and the Representatives (as defined herein) based on several
factors and may not be indicative of the market price for the Common Stock
after this Offering. See "Underwriting."
VOLATILITY OF STOCK PRICE; POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The Company believes that various factors such as general economic
conditions and changes or volatility in the financial markets, changing market
conditions in the accounting and finance industry and quarterly or annual
variations in the Company's financial results, some of which may be unrelated
to the Company's performance, could cause the market price of the Common Stock
to fluctuate substantially. In particular, quarterly revenues are difficult to
forecast, and the Company's expense levels are based, in part, on its
expectations as to future
9
<PAGE>
revenues. If revenue levels are below expectations, the Company may be unable
or unwilling to reduce expenses proportionately and operating results would
likely be adversely affected. As a result, the Company believes that period-
to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
Due to all of the foregoing factors, it is likely that in some future quarter
the Company's operating results will be below the expectations of public
market analysts and investors. In such event, the market price of the Common
Stock would likely be materially adversely affected.
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON MARKET PRICE
A substantial number of outstanding shares of Common Stock, as well as
shares of Common Stock issuable on exercise of stock options granted or to be
granted under the Option Plan, are or will be eligible for future sale in the
public market at prescribed times pursuant to Rule 144 under the Securities
Act of 1933, as amended (the "Securities Act"). Sales of such shares in the
public market, or the perception that such sales may occur, could adversely
affect the market price of the Common Stock or impair the Company's ability to
raise additional capital in the future through the sale of equity securities.
Upon completion of the Offering, there will be 10,923,220 outstanding shares
of Common Stock (11,335,720 outstanding shares if the Underwriters' over-
allotment option is exercised). In addition, the Company currently has
outstanding options to purchase 244,820 shares of Common Stock and anticipates
that it will grant options to purchase approximately 950,000 shares of Common
Stock prior to completion of the Offering. Of the total shares to be
outstanding after the Offering, the 2,750,000 shares of Common Stock sold in
the Offering (3,162,500 shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradable by persons other than "affiliates"
of the Company without restriction under the Securities Act. The remaining
8,173,220 shares of Common Stock will be "restricted" securities within the
meaning of Rule 144 under the Securities Act and may not be sold in the
absence of registration under the Securities Act unless an exemption from
registration is available, including the exemptions contained in Rule 144. All
current shareholders of the Company have agreed not to sell, contract to sell,
or otherwise dispose of any shares of the Common Stock currently owned by them
for a period of 180 days after the date of this Prospectus without the prior
written consent of J.C. Bradford & Co. The Company plans to register the
shares issuable upon exercise of options granted under the Option Plan and,
upon such registration, such shares will be eligible for resale in the public
market unless such resale is contractually restricted. In addition, the
Company plans to register up to an additional 2,000,000 shares of its Common
Stock with the Securities and Exchange Commission under the Securities Act as
soon as practicable after completion of this Offering for use by the Company
as all or a portion of the consideration to be paid in future acquisitions.
These shares may be freely tradable after their issuance, unless the sale of
such shares is contractually restricted. See "Management -- 1997 Stock Option
Plan," "Shares Eligible for Future Sale" and "Underwriting."
VOTING CONTROL BY MANAGEMENT
After the Offering, the executive officers and directors of the Company will
own approximately 49.5% of the outstanding Common Stock (approximately 47.7%
if the Underwriters' over-allotment option is exercised in full; these
percentages do not reflect currently exercisable options held by such
persons). As a result, the executive officers and directors of the Company,
voting together, will as a practical matter be able to control the outcome of
matters requiring a shareholder vote, including the election of directors,
adopting or amending provisions of the Company's Articles of Incorporation and
Bylaws, and approving certain mergers or other similar transactions, such as
sales of substantially all the Company's assets. Purchasers in this Offering
will become minority shareholders of the Company and will be unable to control
the management or business policies of the Company. See "Management" and
"Principal and Selling Shareholders."
INTANGIBLE ASSETS
As of September 30, 1997, approximately $15.8 million, or 55.2%, of the
Company's pro forma total assets were intangible assets. This amount is likely
to increase as the Company acquires other staffing companies in the future.
Any impairment or write-off of such assets could have a material adverse
effect on the Company's earnings, business, operating results and financial
condition.
10
<PAGE>
POTENTIAL ANTI-TAKEOVER EFFECTS OF ARTICLES OF INCORPORATION, BYLAWS, THE
GEORGIA BUSINESS CORPORATION CODE AND EMPLOYMENT AGREEMENTS
The Company's Articles of Incorporation and Bylaws, the Georgia Business
Corporation Code (the "GBCC") and employment agreements between the Company
and its executive officers contain certain provisions that could have the
effect of delaying, deferring or preventing an unsolicited change in the
control of the Company, which may adversely affect the market price of the
Common Stock or the ability of shareholders to participate in a transaction in
which they might otherwise receive a premium for their shares over the then-
current market price. The Company's Articles of Incorporation authorize the
Board of Directors to issue preferred stock ("Preferred Stock") without
shareholder approval and on such terms as the Board of Directors may
determine. Although no shares of Preferred Stock are currently outstanding and
the Company has no present plans to issue any shares of Preferred Stock, the
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of holders of any Preferred Stock that may be issued
in the future. See "Description of Capital Stock -- Preferred Stock." The
Company's Bylaws provide that special meetings of shareholders may be called
by shareholders only upon a written request made by the holders of a majority
of the votes entitled to be cast on an issue and require compliance with
certain advance notice procedures to bring business before an annual meeting
of shareholders and to nominate directors. The "fair price" and "business
combinations" statutes under the GBCC may restrict certain business
combinations by interested shareholders. See "Description of Capital Stock--
Anti-Takeover Provisions and Georgia Law." The Company's executive officers
have entered into employment agreements with the Company that contain change
in control provisions. The change in control provisions may hinder, delay,
deter or prevent a tender offer, proxy contest or other attempted takeover
because the covered employees can terminate their employment if such
provisions are triggered and thereby receive severance pay of a lump sum equal
to three times the sum of (i) such officer's annual salary then in effect plus
(ii) the amount of such officer's bonus as calculated based on the results of
operations for the twelve months prior to such termination. See "Management --
Executive Compensation; Employment Agreements; Covenants Not to Compete."
DIVIDEND POLICY; RESTRICTIONS ON PAYMENT
The Company currently anticipates that after completion of this Offering all
of its earnings will be retained for development and expansion of its
business. The Company does not anticipate paying any cash dividends in the
foreseeable future. In addition, the Credit Facility prohibits the payment of
cash dividends without the lender's consent. See "Prior S Corporation Status"
and "Dividend Policy."
11
<PAGE>
THE COMPANY
ACSYS, Inc., a Georgia corporation, is one of the leading providers of
accounting and finance temporary staffing and permanent placement services in
the United States. The Company was formed in March 1997 as a result of the
personal and professional relationships among the key executives and owners of
David C. Cooper & Associates (David C. Cooper) and Don Richard Associates of
Washington (Beth Monroe-Chase and Mark E. Strassman), which culminated in the
Company's acquisition of their respective firms in May 1997 and the
commencement of combined operations. Since its formation, the Company has
acquired seven temporary staffing businesses (the "Acquired Companies") as
summarized in the table below. For a description of the transactions pursuant
to which certain of these businesses were acquired, see "Certain
Transactions -- Acquisitions." The Company maintains its principal executive
offices at 2000 Pennsylvania Avenue, N.W., Suite 7650, Washington, D.C. 20006,
and its telephone number is (202) 872-0303. The Company maintains various
sites on the Internet's world wide web. Information contained in the Company's
world wide web sites shall not be deemed to be part of this Prospectus.
Industry information presented is based on sources which the Company believes
to be reliable but has not independently verified.
Certain information regarding these acquisitions is summarized in the
following table:
<TABLE>
<CAPTION>
DATE YEAR 1996
ACQUIRED COMPANY ACQUIRED FOUNDED (1) REVENUES LOCATIONS (2)
- ---------------- ---------- ----------- ------------- ------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Infinity Enterprises, Inc. May 1997 1974 $17.0 Bethesda, MD
d/b/a Don Richard Associates of Washington Tyson's Corner, VA
("Don Richard Associates of Washington")(3) Washington, DC
David C. Cooper & Associates, Inc. and May 1997 1980 7.8 Atlanta, GA
DCCA Professional Temporaries, Inc.
(together, "David C. Cooper & Associates")
EKT, Inc. May 1997 1974 2.8 Charlotte, NC
d/b/a Don Richard Associates of Charlotte
("Don Richard Associates of Charlotte")(3)
Cama of Tampa, Inc. May 1997 1987 2.5 Tampa, FL
d/b/a Don Richard Associates of Tampa
("Don Richard Associates of Tampa")(3)
Rylan Forbes Consulting Group, Inc. July 1997 1992 1.4 Edison, NJ
("Rylan Forbes") Philadelphia, PA
C.P.A. Staffing, Inc., Aug. 1997 1990 6.5 Atlanta, GA
C.P.A. Search Inc. and
Career Placement Associates, Inc.
(together, "C.P.A. Staffing")(4)
AcSys Resources, Inc. Sept. 1997 1977 14.4(5) Cherry Hill, NJ
("AcSys Resources") Edison, NJ
Lancaster, PA
Philadelphia, PA
Princeton, NJ
Wayne, PA
Wilmington, DE
</TABLE>
- ---------------------
(1) Reflects year of founding of each of the Acquired Companies or its
predecessor.
(2) Locations at time of acquisition by the Company.
(3) "Don Richard Associates" is a federally registered trademark of Don
Richard Associates International, Inc., an unaffiliated company. The
Company owns the rights to the names "Don Richard Associates of
Washington" and "Don Richard Associates of Charlotte" in the areas where
the Company currently operates under such names. The Company's rights to
use the name "Don Richard Associates of Tampa" expire in May 1999.
(4) Acquired by AcSys Resources in August 1997 and merged into C.P.A.
Staffing, Inc. prior to the Company's acquisition of AcSys Resources.
(5) Does not include revenues of C.P.A. Staffing.
12
<PAGE>
PRIOR S CORPORATION STATUS
Because the Company has been an S corporation for federal and certain state
income tax purposes, the Company's income has been allocated and taxable to
the Company's individual shareholders rather than to the Company. The Company
will terminate its S corporation status prior to the closing of this Offering
and will thereafter be taxed as a C corporation for federal and state income
tax purposes. Prior to the termination of the Company's S corporation status,
the Company expects to make the Distribution to its shareholders. The
Distribution will approximate the amount that such shareholders will need to
fund the payment of federal and state income taxes payable on the Company's
taxable income during the period the Company was an S corporation. The Company
estimates that the amount of the Distribution would have been approximately
$800,000 if the termination of the Company's S corporation status had occurred
on September 30, 1997. The actual amount of the Distribution will reflect the
Company's taxable income through the termination of its S corporation status.
A portion of the proceeds of the Offering will be used to repay indebtedness
incurred under the Credit Facility to make the Distribution. See "Use of
Proceeds" and Note 2 of Notes to Consolidated Financial Statements. The
Company's shareholders have agreed to indemnify the Company for any federal,
state and other income taxes (including interest) incurred by the Company for
the period for which it reported its taxable income as an S corporation.
In addition, as a result of the termination of its S corporation status in
connection with this Offering, the Company will record a nonrecurring income
tax expense and a corresponding net deferred income tax liability (the
"Deferred Tax Liability"). The amount of the Deferred Tax Liability would have
been approximately $2.6 million if the termination of the Company's S
corporation status had occurred on September 30, 1997, but the actual amount
will be adjusted based on the tax effect of differences in the bases in assets
and liabilities for financial reporting and income tax purposes as of the date
of the termination of S corporation status. The Company will pay the Deferred
Tax Liability over a four-year period. As a result of the Deferred Tax
Liability, the Company expects to incur a net loss for the quarter, and
possibly the year, in which the Company's S corporation status is terminated.
DIVIDEND POLICY
Prior to the closing of the Offering, the Company expects to make the
Distribution to existing shareholders. See "Prior S Corporation Status." The
Company does not anticipate paying any cash dividends on its Common Stock in
the foreseeable future because it intends to retain its earnings, if any, to
finance the expansion of its business and for general corporate purposes,
including future acquisitions. Any payment of future dividends will be at the
discretion of the Board of Directors and will depend upon, among other things,
the Company's earnings, financial condition, capital requirements, level of
indebtedness, contractual restrictions with respect to the payment of
dividends and other factors that the Company's Board of Directors deems
relevant. The Credit Facility currently prohibits the payment of dividends
without the lender's consent.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,430,000 shares of
Common Stock offered by the Company in this Offering are estimated to be
approximately $17.2 million, after deducting underwriting discounts and other
offering expenses, all of which are payable by the Company. The Company will
not receive any proceeds from the sale of the shares offered by the Selling
Shareholders. See "Principal and Selling Shareholders."
The Company intends to use the net proceeds of this Offering as follows: (i)
approximately $11.9 million to repay the outstanding indebtedness under the
Credit Facility (including indebtedness incurred to fund the Distribution);
(ii) approximately $1.0 million for capital expenditures, primarily to enhance
management information systems; and (iii) the balance of the net proceeds,
expected to be approximately $4.3 million, for working capital and general
corporate purposes, including acquisitions and opening new offices. The
Company estimates that the amount borrowed under the Credit Facility to fund
the Distribution would have been approximately $800,000 if the termination of
the Company's S corporation status had occurred on September 30, 1997. The
actual amount of the Distribution will reflect the Company's taxable income
through the date of termination of its S corporation status. See "Prior S
Corporation Status."
The outstanding indebtedness under the Credit Facility was used to pay
certain obligations of the Acquired Companies and to pay for expenses incurred
in connection with acquisitions. Interest on the Credit Facility is due
quarterly and outstanding principal is due on May 31, 2000. Interest is
payable at a rate equal to, at the election of the Company, either: (A) the
greater of (i) the prime rate or (ii) the federal funds rate plus 0.5%, plus a
variable amount between 0% and 0.75%; or (B) LIBOR plus a variable amount
between 1.25% and 2.5%. The Credit Facility is secured by substantially all
assets of the Company and a pledge of 100% of the stock of all subsidiaries.
As of December 31, 1997, the amount outstanding under the Credit Facility was
approximately $11.1 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
The Company continues to evaluate potential acquisitions and carry on
discussions with several potential acquisition candidates. The Company is not
currently a party to any binding agreements or commitments with respect to any
such acquisitions. There can be no assurance that any acquisitions will be
consummated on terms favorable to the Company, if at all. Pending application
of the net proceeds as described above, the Company intends to invest the net
proceeds in short-term, interest-bearing, investment grade securities. See
"Business -- Growth Strategy."
14
<PAGE>
DILUTION
The pro forma deficit in net tangible book value of the Company at September
30, 1997 was $7.6 million, or $0.90 per share. See Pro Forma Consolidated
Financial Statements. The pro forma deficit in net tangible book value per
share represents the amount by which the Company's total liabilities exceed
the Company's net tangible assets divided by the pro forma number of shares of
Common Stock outstanding. After giving effect to the sale of the 2,430,000
shares of Common Stock offered by the Company in this Offering and the
application of the net proceeds as set forth under "Use of Proceeds," the
Company's pro forma net tangible book value as of September 30, 1997 would
have been $9.6 million, or $0.88 per share, representing an immediate increase
of $1.78 in net tangible book value per share to existing shareholders and an
immediate dilution of $7.62 in net tangible book value per share to persons
purchasing shares in the Offering. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $8.50
Pro forma deficit in net tangible book value per share
before this Offering...................................... $(0.90)
Increase per share attributable to the sale of shares of-
fered hereby.............................................. 1.78
------
Pro forma net tangible book value per share after this Offer-
ing......................................................... 0.88
-----
Dilution in net tangible book value per share to new invest-
ors(1)...................................................... $7.62
=====
</TABLE>
- ---------------------
(1) Dilution is determined by subtracting pro forma net tangible book value
per share after this Offering from the assumed initial public offering
price of $8.50 per share.
The following table sets forth the number of shares of the Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid by the Company's existing shareholders and to be paid by new
investors in this Offering, and before deducting estimated Offering expenses
and underwriting discounts.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders.......... 8,493,220 77.8% $ 774,096 3.6% $0.09
New investors.................. 2,430,000 22.2 20,655,000 96.4 8.50
---------- ----- ----------- -----
Total........................ 10,923,220 100.0% $21,429,096 100.0%
========== ===== =========== =====
</TABLE>
Sales by Selling Shareholders in this Offering will reduce the number of
shares held by existing shareholders to 8,173,220, or 74.8%, and will increase
the number of shares to be held by new investors to 2,750,000, or 25.2%, of
the total number of shares of the Common Stock to be outstanding after this
Offering (3,162,500 shares, or 27.9%, if the Underwriters over-allotment
option is exercised in full). See "Principal and Selling Shareholders."
The foregoing tables assume no exercise of outstanding stock options. At
September 30, 1997, there were outstanding options to purchase 244,820 shares
of Common Stock at a weighted average exercise price of $5.61 per share. See
Note 8 of Notes to Consolidated Financial Statements. The Company also plans
to grant options to purchase approximately 950,000 shares of Common Stock to
substantially all of its full-time internal staff employees upon consummation
of the Offering.
15
<PAGE>
CAPITALIZATION
The following table sets forth the Company's capitalization at September 30,
1997: (i) on an historical basis; (ii) on a pro forma basis giving effect to
the termination of the Company's S corporation status and the elimination of
certain Common Stock redemption rights in connection with the Offering; and
(iii) on a pro forma as adjusted basis to give effect to the sale by the
Company of 2,430,000 shares of Common Stock offered hereby and the application
of the net proceeds therefrom. See "Selected Consolidated Financial Data" and
"Use of Proceeds." This table should be read in conjunction with the
Consolidated Financial Statements and the related Notes thereto, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the other financial information appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------------
PRO FORMA,
ACTUAL PRO FORMA (1) AS ADJUSTED
------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, including current maturi-
ties........................................ $11,868 $11,868 $ 718
------- ------- -------
Redeemable Common Stock, 122,012 shares is-
sued and outstanding ....................... 1,220 -- --
------- ------- -------
Shareholders' equity:
Preferred Stock, no par value, 5,000,000
shares authorized, no shares issued and
outstanding............................... -- -- --
Common Stock, no par value, 45,000,000
shares authorized, 8,371,208 shares issued
and outstanding (actual), 8,493,220 shares
(pro forma) and 10,923,220 shares (pro
forma, as adjusted) (2)................... 7,577 8,171 25,381
Retained earnings.......................... 1,941 -- --
------- ------- -------
Total shareholders' equity............... 9,518 8,171 25,381
------- ------- -------
Total capitalization................... $22,606 $20,039 $26,099
======= ======= =======
</TABLE>
- ---------------------
(1) The pro forma financial data have been prepared to reflect (i) the effects
of the termination of the Company's S corporation status, including the
Deferred Tax Liability and the resetting of retained earnings and (ii) the
elimination of certain redemption rights related to the Redeemable Common
Stock in connection with the Offering. See "Prior S Corporation Status,"
"Use of Proceeds" and Pro Forma Consolidated Financial Statements.
(2) Excludes 2,000,000 shares of Common Stock reserved for issuance under the
Option Plan and 109,622 shares of Common Stock reserved for issuance under
options otherwise outstanding. Options to purchase 244,820 shares of
Common Stock have been granted and were exercisable at September 30, 1997
with a weighted average exercise price of $5.61 per share. The Company
intends to grant options to purchase an aggregate of approximately 950,000
shares of Common Stock upon consummation of this Offering at an exercise
price equal to the initial public offering price per share. See
"Management -- 1997 Stock Option Plan."
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
All of the financial data set forth below has been restated to give effect
to the Company's acquisitions of the Acquired Companies (other than C.P.A.
Staffing), each of which has been accounted for under the pooling of interests
method of accounting. See "The Company." Prior to the Offering, the Company
was an S corporation; accordingly, certain financial data may not be
comparable to or indicative of post-Offering results. The following table
contains certain financial and operating data and is qualified by the more
detailed Consolidated Financial Statements and Notes thereto included
elsewhere in this Prospectus. The Balance Sheet Data as of December 31, 1995
and 1996 and September 30, 1997 and the Statements of Operations Data for the
years ended December 31, 1994, 1995 and 1996 and the nine months ended
September 30, 1997 were derived from the Consolidated Financial Statements and
Notes thereto that have been audited by Arthur Andersen LLP, independent
public accountants, and are included elsewhere in this Prospectus. The Balance
Sheet Data as of December 31, 1992, 1993 and 1994 and the Statements of
Operations Data for the years ended December 31, 1992 and 1993 and the nine
months ended September 30, 1996 have been derived from the unaudited financial
statements of the Company which, in the opinion of management, have been
prepared on the same basis as the audited financial statements and include all
adjustments, consisting of normal recurring adjustments, which management
considers necessary for a fair presentation of the selected financial data
shown. The financial data shown for the nine months ended September 30, 1997
are not necessarily indicative of the results to be expected for the entire
year ending December 31, 1997. The financial data shown below should be read
in conjunction with the Consolidated Financial Statements and the related
Notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------- ------------------------------------
PRO FORMA PRO FORMA PRO FORMA
1992 1993 1994 1995 1996 1996(2) 1996 1997 1996(2) 1997(2)
------- ------- ------- ------- ------- --------- ------- ------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA(1):
Service revenues:
Temporary staffing..... $ 8,387 $10,664 $21,151 $26,566 $34,757 $40,410 $25,605 $29,938 $29,779 $33,953
Permanent placement.... 3,641 4,338 6,244 7,919 11,151 12,001 8,196 12,072 8,764 12,613
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total service
revenues............ 12,028 15,002 27,395 34,485 45,908 52,411 33,801 42,010 38,543 46,566
Direct cost of
services.............. 5,832 7,679 14,025 17,732 22,873 26,925 16,811 19,828 19,768 22,660
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit......... 6,196 7,323 13,370 16,753 23,035 25,486 16,990 22,182 18,775 23,906
Selling, general and
administrative
expenses.............. 5,252 6,991 10,218 12,796 18,776 18,868 12,937 18,160 13,665 18,127
Combination expenses... -- -- -- -- -- -- -- 1,722 -- --
Amortization and
depreciation.......... 33 33 547 674 661 899 520 417 699 569
Severance and franchise
termination costs..... -- -- 562 166 567 567 567 170 567 170
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income..... 911 299 2,043 3,117 3,031 5,152 2,966 1,713 3,844 5,040
Other expense.......... 31 70 853 865 804 980 666 588 799 694
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes.......... $ 880 $ 229 $ 1,190 $ 2,252 2,227 4,172 $ 2,300 1,125 3,045 4,346
======= ======= ======= ======= =======
Pro forma income taxes
(3)................... 980 1,836 1,139 1,340 1,912
------- ------- ------- ------- -------
Pro forma net income
(loss) (3)............ $ 1,247 $ 2,336 $ (14) $ 1,705 $ 2,434
======= ======= ======= ======= =======
Pro forma net income
(loss) per share (3).. $ 0.14 $ 0.27 $ (0.13) $ 0.20 $ 0.28
======= ======= ======= ======= =======
Weighted average common
shares outstanding
(4)................... 7,235 8,576 7,373 8,576 8,576
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1997
------------------------------------- -------------------------------
PRO FORMA,
PRO AS
1992 1993 1994 1995 1996 ACTUAL FORMA(5) ADJUSTED(5)(6)
------ ------ ------- ------- ------- ------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(1):
Working capital........ $ 398 $ 692 $ 1,483 $ 2,077 $ 3,555 $ 5,413 $ 4,816 $10,975
Total assets........... 2,493 2,499 12,757 13,873 15,855 28,632 28,632 33,891
Long-term debt,
including current
maturities............ 1,096 843 9,925 8,905 8,847 11,868 11,868 718
Redeemable Common
Stock................. -- -- -- -- 288 1,220 -- --
Shareholders' equity... 351 266 914 2,448 3,313 9,518 8,171 25,381
</TABLE>
17
<PAGE>
- -------------------
(1) All of the financial data set forth above have been restated to give
effect to the Company's acquisitions of the Acquired Companies other than
C.P.A. Staffing. The Company's acquisitions, other than C.P.A. Staffing,
have been accounted for under the pooling of interests method of
accounting. See "The Company." Includes results of operations of Don
Richard Associates of Washington and Don Richard Associates of Tampa from
March 1, 1994 and January 1, 1996, respectively, the dates of their
formation. See Note 1 of Notes to Consolidated Financial Statements.
(2) The Company acquired AcSys Resources in September 1997. AcSys Resources
had previously acquired C.P.A. Staffing in August 1997 in a transaction
accounted for under the purchase method of accounting. The pro forma
operations data reflect the Company's operations as if AcSys Resources'
purchase of C.P.A. Staffing had occurred on January 1, 1996. In addition,
the pro forma operations data reflect (i) the elimination of the
Combination Expenses, (ii) an adjustment to compensation expense for the
difference between actual compensation paid to certain owners of the
Acquired Companies (including C.P.A. Staffing) and a key employee and the
compensation negotiated in conjunction with such acquisitions and (iii)
income tax expense computed as if the Company had terminated its status as
an S corporation as of January 1, 1996. See Pro Forma Consolidated
Financial Statements.
(3) The Company has operated as an S corporation for income tax purposes since
inception and will terminate such status in connection with this Offering.
See Note 2 of Notes to Consolidated Financial Statements for information
concerning the computation of the income taxes. See "Prior S Corporation
Status" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
(4) See Note 2 of Notes to Consolidated Financial Statements and Note 5 of
Notes to Pro Forma Consolidated Financial Statements for a discussion of
the computations of pro forma net income (loss) per share, as adjusted for
income taxes.
(5) The pro forma balance sheet data reflect (i) the Deferred Tax Liability
described in "Prior S Corporation Status" and (ii) the elimination of
certain redemption rights related to the Redeemable Common Stock. See Pro
Forma Consolidated Financial Statements.
(6) Adjusted to reflect the sale of 2,430,000 shares of Common Stock offered
by the Company hereby and the application of the estimated net proceeds
therefrom. See "Prior S Corporation Status," "Use of Proceeds" and
"Capitalization."
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains certain forward-looking statements relating to,
without limitation, future economic performance, plans and objectives of
management for future operations and projections of revenues and other
financial items that are based on the beliefs of the Company's management, as
well as assumptions made by, and information currently available to, the
Company's management. The cautionary statements set forth in the "Risk
Factors" section and elsewhere in this Prospectus identify important factors
with respect to such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to differ materially from those
in such forward-looking statements. See "Risk Factors" for a discussion of
factors that could cause or contribute to such material differences. The
following discussion should be read in connection with the Consolidated
Financial Statements and the related Notes thereto included elsewhere in this
Prospectus.
INTRODUCTION
ACSYS, Inc. is one of the leading accounting and finance temporary staffing
and permanent placement firms in the United States. The Company operates 16
offices serving the Atlanta, Charlotte, Central New Jersey, Orlando,
Philadelphia, Tampa and Washington, D.C. metropolitan markets. The Company was
formed in March 1997 and since its formation has acquired the Acquired
Companies, which had an average operating history of 15 years.
Each of the Company's acquisitions, other than C.P.A. Staffing, was
accounted for as a pooling of interests. Prior to its combination with the
Company in September 1997, AcSys Resources acquired C.P.A. Staffing in August
1997 in a transaction that was accounted for as a purchase. The Company's
historical financial statements have been restated to reflect the results of
operations and financial positions of the Acquired Companies (other than
C.P.A. Staffing). The results of operations for the year ended December 31,
1994 include the results of operations of Don Richard Associates of Washington
for the 10 months ended December 31, 1994. The results of operations of Don
Richard Associates of Tampa are included for the periods beginning on January
1, 1996, and the results of operations of C.P.A. Staffing are included
beginning August 12, 1997. As a result, historical combined results may not be
comparable to or indicative of future performance. The Company's revenues and
expenses may be significantly affected by the number and timing of the
acquisition of additional businesses, the opening of additional offices or the
introduction of new services. The timing of such expansion activities may also
affect period-to-period comparisons.
Temporary staffing service revenues are recognized based on hours worked by
assigned personnel. Generally, the Company bills its clients a fixed sum per
hour for the hours its temporary employees work. Temporary personnel placed by
the Company are generally Company employees; accordingly, the Company is
responsible for workers' compensation, unemployment compensation insurance,
Medicare and Social Security taxes and general payroll expenses. These
expenses are included within direct cost of services. Because the Company pays
its temporary employees only for the hours they actually work, wages for the
Company's temporary personnel are a variable cost that increases or decreases
in proportion to service revenues. The Company's gross profit is determined by
deducting the direct cost of services from the Company's service revenues.
Some of the temporary employees placed by the Company may decide to accept an
offer of permanent employment from the client and thereby "convert" the
temporary position to a permanent position, and a fee is generally paid to the
Company. Such fees are included in temporary staffing revenues herein.
Permanent placement service revenues are recognized when the employment
offer and acceptance has occurred and the candidate's employment start date
has been established. The Company's fee is usually structured as a percentage
of the placed candidate's first-year annual compensation. Generally, if a
candidate placed by the Company is terminated or resigns during a specified
guaranty period (typically 90-180 days), the Company either fills the position
without further charge or provides a prorated refund. The primary costs
associated with permanent placement service revenues are sales commissions to
staffing consultants. Commissions vary proportionately with permanent
placement service revenues. Consistent with industry practices, the Company
classifies all costs associated with permanent placement services as selling,
general and administrative expenses. Other selling, general and administrative
expenses include payroll for management and administrative employees, office
occupancy costs, sales and marketing expenses and other general and
administrative costs.
19
<PAGE>
Prior to their acquisition by the Company, the Acquired Companies were
managed as private companies with significant equity ownership by management.
The results of operations of the Company reflect the S corporation tax
structures of the Acquired Companies (except for Don Richard Associates of
Charlotte, a C corporation) which influenced, among other things, the
historical levels of their owners' compensation. The income taxes related to
Don Richard Associates of Charlotte are immaterial to the Consolidated
Financial Statements and are included in other expenses therein. The former
owners of the Acquired Companies agreed to adjustments in their compensation
and benefits, effective as of the dates of the respective acquisitions. The
following results of operations do not include those contractual compensation
adjustments for periods prior to the dates of the respective acquisitions.
The Company will terminate its S corporation status and become a C
corporation in connection with this Offering. Prior to the closing of this
Offering, the Company expects to make the Distribution to its shareholders.
The Distribution will approximate the amount that such shareholders will need
to fund the payment of federal and state income taxes payable on the Company's
taxable income during the period the Company was an S corporation. The Company
estimates that the amount of the Distribution would have been approximately
$800,000 if the termination of the Company's S corporation status had occurred
on September 30, 1997; this amount is reflected in the Consolidated Financial
Statements. The actual amount of the Distribution will reflect the Company's
taxable income through the termination of the Company's S corporation status.
As a result of the termination of its S corporation status in connection
with this Offering, the Company will record the Deferred Tax Liability. The
amount of the Deferred Tax Liability would have been approximately $2.6
million if the termination of the Company's S corporation status had occurred
on September 30, 1997. The actual amount will be adjusted based on the tax
effect of differences in the bases in assets and liabilities for financial
reporting and income tax purposes as of the date of the termination of S
corporation status. The Company will pay the Deferred Tax Liability over a
four-year period. As a result of the Deferred Tax Liability, the Company
expects to incur a net loss for the quarter, and possibly the year, in which
the Company's S corporation status is terminated. See "Prior S Corporation
Status" and "Use of Proceeds."
RECENT DEVELOPMENTS
Beginning in the third quarter of 1997, the Company undertook a number of
different activities intended to support the Company's growth. These
activities included the hiring of additional temporary and permanent placement
staffing consultants, the expansion of its IT and high-end accounting business
lines, the opening of new offices in Orlando, Florida and Washington, D.C. and
the augmentation of the Company's corporate infrastructure to enable it to
operate as a public entity. In the third and fourth quarters of 1997, the
Company hired 45 new temporary and permanent placement staffing consultants,
thereby increasing its total number of consultants to 163 at December 31,
1997. In addition, in the fourth quarter of 1997 the Company integrated the
operations of David C. Cooper & Associates and C.P.A. Staffing to create a
single Hub-Center in the Atlanta market. As a result of these growth
initiatives and integration activities, the Company's operating expenses
increased materially in the third and fourth quarters of 1997.
As a result of the restructuring of the employment relationship with one of
the Company's former officers, the Company will record a nonrecurring expense
of approximately $512,000 in the quarter ended December 31, 1997. The Company
acticipates that this expense, when coupled with increased operating expenses
incurred to support the Company's growth and integrate the Acquired Companies,
will result in an operating loss for such quarter of as much as $500,000. See
"Certain Transactions -- Acquisitions -- Don Richard Associates of
Washington."
20
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage of service revenues
represented by certain items in the Company's consolidated statements of
income for the indicated periods.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Service revenues:
Temporary staffing .......... 77.2% 77.0% 75.7% 75.8% 71.3%
Permanent placement ......... 22.8 23.0 24.3 24.2 28.7
------- ------- ------- -------- --------
Total service revenues..... 100.0 100.0 100.0 100.0 100.0
Direct cost of services........ 51.2 51.4 49.8 49.7 47.2
------- ------- ------- -------- --------
Gross profit................. 48.8 48.6 50.2 50.3 52.8
Selling, general and
administrative expenses....... 37.3 37.1 40.9 38.3 43.2
Combination Expenses........... -- -- -- -- 4.1
Amortization and depreciation.. 2.0 2.0 1.4 1.5 1.0
Severance and franchise
termination costs............. 2.1 0.5 1.2 1.7 0.4
------- ------- ------- -------- --------
Operating income............. 7.4 9.0 6.7 8.8 4.1
Other expense.................. 3.1 2.5 1.8 2.0 1.4
------- ------- ------- -------- --------
Income before income taxes..... 4.3% 6.5% 4.9% 6.8% 2.7%
======= ======= ======= ======== ========
</TABLE>
RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO RESULTS FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1996
Service Revenues. Service revenues increased $8.2 million, or 24.3%, to
$42.0 million in the first nine months of 1997 from $33.8 million in the first
nine months of 1996. Temporary staffing service revenues increased $4.3
million, or 16.9%, to $29.9 million in the first nine months of 1997 from
$25.6 million in the first nine months of 1996. Professional temporary
staffing service revenues increased $5.0 million, or 22.8%, to $26.7 million
in the first nine months of 1997 from $21.7 million in the first nine months
of 1996, and clerical temporary staffing service revenues decreased $626,000,
or 16.3%, to $3.2 million in the first nine months of 1997 from $3.8 million
in the first nine months of 1996. Temporary staffing service revenues
increased primarily as a result of increased billings to existing clients, the
addition of new clients, increased revenues from offices opened in 1996 and
1995 and increased billing rates. This increase was offset by the Company's
elimination of certain high-volume, low-margin temporary staffing service
assignments in its Tampa and Charlotte Hub-Centers. Permanent placement
service revenues increased $3.9 million, or 47.3%, to $12.1 million in the
first nine months of 1997 from $8.2 million in the first nine months of 1996.
Permanent placement service revenues increased primarily due to increases in
permanent placements, the number of consultants, the productivity of
consultants and billings to existing clients. In addition, service revenues
for the first nine months of 1997 include service revenues of C.P.A. Staffing
from its acquisition date of August 12, 1997.
Gross Profit. Gross profit increased $5.2 million, or 30.6%, to $22.2
million in the first nine months of 1997 from $17.0 million in the first nine
months of 1996. Gross profit as a percentage of service revenues increased to
52.8% in the first nine months of 1997 from 50.3% in the first nine months of
1996, primarily due to an increase in the percentage of service revenues
derived from permanent placement services which increased to 28.7% of total
service revenues in the first nine months of 1997 from 24.2% in the first nine
months of 1996. Permanent placement service revenues generate higher gross
profits than temporary staffing service revenues because sales commissions and
other costs associated with permanent placement services are included in
selling, general and administrative expenses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $5.2 million, or 40.4%, to $18.2 million in
the first nine months of 1997 from $12.9 million in the first nine months of
1996. Approximately $1.0 million of the increase was the result of an increase
in owners' compensation and $2.0 million of the increase was attributable to
sales commissions associated with the increase
21
<PAGE>
in service revenues. Owners' compensation was adjusted upon the Company's
acquisition of each of the Acquired Companies. In addition, the Company
incurred expenses in the first nine months of 1997 in connection with the
addition of personnel to support the Company's increased sales and marketing
efforts and the introduction of IT temporary staffing services. As a result of
the above factors, selling, general and administrative expenses as a
percentage of revenues increased to 43.2% in the first nine months of 1997
from 38.3% in the first nine months of 1996.
Combination Expenses. In the first nine months of 1997, the Company
recognized an expense of $1.7 million, or 4.1% of service revenues, for legal,
accounting and other related expenses in connection with the acquisitions of
the Acquired Companies.
Amortization and Depreciation. Amortization and depreciation decreased
$104,000, or 19.9%, to $417,000 in the first nine months of 1997 from $520,000
in the first nine months of 1996 because the amortization of a non-compete
agreement was completed in 1996. This decrease was offset by an increase in
amortization of goodwill acquired in the acquisition of C.P.A. Staffing, the
amortization of capitalized costs associated with the Credit Facility and
depreciation of office equipment and furniture.
Severance and Franchise Termination Costs. In the first nine months of 1996,
the Company incurred $459,000 in severance payments to a former employee of
AcSys Resources in connection with his departure from the Company. The Company
incurred no severance costs in the first nine months of 1997. In the first
nine months of 1997, Don Richard Associates of Tampa terminated its franchise
agreement and made a one-time payment to the franchisor of $170,000. Prior to
May 31, 1994, AcSys Resources operated under a franchise agreement, which
provided for various marketing and royalty payments to the franchisor based on
revenues. Effective May 31, 1994, AcSys Resources and the franchisor entered
into an agreement (the "AcSys Franchise Termination Agreement") which
terminated the franchise agreement and provided for payments to the franchisor
of $360,000, which were made and recorded as an expense in 1994. In addition,
AcSys Resources was required to pay to the franchisor 1% of revenues for the
period June 1, 1994 through May 31, 1995, and 2% of revenues for the period
June 1, 1995 through May 31, 1996. In the first nine months of 1996, the
Company incurred $108,000 of franchise termination costs under the AcSys
Franchise Termination Agreement. Because the obligations under the AcSys
Franchise Termination Agreement were satisfied in 1996, the Company did not
incur such costs in the first nine months of 1997. The Company is not
currently a party to any franchise agreements.
Operating Income. As a result of the above factors, operating income
decreased $1.3 million, or 42.2%, to $1.7 million in the first nine months of
1997 from $3.0 million in the first nine months of 1996. Operating income as a
percentage of service revenues decreased to 4.1% in the first nine months of
1997 from 8.8% in the first nine months of 1996.
Other Expense. Other expense, which is primarily comprised of net interest
expense, decreased to $588,000 in the first nine months of 1997 from $666,000
in the first nine months of 1996.
Income Before Income Taxes. As a result of the above factors, income before
income taxes decreased $1.2 million, or 51.1%, to $1.1 million in the first
nine months of 1997 from $2.3 million in the first nine months of 1996. Income
before income taxes as a percentage of service revenues decreased to 2.7% in
the first nine months of 1997 from 6.8% in the first nine months of 1996.
RESULTS FOR 1996 COMPARED TO RESULTS FOR 1995
Service Revenues. Service revenues increased $11.4 million, or 33.1%, to
$45.9 million in 1996 from $34.5 million in 1995. Temporary staffing service
revenues increased $8.2 million, or 30.8%, to $34.8 million in 1996 from $26.6
million in 1995. The increase in temporary staffing service revenues is
primarily a result of increased billings to existing clients, the addition of
new clients, increased billing rates and increased revenues from offices
opened in 1996 and 1995. Permanent placement service revenues increased $3.2
million, or 40.8%, to $11.2 million in 1996 from $7.9 million in 1995.
Permanent placement service revenues increased primarily due to an increase in
the number of permanent placements made in 1996, additional permanent
placement consultants and increased productivity. In addition, 1996 service
revenues reflect $2.5 million in total service revenues from Don Richard
Associates of Tampa. Due to a change in ownership of Don Richard Associates of
Tampa as of January 1, 1996, the Company's operating results for 1995 do not
include the operating results of that entity.
22
<PAGE>
Gross Profit. Gross profit increased $6.3 million, or 37.5%, to $23.0
million in 1996 from $16.8 million in 1995. Gross profit as a percentage of
service revenues increased to 50.2% in 1996 from 48.6% in 1995, primarily
because permanent placement service revenues comprised a larger portion of
total service revenues, increasing to 24.3% of total service revenues in 1996
from 23.0% in 1995. The Company's direct cost of services as a percentage of
temporary staffing service revenues decreased to 65.8% in 1996 from 66.7% in
1995, primarily as a result of the Company's focus on higher gross margin
temporary staffing assignments and increased billing rates.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $6.0 million, or 46.7%, to $18.8 million in
1996 from $12.8 million in 1995. Approximately $2.1 million of the increase
was attributable to sales commissions associated with the increase in
permanent placement revenues, and $1.4 million was the result of an increase
in owners' compensation of the Acquired Companies. In addition, 1996 selling,
general and administrative expenses reflect the expenses of Don Richard
Associates of Tampa whereas 1995 selling, general and administrative expenses
do not. Selling, general and administrative expenses also increased as a
result of corporate expenses incurred in 1996 to support the Company's growth.
Selling, general and administrative expenses as a percentage of service
revenues increased to 40.9% in 1996 from 37.1% in 1995, due to the increase in
owners' compensation and an increase in sales commission rates.
Amortization and Depreciation. Amortization and depreciation decreased
$13,000, or 1.9%, to $661,000 in 1996 from $674,000 in 1995.
Severance and Franchise Termination Costs. In 1996, the Company incurred
$459,000 in severance payments to a former employee of AcSys Resources in
connection with his departure from the Company and $108,000 of costs
associated with the AcSys Franchise Termination Agreement, compared with
$166,000 of franchise termination costs in 1995.
Operating Income. As a result of the above factors, operating income
decreased $86,000, or 2.8%, to $3.0 million in 1996 from $3.1 million in 1995.
Operating income as a percentage of service revenues decreased to 6.7% in 1996
from 9.0% in 1995.
Other Expense. Other expense, which is primarily comprised of net interest
expense, decreased to $803,000 in 1996 from $865,000 in 1995 principally due
to lower average debt levels.
Income Before Income Taxes. As a result of the above factors, income before
income taxes decreased $24,000, or 1.1%, to $2.2 million in 1996 from $2.3
million in 1995. Income before income taxes as a percentage of service
revenues decreased to 4.9% in 1996 from 6.5% in 1995.
RESULTS FOR 1995 COMPARED TO RESULTS FOR 1994
Service Revenues. Service revenues increased $7.1 million, or 25.9%, to
$34.5 million in 1995 from $27.4 million in 1994. Temporary staffing service
revenues increased $5.4 million, or 25.6%, to $26.6 million in 1995 from $21.2
million in 1994. The increase in temporary staffing service revenues was
primarily due to the opening of new offices, improved marketing strategies and
changes in operating procedures including the implementation of consultant
training to improve productivity. Permanent placement service revenues
increased $1.7 million, or 26.8%, to $7.9 million in 1995 from $6.2 million in
1994. The increase in permanent placement service revenues is primarily due to
an increase in the number of permanent placements made in 1995, additional
permanent placement consultants and increased productivity. In addition, 1995
service revenues reflect 12 months of service revenues from Don Richard
Associates of Washington as compared to only 10 months of service revenues in
1994.
Gross Profit. Gross profit increased $3.4 million, or 25.3%, to $16.8
million in 1995 from $13.4 million in 1994. Gross profit as a percentage of
service revenues remained relatively constant at 48.6% for 1995 compared to
48.8% in 1994.
23
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $2.6 million, or 25.2%, to $12.8 million in
1995 from $10.2 million in 1994. Approximately $894,000 of the increase was
attributable to sales commissions associated with the increase in permanent
placement revenues. In addition, the Company incurred 12 months of selling,
general and administrative expenses at Don Richard Associates of Washington in
1995 as compared to only 10 months of selling, general and administrative
expenses in 1994. To a lesser extent, the increase was due to the addition of
consultants. Selling, general and administrative expenses as a percentage of
service revenues decreased slightly to 37.1% in 1995 from 37.3% in 1994.
Amortization and Depreciation. Amortization and depreciation increased
$128,000, or 23.3%, to $674,000 in 1995 from $547,000 in 1994. The increase
resulted from depreciation related to capital expenditures for information
technology systems made at the beginning of 1995 and the end of 1994 and a
full year of amortization of intangible assets acquired in connection with the
acquisition of the Don Richard Associates of Washington operations in 1994.
Severance and Franchise Termination Costs. In 1995, the Company incurred
$166,000 of costs associated with the AcSys Franchise Termination Agreement
compared with $561,000 of franchise termination costs in 1994. No severance
payments were made in either 1995 or 1994.
Operating Income. As a result of the above factors, operating income
increased $1.1 million, or 52.6%, to $3.1 million in 1995 from $2.0 million in
1994. Operating income as a percentage of service revenues increased to 9.0%
in 1995 from 7.4% in 1994.
Other Expense. Other expense, which is primarily comprised of net interest
expense, increased to $865,000 in 1995 from $853,000 in 1994.
Income Before Income Taxes. As a result of the above factors, income before
income taxes increased $1.1 million, or 89.2%, to $2.3 million in 1995 from
$1.2 million in 1994. Income before income taxes as a percentage of service
revenues increased to 6.5% in 1995 from 4.3% in 1994.
UNAUDITED QUARTERLY RESULTS
The following table sets forth certain unaudited consolidated quarterly
operating information of the Company for the seven quarters in the period from
January 1, 1996 to September 30, 1997. This information has been prepared on
the same basis as the Consolidated Financial Statements contained elsewhere in
this Prospectus and, in the opinion of management, includes all adjustments,
consisting solely of normal and recurring adjustments, necessary for the fair
presentation of the information for the periods presented. The financial data
shown below should be read in conjunction with the Consolidated Financial
Statements and the related Notes thereto. Results for any previous quarter are
not necessarily indicative of results for the full year or for any future
quarter.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996 1997 1997 1997
--------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Service revenues:
Temporary staffing..... $ 8,132 $ 8,700 $ 8,772 $ 9,153 $ 9,361 $ 9,718 $10,858
Permanent placement.... 2,518 2,862 2,817 2,954 3,520 3,756 4,797
------- ------- ------- ------- ------- ------- -------
Total service reve-
nues................. 10,650 11,562 11,589 12,107 12,881 13,474 15,655
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $1.4 million, $2.8 million and
$1.9 million in 1994, 1995 and 1996 and $2.4 million and $1.6 million for the
nine months ended September 30, 1996 and 1997, respectively. The decrease in
cash provided by operating activities for the nine months ended September 30,
1997 as compared to the nine months ended September 30, 1996 was due to a
decrease in net income and an increase in accounts receivable, partially
offset by an increase in accrued liabilities. The reduction in net cash
provided by operating activities in 1996 as compared to 1995 was primarily due
to a significant increase in accounts receivable in 1996.
24
<PAGE>
The increase in net cash provided by operating activities in 1995 as compared
to 1994 was due to higher net income before amortization and depreciation in
1995.
Net cash used in investing activities was $126,000, $274,000, $487,000 and
$2.3 million in 1994, 1995, 1996 and the first nine months of 1997,
respectively. Cash used in investing activities for the periods presented was
attributable to the acquisition of C.P.A. Staffing in the nine month period
ended September 30, 1997 and capital expenditures, including computer and
telecommunications equipment, furniture and office equipment. The Company
expects to make capital expenditures of $1.0 million, primarily to enhance
management information systems.
Net cash provided by financing activities was $1.2 million for the nine
month period ended September 30, 1997 and was primarily attributable to
borrowings for the acquisition of C.P.A. Staffing. Net cash used in financing
activities was $669,000, $1.8 million and $1.8 million in 1994, 1995 and 1996,
respectively. Cash used in financing activities for these periods was
primarily attributable to net repayments of long-term debt and capital lease
obligations and distributions to shareholders.
The Company's principal uses of cash are to fund: temporary employee payroll
expense and employer related payroll taxes; investment in capital equipment
such as IT systems; start-up expenses of new offices; expansion of services
offered; and costs relating to unusual transactions such as acquisitions,
severance and franchise termination costs and the Deferred Tax Liability,
which will be paid over a four-year period. Temporary employees are paid
weekly, and customer remittances are generally received by the Company within
45 days from the time work was performed by temporary employees. Expansion of
the Company's services requires expenditures for marketing and personnel costs
at varied levels up to six months in advance of generating any service
revenues. In addition, for the first nine months of 1997, approximately
$900,000 of cash was used to pay Combination Expenses and costs related to
obtaining the Credit Facility.
The Company entered into the Credit Facility on May 16, 1997. Borrowings
under the Credit Facility are available for working capital and other
corporate purposes, including acquisitions; have been used to repay certain
debt of the Acquired Companies and to pay for expenses incurred in connection
with acquisitions; and will be available to make the Distribution. Interest on
the Credit Facility is due quarterly, and outstanding principal is due on May
31, 2000. Interest is payable at a rate equal to, at the election of the
Company, either: (A) the greater of (i) the prime rate or (ii) the federal
funds rate plus 0.5%, plus a variable amount between 0% and 0.75%; or (B)
LIBOR plus a variable amount between 1.25% and 2.5%. At December 31, 1997 the
Company owed $11.1 million in principal on the Credit Facility. The Credit
Facility contains covenants requiring the maintenance of certain financial
ratios and specified net worth and limiting the incurrence of additional
indebtedness, the sale of substantial assets, consolidations or mergers by the
Company and the payment of dividends. As a result of a nonrecurring expense
and certain growth initiative and integration costs incurred by the Company in
the third and fourth quarters of 1997, the Company is in default under certain
covenants in the Credit Facility. The Company has, however, obtained a waiver
of such defaults from the lender. See "--Recent Developments." The Credit
Facility is secured by all assets of the Company and a pledge of 100% of the
stock of all subsidiaries, which have guaranteed the repayment of indebtedness
under the Credit Facility.
The net proceeds from the Offering, after deducting underwriting discounts
and offering expenses, are expected to total approximately $17.2 million. The
Company intends to use the net proceeds of this Offering as follows: (i)
approximately $11.9 million (including indebtedness incurred to fund the
Distribution) to repay the outstanding indebtedness under the Credit Facility;
(ii) approximately $1.0 million for capital expenditures, primarily to enhance
management information systems; and (iii) the balance of the net proceeds,
expected to be approximately $4.3 million, for working capital and general
corporate purposes, including acquisitions and opening new offices. The
Company also intends to register up to an additional 2,000,000 shares of its
Common Stock as soon as practicable after completion of this Offering to use
as consideration in connection with future acquisitions.
While there can be no assurance, the Company believes that the proceeds of
this Offering, funds currently available on hand, funds to be provided by
operations and funds available under the Credit Facility will be sufficient to
meet the Company's anticipated needs for working capital for the next twelve
months. The Company's estimate of the time that the proceeds of this Offering,
funds currently on hand, funds provided by operations and funds available
under the Credit Facility will be sufficient to meet the Company's working
capital
25
<PAGE>
needs is a forward-looking statement that is subject to risks and
uncertainties. Actual results and working capital needs could differ
materially from those estimated due to a number of factors, including the use
of such proceeds to fund acquisitions. In addition, acquisitions may require
additional debt and equity financing.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement No. 128, "Earnings Per Share." This statement establishes
standards for computing and presenting earnings per share and is effective for
financial statements issued for periods ending after December 15, 1997.
Earlier application of this statement is not permitted and, upon adoption,
requires restatement (as applicable), of all prior-period earnings per share
data presented. Management believes that the implementation of this standard
will not have a material effect on the Company's calculation of earnings per
share.
In February 1997, the FASB issued Statement No. 129, "Disclosure of
Information about Capital Structure." This statement establishes standards for
disclosing information about an entity's capital structure. Management intends
to comply with the disclosure requirements of this statement, which are
effective for periods ending after December 15, 1997. Management believes that
the implementation of this standard will not have a material effect on the
Company's financial statements.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). This statement requires companies to classify items of
other comprehensive income by their nature in a financial statement and
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. SFAS 130 is effective for financial
statements issued for fiscal years beginning after December 15, 1997.
Management believes that SFAS 130 will not have a material effect on the
Company's financial statements.
In June 1997, the FASB issued Statement No. 131, "Disclosure About Segments
of an Enterprise and Related Information" ("SFAS 131"). This statement
establishes additional standards for segment reporting in the financial
statements and is effective for fiscal years beginning after December 15,
1997. Management believes that SFAS 131 will not have a material effect on the
Company's financial statements.
26
<PAGE>
BUSINESS
GENERAL
ACSYS, Inc. is one of the leading accounting and finance temporary staffing
and permanent placement firms in the United States. The Company operates 16
offices serving the Atlanta, Charlotte, Central New Jersey, Orlando,
Philadelphia, Tampa and Washington, D.C. metropolitan markets. Since its
formation in March 1997, the Company has acquired seven accounting and finance
specialty professional staffing companies which had operating histories
ranging from five to 23 years with an average operating history of 15 years.
The Company's goal is to build a national specialty professional staffing
business with offices in major United States metropolitan markets. The
Company's clients include Fortune 1000 companies, middle market companies,
governmental agencies and nonprofit organizations.
The Company's operating strategy is based on a focus on client relationships
and its philosophy that the central function of corporate management is to
support the staffing consultants who directly interact with clients. The
Company carries out its strategy through its decentralized "Hub-Center"
management model, which the Company believes fosters an entrepreneurial
environment. Hub-Centers, located in major metropolitan markets, are managed
by Division Presidents who are responsible for achieving the Company's
operational and financial goals and have significant latitude over such
matters as hiring, recruiting, compensation, pricing and sales management.
Division Presidents are supported by the Company's corporate services which
include advertising, marketing, public relations, management information
systems support, training, human resources, accounting and other back office
functions. The Company believes that its decentralized management structure
enables it to be more responsive to its clients' needs. Further, the Company
believes that its specialty professional focus makes it more attractive to
staffing consultants and temporary and permanent placement candidates.
The Company's goal is to build a national specialty professional staffing
business with offices in major United States metropolitan markets by pursuing
strategic acquisitions, enhancing and expanding existing offices, introducing
new services and opening new offices. The Company seeks to acquire specialty
professional staffing businesses with strong management and a significant
presence in what the Company believes to be desirable, growing markets. The
Company believes it will have a strategic advantage in competing for
acquisitions based on: (i) its focus on the specialty professional staffing
segment of the staffing industry; (ii) the personal relationships of its
senior executives with managers and owners of other specialty professional
staffing firms; (iii) the Company's entrepreneurial operating environment and
Hub-Center management model; (iv) the Company's merger and acquisition
execution capabilities; and (v) the Company's greater visibility and resources
as a public company. The Company plans to enhance and expand its existing
offices by adding quality personnel, pursuing new clients, expanding
relationships with its current clients and replicating its most successful
sales, marketing and business techniques in offices that are not currently
using those techniques. The Company also intends to introduce new specialty
professional staffing services in addition to its core accounting and finance
staffing services. For example, the Company recently introduced IT staffing in
several locations. The Company may develop or expand new services internally
by leveraging its existing staffing expertise and specialty professional
staffing reputation or it may acquire existing businesses that offer such new
specialty professional staffing services. Furthermore, the Company intends to
grow by opening new offices in both its current markets and new geographic
markets.
THE STAFFING INDUSTRY
The staffing industry generally consists of companies which provide four
basic services to clients: temporary staffing, placement and search,
professional employer organization services and outplacement. Based on
information from the Staffing Industry Report, staffing industry revenues
increased from approximately $31.4 billion in 1991 to approximately $74.4
billion in 1996, representing a compound annual growth rate of 19%. According
to industry sources, in 1996 the staffing industry employed approximately 5.2
million people per day, or approximately 4% of the entire United States
workforce. While the industry has undergone consolidation in the last few
years, it remains fragmented with over 9,300 temporary staffing firms and over
3,400 placement and search firms. Within the overall staffing industry, the
Company primarily provides services in the temporary staffing sector, which
had 1996 revenues of $47.1 billion and grew from 1991 revenues of $21.5
billion representing a compound annual growth rate of 17%. The Company also
provides services in the placement and
27
<PAGE>
search sector, which had 1996 revenues of $9.1 billion and grew from 1991
revenues of $4.2 billion also representing a compound annual growth rate of
17%.
The Company's temporary staffing services are currently focused on the
accounting and finance portion of the specialty professional segment, which
had 1996 revenues of $5.0 billion, representing 11% of the $47.1 billion
temporary staffing sector. The Staffing Industry Report recently estimated
that the specialty professional segment will grow 22% in 1997. In addition to
accounting and finance, the specialty professional segment, as defined by the
Staffing Industry Report, includes legal, laboratory and other professional
staffing services (excluding IT and technical services). The specialty
professional segment is one of the fastest growing segments of the temporary
staffing sector, with profit margins greater than those of the traditional
clerical and light industrial temporary staffing business. The Company has
also recently begun to offer IT staffing services. The IT/technical segment of
the temporary staffing sector had 1996 revenues of $11.7 billion, representing
25% of the temporary staffing sector, and was expected to grow 27% in 1997.
This segment includes IT services such as consulting, systems and network
integration and support, and IT supplemental staffing.
Temporary staffing has become widely accepted as a valuable tool for
managing personnel costs and for meeting specialized or fluctuating employment
requirements. Temporary staffing companies offer a means of dealing with
uneven or peak work loads caused by such predictable events as vacations, tax
work, month-end activities, special projects, and seasonal increases in work
volume, and such unpredictable events as illnesses, resignations and
emergencies. In addition, employees increasingly look to temporary assignments
as a way to build experience, make contacts, and receive training and valuable
exposure to a variety of work settings, as well as a means to gain full-time
employment. The Company believes that more companies are not only accepting
the idea of using professional temporary employees in traditional permanent
professional roles, but are planning to use such employees as a continuing
corporate strategy. Furthermore, traditional accounting services that were
historically performed internally are being outsourced.
The placement and search sector of the staffing industry had 1996 revenues
of $9.1 billion, representing 12% of the staffing industry. This sector was
expected to grow 14% in 1997, according to the Staffing Industry Report.
Personnel placed by companies in this sector cover a wide range of industries
and a variety of position levels. Placement and search firms fulfill their
clients' needs by identifying, evaluating and recommending qualified
candidates for positions. Placement and search firms are generally
characterized as either retained search or contingency placement, depending
upon how their fees are determined. Retained search firms receive a retainer
at the outset of an assignment, whereas contingency firms, such as the
Company, receive compensation upon successful completion of a search and
placement of a recommended candidate. Contingency firms typically fill mid-
level positions for a fee equal to a percentage of the candidate's first year
annual salary.
The Company believes that companies have become increasingly reliant on
placement and search firms for a number of reasons. The continued strength and
growth of the economy has reduced the pool of available specialty
professionals and increased the difficulty of finding talented candidates.
Professional employee turnover has increased as more employees spend their
careers with a number of different organizations in various locations. Many
companies are outsourcing non-core activities, such as recruiting, to reduce
costs and increase efficiencies. A permanent placement firm may also serve in
a consultative role to the client by providing objective feedback on
candidates and advice regarding the appropriate qualifications and
compensation for a particular position.
The Company believes that a number of factors may increase demand for
specialty professional temporary staffing and permanent placement services.
These factors include:
. Use of temporary employees to fill higher-skilled positions.
. Employers' difficulty locating qualified employees.
. Desire of employers to utilize candidates with the latest training and
current skill sets demanded in the increasingly technology-reliant
business environment.
28
<PAGE>
. Trend to outsource non-core functions to reduce costs and increase
efficiencies.
. Employment candidates' attraction to industry-focused specialty service
providers.
. Employment candidates seeking more flexibility and opportunities to gain
experience in a variety of work settings.
OPERATING STRATEGY
The key elements of the Company's operating strategy are as follows:
Focus on Specialty Professional Markets. The Company focuses on staffing
positions that require specialized skills such as accounting, finance and
banking. The Company believes that its years of experience, recognized local
brand names, reputation for client service and the industry expertise of its
staffing consultants give it a competitive advantage. For example, many of the
Company's staffing consultants are certified public accountants. The Company
believes that these specialized characteristics also provide an opportunity
for the Company to generate higher margins than those of traditional clerical
and light industrial staffing companies.
Emphasize Client Relationships. The Company believes that client
relationships and the staffing consultants who are responsible for developing
and maintaining those relationships are the Company's most important assets.
These consultants are encouraged to respond directly and innovatively to
satisfy clients' staffing needs, and the Company has built its corporate level
services to support its consultants in that effort. Moreover, the Company
believes that the central function of management, including the Company's
senior executive team, is to support the consultants who directly interact
with the client.
Foster Entrepreneurial Environment with Hub-Center Management Model. The
Company employs a decentralized operating strategy which it has termed its
Hub-Center management model. The Company's operations in each market,
including any satellite offices in that market, are managed by local managers
called Division Presidents. The Company believes it has a strong market share
in each of its major markets largely due to the commitment, ability and
creativity of the Division Presidents who drive each local business. The
Company fosters this entrepreneurial environment by giving its Division
Presidents the authority to respond quickly and creatively to client needs.
Division Presidents are responsible for achieving operational and financial
objectives, including revenues and earnings growth, and have authority over
hiring, recruiting, compensation, pricing and sales management. The Company
believes that this coupling of accountability and authority, combined with the
support of the Company's corporate level support services, enables its
Division Presidents to compete successfully in the local marketplace. The
Company also believes this entrepreneurial environment allows the Company to
attract talented managers and successfully serve its clients' needs.
Provide Corporate Level Support. The Company's philosophy is that the
central function of corporate management is to support the staffing
consultants who directly interact with clients. The Company offers its
Division Presidents corporate level support to lessen their administrative
burden and allow them to focus on servicing clients and growing the business.
These support functions include advertising, marketing, public relations,
management information systems support, training, human resources, accounting
and other back office functions. The Company's corporate management has
identified and continues to identify "best practices" for its Division
Presidents to use in their day-to-day operations.
29
<PAGE>
The Company's focus on client relationships and its philosophy of servicing
those relationships with its Hub-Center management model and corporate level
support is graphically depicted as follows:
LOGO
[Chart depicting Hub-Center management model and corporate level support with
three centered ovals as follows: in the top oval are the words
"Clients/Candidates"; in the middle oval are the words "Hub-Center" over the
words "Division President"; and in the bottom oval are the words "Corporate
Support Services." Between the bottom oval and the middle oval is a wide two-
pronged arrow pointing upward to the middle oval, and between the middle oval
and the top oval is a narrower single arrow pointing toward the top oval.]
Attract, Motivate and Retain Staffing Consultants with Specialty
Professional Skills. The Company places great emphasis on attracting,
motivating and retaining highly-skilled staffing consultants. The staffing
industry has generally been characterized by a high degree of employee
turnover. The Company believes its decentralized, entrepreneurial environment
and focus on the specialty professional market enhance the attractiveness of
the Company to staffing consultants. In addition, the Company believes that
its compensation policies effectively motivate its personnel. The Company also
plans to grant stock options to substantially all of its operating personnel
upon consummation of the Offering, which the Company believes will further
motivate its operating personnel.
GROWTH STRATEGY
The Company's goal is to build a national specialty professional staffing
business with offices in major United States metropolitan markets. The key
elements of its growth strategy in order of relative importance are as
follows:
Pursue Strategic Acquisitions. The Company intends to acquire accounting and
finance temporary staffing and permanent placement businesses and other
specialty professional staffing businesses, such as IT and legal staffing
companies. The Company seeks acquisition candidates with characteristics such
as attractive geographic market locations, strong market shares, recognized
local brand names and new or expanded specialties that can be added to the
Company's existing services. The Company also focuses on acquisition targets
that have strong management teams and complementary cultures. The Company
believes it will have a strategic advantage in competing for acquisitions
based on: (i) its focus on the specialty professional staffing segment of the
staffing
30
<PAGE>
industry; (ii) the personal relationships of its key executives with managers
and owners of other specialty professional staffing firms; (iii) the Company's
entrepreneurial operating environment and Hub-Center management model; (iv)
the Company's merger and acquisition execution capabilities; and (v) the
Company's greater visibility and resources as a public company. To accomplish
acquisitions, the Company plans to use equity, debt, available cash and
combinations of all three as consideration. In addition, the Company intends
to register up to 2,000,000 additional shares of its Common Stock as soon as
practicable after the completion of the Offering for use in future
acquisitions. The Company continues to evaluate potential acquisitions and
carry on discussions with several potential acquisition candidates. The
Company is not currently a party to any binding agreements or commitments with
respect to any such acquisitions, and there can be no assurance that any
acquisitions will be consummated on terms favorable to the Company, if at all.
See "--Acquisitions."
Enhance and Expand Existing Offices. The Company plans to develop and expand
its current offices by adding temporary staffing and permanent placement
consultants, pursuing new clients, expanding current client relationships,
cross-marketing temporary and permanent services, and replicating successful
sales, marketing and business techniques in offices that are not currently
using those techniques. The Company relies on its Division Presidents to drive
this internal growth and to determine which sales, marketing and business
techniques are most appropriate for their respective local markets.
Introduce New Services. The Company plans to develop new specialty
professional staffing services internally by leveraging its existing expertise
and reputation in specialty professional staffing services, particularly in
markets where the Company's clients have solicited the Company for those new
services. Examples of the Company's internal development of new service
offerings are its recent commencement of IT staffing services in several
offices, with plans to offer IT services in other offices, and ACSYS Advantage
Accountant, a program in which the Company seeks to staff higher-end positions
such as chief financial officers and controllers on an interim basis. The
Company currently has several new service development projects in process,
including: professional sales permanent placement; litigation support;
outsourced internal audit function; and vendor-on-premise, contract services
or project management. All of these potential new services are currently
offered only on a limited basis, and there can be no assurance that they will
be offered throughout the Company. The Company may also acquire specialty
staffing services firms with new or expanded services and market those
services through its existing offices.
Open New Offices. The Company has opened three offices since its formation
and plans to continue to grow its business by opening new offices. The Company
will open two types of new offices, spin-offs from existing offices and "de
novo" offices. A spin-off office is opened in an existing geographic market by
breaking a branch office in two. The purpose of such an office opening is to
provide the Company greater geographic coverage and increased market
penetration at a low marginal cost. The Company has recently opened two spin-
off offices, one in Alexandria, Virginia (a spin-off from the Company's
existing Tyson's Corner, Virginia office), and one in Landover, Maryland (a
spin-off from the Company's Washington, D.C. office). The Company will also
open de novo offices that will represent the Company's initial presence in new
geographic markets. The Company recently opened a de novo office in Orlando,
Florida. The Company has established a team of experienced management
personnel led by Beth Monroe-Chase, the Company's Chief Development Officer,
who will lead the Company's future de novo office opening efforts and oversee
the management of these new offices until they reach a level of performance
the Company believes is sufficient to allow them to operate as stand-alone
Hub-Centers led by a Division President.
SERVICES
The Company currently offers the following services:
Accounting and Finance Temporary Staffing. The Company's accounting and
finance temporary staffing operations are the core of the Company's business
and accounted for approximately 68.5% and 66.1% of its pro forma service
revenues in 1996 and the first nine months of 1997, respectively. The Company
provides temporary staffing services to clients in a variety of industries,
such as telecommunications, banking,
31
<PAGE>
manufacturing and government. Its temporary staffing clients are principally
Fortune 1000 companies, middle market companies, governmental agencies and
nonprofit organizations. Some of the temporary employees placed by the Company
may decide to accept an offer of permanent employment from the client and
thereby "convert" the temporary position to a permanent position. During a
typical week, the Company has more than 1,000 accounting and finance temporary
personnel on assignment at an average bill rate for temporary staffing
employees of approximately $21 per hour.
Accounting and Finance Permanent Placement. The Company's accounting and
finance permanent placement business accounted for 22.9% and 27.1% of its pro
forma service revenues in 1996 and the first nine months of 1997,
respectively. The Company's permanent placement business specializes in
placing mid-level accounting, financial, tax and banking personnel in
permanent positions with a diverse mix of companies ranging from small
businesses and nonprofit organizations to Fortune 1000 companies.
Substantially all of the Company's permanent placement business is on a
contingency basis; thus, the Company is not compensated for a permanent
placement assignment unless a candidate recommended by the Company is hired by
a client. Fees for successful permanent placements are paid only by the
employer and are generally equal to a percentage of the new employee's first-
year annual compensation. Generally, if a candidate placed by the Company is
terminated or resigns during a specified guaranty period (typically 90-180
days), the Company either fills the position without further charge or
provides a prorated refund. The Company placed a total of 1,509 permanent
placement candidates during 1996 and 1,394 candidates during the first nine
months of 1997, respectively. The Company's average placement fee was
approximately $7,900 and $9,000 in 1996 and the first nine months of 1997,
respectively, on a pro forma basis.
Types of positions in which the Company places temporary staffing employees
and permanent candidates include:
<TABLE>
<S> <C>
. Accounting Managers . Budget Analysts
. Chief Financial Officers . Controllers and Assistant Controllers
. Cost Accountants . Credit and Collections Personnel
. Financial Analysts . Financial Reporting Specialists
. Internal Audit Personnel . Staff and Senior Accountants
. Tax Accountants . Treasurers
</TABLE>
Information Technology. The Company began offering IT staffing services in
the third quarter of 1997 in its Philadelphia, Central New Jersey, Charlotte
and Tampa Hub-Centers. The Company generally offers both IT temporary staffing
and IT permanent placement services. The Company is leveraging its existing
client contacts in the accounting and finance area by seeking to fill their IT
staffing needs as well. The Company may expand its IT business into other
offices and also may acquire other IT staffing firms as it seeks to diversify
its staffing services.
Other Staffing Services. The Company's corporate staffing services place
temporary office and administrative personnel, ranging from executive
assistants to office managers. The Company began offering these services in
its Washington, D.C. Hub-Center in response to clients' desire to staff
candidates with a stronger base of skills than those typically available from
other staffing providers. These services accounted for 8.6% and 6.8% of the
Company's pro forma service revenues in 1996 and the first nine months of
1997, respectively, and are included under temporary staffing service revenues
in the Consolidated Financial Statements.
ACQUISITIONS
A key element of the Company's growth strategy is to acquire accounting and
finance and other specialty professional staffing businesses. While the
industry has undergone significant consolidation in the last few years, it
remains a fragmented market with over 9,300 temporary staffing firms and over
3,400 placement and search firms. To accomplish acquisitions, the Company
plans to use equity, debt, available cash and combinations of all three as
consideration. In addition, the Company intends to register up to 2,000,000
additional shares of its
32
<PAGE>
Common Stock as soon as practicable after the completion of the Offering for
use in future acquisitions. The Company believes that it will have a strategic
advantage in competing for acquisitions as a result of: (i) its focus on the
specialty professional staffing segment of the staffing industry; (ii) the
personal relationships of its key executives with managers and owners of other
professional staffing firms; (iii) the Company's decentralized,
entrepreneurial operating environment and Hub-Center management model; (iv)
the Company's merger and acquisition execution capabilities; and (v) the
Company's greater visibility and resources as a public company.
The Company believes that its focus on the specialty professional segment of
the staffing industry gives it a strategic advantage in attracting acquisition
candidates that prefer to affiliate with a professionally-focused company
rather than a traditional clerical and light industrial-based staffing
company. A number of the members of the Company's management have been active
or currently hold leadership positions in national and regional specialty
professional staffing trade associations, including the American Association
of Finance and Accounting, a national association of privately held accounting
and finance staffing firms. In addition, members of the Company's management
have previous work experience with national staffing companies or "Big Six"
accounting firms. As a result, these persons have developed personal
relationships with the owners of many independent specialty professional
staffing firms. The Company also believes that its commitment to maintaining a
strong professional permanent placement business will give it a strategic
advantage in attracting acquisition candidates whose businesses have a
permanent placement focus. Furthermore, the Company believes it can use its
temporary staffing expertise to build significant temporary staffing
businesses from these established professional permanent placement bases.
The Company has established an internal integration team led by its Chief
Executive Officer that is charged with quickly and cost effectively
integrating acquired companies into the Company's operating environment. An
immediate integration goal will be to consolidate back office administrative
functions to allow local management to devote more time and attention to
increased sales and profitability.
The Company will generally make two kinds of acquisitions --"platform"
acquisitions and "tuck-under" acquisitions. A platform acquisition represents
the Company's entry into a new geographic market through the acquisition of a
company that has a material share of its sector of the specialty professional
staffing business in that market and which will serve as a Hub-Center for that
market. Most of these companies' clients are likely to be middle market
businesses but may also include Fortune 1000 companies. In addition, a
platform acquisition may increase the Company's services and provide the base
from which to introduce such services into the Company's other locations.
Tuck-under acquisitions are acquisitions of smaller companies that fit well
with the Company's existing locations and present growth opportunities via
synergies with the Company's existing business. Such acquisitions may present
an alternative to opening a spin-off office.
Since its formation in March 1997 the Company has acquired seven accounting
and finance staffing companies. The Acquired Companies are described briefly
below.
Don Richard Associates of Washington. Effective May 1997, the Company
acquired Don Richard Associates of Washington, which operated three offices in
metropolitan Washington providing accounting and finance temporary staffing
and permanent placement services and corporate staffing services primarily to
Fortune 1000 businesses, middle market companies, governmental agencies and
nonprofit organizations. For the year ended December 31, 1996, Don Richard
Associates of Washington had service revenues of $17.0 million.
David C. Cooper & Associates. Effective May 1997, the Company acquired David
C. Cooper & Associates, which operated an Atlanta, Georgia office providing
accounting and finance temporary staffing and permanent placement services
primarily to Fortune 1000 and middle market companies. For the year ended
December 31, 1996, David C. Cooper & Associates had service revenues of $7.8
million.
Don Richard Associates of Charlotte. Effective May 1997, the Company
acquired Don Richard Associates of Charlotte, which operated a Charlotte,
North Carolina office providing accounting and finance temporary staffing and
permanent placement services and IT staffing services primarily to Fortune
1000 and middle market
33
<PAGE>
companies. For the year ended December 31, 1996, Don Richard Associates of
Charlotte had service revenues of $2.8 million.
Don Richard Associates of Tampa. Effective May 1997, the Company acquired
Don Richard Associates of Tampa, which operated a Tampa, Florida office
providing accounting and finance temporary staffing and permanent placement
services and IT staffing services primarily to Fortune 1000 and middle market
companies. For the year ended December 31, 1996, Don Richard Associates of
Tampa had service revenues of $2.5 million.
Rylan Forbes. Effective July 1997, the Company acquired Rylan Forbes, which
operated two offices in Philadelphia and Central New Jersey providing
accounting and finance temporary staffing and permanent placement services
primarily to Fortune 1000 and middle market companies. For the year ended
December 31, 1996, Rylan Forbes had service revenues of $1.4 million.
C.P.A. Staffing. Effective August 1997, AcSys Resources acquired C.P.A.
Staffing, which operated an Atlanta, Georgia office providing accounting and
finance temporary staffing and permanent placement services primarily to
Fortune 1000 and middle market companies. For the year ended December 31,
1996, C.P.A. Staffing had service revenues of $6.5 million.
AcSys Resources. Effective September 1997, the Company acquired AcSys
Resources, which operated seven offices in Pennsylvania, New Jersey and
Delaware providing accounting and finance temporary staffing and permanent
placement services and IT staffing services primarily to Fortune 1000 and
middle market companies. For the year ended December 31, 1996, AcSys Resources
had service revenues of $14.4 million.
HUB-CENTER MANAGEMENT MODEL
The Company's decentralized operating strategy uses a Hub-Center management
model in which the Company's operations in each market are managed by Division
Presidents. See "-- Operating Strategy -- Foster Entrepreneurial Environment
with Hub-Center Management Model." The Company's current Hub-Centers, offices
and 1996 pro forma service revenues for each Hub-Center are listed below:
<TABLE>
<CAPTION>
1996 PRO FORMA
HUB-CENTER OFFICES REVENUES
------------------ ------------------ --------------
(IN MILLIONS)
<S> <C> <C>
Washington, DC Washington, DC $17.0
Tyson's Corner, VA
Bethesda, MD
Alexandria, VA(1)
Landover, MD(1)
Atlanta, GA Atlanta, GA 14.3
Philadelphia, PA Philadelphia, PA 13.2
Wayne, PA
Lancaster, PA
Cherry Hill, NJ
Wilmington, DE
Charlotte, NC Charlotte, NC 2.8
Central New Jersey Edison, NJ 2.6
Princeton, NJ
Tampa, FL Tampa, FL 2.5
Orlando, FL(2)
</TABLE>
- ---------------------
(1) Spin-off offices opened in 1997.
(2) De novo office opened in 1997.
34
<PAGE>
CORPORATE SUPPORT SERVICES
The Company offers or is planning to offer the following corporate level
support functions to its Hub-Centers:
Training. The Company offers its staffing consultants and other employees a
two week orientation and training program as well as ongoing courses offering
instruction and training in client service and development, team building,
management techniques and employment law. The primary objective is to teach
employees how to build client relationships and manage others utilizing proven
business techniques. With respect to its Division Presidents in particular,
the Company seeks talented and motivated managers to serve as Division
Presidents and believes that its entrepreneurial Hub-Center operating
philosophy requires its Division Presidents to be exceptionally strong
managers and leaders. The Company seeks to cultivate these qualities in its
Division Presidents by using both training materials developed in-house and
outside consultants to conduct training sessions. In addition, the Company is
creating a company-wide database of "best practices" for its Division
Presidents to use in their day-to-day operations.
Information Systems. The Company has a management information systems
department that is actively reviewing its IT assets and needs and currently
plans to maintain and enhance each of the systems now in place. The Company is
in the process of implementing technology systems in each of the Acquired
Companies to provide several back office support functions. The Company is
building a corporate "Intranet" to facilitate the sharing of corporate
resources. The Company is also migrating to a common desktop computing office
suite platform.
Advertising, Marketing and Public Relations. The Company has developed and
continues to develop a full range of advertising, marketing and public
relations services, including development of classified advertising, regional
print advertising campaigns, radio advertising, premiums, public relations,
direct mail and promotions. These programs focus on both clients and
employment candidates.
Risk Management. The Company is centralizing the risk management function
and is reviewing its insurance coverage in an effort to maintain adequate
coverage at a reasonable cost. In addition, as part of its training effort,
the Company conducts seminars on pertinent topics (particularly employment
law-related matters) for its employees to help educate its work force and
reduce the Company's exposure to losses.
Human Resources. The Company has a human resources team designed and
committed to establishing and maintaining systems that assist and enhance
employee work-life, while helping to ensure the growth and health of the
organization as a whole. The Human Resources department is full-service with
responsibility for employee relations, compensation, training and development
and employee benefits. Because of the unique nature of the staffing industry,
Human Resources is also responsible for compliance issues in the recruitment
process. The Human Resources department structure is decentralized with a core
staff working at the corporate office combined with regional Human Resources
consultants strategically placed in key markets to provide local, in-person
assistance and support.
Legal Services. The Company is centralizing its legal services function and
is developing detailed policies regarding the retention of legal counsel and
certain guidelines within which Division Presidents are limited in making
decisions relating to legal issues.
Treasury Management. The Company has centralized its treasury management
function by establishing a lock box cash management system. In this system,
all customer payments are received at a central location maintained by the
Company's bank. The Company believes this system results in better internal
control by centralizing the cash collection portion of the revenue cycle.
Accounting. All accounting functions, including management financial
information, are being centralized. The processing of customer invoices and
temporary employee payroll, which are critical to customer service,
35
<PAGE>
will remain in the Hub-Centers. Division Presidents will be unencumbered by
routine accounting matters and will be supplied with timely and accurate
financial information allowing them to focus on operations and results.
RECRUITING
The Company uses a variety of methods to recruit qualified temporary
staffing and permanent placement candidates. The Company's primary recruiting
methods are networking and direct solicitation by staffing consultants. The
Company also has recruiting managers in several offices whose primary
responsibility is to market the Company's services to potential candidates.
Other recruiting methods include: advertising in newspaper classified ads and
in various other print media, including Yellow Pages and local and national
trade journals; advertising on radio; maintaining an Internet website;
recruiting on college campuses; participating in job fairs; offering referral
bonuses for new temporary employees; conducting direct mail campaigns; and
maintaining a good reputation and high visibility within the community through
community service. The Company receives a significant number of referrals from
past candidates due to its professional reputation, quality service and the
draw of the Company's permanent placement practice. Furthermore, the Company
believes that candidates are attracted to the Company by the number and
quality of the positions the Company has available, and that the availability
of good candidates increases its client base.
LOCAL SALES AND MARKETING
The Company emphasizes local sales and marketing efforts, which are
generally conducted by each Hub-Center. In addition to the Company's Division
Presidents and staffing consultants, the Company has 25 salespersons in its
Hub-Centers whose primary responsibility is to market the Company's services
to potential new clients. The Company's client-oriented advertising primarily
consists of print advertisements in national newspapers, Yellow Pages,
magazines and trade journals; and radio advertisements. Direct marketing
through mail and telephone solicitation also constitutes a significant portion
of the Company's total advertising. The Company also seeks endorsements and
affiliations with local and regional accounting and finance professional
organizations and conducts public relations activities designed to enhance
recognition of the Company and its services. Local employees are encouraged to
be active in civic organizations and industry trade groups.
EMPLOYEES
The Company had 250 full-time internal staff employees as of December 31,
1997. Temporary employees placed by the Company are the Company's employees
while they are working on assignments. Neither the Company's internal staff
nor its temporary employees are represented by a collective bargaining
agreement. Hourly wages for the Company's temporary employees are determined
according to market conditions. The Company pays mandated costs of employment,
including the employer's share of social security taxes (FICA), federal and
state unemployment taxes, unemployment compensation insurance, general payroll
expenses and workers' compensation insurance. The Company offers access to
various insurance programs and benefits to its temporary employees. The
Company believes its employee relations are satisfactory.
COMPETITION
The staffing industry is highly competitive, with limited barriers to entry.
The Company believes that availability and quality of employment candidates,
reliability of service and price of services are the most significant
competitive factors in the specialty professional staffing sector. The Company
believes it derives a competitive advantage from its long experience with and
commitment to the specialty professional staffing market, its strong local
market presence and reputation, and its various marketing activities. A number
of firms offer services similar to the Company's on a national, regional or
local basis. The Company competes for clients, candidates and acquisitions
with many local and regional companies and also faces competition from a
number of international and national specialty professional staffing companies
that include Robert Half International Inc., Romac International, Inc.,
Accountants, Inc., Source Services, Inc. and Accountants On Call, as well as
professional staffing divisions of larger general staffing firms, such as
Interim Services Inc., Norrell, Inc. and Olsten Corporation. These firms have
materially greater financial and operating resources than the Company.
36
<PAGE>
SERVICE MARKS AND TRADENAMES
The Company operates under the following tradenames and service marks: AcSys
Resources, Inc.(R), the AcSys Resources, Inc. logo, AcSys Resources, Inc.
Providing the Perfect Fit(R), C.P.A. Staffing, David C. Cooper &
Associates(R), DCCA Professional Temporaries, DCCA(R), the DCC&A logo, Rylan
Forbes Consulting Group, Signature Staffing, Don Richard Associates of
Charlotte, Don Richard Associates of Tampa, and Don Richard Associates of
Washington, D.C. "Don Richard Associates" is a federally registered trademark
of Don Richard Associates International, Inc., an unaffiliated company which
formerly owned Don Richard Associates of Washington and Don Richard Associates
of Charlotte and was the former franchisor for Don Richard Associates of
Tampa. By agreement with Don Richard Associates International, Inc., the
Company owns the rights to the name "Don Richard Associates of Washington" and
"Don Richard Associates of Charlotte" in the areas where the Company operates
under such names. The Company's rights to use the name "Don Richard Associates
of Tampa" expire in May 1999. Such territories are excluded from the federal
trademark registration held by Don Richard Associates International, Inc.
FACILITIES
The Company owns no real property. It leases its corporate office and all of
its local offices. The Company believes its facilities are adequate for its
needs and does not anticipate any material difficulty in replacing such
facilities or securing facilities for new offices.
LEGAL PROCEEDINGS
On November 13, 1997, a lawsuit was filed against the Company, Cama of
Tampa, Inc. ("Cama") and Stephen S. Tutwiler ("Tutwiler") by L. Robert Frank,
Jr. ("Frank") and L. Robert Frank & Associates, Inc. in the Circuit Court of
the Thirteenth Judicial Circuit, Hillsborough County, Florida. The lawsuit
alleges Frank and Tutwiler agreed to form a corporation owned one half by each
to provide IT staffing services; that such services were instead provided
through a division of Cama; and that Frank was entitled to a portion of the
stock of Cama and thus to a portion of the 131,143 shares of Common Stock
issued to Tutwiler when it acquired Cama. The plaintiffs assert numerous
claims, including fraud, civil conspiracy and alleged misstatements and
omissions in this Prospectus regarding the Company's ownership of Cama. The
plaintiffs seek to recover (i) $27,000 allegedly due to Frank, (ii) his
alleged portion of Tutwiler's shares of Common Stock, and (iii) compensatory
and other damages. Frank also seeks an accounting and employment by the
Company. The Company has moved to dismiss the claim against it and to compel
arbitration of the claims against Cama and Tutwiler. The Company intends to
vigorously defend the plaintiffs' allegations. An adverse result could have a
material effect on the Company. There is no other pending litigation which the
Company considers material.
37
<PAGE>
MANAGEMENT
The directors and executive officers of the Company and their ages and
positions as of December 31, 1997 are as follows:
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
David C. Cooper......... 41 Chairman of the Board
Timothy Mann, Jr........ 32 Chief Executive Officer and Director
Edward S. Baumstein..... 43 President, Chief Operating Officer and Director
Chief Development Officer, Executive Vice President and
Beth Monroe-Chase....... 46 Director
Barry M. Abelson(1)..... 51 Director
William Porter
Payne(1)............... 50 Director
Mark E. Strassman....... 36 Director
John R. Ficquette....... 43 Director
Harry J. Sauer.......... 46 Director
Lester E. Gallagher,
III.................... 41 Chief Financial Officer
</TABLE>
- ---------------------
(1)These persons have been nominated to serve as directors of the Company upon
completion of the Offering.
BIOGRAPHICAL INFORMATION FOR EXECUTIVE OFFICERS AND DIRECTORS
David C. Cooper has served as the Chairman of the Board of Directors of the
Company since its formation and Division President--Atlanta since September
1997. Mr. Cooper founded David C. Cooper & Associates in 1980 and served as
its president until May 1997. Mr. Cooper received his Bachelor of Business
Administration degree in Accounting from the University of Georgia. Mr. Cooper
is a past president of the American Association of Accounting and Finance, a
national network of independently owned accounting and finance permanent
placement and temporary staffing businesses.
Timothy Mann, Jr. has served as Chief Executive Officer of the Company since
October 1997 and a Director since its formation. Prior to his becoming Chief
Executive Officer, Mr. Mann served the Company in various roles. From 1992
until 1997, Mr. Mann was an attorney engaged in the private practice of law,
most recently with Alston & Bird, LLP in Atlanta, Georgia. Mr. Mann has
extensive staffing industry experience, having served as issuer's counsel in a
number of staffing industry public equity offerings and as buyer's counsel in
a number of staffing industry mergers and acquisitions. Mr. Mann's experience
also includes service in the audit division of Arthur Andersen LLP. Mr. Mann
received his J.D. cum laude from the University of Georgia and his Bachelor of
Science degree in Accounting from the University of Florida.
Edward S. Baumstein has served as President of the Company since October
1997 and as the Chief Operating Officer and a Director of the Company since
September 1997. Mr. Baumstein served as the president and chief executive
officer of AcSys Resources from 1994 until September 1997 and had served in
various positions since he joined AcSys Resources in 1983. Prior to joining
AcSys Resources, Mr. Baumstein was with Price Waterhouse. He received his
B.B.A. in Accounting from Temple University and is a certified public
accountant.
Beth Monroe-Chase has served as a Director of the Company since its
formation. She served as Chief Operating Officer from the Company's formation
until September 1997, when she became the Company's Chief Development Officer
and Executive Vice President. Ms. Monroe-Chase was one of the founders of Don
Richard Associates of Washington and from 1994 until the formation of the
Company served as its president. Ms. Monroe-Chase served as the director of
sales from 1992 to 1994 and as managing director from 1993 to 1994 for the
predecessor of Don Richard Associates of Washington (which also operated under
that name). Her previous staffing industry experience includes service as an
area manager for Staff Builders and as a regional manager with TeleSec
Staffing.
38
<PAGE>
Barry M. Abelson will become a Director of the Company upon the consummation
of this Offering. He has been a partner in the law firm of Pepper Hamilton
LLP, Philadelphia, Pennsylvania since May 1992 and has served as Chairman of
its Executive Committee since February 1995. Mr. Abelson is also a director of
Intelligent Electronics, Inc., XLConnect Solutions, Inc. and Covenant Bancorp,
Inc. Mr. Abelson received his Bachelor of Arts degree in Sociology from
Dartmouth College and his J.D. degree from the University of Pennsylvania.
William Porter Payne will become a Director of the Company upon the
consummation of this Offering. He has served as Vice Chairman of NationsBank
Corporation since January 1997 and was President and Chief Executive Officer
of the Atlanta Committee for the Olympic Games from 1991 to 1997. Mr. Payne is
also a director of Anheuser-Busch Companies, Inc., Cousins Properties, Inc.
and Jefferson-Pilot Corporation. Mr. Payne received his Bachelor of Arts in
Political Science and J.D. degrees from the University of Georgia.
Mark E. Strassman has served as a Director of the Company since its
formation. Mr. Strassman served as the President of the Company from its
formation until October 1997. Mr. Strassman was one of the founders of Don
Richard Associates of Washington and served as its chief executive officer
from 1994 until May 1997. From 1987 until 1994, Mr. Strassman served in a
variety of capacities with the predecessor to Don Richard Associates of
Washington (which also operated under that name), most recently as managing
director. Prior to 1987, Mr. Strassman was a tax consultant at the national
accounting firm of Grant Thornton. He received his Bachelor of Science degree
in Accounting from Drexel University and is a certified public accountant.
John R. Ficquette has served as a Director of the Company since September
1997. Mr. Ficquette was a shareholder and officer of C.P.A. Staffing from 1990
until its acquisition by AcSys Resources. His responsibilities at C.P.A.
Staffing included client development, training, system development and
administration. Mr. Ficquette received his Bachelor of Science Degree in
Business Administration from the University of Alabama.
Harry J. Sauer has served as a Director of the Company and as the Division
President--Philadelphia since September 1997. Mr. Sauer has worked in the
staffing industry since 1977, when he co-founded AcSys Resources. He served in
various positions with AcSys Resources, most recently as chief operating
officer. Mr. Sauer received his Bachelor of Arts degree in Political Science
from American University and his M.B.A. from Boston College. Mr. Sauer has
served as the president of Hillel of Greater Philadelphia and as a board
member of several nonprofit organizations.
Lester E. Gallagher, III has served as the Company's Chief Financial Officer
since September 1997. From 1994 through the AcSys Resources acquisition, Mr.
Gallagher served as the chief financial officer of AcSys Resources. From 1990
to 1994, he was a manager with Coopers & Lybrand LLP. Mr. Gallagher received
his Bachelor of Science degree in Accounting from Villanova University and is
a certified public accountant.
BOARD OF DIRECTORS
The number of directors on the Board of Directors is currently fixed at
seven but will be increased to nine upon the consummation of this Offering.
Directors of the Company are elected at the annual meeting of shareholders.
Executive officers are appointed by the Board of Directors. Directors and
executive officers of the Company are elected or appointed to serve until they
resign or are removed or are otherwise disqualified to serve, or until their
successors are elected and qualified at the next annual meeting of
shareholders. Messrs. Abelson and Payne (the "Outside Directors") will become
directors of the Company upon the consummation of this Offering.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors intends to establish an Audit Committee, a
Compensation Committee and an Executive Committee. The members of each
committee are expected to be determined at the first meeting of the Board of
Directors following the closing of the Offering. The members of the Audit and
Compensation Committees will consist solely of Outside Directors.
39
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors intends to establish a Compensation Committee at the
first meeting of the Board of Directors following the closing of the Offering.
The Board of Directors has not previously had a Compensation Committee, and
the functions of the Compensation Committee historically have been performed
by the Board of Directors. See "-- Committees of the Board of Directors."
DIRECTOR COMPENSATION
Directors who are employees of the Company do not receive additional
compensation for serving as directors. Each director who is not an employee of
the Company ("Non-Employee Directors") will receive $1,000 for each meeting of
the Board of Directors attended and for each meeting of a committee of the
Board of Directors (unless the committee meeting is held on the same day as a
meeting of the Board of Directors). All directors of the Company are
reimbursed for out-of-pocket expenses incurred in attending meetings of the
Board of Directors or its committees and for other expenses incurred in their
capacity as Directors.
The Company will grant to each Non-Employee Director, upon his or her
initial appointment to the Board of Directors, a stock option to purchase
50,000 shares of Common Stock pursuant to the Option Plan. In addition, the
Company will grant to each Non-Employee Director, once each quarter during the
Non-Employee Director's term as a director, options to purchase 4,000 shares,
with a lifetime cap of 150,000 shares per Non-Employee Director. The option
price will be equal to the fair market value at the date of each grant, and
each option will have a 10-year term. One third of the options will vest on
each of the first three anniversaries of the date of grant, provided that all
unvested options will vest upon a change in control of the Company (as defined
in the option agreement) or the death of the Non-Employee Director.
EXECUTIVE COMPENSATION; EMPLOYMENT AGREEMENTS; COVENANTS NOT TO COMPETE
The Company was incorporated in March 1997 and conducted no operations in
1996. The Company anticipates that during 1997 its most highly compensated
executive officers will be Ms. Monroe-Chase and Messrs. Cooper, Mann,
Baumstein and Gallagher (the "Named Executive Officers").
Each of Messrs. Cooper, Mann, Baumstein and Ms. Monroe-Chase has entered
into employment agreements with the Company that provide for an annual base
salary of $200,000. Each executive officer (except Messrs. Mann and Gallagher)
will also receive a bonus to be agreed upon and based upon certain performance
criteria as set forth in his or her agreement. Mr. Mann's agreement provides
for an annual bonus equal to 2.0% of the year-to-year increase in the
Company's earnings before interest, taxes, depreciation and amortization, and
the grant of stock options as described under "-- Option Grants." Mr.
Gallagher's agreement provides for an annual base salary of $125,000, such
bonus as the Board of Directors may determine up to an amount equal to 15% of
his then-current base salary, and the grant of stock options as described
under "-- Option Grants." None of the Company's executive officers is expected
to receive perquisites the value of which exceeds the lesser of $50,000 or 10%
of the salary and bonus of such executive. Executive bonuses for 1997 have not
yet been determined.
Each employment agreement for the Named Executive Officers is for a term of
three years and continues thereafter for additional one year terms until
either the Company or the executive officer elects not to renew the agreement.
Each of these agreements provides that, in the event of a termination of
employment either (i) by the Company without cause (as defined in the
agreement) or (ii) by the employee following a change in control (as defined
in the agreement) or a breach by the Company of such executive's employment
agreement or the registration rights agreement described in "Description of
Capital Stock -- Registration Rights," such executive officer will be entitled
to receive from the Company a lump sum severance payment equal to three times
the sum of his or her then-current annual salary plus the amount of his or her
bonus calculated using the results of the operations of the Company for the
twelve months prior to such termination. In such event, the non-compete
provisions discussed below would not apply to such executive officer. If an
executive officer resigns for any other reason, such executive officer will be
entitled to receive from the Company a lump sum severance payment equal to his
or her then current annual salary. If an executive is terminated upon a
determination by the Board of Directors that such executive officer failed to
meet performance expectations, then such executive officer will be entitled to
receive a lump sum severance payment equal to his or her base salary for the
greater of the remainder of the term of his or her employment agreement or one
year.
40
<PAGE>
Each Named Executive Officer employment agreement contains a covenant not to
compete with the Company for a period of two years immediately following
termination of employment and an obligation not to solicit any employees or
customers of the Company for a period of one year following termination of
employment.
OPTION GRANTS
The Company has granted and agreed to grant stock options to two of the
Named Executive Officers, Timothy Mann, Jr. and Lester E. Gallagher, III, as
described below.
Timothy Mann, Jr. Pursuant to Mr. Mann's employment agreement, the Company
has granted him options to purchase 135,198 shares of Common Stock at an
exercise price of $8.00 per share, the fair market value of the Common Stock
on the date of the grant as determined by the Board based upon the report of
an independent appraiser. These options are fully vested and have a 10-year
term. In addition, also pursuant to Mr. Mann's employment agreement, the
Company has agreed to grant to Mr. Mann, upon the effective date of the
Offering, options to purchase a number of additional shares of Common Stock
equal to 1% of the shares of Common Stock outstanding on the date of the
Offering, assuming the Underwriters' over-allotment option is exercised in
full, at an exercise price equal to the public offering price of the shares
sold in the Offering. Therefore, upon the effective date of the Offering the
Company will grant to Mr. Mann options to purchase 113,357 shares of Common
Stock at an exercise price equal to the offering price of shares in the
Offering. One-half of these options vest on each of the first two
anniversaries of the effective date of the Offering, and the options have a
10-year term. All of Mr. Mann's unvested options vest immediately if he is
terminated without cause or resigns for good reason or upon a change in
control (as such terms are defined in his employment agreement).
Lester E. Gallagher, III. In January 1997 AcSys Resources granted options to
Mr. Gallagher that were converted into options to purchase 18,771 shares of
Common Stock at a price of $2.66 per share in connection with the Company's
acquisition of AcSys Resources. These options are fully vested and expire in
2006. In addition, pursuant to Mr. Gallagher's employment agreement, the
Company has agreed to grant to him, upon the effective date of the Offering,
options to purchase 66,229 shares of Common Stock at an exercise price equal
to the offering price of shares in the Offering. One third of these options
vest on each of first, second and third anniversaries of the effective date of
the Offering. All of Mr. Gallagher's unvested options vest immediately if he
is terminated without cause or resigns for good reason or upon a change in
control (as such terms are defined in his employment agreement).
1997 STOCK OPTION PLAN
The Board of Directors and the Company's shareholders approved the Option
Plan which became effective in May 1997. The purpose of the Option Plan is to
advance the interests of the Company and its shareholders by affording certain
employees and directors of the Company, as well as key consultants and
advisors to the Company, an opportunity to acquire or increase their
proprietary interests in the Company. The objective of the issuance of stock
options under the Option Plan is to promote the growth and profitability of
the Company because the optionees will be provided with an additional
incentive to achieve the Company's objectives through participation in its
success and growth and by encouraging their continued association with or
service to the Company. The Company intends to grant options to purchase
approximately 950,000 shares of Common Stock to substantially all of its full-
time internal staff employees upon consummation of this Offering at an
exercise price equal to the initial public offering price per share.
Awards under the Option Plan are granted by the Board of Directors but will
be granted by the Compensation Committee of the Board of Directors when it is
established. Awards under the Option Plan may include incentive stock options
("ISOs") and/or non-qualified stock options ("NQSOs"). The Compensation
Committee of the Board of Directors will administer the Option Plan and
generally has discretion to determine the terms of an option grant, including
the number of option shares, option price, term, vesting schedule, the post-
termination exercise period and whether the grant will be an ISO or NQSO.
Notwithstanding this discretion: (i) the number of shares subject to options
granted to any individual in any calendar year may not exceed 500,000 shares;
(ii) if an option is intended to be an ISO and is granted to a shareholder
holding more than 10% of the combined voting power of all classes of the
Company's stock or of its parent or subsidiary on the date of the
41
<PAGE>
grant of the option, the option price per share of Common Stock may not be
less than 100% of the fair market value of such share at the time of grant or
110% of the fair market value of such shares; and (iii) the term of any option
may not exceed 10 years, or 5 years if the option is intended to be an ISO and
is granted to a shareholder owning more than 10% of total combined voting
power of all classes of stock on the date of the grant of the option.
The maximum number of shares of Common Stock that currently may be subject
to outstanding options, determined immediately after the grant of any option,
is 2,000,000 shares. The Option Plan provides that the number of shares of
Common Stock available for issuance thereunder shall be automatically
increased on the first trading day of each calendar year by the lesser of (i)
three percent of the number of shares outstanding on the preceding trading day
or (ii) 500,000 shares. Shares of Common Stock which are attributable to
awards which have expired, terminated or been canceled or forfeited during any
calendar year are available for issuance or use in connection with future
awards during such calendar year.
The Option Plan will remain in effect until terminated by the Board of
Directors. No ISO may be granted after May 2007. The Option Plan may be
amended by the Board of Directors without the consent of the shareholders of
the Company, except that any amendment, although effective when made, will be
subject to shareholder approval within one year after approval by the Board of
Directors if the amendment increases the total number of shares issuable
pursuant to ISOs or changes the class of employees eligible to receive ISOs
that may participate in the Option Plan.
The Omnibus Budget Reconciliation Act of 1993 added Section 162(m) to the
Internal Revenues Code of 1986, as amended. Section 162(m) generally disallows
a public company's tax deduction for compensation to the chief executive
officer and four other most highly compensated executive officers in excess of
$1,000,000 in any tax year beginning on or after January 1, 1994. Compensation
that qualifies as "performance-based compensation" is excluded from the
$1,000,000 deductibility cap, and therefore remains fully deductible by the
company that pays it. The Company intends that options granted with an
exercise price at least equal to 100% of fair market value of the underlying
stock at the date of grant will qualify as such "performance-based
compensation," although other awards under the Option Plan may not so qualify.
42
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 31, 1997 and as
adjusted to reflect the sale of the Common Stock offered hereby with respect
to: (i) each of the Company's directors and Named Executive Officers; (ii) all
executive officers and directors of the Company as a group; and (iii) each
person known by the Company to own beneficially more than 5% of the Common
Stock. Each of the holders listed below has sole voting power and investment
power over the shares beneficially owned. Each of the persons known by the
Company to beneficially own more than 5% of the Common Stock has an address in
care of the Company's principal offices.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED AFTER
OWNED PRIOR TO OFFERING(1) NUMBER OF OFFERING(1)
---------------------------- SHARES --------------------
NAME NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
- ---- --------------- ------------ ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
DIRECTORS, EXECUTIVE OF-
FICERS AND 5% SHARE-
HOLDERS
David C. Cooper......... 1,573,714 18.5% -- 1,573,714 14.4%
Timothy Mann, Jr.(2).... 135,198 1.6 -- 135,198 1.2
Edward S. Baumstein..... 993,521 11.7 -- 993,521 9.1
Beth Monroe-Chase....... 671,143 7.9 20,000 651,143 6.0
Lester E. Gallagher,
III(3)................. 18,771 * -- 18,771 *
John R. Ficquette....... 609,637 7.2 -- 609,637 5.6
Harry J. Sauer.......... 993,521 11.7 -- 993,521 9.1
Mark E. Strassman....... 671,143 7.9 90,000 581,143 5.3
Louis Boohaker.......... 609,637 7.2 -- 609,637 5.6
Kevin W. Cole........... 447,428 5.3 100,000 347,428 3.2
Rosemarie Mahoney....... 447,428 5.3 50,000 397,428 3.6
All directors and execu-
tive officers as a
group (8 persons)(4)... 5,666,648 65.5 5,556,648 50.2
OTHER SELLING SHAREHOLD-
ERS
Teresa Gordon........... 149,142 1.8 15,000 134,142 1.2
Edward K. Turner........ 131,143 1.5 25,000 106,143 *
Stephen Tutwiler........ 131,143 1.5 20,000 111,143 1.0
</TABLE>
- ---------------------
* Less than 1%.
(1) Shares Beneficially Owned is calculated assuming 8,493,220 shares of
Common Stock were outstanding on December 31, 1997 and 10,923,220 shares
of Common Stock will be outstanding immediately after the Offering. This
percentage also includes Common Stock of which such individual has the
right to acquire beneficial ownership within sixty days of December 31,
1997, including but not limited to the exercise of an option; however,
such Common Stock shall not be deemed outstanding for the purpose of
computing the percentage owned by any other individual. See
"Underwriting."
(2) Comprised of currently exercisable options held by Mr. Mann to purchase a
total of 135,198 shares of Common Stock. See "Management -- Option
Grants."
(3) Comprised of currently exercisable options held by Mr. Gallagher to
purchase a total of 18,771 shares of Common Stock. See "Management --
Option Grants."
(4) Includes currently exercisable options to purchase a total of 153,969
shares of Common Stock.
43
<PAGE>
CERTAIN TRANSACTIONS
ACQUISITIONS
Since the Company's formation in March 1997, it has acquired seven
accounting and finance professional staffing companies. All of the Acquired
Companies now operate as wholly-owned subsidiaries of the Company. In certain
of these acquisitions persons who were previously shareholders of Acquired
Companies who are now executive officers, directors or holders of at least 5%
of the Company's outstanding Common Stock received consideration from the
Company in connection with the applicable acquisition. The following table
summarizes the total number of shares of Common Stock issued by the Company to
such persons in those acquisitions:
<TABLE>
<CAPTION>
SHARES OF
COMPANY COMMON STOCK
- ------- ------------
<S> <C>
David C. Cooper & Associates....................................... 1,573,714
Don Richard Associates of Washington............................... 2,237,142
AcSys Resources.................................................... 3,206,316
---------
Total............................................................ 7,017,172
=========
</TABLE>
These acquisitions are described in more detail below:
David C. Cooper & Associates. David C. Cooper received 1,573,714 shares of
Common Stock in connection with the mergers of wholly-owned subsidiaries of
the Company with and into David C. Cooper & Associates in May 1997.
Don Richard Associates of Washington. The following directors, executive
officers and/or 5% shareholders received shares of Common Stock in connection
with the merger of a wholly-owned subsidiary of the Company with and into Don
Richard Associates of Washington in May 1997: Mark E. Strassman -- 671,143
shares; Beth Monroe-Chase -- 671,143 shares; Kevin W. Cole -- 447,428 shares;
and Rosemarie Mahoney -- 447,428 shares. Other Don Richard Associates of
Washington shareholders who are not directors, executive officers and/or 5%
shareholders received the balance of 298,284 shares issued by the Company. The
Company has entered into an employment agreement with Mr. Strassman, a
director of the Company, under which Mr. Strassman will consult with the
Company's senior management at an annual base salary of $200,000. The
employment agreement is otherwise substantially similar to the employment
agreements for the Named Executive Officers, except that upon its termination
Mr. Strassman will continue to be paid the same compensation and benefits
through November 2000 instead of receiving a lump-sum severance payment. Mr.
Strassman's employment relationship with the Company has been restructured,
and he will no longer play an active role in the Company's management. As a
result, the Company will record a nonrecurring expense of approximately
$512,000 (the present value of the payments due to Mr. Strassman under his
employment agreement) in the quarter ended December 31, 1997. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Recent Developments."
AcSys Resources. The following directors, executive officers and/or 5%
shareholders received shares of Common Stock in connection with the AcSys
Resources merger in September 1997: Edward S. Baumstein -- 993,521 shares;
Harry J. Sauer -- 993,521 shares; John R. Ficquette -- 609,637 shares; and
Louis Boohaker -- 609,637 shares. Certain of those shares are currently in
escrow to secure certain representations and warranties in the merger
agreement and are anticipated to be released on approximately March 1, 1998,
as follows: Mr. Baumstein -- 35,023 shares; Mr. Sauer -- 35,023 shares; Mr.
Ficquette -- 21,491 shares; and Mr. Boohaker -- 21,491 shares. Other AcSys
Resources shareholders who are not directors, executive officers and/or 5%
shareholders received the balance of 453,186 shares issued by the Company. In
addition, the Company owes Messrs. Baumstein and Sauer approximately $86,000
and $41,000, respectively, for compensation earned prior to the Company's
acquisition of AcSys Resources but not yet paid. These obligations are payable
on demand.
Albert Detorre, a former shareholder of AcSys Resources, has the contractual
right (the "Put Right") to require the Company to purchase 122,012 shares of
the Company's Common Stock that he received in connection with the AcSys
Resources acquisition (which includes 4,302 shares currently in escrow to
secure certain representations and warranties in the merger agreement and
which are anticipated to be released on approximately March 1, 1998) at a
price equal to the "fair market value" of such shares at the time Mr. Detorre
44
<PAGE>
exercises such right. In connection with this Offering, Mr. Detorre has agreed
to waive the Put Right. See Note 8 of Notes to Consolidated Financial
Statements.
Prior to their acquisition by the Company, certain of the Acquired Companies
incurred indebtedness that was personally guaranteed by their shareholders. As
of December 31, 1997, the Company had borrowed an aggregate of approximately
$11.1 million under the Credit Facility to repay such indebtedness upon the
acquisition of such Acquired Companies. Obligations which are guaranteed by
certain of the Company's current shareholders having a principal balance of
approximately $1.1 million remain outstanding. See Note 3 of Notes to
Consolidated Financial Statements.
COMPANY POLICY
Following the closing of this Offering, all transactions with the Company's
shareholders, officers and directors or their affiliates, if any, will be
subject to the approval of a majority of the independent and disinterested
Outside Directors and will be conducted on terms no less favorable than could
be obtained from unaffiliated third parties on an arm's-length basis.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 45,000,000 shares of
Common Stock without par value and 5,000,000 shares of Preferred Stock without
par value. The following description of the terms and provisions of the shares
of stock of the Company and certain other matters does not purport to be
complete and is subject to and qualified in its entirety by reference to the
applicable provisions of the GBCC and the Company's Articles of Incorporation
and Bylaws.
COMMON STOCK
Each holder of shares of Common Stock is entitled to one vote at
shareholders' meetings for each share held. The Company's Articles of
Incorporation will be amended upon the consummation of this Offering to
eliminate cumulative voting for the election of directors. Subject to the
prior rights of any series of Preferred Stock that may be issued, holders of
shares of Common Stock are entitled to receive, pro rata, such dividends as
may be declared by the Board of Directors out of funds legally available
therefor, and are also entitled to share, pro rata, in any other distributions
to the shareholders. The Company anticipates that for the foreseeable future
its earnings will be retained for the operation and expansion of its business
and that it will not pay cash dividends. See "Dividend Policy." There are no
redemption or sinking fund provisions applicable to the Common Stock. The
Credit Facility prohibits the payment of dividends without the lender's prior
consent. Holders of shares of Common Stock do not have any preemptive rights
or other rights to subscribe for additional shares. The outstanding shares of
Common Stock are, and the shares sold by the Company pursuant to this Offering
will be, when issued and paid for, fully paid and non-assessable.
PREFERRED STOCK
Under the Articles of Incorporation, the Board of Directors may issue,
without any further action by the shareholders, up to 5,000,000 shares of
Preferred Stock of one or more series, including any preferences, conversion
and other rights, voting powers, restrictions, limitations, qualifications and
terms and conditions of redemption as shall be set forth in resolutions
adopted by the Board of Directors. The designation of any Preferred Stock with
greater rights, privileges and preferences than those applicable to the Common
Stock may adversely affect the voting power, market price and other rights and
privileges of the Common Stock, and may hinder or delay the removal of
directors, attempted tender offers, proxy contests or takeovers, or other
attempts to change control of the Company, some or all of which may be desired
by holders of the Common Stock.
45
<PAGE>
Articles of amendment must be filed with the Georgia Secretary of State prior
to the issuance of any shares of Preferred Stock of the applicable series.
REMOVAL OF THE BOARD OF DIRECTORS; NO CLASSIFICATION OF THE BOARD
The entire Board of Directors or any individual director may be removed with
cause by the shareholders. Directors may not be removed without cause. The
Board of Directors is not divided into classes, and the terms of office of all
of the Directors expire at the next annual meeting of shareholders.
SPECIAL MEETINGS
Under the Bylaws, special meetings of the shareholders may be called by
shareholders only if such shareholders hold outstanding shares representing a
majority of all votes entitled to be cast on any issue proposed to be
considered at any such special meeting.
ADVANCE NOTICE OF NEW BUSINESS AND DIRECTOR NOMINATIONS
The Company's Bylaws provide that, with respect to an annual meeting of
shareholders, the proposal of business to be considered by shareholders and
nominations of persons for election to the Board of Directors may be made only
(i) by or at the direction of the Board of Directors, the Chairman of the
Board or the President, or (ii) by a shareholder who has complied with the
advance notice procedures set forth in the Company's Bylaws.
INDEMNIFICATION AND LIMITATION OF LIABILITY
The Articles of Incorporation eliminate, subject to certain exceptions, the
personal liability of a director to the Company or its shareholders for
monetary damage for breaches of such director's duty of care or other duties
as a director. The Articles do not provide for the elimination of or any
limitation on the personal liability of a director for (i) any appropriation,
in violation of the director's duties, of any business opportunity of the
Company, (ii) acts or omissions that involve intentional misconduct or a
knowing violation of law, (iii) unlawful corporate distributions, or (iv) any
transactions from which the director derived an improper personal benefit. The
Articles of Incorporation of the Company further provide that if the GBCC is
amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Company shall be eliminated or limited to the fullest extent permitted by the
GBCC, as amended, without further action by the shareholders. These provisions
of the Articles of Incorporation will limit the remedies available to a
shareholder in the event of breaches of any director's duties to such
shareholder or the Company.
The Company's Bylaws require the Company to indemnify and hold harmless any
director who was or is a party or is threatened to be made a party, to any
threatened, pending or completed action, suit or proceeding whether civil,
criminal, administrative or investigative (including any action or suit by or
in the right of the Company) because he or she is or was a director of the
Company, against expenses (including, but not limited to, attorney's fees and
disbursements, court costs and expert witness fees), and against judgments,
fines, penalties, and amounts paid in settlement incurred by him or her in
connection with the action, suit or proceeding. Indemnification would be
disallowed under any circumstances where indemnification may not be authorized
by action of the Board of Directors, the shareholders or otherwise.
The Company has entered into separate indemnification agreements with each
of its directors and executive officers, whereby the Company agreed, among
other things, to provide for indemnification and advancement of expenses in a
manner and subject to terms and conditions similar to those set forth in the
Bylaws. These agreements also provide that the Company shall purchase and
maintain liability insurance for the benefit of its directors and executive
officers. These agreements may not be abrogated by action of the shareholders.
There is no pending litigation or proceeding involving a director, officer,
employee or other agent of the Company as to which indemnification is being
sought, nor is the Company aware of any pending or threatened litigation that
may result in claims for indemnification by any director, officer, employee or
other agent. The Company has also agreed to hold the shareholders harmless
from, against and in respect of federal income tax liabilities, including
interest and penalties imposed thereon (and any state and local income tax
liabilities as provided by applicable law), if any, incurred by the
shareholders as a result of a final determination of an adjustment (by reason
of an amended return, claim for refund, audit, judicial decision or otherwise)
to the taxable income of the Company for any period during the time the
Company was treated as an S Corporation for federal and state income tax
purposes which results in a decrease for any such period in the Company's
taxable income and a corresponding increase for any such period in the taxable
income of the shareholders. See "Prior S Corporation Status."
46
<PAGE>
REGISTRATION RIGHTS
The Company's current shareholders have the right in the event the Company
proposes to register under the Securities Act any Common Stock for its own
account or for the account of others, subject to certain exceptions, to
require the Company to include their shares in the registration, subject to
the right of any managing underwriter of any such offering to exclude some or
all of the shares for marketing reasons. In addition, through September 3,
1999, and upon the affirmative vote of the holders of at least 2,123,305
shares of Common Stock issued by the Company prior to the date of the
Offering, these shareholders have certain limited demand registration rights
to require the Company to register shares held by them, provided that the
aggregate estimated public offering price of all shares to be sold in the
offering is at least $5,000,000 and that any such demand must be accompanied
by either (i) the written consent of (a) David C. Cooper, (b) either Mark E.
Strassman or Beth Monroe-Chase and (c) either Edward S. Baumstein or Harry J.
Sauer to a registration pursuant to such request, or (ii) a written valuation
from a reputable investment banking firm that is a member of the New York
Stock Exchange which opines that the value of the Company in an offering made
pursuant to such request would be at least $100 million.
The Company generally is required to bear the expense relating to the sale
of the shareholders' securities under these registration rights, except for
underwriting discounts and commissions, and in certain cases the fees and
expenses of the shareholders' counsel and filing fees related to the
registration statement. The Company also is obligated to indemnify the
shareholders whose shares are included in any of the Company's registrations
against certain losses and liabilities, including liabilities under the
Securities Act and state securities laws. Each of the shareholders has waived
his or her right to include in this Offering shares which are not being sold
in this Offering.
ANTI-TAKEOVER PROVISIONS AND GEORGIA LAW
The Articles of Incorporation contain provisions that could have the effect
delaying, deferring or preventing an unsolicited change in control of the
Company.
Issuance of Preferred Stock. The Board of Directors has the power to issue
5,000,000 shares of Preferred Stock, in one or more classes or series and with
such rights and preferences as determined by the Board of Directors, all
without shareholder approval. Because the Board of Directors has the power to
establish the preferences and rights of each class or series of Preferred
Stock, it may afford the holders in any series of Preferred Stock preferences,
powers and rights, voting or otherwise, senior to the rights of holders of
Common Stock. The Board of Directors has no present plans to issue any shares
of Preferred Stock.
Georgia Anti-Takeover Statutes. The GBCC generally restricts a company from
entering into certain business combinations with an interested shareholder
(which is defined as any person or entity that is the beneficial owner of at
least 10% of the company's voting stock) or its affiliates for a period of
five years after the date on which such shareholder became an interested
shareholder, unless (i) the transaction is approved by the board of directors
of the company prior to the date such person became an interested shareholder,
(ii) the interested shareholder acquires 90% of the company's voting stock in
the same transaction in which it exceeds 10%, or (iii) subsequent to becoming
an interested shareholder, such shareholder acquires 90% of the company's
voting stock and the business combination is approved by the holders of a
majority of the voting stock entitled to vote thereon (the "Business
Combination Statute"). The GBCC provides that the Business Combination Statute
will not apply unless the bylaws of the corporation specifically provide that
the Business Combination Statute is applicable to the corporation. The Company
has not elected to be covered by such statute, but it could do so by action of
the Board of Directors at any time.
The GBCC also contains provisions that impose certain fair price and other
procedural requirements applicable to certain business combinations (the "Fair
Price Statute") with any person who owns 10% or more of the common stock (an
"interested shareholder"). These statutory requirements restrict business
combinations with, and accumulations of shares of voting stock of, certain
Georgia corporations. The Fair Price Statute will apply to a company only if
the company elects to be covered by the restrictions imposed by these
statutes. The Company has elected to be covered by the Fair Price Statute.
TRANSFER AGENT AND REGISTER
The transfer agent and registrar for the Common Stock is SunTrust Bank,
Atlanta, Georgia.
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 10,923,220 shares of
Common Stock outstanding. The 2,750,000 shares sold in this Offering
(3,162,500 shares if the Underwriters over-allotment option is exercised in
full) will be freely tradable by persons other than affiliates of the Company,
without restriction. The remaining 8,173,220 shares of Common Stock will be
"restricted" securities within the meaning of Rule 144 under the Securities
Act and may not be sold in the absence of registration under the Securities
Act unless an exemption from registration is available, including exemptions
contained in Rule 144. Of this amount, 5,402,679 shares will be beneficially
owned by persons who are affiliates of the Company and, commencing 90 days
after the date of this Prospectus, would be eligible for public sale pursuant
to Rule 144, subject to the volume restrictions discussed below. The Company
and all current shareholders of the Company, however, have agreed not to sell
or otherwise dispose of any shares of Common Stock for a period of 180 days
after the date of this Prospectus without the prior written consent of the
J.C. Bradford & Co., except that the Company may issue shares of Common Stock
in connection with acquisitions or upon the exercise of options granted under
the Option Plan. See "Underwriting." These shareholders, however, have the
right in the event the Company proposes to register under the Securities Act
any Common Stock for its own account or for the account of others, subject to
certain exceptions, to require the Company to include their shares in the
registration, subject to the right of any managing underwriter of any such
offering to exclude some or all of the shares for marketing reasons. In
addition, through September 3, 1999, and upon the affirmative vote of the
holders of at least 2,123,305 shares of Common Stock issued by the Company
prior to the date of the Offering, these shareholders have certain limited
demand registration rights to require the Company to register shares held by
them, provided that the aggregate estimated public offering price of all
shares to be sold in the offering is at least $5,000,000 and that any such
demand must be accompanied by either (i) the written consent of (a) David C.
Cooper, (b) either Mark E. Strassman or Beth Monroe-Chase and (c) either
Edward S. Baumstein or Harry J. Sauer to a registration pursuant to such
request, or (ii) a written valuation from a reputable investment banking firm
that is a member of the New York Stock Exchange which opines that the value of
the Company in an offering made pursuant to such request would be at least
$100 million.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned his or her shares of
Common Stock for at least one year (including the prior holding period of any
prior owner other than an affiliate) is entitled to sell within any three-
month period that number of shares which does not exceed the greater of 1% of
the outstanding shares of Common Stock and the average weekly trading volume
during the four calendar weeks preceding each such sale. Sales under Rule 144
are also subject to certain manner of sale provisions, notice requirements and
the availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not deemed an "affiliate" of the
Company for at least three months and who has beneficially owned shares for at
least two years (including the holding period of any prior owner other than an
affiliate) would be entitled to sell such shares under Rule 144 without regard
to the limitations described above. Rule 144 defines "affiliate" of a company
as a person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such company.
Affiliates of a company generally include its directors, officers and
principal shareholders.
The Company intends to grant under the Option Plan options to purchase up to
an aggregate of 2,000,000 shares of Common Stock. The Company intends to
register the shares issuable upon exercise of options granted under the Option
Plan and the 109,622 shares issuable upon exercise of options otherwise
outstanding. Upon such registration, such shares will be eligible for resale
in the public market without restrictions by persons who are not affiliates of
the Company, and to the extent they are held by affiliates, pursuant to Rule
144 without observance of the holding period requirements.
As soon as practical after the closing of this Offering, the Company intends
to register up to 2,000,000 shares of its Common Stock under the Securities
Act for use by the Company in connection with future
48
<PAGE>
acquisitions. These shares will generally be freely tradable after their
issuance, unless the sale thereof is contractually restricted. The
registration rights described above do not apply to the registration statement
related to these 2,000,000 shares.
Prior to this Offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that the sale
of shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of
Common Stock in the public market could adversely affect prevailing market
prices and the ability of the Company to raise equity capital in the future.
49
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company and the Selling Shareholders have agreed to sell to each of the
Underwriters listed below, and the Underwriters, for whom J.C. Bradford & Co.
and Janney Montgomery Scott Inc. are acting as representatives (the
"Representatives"), have severally agreed to purchase, the respective number
of shares of the Common Stock set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER
NAME OF UNDERWRITER OF SHARES
------------------- ---------
<S> <C>
J.C. Bradford & Co...............................................
Janney Montgomery Scott Inc. ....................................
---------
Total.......................................................... 2,750,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
their counsel and to various other conditions. The Underwriters are obligated
to purchase all the shares of the Common Stock offered hereby, excluding
shares covered by the over-allotment option granted to the Underwriters, if
any such shares are purchased.
The Company and the Selling Shareholders have been advised by the
Representatives that the Underwriters propose to offer the Common Stock to the
public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price, less a concession of not
in excess of $ per share, and that the Underwriters and such dealers may
reallow a concession of not in excess of $ per share to other dealers. The
public offering price and concessions and reallowances to dealers may be
changed by the Representatives after the initial public offering.
The Company has granted to the Underwriters an option, exercisable within 30
days after the date of the initial public offering, to purchase up to an
additional 412,500 shares of Common Stock to cover over-allotments, at the
same price per share to be paid by the Underwriters for the other shares
offered hereby. If the Underwriters purchase any such additional shares
pursuant to this option, each of the Underwriters will be committed to
purchase such additional shares in approximately the same proportion as set
forth in the above table. The Underwriters may purchase such shares only to
cover over-allotments, if any, in connection with the offering.
The Company, the Selling Shareholders and the Underwriters have agreed to
indemnify, or to contribute to payments made by, each other against certain
civil liabilities, including certain civil liabilities under the Securities
Act.
Before the offering, there has been no public market for the Common Stock.
The initial public offering price for the Common Stock was determined by
negotiation among the Company, the Selling Shareholders and the
Representatives. The factors considered in determining the initial public
offering price include the history of and prospects for the business in which
the Company operates, past and present operations, revenues and earnings of
50
<PAGE>
the Company and the trend of such earnings, the prospects for such earnings,
the general condition of the securities markets at the time of the offering
and the demand for similar securities of reasonably comparable companies.
In August 1997, AcSys Resources borrowed $650,000 from Janney Montgomery
Scott Inc. ("Janney") pursuant to a promissory note issued in conjunction with
AcSys Resources' acquisition of C.P.A. Staffing. The note carried an interest
rate of 8.5% and was paid in full in September 1997 upon the Company's
acquisition of AcSys Resources. In October 1996, Janney was engaged to serve
as a financial advisor to AcSys Resources. In consideration of its financial
advisory services, Janney earned $384,000 (including reimbursement of out-of-
pocket expenses) from the Company in connection with the acquisition by the
Company of AcSys Resources.
The Representatives have informed the Company and the Selling Shareholders
that the Underwriters do not intend to make sales to any accounts over which
they exercise discretionary authority.
The Company and all of its existing shareholders have agreed not to sell,
contract to sell or otherwise dispose of any shares of the Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of J.C. Bradford & Co. See "Shares Eligible for Future Sale."
In connection with the Offering, the Underwriters may purchase and sell the
Common Stock in the open market, which transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created by the Underwriters in connection with the Offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of
preventing or retarding a decline in the market price of the Common Stock, and
syndicate short positions involve the sale by the Underwriters of a greater
number of shares of Common Stock than they are required to purchase from the
Company in the Offering. The Underwriters also may impose a penalty bid,
whereby selling concessions allowed to syndicate members or other broker-
dealers in respect of the securities sold in the Offering for their account
may be reclaimed by the syndicate if such securities are repurchased by the
syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Common Stock,
which may be higher than the price that might otherwise prevail in the open
market; and these activities, if commenced, may be discontinued at any time.
These transactions may be effected on the Nasdaq National Market, in over-the-
counter market or otherwise.
The Underwriters have reserved up to 137,500 shares for sale at the initial
public offering price to certain consultants, employees, clients and other
persons associated with the Company. The number of shares of Common Stock
available for sale to the general public will be reduced to the extent any of
such persons purchase such reserved shares. Any reserved shares not so
purchased will be offered by the Underwriters to the general public on the
same basis as the other shares of Common Stock offered hereby.
LEGAL MATTERS
The validity of shares of Common Stock offered hereby is being passed upon
for the Company by Nelson Mullins Riley & Scarborough, L.L.P., Atlanta,
Georgia. Certain legal matters related to this Offering will be passed upon
for the Underwriters by Latham & Watkins, Washington, D.C.
EXPERTS
The audited financial statements included elsewhere in this Prospectus have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving such reports.
51
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission through the Electronic Data
Gathering and Retrieval ("EDGAR") system a registration statement on Form S-1
(together with all amendments, exhibits and schedules thereto, the
"Registration Statement") under the Securities Act with respect to the
Securities offered by this Prospectus. This Prospectus does not contain all of
the information set forth in such Registration Statement, certain parts of
which have been omitted in accordance with the rules and regulations of the
Commission. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement of which this Prospectus
forms a part. For further information, reference is made to such registration
statement, including the exhibits thereto, which may be inspected without
charge at the Commission's principal office at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549; and at the following Regional Offices of the
Commission, except that copies of the exhibits may not be available at certain
of the Regional Offices: Chicago Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and New York Regional Office, 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of all or any part
of such material may be obtained from the Commission at 450 Fifth Street, N.W.
Room 1024, Washington, D.C. 20549, upon payment of certain fees prescribed by
the Commission. The Commission maintains a World Wide Web site on the Internet
at http://www.sec.gov that contains reports, proxy, information statements,
and registration statements and other information filed with the Commission
through the EDGAR system.
The Company is not presently a reporting company and does not file reports
or other information with the Commission. On the effective date of the
Registration Statement under the Securities Act, however, the Company will
become a reporting company. Further, the Company will register its securities
under the Exchange Act. Accordingly, the Company will become subject to the
additional reporting requirements of the Exchange Act and in accordance
therewith will file reports, proxy statements and other information with the
Commission. In addition, after the completion of this offering, the Company
intends to furnish its shareholders with annual reports containing audited
financial statements and with quarterly reports containing unaudited summary
financial information for each of the first three quarters of each fiscal
year.
52
<PAGE>
ACSYS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED):
Basis of Presentation................................................... F-2
Pro Forma Consolidated Balance Sheet.................................... F-3
Pro Forma Consolidated Statements of Operations......................... F-4
Notes to Pro Forma Consolidated Financial Statements.................... F-7
ACSYS, INC. AND SUBSIDIARIES:
Report of Independent Public Accountants................................ F-9
Consolidated Balance Sheets............................................. F-10
Consolidated Statements of Operations................................... F-11
Consolidated Statements of Redeemable Common Stock and Shareholders' Eq-
uity................................................................... F-12
Consolidated Statements of Cash Flows................................... F-13
Notes to Consolidated Financial Statements.............................. F-14
C.P.A. STAFFING, INC. AND AFFILIATES:
Report of Independent Public Accountants................................ F-23
Combined Balance Sheets................................................. F-24
Combined Statements of Operations....................................... F-25
Combined Statements of Shareholders' Equity............................. F-26
Combined Statements of Cash Flows....................................... F-27
Notes to Combined Financial Statements.................................. F-28
</TABLE>
F-1
<PAGE>
ACSYS, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
(UNAUDITED)
ACSYS, Inc. (the "Company") was formed on March 10, 1997. On May 16, 1997,
the Company acquired all of the issued and outstanding common stock of
Infinity Enterprises, Inc.; David C. Cooper & Associates, Inc.; DCCA
Professional Temporaries, Inc.; and EKT, Inc. in exchange for shares of the
Company's Common Stock. The Company also acquired all of the issued and
outstanding common stock of Cama of Tampa, Inc., Rylan Forbes Consulting
Group, Inc. ("Rylan Forbes") and AcSys Resources, Inc. ("AcSys Resources"), on
May 19, 1997, July 25, 1997 and September 3, 1997, respectively, in the same
manner. The above acquisitions have been accounted for under the pooling of
interests method of accounting. The historical financial statements of the
Company have been restated to include the accounts and operating results of
the acquired companies for all dates and periods prior to the combinations,
except for Infinity Enterprises, Inc. and Cama of Tampa, Inc., which are
reflected only from their respective dates of formation of March 1, 1994 and
January 1, 1996, respectively.
Prior to the acquisition of AcSys Resources by the Company, AcSys Resources
acquired C.P.A. Staffing, Inc., C.P.A. Search, Inc. and Career Placement
Associates, Inc. (together, "C.P.A. Staffing") on August 12, 1997. The
acquisition was accounted for under the purchase method of accounting and is
reflected in the financial statements of the Company from the date of
acquisition. The accompanying pro forma financial statements give effect to
the acquisition of C.P.A. Staffing, the Offering and certain other pro forma
adjustments. See Notes to Pro Forma Consolidated Financial Statements.
The pro forma balance sheet gives effect to the Offering as if it had
occurred on September 30, 1997. The pro forma statements of operations give
effect to the acquisition of C.P.A. Staffing and the Offering as if they had
occurred on January 1, 1996. See Notes to Pro Forma Consolidated Financial
Statements.
The pro forma adjustments are based on estimates, available information and
certain assumptions that management deems appropriate. The pro forma financial
data do not purport to represent what the Company's financial position or
results of operations would actually have been if such transactions had
occurred on those dates and are not necessarily representative of the
Company's financial position or results of operations for any future period.
The pro forma financial statements should be read in conjunction with the
other financial statements and notes thereto included elsewhere in this
Prospectus. See "Risk Factors" included elsewhere herein.
F-2
<PAGE>
ACSYS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA OFFERING PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
----------- ------------ ----------- ----------- -----------
(NOTE 1) (NOTE 3) (NOTE 3)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equiva-
lents................. $ 1,546,748 $ -- $ 1,546,748 $ 5,259,180 $ 6,805,928
Accounts receivable,
net................... 9,505,695 -- 9,505,695 -- 9,505,695
Prepaid expenses and
other................. 508,235 -- 508,235 -- 508,235
----------- ---------- ----------- ----------- -----------
Total current as-
sets................ 11,560,678 -- 11,560,678 5,259,180 16,819,858
PROPERTY AND EQUIPMENT,
net.................... 1,172,787 -- 1,172,787 -- 1,172,787
GOODWILL AND OTHER
INTANGIBLE ASSETS,
net.................... 15,790,370 15,790,370 -- 15,790,370
OTHER ASSETS............ 107,672 -- 107,672 -- 107,672
----------- ---------- ----------- ----------- -----------
$28,631,507 $ -- $28,631,507 $ 5,259,180 $33,890,687
=========== ========== =========== =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdrafts........ $ 131,481 $ -- $ 131,481 $ -- $ 131,481
Current portion of
long-term debt........ 151,360 151,360 (99,970) 51,390
Accounts payable....... 560,584 -- 560,584 -- 560,584
Accrued liabilities.... 5,214,545 -- 5,214,545 (800,000) 4,414,545
Deferred income tax-
es.................... -- 597,000 597,000 -- 597,000
Other current liabili-
ties.................. 89,880 -- 89,880 -- 89,880
----------- ---------- ----------- ----------- -----------
Total current liabil-
ities............... 6,147,850 597,000 6,744,850 (899,970) 5,844,880
----------- ---------- ----------- ----------- -----------
LONG-TERM DEBT.......... 11,717,076 -- 11,717,076 (11,050,000) 667,076
----------- ---------- ----------- ----------- -----------
DEFERRED INCOME TAXES... -- 1,970,000 1,970,000 -- 1,970,000
----------- ---------- ----------- ----------- -----------
OTHER LONG-TERM
LIABILITIES............ 28,230 -- 28,230 -- 28,230
----------- ---------- ----------- ----------- -----------
REDEEMABLE COMMON STOCK,
no par value, 122,012
shares issued and
outstanding............ 1,220,120 (1,220,120) -- -- --
----------- ---------- ----------- ----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock, no
par value, 5,000,000
shares authorized, no
shares issued or out-
standing.............. -- -- -- -- --
Common stock, no par
value, 45,000,000
shares authorized,
8,371,208 shares
issued and
outstanding (actual),
8,493,220 (pro forma)
and 10,923,220 (pro
forma as adjusted).... 7,577,393 593,958 8,171,351 17,209,150 25,380,501
Retained earnings...... 1,940,838 (1,940,838) -- -- --
----------- ---------- ----------- ----------- -----------
Total shareholders'
equity.............. 9,518,231 (1,346,880) 8,171,351 17,209,150 25,380,501
----------- ---------- ----------- ----------- -----------
$28,631,507 $ -- $28,631,507 $ 5,259,180 $33,890,687
=========== ========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
ACSYS, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------
C.P.A. PRO FORMA PRO FORMA OFFERING PRO FORMA
ACSYS, INC. STAFFING ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
----------- --------------- ----------- ----------- ----------- -----------
(NOTE 1) (NOTES 1 AND 2) (NOTE 4) (NOTE 4)
<S> <C> <C> <C> <C> <C> <C>
SERVICE REVENUES:
Temporary staffing..... $34,756,945 $5,653,164 $ -- $40,410,109 $ -- $40,410,109
Permanent placement.... 11,151,319 849,404 -- 12,000,723 -- 12,000,723
----------- ---------- ---------- ----------- -------- -----------
Total service reve-
nues................ 45,908,264 6,502,568 -- 52,410,832 -- 52,410,832
DIRECT COST OF SERVICES,
consisting of payroll,
payroll taxes and
insurance costs for
temporary employees.... 22,873,091 4,051,962 -- 26,925,053 -- 26,925,053
----------- ---------- ---------- ----------- -------- -----------
Gross profit......... 23,035,173 2,450,606 -- 25,485,779 -- 25,485,779
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 18,776,444 1,378,626 (1,287,175)(f) 18,867,895 -- 18,867,895
AMORTIZATION AND
DEPRECIATION........... 661,377 22,663 215,184 (i) 899,224 -- 899,224
SEVERANCE AND FRANCHISE
TERMINATION COSTS...... 566,512 -- -- 566,512 -- 566,512
----------- ---------- ---------- ----------- -------- -----------
Operating income..... 3,030,840 1,049,317 1,071,991 5,152,148 -- 5,152,148
OTHER INCOME (EXPENSE):
Interest income........ 73,729 -- -- 73,729 -- 73,729
Interest expense....... (872,958) -- (177,000)(k) (1,049,958) 950,314 (l) (99,644)
Other.................. (4,099) -- -- (4,099) -- (4,099)
----------- ---------- ---------- ----------- -------- -----------
NET INCOME.............. $ 2,227,512 $1,049,317 894,991 4,171,820 950,314 5,122,134
=========== ==========
PRO FORMA INCOME TAXES.. 1,835,601 (h) 1,835,601 418,138 (h) 2,253,739
---------- ----------- -------- -----------
PRO FORMA NET INCOME.... $(940,610) $ 2,336,219 $532,176 $ 2,868,395
========== =========== ======== ===========
PRO FORMA NET INCOME PER
SHARE.................. $ 0.27 $ 0.28
=========== ===========
WEIGHTED AVERAGE SHARES
USED IN COMPUTING PRO
FORMA NET INCOME PER
SHARE (Note 5)......... 8,576,490 10,351,848
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
ACSYS, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------
C.P.A. PRO FORMA PRO FORMA OFFERING PRO FORMA
ACSYS, INC. STAFFING ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
----------- --------------- ----------- ----------- ----------- -----------
(NOTE 1) (NOTES 1 AND 2) (NOTE 4) (NOTE 4)
<S> <C> <C> <C> <C> <C> <C>
SERVICE REVENUES:
Temporary staffing..... $25,604,446 $4,174,342 $ -- $29,778,788 $ -- $29,778,788
Permanent placement.... 8,196,271 568,333 -- 8,764,604 -- 8,764,604
----------- ---------- ----------- ----------- -------- -----------
Total service reve-
nues................ 33,800,717 4,742,675 -- 38,543,392 -- 38,543,392
DIRECT COST OF SERVICES,
consisting of payroll,
payroll taxes and
insurance costs for
temporary employees.... 16,810,415 2,958,257 -- 19,768,672 -- 19,768,672
----------- ---------- ----------- ----------- -------- -----------
Gross profit......... 16,990,302 1,784,418 -- 18,774,720 -- 18,774,720
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 12,937,309 1,044,830 (317,170)(f) 13,664,969 -- 13,664,969
COMBINATION EXPENSES.... -- -- -- -- -- --
AMORTIZATION AND
DEPRECIATION........... 520,280 16,995 161,846(i) 699,121 -- 699,121
SEVERANCE AND FRANCHISE
TERMINATION COSTS...... 566,512 -- -- 566,512 -- 566,512
----------- ---------- ----------- ----------- -------- -----------
Operating income..... 2,966,201 722,593 155,324 3,844,118 -- 3,844,118
OTHER INCOME (EXPENSE):
Interest income........ 47,305 -- -- 47,305 -- 47,305
Interest expense....... (647,469) -- (133,185)(k) (780,654) 727,916(l) (52,738)
Other.................. (66,104) -- -- (66,104) -- (66,104)
----------- ---------- ----------- ----------- -------- -----------
NET INCOME.............. $ 2,299,933 $ 722,593 22,139 3,044,665 727,916 3,772,581
=========== ==========
PRO FORMA INCOME TAXES.. 1,339,653 (h) 1,339,653 320,283(h) 1,659,936
----------- ----------- -------- -----------
PRO FORMA NET INCOME.... $(1,317,514) $ 1,705,012 $407,633 $ 2,112,645
=========== =========== ======== ===========
PRO FORMA NET INCOME PER
SHARE.................. $ 0.20 $ 0.20
=========== ===========
WEIGHTED AVERAGE SHARES
USED IN COMPUTING PRO
FORMA NET INCOME PER
SHARE (Note 5)......... 8,576,490 10,351,848
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
ACSYS, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------
C.P.A. PRO FORMA PRO FORMA OFFERING PRO FORMA
ACSYS, INC. STAFFING ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
----------- --------------- ----------- ----------- ----------- -----------
(NOTE 1) (NOTES 1 AND 2) (NOTE 4) (NOTE 4)
<S> <C> <C> <C> <C> <C> <C>
SERVICE REVENUES:
Temporary staffing..... $29,937,397 $4,015,890 $ -- $33,953,287 $ -- $33,953,287
Permanent placement.... 12,072,290 540,620 -- 12,612,910 -- 12,612,910
----------- ---------- ---------- ----------- -------- -----------
Total service reve-
nues................ 42,009,687 4,556,510 -- 46,566,197 -- 46,566,197
DIRECT COST OF SERVICES,
consisting of payroll,
payroll taxes and
insurance costs for
temporary employees.... 19,827,965 2,832,357 -- 22,660,322 -- 22,660,322
----------- ---------- ---------- ----------- -------- -----------
Gross profit......... 22,181,722 1,724,153 -- 23,905,875 -- 23,905,875
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 18,159,688 1,679,590 (1,712,301)(f)(j) 18,126,977 -- 18,126,977
COMBINATION EXPENSES.... 1,722,334 -- (1,722,334)(g) -- -- --
AMORTIZATION AND
DEPRECIATION........... 416,628 20,995 131,612 (i) 569,235 -- 569,235
SEVERANCE AND FRANCHISE
TERMINATION COSTS...... 170,000 -- -- 170,000 -- 170,000
----------- ---------- ---------- ----------- -------- -----------
Operating income..... 1,713,072 23,568 3,303,023 5,039,663 -- 5,039,663
OTHER INCOME (EXPENSE):
Interest income........ 31,635 -- -- 31,635 -- 31,635
Interest expense....... (595,671) -- (105,273)(k) (700,944) 655,839 (l) (45,105)
Other.................. (24,306) -- -- (24,306) -- (24,306)
----------- ---------- ---------- ----------- -------- -----------
NET INCOME.............. $ 1,124,730 $ 23,568 3,197,750 4,346,048 655,839 5,001,887
=========== ==========
PRO FORMA INCOME TAXES.. 1,912,261 (h) 1,912,261 288,569 (h) 2,200,830
---------- ----------- -------- -----------
PRO FORMA NET INCOME.... $1,285,489 $ 2,433,787 $367,270 $ 2,801,057
========== =========== ======== ===========
PRO FORMA NET INCOME PER
SHARE.................. $ 0.28 $ 0.27
=========== ===========
WEIGHTED AVERAGE SHARES
USED IN COMPUTING PRO
FORMA NET INCOME PER
SHARE (Note 5)......... 8,576,490 10,351,848
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
ACSYS, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL:
The accompanying pro forma information presents the pro forma financial
position of the Company as of September 30, 1997 and the pro forma results of
operations for the year ended December 31, 1996 and the nine months ended
September 30, 1996 and 1997.
The historical financial statements of the Company were derived from the
historical statements of operations for the year ended December 31, 1996 and
the nine months ended September 30, 1996 and 1997 and the historical balance
sheet as of September 30, 1997. The historical statements of operations of
C.P.A. Staffing were derived from the historical statements of operations of
C.P.A. Staffing for the year ended December 31, 1996, the nine months ended
September 30, 1996 and the period from January 1, 1997 through the date of its
acquisition on August 12, 1997. See the financial statements and notes thereto
for the Company and C.P.A. Staffing included elsewhere in this Prospectus.
2. ACQUISITION OF C.P.A. STAFFING:
Prior to the acquisition of AcSys Resources by the Company, AcSys Resources
acquired C.P.A. Staffing on August 12, 1997. The acquisition was accounted for
under the purchase method of accounting. The total purchase price was
approximately $9,700,000 and consisted of cash of $1,900,000, 1,219,274 shares
of Common Stock with a fair market value of $7,700,000 and transaction costs
of $144,000. The purchase price was allocated to the assets acquired and
liabilities assumed. The $8,600,000 excess of the purchase price over
estimated fair value of the net assets acquired was recorded as goodwill.
3. ADJUSTMENTS TO PRO FORMA CONSOLIDATED BALANCE SHEET:
The following table summarizes the pro forma adjustments to the balance
sheet as of September 30, 1997:
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS OFFERING ADJUSTMENTS
----------------------------------------------- ----------------------------------------
(A) (B) (C) TOTAL (D) (E) TOTAL
---------- ---------- -------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents............ $ -- $ -- $ -- $ -- $17,209,150 $(11,949,970) $ 5,259,180
========== ========== ======== ========== =========== ============ ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current portion of long-
term debt.............. $ -- $ -- $ -- $ -- $ -- $ (99,970) $ (99,970)
Accrued liabilities..... -- -- -- -- -- (800,000) (800,000)
Deferred income taxes... -- 597,000 -- 597,000 -- -- --
---------- ---------- -------- ---------- ----------- ------------ -----------
Total current
liabilities........... -- 597,000 -- 597,000 -- (899,970) (899,970)
---------- ---------- -------- ---------- ----------- ------------ -----------
Long-term debt.......... -- -- -- -- -- (11,050,000) (11,050,000)
---------- ---------- -------- ---------- ----------- ------------ -----------
Deferred income taxes... -- 1,970,000 -- 1,970,000 -- -- --
---------- ---------- -------- ---------- ----------- ------------ -----------
Redeemable Common
Stock.................. (1,220,120) -- -- (1,220,120) -- -- --
---------- ---------- -------- ---------- ----------- ------------ -----------
Shareholders' equity:
Common Stock............ 1,220,120 -- (626,162) 593,958 17,209,150 -- 17,209,150
Retained earnings....... -- (2,567,000) 626,162 (1,940,838) -- -- --
---------- ---------- -------- ---------- ----------- ------------ -----------
Total shareholders'
equity................ 1,220,120 (2,567,000) -- (1,346,880) 17,209,150 -- 17,209,150
---------- ---------- -------- ---------- ----------- ------------ -----------
Total liabilities and
shareholders' equity.. $ -- $ -- $ -- $ -- $17,209,150 $(11,949,970) $ 5,259,180
========== ========== ======== ========== =========== ============ ===========
</TABLE>
(a) Reflects the elimination of certain Common Stock redemption rights in
connection with the Offering.
(b) The Company operates as an S corporation and will terminate such status in
connection with the Offering. Upon the termination of S corporation
status, the Company will record a deferred income tax provision of
approximately $2,567,000 for the tax effect of the differences in the
bases of assets and liabilities for financial reporting and income tax
purposes. This deferred tax provision will be recorded in the quarter in
which the Offering is completed.
(c) Reflects the resetting of retained earnings in connection with the
termination of the Company's S corporation status.
(d) Reflects the net proceeds from the sale by the Company of 2,430,000 shares
of Common stock in the Offering at $8.50 per share, estimated to be
approximately $17,209,150 (after deducting underwriting discounts and
commissions and estimated offering expenses).
F-7
<PAGE>
ACSYS, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(e) Reflects the use of a portion of the net proceeds of the Offering to
reduce long-term debt of $11,149,970 and to pay accrued distributions of
$800,000 for income taxes on S corporation earnings through September 30,
1997.
4. ADJUSTMENTS TO THE PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS:
(f) Reflects an adjustment of $1,287,175, $342,203 and $1,009,836 for the year
ended December 31, 1996 and the nine months ended September 30, 1996 and
1997, respectively, to officer and employee compensation based on
employment agreements entered into upon the closing of the acquisitions.
This adjustment does not reflect discretionary bonuses which may be paid
to these individuals.
(g) Reflects the elimination of the combination expenses.
(h) Reflects the provision for income taxes as if the Company was a C
corporation during the periods presented.
(i) Reflects the amortization expense for the goodwill recorded in connection
with the acquisition of C.P.A. Staffing. The goodwill is being amortized
on a straight-line basis over an estimated life of 40 years.
(j) Reflects the elimination of the non-recurring, non-cash charge of $702,465
relating to the acquisition of C.P.A. Staffing.
(k) Reflects additional interest expense on the borrowings incurred to finance
the cash portion of the C.P.A. Staffing purchase price.
(l) Reflects the elimination of interest expense resulting from the reduction
of debt utilizing a portion of the net proceeds of the Offering.
5. PRO FORMA NET INCOME PER SHARE:
The shares used in computing pro forma net income per share are as follows:
<TABLE>
<S> <C>
Outstanding shares of Common Stock............................... 8,493,220
Common Stock equivalents for stock options granted............... 83,270
----------
Pro forma shares............................................... 8,576,490
Shares issued in the Offering necessary to pay expenses of the
Offering, repay indebtedness and pay distributions to certain
shareholders for income taxes on S corporation earnings......... 1,775,358
----------
Pro forma, as adjusted shares.................................. 10,351,848
==========
</TABLE>
The remaining shares to be sold in the Offering have been excluded. Options
that will be issued upon the Offering are also excluded.
Pursuant to the requirements of the Securities and Exchange Commission,
common stock equivalents issued by the Company during the twelve months
preceding the Offering are included in the calculation of the shares used in
computing pro forma net income per share as if they were outstanding for all
periods presented using the treasury stock method. As of September 30, 1997,
there were 244,820 options issued and outstanding, all of which were issued
within 12 months preceding the offering.
The Company accounts for its option grants under APB Opinion No. 25,
"Accounting for Stock Issued to Employees" and includes a disclosure of the
fair value based method of accounting for stock-based compensation plans in
accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123). Had the Company
recognized compensation cost for its stock option grants consistent with the
provisions of SFAS 123, and assuming the 950,000 options issued upon the
Offering are considered outstanding on January 1, 1997 with an exercise price
of $8.50 per share, the following pro forma as adjusted net income per share
would have resulted:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1997
------------------
<S> <C>
Pro forma net income (loss):
As Adjusted............................................. $2,801,057
==========
Per SFAS 123............................................ $ (306,213)
==========
Pro forma net income (loss) per Common Share:
As Adjusted............................................. $ .28
==========
Per SFAS 123............................................ $ (.03)
==========
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model, with a risk-free interest rate of
6.5%, a volatility of 55%, no expected dividend yield and an expected life of
five years.
F-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ACSYS, Inc.:
We have audited the accompanying consolidated balance sheets of ACSYS, Inc.
(a Georgia corporation) and subsidiaries as of December 31, 1995 and 1996 and
September 30, 1997, and the related consolidated statements of operations,
redeemable common stock and shareholders' equity and cash flows for each of
the three years in the period ended December 31, 1996 and the nine months
ended September 30, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of ACSYS, Inc.
and subsidiaries as of December 31, 1995 and 1996 and September 30, 1997, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996 and the nine months ended
September 30, 1997, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Philadelphia, PA,
November 14, 1997
F-9
<PAGE>
ACSYS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------ SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............ $ 1,431,531 $ 1,061,662 $ 1,546,748
Restricted cash...................... -- 116,434 --
Accounts receivable, net of
allowances of $166,251, $280,825 and
$416,766............................ 4,547,323 6,219,127 9,505,695
Prepaid expenses and other........... 72,252 245,876 508,235
----------- ----------- -----------
Total current assets............... 6,051,106 7,643,099 11,560,678
PROPERTY AND EQUIPMENT, net............ 488,437 852,784 1,172,787
GOODWILL AND OTHER INTANGIBLE ASSETS,
net................................... 7,092,980 7,126,478 15,790,370
OTHER ASSETS........................... 240,309 232,781 107,672
----------- ----------- -----------
$13,872,832 $15,855,142 $28,631,507
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdrafts...................... $ 7,393 $ 264,699 $ 131,481
Lines of credit...................... 550,000 925,000 --
Current portion of long-term debt.... 1,470,151 721,746 151,360
Accounts payable..................... 289,559 347,664 560,584
Accrued liabilities.................. 1,574,156 1,792,754 5,214,545
Other current liabilities............ 83,235 36,474 89,880
----------- ----------- -----------
Total current liabilities.......... 3,974,494 4,088,337 6,147,850
----------- ----------- -----------
LONG-TERM DEBT......................... 7,435,177 8,125,008 11,717,076
----------- ----------- -----------
OTHER LONG-TERM LIABILITIES............ 15,067 40,842 28,230
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 4)
REDEEMABLE COMMON STOCK, no par value,
122,012 shares issued and
outstanding........................... -- 287,946 1,220,120
----------- ----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value,
5,000,000 shares authorized, no
shares issued or outstanding........ -- -- --
Common stock, no par value,
45,000,000 shares authorized,
7,273,946, 7,151,934 and 8,371,208
shares issued and outstanding,
respectively........................ 124,770 510,604 7,577,393
Retained earnings.................... 2,454,231 3,391,812 1,940,838
Treasury stock, at cost.............. (130,907) (589,407) --
----------- ----------- -----------
Total shareholders' equity......... 2,448,094 3,313,009 9,518,231
----------- ----------- -----------
$13,872,832 $15,855,142 $28,631,507
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-10
<PAGE>
ACSYS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31 SEPTEMBER 30
------------------------------------- --------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- --------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SERVICE REVENUES:
Temporary staffing.... $21,150,942 $26,565,734 $34,756,945 $25,604,446 $29,937,397
Permanent placement... 6,243,700 7,919,043 11,151,319 8,196,271 12,072,290
----------- ----------- ----------- ------------ ------------
Total service reve-
nues............... 27,394,642 34,484,777 45,908,264 33,800,717 42,009,687
DIRECT COST OF SERVICES,
consisting of payroll,
payroll taxes and
insurance costs for
temporary employees.... 14,025,196 17,731,610 22,873,091 16,810,415 19,827,965
----------- ----------- ----------- ------------ ------------
Gross profit........ 13,369,446 16,753,167 23,035,173 16,990,302 22,181,722
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 10,218,230 12,795,347 18,776,444 12,937,309 18,159,688
COMBINATION EXPENSES.... -- -- -- -- 1,722,334
AMORTIZATION AND
DEPRECIATION........... 546,723 674,312 661,377 520,280 416,628
SEVERANCE AND FRANCHISE
TERMINATION COSTS...... 561,429 166,394 566,512 566,512 170,000
----------- ----------- ----------- ------------ ------------
Operating income.... 2,043,064 3,117,114 3,030,840 2,966,201 1,713,072
OTHER INCOME (EXPENSE):
Interest income....... 20,627 64,039 73,729 47,305 31,635
Interest expense...... (851,966) (890,133) (872,958) (647,469) (595,671)
Other ................ (21,589) (39,132) (4,099) (66,104) (24,306)
----------- ----------- ----------- ------------ ------------
NET INCOME ............. $ 1,190,136 $ 2,251,888 $ 2,227,512 $ 2,299,933 $ 1,124,730
=========== =========== =========== ============ ============
PRO FORMA DATA
(UNAUDITED) (Note 2):
Historical net income,
as reported.......... $ 2,227,512 $ 1,124,730
Pro forma income
taxes................ 980,105 1,138,826
----------- ------------
Pro forma net income
(loss)............... $ 1,247,407 $ (14,096)
=========== ============
Pro forma net income
(loss) per share..... $ 0.14 $ (0.13)
=========== ============
Weighted average
shares used in
computing pro forma
net income (loss) per
share................ 7,235,204 7,373,210
=========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-11
<PAGE>
ACSYS, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE COMMON STOCK
AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
--------------------------------------------------------
REDEEMABLE
COMMON STOCK COMMON STOCK
------------------ ---------------------
RETAINED TREASURY
SHARES AMOUNT SHARES AMOUNT EARNINGS STOCK TOTAL
------- ---------- --------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1994................... -- $ -- 7,273,946 $ 124,770 $ 273,175 $(130,907) $ 267,038
Distributions to
shareholders.......... -- -- -- -- (543,307) -- (543,307)
Net income............. -- -- -- -- 1,190,136 -- 1,190,136
------- ---------- --------- ---------- ---------- --------- ----------
BALANCE, DECEMBER 31,
1994................... -- -- 7,273,946 124,770 920,004 (130,907) 913,867
Distributions to
shareholders.......... -- -- -- -- (717,661) -- (717,661)
Net income............. -- -- -- -- 2,251,888 -- 2,251,888
------- ---------- --------- ---------- ---------- --------- ----------
BALANCE, DECEMBER 31,
1995................... -- -- 7,273,946 124,770 2,454,231 (130,907) 2,448,094
Assumption of debt
accounted for as a
distribution.......... -- -- -- -- (300,000) -- (300,000)
Push down of new
accounting basis in
purchase transaction.. -- -- -- 300,000 -- -- 300,000
Contributions from
shareholders.......... -- -- -- 150,000 -- -- 150,000
Distributions to
shareholders.......... -- -- -- -- (766,151) -- (766,151)
Purchase of Common
Stock in connection
with redemption
agreement (Note 8).... 122,012 64,166 (122,012) (64,166) -- (458,500) (522,666)
Accretion of redeemable
Common Stock to
redemption value...... -- 223,780 -- -- (223,780) -- (223,780)
Net income............. -- -- -- -- 2,227,512 -- 2,227,512
------- ---------- --------- ---------- ---------- --------- ----------
BALANCE, DECEMBER 31,
1996................... 122,012 287,946 7,151,934 510,604 3,391,812 (589,407) 3,313,009
Distributions to
shareholders.......... -- -- -- -- (1,643,530) -- (1,643,530)
Issuance of Common
Stock in connection
with the acquisition
of C.P.A. Staffing.... -- -- 1,219,274 7,066,789 -- 589,407 7,656,196
Accretion of redeemable
Common Stock to
redemption value...... -- 932,174 -- -- (932,174) -- (932,174)
Net income............. -- -- -- -- 1,124,730 -- 1,124,730
------- ---------- --------- ---------- ---------- --------- ----------
BALANCE, SEPTEMBER 30,
1997................... 122,012 $1,220,120 8,371,208 $7,577,393 $1,940,838 $ -- $9,518,231
======= ========== ========= ========== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-12
<PAGE>
ACSYS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31 SEPTEMBER 30
------------------------------------ ---------------------------
1994 1995 1996 1996 1997
---------- ----------- ----------- ---------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income............. $1,190,136 $ 2,251,888 $ 2,227,512 $ 2,299,933 $ 1,124,730
Adjustments to
reconcile net income
to net cash provided
by operating
activities--
Amortization and
depreciation......... 546,723 674,312 661,377 520,280 416,628
Loss on property
disposal............. -- -- -- 1,990 7,931
Change in deferred
rent liability....... (30,879) (30,463) (45,530) (20,585) 89,880
Imputed interest...... 57,000 73,000 71,000 52,992 58,122
Non-cash severance
charge............... -- -- 458,500 458,500 --
Changes in operating
assets and
liabilities:
Accounts receivable,
net.................. (667,202) (839,201) (1,483,465) (918,269) (2,163,064)
Prepaid expenses and
other................ (26,278) 13,878 (162,876) (142,157) (367,938)
Accounts payable...... 39,593 99,023 38,269 58,807 144,261
Accrued liabilities
and other............ 299,892 523,786 143,100 64,127 2,248,090
---------- ----------- ----------- ------------ ------------
Net cash provided by
operating activi-
ties................ 1,408,985 2,766,223 1,907,887 2,375,618 1,558,640
---------- ----------- ----------- ------------ ------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Net cash paid for
acquisition of C.P.A.
Staffing.............. -- -- -- -- (1,873,803)
Capital expenditures... (125,956) (273,509) (487,494) (403,739) (377,997)
---------- ----------- ----------- ------------ ------------
Net cash used in in-
vesting activities.. (125,956) (273,509) (487,494) (403,739) (2,251,800)
---------- ----------- ----------- ------------ ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Changes in bank
overdrafts............ 68,731 (128,864) 224,688 92,229 (133,218)
Net borrowings
(repayments) on lines
of credit............. 110,282 177,000 325,500 166,076 (925,000)
Proceeds from long-term
debt.................. 250,000 79,973 326,325 182,500 12,207,200
Repayments of long-term
debt ................. (604,645) (1,235,674) (1,811,370) (1,368,617) (9,243,640)
Changes in restricted
cash.................. -- -- (89,254) (68) 116,434
Net borrowings
(repayments) of notes
payable to
shareholders.......... 50,000 -- (150,000) -- --
Shareholder
contributions......... -- -- 150,000 -- --
Distributions to
shareholders.......... (543,307) (717,661) (766,151) (443,785) (843,530)
---------- ----------- ----------- ------------ ------------
Net cash provided by
(used in) financing
activities.......... (668,939) (1,825,226) (1,790,262) (1,371,665) 1,178,246
---------- ----------- ----------- ------------ ------------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ 614,090 667,488 (369,869) 600,214 485,086
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD.............. 149,953 764,043 1,431,531 1,431,531 1,061,662
---------- ----------- ----------- ------------ ------------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD................. $ 764,043 $ 1,431,531 $ 1,061,662 $ 2,031,745 $ 1,546,748
========== =========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-13
<PAGE>
ACSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED)
1. DESCRIPTION OF BUSINESS:
ACSYS, Inc. (the "Company") is an accounting and finance staffing firm that
operates offices primarily located in major metropolitan areas in the eastern
United States.
The Company was formed on March 10, 1997 and effected a business combination
on May 16, 1997 in which it acquired all of the issued and outstanding common
stock of Infinity Enterprises, Inc.; David C. Cooper & Associates, Inc.; DCCA
Professional Temporaries, Inc.; and EKT, Inc. in exchange for 4,240,283 shares
of the Company's Common Stock (the "May 16 Pooling"). Subsequent to the May 16
Pooling, the Company acquired all of the issued and outstanding common stock
of the following companies, in the same manner:
<TABLE>
<CAPTION>
NAME ACQUISITION DATE SHARES ISSUED
---- ----------------- -------------
<S> <C> <C>
Cama of Tampa, Inc....................... May 19, 1997 131,143
Rylan Forbes Consulting Group, Inc....... July 25, 1997 462,292
AcSys Resources, Inc..................... September 3, 1997 3,659,502
</TABLE>
The business combinations referred to above have been accounted for under
the pooling of interests method of accounting. Thus, the accompanying
financial statements have been restated to include the accounts and operating
results of the combined companies for all dates and periods prior to the
combinations, except for Infinity Enterprises, Inc. and Cama of Tampa, Inc.,
which are reflected only from their respective dates of formation of March 1,
1994 and January 1, 1996, respectively (see Note 2).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL STATEMENTS
The consolidated statement of operations for the nine months ended September
30, 1996 is unaudited and, in the opinion of management of the Company,
includes all normal recurring adjustments necessary for a fair presentation of
the results for the interim period. The results of operations for the nine
months ended September 30, 1997 are not necessarily indicative of the results
to be expected for the full year.
RISKS AND UNCERTAINTIES
The Company's future results of operations involve a number of risks and
uncertainties. Factors that could affect the Company's future operating
results and cause actual results to vary materially from expectations include,
but are not limited to, the Company's brief operating history, the competitive
market for temporary staffing services, dependence on availability of
qualified personnel, dependence on key personnel and risks associated with
opening new offices and offering new services.
Credit risk with respect to accounts receivable is dispersed due to the
nature of the business, the large number of customers, and the diversity of
industries serviced. At December 31, 1995 and 1996 and September 30, 1997, no
one customer represented greater than 10% of accounts receivable or greater
than 10% of revenues for the periods then ended.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. All significant
intercompany transactions and accounts have been eliminated.
F-14
<PAGE>
ACSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers cash on deposit with financial institutions and all
highly liquid investments purchased with an original maturity of three months
or less to be cash equivalents. At the balance sheet dates, cash equivalents
were comprised primarily of investments in money market funds and certificates
of deposit.
RESTRICTED CASH
Restricted cash represents funds held by a financing institution as
collateral for a line of credit.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are depreciated using the straight-line method over the shorter
of the estimated useful life of the asset or the remaining term of the lease.
<TABLE>
<CAPTION>
DECEMBER 31
---------------------- SEPTEMBER 30,
USEFUL LIVES 1995 1996 1997
------------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Office equipment........... 3-7 years $ 765,817 $1,090,574 $ 1,510,616
Office furniture and fix-
tures..................... 3-7 years 259,443 401,638 542,582
Leasehold improvements..... 7 years 1,389 155,237 161,277
---------- ---------- -----------
1,026,649 1,647,449 2,214,475
Less-- Accumulated depreci-
ation..................... (538,212) (794,665) (1,041,688)
---------- ---------- -----------
$ 488,437 $ 852,784 $ 1,172,787
========== ========== ===========
</TABLE>
Depreciation expense for the years ended December 31, 1994, 1995 and 1996,
and the nine months ended September 30, 1996 and 1997 was $73,322, $116,231,
$252,090, $143,950 and $216,915, respectively.
INTANGIBLE ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
----------------------- SEPTEMBER 30,
1995 1996 1997
----------- ---------- -------------
<S> <C> <C> <C>
Goodwill................................. $ 7,200,000 $7,642,785 $16,274,559
Non-compete agreements................... 815,939 -- --
Deferred financing costs................. -- -- 231,831
Other.................................... 108,523 8,523 8,523
----------- ---------- -----------
8,124,462 7,651,308 16,514,913
Less-- Accumulated amortization.......... (1,031,482) (524,830) (724,543)
----------- ---------- -----------
$ 7,092,980 $7,126,478 $15,790,370
=========== ========== ===========
</TABLE>
Goodwill was recorded in connection with the acquisition on February 28,
1994 of certain assets of a predecessor by Infinity Enterprises, Inc., the
acquisition on January 1, 1996 of common stock from the previous shareholders
of Cama of Tampa, Inc. and the acquisition on August 12, 1997 of C.P.A.
Staffing (see Note 9). Goodwill is being amortized on a straight-line basis
over 40 years.
The non-compete agreements were entered into on February 28, 1994 between
Infinity Enterprises, Inc. and its predecessor and were amortized on a
straight-line basis over 30 months.
Deferred financing costs are being amortized over the three-year term of the
credit facility (see Note 3).
Amortization expense for the intangible assets for the years ended December
31, 1994, 1995 and 1996 and for the nine months ended September 30, 1996 and
1997 was $473,401, $558,081, $409,287, $376,330 and $199,713, respectively.
F-15
<PAGE>
ACSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
LONG-LIVED ASSETS
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 121 "Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by the Company be
reviewed for possible impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If
changes in circumstances indicate that the carrying amount of an asset that an
entity expects to hold and use may not be recoverable, future cash flows
expected to result from the use of the asset and its disposition must be
estimated. If the undiscounted value of the future cash flows is less than the
carrying amount of the asset, an impairment will be recognized. Management
believes that there has been no impairment of long-lived assets as of
September 30, 1997.
ACCRUED LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31
--------------------- SEPTEMBER 30,
1995 1996 1997
---------- ---------- -------------
<S> <C> <C> <C>
Salaries and commissions................. $ 532,314 $ 515,701 $2,590,590
Combination costs........................ -- -- 1,044,574
Payroll taxes............................ 470,808 439,310 340,817
Shareholder distributions................ -- -- 800,000
Other.................................... 571,034 837,743 438,564
---------- ---------- ----------
$1,574,156 $1,792,754 $5,214,545
========== ========== ==========
</TABLE>
REVENUE RECOGNITION
The Company recognizes permanent placement revenues when the employment
offer and acceptance has occurred and the candidate's employment start date
has been established. Revenues from permanent placements are reported in the
statements of operations net of estimated adjustments due to placed candidates
that terminate employment within the Company's guarantee period (generally 90-
180 days). The net adjustment in each of the periods presented is immaterial.
The Company recognizes temporary staffing revenues when the services are
performed.
GROSS PROFIT
Gross profit is determined by deducting the direct cost of services for
temporary staffing revenues (temporary and contract personnel payroll, payroll
taxes and insurance costs) from total service revenues. The primary costs
associated with permanent placement revenues are sales commissions, which
increase in proportion with service revenue from permanent placements.
Consistent with industry practice, these costs are included in selling,
general and administrative expenses.
SUPPLEMENTAL CASH FLOW INFORMATION
For the years ended December 31, 1994, 1995 and 1996 and the nine months
ended September 30, 1996 and 1997, the Company paid interest of $764,768,
$919,280, $865,417, $646,962 and $601,989, respectively. The Company financed
equipment purchases under capital leases of $61,219 and $100,000 for the years
ended December 31, 1995 and 1996, respectively, and purchased Common Stock for
debt in the amount of $442,785 for the year ended December 31, 1996.
F-16
<PAGE>
ACSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table displays the net noncash assets that were acquired in
August 1997 in connection with the acquisition of C.P.A. Staffing (see Note
9):
<TABLE>
<S> <C>
Noncash assets (liabilities)
Accounts receivable........................................... $ 1,123,504
Prepaid expenses and other.................................... 1,143
Property and equipment........................................ 166,852
Goodwill...................................................... 8,631,774
Accounts payable.............................................. (68,659)
Accrued liabilities........................................... (324,615)
-----------
Net noncash assets acquired................................... 9,529,999
Common stock issued........................................... (7,656,196)
-----------
Net cash paid for acquisition............................... $ 1,873,803
===========
</TABLE>
INCOME TAXES
The Company is an S corporation for federal and state income tax reporting
purposes. As such, all taxable income and loss of the Company is included in
the shareholders' tax returns. If the S corporation status had been terminated
as of September 30, 1997, the Company would have recorded a net deferred tax
liability of approximately $2,567,000 representing the tax effect of
differences in the bases in assets and liabilities for financial reporting and
income tax purposes. The differences primarily relate to the use of the cash
basis of accounting for tax purposes and the accrual basis of accounting for
financial reporting purposes, as well as differences in depreciation and
amortization methods. Pro forma income taxes represent the income tax expense
that would have resulted if the Company was a C corporation for the periods
presented.
PRO FORMA NET INCOME (LOSS) PER SHARE
Pro forma net income (loss) per Common share was calculated by dividing pro
forma net income (loss) available to Common shareholders by the weighted
average number of shares outstanding of 7,235,204 for the year ended December
31, 1996 and 7,373,210 for the nine months ended September 30, 1997, which
include Common Stock equivalents of 83,270, unless otherwise anti-dilutive.
The average number of shares outstanding excludes the redeemable Common
shares, as the accretion on the redeemable Common Stock of $223,780 for the
year ended December 31, 1996 and $932,174 for the nine months ended September
30, 1997, is deducted in arriving at pro forma net income (loss) available to
Common shareholders. The average number of shares outstanding has been
retroactively restated to include the shares issued for the business
combinations accounted for as poolings of interests.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Management believes that the carrying amounts of certain financial
instruments, including cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses approximate their fair values as of each
balance sheet date given the relatively short maturity of these instruments.
The fair values of long-term debt instruments have been estimated by
discounting future cash flows based on the current interest rate environment
and remaining term to maturity.
F-17
<PAGE>
ACSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement No. 128, "Earnings per share." This statement establishes
standards for computing and presenting earnings per share and is effective for
financial statements issued for periods ending after December 15, 1997.
Earlier application of this statement is not permitted and, upon adoption,
requires restatement (as applicable) of all prior-period earnings per share
data presented. Management believes that the implementation of this standard
will not have a material effect on the Company's calculation of earnings per
share.
In February 1997, the FASB issued Statement No. 129, "Disclosure of
Information about Capital Structure." This statement establishes standards for
disclosing information about an entity's capital structure. Management intends
to comply with the disclosure requirements of this statement, which are
effective for periods ending after December 15, 1997. Management believes that
the implementation of this standard will not have a material effect on the
Company's financial statements.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). This statement requires companies to classify items of
other comprehensive income by their nature in a financial statement and
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. SFAS 130 is effective for financial
statements issued for fiscal years beginning after December 15, 1997.
Management believes that SFAS 130 will not have a material effect on the
Company's financial statements.
In June 1997, the FASB issued Statement No. 131, "Disclosure About Segments
of an Enterprise and Related Information" ("SFAS 131"). This statement
establishes additional standards for segment reporting in the financial
statements and is effective for fiscal years beginning after December 15,
1997. Management believes that SFAS 131 will not have a material effect on the
Company's financial statements.
3. DEBT:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------- SEPTEMBER 30,
1995 1996 1997
----------- ---------- -------------
<S> <C> <C> <C>
Revolving line of credit............... $ -- $ -- $11,050,000
Note payable to former shareholder of
Infinity Enterprises, Inc., repaid in
May 1997.............................. 7,484,396 6,444,831 --
Non-compete agreements with former
shareholders of Infinity Enterprises,
Inc., maturing February 2009, with
monthly payments of $8,333............ 1,316,667 1,216,667 1,141,667
Non-compete agreements with former
owners of EKT, Inc., repaid in May
1997.................................. 227,367 111,371 --
Term notes payable to former
shareholders of Cama of Tampa, Inc.,
repaid in May 1997.................... -- 300,000 --
Term loans payable to a bank, repaid in
September 1997........................ -- 256,659 --
Term loan payable to a bank, repaid in
February 1996......................... 162,493 -- --
Due to former shareholders of AcSys Re-
sources, Inc., repaid in September
1997.................................. 111,563 717,000 --
Capitalized lease obligations.......... 52,218 130,664 14,942
Loans due to shareholders of AcSys Re-
sources, Inc.......................... 79,973 92,770 99,970
Other ................................. 37,572 73,057 --
----------- ---------- -----------
9,472,249 9,343,019 12,306,579
Less--Unamortized discount............. (566,921) (496,265) (438,143)
----------- ---------- -----------
8,905,328 8,846,754 11,868,436
Less--Current portion.................. (1,470,151) (721,746) (151,360)
----------- ---------- -----------
$ 7,435,177 $8,125,008 $11,717,076
=========== ========== ===========
</TABLE>
F-18
<PAGE>
ACSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On May 16, 1997, the Company entered into an agreement with a bank which
provides for a $15,000,000 Revolving Credit Facility (the "Credit Facility")
to be repaid on May 31, 2000. The Company can draw on the Credit Facility in
increments of $250,000 or more. The Company can elect at the time of its draws
to pay interest at either: (A) the greater of (i) the bank's prime rate or
(ii) the federal funds rate plus 0.5%, plus a margin which ranges up to 0.75%;
or (B) at LIBOR plus a margin, which ranges from 1.25% to 2.50%. Borrowings
under the Credit Facility are collateralized by all of the assets of the
Company and a pledge of all of the stock of its subsidiaries. The Credit
Facility also contains various financial and non-financial covenants. At
September 30, 1997, the Company had outstanding borrowings under the Credit
Facility of $11,050,000 and for the nine months ended September 30, 1997
incurred $237,461 of interest expense under the Credit Facility.
The Company has discounted the non-compete obligations and certain other
notes payable to reflect their fair market value based on average borrowing
rates available to the Company. The rate used to determine the discount was
approximately 9.25%. The discount is being amortized over the term of the
notes using the effective interest rate method. Amortization expense included
in interest expense in the accompanying statements of operations for the years
ended December 31, 1994, 1995 and 1996, and for the nine months ended
September 30, 1996 and 1997 was $57,000, $73,000, $71,000, $53,000 and
$58,000, respectively.
The obligations under the non-compete agreements with former shareholders
are secured by certain property and equipment and Common Stock of the Company,
and are personally guaranteed by certain shareholders of the Company.
Annual maturities of long-term debt as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997........................................................... $ 789,541
1998........................................................... 669,601
1999........................................................... 620,490
2000........................................................... 277,478
2001........................................................... 323,652
Thereafter..................................................... 6,662,257
----------
$9,343,019
==========
</TABLE>
In 1995 and 1996, the Company entered into capital leases for equipment with
terms ranging from two to three years. The implicit interest rates under these
leases range from 5% to 15%. The present value of the minimum lease payments
as of December 31, 1996 is as follows:
<TABLE>
<S> <C>
Total minimum lease payments................................... $ 149,728
Less-- Amounts representing interest........................... (19,064)
---------
Present value of minimum lease payments........................ $ 130,664
=========
</TABLE>
The Company had four separate line of credit agreements with different
banks, which provided for maximum borrowings of $1,200,000. These lines bore
interest at rates between 9.25% and 10.0% as of December 31, 1996. At December
31, 1995 and 1996, the Company had outstanding borrowings under these lines of
$550,000 and $925,000, respectively. Interest expense under these lines was
$66,700, $108,000 and $48,300 for the years ended December 31, 1995 and 1996
and for the nine months ended September 30, 1997, respectively. Three of these
lines were repaid in May 1997 and the fourth line was repaid in September 1997
with borrowings under the Credit Facility.
F-19
<PAGE>
ACSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. COMMITMENTS AND CONTINGENCIES:
In connection with the business combinations, the Company entered into
employment agreements with certain shareholders who are also officers or
employees of the Company. The employment agreements provide for a guaranteed
base salary over a three-year period and a discretionary bonus to be
determined by the Board of Directors. For the years ending December 31, 1997,
1998, 1999 and 2000, the Company is obligated to pay $1,352,500, $2,575,000,
$2,575,000, and $1,222,500, respectively, in salaries under these agreements.
The agreements contain non-compete covenants and can be terminated based on
certain events, as defined. In addition, the agreements provide for lump sum
payments equal to three times current salary upon certain triggering events
such as a change in control, among other events.
The Company leases office space under noncancellable operating leases.
Certain leases require additional payments for taxes and operating expenses
and provide for renewal options. Future minimum payments required under
operating leases that have an initial or remaining noncancellable lease term
in excess of one year at December 31, 1996 are as follows:
On November 13, 1997, a lawsuit was filed against the Company, Cama of
Tampa, Inc. ("Cama") and the former owner of Cama, Stephen S. Tutwiler. The
lawsuit alleges that the plaintiff 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 plaintiff was
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 plaintiff
asserts numerous claims, including fraud, civil conspiracy and alleged
misstatements and omissions regarding the Company's ownership of Cama in a
prospectus filed by the Company. The plaintiff seeks to recover $27,000
allegedly due to the plaintiff, his alleged portion of Mr. Tutwiler's shares
of Common Stock, and compensatory and other damages. The plaintiff also seeks
an accounting and employment by the Company. The Company intends to vigorously
defend the plaintiff's allegations. 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.
<TABLE>
<S> <C>
1997........................................................... $ 912,764
1998........................................................... 699,971
1999........................................................... 661,520
2000........................................................... 555,221
2001........................................................... 409,652
Thereafter..................................................... 588,068
----------
$3,827,196
==========
</TABLE>
Rent expense for the years ended December 31, 1994, 1995 and 1996, and for
the nine months ended September 30, 1996 and 1997 was $636,195, $720,815,
$919,732, $714,372 and $729,074, respectively.
5. TERMINATION OF FRANCHISE AGREEMENTS:
Prior to May 31, 1994, AcSys Resources operated as a franchisee under a
franchise agreement, which provided for various marketing and royalty payments
to the franchisor based on revenues. Effective May 31, 1994, AcSys Resources
and the franchisor terminated the agreement. The termination agreement
provided for payments to the franchisor of $360,000, which were made and
recorded as an expense in 1994. In addition, AcSys Resources was required to
pay to the franchisor 1% of revenues for the period June 1, 1994 through May
31, 1995, and 2% of revenues for the period June 1, 1995 through May 31, 1996,
resulting in an expense of $201,000 in 1994, $166,000 in 1995, and $108,000 in
1996. In May 1997, Cama of Tampa, Inc. terminated its franchise agreement and
made a one-time payment to the franchisor of $170,000, which was recorded as
an expense for the nine months ended September 30, 1997. Costs under the
franchise termination agreements and
F-20
<PAGE>
ACSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
severance expense (see Note 8) have been recorded as a separate line item in
the accompanying consolidated statements of operations.
6. RETIREMENT SAVINGS PLAN:
AcSys Resources has a defined contribution retirement plan for the benefit
of all eligible employees. The plan qualifies under Section 401(k) of the
Internal Revenue Code and allows for eligible employees to contribute to the
plan up to 15% of their pretax compensation, subject to the maximum
contributions allowed by the Internal Revenue Code. The plan provides for
discretionary matching contributions by AcSys Resources based on a percentage
of the participant's contributions to the plan and a discretionary profit
sharing contribution based on employee compensation. AcSys Resources made
$17,911, $23,083 and $30,449 in 1994, 1995 and 1996, respectively, in matching
contributions and no discretionary contributions were made to the plan.
7. RELATED PARTIES:
At December 31, 1995 and 1996, AcSys Resources had loans due from its
shareholders of $69,720 and $61,567, respectively, at an interest rate of 5%.
The loans are due on demand. These loans are included in other assets in the
accompanying consolidated balance sheets. In addition, AcSys Resources owes
three shareholders a total of $197,638 at September 30, 1997 for compensation
earned but not paid.
8. CAPITAL TRANSACTIONS:
REDEMPTION AND SEVERANCE AGREEMENTS
In September 1996, AcSys Resources entered into a Stock Redemption Agreement
with one of its shareholders. Under this agreement, AcSys Resources
repurchased a portion of the shares owned by this shareholder for $458,500.
The shareholder can require AcSys Resources to repurchase his remaining
122,012 shares of Common Stock at a price based on an earnings formula defined
in the Stock Redemption Agreement. In connection with the Stock Redemption
Agreement, AcSys Resources and the shareholder entered into a severance
agreement. Under this agreement, the shareholder is to receive $458,500, which
was charged to expense in 1996. An initial payment of $200,000 was made to the
shareholder upon execution of the agreements, with the remaining $717,000
payable in equal semi-monthly installments beginning in January 1997. In
September 1997, the remaining balance was repaid by the Company.
STOCK OPTION PLAN
In May 1997, the Company established the 1997 Stock Option Plan (the "Option
Plan"). The maximum number of shares of Common Stock that currently may be
subject to outstanding options, determined immediately after the grant of any
option, is 2,000,000 shares. The Option Plan provides that the number of
shares of Common Stock available for issuance thereunder shall be
automatically increased on the first trading day of each calendar year by the
lesser of (i) three percent of the number of shares outstanding on the
preceding trading day or (ii) 500,000 shares. Shares of Common Stock which are
attributable to awards which have expired, terminated or been canceled or
forfeited during any calendar year are available for issuance or use in
connection with future awards during such calendar year.
In January 1997, AcSys Resources issued stock options under the AcSys
Resources 1996 Equity Compensation Plan (the "AcSys Resources Plan") to its
officers and employees. In September 1997, the AcSys Resources Plan stock
options were exchanged for 111,687 stock options at an exercise price of $2.66
per share. The exchange ratio was based on the exchange ratio used to effect
the merger between AcSys Resources and the Company on September 3, 1997. In
connection with this merger, these options became fully vested in accordance
F-21
<PAGE>
ACSYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
with the change of control provision included in the AcSys Resources Plan. In
May 1997, the Company issued 97,698 non-qualified stock options and 37,500
qualified stock options to an officer of the Company at an exercise price of
$8.00 per share.
As of September 30, 1997, there were 244,820 stock options outstanding and
exercisable under the Option Plan and the AcSys Resources Plan with a weighted
average exercise price of $5.61 per share.
The Company accounts for its option plan under APB Opinion No. 25,
"Accounting for Stock Issued to Employees." In 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123). SFAS 123 established a
fair value based method of accounting for stock-based compensation plans. SFAS
123 requires that an employer's financial statements include certain
disclosures about stock-based employee compensation arrangements regardless of
the method used to account for the plan. Had the Company recognized
compensation cost for its stock option plans consistent with the provisions of
SFAS 123, the following pro forma net loss per Common share for the nine
months ended September 30, 1997 would have resulted:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER
30, 1997
-----------------
<S> <C>
Pro forma net loss:
As reported........................................... $ (14,096)
=========
Per SFAS 123.......................................... $(242,704)
=========
Pro forma net loss per Common Share:
As reported........................................... $ (0.13)
=========
Per SFAS 123.......................................... $ (0.16)
=========
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model, with a risk-free interest rate of
6.5%, no expected dividend yield and an expected life of five years. As of
September 30, 1997, the weighted average fair value of the options outstanding
was $1.56 per option.
9. ACQUISITION OF C.P.A. STAFFING:
AcSys Resources acquired C.P.A. Staffing, Inc., C.P.A. Search, Inc. and
Career Placement Associates, Inc. (together, "C.P.A. Staffing") on August 12,
1997. The acquisition was accounted for under the purchase method of
accounting. The total purchase price was approximately $9,700,000 and
consisted of cash of $1,900,000, 1,219,274 shares of Common Stock with a fair
market value of $7,700,000 and transaction costs of $144,000. The purchase
price was allocated to the assets acquired and liabilities assumed. The
$8,600,000 excess of the purchase price over the estimated fair market value
of the net assets acquired was recorded as goodwill and is being amortized on
a straight-line basis over 40 years.
The following table summarizes the unaudited pro forma results of operations
of the Company for the years ended December 31, 1995 and 1996 and the nine
months ended September 30, 1997, assuming that the acquisition of C.P.A.
Staffing had occurred on January 1, 1995:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31
--------------------------- FOR THE NINE MONTHS
1995 1996 ENDED SEPTEMBER 30, 1997
------------- ------------- ------------------------
<S> <C> <C> <C>
Service Revenues........ $ 40,018,158 $ 52,410,832 $ 46,566,197
Operating income........ 3,851,457 3,864,973 2,307,493
Net income.............. 2,852,474 2,884,645 1,613,878
</TABLE>
F-22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To C.P.A. Staffing, Inc., C.P.A. Search, Inc. and Career Placement Associates,
Inc.:
We have audited the accompanying combined balance sheets of C.P.A. Staffing,
Inc., C.P.A. Search, Inc. and Career Placement Associates, Inc. (Georgia
corporations) as of December 31, 1996 and August 12, 1997, and the related
combined statements of operations, shareholders' equity and cash flows for the
year ended December 31, 1996, and for the period from January 1, 1997 to
August 12, 1997. These financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of C.P.A. Staffing,
Inc., C.P.A. Search, Inc. and Career Placement Associates, Inc. as of December
31, 1996 and August 12, 1997, and the results of their operations and their
cash flows for the year ended December 31, 1996 and for the period from
January 1, 1997 to August 12, 1997, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Philadelphia, PA,
October 3, 1997
F-23
<PAGE>
C.P.A. STAFFING, INC., C.P.A. SEARCH, INC.
AND CAREER PLACEMENT ASSOCIATES, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 12,
1996 1997
------------ ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 3,627 $ 40,246
Accounts receivable, net of allowances of $25,000.... 884,985 1,123,504
Prepaid expenses..................................... -- 1,143
---------- ----------
Total current assets............................... 888,612 1,164,893
PROPERTY AND EQUIPMENT, net............................ 138,387 166,852
---------- ----------
$1,026,999 $1,331,745
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................................... $ 25,198 $ 68,659
Accrued salaries, commissions, and benefits.......... 161,363 180,615
---------- ----------
Total current liabilities.......................... 186,561 249,274
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY (Note 8):
Common stock......................................... 1,900 1,900
Additional paid in capital........................... -- 702,465
Retained earnings.................................... 853,258 392,826
Treasury stock, at cost.............................. (14,720) (14,720)
---------- ----------
Total shareholders' equity......................... 840,438 1,082,471
---------- ----------
$1,026,999 $1,331,745
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-24
<PAGE>
C.P.A. STAFFING, INC., C.P.A. SEARCH, INC.
AND CAREER PLACEMENT ASSOCIATES, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD
FROM
FOR THE JANUARY 1,
YEAR ENDED 1997 TO
DECEMBER 31, AUGUST 12,
1996 1997
------------ ----------
<S> <C> <C>
SERVICE REVENUES:
Temporary staffing................................... $5,653,164 $4,015,890
Permanent placement.................................. 849,404 540,620
---------- ----------
Total service revenues............................. 6,502,568 4,556,510
DIRECT COSTS OF SERVICES, consisting of payroll, pay-
roll taxes and insurance costs for temporary employ-
ees................................................... 4,051,962 2,832,357
---------- ----------
Gross profit....................................... 2,450,606 1,724,153
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........... 1,378,626 1,679,590
DEPRECIATION........................................... 22,663 20,995
---------- ----------
NET INCOME............................................. $1,049,317 $ 23,568
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-25
<PAGE>
C.P.A. STAFFING, INC., C.P.A. SEARCH, INC.
AND CAREER PLACEMENT ASSOCIATES, INC.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID IN RETAINED TREASURY SHAREHOLDERS'
STOCK CAPITAL EARNINGS STOCK EQUITY
------ ---------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1996................... $1,900 $ -- $ 518,941 $ (14,720) $ 506,121
Distributions to
shareholders......... -- -- (715,000) -- (715,000)
Net income............ -- -- 1,049,317 -- 1,049,317
------ -------- ---------- --------- ----------
BALANCE, DECEMBER 31,
1996................... 1,900 -- 853,258 (14,720) 840,438
Contribution from
shareholders......... -- 702,465 -- -- 702,465
Distributions to
shareholders......... -- -- (484,000) -- (484,000)
Net income............ -- -- 23,568 -- 23,568
------ -------- ---------- --------- ----------
BALANCE, AUGUST 12,
1997................... $1,900 $702,465 $ 392,826 $ (14,720) $1,082,471
====== ======== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-26
<PAGE>
C.P.A. STAFFING, INC., C.P.A. SEARCH, INC.
AND CAREER PLACEMENT ASSOCIATES, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
FOR THE JANUARY 1,
YEAR ENDED 1997 TO
DECEMBER 31, AUGUST 12,
1996 1997
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $1,049,317 $ 23,568
Adjustments to reconcile net income to net cash
provided by
operating activities--
Depreciation........................................ 22,663 20,995
Non-cash compensation charge (Note 7)............... -- 702,465
Changes in assets and liabilities--
Accounts receivable................................ (347,967) (238,519)
Prepaid expenses................................... -- (1,143)
Accounts payable................................... 5,922 43,461
Accrued salaries, commissions, and benefits........ 65,467 19,252
---------- ---------
Net cash provided by operating activities......... 795,402 570,079
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.................. (86,139) (49,460)
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholders........................ (715,000) (484,000)
---------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... (5,737) 36,619
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........ 9,364 3,627
---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.............. $ 3,627 $ 40,246
========== =========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest............................... $ 4,424 $ 4,886
========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-27
<PAGE>
C.P.A. STAFFING, INC., C.P.A. SEARCH, INC.
AND CAREER PLACEMENT ASSOCIATES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS:
C.P.A. Staffing, Inc., C.P.A. Search, Inc. and Career Placement Associates,
Inc. (together, the "Company"), specialize in the placement of temporary and
permanent employees in the accounting, banking, finance and information
technology fields. The Company's primary market is Atlanta, Georgia.
On August 12, 1997, an agreement and plan of merger was entered into among
AcSys Resources, Inc. ("AcSys"), the Company and the shareholders of the
Company, whereby AcSys agreed to purchase all of the outstanding common stock
of the Company for approximately $9,600,000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF COMBINATION
The financial statements reflect the combined financial position, results of
operations and cash flows of C.P.A. Staffing, Inc., C.P.A. Search, Inc. and
Career Placement Associates, Inc. The companies are engaged in related
operations and are owned, in the same percentages, by the same shareholders.
The financial statements reflect the elimination of all significant
intercompany accounts and transactions.
REVENUE RECOGNITION
The Company recognizes permanent placement revenues when the employment
offer and acceptance has occurred and the candidate's employment start date
has been established. Revenue from permanent placements is reported in the
combined statements of operations net of estimated adjustments due to placed
candidates that terminate employment within the Company's guarantee period
(generally 90 days). The net adjustment in each of the periods presented is
immaterial. The Company recognizes temporary staffing revenues when the
services are performed.
GROSS PROFIT
Gross profit is determined by deducting the direct cost of services for
temporary staffing revenues (temporary and contract personnel payroll, payroll
taxes and insurance costs) from total service revenues. The primary costs
associated with permanent placement revenues are sales commissions, which
increase in proportion with service revenue from permanent placements.
Consistent with industry practice, these costs are included in selling,
general and administrative expenses.
CASH AND CASH EQUIVALENTS
The Company considers cash on deposit with financial institutions and all
highly liquid investments purchased with an original maturity of three months
or less to be cash equivalents. At December 31, 1996 and August 12, 1997, cash
equivalents consisted primarily of investments in money market funds.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of the assets, which are
generally five to seven years for furniture, computer and office equipment.
INCOME TAXES
The Company is an S corporation and, as such, the Company is not subject to
federal and state income taxes and all taxable income and loss of the Company
is included in the shareholders' tax returns.
F-28
<PAGE>
C.P.A. STAFFING, INC., C.P.A. SEARCH, INC.
AND CAREER PLACEMENT ASSOCIATES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
In the event of the termination of the S corporation status, the Company
would be required to record a deferred tax liability of approximately $367,000
as of August 12, 1997, in accordance with the provisions of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
LONG-LIVED ASSETS
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 121 "Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by the Company be
reviewed for possible impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If
changes in circumstances indicate that the carrying amount of an asset that an
entity expects to hold and use may not be recoverable, future cash flows
expected to result from the use of the asset and its disposition must be
estimated. If the undiscounted value of the future cash flows is less than the
carrying amount of the asset, an impairment will be recognized.
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 12,
1996 1997
------------ ----------
<S> <C> <C>
Computer equipment................................... $113,783 $155,044
Furniture and office equipment....................... 63,007 71,206
-------- --------
176,790 226,250
Less--Accumulated depreciation....................... (38,403) (59,398)
-------- --------
$138,387 $166,852
======== ========
</TABLE>
4. LINE OF CREDIT:
The Company has a revolving line of credit with a bank, which provides for
maximum borrowings of $250,000. Borrowings under the line are limited to 75%
of accounts receivable, as defined. The line is collateralized by
substantially all of the assets of the Company and is personally guaranteed by
the Company's shareholders. Interest on borrowings is payable monthly and
accrues at prime plus 1.50%. The line of credit expires in April 1998. At
December 31, 1996 and August 12, 1997, there were no borrowings on the line.
The maximum borrowed under the line in 1996 was $30,000 and the average amount
outstanding was approximately $4,000. The maximum borrowed under the line
during the period ended August 12, 1997 was $150,000 and the average amount
outstanding during this period was approximately $8,500. Interest expense for
the year ended December 31, 1996 and for the period ended August 12, 1997 was
not material.
F-29
<PAGE>
C.P.A. STAFFING, INC., C.P.A. SEARCH, INC.
AND CAREER PLACEMENT ASSOCIATES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
5. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT:
For the year ended December 31, 1996, the Company had three customers which
accounted for 22%, 17% and 11% of total service revenues. For the period from
January 1, 1997 to August 12, 1997, the same three customers accounted for
17%, 17% and 11% of revenues. At December 31, 1996, the Company had two
customers which accounted for 31% and 12% of accounts receivable. At August
12, 1997, the Company had two customers which accounted for 24% and 13% of
accounts receivable.
6. COMMITMENTS AND CONTINGENCIES:
The Company leases office space and equipment under operating leases through
October 31, 2001. Rent expense, was approximately $32,000 and $34,000, for the
year ended December 31, 1996 and for the period from January 1, 1997 to August
12, 1997, respectively. Future minimum lease payments under the Company's
operating leases for the years ended December 31 are as follows:
<TABLE>
<S> <C>
1997.............................................................. $52,559
1998.............................................................. 77,562
1999.............................................................. 92,850
2000.............................................................. 94,503
2001.............................................................. 80,556
</TABLE>
The Company is party to various claims and other matters arising in the
normal course of business. In the opinion of management, the outcome of these
matters will not have a material adverse effect on the Company's financial
position or results of operations.
7. EMPLOYEE AGREEMENT:
In July 1996, the Company entered into an agreement with an employee which
provides for a cash payment in the event of the sale of the Company, as
defined. The cash payment is based on performance criteria and is limited to
10% of the staffing company's sale price, less any amount paid to the employee
under the termination clause of the agreement. As a result of the sale of the
Company's common stock on August 12, 1997 (see Note 1), the Company issued a
$280,000 demand note and a $422,465 note, payable over seven years with 8%
interest, as full consideration under this agreement. Both notes were assumed
by the shareholders of the Company. This assumption was recorded as a capital
contribution by the shareholders in the accompanying financial statements.
8. COMMON STOCK:
<TABLE>
<CAPTION>
PAR VALUE AUTHORIZED ISSUED OUTSTANDING
--------- ---------- ------ -----------
<S> <C> <C> <C> <C>
C.P.A. Staffing, Inc................ $ 1 10,000 200 200
C.P.A. Search, Inc.................. $ 1 10,000 200 200
Career Placement Associates, Inc.... $ -- 10,000 1,500 1,000
</TABLE>
In 1993, the Company repurchased 500 shares of Career Placement Associates,
Inc. common stock for $14,720.
F-30
<PAGE>
[ACSYS Logo, beside which are the words "Temporary Staffing and Permanent
Placement of Accounting and Finance Professionals" followed by a list of the
positions filled by the Company in a column down the right hand side of the
page (positions are identical to the list on page 32), accompanied by two
photographs of the Company's personnel providing their services]
. Wayne, PA . Lancaster, PA . Edison, NJ . Wilmington, DE . Philadelphia, PA .
. Princeton, NJ . Cherry Hill, NJ . Bethesda, MD . Landover, MD .
. Washington, D.C. . Tyson's Corner, VA . Alexandria, VA .
. Charlotte, NC . Atlanta, GA . Tampa, FL . Orlando, FL .
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPEC-
TUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY
ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SE-
CURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAW-
FUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PRO-
SPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998 ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEAL-
ERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
The Company.............................................................. 12
Prior S Corporation Status............................................... 13
Dividend Policy.......................................................... 13
Use of Proceeds.......................................................... 14
Dilution................................................................. 15
Capitalization........................................................... 16
Selected Consolidated Financial Data..................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 27
Management............................................................... 38
Principal and Selling Shareholders....................................... 43
Certain Transactions..................................................... 44
Description of Capital Stock............................................. 45
Shares Eligible for Future Sale.......................................... 48
Underwriting............................................................. 50
Legal Matters............................................................ 51
Experts.................................................................. 51
Available Information.................................................... 52
Index to Financial Statements............................................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,750,000 SHARES
[LOGO OF ACSYS APPEARS HERE] LOGO
COMMON STOCK
---------------
PROSPECTUS
---------------
J.C.Bradford&Co.
Janney Montgomery Scott Inc.
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with the
Offering described in the Registration Statement:
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 10,542
NASD Fees....................................................... 3,979
Nasdaq Fees..................................................... 15,000
Blue Sky Fees and Expenses...................................... 10,000
Printing and Engraving.......................................... 250,000
Legal Fees and Expenses......................................... 600,000
Accounting Fees and Expenses.................................... 1,000,000
Transfer Agent Fees............................................. 7,500
Miscellaneous Expenses.......................................... 102,979
----------
Total:........................................................ $2,000,000*
==========
</TABLE>
- ---------------------
* All amounts other than the SEC Registration Fee and NASD Fees reflect
Company estimates.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation eliminate, subject to certain
limited exceptions, the personal liability of a director to the Company or its
shareholders for monetary damage for any breach of duty as a director. There
is no elimination of liability for (i) a breach of duty involving
appropriation of a business opportunity of the Company; (ii) an act or
omission which involves intentional misconduct or a knowing violation of law;
(iii) any transaction from which the director derives an improper personal
benefit; or (iv) as to any payments of a dividend or any other type of
distribution that is illegal under Section 14-2-832 of the Georgia Business
Corporation Code (the "GBCC"). In addition, if at any time the GBCC is amended
to authorize further elimination or limitation of the personal liability of a
director, then the liability of each director of the Company shall be
eliminated or limited to the fullest extent permitted by such provisions, as
so amended, without further action by the shareholders, unless the provisions
of the GBCC require such action. The provision does not limit the right of the
Company or its shareholders to seek injunctive or other equitable relief not
involving payments in the nature of monetary damages.
The Company's bylaws contain certain provisions which provide
indemnification to directors of the Company that is broader than the
protection expressly mandated in Sections 14-2-852 and 14-2-857 of the GBCC.
To the extent that a director or officer of the Company has been successful,
on the merits or otherwise, in the defense of any action or proceeding brought
by reason of the fact that such person was a director or officer of the
Company, Sections 14-2-852 and 14-2-857 of the GBCC would require the Company
to indemnify such persons against expenses (including attorney's fees)
actually and reasonably incurred in connection therewith. The GBCC expressly
allows the Company to provide for greater indemnification rights to its
officers and directors, subject to shareholder approval.
The indemnification provisions in the Company's bylaws require the Company
to indemnify and hold harmless any director who was or is a party or is
threatened to be made a party, to any threatened, pending or completed action,
suit or proceeding whether civil, criminal, administrative or investigative
(including any action or suit by or in the right of the Company) because he or
she is or was a director of the Company, against expenses (including, but not
limited to, attorney's fees and disbursements, court costs and expert witness
fees), and against judgments, fines, penalties, and amounts paid in settlement
incurred by him or her in connection with the action, suit or proceeding.
Indemnification would be disallowed under any circumstances where
indemnification may not be authorized by action of the Board of Directors, the
shareholders or otherwise. The Board of Directors of
II-1
<PAGE>
the Company also has the authority to extend to officers, employees and agents
the same indemnification rights held by directors, subject to all the
accompanying conditions and obligations. Indemnified persons would also be
entitled to have the Company advance expenses prior to the final disposition
of the proceeding. If it is ultimately determined that they are not entitled
to indemnification, however, such amounts would be repaid. Insofar as
indemnification for liability arising under the Securities Act may be
permitted to officers and directors of the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
The Company has entered into separate indemnification agreements with each
of its directors and executive officers, whereby the Company agreed, among
other things, to provide for indemnification and advancement of expenses in a
manner and subject to terms and conditions similar to those set forth in the
Bylaws. These agreements also provide that the Company shall purchase and
maintain liability insurance for the benefit of its directors and exeuctive
officers. These agreements may not be abrogated by action of the shareholders.
There is no pending litigation or proceeding involving a director, officer,
employee or other agent of the Company as to which indemnification is being
sought, nor is the Company aware of any pending or threatened litigation that
may result in claims for indemnification by any director, officer, employee or
other agent. The Company has also agreed to hold the shareholders harmless
from, against and in respect of federal income tax liabilities, including
interest and penalties imposed thereon (and any state and local income tax
liabilities as provided by applicable law), if any, incurred by the
shareholders as a result of a final determination of an adjustment (by reason
of an amended return, claim for refund, audit, judicial decision or otherwise)
to the taxable income of the Company for any period which results in a
decrease for any period in the Company's taxable income and a corresponding
increase for any period in the taxable income of the shareholders.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
No securities which were not registered under the Securities Act have been
sold by the Company within the past three years except for the following:
(i) The Company entered into that certain Agreement and Plan of
Reorganization dated as of April 16, 1997 by and among the Company, and
David C. Cooper & Associates, Inc. ("Cooper"), DCCA Professional
Temporaries, Inc. ("DCCA"), EKT, Inc. ("EKT"), Infinity Enterprises, Inc.
("Infinity"), certain subsidiaries of the Company, and the shareholders of
Cooper, DCCA, EKT, and Infinity. Pursuant to such agreement, four wholly-
owned subsidiaries of the Company were merged with and into each of Cooper,
DCCA, EKT and Infinity. Upon the effectiveness of each such merger on May
16, 1997, all of the issued and outstanding stock of each of Cooper, DCCA,
EKT, and Infinity was converted into stock of the Company, and the Company
issued an aggregate of 4,240,283 shares of Common Stock to the shareholders
of Cooper, DCCA, EKT, and Infinity.
(ii) The Company entered into that certain Agreement and Plan of
Reorganization dated as of April 24, 1997 by and among the Company, Cama of
Tampa, Inc., Cama Acquisition, Inc. and Stephen S. Tutwiler. Pursuant to
such agreement, Cama Acquisition, Inc., a wholly-owned subsidiary of the
Company, merged with and into Cama of Tampa, Inc. Upon the effectiveness of
such merger on May 19, 1997, all of the issued and outstanding stock of
Cama of Tampa was converted into stock of the Company, and the Company
issued 131,143 shares of Common Stock to the sole shareholder of Cama of
Tampa.
(iii) The Company entered into that certain Agreement and Plan of Merger
dated as of July 25, 1997 by and among the Company, Rylan Forbes Consulting
Group, Inc. and the shareholders of Rylan Forbes Consulting Group, Inc.
named therein. Pursuant to such agreement, the Company acquired all of the
equity interest of Rylan Forbes in exchange for 462,292 shares of Common
Stock.
(iv) The Company entered into that certain Agreement and Plan of Merger
dated as of September 3, 1997 by and among the Company, AcSys Resources and
the shareholders of AcSys Resources named therein. Pursuant to such
agreement, the Company acquired all of the equity interest of AcSys
Resources in
II-2
<PAGE>
exchange for 3,659,502 shares of Common Stock (including 129,005 shares
currently in escrow to secure certain representations and warranties of the
former AcSys Resources shareholders). Also pursuant to such agreement, the
Company issued options to acquire an aggregate of 111,687 shares of Common
Stock to holders of options to acquire AcSys Resources' common stock.
(v) The Company entered into an employment agreement dated March 10, 1997
with the Company's Chief Executive Officer pursuant to which the Company
has granted (or will grant, upon the effective date of this registration
statement) options to acquire an aggregate of 248,555 shares of Common
Stock. The Company also entered into an employment agreement dated
September 3, 1997 with the Company's Chief Financial Officer pursuant to
which the Company agreed to grant options to acquire 66,229 shares of
Common Stock upon the effective date of this registration statement.
The issuance of securities described above was made in reliance on one or
more of the exemptions from registration under the Securities Act, including
those provided for by Section 4(2), Regulation D and Rule 701 thereunder. The
recipients of the securities in the above transactions represented their
intention to acquire the securities for investment purposes only and not with
a view to or for the sale in connection with any distribution thereof, and
appropriate legends were affixed to the share certificates issued in such
transactions. The recipients of these securities had adequate access, through
their relationship with the Company, to information about the Company.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------------------
<S> <C>
1.1 Form of Underwriting Agreement.
2.1 Agreement and Plan of Reorganization dated as of April 16, 1997 by and
among the Company and David C. Cooper & Associates, Inc., DCCA
Professional Temporaries, Inc., EKT, Inc., and Infinity Enterprises,
Inc., and Cooper Acquisition, Inc., DCCA Acquisition, Inc., EKT
Acquisition, Inc., and Infinity Acquisition, Inc., and the shareholders
named therein.*
2.2 Agreement and Plan of Reorganization dated as of April 24, 1997 by and
among the Company, Cama of Tampa, Inc., Cama Acquisition, Inc. and
Stephen S. Tutwiler.*
2.3 Agreement and Plan of Merger by and among the Company, RFCG Merger
Subsidiary, Inc., Rylan Forbes Consulting Group, Inc., and the
shareholders of Rylan Forbes Consulting Group, Inc. dated as of July 25,
1997.*
2.4 Agreement and Plan of Merger by and among the Company, the shareholders
of the Company, AcSys Resources, Inc., ASRI Merger Subsidiary, Inc. and
the shareholders of AcSys Resources, Inc. dated as of September 3,
1997.*
2.5 Agreement and Plan of Merger among ACSYS Resources, Inc., ACSYS Staffing
Acquisition Corp., ACSYS Search Acquisition Corp., ACSYS Career
Acquisition Corp., and C.P.A. Staffing, Inc., C.P.A. Search, Inc.,
Career Placement Associates, Inc. and John Ficquette and Louis Boohaker
dated as of August 12, 1997.*
3.1 Articles of Incorporation of the Company.*
3.2 Bylaws of the Company.*
4.1 Specimen Common Stock Certificate.*
5.1 Opinion of Nelson Mullins Riley & Scarborough, L.L.P.*
10.1 Amended and Restated 1997 Stock Option Plan of the Company.*
10.2 [Deleted]
10.3 Employment Agreement by and between the Company and Timothy Mann, Jr.
dated March 12, 1997.*
10.4 Amendment No. 1 to Employment Agreement by and between the Company and
Timothy Mann, Jr. dated September 3, 1997.*
10.5 Amendment No. 2 to Employment Agreement by and between the Company and
Timothy Mann, Jr. dated October 14, 1997.*
10.6 Employment Agreement by and between the Company and Edward S. Baumstein
dated August 1997.*
10.7 Amendment No. 1 to Employment Agreement by and between the Company and
Edward S. Baumstein dated as of October 14, 1997.*
10.8 Stock Option Agreement by and between the Company and Timothy Mann, Jr.
dated May 19, 1997.*
10.9 Stock Option Agreement by and between the Company and Timothy Mann, Jr.
dated May 19, 1997.*
10.10 Employment Agreement by and between the Company and Lester E. Gallagher
dated September 3, 1997.*
10.11 Form of Employment Agreement between the Company and key employees.*
10.12 Amended and Restated Registration Rights Agreement dated as of September
3, 1997 by and among the Company and certain holders of the capital
stock of the Company.*
10.13 Revolving Credit Agreement dated May 16, 1997 by and among the Company
and certain lenders.*
10.14 Form of Indemnification Agreement entered into between the Company and
its directors and officers.*
10.15 Form of S Corporation Tax Allocation and Indemnification Agreement
entered into between the Company and certain of its shareholders.*
10.16 Nonqualified Stock Option Grant dated as of January 30, 1997 by AcSys
Resources, Inc. to Les Gallagher.*
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
21.1 Subsidiaries of the Company.*
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Nelson Mullins Riley & Scarborough, L.L.P. (filed as part
of Exhibit 5.1).*
23.3 Consent of Barry M. Abelson to being named as a person who will become
a director upon the consummation of this Offering.
23.4 Consent of William Porter Payne to being named as a person who will
become a director upon the consummation of this Offering.
24.1 Power of Attorney.*
27.1 Financial Data Schedule for periods ending December 31, 1996 and
September 30, 1997 (for SEC use only).*
</TABLE>
- ---------------------
*Previously filed.
(B)FINANCIAL STATEMENT SCHEDULES
Schedule II: Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes to provide to the underwriter at the closing
specified in the underwriting agreement, certificates in such denominations
and registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Company will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4),
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ATLANTA, STATE OF
GEORGIA, ON JANUARY 13, 1998.
ACSYS, Inc.
/s/ Timothy Mann, Jr.
By: ___________________________________
TIMOTHY MANN, JR.
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS PRE-
EFFECTIVE AMENDMENT TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
* Chairman of the
- ------------------------------------ Board of Directors January 13,
DAVID C. COOPER 1998
/s/ Timothy Mann, Jr. Chief Executive
- ------------------------------------ Officer and January 13,
TIMOTHY MANN, JR. Director 1998
(Principal
Executive Officer)
* President, Chief
- ------------------------------------ Operating Officer January 13,
EDWARD S. BAUMSTEIN and Director 1998
* Chief Development
- ------------------------------------ Officer, Executive January 13,
BETH MONROE-CHASE Vice President and 1998
Director
/s/ Lester E. Gallagher Chief Financial
- ------------------------------------ Officer (Principal January 13,
LESTER GALLAGHER Financial and 1998
Accounting
Officer)
* Director
- ------------------------------------ January 13,
JOHN FICQUETTE 1998
II-6
<PAGE>
SIGNATURE TITLE DATE
* Director
- ------------------------------------- January 13,
HARRY J. SAUER 1998
* Director
- ------------------------------------- January 13,
MARK E. STRASSMAN 1998
* By: /s/ Timothy Mann, Jr.
---------------------------------
TIMOTHY MANN, JR.
ATTORNEY-IN-FACT PURSUANT
TO POWER OF ATTORNEY GRANTED
IN REGISTRATION STATEMENT
(NO. 333-38465) AS FILED
ON OCTOBER 22, 1997.
II-7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To AcSys, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of AcSys, Inc. and Subsidiaries included
in this Registration Statement and have issued our report thereon dated
November 14, 1997. Our audit was made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The schedule listed in Item
16(b) of the Registration Statement is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
Philadelphia, PA,
January 12, 1998
S-1
<PAGE>
ACSYS, INC.
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
CHARGED TO
BEGINNING COSTS AND ENDING
DESCRIPTION BALANCE EXPENSES DEDUCTIONS BALANCE
----------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
1994
Allowance for doubtful accounts...... $ 4,800 146,224 (64,024) $ 87,000
1995
Allowance for doubtful accounts...... $ 87,000 153,551 (74,300) $ 166,251
1996
Allowance for doubtful accounts...... $ 166,251 286,212 (171,638) $ 280,825
SEPTEMBER 30, 1997
Allowance for doubtful accounts...... $ 280,825 216,413 (80,472) $ 416,766
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Agreement and Plan of Reorganization dated as of April 16, 1997 by and
among the Company and David C. Cooper & Associates, Inc., DCCA
Professional Temporaries, Inc., EKT, Inc., and Infinity Enterprises,
Inc., and Cooper Acquisition, Inc., DCCA Acquisition, Inc., EKT
Acquisition, Inc., and Infinity Acquisition, Inc., and the shareholders
named therein.*
2.2 Agreement and Plan of Reorganization dated as of April 24, 1997 by and
among the Company, Cama of Tampa, Inc., Cama Acquisition, Inc. and
Stephen S. Tutwiler.*
2.3 Agreement and Plan of Merger by and among the Company, RFCG Merger
Subsidiary, Inc., Rylan Forbes Consulting Group, Inc., and the
shareholders of Rylan Forbes Consulting Group, Inc. dated as of July 25,
1997.*
2.4 Agreement and Plan of Merger by and among the Company, the shareholders
of the Company, AcSys Resources, Inc., ASRI Merger Subsidiary, Inc. and
the shareholders of AcSys Resources, Inc. dated as of September 3,
1997.*
2.5 Agreement and Plan of Merger among ACSYS Resources, Inc., ACSYS Staffing
Acquisition Corp., ACSYS Search Acquisition Corp., ACSYS Career
Acquisition Corp., and C.P.A. Staffing, Inc., C.P.A. Search, Inc.,
Career Placement Associates, Inc. and John Ficquette and Louis Boohaker
dated as of August 12, 1997.*
3.1 Articles of Incorporation of the Company.*
3.2 Bylaws of the Company.*
4.1 Specimen Common Stock Certificate.*
5.1 Opinion of Nelson Mullins Riley & Scarborough, L.L.P.*
10.1 Amended and Restated 1997 Stock Option Plan of the Company.*
10.2 [Deleted]
10.3 Employment Agreement by and between the Company and Timothy Mann, Jr.
dated March 12, 1997.*
10.4 Amendment No. 1 to Employment Agreement by and between the Company and
Timothy Mann, Jr. dated September 3, 1997.*
10.5 Amendment No. 2 to Employment Agreement by and between the Company and
Timothy Mann, Jr. dated October 14, 1997.*
10.6 Employment Agreement by and between the Company and Edward S. Baumstein
dated August 1997.*
10.7 Amendment No. 1 to Employment Agreement by and between the Company and
Edward S. Baumstein dated as of October 14, 1997.*
10.8 Stock Option Agreement by and between the Company and Timothy Mann, Jr.
dated May 19, 1997.*
10.9 Stock Option Agreement by and between the Company and Timothy Mann, Jr.
dated May 19, 1997.*
10.10 Employment Agreement by and between the Company and Lester E. Gallagher
dated September 3, 1997.*
10.11 Form of Employment Agreement between the Company and key employees.*
10.12 Amended and Restated Registration Rights Agreement dated as of September
3, 1997 by and among the Company and certain holders of the capital
stock of the Company.*
10.13 Revolving Credit Agreement dated May 16, 1997 by and among the Company
and certain lenders.*
10.14 Form of Indemnification Agreement entered into between the Company and
its directors and officers.*
10.15 Form of S Corporation Tax Allocation and Indemnification Agreement
entered into between the Company and certain of its shareholders.*
10.16 Nonqualified Stock Option Grant dated as of January 30, 1997 by AcSys
Resources, Inc. to Les Gallagher.*
</TABLE>
<PAGE>
<TABLE>
<C> <S>
21.1 Subsidiaries of the Company.*
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Nelson Mullins Riley & Scarborough, L.L.P. (filed as part of
Exhibit 5.1).*
23.3 Consent of Barry M. Abelson to being named as a person who will become a
director upon the consummation of this Offering.
23.4 Consent of William Porter Payne to being named as a person who will
become a director upon the consummation of this Offering.
24.1 Power of Attorney.*
27.1 Financial Data Schedule for periods ending December 31, 1996 and
September 30, 1997 (for SEC use only).*
</TABLE>
- ---------------------
* Previously filed.
<PAGE>
ACSYS, INC.
2,750,000 SHARES
OF
COMMON STOCK
UNDERWRITING AGREEMENT
_________ __, 1998
J.C. BRADFORD & CO.
JANNEY MONTGOMERY SCOTT INC.
As Representatives of the Several Underwriters
c/o J.C. Bradford & Co.
J.C. Bradford Financial Center
330 Commerce Street
Nashville, Tennessee 37201
Ladies and Gentlemen:
ACSYS, Inc., a Georgia corporation (the "Company"), and certain
shareholders of the Company identified on Schedule I hereto (the "Selling
Shareholders") propose to sell to the several underwriters named in Schedule II
hereto (the "Underwriters"), for whom you are acting as the representatives (the
"Representatives"), 2,430,000 and 320,000 shares, respectively (the "Firm
Shares"), of common stock, no par value (the "Common Stock"), of the Company.
The Company proposes to grant to the Underwriters an option to purchase up to
412,500 additional shares of Common Stock (the "Option Shares"), as provided for
in Section 3 of this Agreement for the purpose of covering over-allotments. The
Underwriters, severally and not jointly, are willing to purchase the Firm Shares
set forth opposite their respective names on Schedule II hereto and their pro
rata share of the Option Shares in the event the Representatives elect to
exercise the over-allotment option in whole or in part. The Firm Shares and the
Option Shares purchasable pursuant to this Agreement are collectively referred
to herein as the "Shares."
1. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to, and agrees with, each of the Underwriters that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), a registration statement on Form S-1
(Registration No. 333-38465), including the related preliminary
prospectus relating to the Shares, and has filed one or more amendments
thereto. Copies of such registration statement and any amendments,
including any post-effective amendments, and all forms of the related
prospectuses contained therein and any supplements thereto, have been
delivered to you. Such registration statement, including the prospectus,
Part II, all financial schedules and exhibits thereto, and all
information deemed to be a part of such Registration Statement pursuant
to Rule 430A under the Securities Act, as amended at the time when it
shall become effective, is herein referred to as the "Registration
Statement," and the prospectus included as part of the Registration
<PAGE>
Statement on file with the Commission that discloses all the information
that was omitted from the prospectus on the effective date pursuant to
Rule 430A of the Rules and Regulations (as defined below) and in the
form filed pursuant to Rule 424(b) under the Securities Act is herein
referred to as the "Final Prospectus." The prospectus included as part
of the Registration Statement on the date when the Registration
Statement became effective is referred to herein as the "Effective
Prospectus." Any prospectus included in the Registration Statement and
in any amendment thereto prior to the effective date of the Registration
Statement that is distributed to potential investors is referred to
herein as a "Preliminary Prospectus." For purposes of this Agreement,
"Rules and Regulations" mean the rules and regulations promulgated by
the Commission under either the Securities Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as applicable.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus, at the time of filing thereof, complied with the
requirements of the Securities Act and the Rules and Regulations, and
did not include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; except that the foregoing does not apply to
statements or omissions made in reliance upon and in conformity with
written information furnished to the Company by any Underwriter
specifically for use therein (it being understood that the only
information so provided is the information included in the last
paragraph on the cover page and in the first and third paragraphs under
the caption "Underwriting" in the Preliminary, Effective and Final
Prospectus). When the Registration Statement becomes effective and at
all times subsequent thereto up to and including the First Closing Date
(as hereinafter defined), (i) the Registration Statement, the Effective
Prospectus and Final Prospectus and any amendments or supplements
thereto will contain all statements which are required to be stated
therein in accordance with the Securities Act, the Exchange Act and the
Rules and Regulations and will comply with the requirements of the
Securities Act, the Exchange Act and the Rules and Regulations, and (ii)
neither the Registration Statement, the Effective Prospectus nor the
Final Prospectus nor any amendment or supplement thereto will include
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they are made, not
misleading; except that the foregoing does not apply to statements or
omissions made in reliance upon and in conformity with written
information furnished to the Company by any Underwriter specifically for
use therein (it being understood that the only information so provided
is the information included in the last paragraph on the cover page and
in the first and third paragraphs under the caption "Underwriting" in
the Final Prospectus).
(c) Each of the Company and each subsidiary of the Company (as
used herein, the term "subsidiary" includes any corporation, joint
venture, or partnership in which the Company or any subsidiary of the
Company has an ownership interest) is duly incorporated and validly
existing and in good standing under the laws of its jurisdiction of
incorporation, with full corporate power and authority to own, lease and
operate its properties and conduct its business as now conducted and is
duly qualified or authorized to do business and is in good standing in
all jurisdictions wherein the nature of its business or the character of
2
<PAGE>
property owned or leased may require it to be qualified or authorized to
do business. Each of the Company and its subsidiaries holds all
licenses, consents and approvals, and has satisfied all eligibility and
other similar requirements imposed by federal and state regulatory
bodies, administrative agencies or other governmental bodies, agencies
or officials, in each case as required for the conduct of the business
in which it is engaged and is contemplated to be engaged in the
Effective Prospectus and the Final Prospectus, except where the failure
to do so would not have a material adverse effect on the Company and its
subsidiaries taken as a whole. Each of the Company's subsidiaries is set
forth on Exhibit 21.1 to the Registration Statement.
(d) As of the date hereof, and except as disclosed in the
Effective Prospectus and Final Prospectus the Company owns all of the
outstanding shares of capital stock of the Company's subsidiaries set
forth on Exhibit 21.1 to the Registration Statement, directly or
indirectly through another subsidiary, free and clear of all liens,
claims, encumbrances, security interests, restrictions, shareholder
agreements, voting trusts or other claims of third parties. The Company
has no other subsidiaries and is not a partner or joint venturer in any
partnership or joint venture. All of the outstanding shares of capital
stock of the Company's subsidiaries set forth on Exhibit 21.1 to the
Registration Statement have been duly authorized and validly issued and
are fully paid and nonassessable. There are no preemptive rights or
other rights to subscribe for or purchase, or any restriction upon the
transfer of any shares of capital stock of the Company's subsidiaries
pursuant to any subsidiary's articles of incorporation or charter,
bylaws, or other governing documents or any agreement or other
instruments to which such subsidiary is a party.
(e) The capitalization of the Company as of September 30, 1997
is as set forth under the caption "Capitalization" in the Effective
Prospectus and the Final Prospectus, and the Company's capital stock
conforms to the description thereof contained under the caption
"Description of Capital Stock" in the Effective Prospectus and the Final
Prospectus. All the issued shares of capital stock of the Company have
been duly authorized and validly issued, are fully paid and
nonassessable. None of the issued shares of capital stock of the Company
have been issued in violation of any preemptive or similar rights. The
Shares have been duly and validly authorized and, upon issuance and
delivery and payment therefor in the manner herein described, will be
validly issued, fully paid and nonassessable. There are no preemptive
rights or other rights to subscribe for or to purchase, or any
restriction upon the transfer of, any shares of Common Stock pursuant to
the Company's articles of incorporation, bylaws or other governing
documents or any agreement or other instrument to which the Company is a
party or by which it may be bound except as described in the Effective
Prospectus and the Final Prospectus. Neither the filing of the
Registration Statement nor the offer or sale of the Shares as
contemplated by this Agreement gives rise to any rights, other than
those which have been waived or satisfied, for or relating to the
registration of any shares of Common Stock or any other securities of
the Company. The Underwriters will receive good and marketable title to
the Shares to be issued and delivered hereunder, free and clear of all
liens, encumbrances, claims, security interests, restrictions,
shareholders' agreements and voting trusts whatsoever.
(f) All offers and sales by the Company of the Company's
securities prior to the date hereof were at all relevant times exempt
3
<PAGE>
from the registration requirements of the Securities Act and were duly
registered or the subject of an available exemption from the
registration requirements of the applicable state securities or Blue Sky
laws.
(g) The Company has full legal right, power and authority to
enter into this Agreement and to sell and deliver the Shares to be sold
by it to the Underwriters as provided herein, and this Agreement has
been duly authorized, executed and delivered by the Company and
constitutes a valid and binding agreement of the Company enforceable
against the Company in accordance with its terms, except as
enforceability may be limited by applicable principles or by bankruptcy,
insolvency, reorganization, moratorium or similar laws from time to time
in effect affecting the enforcement of creditors' rights. No consent,
approval, authorization or order of any court or governmental agency or
body or third party is required for the performance of this Agreement or
the consummation by the Company of the transactions contemplated hereby,
except such as have been obtained and such as may be required by the
National Association of Securities Dealers, Inc. ("NASD") or under the
Securities Act, or state securities or Blue Sky laws in connection with
the purchase and distribution of the Shares by the Underwriters. The
issue and sale of the Shares by the Company, the Company's performance
of this Agreement and the consummation of the transactions contemplated
hereby will not result in a breach or violation of, or conflict with,
any of the terms and provisions of, or constitute a default by the
Company under, any indenture, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument to which the Company or any of
its subsidiaries is a party or to which any of their properties is
subject, the articles of incorporation or bylaws of the Company or any
statute or any judgment, decree, order, rule or regulation of any court
or governmental agency or body applicable to the Company or any of its
subsidiaries or any of their properties. Neither the Company nor any of
its subsidiaries is in violation of its articles of incorporation or
charter or bylaws or any law, administrative rule or regulation or
arbitrator's or administrative or court decree, judgment or order or in
violation or default (there being no existing state of facts which with
notice or lapse of time or both would constitute a default) in the
performance or observance of any material obligation, agreement,
covenant or condition contained in any material contract, indenture,
deed of trust, mortgage, loan agreement, note, lease, agreement or other
instrument or permit to which it is a party or by which it or any of its
properties is or may be bound.
(h) The consolidated financial statements and the related notes
of the Company included in the Registration Statement, the Effective
Prospectus and the Final Prospectus present fairly, in all material
respects, the consolidated financial position, results of operations and
changes in financial position and cash flow of the Company at the dates
and for the periods to which they relate and have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated. The other financial
statements and schedules included in or as schedules to the Registration
Statement conform to the requirements of the Securities Act and the
Rules and Regulations and present fairly the information presented
therein for the periods shown. The financial and statistical data set
forth in the Effective Prospectus and the Final Prospectus under the
captions "Prospectus Summary," "Use of Proceeds," "Dilution,"
"Capitalization," "Selected Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and "Principal and Selling Shareholders" fairly
4
<PAGE>
presents the information set forth therein on the basis stated in the
Effective Prospectus and the Final Prospectus.
(i) Subsequent to September 30, 1997, neither the Company nor
any of its subsidiaries has sustained any material loss or interference
with its business or properties from fire, flood, hurricane, earthquake,
accident or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree,
which is not disclosed in the Effective Prospectus and the Final
Prospectus; and subsequent to the respective dates as of which
information is given in the Registration Statement, the Effective
Prospectus and the Final Prospectus, (i) neither the Company nor any of
its subsidiaries has incurred any material liabilities or obligations,
direct or contingent, or entered into any transactions not in the
ordinary course of business, and (ii) there has not been any change in
the capital stock, partnership interests, joint venture interests, long-
term debt, obligations under capital leases or short-term borrowings of
the Company or any of its subsidiaries, or any issuance of options,
warrants or rights to purchase the capital stock of the Company or any
of its subsidiaries, or any adverse change, or any development involving
a prospective adverse change, in the general affairs, management,
business, prospects, financial position, net worth or results of
operations of the Company or any of its subsidiaries, except in each
case as described in the Effective Prospectus and the Final
Prospectus.
(j) Except as described in the Effective Prospectus and the
Final Prospectus, there is not pending, or to the knowledge of the
Company threatened, any action, suit, proceeding, inquiry or
investigation, to which the Company or any of its subsidiaries or any of
their respective officers or directors is a party, or to which the
property of the Company or any of its subsidiaries is subject, before or
brought by any court or governmental agency or body, wherein an
unfavorable decision, ruling or finding could prevent or materially
hinder the consummation of this Agreement or could result in a material
adverse effect on the business condition (financial or otherwise),
prospects, net worth or results of operations of the Company and its
subsidiaries, taken as a whole.
(k) There are no contracts or other documents required by the
Securities Act or by the Rules and Regulations to be described in the
Registration Statement, the Effective Prospectus or the Final Prospectus
or to be filed as exhibits to the Registration Statement which have not
been described or filed as required.
(l) Except as described in the Effective Prospectus and the
Final Prospectus, each of the Company and each of its subsidiaries has
good and marketable title to all real and material personal property
owned by it, free and clear of all liens, charges, encumbrances or
defects except those reflected in the financial statements hereinabove
described. The real and personal property and buildings referred to in
the Effective Prospectus and the Final Prospectus which are leased from
others by the Company or its subsidiaries are held under valid,
subsisting and enforceable leases, except as enforceability may be
limited by applicable equitable principles or by bankruptcy, insolvency,
reorganization, moratorium or similar laws from time to time in effect
affecting the enforcement of creditors' rights. Each of the Company and
each of its subsidiaries owns or leases all such properties as are
necessary to their operations as now conducted.
5
<PAGE>
(m) The Company's and its subsidiaries' systems of internal
accounting controls taken as a whole are sufficient to meet the broad
objectives of internal accounting control insofar as those objective
pertain to the prevention or detection of errors or irregularities in
amounts that would be material in relation to their financial
statements; and, except as disclosed in the Effective Prospectus and the
Final Prospectus, none of the Company, its subsidiaries or any employee
or agent of the Company or its subsidiaries has made any payment of
funds of their respective company or received or retained any funds in
violation of any law, rule or regulation.
(n) Each of the Company and each of its subsidiaries has filed
all federal, state and local income, excise and franchise tax returns
required to be filed through the date hereof and has paid all taxes
shown as due therefrom to the extent such taxes have become due and are
not being contested in good faith; and there is no tax deficiency that
has been, nor does the Company or any of its subsidiaries have knowledge
of any tax deficiency which is likely to be asserted against the Company
or any of its subsidiaries, which if determined adversely could
materially and adversely affect the earnings, assets, affairs, business
prospects or condition (financial or otherwise) of the Company and its
subsidiaries, taken as a whole. The Company has made all filings
necessary to be treated as an S Corporation as defined in Section
1361(a) of the Internal Revenue Code of 1986, as amended, from the
Company's inception through the date hereof.
(o) Each of the Company and each of its subsidiaries operates
its businesses in conformity in all material respects with all
applicable statutes, common laws, ordinances, decrees, orders, rules and
regulations of governmental bodies. Each of the Company and each of its
subsidiaries has all material licenses, approvals or consents to operate
their businesses in all locations in which such businesses are currently
being operated, and neither the Company nor any of its subsidiaries is
aware of any existing or imminent matter that may materially adversely
impact its operations or business prospects other than as specifically
disclosed in the Effective Prospectus and the Final Prospectus.
(p) Each of the Company and each of its subsidiaries has filed
with the applicable regulatory authorities all statements, reports,
information or forms required by all applicable laws, regulations or
orders, including all franchising laws, except where such failure to
file would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole; all such filings or submissions were in
substantial compliance with applicable laws when filed and no
deficiencies have been asserted by any regulatory commission, agency or
authority with respect to such filings or submissions. Each of the
Company and each of its subsidiaries has maintained in full force and
effect all material licenses, registrations or permits necessary or
proper for the conduct of their respective businesses, and neither the
Company nor any of its subsidiaries has received any notification that
any revocation or limitation thereof is threatened or pending, and,
except as disclosed in the Effective Prospectus and the Final
Prospectus, there is not to the knowledge of the Company pending any
change under any law, regulation, license or permit which could
materially adversely affect the business, operations, property or
business prospects of the Company or any of its subsidiaries. Neither
the Company nor any of its subsidiaries has received any notice of
violation of or been threatened with a charge of violating, and is not
under investigation with respect to a possible violation of, any
provision of any law, regulation or order which would have a material
adverse effect on the Company and its subsidiaries taken as a whole.
6
<PAGE>
(q) No labor dispute exists or to the knowledge of the Company
is imminent with the Company's or any of its subsidiaries' employees
which could be expected to materially adversely affect the condition
(financial or otherwise), results of operations, properties, affairs,
management, business affairs or business prospects of the Company and
its subsidiaries, taken as a whole. Neither the Company nor any of its
subsidiaries is aware of any existing or imminent labor disturbance by
any of their employees which could be expected to materially adversely
affect the condition (financial or otherwise), results of operations,
properties, affairs, management, business affairs or business prospects
of the Company and its subsidiaries, taken as a whole.
(r) Except as disclosed in the Effective Prospectus and the
Final Prospectus, the Company owns or has licensed the patents,
licenses, copyrights, trademarks, service marks and trade names
presently employed by it in connection with the businesses now operated
by it, and neither the Company nor any of its subsidiaries has received
any notice of infringement of or conflict with asserted rights of others
with respect to any of the foregoing which, alone or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, could
result in any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of
the Company and its subsidiaries, taken as a whole.
(s) Neither the Company nor any of its subsidiaries, nor any of
the directors, officers, employees or agents of the Company or its
subsidiaries, have taken and will not take, directly or indirectly, any
action designed to cause or result in, or which has constituted or which
might be expected to constitute, stabilization or manipulation of the
price of the Common Stock.
(t) Each of the Company and its subsidiaries is insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the business
in which it is engaged; and neither the Company nor any of its
subsidiaries has any reason to believe that it will not be able to renew
its existing insurance coverage as and which such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to
continue its business at comparable cost.
(u) The Company is not, will not become as a result of the
transactions contemplated hereby, and does not intend to conduct its
business in a manner that would cause it to become, an "investment
company" or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940.
(v) The Shares have been approved for designation on The NASD
Automated Quotation National Market System upon notice of issuance.
(w) Any certificates signed by any officer of the Company and
delivered to the Representatives or to counsel for the Representatives
shall be deemed a representation and warranty by the Company to each
Underwriter as to the matters covered thereby.
7
<PAGE>
2. Representations and Warranties of the Selling Shareholders.
----------------------------------------------------------
Each of the Selling Shareholders, severally and not jointly, represents and
warrants to, and agrees with each of the Underwriters that:
(a) Such Selling Shareholder at the First Closing Date (as such
closing date is defined herein), will have valid and marketable title to
the Shares set forth in Schedule I to be sold by such Selling
Shareholder, free and clear of any liens, encumbrances, equities and
claims (other than as imposed by the Securities Act or this Agreement),
and full right, power and authority to effect the sale and delivery of
such Shares; and upon the delivery of and payment for the Shares to be
sold by such Selling Shareholder pursuant to this Agreement, valid and
marketable title thereto, free and clear of any liens, encumbrances,
equities and claims, will be transferred to the Underwriters.
(b) Such Selling Shareholder has duly executed and delivered the
Custody Agreement and the Power of Attorney in the forms previously
delivered to the Representatives, appointing Messrs. Timothy Mann, Jr.,
David C. Cooper and Edward Baumstein, and any one of them, as each
Selling Shareholder's attorney in fact (collectively, the "Attorney-in-
Fact") and the Company as custodian (the "Custodian"). The Attorney-in-
Fact is authorized to execute, deliver and perform this Agreement on
behalf of such Selling Shareholder, to deliver the Shares to be sold by
such Selling Shareholder hereunder, to accept payment therefor and
otherwise to act on behalf of such Selling Shareholder in connection
with this Agreement. Certificates, in suitable form for transfer by
delivery or accompanied by duly executed instruments of transfer or
assignment in blank, representing the Shares to be sold by such Selling
Shareholder hereunder have been deposited with the Custodian pursuant to
the Custody Agreement for the purpose of delivery pursuant to this
Agreement. Such Selling Shareholder agrees that the shares of Common
Stock represented by the certificates on deposit with the Custodian are
subject to the interest of the Underwriters hereunder, that the
arrangements made for such custody and the appointment of the Attorney-
in-Fact are to that extent irrevocable, and that the obligations of such
Selling Shareholder hereunder shall not be terminated except as provided
in this Agreement and the Custody Agreement. If such Selling Shareholder
should die or become incapacitated or if any other event should occur,
before the delivery of the Shares of such Selling Shareholder hereunder
which renders such Selling Shareholder incapable of acting on his own
behalf, the certificates for such Shares deposited with the Custodian
shall be delivered by the Custodian in accordance with the terms and
conditions of this Agreement as if such death, incapacity or other event
had not occurred, regardless whether the Custodian or the Attorney-in-
Fact shall have received notice thereof.
(c) Such Selling Shareholder, acting through his duly authorized
Attorney-in-Fact, has duly executed and delivered this Agreement, the
Custody Agreement, the Power of Attorney, and the S Corporation Tax
Allocation and Indemnification Agreement by and among the Company and
each of the shareholders of the Company and included as an exhibit to
the Registration Statement (the "Tax Indemnification Agreement"); this
Agreement constitutes a legal, valid and binding obligation of such
Selling Shareholder, all authorizations and consents necessary for the
execution and delivery of this Agreement, the Custody Agreement, the
Power of Attorney, and the Tax Indemnification Agreement on behalf of
such Selling Shareholder and for the sale and delivery of the Shares to
be sold by such Selling Shareholder hereunder have been given, except as
8
<PAGE>
may be required by the Securities Act or state securities laws; and such
Selling Shareholder has the legal capacity and full right, power and
authority to execute this Agreement, the Custody Agreement, the Power of
Attorney, and the Tax Indemnification Agreement.
(d) The performance of this Agreement, the Custody Agreement,
the Power of Attorney, and the Tax Indemnification Agreement and the
consummation of the transactions contemplated hereby and thereby by each
of the Selling Shareholders will not result in a breach or violation of,
or conflict with, any of the terms or provisions of, or constitute a
default by such Selling Shareholder under, any indenture, mortgage, deed
of trust, trust (constructive or other), loan agreement, lease,
franchise, license or other agreement or instrument to which such
Selling Shareholder or any of his properties is bound, or any statute,
judgment, decree, order, rule or regulation of any court or governmental
agency or body applicable to such Selling Shareholder or any of his
properties.
(e) Such Selling Shareholder has not distributed nor will
distribute any prospectus or other offering material in connection with
the offer and sale of the Shares other than any Preliminary Prospectus
filed with the Commission or the Final Prospectus or other material
permitted by the Securities Act.
(f) To the knowledge of such Selling Shareholder, the
representations and warranties of the Company contained in Section 1 of
---------
this Agreement are true and correct; such Selling Shareholder has
reviewed and is familiar with the Registration Statement as originally
filed with the Commission and the Preliminary Prospectus. To the
knowledge of such Selling Shareholder, the Preliminary Prospectus does
not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
such Selling Shareholder is not prompted to sell the Shares to be sold
by such Selling Shareholder's knowledge of any material non-public
information concerning the Company or any of its subsidiaries.
(g) At the time the Registration Statement becomes effective (i)
such parts of the Registration Statement and any amendments and
supplements thereto as specifically refer to such Selling Shareholder
will not contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) such parts of the Effective
Prospectus and Final Prospectus as specifically refer to such Selling
Shareholder will not include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(h) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory body, administrative or
other governmental body is necessary in connection with the execution
and delivery of this Agreement by such Selling Shareholder, and the
consummation by him of the transactions herein contemplated (other than
as required by the Securities Act, state securities laws and the
NASD).
9
<PAGE>
(i) Any certificates signed by or on behalf of such Selling
Shareholder as such and delivered to the Representatives or to counsel
for the Representatives shall be deemed a representation and warranty by
such Selling Shareholder to each Underwriter as to the matters covered
thereby.
(j) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Shareholder agrees to deliver to you prior to
or at the First Closing Date (as hereinafter defined) a properly
completed and executed United States Treasury Department Form W-9 (or
other applicable form or statement specified by Treasury Department
regulations in lieu thereof).
(k) Such Selling Shareholder will not take, directly or
indirectly, any action designed to cause or result in, or which might
constitute or be expected to constitute, stabilization or manipulation
of the price of the Common Stock.
3. Purchase, Sale and Delivery of the Shares.
-----------------------------------------
(a) On the basis of the representations, warranties, agreements
and covenants herein contained and subject to the terms and conditions
herein set forth, the Company and the Selling Shareholders, as set forth
on Schedule I, agree to sell to the several Underwriters, and each of
the Underwriters, severally and not jointly, agrees to purchase at a
purchase price of $__.__ per share, the number of Firm Shares set forth
opposite such Underwriter's name in Schedule II hereto, plus such
-----------
additional number of Firm Shares which such Underwriter may become
obligated to purchase pursuant to Section 9 hereof.
---------
(b) The Company also grants to the Underwriters an option to
purchase, solely for the purpose of covering over-allotments in the sale
of Firm Shares, all or any portion of the Option Shares at the purchase
price per share set forth above. The option granted hereby may be
exercised as to all or any part of the Option Shares at any time (but
only once) within 30 days after the date the Registration Statement
becomes effective. The Underwriters shall not be under any obligation to
purchase any Option Shares prior to the exercise of such option. The
option granted hereby may be exercised by the Underwriters by giving
written notice to the Company setting forth the number of Option Shares
to be purchased and the date and time for delivery of and payment for
such Option Shares and stating that the Option Shares referred to
therein are to be used for the purpose of covering over-allotments in
connection with the distribution and sale of the Firm Shares. If such
notice is given prior to the First Closing Date (as defined herein), the
date set forth therein for such delivery and payment shall not be
earlier than two full business days thereafter or the First Closing
Date, whichever occurs later. If such notice is given on or after the
First Closing Date, the date set forth therein for such delivery and
payment shall not be earlier than three full business days thereafter.
In either event, the date so set forth shall not be more than 15 full
business days after the date of such notice. The date and time set forth
in such notice is herein called the "Option Closing Date." Upon exercise
of the option, the Company shall become obligated to sell to the
Underwriters, and, subject to the terms and conditions herein set forth,
the Underwriters shall become obligated to purchase, for the account of
10
<PAGE>
each Underwriter, from the Company, the number of Option Shares
specified in such notice. Option Shares shall be purchased for the
accounts of the Underwriters in proportion to the number of Firm Shares
set forth opposite such Underwriter's name in Schedule II hereto, except
that the respective purchase obligations of each Underwriter shall be
adjusted so that no Underwriter shall be obligated to purchase
fractional Option Shares.
(c) Certificates in definitive form for the Firm Shares which
each Underwriter has agreed to purchase hereunder shall be delivered by
or on behalf of the Company and the Selling Shareholders to the
Underwriters for the account of such Underwriter against payment by such
Underwriter or on its behalf of the purchase price therefor by
certified, official bank check or checks payable in same day funds to
the order of the Company and the custodian for the Selling Shareholders
at the offices of J.C. Bradford & Co. ("Bradford"), 330 Commerce Street,
Nashville, Tennessee 37201, or at such other place as may be agreed upon
by Bradford and the Company, at 10:00 A.M., Nashville time, on the third
full business day after this Agreement becomes effective, or at such
other time not later than the seventh full business day thereafter as
the Representatives and the Company may determine, such time of delivery
against payment being herein referred to as the "First Closing Date."
The First Closing Date and the Option Closing Date are herein
individually referred to as the "Closing Date" and collectively referred
to as the "Closing Dates." Certificates in definitive form for the
Option Shares which each Underwriter shall have agreed to purchase
hereunder shall be similarly delivered by or on behalf of the Company on
the Option Closing Date. The certificates in definitive form for the
Shares to be delivered will be in good delivery form and in such
denominations and registered in such names as Bradford may request not
less than 48 hours prior to the First Closing Date or the Option Closing
Date, as the case may be. Such certificates will be made available for
checking and packaging at a location designated by Bradford, at least 24
hours prior to the First Closing Date or the Option Closing Date, as the
case may be. It is understood that Bradford may (but shall not be
obligated to) make payment on behalf of any Underwriter or Underwriters
for the Shares to be purchased by such Underwriter or Underwriters. No
such payment shall relieve such Underwriter or Underwriters from any of
its or their obligations hereunder.
4. Offering by the Underwriters. After the Registration
----------------------------
Statement becomes effective, the several Underwriters propose to offer for sale
to the public the Firm Shares and any Option Shares that may be sold at the
price and upon the terms set forth in the Final Prospectus.
5. Covenants of the Company. The Company covenants and agrees
------------------------
with each of the Underwriters that:
(a) The Company shall comply with the provisions of and make all
requisite filings with the Commission pursuant to Rules 424 and 430A of
the Rules and Regulations and notify the Representatives promptly (in
writing, if requested) of all such filings. The Company shall notify the
Representatives promptly of any request by the Commission for any
amendment of or supplement to the Registration Statement, the Effective
Prospectus or the Final Prospectus or for additional information; the
Company shall prepare and file with the Commission, promptly upon the
Representatives' request, any amendments of or supplements to the
Registration Statement, the Effective Prospectus or the Final Prospectus
which, in the Representatives' opinion, may be necessary or advisable in
connection with the distribution of the Shares; and the Company shall
11
<PAGE>
not file any amendment of or supplement to the Registration Statement,
the Effective Prospectus or the Final Prospectus which is not approved
by the Representatives after reasonable notice thereof. The Company
shall advise the Representatives promptly of the issuance by the
Commission or any jurisdiction or other regulatory body of any stop
order or other order suspending the effectiveness of the Registration
Statement, suspending or preventing the use of any Preliminary
Prospectus, the Effective Prospectus or the Final Prospectus or
suspending the qualification of the Shares for offering or sale in any
jurisdiction, or of the institution of any proceedings for any such
purpose; and the Company shall use its best efforts to prevent the
issuance of any stop order or other such order and, should a stop order
or other such order be issued, to obtain as soon as possible the lifting
thereof.
(b) The Company will take or cause to be taken, all necessary
action and furnish to whomever the Representatives direct such
information as may be reasonably required in qualifying the Shares for
offer and sale under the securities or Blue Sky laws of such
jurisdictions as the Underwriters may designate and will continue such
qualifications in effect for as long as may be reasonably necessary to
complete the distribution of the Shares provided, however, that in
-------- -------
connection therewith, the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process
in any jurisdiction in which the Company is not currently so subject.
(c) Within the time during which a Final Prospectus relating to
the Shares is required to be delivered under the Securities Act, the
Company shall comply with all requirements imposed upon it by the
Securities Act, as now and hereafter amended, and by the Rules and
Regulations, as from time to time in force, so far as is necessary to
permit the continuance of sales of or dealings in the Shares as
contemplated by the provisions hereof and the Final Prospectus. If
during such period any event occurs as a result of which the Final
Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances then
existing, not misleading, or if during such period it is necessary to
amend the Registration Statement or supplement the Final Prospectus to
comply with the Securities Act, the Company shall promptly notify the
Representatives and shall amend the Registration Statement or supplement
the Final Prospectus (at the expense of the Company) so as to correct
such statement or omission or effect such compliance.
(d) The Company will furnish without charge to the
Representatives and make available to the Underwriters copies of the
Registration Statement (four of which shall be signed and shall be
accompanied by all exhibits, including any that are incorporated by
reference, which have not previously been furnished), each Preliminary
Prospectus, the Effective Prospectus and the Final Prospectus, and all
amendments and supplements thereto, including any prospectus or
supplement prepared after the effective date of the Registration
Statement, in each case as soon as available and in such quantities as
the Underwriters may reasonably request.
(e) The Company will (i) deliver to the Representatives at such
office or offices as the Representatives may designate as many copies of
the Preliminary Prospectus and Final Prospectus as the Representatives
may reasonably request, and (ii) for a period of not more than nine
months after the Registration Statement becomes effective, send to the
12
<PAGE>
Underwriters as many additional copies of the Final Prospectus and any
supplement thereto as the Representatives may reasonably request.
(f) The Company shall make generally available to its security
holders, in the manner contemplated by Rule 158(b) under the Securities
Act, as promptly as practicable and in any event no later than 45 days
after the end of its fiscal quarter in which the first anniversary of
the effective date of the Registration Statement occurs, an earnings
statement satisfying the provisions of Section 11(a) of the Securities
Act covering a period of at least 12 consecutive months beginning after
the effective date of the Registration Statement.
(g) The Company will apply the net proceeds from the sale of the
Shares as set forth under the caption "Use of Proceeds" in the Final
Prospectus and will timely file reports with the Commission in
accordance with Rule 463 of the Securities Act or any successor
provision.
(h) During a period of three years from the effective date of
the Registration Statement, or such longer period as the Representatives
may reasonably request, the Company will furnish to the Representatives
copies of all reports and other communications (financial or other)
furnished by the Company to its shareholders and, as soon as available,
copies of any reports or financial statements furnished or filed by the
Company to or with the Commission or any national securities exchange on
which any class of securities of the Company may be listed.
(i) The Company will, from time to time, after the effective
date of the Registration Statement file with the Commission such reports
as are required by the Securities Act, the Exchange Act and the Rules
and Regulations, and shall also file with state securities commissions
in states where the Shares have been sold by you (as the Representatives
shall have advised the Company in writing) such reports as are required
to be filed by the securities acts and the regulations of those
states.
(j) Except pursuant to this Agreement or with the prior written
consent of the Representatives, for a period of 180 days from the
effective date of the Registration Statement, the Company will not, and
the Company has provided agreements executed by each of its executive
officers and directors and all other beneficial owners of the Company's
outstanding Common Stock, the form of which is attached hereto as
Exhibit A, providing that for a period of 180 days from the effective
date of the Registration Statement, such person or entity will not,
directly or indirectly, offer for sale, sell, grant any options (other
than pursuant to existing employee benefit plans and agreements, other
existing compensation agreements and existing stock options), rights or
warrants with respect to any shares of Common Stock, securities
convertible into Common Stock or any other capital stock of the Company,
or otherwise dispose of any shares of Common Stock or such other
securities or capital stock; provided, however, that the Company may
-------- -------
during such period offer and issue shares of its Common Stock in
connection with acquisitions approved by the Board of Directors,
including but not limited to shares issued under the Company's shelf
registration of 2,000,000 shares of Common Stock as described in the
Effective Prospectus and Final Prospectus.
13
<PAGE>
(k) If at any time during the 25 day period after the
Registration Statement is declared effective, any rumor, publication or
event relating to or affecting the Company shall occur as a result of
which, in the Representatives' opinion, the market price for the Shares
has been or is likely to be materially affected (regardless of whether
such rumor, publication or event necessitates a supplement to or
amendment of the Final Prospectus), the Company will, after written
notice from you advising it as to the effect set forth above, prepare,
consult with the Representatives concerning the substance of and
disseminate a press release or other public statement, reasonably
satisfactory to the Representatives, responding to or commenting on such
rumor, publication or event.
(l) Neither the Company nor any of its officers, directors or
affiliates will take, directly or indirectly, any action designed to
cause or result in, or which might constitute or be expected to
constitute, stabilization or manipulation of the price of the Common
Stock.
6. Expenses. Each of the Company and the Selling Shareholders
--------
agrees with the Underwriters that (a) whether or not the transactions
contemplated by this Agreement are consummated or this Agreement becomes
effective or is terminated, the Company will pay all fees and expenses incident
to the performance of the obligations of the Company and the Selling
Shareholders hereunder, including, but not limited to, (i) the Commission's
registration fee, (ii) the expenses of printing (or reproduction) and
distributing the Registration Statement (including the financial statements
therein and all amendments and exhibits thereto), each Preliminary Prospectus,
the Effective Prospectus, the Final Prospectus, any amendments or supplements
thereto, and this Agreement and other underwriting documents, including
Underwriters' Questionnaires, Underwriters' Powers of Attorney, Blue Sky
Memoranda, Agreements Among Underwriters and Selected Dealer's Agreement, (iii)
fees and expenses of accountants and counsel for the Company and the Selling
Shareholders, (iv) expenses of registration or qualification of the Shares under
state Blue Sky and securities laws, including the fees and disbursements of
counsel to the Underwriters in connection therewith, (v) filing fees paid or
incurred by the Underwriters and related fees and expenses of counsel to the
Underwriters in connection with filings with the NASD, (vi) expenses of
registration of the outstanding shares of Common Stock on the Nasdaq National
Market, (vii) all travel, lodging and reasonable living expenses incurred by the
Company in connection with marketing, dealer and other meetings attended by the
Company and the Underwriters in marketing the Shares, (viii) the costs and
charges of the Company's transfer agent and registrar and the cost of preparing
the certificates for the Shares, and (ix) all other costs and expenses incident
to the performance of their obligations hereunder not otherwise provided for in
this Section; and (b) all of the out-of-pocket expenses, including counsel fees,
disbursements and expenses, incurred by the Underwriters in connection with
investigating, preparing to market and marketing the Shares and proposing to
purchase and purchasing the Shares under this Agreement, will be borne and paid
by the Company if the sale of the Shares provided for herein is not consummated
(i) by reason of the termination of the Agreement by the Company pursuant to
Section 14(a)(i), or (ii) by reason of the termination of the Agreement by the
Representatives pursuant to Section 14(b)(ii) or because of any failure or
refusal on the part of the Company or any Selling Shareholder to comply with the
terms or fulfill any of the conditions of this Agreement.
The provisions of this Section shall not affect any agreement
that the Company and the Selling Shareholders may have for the sharing of such
costs and expenses; provided, however, that the Underwriters may deem the
Company to be the primary obligor with respect to all costs, fees, and expenses
to be paid by the Company and the Selling Shareholders.
14
<PAGE>
7. Conditions of the Underwriters' Obligations. The respective
-------------------------------------------
obligations of the Underwriters to purchase and pay for the Firm Shares and
Option Shares shall be subject, in their discretion, to the accuracy of the
representations and warranties of the Company and the Selling Shareholders
herein as of the date hereof and as of the Closing Date as if made on and as of
the Closing Date, to the accuracy of the statements of the Company's officers
made pursuant to the provisions hereof, to the performance by the Company and
the Selling Shareholders of all of their covenants and agreements hereunder and
to the following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective not later than 5:30 P.M.,
Washington, D.C. time, on the day following the date of this Agreement,
or such later time and date as shall have been consented to by the
Representatives and all filings required by Rules 424 and 430A of the
Rules and Regulations shall have been made; no stop order suspending the
effectiveness of the Registration Statement shall have been issued and
no proceedings for that purpose shall have been instituted or threatened
or, to the knowledge of the Company or the Underwriters, shall be
contemplated by the Commission; any request of the Commission for
additional information (to be included in the Registration Statement or
the Final Prospectus or otherwise) shall have been complied with to your
satisfaction; and the NASD, upon review of the terms of the public
offering of the Shares, shall not have objected to such offering, such
terms or the Underwriters' participation in the same.
(b) No Underwriter shall have advised the Company that the
Registration Statement, Preliminary Prospectus, the Effective Prospectus
or Final Prospectus, or any amendment or any supplement thereto,
contains an untrue statement of fact which, in your judgment, is
material, or omits to state a fact which, in the Representatives'
judgment, is material and is required to be stated therein or necessary
to make the statements therein not misleading and the Company shall not
have cured such untrue statement of fact or stated a statement of fact
required to be stated therein.
(c) The Representatives shall have received an opinion, dated
the Closing Date, from Nelson, Mullins, Riley & Scarborough, L.L.P.,
counsel for the Company, to the effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation under the laws of the State of
Georgia, with corporate power and authority to own, lease and operate
its properties and conduct its business as now conducted, and is duly
qualified to do business as a foreign corporation in good standing in
all jurisdictions where failure to so qualify would have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
The Company holds all material licenses, certificates, permits,
franchises and authorizations from governmental authorities that are
material to the conduct of its business in all locations in which such
business is currently being conducted; provided, however, this opinion
-------- -------
shall be limited to the federal laws of the United States and the
internal laws of the States in which such counsel is licensed to
practice law.
(ii) Each of the Company's subsidiaries has been duly
incorporated and is validly existing as a corporation under the laws of
its jurisdiction of incorporation, with the corporate power and
authority to own, lease and operate its properties and conduct its
business as now conducted, and is duly qualified to do business as a
foreign corporation in good standing in all jurisdictions where the
15
<PAGE>
failure to so qualify would have a material adverse effect upon the
Company and its subsidiaries, taken as a whole. Each subsidiary holds
all material licenses, certificates, permits, franchises and
authorizations from governmental authorities that are material to the
conduct of its business in all locations in which such business is
currently being conducted; provided, however, this opinion shall be
-------- -------
limited to the federal laws of the United States and the internal laws
of the States in which such counsel is licensed to practice law. All of
the issued and outstanding shares of capital stock of the Company's
corporate subsidiaries have been duly authorized and validly issued, are
fully paid and nonassessable, and are owned beneficially and of record
by the Company, and, except as described in the Effective Prospectus and
Final Prospectus, free and clear of liens, claims, encumbrances,
security interests, voting trusts or other defects of title
whatsoever.
(iii) As of the dates specified therein, the Company
had authorized and issued capital stock as set forth under the caption
"Capitalization" in the Final Prospectus. All of the outstanding shares
of Common Stock (including the shares to be sold by the Selling
Shareholders) have been duly authorized and are validly issued, fully
paid and nonassessable, and the Shares to be sold by the Company have
been duly authorized, and upon issuance thereof and payment therefor as
provided herein, will be validly issued, fully paid and nonassessable;
none of the issued shares have been issued in violation of or subject to
any preemptive rights provided for by law or by the Company's articles
of incorporation. Except as described in the Effective Prospectus and
Final Prospectus, there are no preemptive rights or other rights to
subscribe for or to purchase, or any restriction upon the transfer of,
the Shares pursuant to the Company's articles of incorporation, bylaws
or other governing documents or pursuant to any agreement or other
instrument to which the Company is a party or by which it may be bound.
Neither the filing of the Registration Statement nor the offer or sale
of the Shares as contemplated by this Agreement gives rise to any rights
other than those which have been waived or satisfied, for or relating to
the registration of any shares of Common Stock or any other securities
of the Company. The Underwriters will receive good and marketable title
to the Shares to be issued and delivered by the Company pursuant to this
Agreement, free and clear of all liens, encumbrances, claims, security
interests, restrictions, shareholders agreements and voting trusts
whatsoever. The capital stock of the Company and the Shares conform to
the description thereof contained in the Final Prospectus.
(iv) No consent, approval, authorization or order of
any court or governmental agency or body or to the knowledge of such
counsel, any third party is required for the performance of this
Agreement by the Company or the consummation by the Company of the
transactions contemplated hereby, except such as have been obtained
under the Securities Act and such as may be required by the NASD and
under state securities or Blue Sky laws in connection with the purchase
and distribution of the Shares by the several Underwriters, as to which
such counsel need not express an opinion. The performance of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby will not conflict with or result in a
breach or violation by the Company of any of the terms or provisions of,
or constitute a default by the Company under, any material indenture,
mortgage, deed of trust, loan agreement, lease or other agreement or
instrument known to such counsel to which the Company is a party or to
16
<PAGE>
which the Company or its properties is subject, the articles of
incorporation or bylaws of the Company, any statute, or any judgment,
decree, order, rule or regulation of any court or governmental agency or
body known to such counsel to be applicable to the Company or any of its
subsidiaries or their properties; provided, however, that such counsel
-------- -------
need not express any opinion under this paragraph as to compliance with
federal securities laws (certain aspects of which are covered elsewhere
in this Agreement) or as to compliance with the Securities or Blue Sky
laws of any jurisdiction.
(v) The Company has full corporate, power and authority
to enter into this Agreement and to issue, sell and deliver the Shares
to be sold by it to the Underwriters as provided herein, and this
Agreement has been duly authorized, executed and delivered by the
Company and constitutes the valid and legally binding obligation of the
Company enforceable against the Company in accordance with its terms,
except as enforceability may be limited by applicable equitable
principles or by bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer, fraudulent conveyance or similar laws from time to
time in effect affecting the enforcement of creditors' rights.
(vi) To the knowledge of such counsel, except as
described in the Final Prospectus, there is not pending or threatened,
any action, suit, proceeding, inquiry or investigation, to which the
Company is a party, or to which the property of the Company is subject,
before or brought by any court or governmental agency or body, which, if
determined adversely to the Company, could result in any material
adverse change in the business, financial position, net worth or results
of operations, or could materially adversely affect the properties or
assets, of the Company and its subsidiaries, taken as a whole.
(vii) To the knowledge of such counsel, no default
exists, and no event has occurred which with notice or after the lapse
of time to cure or both, would constitute a default, in the due
performance and observance of any term, covenant or condition of any
indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument known to such counsel to which the Company is a
party or to which it or its properties are subject, or of the articles
of incorporation or bylaws of the Company, which default a event would
have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(viii) To the knowledge of such counsel, the Company is
not in violation of any law, ordinance, administrative or governmental
rule or regulation of Georgia or the United States applicable to the
Company or any decree of any court or governmental agency or body having
jurisdiction over the Company which would have a material adverse effect
on the Company.
(ix) The Registration Statement and all post-effective
amendments thereto have become effective under the Securities Act, and,
to the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are threatened,
pending or contemplated by the Commission. All filings required by Rules
424 and 430A of the Rules and Regulations have been made; the
Registration Statement, the Effective Prospectus and Final Prospectus,
17
<PAGE>
and any amendments or supplements thereto, as of their respective
effective or issue dates, complied as to form in all material respects
with the requirements of the Securities Act and the Rules and
Regulations (other than the financial statements, data and schedules and
the content of the written information furnished to the Company pursuant
to Section 9(g) of this Agreement contained therein, as to which counsel
need not express any opinion); the descriptions in the Registration
Statement, the Effective Prospectus and the Final Prospectus of
statutes, regulations, legal and governmental proceedings, and contracts
and other documents are accurate in all material respects and present
fairly the information required to be stated; and such counsel does not
know of any pending or threatened legal or governmental proceedings,
statutes or regulations required to be described in the Final Prospectus
which are not described as required nor of any contracts or documents of
a character required to be described in the Registration Statement or
the Final Prospectus or to be filed as exhibits to the Registration
Statement which are not described and filed as required.
In addition to the matters set forth above, such opinion shall
also include a statement to the effect that nothing has come to the attention of
such counsel which leads them to believe that the Registration Statement, the
Effective Prospectus and the Final Prospectus or any amendment or supplement
thereto contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they were made
(except that such counsel need express no view as to financial statements,
schedules and other financial information included therein).
(d) The Representatives shall have received an opinion, dated
the Closing Date, of Nelson, Mullins, Riley & Scarborough, L.L.P.
counsel for the Selling Shareholders, to the effect that:
(i) This Agreement, the Custody Agreement, the Power of
Attorney and the Tax Indemnification Agreement have been duly executed
and delivered by or on behalf of each of the Selling Shareholders and
constitute valid and binding agreements of such Selling Shareholders in
accordance with their terms, except as enforceability may be limited by
applicable equitable principles or by bankruptcy, insolvency,
moratorium, reorganization or similar laws from time to time in effect
affecting the enforcement of creditors' rights.
(ii) The sale of the Shares to be sold by each Selling
Shareholder hereunder and the compliance by such Selling Shareholder
with all of the provisions of this Agreement, the Custody Agreement, the
Power of Attorney and the Tax Indemnification Agreement, and the
consummation of the transactions herein and therein contemplated, will
not conflict with or result in a breach or violation of any terms or
provisions of, or constitute a default under any material indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument
known to such counsel to which such Selling Shareholder is a party or by
which such Selling Shareholder is bound or to which any of the property
or assets of such Selling Shareholder is subject, or any statute, order,
rule or regulation of any court or governmental agency or body known to
such counsel to be applicable to such Selling Shareholder or the
property of such Selling Shareholder; provided, however, that such
-------- -------
counsel need not express any opinion under this paragraph as to
compliance with federal securities laws (certain aspects of which are
covered elsewhere in this Agreement) or as to compliance with the
Securities or Blue Sky laws of any jurisdiction.
18
<PAGE>
(iii) To the knowledge of such counsel, no consent,
approval, authorization or order of any court or governmental agency or
body is required for the consummation of the transactions contemplated
by this Agreement in connection with the Shares to be sold by each
Selling Shareholder hereunder, except such as have been obtained under
the Securities Act and such as may be required under state securities or
Blue Sky laws in connection with the purchase and distribution of such
Shares by the Underwriters, as to which such counsel need express no
opinion.
(iv) To the knowledge of such counsel, there are no
facts which would cause any Selling Shareholder to lack the legal
capacity and the full right, power and authority to sell, transfer and
deliver such Shares pursuant to this Agreement. Each of the Selling
Shareholders is the registered holder of the Shares as described in the
Registration Statement. Upon delivery of the Shares and payment of the
consideration therefore pursuant to this Agreement, the Underwriters
will acquire all the rights of the Selling Shareholders in such Shares
free of: (A) any adverse claim, any lien in favor of the Company, and
any restrictions of transfer imposed by the Company, assuming the
Underwriters purchase such Shares in good faith and without notice of
any adverse claim (within the meaning of Section 8-302 of the Uniform
Commercial Code as in effect in the State of Georgia (the "UCC")); (B)
any perfected security interest under the UCC; and (C) to the best
knowledge of such counsel, any other security interest, claims, liens,
equities and other encumbrances.
The opinions to be rendered pursuant to paragraphs (c) and (d)
may be limited to federal law, and as to state law matters, to the laws of the
states in which such counsel is admitted to practice.
(e) The Underwriters shall have received an opinion or opinions,
dated the Closing Date, of Latham & Watkins, counsel for the
Underwriters, with respect to the Registration Statement and the Final
Prospectus, and such other related matters as the Underwriters may
require, and the Company shall have furnished to such counsel such
documents as they may reasonably request for the purpose of enabling
them to pass upon such matters.
(f) The Representatives shall have received from Arthur Andersen
LLP, a letter dated the date hereof and, at the Closing Date, a second
letter dated the Closing Date, in form and substance satisfactory to the
Representatives, stating that they are independent public accountants
with respect to the Company within the meaning of the Securities Act and
the applicable Rules and Regulations, and to the effect that:
(i) In their opinion, the consolidated financial
statements examined by them and included in the Registration Statement
comply as to form in all material respects with the applicable
accounting requirements of the Securities Act and the published Rules
and Regulations and are presented in accordance with generally accepted
accounting principles; and they have made a review in accordance with
standards established by the American Institute of Certified Public
Accountants of selected financial data and/or condensed financial
statements derived from audited financial statements of the Company;
19
<PAGE>
(ii) The unaudited selected financial information
included in the Preliminary Prospectus and the Final Prospectus under
the captions "PROSPECTUS SUMMARY" and "SELECTED CONSOLIDATED FINANCIAL
DATA" for each of the fiscal years ended December 31, 1992, 1993 and
1994 and for the nine months ended September 30, 1996 and September 30,
1997, agrees with the corresponding amounts in the unaudited
consolidated financial statements from which data was derived;
(iii) On the basis of a reading of the latest available
interim consolidated financial statements (unaudited) of the Company, a
reading of the minute books of the Company, inquiries of officials of
the Company responsible for financial and accounting matters and other
specified procedures, all of which have been agreed to by the
Representatives, nothing came to their attention that caused them to
believe that:
(A) the amounts included in the Preliminary
Prospectus and the Final Prospectus under the captions "PROSPECTUS
SUMMARY" and "SELECTED CONSOLIDATED FINANCIAL DATA" for the three fiscal
years ended December 31, 1992, 1993 and 1994 and for the nine months
ended September 30, 1996 and September 30, 1997, do not agree with the
corresponding amounts in the unaudited consolidated financial statements
from which data was derived;
(B) the unaudited pro forma financial
information included in the Registration Statement do not comply as to
form in all material respects with the applicable accounting
requirements of the Securities Act and the Rules and Regulations or that
the pro forma adjustments have not been properly applied to the
historical amounts in the compilation of the pro forma information.
(C) at a specified date not more than five days
prior to the date of delivery of each respective letter, there was any
change in the capital stock, decline in shareholders' equity or increase
in long-term debt and capital lease obligations of the Company, in each
case as compared with amounts shown in the latest consolidated balance
sheet included in the Final Prospectus, except in each case for changes,
decreases or increases which the Final Prospectus discloses have
occurred or may occur or which are described in such letters; and
(D) for the period from the closing date of the
latest consolidated statements of operations included in the Effective
Prospectus and the Final Prospectus to a specified date not more than
five days prior to the date of delivery of each respective letter, there
were any decreases in total revenues, net income, pro forma net income,
and pro forma net income per share of the Company, in each case as
compared with the corresponding period of the preceding year, except in
each case for decreases which the Final Prospectus discloses have
occurred or may occur or which are described in such letter.
(iv) They have carried out certain specified procedures,
not constituting an audit, with respect to certain amounts, percentages
and financial information specified by you which are derived from the
general accounting records of the Company and its subsidiaries, which
appear in the Effective Prospectus and the Final Prospectus and have
compared and agreed such amounts, percentages and financial information
with the accounting records of the Company and its subsidiaries or to
20
<PAGE>
analyses and schedules prepared by the Company from its detailed
accounting records.
In the event that the letters to be delivered referred to above set forth any
such changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that the Underwriters shall have determined,
after discussions with officers of the Company responsible for financial and
accounting matters and with Arthur Andersen LLP, that such changes, decreases or
increases as are set forth in such letters do not reflect a material adverse
change in the shareholders' equity or long-term debt of the Company as compared
with the amounts shown in the latest consolidated balance sheets of the Company
included in the Final Prospectus, or a material adverse change in total net
revenues or net income of the Company, in each case as compared with the
corresponding period of the prior year.
(g) There shall have been furnished to the Representatives a
certificate, dated the Closing Date and addressed to you, signed by the
Chief Executive Officer and by the Chief Financial Officer of the
Company to the effect that:
(i) the representations and warranties of the Company in
Section 1 of this Agreement are true and correct, as if made at and as
---------
of the Closing Date, and the Company has complied with all the
agreements and satisfied all the conditions on its part to be performed
or satisfied at or prior to the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that
purpose have been initiated or are pending, or to their knowledge,
threatened under the Securities Act;
(iii) all filings required by Rule 424 and Rule 430A of
the Rules and Regulations have been made;
(iv) they have carefully examined the Registration
Statement, the Effective Prospectus and the Final Prospectus, and any
amendments or supplements thereto, and such documents do not include any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading; and
(v) since the effective date of the Registration
Statement, there has occurred no event required to be set forth in an
amendment or supplement to the Registration Statement, the Effective
Prospectus or the Final Prospectus which has not been so set forth.
(h) The representations and warranties of each Selling
Shareholder in Section 2 of this Agreement shall be true and correct as
---------
of the Closing Date and such Selling Shareholders shall deliver to the
Representatives a certificate to that effect, dated the Closing Date,
signed by each such Selling Shareholder or such Selling Shareholder's
duly appointed Attorney-in-Fact.
(i) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Final Prospectus, and
except as stated therein, neither the Company nor any of its
subsidiaries has sustained any material loss or interference with its
business or properties from fire, flood, hurricane, earthquake, accident
or other calamity, whether or not covered by insurance, or from any
21
<PAGE>
labor dispute or any court or governmental action, order or decree, or
become a party to or the subject of any litigation which is material to
the Company and its subsidiaries taken as a whole, nor shall there have
been any material adverse change, or any development involving a
prospective material adverse change, in the business, properties, key
personnel, capitalization, net worth, results of operations or condition
(financial or other) of the Company and its subsidiaries taken as a
whole, which loss, interference, litigation or change, in the
Representatives' judgment shall render it unadvisable to commence or
continue the offering of the Shares at the offering price to the public
set forth on the cover page of the Prospectus or to proceed with the
delivery of the Shares.
(j) The Shares shall have been approved for listing upon notice
of issuance on the Nasdaq National Market.
(k) At or prior to the First Closing Date, the Tax
Indemnification Agreement, by and among the Company and each of the
Selling Shareholders, in the form included as an exhibit to the
Registration Statement at the time the Registration Statement was
declared effective by the Commission, or in such other form as shall be
acceptable to the Representatives, shall have been executed and
delivered by the parties thereto.
All such opinions, certificates, letters and documents delivered
pursuant to this Agreement will comply with the provisions hereof only if they
are reasonably satisfactory to the Representatives and their counsel. The
Company shall furnish to the Representatives such conformed copies of such
opinions, certificates, letters and documents in such quantities as the
Representatives shall reasonably request.
The respective obligations of the Underwriters to purchase and
pay for the Option Shares shall be subject, in their discretion, to each of the
foregoing conditions to purchase the Firm Shares, except that all references to
the "Closing Date" shall be deemed to refer to the Option Closing Date, if it
shall be a date other than the Closing Date.
8. Condition of the Company's and the Selling Shareholders'
--------------------------------------------------------
Obligations. The obligations hereunder of the Company and the Selling
- -----------
Shareholders are subject to the condition set forth in Section 7(a) hereof.
9. Indemnification and Contribution.
--------------------------------
(a) The Company agrees to indemnify and hold harmless you and
each Underwriter, the directors, officers, employees and agents of each
Underwriter, and each person, if any, who controls any Underwriter
within the meaning of the Act or the Exchange Act (such directors,
officers, employees and agents of, and persons who control, any
Underwriters are individually referred to herein as a "controlling
person" and collectively referred to herein as "controlling persons"),
from and against any and all losses, claims, damages, liabilities or
expenses (including reasonable attorneys' fees and reasonable costs of
investigation) arising out of or based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Effective
Prospectus or Final Prospectus, or any amendment or supplement thereto,
or in any application filed under any Blue Sky Law or other document
executed by the Company for that purpose or based upon written
22
<PAGE>
information furnished by the Company and filed in any state or other
jurisdiction in order to qualify any or all of the Shares under the
securities laws thereof (any such document, application or information
being hereinafter called a "Blue Sky Application"), or arising out of or
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or expenses arise out of or are based upon an untrue
statement or omission or alleged untrue statement or omission which has
been made in the Registration Statement, any Preliminary Prospectus, the
Effective Prospectus or Final Prospectus or any amendment or supplement
thereto or in any Blue Sky Application, or omitted therefrom, in
reliance upon and in conformity with written information furnished to
the Company pursuant to Section 9(g) of this Agreement.
(b) Each of the Selling Shareholders, severally and not jointly,
agrees to indemnify and hold harmless you and each controlling person,
from and against any and all losses, claims, damages, liabilities or
expenses (including reasonable attorneys' fees and reasonable costs of
investigation) arising out of or based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Effective
Prospectus or Final Prospectus, or any amendment or supplement thereto,
or in any Blue Sky Application, or arising out of or based upon the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading; provided, however, that a Selling Shareholder shall only be
-------- -------
liable in his capacity as a Selling Shareholder pursuant to the
foregoing portion of this clause 9(b) to the extent that any statements
in or omissions or alleged omissions to state in the Registration
Statement, any Preliminary Prospectus, the Effective Prospectus or Final
Prospectus, or any amendment or supplement thereto, are based upon
information furnished to the Company by such Selling Shareholder
specifically for use therein or to the extent that such Selling
Shareholder has failed to bring to the attention of the Underwriters
anything that has come to the attention of such Selling Shareholder (or
solely with respect to Ms. Monroe-Chase and Mr. Strassman, any matter
that either such person knew or should have known in such person's
capacity as a principal shareholder and director of the Company) to
cause such Selling Shareholder to believe that there is any untrue
statement relating to the Company required to be stated therein or
necessary to make the statements therein not misleading; and further
-------
provided, that the Selling Shareholders shall not be liable pursuant to
--------
the foregoing portion of this clause 9(b) to the extent that such
losses, claims, damages, liabilities or expenses arise out of or are
based upon an untrue statement or omission or alleged untrue statement
or omission which has been made in the Registration Statement, any
Preliminary Prospectus, the Effective Prospectus or Final Prospectus or
any amendment or supplement thereto or in any Blue Sky Application, or
omitted therefrom, in reliance upon and in conformity with (x) written
information furnished to the Company pursuant to Section 9(g) of this
Agreement, and (y) with respect only to the liability of any Selling
Shareholder under this Section 9, written information furnished to the
---------
Company by and on behalf of another Selling Shareholder for use in
connection with the preparation of the Registration Statement and the
Prospectus; and provided further, that the indemnity obligation of each
-------- -------
Selling Shareholders shall not exceed the net proceeds received by such
Selling Shareholder in the Offering from the sale by such Selling
Shareholder of the Shares set forth in Schedule I.
----------
23
<PAGE>
(c) This indemnity agreement is subject to the condition that,
insofar as such losses, claims, damages, liabilities or expenses relate
to any such untrue statement, alleged untrue statement, omission or
alleged omission made in a Preliminary Prospectus that is corrected in
the Final Prospectus, such indemnity agreement shall not inure to the
benefit of any Underwriter from whom the person asserting such losses,
liabilities, claims, damages or expenses purchased the Shares in the
offering (or to the benefit of any controlling person of such
Underwriter), if (i) such Underwriter failed to deliver a copy of the
Prospectus to such person at or prior to the time such delivery is
required by the Act, unless such failure was due to the failure by the
Company to provide copies of the Prospectus to such Underwriter; and
(ii) the delivery of such Prospectus would have constituted a complete
defense to the losses, claims, damages, liabilities or expenses asserted
by such person. Notwithstanding the foregoing provisions of this
Section 9, the parties agree that the indemnification obligations of
---------
each Selling Shareholder under this Section 9, with respect to any
---------
matter that such Selling Shareholder and the Company are both required
to indemnify the Underwriters hereunder, shall be subject to the
determination by you, on behalf of the Underwriters, that in your
reasonable commercial judgment, the Company is or may be unable to
discharge fully its obligations to the Underwriters hereunder. To the
extent the Company is or may be able, in your reasonable commercial
judgment, to discharge the Company's obligations to the Underwriters
with respect to any matter that the Company is required to indemnify the
Underwriters hereunder, the Underwriters shall to such extent, first
seek indemnification from the Company.
(d) Each Underwriter will indemnify and hold harmless the
Selling Shareholders and the Company, each of its directors, each of its
officers who signed the Registration Statement and each person, if any,
who controls the Company within the meaning of the Securities Act
against any losses, claims, damages or liabilities to which the Company,
the Selling Shareholders, or any such director, officer or controlling
person may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Effective
Prospectus or Final Prospectus, or any amendment or supplement thereto,
or any Blue Sky Application, or arise out of or are based upon the
omission or the alleged omission to state in the Registration Statement,
any Preliminary Prospectus, the Effective Prospectus or Final Prospectus
or any amendment or supplement thereto or any Blue Sky Application a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity
with written information furnished to the Company by any Underwriter
specifically for use therein (it being understood that the only
information so provided is the information included in the last
paragraph on the cover page and in the first and third paragraphs under
the caption "Underwriting" in any Preliminary Prospectus and in the
Effective Prospectus and the Final Prospectus);
(e) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action, including
---------
governmental proceedings, such indemnified party will, if a claim in
24
<PAGE>
respect thereof is to be made against the indemnifying party under this
Section 9 notify the indemnifying party of the commencement thereof; but
---------
the omission so to notify the indemnifying party will not relieve it
from any liability which it may have to any indemnified party otherwise
than under this Section 9. In case any such action is brought against
---------
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein, and to the extent that it may wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party;
and after notice from the indemnifying party to such indemnified party
of its election to so assume the defense thereof, the indemnifying party
will not be liable to such indemnified party under this Section 9 for
---------
any legal or other expenses subsequently incurred by such indemnified
party in connection with the defense thereof other than reasonable costs
of investigation except that the indemnified party shall have the right
to employ separate counsel if, in its reasonable judgment, it is
advisable for the indemnified party to be represented by separate
counsel, and in that event the fees and expenses of separate counsel
shall be paid by the indemnifying party, provided, however, that in no
-------- -------
event shall the indemnifying parties be required to pay legal fees and
expenses under this indemnity agreement for more than one firm of
attorneys (in addition to local counsel) for the indemnified parties in
any one legal action or group of related legal actions.
(f) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in the
preceding part of this Section 9 is for any reason held to be
---------
unavailable to the Underwriters, the Company, or the Selling
Shareholders or is insufficient to hold harmless an indemnified party,
then the Company and the Selling Shareholders shall contribute to the
damages paid by the Underwriters, and the Underwriters shall contribute
to the damages paid by the Company and the Selling Shareholders
provided; however, that no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. In determining the amount of contribution
to which the respective parties are entitled, there shall be considered
the relative benefits received by each party from the offering of the
Shares (taking into account the portion of the proceeds of the offering
realized by each), the parties' relative knowledge and access to
information concerning the matter with respect to which the claim was
asserted, the opportunity to correct and prevent any statement or
omission, and any other equitable considerations appropriate under the
circumstances. The Company, the Selling Shareholders and the
Underwriters agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation (even
if the Underwriters were treated as one entity for such purpose). No
Underwriter or person controlling such Underwriter shall be obligated to
make contribution hereunder which in the aggregate exceeds the
underwriting discount applicable to the Shares purchased by such
Underwriter under this Agreement, less the aggregate amount of any
damages which such Underwriter and its controlling persons have
otherwise been required to pay in respect of the same or any similar
claim. The Underwriters' obligations to contribute hereunder are several
in proportion to their respective underwriting obligations and not
joint. For purposes of this Section, each person, if any, who controls
an Underwriter within the meaning of Section 15 of the Securities Act
shall have the same rights to contribution as such Underwriter, and each
25
<PAGE>
director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act, shall
have the same rights to contribution as the Company.
(g) The information set forth in the first sentence of the last
paragraph on the outside front cover page of the Preliminary Prospectus,
the Effective Prospectus and the Final Prospectus concerning the terms
of the offering by the Underwriters; the last paragraph on page 2 of the
Preliminary Prospectus, the Effective Prospectus and the Final
Prospectus concerning stabilization and over-allotment by the
Underwriters; the list of names of the Underwriters and the number of
shares of Common Stock to be purchased by each such Underwriter
appearing on page 50 of the Final Prospectus; and the third and eighth
paragraphs of text under the caption "Underwriting" in the Preliminary
Prospectus, the Effective Prospectus and the Final Prospectus concerning
the terms of offering by the Underwriters, constitute all of the
information furnished to the Company by and on behalf of the
Underwriters for use in connection with the preparation of the
Registration Statement, the Preliminary Prospectus, the Effective
Prospectus and the Final Prospectus, as such information is referred to
in this Agreement.
10. Default of Underwriters. If any Underwriter defaults in its
-----------------------
obligation to purchase Shares hereunder and if the total number of Shares which
such defaulting Underwriter agreed but failed to purchase is ten percent or less
of the total number of Shares to be sold hereunder, the non-defaulting
Underwriters shall be obligated severally to purchase (in the respective
proportions which the number of Shares set forth opposite the name of each non-
defaulting Underwriter in Schedule II hereto bears to the total number of Shares
-----------
set forth opposite the names of all the non-defaulting Underwriters), the Shares
which such defaulting Underwriter or Underwriters agreed but failed to purchase.
If any Underwriter so defaults and the total number of Shares with respect to
which such default or defaults occur is more than ten percent of the total
number of Shares to be sold hereunder, and arrangements satisfactory to the
other Underwriters, the Company and the Selling Shareholders for the purchase of
such Shares by other persons (who may include the non-defaulting Underwriters)
are not made within 36 hours after such default, this Agreement, insofar as it
relates to the sale of the Shares, will terminate without liability on the part
of the non-defaulting Underwriters, the Company, or the Selling Shareholders
except for (i) the provisions of Section 9 hereof, and (ii) the expenses to be
---------
paid or reimbursed by the Company pursuant to Section 6. As used in this
---------
Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section 10. Nothing herein shall relieve a defaulting
----------
Underwriter from liability for its default.
11. Default by the Selling Shareholders. If the Selling
-----------------------------------
Shareholders shall fail to sell and deliver the number of Firm Shares that the
Selling Shareholders are obligated to sell, the Representatives may, at their
option, by notice to the Company, either (a) require the Company to sell and
deliver such number of shares of Common Stock as to which the Selling
Shareholders have defaulted, or (b) elect to purchase the Firm Shares and the
Option Shares that the Company and the non-defaulting Selling Shareholders have
agreed to sell pursuant to this Agreement.
In the event of a default under this Section that does not
result in the termination of this Agreement, either the Representatives or the
Company shall have the right to postpone the First Closing Date or Option
Closing Date for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
26
<PAGE>
documents or arrangements. No action taken pursuant to this Section shall
relieve the Company or the Selling Shareholder so defaulting from liability, if
any, in respect of such default.
12. Survival Clause. The respective representations, warranties,
---------------
agreements, covenants, indemnities and other statements of the Selling
Shareholders and the Company, its officers and the Underwriters set forth in
this Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement shall remain in full force and effect, regardless of (i) any
investigation made by or on behalf of the Company, any of its officers or
directors, any Underwriter or any controlling person, (ii) any termination of
this Agreement and (iii) delivery of and payment for the Shares.
13. Effective Date. This Agreement shall become effective at
--------------
whichever of the following times shall first occur: (i) at 11:30 A.M.,
Washington, D.C. time, on the next full business day following the date on which
the Registration Statement becomes effective or (ii) at such time after the
Registration Statement has become effective as the Representatives shall release
the Firm Shares for sale to the public; provided, however, that the provisions
of Sections 7, 9, 12 and 13 hereof shall at all times be effective. For purposes
---------- - -- --
of this Section 13, the Firm Shares shall be deemed to have been so released
----------
upon the release by the Representatives for publication, at any time after the
Registration Statement has become effective, of any newspaper advertisement
relating to the Firm Shares or upon the release by the Representatives of
telegrams offering the Firm Shares for sale to securities dealers, whichever may
occur first.
14. Termination.
-----------
(a) The Company's obligations under this Agreement may be
terminated by the Company by notice to the Representatives (i) at any
time before it becomes effective in accordance with Section 13 hereof or
----------
(ii) in the event that the condition set forth in Section 8 shall not
have been satisfied at or prior to the First Closing Date.
(b) This Agreement may be terminated by the Representatives by
notice to the Company (i) at any time before it becomes effective in
accordance with Section 13 hereof; (ii) in the event that at or prior to
----------
the First Closing Date the Company or any Selling Shareholder shall have
failed, refused or been unable to perform any agreement on the part of
the Company or such Selling Shareholder to be performed hereunder or any
other condition to the obligations of the Underwriters hereunder is not
fulfilled; (iii) if at or prior to the Closing Date trading in
securities on the New York Stock Exchange, the American Stock Exchange
or the over-the-counter market shall have been suspended or materially
limited or minimum or maximum prices shall have been established on
either of such Exchanges or such market, or a banking moratorium shall
have been declared by Federal or state authorities; (iv) if at or prior
to the Closing Date trading in securities of the Company shall have been
suspended; or (v) if there shall have been such a material change in
general economic, political or financial conditions or if the effect of
international conditions on the financial markets in the United States
shall be such as, in your reasonable judgment, makes it inadvisable to
commence or continue the offering of the Shares at the offering price to
the public set forth on the cover page of the Prospectus or to proceed
with the delivery of the Shares.
(c) Termination of this Agreement pursuant to this Section 13
----------
shall be without liability of any party to any other party other than as
provided in Sections 6 and 9 hereof.
---------- -
27
<PAGE>
15. Notices. All communications hereunder shall be in writing
-------
and, if sent to any of the Underwriters, shall be mailed or delivered or
telegraphed and confirmed in writing to the Representatives in care of J.C.
Bradford & Co., J.C. Bradford Financial Center, 330 Commerce Street, Nashville,
Tennessee 37201, Attention: Thomas C. Wylly, II, with a copy to Eric A. Stern,
Esq., Latham & Watkins, 1001 Pennsylvania Avenue, N.W., Washington, D.C. 20004;
or if sent to the Company or the Selling Shareholders shall be mailed, delivered
or telegraphed and confirmed in writing to the Company at 2000 Pennsylvania
Avenue, N.W., Suite 7650, Washington, D.C. 20006 Attention: Timothy Mann, Jr.,
with a copy to Glenn W. Sturm, Esq., Nelson, Mullins, Riley & Scarborough,
L.L.P., First Union Plaza, Suite 1400, 999 Peachtree St., N.E. Atlanta, Georgia
30309.
16. Miscellaneous. This Agreement shall inure to the benefit of
-------------
and be binding upon the several Underwriters, the Company, the Selling
Shareholders and their respective successors and legal representatives. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any other person any legal or equitable right, remedy or claim under or in
respect of this Agreement. This Agreement and all conditions and provisions
hereof are intended to be for the sole and exclusive benefit of the Company, the
Selling Shareholders and the several Underwriters and for the benefit of no
other person except that (i) the representations and warranties of the Company
and the Selling Shareholders contained in this Agreement shall also be for the
benefit of any person or persons who control any Underwriter within the meaning
of Section 15 of the Securities Act, and (ii) the indemnities by the
Underwriters shall also be for the benefit of the directors of the Company,
officers of the Company who have signed the Registration Statement and any
person or persons who control the Company within the meaning of Section 15 of
the Securities Act. No purchaser of Shares from any Underwriter will be deemed a
successor because of such purchase. The validity and interpretation of this
Agreement shall be governed by the laws of the State of Tennessee. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument. You hereby represent and warrant to the Company and the Selling
Shareholders that you have authority to act hereunder on behalf of the several
Underwriters, and any action hereunder taken by you will be binding upon all the
Underwriters.
28
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please indicate your acceptance thereof in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
between the Company, each of the Selling Shareholders and each of the several
Underwriters.
Very truly yours,
ACSYS, INC.
By:
------------------------------------------
Timothy Mann, Jr., Chief Executive Officer
SELLING SHAREHOLDERS
By:
------------------------------------------
Attorney-in-Fact for each of the Selling
Shareholders listed in Schedule I hereto
Confirmed and accepted as of the
date first above written.
J.C. BRADFORD & CO.
JANNEY MONTGOMERY SCOTT INC.
For themselves and as Representatives
of the several Underwriters
By:
------------------------
Title:
29
<PAGE>
SCHEDULE I
SELLING SHAREHOLDERS
Number of Firm
Name Shares to be Sold
- ------------------------------- ---------------------
Selling Shareholders
Mark E. Strassman 90,000
Beth Monroe-Chase 20,000
Rosemarie Mahoney 50,000
Kevin W. Cole 100,000
Teresa Gordon 15,000
Edward Turner 25,000
Stephen S. Tutwiler 20,000
TOTAL 320,000
=======
30
<PAGE>
SCHEDULE II
UNDERWRITERS
Number of Firm
Underwriter Shares to Be Purchased
- ----------------------------------- ----------------------
J.C. Bradford & Co.
Janney Montgomery Scott Inc.
TOTAL 2,750,000
=========
31
<PAGE>
EXHIBIT A
(see attached)
32
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN LLP APPEARS HERE]
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this S-1
Registration Statement.
/s/ Arthur Andersen LLP
Philadelphia, PA
January 12, 1998
<PAGE>
EXHIBIT 23.3
CONSENT
I hereby consent, as required by the applicable rules of the Securities and
Exchange Commission, to (a) my being named, in the Prospectus for the initial
public offering of ACSYS, Inc., as a director of ACSYS, Inc. effective upon the
consummation of such offering, and (b) the inclusion in such Prospectus of
biographical information about me in the form attached to this Consent.
/s/ Barry M. Abelson
--------------------------------
Barry M. Abelson
<PAGE>
Barry M. Abelson will become a Director of the Company upon the consummation of
- ----------------
this Offering. He has been a partner in the law firm of Pepper Hamilton LLP,
Philadelphia, Pennsylvania since May 1992 and has served as Chairman of its
Executive Committee since February 1995. Mr. Abelson is also a director of
Intelligent Electronics, Inc., XLConnect Solutions, Inc. and Covenant Bancorp,
Inc. Mr. Abelson received his Bachelor of Arts degree in Sociology from
Dartmouth College and his J.D. degree from the University of Pennsylvania.
<PAGE>
EXHIBIT 23.4
CONSENT
I hereby consent, as required by the applicable rules of the Securities and
Exchange Commission, to (a) my being named, in the Prospectus for the initial
public offering of ACSYS, Inc., as a director of ACSYS, Inc. effective upon the
consummation of such offering, and (b) the inclusion in such Prospectus of
biographical information about me in the form attached to this Consent.
/s/ William Porter Payne
------------------------
William Porter Payne
<PAGE>
William Porter Payne will become a Director of the Company upon the consummation
- --------------------
of this Offering. He has served as Vice Chairman of NationsBank Corporation
since January 1997 and was President and Chief Executive Officer of the Atlanta
Committee for the Olympic Games from 1991 to 1997. Mr. Payne is also a director
of Anheuser-Busch Companies, Inc., Cousins Properties, Inc. and Jefferson-Pilot
Corporation. Mr. Payne received his Bachelor of Arts in Political Science and
J.D. degrees from the University of Georgia.
