<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from________________ to __________________
Commission File No. 000-23711
-----------------------------
ACSYS, INC.
-----------
(Exact name of registrant as specified in its charter)
GEORGIA 58-2299173
------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
75 FOURTEENTH STREET, SUITE 2200
ATLANTA, GA 30309
----------- -----
(Address of principal executive offices) (ZIP Code)
404-817-9440
------------
(Registrant's telephone number, including area code)
Indicate by check whether the registrant: (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
X
Yes ------ No______
The number of outstanding shares of the registrant's Common Stock on August 11,
1998 was 14,415,323.
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<PAGE>
ACSYS, Inc.
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Item No. Page
- -------- ----
<S> <C>
PART I FINANCIAL INFORMATION
1. Condensed Consolidated Financial Statements (unaudited):
Consolidated Results of Operations
For the Three Months Ended June 30, 1998 and 1997.................................... 3
Consolidated Results of Operations for the Six Months
ended June 30, 1998 and 1997......................................................... 4
Consolidated Balance Sheets as of
June 30, 1998 and December 31, 1997.................................................. 5
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1998 and 1997...................................... 6
Notes to Condensed Consolidated Financial Statements.... ............................. 7
2. Management's Discussion and Analysis of Results of Operations
And Financial Condition.............................................................. 12
3. Quantitative and Qualitative Disclosures About Market Risk............................. 16
PART II OTHER INFORMATION
1. Legal Proceedings...................................................................... 17
2. Changes in Securities and Use of Proceeds.............................................. 17
4. Submission of Matters to a Vote of Security Holders.................................... 18
6. Exhibits and Reports on Form 8-K....................................................... 18
</TABLE>
2
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ACSYS, INC. AND SUBSIDIARIES
CONSOLIDATED RESULTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30,
------------------------------------
1998 1997
---- ----
<S> <C> <C>
SERVICE REVENUES:
Temporary staffing................................................ $ 20,835 $ 13,498
Permanent placement............................................... 6,546 4,267
------- -------
Total service revenues......................................... 27,381 17,765
DIRECT COST OF SERVICES, consisting of payroll, payroll taxes and
benefit costs for temporary employees............................. 14,469 9,423
------- -------
Gross profit................................................... 12,912 8,342
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........................ 10,730 6,848
COMBINATION EXPENSES (Note 5)....................................... 1,730 1,722
SEVERANCE AND FRANCHISE TERMINATION COSTS (Note 5).................. 650 170
AMORTIZATION AND DEPRECIATION....................................... 303 126
------- -------
Operating loss................................................. (501) (524)
OTHER (INCOME) EXPENSE, NET (9) 163
------- -------
LOSS BEFORE INCOME TAXES (492) (687)
INCOME TAXES (Note 3) 509 261
------- -------
NET LOSS $ (1,001) $ (948)
======= =======
NET LOSS PER SHARE (Note 8)
Basic and diluted net loss per share.............................. $ (0.07) $ (0.13)
======= ======
Shares used in computing basic and diluted net income (loss) per
share 14,292 10,012
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
ACSYS, INC. AND SUBSIDIARIES
CONSOLIDATED RESULTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------
1998 1997
---- ----
<S> <C> <C>
SERVICE REVENUES:
Temporary staffing................................................ $ 40,040 $ 26,352
Permanent placement............................................... 11,757 8,387
------- -------
Total service revenues......................................... 51,797 34,739
DIRECT COST OF SERVICES, consisting of payroll, payroll taxes and
benefit costs for temporary employees.............................. 28,053 18,513
------- -------
Gross profit................................................... 23,744 16,226
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........................ 20,535 13,087
COMBINATION EXPENSES (Note 5)...................................... 1,730 1,722
SEVERANCE AND FRANCHISE TERMINATION COSTS (Note 5).................. 650 170
AMORTIZATION AND DEPRECIATION....................................... 557 230
------- -------
Operating income............................................... 272 1,017
OTHER EXPENSE, NET 64 380
------- -------
INCOME BEFORE INCOME TAXES 208 637
INCOME TAXES (Note 3) 3,684 414
------- -------
NET INCOME (LOSS) $ (3,476) $ 223
======= =======
NET LOSS PER SHARE (Note 8)
Basic and diluted net loss per share.............................. $ (0.26) $ (0.03)
======= =======
Shares used in computing basic and diluted net loss
per share................................................. 13,575 10,012
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
ACSYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS
JUNE 30, DECEMBER 31,
---------------- ------------
1998 1997
---------------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................................ $ 3,523 $ 370
Accounts receivable, net................................................. 16,288 12,343
Prepaid expenses and other............................................... 1,323 1,455
------- -------
Total current assets................................................ 21,134 14,168
PROPERTY AND EQUIPMENT, net.............................................. 3,182 1,928
GOODWILL AND OTHER INTANGIBLE ASSETS, net................................ 17,635 15,783
DEFERRED INITIAL PUBLIC OFFERING COSTS................................... - 1,200
OTHER ASSETS............................................................. 125 170
------- -------
Total assets........................................................ $42,076 $33,249
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdrafts........................................................ $ 726 $ 1,489
Current portion of long-term debt...................................... 45 47
Accounts payable....................................................... 1,458 774
Accrued liabilities.................................................... 6,027 5,740
Deferred income taxes.................................................. 403 1,093
------- -------
Total current liabilities........................................... 8,659 9,143
------- -------
LONG-TERM DEBT........................................................... 650 11,707
DEFERRED INCOME TAXES.................................................... 2,436 -
OTHER LONG-TERM LIABILITIES.............................................. 402 377
------- -------
Total liabilities......................................... 12,147 21,227
------- -------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE COMMON STOCK, no par value, 122,012 Shares
Issued and outstanding at December 31, 1997............................. - 1,220
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 5,000,000 shares authorized,
no shares issued or outstanding..................................... - -
Common stock, no par value, 45,000,000 shares authorized,
14,253,467 and 11,191,564 shares issued and outstanding at
June 30, 1998 and December 31, 1997, respectively.................... 27,464 7,598
Retained earnings..................................................... 2,465 3,204
------- -------
Total shareholders' equity.......................................... 29,929 10,802
------- -------
Total Liabilities and Shareholder's Equity.......................... $42,076 $33,249
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
ACSYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
------------------------
JUNE 30,
--------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................................... $ (3,476) $ 223
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities--
Amortization and depreciation.................................... 509 243
Deferred income taxes....................................... 2,529 -
Other.................................................... - 34
Changes in operating assets and liabilities--
Accounts receivable, net......................................... (3,804) (664)
Prepaid expenses and other....................................... 151 (253)
Other assets..................................................... (148) 15
Accounts payable................................................. 720 (69)
Accrued liabilities and other.................................... 1,192 2,610
Other long-term liabilities...................................... 65 -
-------- -------
Net cash provided by (used in) operating activities............. (2,262) 2,139
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid for acquisition................................... (959) -
Capital expenditures.................................................. (1,479) (253)
-------- -------
Net cash used in investing activities........................... (2,438) (253)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from initial public offering, net of expenses............ 20,199 -
Changes in bank overdrafts................................... (764) (103)
(Borrowings) repayments of long-term debt............................. (11,064) 337
Distributions to shareholders......................................... (545) (691)
Deferred financing costs (45) -
Proceeds from exercise of employee stock options................ 72 -
Repayment of notes payable to shareholders............................ - (150)
Net repayments on lines of credit..................................... - (1,108)
Changes in restricted cash - 116
-------- -------
Net cash provided by (used in) financing activities.............. 7,853 (1,599)
-------- -------
NET INCREASE IN CASH AND CASH
EQUIVALENTS............................................................ 3,153 287
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.......................... 370 1,102
-------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................ $ 3,523 $ 1,389
======== =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
ACSYS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
1. COMPANY BACKGROUND
ACSYS, Inc. (or "the Company") is one of the leading specialty professional
staffing firms in the United States.
In May 1997, the Company began combined operations with the acquisition of all
of the issued and outstanding common stock of Infinity Enterprises, Inc., David
C. Cooper & Associates, Inc., DCCA Professional Temporaries, Inc., Cama of
Tampa, Inc. and EKT, Inc. in exchange for shares of the Company's Common Stock.
The Company subsequently acquired all of the issued and outstanding common stock
of Rylan Forbes Consulting Group, Inc., AcSys Resources, Inc. and ICON Search
and Consulting, Inc. ("ICON") in July 1997, September 1997, and May 1998
respectively. These acquisitions have been accounted for under the pooling-of-
interests method of accounting. The accompanying financial statements include
the accounts and operating results of these entities for all dates and periods
presented.
The Company currently operates 40 offices serving the Atlanta, Charlotte,
Chicago, Dallas/Fort Worth, Des Moines, Denver, Central New Jersey, Houston,
Kansas City, New York, Orlando, Philadelphia, Phoenix, Richmond, San Antonio,
San Francisco, Tampa and Washington, D.C. metropolitan markets. See Note 5
below for certain information regarding acquisitions made after June 30, 1998.
2. BASIS OF PRESENTATION
The accompanying financial statements are unaudited and have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange
Commission (the "SEC"). Although the December 31, 1997 balance sheet was
derived from audited financial statements, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to SEC rules and regulations. The Company believes that the financial
statements include all adjustments of a normal and recurring nature necessary to
present fairly the results of operations, financial position and cash flows for
the periods presented. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's annual
report on Form 10-K. The condensed consolidated financial statements include
the accounts of the Company and its subsidiaries. All material intercompany
balances and transactions have been eliminated. There have been no material
changes in accounting policies from those stated in the Company's Form 10-K.
3. INITIAL PUBLIC OFFERING
In February 1998, the Company completed its initial public offering ("IPO") of
2,842,500 shares of Common Stock at a price of $8.50 per share, generating net
cash proceeds of approximately $20.2 million after deducting underwriters'
discount and offering costs.
In connection with the IPO, the Company terminated its S corporation status and
recorded income tax expense and a corresponding net deferred tax liability of
approximately $3,000,000, representing the tax effect of differences in bases in
assets and liabilities for financial reporting and income tax purposes.
The owner of 122,012 shares of redeemable common stock entered into a
contractual waiver of all redemption rights effective upon the IPO. Accordingly,
these shares have been reclassified as Common Stock.
7
<PAGE>
ACSYS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
4. DEBT
<TABLE>
<CAPTION>
June 30, December 31,
-------- ------------
1998 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
Revolving Credit Facility................................................ $ - $11,050
Non-compete agreements with former shareholders of Infinity
Enterprises, Inc., maturing February 2009 1,066 1,116
Other.................................................................... 8 10
------ -------
1,074 12,176
Less--Unamortized discount............................................... (379) (422)
------ -------
695 11,754
Less--Current portion.................................................... (45) (47)
------ -------
$ 650 $11,707
====== =======
</TABLE>
On June 29, 1998, the Company amended its Revolving Credit Facility (the "Credit
Facility"), increasing the amount available to be borrowed from $15.0 million to
$25.0 million and extending its maturity date from May 31, 2000 to June 30,
2002. In August 1998, in connection with the acquisition of Staffing Edge, Inc.
(see Note 5), the Company amended its Credit Facility, increasing the amount
available to be borrowed from $25.0 million to $40.0 million through January 1,
1999, after which availability under the Credit Facility will be reduced to
$25.0 million. As of August 10, 1998, the Company had borrowed approximately
$32.0 million under the credit facility. See Note 5 below. The Credit Facility
bears interest, at the election of the Company, at either: (A) the greater of (i
) the bank's prime rate or (ii) the federal funds rate plus 0.50% plus a margin
which ranges up to 0.50%; or (B) at LIBOR plus a margin, which ranges from 1.00%
to 2.00%. Borrowings under the Credit Facility, if any, are collateralized by
all of the assets of the Company and a pledge of all of the stock of its
subsidiaries. Borrowings are also guaranteed by each of the subsidiaries. The
Credit Facility also contains various financial and non-financial covenants and
prohibits the payment of dividends without the lender's consent.
5. MERGER AND ACQUISITIONS
On March 31, 1998 the Company acquired all of the outstanding capital stock of
TGS Resource Group, Inc. ("Don Richard of Richmond"), a leading accounting and
finance staffing firm located in Richmond, Virginia. The Company has accounted
for this transaction under the purchase method of accounting. The results of
operations of Don Richard of Richmond are included from the date of acquisition
only.
On May 22, 1998, the Company acquired all of the equity interests in ICON, an
Atlanta-based information technology staffing company, in a stock-for-stock
merger. As noted above, this transaction has qualified as a pooling of
interests for accounting purposes and as a tax-free reorganization. Under the
terms of the merger agreement, ICON shareholders received 2,820,360 shares of
Common Stock in exchange for all of the equity interests in ICON. In connection
with the merger, the Company recorded a charge for combination expenses of
$1,730,000 in the three and six months ended June 30, 1998, including investment
banking, legal and accounting fees, and other transaction costs associated with
the merger. In connection with the merger the Company relocated its corporate
offices. The Company recorded a charge of $650,000 during the three and six
months ended June 30, 1998 consisting principally of severance obligations as a
result of such relocation.
The Company recorded a charge of $170,000 during the three and six months ended
June 30, 1997 in connection with a termination payment pursuant to the terms of
a franchise agreement.
8
<PAGE>
ACSYS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
Subsequent to the end of the quarter, on July 1, 1998, the Company acquired all
of the equity interests of KPD Systems, Inc ("KPD"), an information technology
staffing firm located on Long Island, New York. The Company will account for
this transaction under the purchase method of accounting. The results of
operations for KPD will be reflected in the Company's results of operation
beginning July 1, 1998.
Subsequent to the end of the quarter, on August 4, 1998, the Company acquired
all of the equity interests in Staffing Edge, Inc. ("Staffing Edge") a specialty
professional staffing firm. The Company will account for this transaction under
the purchase method of accounting. The results of operations for Staffing Edge
will be reflected in the Company's results of operation beginning August 4,
1998.
6. COMMITMENT AND CONTINGENCIES
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 plaintiffs and Mr. Tutwiler agreed to form a corporation to
provide certain staffing services; that such services were instead provided
through a division of Cama; and that the plaintiffs were entitled to a portion
of the stock of Cama and thus to a portion of the shares of Common Stock issued
to Mr. Tutwiler when it acquired Cama. The plaintiffs assert numerous claims,
including breach of contract, fraud, civil conspiracy and alleged misstatements
and omissions regarding the Company's ownership of Cama in a prospectus filed by
the Company. The plaintiffs seek to recover $27,000 allegedly due to the
plaintiffs, their alleged portion of Mr. Tutwiler's shares of Common Stock, and
compensatory and other damages. The plaintiffs also seek an accounting and
employment by the Company. The court has ordered the plaintiffs and Mr.
Tutwiler to arbitrate the allegations in the lawsuit, which relate to their
dispute, and has stayed the litigation of plaintiffs' claims against Cama and
the Company, pending resolution of the arbitration between Mr. Tutwiler and
plaintiffs. The plaintiffs have filed an appeal of the order requiring them to
arbitrate the claims against Mr. Tutwiler. In the event the claims against the
Company and Cama proceed, the Company intends to vigorously defend against those
claims. Due to the uncertainties of litigation, the Company cannot predict the
outcome of this matter. An adverse result could have a material effect on the
Company and result in a charge to the statement of operations in the period in
which the litigation is resolved. There is no other pending litigation which
the Company considers material.
7. SUPPLEMENTAL CASH FLOW INFORMATION
During the six months ended June 30, 1998 and 1997, the Company paid $244,000
and $474,000, respectively, of interest expense.
During the six month ended June 30, 1998 and 1997, the Company paid $1,178,000
and $0 respectively, of income tax expense.
9
<PAGE>
ACSYS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
8. NET INCOME (LOSS) PER SHARE
The Company calculates net income (loss) per share under the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). SFAS 128 requires a dual presentation of "basic" and "diluted" EPS.
Basic EPS is computed by dividing net income by the weighted average number of
shares of common stock outstanding for the period. When dilutive, options are
included as share equivalents using the treasury stock method and are included
in the calculation of diluted per share data. For the three and six months
ended June 30, 1997, the average number of shares outstanding excludes the
redeemable common shares, as the accretion on the redeemable common stock of
$334,000 and $478,000 is deducted in arriving at historical and pro forma net
loss available to common shareholders.
9. PRO FORMA FINANCIAL INFORMATION
In addition to the business combinations that have been accounted for under the
pooling of interest method, as described above, the Company has completed two
acquisitions which have been accounted for under the purchase method of
accounting: (i) ACSYS Resources, Inc. (prior to its acquisition by the Company)
acquired C.P.A. Search, Inc. and Career Placement Associates Inc. (together
"C.P.A. Staffing") on August 12, 1997, and (ii) the Company acquired Don Richard
Associates of Richmond on March 31, 1998. The results of operations of these
acquired companies are included from their respective date of acquisition.
The following unaudited pro forma consolidated results of operations assume that
the above purchases occurred on January 1, 1997. Additionally, these pro forma
results reflect (i) an adjustment to officer and employee compensation based
upon employment agreements entered into upon the closing of certain of the
Company's acquisitions (ii) the elimination of combination costs discussed in
Note 7 above. Additionally, these adjustments reflect income tax expense at the
Company's current effective tax rate; prior to February 5, 1998, the Company
was an S corporation and not subject to income taxes.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1998 1997 1998 1997
----- ---- ---- ----
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Revenue $27,381 $20,208 $52,350 $39,252
Net Income 1,071 1,319 1,981 2,149
Basic earnings per share $ 0.07 $ 0.12 $ 0.15 $ 0.19
Diluted earnings per share $ 0.07 $ 0.11 $ 0.14 $ 0.19
</TABLE>
10. CONCENTRATIONS OF RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of accounts receivable. The Company does not
require collateral or other securities to support customer accounts receivable.
No client accounted for more than 10% of the Company's revenues during the three
or six months ended June 30, 1998 or of accounts receivable as of June 30, 1998.
11. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). This statement
requires that items that are components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS No. 130 became effective for fiscal years beginning
after December 31, 1997 and is now currently being applied by the Company. SFAS
No. 130 requires comparative financial statements provided for earlier periods
to be reclassified to reflect application of the provisions of this new
standard. The Company has determined that for the quarter ended
10
<PAGE>
ACSYS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
June 30, 1998 and for the year ended December 31, 1997, no items meeting the
definition of comprehensive income as specified in SFAS No. 130 existed in the
financial statements. As a result, no disclosure is necessary to comply with
the standard.
In June 1997, the FASB issued Statement No. 131, "Disclosure About Segments of
an Enterprise and Related Information" ("SFAS No. 131"). This statement
establishes additional standards for segment reporting in the financial
statements and is effective for fiscal years beginning after December 15, 1997.
Management believes that SFAS No. 131 will not have a material effect on the
Company's financial statements.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION.
This Management's Discussion and Analysis of Results of Operations and
Financial Condition contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended. These
statements relate to future economic performance, plans and objectives of
management for future operations and projections of revenues and other financial
items that are based on the beliefs of the Company's management, as well as
assumptions made by, and information currently available to, the Company's
management. Actual results could differ materially from those currently
anticipated as a result of a number of factors, including those listed in (a)
the "Risk Factors" section of the prospectus included in the Company's
Registration Statement on Form S-1 (Registration number 333-38465) as declared
effective by the SEC on February 5, 1998 and (b) Item 7, "Management's
Discussion and Analysis of Results of Operations and Financial Condition
Disclosure Regarding Forward Looking Statements" in the Company's annual report
on Form 10-K for 1997. These factors include, but are not limited to, the
Company's brief combined operating history and its ability to identify and
acquire suitable acquisition candidates, to integrate acquired companies into
its operations, to implement internal control and management, financial and
operational reporting systems, and to manage risks associated with opening new
offices and offering new services.
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED SIX MONTHS ENDED
- ------------------------------------------------------------------------------------------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service revenues:
Temporary staffing $20,835 $13,498 $40,040 $26,352
Permanent placement 6,546 4,267 11,757 8,387
------- ------- ------- -------
Total service revenues 27,381 17,765 51,797 34,739
Direct cost of services 14,469 9,423 28,053 18,513
------- ------- ------- -------
Gross profit 12,912 8,342 23,744 16,226
Selling, general & administrative expenses 10,730 6,848 20,535 13,087
Combination expenses 1,730 1,722 1,730 1,722
Severance and franchise termination costs 650 170 650 170
Amortization and depreciation 303 126 557 230
------- ------- ------- -------
Operating income (loss) (501) (524) 272 1,017
Other (income) expense (9) 163 64 380
------- ------- ------- -------
Income (loss) before income taxes (492) (687) 208 637
Income taxes 509 261 3,684 414
------- ------- ------- -------
Net income (loss) $(1,001) $ (948) $(3,476) $ 223
======= ======= ======= =======
</TABLE>
HISTORICAL RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO
HISTORICAL RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1997
Service Revenues. Total service revenues increased $9.6 million, or 54.1%, to
$27.4 million for the three months ended June 30, 1998 from $17.8 million for
the corresponding period in 1997. Temporary staffing service revenues increased
$7.3 million, or 54.4%, to $20.8 million for the three months ended June 30,
1998 as compared to $13.5 million for 1997. The increase in temporary staffing
service revenues is primarily attributable to the August 1997 acquisition of
C.P.A Staffing, increased revenue from the growth of IT contract staffing, the
March 31, 1998 acquisition of Don Richard Associates of Richmond, and the
introduction of AcSys Business Consulting services in the second half of 1997.
Also contributing to the increase were higher bill rates and increased revenues
from offices opened in the fourth quarter of 1997. Permanent placement service
revenues increased $2.3 million, or 53.4%, to $6.5 million for the three months
ended June 30, 1998 from $4.3 million for the corresponding period in 1997.
Permanent placement service revenues increased primarily due to increases in the
number of permanent placements, the August 1997 acquisition of C.P.A Staffing,
the number and productivity of consultants, increased placement fees and
increased starting salaries of placed candidates.
12
<PAGE>
Gross Profit. Gross profit increased $4.6 million, or 54.8%, to $12.9 million
for the three months ended June 30, 1998 from $8.3 million for 1997. Gross
profit as a percentage of service revenues remained stable at 47.2% for the
second quarter of 1998 compared to 47.0% for the second quarter of 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $3.9 million, or 56.7%, to $10.7 million for
the three months ended June 30, 1998 from $6.8 million for the three months
ended June 30, 1997. As a percentage of revenues, selling, general and
administrative expenses were 39.2% for the three months ended June 30, 1998
compared with 38.5% for the corresponding period in 1997. This increase as a
percentage of revenues is primarily attributable to: increased commission
expense resulting from the increase in permanent placement revenues, the
addition of personnel to support the Company's increased sales and marketing
efforts, and additional infrastructure expenses associated with operating as a
public company.
Combination Expenses. Combination expenses for the three months ended June
30, 1998 and the three months ended June 30, 1997 were $1.7 million for both
periods presented. These expenses included transaction costs of the Company's
mergers, including investment banking, legal accounting and other fees.
Severance and Franchise Termination Costs. The Company recorded a charge of
$650,000 during the three months ended June 30, 1998 consisting principally of
severance resulting from the decision to consolidate its corporate offices in
Atlanta, Georgia. For the corresponding period in 1997, the Company recorded a
charge of $170,000 related to the termination of a franchise agreement.
Amortization and Depreciation. Amortization and depreciation for the three
months ended June 30, 1998 increased $177,000 from the corresponding period of
1997. Amortization and depreciation for the three months ended June 30, 1998
included goodwill amortization expense as a result of the C.P.A. Staffing
acquisition in August 1997 and the Don Richard of Richmond acquisition in March
1998. Depreciation expense also increased as a result of capital expenditures in
1997 and 1998.
Other (Income) Expense. For the three months ended June 30, 1998, the Company
recorded other income of $9,000 consisting principally of interest income on the
Company's investable assets, net of interest expense on certain noncompete and
severance arrangements. For the three months ended June 30, 1997, the Company
recorded other expense of $163,000 consisting principally of interest expense on
the Company's Revolving Credit Facility. In February 1998, the Company repaid
the amount outstanding under this Credit Facility with part of the proceeds of
the IPO.
Income Tax Expense. For the three months ended June 30, 1998, the Company
recognized income tax expense of $509,000 on a pre-tax loss of $492,000
reflecting the nondeductiblity for federal income tax purposes of combination
expenses. Excluding these nondeductible expenses, the Company's effective tax
rate was approximately 41%, based upon historical operating results. Prior to
February 5, 1998, the Company was an S corporation and not subject to income
taxes; for 1997, the income tax provision relates exclusively to ICON, which for
federal income tax purposes was a C corporation subject to corporate income
taxes.
Net Income. On an historical basis, the Company recognized a net loss and a
net loss per share of $1.0 million and $0.07 per share respectively for the
three months ended June 30, 1998 compared to a net loss and a net loss per share
of $900,000 and $0.13 per share for the corresponding period of 1997. On a pro
forma basis, assuming that CPA Staffing and Don Richard Associates of Richmond
were acquired on January 1, 1997, (ii) reductions in salaries that owners of
certain acquired entities have agreed to in conjunction with the acquisitions
discussed above, (iii) the elimination of combination costs and (iv) adjustment
to income tax expense to reflect income tax expense at the Company's then
current effective tax rate, the Company would have recognized net income and a
net income per diluted share of $1.1 million and $0.07 per share respectively
for the three months ended June 30, 1998 compared to net income and net income
per share of $1.3 million and $0.11 per share for the corresponding period of
1997. The calculation of the net loss per share for the three months ended June
30, 1997 reflects a charge for the accretion of the redeemable shares of
$334,000. Further, excluding the Company's severance charge, the Company's pro
forma net income and net income per share would be $1.4 million and $0.10 per
share, respectively for the three months ended June 30, 1998.
13
<PAGE>
HISTORICAL RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO HISTORICAL
RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997
Service Revenues. Total service revenues increased $17.1 million, or 49.1%,
to $51.8 million for the six months ended June 30, 1998 from $34.7 for the
corresponding period in 1997. Temporary staffing service revenues increased
$13.7 million, or 51.9%, to $40.0 million for the six months ended June 30, 1998
as compared to $26.4 million for 1997. The increase in temporary staffing
service revenues is primarily attributable to the August 1997 acquisition of
C.P.A Staffing, increased revenue from the growth of IT contract staffing, the
March 31, 1998 acquisition of Don Richard Associates of Richmond, and the
introduction of AcSys Business Consulting services in the second half of 1997.
Also contributing to the increase were increased bill rates and increased
revenues from offices opened in the fourth quarter of 1997. Permanent placement
service revenues increased $3.4 million, or 40.2%, to $11.8 million for the six
months ended June 30, 1998 from $8.4 million for 1997. Permanent placement
service revenues increased primarily due to increases in the number of permanent
placements, the August 1997 acquisition of C.P.A Staffing, the number and
productivity of consultants, increased placement fees and increased starting
salaries of placed candidates.
Gross Profit. Gross profit increased $7.5 million, or 46.3%, to $23.7 million
for the six months ended June 30, 1998 from $16.2 million for 1997. Gross profit
as a percentage of service revenues for the six months ended June 30, 1998
remained stable at 45.8% of revenues compared to 46.7% of revenues for 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $7.4 million, or 56.9%, to $20.5 million for
the six months ended June 30, 1998 from $13.1 million for the six months ended
June 30, 1997. As a percentage of revenues, selling, general and administrative
expenses were 39.6% for the six months ended June 30, 1998 compared with 37.7%
for the corresponding period in 1997. This increase as a percentage of revenues
is primarily attributable to: increased commission expense resulting from the
increase in permanent placement revenues, the addition of personnel to support
the Company's increased sales and marketing efforts, and additional
infrastructure expenses associated with operating as a public company.
Combination Expenses. Combination expenses for the six months ended June 30,
1998 and the six months ended June 30, 1997 were $1.7 million for both periods
presented. These expenses included transaction costs of the Company's mergers,
including investment banking, legal and accounting and other fees.
Severance and Franchise Termination Costs. The Company recorded a charge of
$650,000 during the six months ended June 30, 1998 consisting principally of
severance obligations resulting from the decision to consolidate its corporate
offices in Atlanta. For the corresponding period in 1997, the Company recorded a
charge of $170,000 related to the termination of a franchise agreement.
Amortization and Depreciation. Amortization and depreciation for the six
months ended June 30, 1998 increased $300,000 from the corresponding period of
1997. Amortization and depreciation for the six months ended June 30, 1998
includes goodwill amortization expense as a result of the C.P.A. Staffing
acquisition in August 1997, and the Don Richard Associates of Richmond
acquisition in March 1998. Depreciation expense also increased as a result of
capital expenditures in 1997 and 1998.
Other (Income) Expense. For the six months ended June 30, 1998, the Company
recorded other expense of $64,000, consisting principally of interest income on
the Company's investable assets, net of interest expense on borrowings on the
Company's Credit Facility prior to completion the Company's IPO, interest on
noncompete and severance arrangements. For the six months ended June 30, 1997,
the Company recorded net expense of $380,000 consisting principally of interest
expense on the Company's Revolving Credit Facility. In February 1998, the
Company repaid the amount outstanding under this Credit Facility with part of
the proceeds of the IPO.
Income Tax Expense. Prior to February 5, 1998, the Company was an S
corporation and not subject to income taxes. In connection with completion of
the IPO and the termination of the Company's S corporation status, the Company
recorded a tax liability of approximately $3.0 million in the six months ended
June 30, 1998 to recognize income tax expense caused by the Company's change to
a C corporation, which primarily relates to a change from the cash to accrual
method of accounting for income tax purposes. The Company will pay the deferred
tax liability over a
14
<PAGE>
four-year period. For 1997, the income tax provision relates exclusively to
ICON, which for federal income tax purposes was a C corporation subject to
corporate income taxes.
Net Income. On an historical basis, the Company recognized a net loss and a
net loss per share $3.5 million and $0.26 per share, respectively, for the six
months ended June 30, 1998 compared to net income and net income per share of
$200,000 and $0.03 per share for the corresponding period of 1997. On a pro
forma basis, giving effect to the acquisition of CPA Staffing and Don Richard
Associates of Richmond as of January 1, 1997, (ii) adjustment to officer and
employee compensation based upon employment agreements entered into upon the
closing of certain of the Company's acquisitions, (iii) the elimination of
combination costs and (iv) adjustment to income tax expense to reflect income
tax expense at the Company's then current effective tax rate, the Company would
have recognized net income and a net income per diluted share of $2.0 million
and $0.14 per share for the six months ended June 30, 1998 compared to net
income and net loss per share of $2.1 million and $0.19 per share, respectively
for the corresponding period of 1997. The calculation of the net loss per share
for the six months ended June 30, 1997 reflects a charge for the accretion of
the redeemable shares of $478,000. If the Company's severance charge is
excluded, the Company's pro forma net income and net income per share would be
$2.4 million and $0.17 per share, respectively for the six months ended June 30,
1998.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash used for operating activities was $2.3 million in the six months
ended June 30, 1998. The use of cash is due to increased accounts receivable and
increases in other working capital requirements. For the corresponding period of
1997, cash provided by operations was $2.1 million, principally due to increases
in accrued expenses and other liabilities.
Net cash used in investing activities during the six months ended June 30,
1998 was $2.4 million. Included in cash used for investing activities was
$959,000 (net of cash acquired) paid in connection with an acquisition and $1.5
million used for telecommunications equipment, computer systems and office
facilities. The Company will continue to make capital expenditures throughout
1998 on information technology systems and equipment.
Net cash provided by financing activities was $7.9 million in the six months
ended June 30, 1998. Upon completion of its IPO, the Company raised $20.2
million net of expenses paid. The Company used approximately $11.1 million to
repay its then current borrowings under its Credit Facility. Net cash used in
financing activities was $1.6 million for the six months ended June 30, 1997 and
was primarily attributable to net repayments of long-term debt and distributions
to shareholders.
At June 30, 1998 the Company had working capital of $12.5 million, including
cash and cash equivalents of $3.5 million. Subsequent to June 30, 1998, the
Company completed the acquisitions of KPD Systems, Inc. and Staffing Edge, Inc.
The aggregate purchase price of these acquisitions included cash payments and
assumption of debts of approximately $33.4 million in the aggregate. These
payments were funded through a combination of borrowings under the Credit
15
<PAGE>
Facility, and cash on hand at June 30, 1998. As a result of these acquisitions,
at August 10, 1998 the outstanding balance under the Credit Facility was
approximately $32.0 million.
As discussed above, the amount available under the Credit Facility will be
reduced to $25.0 million on January 1, 1999. The Company anticipates that it
will finance this debt reduction through a combination of debt or equity
offerings, or syndication or renegotiation of amounts available under the Credit
Facility.
While there can be no assurance, and with the exception of amounts required to
make the above referenced debt reduction payment, the Company believes that the
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 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 needs is a forward-looking statement that is subject
to risks and uncertainties. Actual results and working capital needs could
differ materially from those estimated due to a number of factors, including the
use of funds to fund acquisitions. In addition, acquisitions may require
additional debt and equity financing.
YEAR 2000 COMPUTER ISSUES
- -------------------------
The year 2000 issue refers to the problems resulting from many existing
computer software programs, hardware and operating systems that use only two
digits rather than four to define the applicable year in a date field. These
programs were designed and developed without considering the impact of the
upcoming change in the century. If not corrected, many computer applications
could fail or create erroneous results by or at the Year 2000.
The Company uses various software packages in conducting and accounting for
its temporary staffing, permanent placement and general accounting operations.
These packages, among other things, track and accumulate temporary staff time
and client billings, process staff payroll, and produce financial statements and
other financial data. The Company uses software packages and hardware in
certain locations that may not be Year 2000 compliant.
The Company is implementing integrated staffing and accounting software
packages. The company has the option either to purchase New Year 2000 compliant
software from outside vendors or implement existing in-house Year 2000 compliant
software, or to combine both approaches. The Company expects that its
information systems integration efforts will enable it to be fully Year 2000
compliant, although the Company cannot guarantee that software represented by
vendors to be Year 2000 compliant will in fact be compliant.
Further the Company uses third party payroll processing companies. Although
the Company expects that such companies will be Year 2000 compliant, no
assurances can be given in that regard. In pursuing its acquisition strategy
the Company could acquire an entity that is not Year 2000 compliant. Depending
on the size of the entity acquired, noncompliance could negatively affect the
Company's results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's market risk sensitive instruments do not subject the Company to
material market risk exposures.
16
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There were no new material developments in the legal proceeding previously
reported by the Company and no new material legal proceedings during the quarter
ended June 30, 1998.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Sales of Unregistered Securities during the Quarter Ended March 31, 1998
On March 31, 1998, the Company entered into an Agreement and Plan of Merger by
and among the Company, Icon Merger Subsidiary, Inc., Icon Search & Consulting,
Inc. ("ICON") and the four shareholders of Icon Search & Consulting, Inc. named
therein (the "Merger Agreement"). Pursuant to the Merger Agreement, on May 22,
1998, the Company acquired all of the equity interest of ICON in exchange for
2,820,360 shares of the Company's Common Stock. The Company issued securities
to the ICON shareholders in reliance on the exemptions from registration under
the Securities Act contained in Section 4(2) of the Securities Act and
Regulation D promulgated thereunder. The ICON shareholders represented their
intention to acquire the Common Stock 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 to such
persons. Such persons were represented by counsel and had adequate access to
information about the Company by virtue of their being provided with copies of
all information filed with the SEC on or before the date of closing and access
to senior officers of the Company with an opportunity to ask questions and
investigate the Company's business affairs. A copy of the Merger Agreement was
provided as Exhibit 2.6 to the Company's quarterly report on Form 10-Q filed for
the quarter ended March 31, 1998.
USE OF PROCEEDS FROM THE COMPANY'S INITIAL PUBLIC OFFERING IN FEBRUARY 1998
On February 5, 1998, the Company's registration statement on Form S-1
(Commission File No. 333-38465) for the Company's initial public offering (the
"IPO") of its Common Stock, no par value, became effective. From February 5,
1998 through June 30, 1998, the Company incurred and paid underwriting discounts
of $1,691,000 and other offering expenses of $2,300,000, resulting in total
expenses of $3,991,000.
The only payments to a director, officer, owner of 10% or more of the Common
Stock, or affiliate were to a company that is wholly owned by David C. Cooper,
the Company's Chairman of the Board, totaling $71,962 for the actual operating
costs associated with the Company's use in connection with the IPO of an
aircraft owned by that company.
The net proceeds to the Company from the IPO after payment of the above
expenses were $20.2 million. Through June 30, 1998, the Company has used $11.8
million to reduce debt, $980,000 for business acquisitions, $1.5 million for
fixed asset purchases and $2.4 million for working capital and general corporate
purposes. The Company has temporarily invested the $3.5 million balance of the
net offering proceeds in U.S. Treasury-based mutual funds and overnight
repurchase agreements.
17
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Company's Annual Meeting of Shareholders on May 29, 1998, the
shareholders elected the following slate of nominees for election as director,
with votes cast as follows (with no broker non-votes or abstentions):
NOMINEE VOTES FOR VOTES WITHHELD
David C. Cooper 7,567,846 585,005
Timothy Mann, Jr. 7,567,846 585,005
Edward S. Baumstein 7,567,846 585,005
Beth Monroe-Chase 7,456,578 696,273
Harry J. Sauer 7,456,578 696,273
John Ficquette 7,214,932 937,919
William Porter Payne 7,567,846 585,005
Barry M. Abelson 7,567,846 585,005
Paul J. Klaassen 7,567,846 585,005
Pursuant to the ICON Merger Agreement the Board of Directors appointed Robert
M. Kwatnez a director.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.13.1 Amendment No. 1 to Credit Agreement dated June 29, 1998 by and
among the Company, NationsBank, National Association as Lender,
and NationsBank, National Association as Agent for the Lenders.
10.12.1 Registration Rights Joinder Agreement dated May 22, 1998 by and
among the Company and certain holders of the capital stock of the
Company.
10.18 Employment Agreement between the Company and Robert M. Kwatnez
dated as of March 31, 1998 and effective on May 22, 1998.
10.19 Non-Solicitation and Non-Competition Agreement between the
Company and Robert M. Kwatnez dated as of March 31, 1998 and
effective on May 22, 1998.
27 Financial Data Schedule.
(b) On April 9, 1998, the Company filed a current report on Form 8-K dated
March 31, 1998. The Form 8-K reported under Item 5, Other Events, that the
Company entered into an Agreement and Plan of Merger for the acquisition of ICON
in a stock-for-stock transaction and that the Company entered into an Agreement
and Plan of Merger to acquire Don Richard of Richmond. On June 5, 1998, the
Company filed a current report on Form 8-K dated May 22, 1998. The Form 8-K
reported under Item 2, Acquisition or Disposition of Assets, that the Company
had acquired all of the equity interests of ICON in a stock-for-stock merger
transaction that qualified as a pooling of interests for accounting purposes and
qualified as a tax-free reorganization. The Company filed an amended Form 8-K
providing the required financial statements on August 5, 1998. The Company filed
no other reports on Form 8-K during the quarter ended June 30, 1998.
18
<PAGE>
ACSYS, INC.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACSYS, Inc.
---------------------------------
(registrant)
Date: August 12, 1998 /s/ Lester E. Gallagher, III
---------------- ---------------------------------
Lester E. Gallagher, III
Chief Financial Officer
(the registrant's principal financial and
chief accounting officer, who is duly
authorized to sign this report)
19
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.13.1 Amendment No. 1 to Credit Agreement dated June 29, 1998 by and
among the Company, NationsBank, National Association as Lender,
and NationsBank, National Association as Agent for the Lenders.
10.12.1 Registration Rights Joinder Agreement dated May 22, 1998 by and
among the Company and certain holders of the capital stock of the
Company.
10.18 Employment Agreement between the Company and Robert M. Kwatnez
dated as of March 31, 1998 and effective on May 22, 1998.
10.19 Non-Solicitation and Non-Competition Agreement between the
Company and Robert M. Kwatnez dated as of March 31, 1998 and
effective on May 22, 1998.
27 Financial Data Schedule.
<PAGE>
EXHIBIT 10.13.1
Amendment No. 1 to Credit Agreement dated June 29, 1998 by and among the
Company, NationsBank, National Association, as Lender, and NationsBank, National
Association as Agent for the Lenders
<PAGE>
AMENDMENT NO. 1
TO THE CREDIT AGREEMENT
This AMENDMENT AGREEMENT (the "Amendment Agreement"), dated as of June
29, 1998 is made by and among ACSYS, INC. (formerly known as ICCE, INC.) a
Georgia corporation having its principal place of business in Atlanta, Georgia
(the "Borrower"), NATIONSBANK, NATIONAL ASSOCIATION, a national banking
association organized and existing under the laws of the United States, as
Lender, and NATIONSBANK, NATIONAL ASSOCIATION, in its capacity as agent for the
Lenders (in such capacity, the "Agent"). Capitalized terms used but not
otherwise defined herein shall have the meanings ascribed to such terms in the
Credit Agreement (as defined below).
W I T N E S S E T H:
-------------------
WHEREAS, the Borrower, the Agent and the Lenders have heretofore entered
into that certain Credit Agreement dated as of May 16, 1997 (as amended,
modified or restated from time to time, the "Credit Agreement") pursuant to
which the Lenders agreed to make a revolving credit facility to the Borrower;
and
WHEREAS, (i) the Agent and certain Subsidiaries (the "Original Guarantors")
have heretofore entered into a certain Guaranty Agreement dated as of May 16,
1997 (the "Original Guaranty Agreement") and (ii) the Agent and certain other
Subsidiaries (the "Subsequent Guarantors") (the Original Guarantors and the
Subsequent Guarantors being referred to hereinafter collectively as the
"Guarantors") have entered into subsequent Guaranty Agreements as required by
to Section 7.19 of the Credit Agreement (the "Subsequent Guaranty Agreements")
------------
(the Original Guaranty Agreement and the Subsequent Guaranty Agreements being
referred to hereinafter collectively as the "Guaranty Agreement"), pursuant to
which the Guarantors have guaranteed the Borrower's Obligations under the Credit
Agreement; and
WHEREAS, (i) the Agent, the Borrower and the Original Guarantors have
entered into a certain Security Agreement dated as of May 16, 1997 (the
"Original Security Agreement") and (ii) the Agent and the Subsequent Guarantors
have entered into subsequent Security Agreements as required by Section 7.19 of
------------
the Credit Agreement, pursuant to which the Borrower and the Guarantors have
granted to the Agent for the benefit of the Secured Parties (as defined in the
Security Agreement) a security interest in certain of their personal property
and assets as collateral security for payment and performance of the Borrower's
Obligations under the Credit Agreement and the Guarantor's Obligations (as
defined in the Guaranty Agreement) under the Guaranty Agreement; and
WHEREAS, the Borrower has requested that the Agent and the Lenders amend
the Credit Agreement in the manner provided herein; and
WHEREAS, upon the terms and conditions contained herein, the Agent and the
Lenders are willing to amend the Credit Agreement;
NOW, THEREFORE, in consideration of the premises and conditions herein set
forth, it is hereby agreed as follows:
-1-
<PAGE>
A. CREDIT AGREEMENT AMENDMENT. Subject to the conditions hereof,
--------------------------
the Credit Agreement is hereby amended, effective as of the date the conditions
set forth in Section 3 of this Amendment Agreement are satisfied, as follows:
(a) The following new definitions are added to Section 1.1:
-----------
"`Amendment No. 1' means that certain Amendment Agreement dated as of
June 26, 1998 between the Borrower, the Agent, and the Guarantors.
`Direct Foreign Subsidiary' means any Foreign Subsidiary a majority of
whose outstanding Voting Stock is owned by the Borrower or a Domestic
Subsidiary.
`Domestic Subsidiary' means any Subsidiary of the Borrower organized
under the laws of the United States of America or a state or territory
thereof.
`Foreign Subsidiary' means any Subsidiary of the Borrower that is not
a Domestic Subsidiary.
`Subordinated Indebtedness' means Indebtedness subordinated to the
Obligations in accordance with such terms as shall be acceptable to the
Required Lenders.
`Voting Stock' means shares of capital stock issued by a corporation,
or equivalent interests in any other Person, the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for election
of directors (or persons performing similar functions) of such Person, even
if the right so to vote has been suspended by the happening of such a
contingency."
(b) The following definitions are amended in their entirety so that as
amended they read as follows:
"`Adjusted Consolidated EBITDA' means Consolidated EBITDA; provided,
--------
however, that with respect to any Acquisition which occurs within the Four-
--------
Quarter Period for which the computation thereof is being made,
Consolidated EBITDA shall be adjusted by adding (i) historical pro forma
reductions in compensation expense that are substantiated by employment
contracts, (ii) certain one-time combination expenses such as accounting,
investment banker, broker and legal fees, and (iii) certain other
demonstrable adjustments approved by the Agent; provided, further, that
-------- -------
with respect to an Acquisition which is accounted for as a "purchase", for
the Four-Quarter Period following the date of such Acquisition,
Consolidated EBITDA shall be adjusted to include the results of operations
of the Person or assets so acquired which amounts shall be determined on an
historical pro forma basis for the Four-Quarter Period preceding or
including the date of such Acquisition as if such Acquisition had been
consummated as a "pooling of interest", plus to the extent applicable, any
adjustments made in accordance with Securities and Exchange Commission Rule
17 C.F.R 210.11-02.
`Change of Control' means, at any time:
(i) any "person" or "group" (each as used in Sections 13(d)(3) and
(14(d)(2) of the Exchange Act), other than Persons owning 30% or more of
the Voting Stock of the Borrower on the effective date of Amendment No.1,
either (A) becomes the "beneficial owner" (as defined in Rule 13d-3 of the
Exchange Act), directly or indirectly, of Voting Stock of the Borrower (or
securities convertible into or exchangeable for such Voting Stock)
representing 30% or more of the combined voting power of all Voting Stock
of the Borrower (on a fully diluted basis) or (B) otherwise has the
ability, directly or indirectly, to elect a majority of the board of
directors of the Borrower;
-2-
<PAGE>
(ii) during any period of up to 24 consecutive months, commencing on
the effective date of Amendment No. 1, individuals who at the beginning of
such 24-month period were directors of the Borrower shall cease for any
reason (other than the death, disability or retirement of an officer of the
Borrower that is serving as a director at such time so long as another
officer of the Borrower replaces such Person as a director) to constitute a
majority of the board of directors of the Borrower;
(iii) any Person or two or more Persons, other than those Persons
listed in clause (ii) hereof, acting in concert shall have acquired by
contract or otherwise, or shall have entered into a contract or
arrangement that, upon consummation thereof, will result in its or their
acquisition of the power to exercise, directly or indirectly, a controlling
influence on the management or policies of the Borrower.
The registration and sale by the Borrower of any security issued by it
pursuant to the Securities Act of 1933, as amended, shall not constitute a
Change in Control.
`Consolidated Funded Indebtedness' means, as of the date of
computation thereof, Indebtedness for Money Borrowed plus all
Subordinated Indebtedness of the Borrower and its Subsidiaries, including
any liability associated with an earn-out obligation arising in connection
with an Acquisition which is recorded as a liability on the consolidated
balance sheet of the Borrower and its Subsidiaries all as determined on a
consolidated basis in accordance with Generally Accepted Accounting
Principles applied on a Consistent Basis.
`Revolving Credit Termination Date' means (i) June 30, 2002 or (ii)
such earlier date of termination of the Lenders' obligations pursuant to
Section 9.01 upon the occurrence of an Event of Default, or (iii) such date
as the Borrower may voluntarily permanently terminate the Revolving Credit
Facility by payment in full of all Obligations.
`Total Revolving Credit Commitment' means a principal amount equal to
$25,000,000, as reduced from time to time in accordance with Section 2.07."
------------
(c) The definition of "Unused Fee" is hereby amended by as follows:
(i) deleting the table in its entirety and placing in lieu thereof the
following table:
<TABLE>
<CAPTION>
Tier Consolidated Leverage Ratio Unused Fee
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
I Equal to or less than 1.00 to 1.00 0.200%
- ---------------------------------------------------------------------------------------------
II Greater than 1.00 to 1.00 0.250%
and equal to or less than 1.50 to 1.00
- ---------------------------------------------------------------------------------------------
III Greater than 1.50 to 1.00 0.250%
and equal to or less than 2.00 to 1.00
- ---------------------------------------------------------------------------------------------
IV Greater than 2.00 to 1.00 0.300%
and equal to or less than 2.50 to 1.00
- ---------------------------------------------------------------------------------------------
V Greater than 2.50 to 1.00 0.375%
- ---------------------------------------------------------------------------------------------
</TABLE>
-3-
<PAGE>
(ii) deleting the last sentence in its entirety and placing in lieu
thereof the following:
"From the effective date of Amendment No. 1 to the date next following
the date the next Compliance Certificate is received, the Unused Fee shall
be based on the Compliance Certificate required to be delivered for the
fiscal quarter ended March 31, 1998."
(d) The definition of "Applicable Margin" is hereby amended as follows:
(i) deleting the table in its entirety and placing in lieu thereof the
following table:
<TABLE>
<CAPTION>
Tier Consolidated Leverage Ratio Applicable Margin Applicable Margin
for Base Loans for Eurodollar Loans
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
I Equal to or less than 1.00 to 1.00 0.00% 1.00%
- -----------------------------------------------------------------------------------------------------
II Greater than 1.00 to 1.00 0.00% 1.25%
and equal to or less than 1.50 to 1.00
- -----------------------------------------------------------------------------------------------------
III Greater than 1.50 to 1.00 0.00% 1.50%
and equal to or less than 2.00 to 1.00
- -----------------------------------------------------------------------------------------------------
IV Greater than 2.00 to 1.00 0.25% 1.75%
and equal to or less than 2.50 to 1.00
- -----------------------------------------------------------------------------------------------------
V Greater than 2.50 to 1.00 0.50% 2.00%
- -----------------------------------------------------------------------------------------------------
</TABLE>
(ii) deleting the last sentence in its entirety and placing in lieu
thereof the following:
"From the effective date of Amendment No. 1 to the date next following
the date the next Compliance Certificate is received, the Applicable
Margin shall be based on the Compliance Certificate required to be
delivered for the fiscal quarter ended March 31, 1998."
(e) Section 2.03 is hereby amended by deleting the last sentence of such
------------
section in its entirety.
(f) Section 2.12 is hereby amended by deleting said section in its entirety
------------
and placing in lieu thereof the following:
"2.12 Use of Proceeds. The proceeds of the Loans made pursuant to
---------------
the Revolving Credit Facility hereunder shall be used by the Borrower to
(i) to finance up to $5,000,0000 of the Borrower's working capital
requirements and (ii) to finance Acquisitions permitted herein."
(g) Section 7.01 is hereby amended as follows:
------------
(i) by deleting the number "45" from the first line of paragraph (b)
and placing in lieu thereof the number "60";
(ii) by deleting the number "45" from the first line of paragraph (f)
and placing in lieu thereof inserting the number "60";
(iii) by adding a new paragraph (h) to read as follows:
-4-
<PAGE>
"(h) forms 10-K and 10-Q within 15 days of filing such forms
with the Securities and Exchange Commission;"
(iv) by deleting paragraph (c) in its entirety;
(h) Section 7.19 is hereby amended by deleting said section in its
------------
entirety and placing in lieu thereof the following:
"7.19 New Subsidiaries. (a) Within thirty (30) days of the
----------------
acquisition or creation of any Domestic Subsidiary or Direct Foreign
Subsidiary cause to be delivered to the Agent for the benefit of the
Lenders each of the following:
(i) in the case of a Domestic Subsidiary, (A) a Guaranty
Agreement executed by such Domestic Subsidiary substantially in the
form attached hereto as Exhibit K; (B) a Security Agreement executed
---------
by such Domestic Subsidiary substantially in the form of Exhibit G
---------
hereto;
(ii) (A) in the case that such Subsidiary is directly owned by
the Borrower or a Domestic Subsidiary which has previously delivered a
Pledge Agreement, a revised Schedule I to the Pledge Agreement
together with (1) stock certificates or other appropriate evidence of
ownership representing 100% of the capital stock and related interests
and rights of a Domestic Subsidiary or (2) not less than 65% of the
Voting Stock and 100% of the non-voting common stock and related
interests and rights of any Direct Foreign Subsidiary and (3) duly
executed stock powers or powers of assignment in blank affixed
thereto;
(B) in the case that such Subsidiary is directly owned by a
Domestic Subsidiary which has not previously delivered a Pledge
Agreement, a Pledge Agreement substantially in the form attached
hereto as Exhibit H, with appropriate revisions as to the identity of
the pledgor (and as required by applicable law and Section 7.19(b) if
---------------
such Subsidiary is a Foreign Subsidiary), and securing the obligations
of such Pledgor under its Guaranty Agreement, together with (1) stock
certificates or other appropriate evidence of ownership representing
100% of the capital stock and related interests and rights of a
Domestic Subsidiary or (2) not less than 65% of the Voting Stock and
100% of the non-voting common stock and related interests and rights
of any Direct Foreign Subsidiary and (3) duly executed stock powers or
powers of assignment in blank affixed thereto;
(iii) an opinion of counsel to the Subsidiary dated as of the
date of delivery of the documents required by the foregoing clauses
(i) and (ii) and addressed to the Agent and the Lenders, in form and
substance substantially similar to the opinion of counsel delivered
pursuant to Section 5.01(c) (or otherwise reasonably acceptable to the
---------------
Agent) with respect to each Loan Party which is party to any Loan
Document which such newly acquired or created Subsidiary is required
to deliver or cause to be delivered pursuant to the foregoing clauses
(i) and (ii);
(iv) current copies of the charter documents, including
partnership agreements and certificate of limited partnership, if
applicable, and bylaws of such Subsidiary, minutes of duly called and
conducted meetings (or duly effected consent actions) of the Board of
Directors, partners or appropriate committees thereof (and, if
required by such charter documents, bylaws or applicable laws, of the
shareholders or partners) of such Subsidiary authorizing the actions
and the execution and delivery of documents
-5-
<PAGE>
described in clauses (i) and (ii) of this Section 7.19 and evidence
------------
satisfactory to the Agent (confirmation of the receipt of which will
be provided by the Agent) that such Subsidiary is Solvent as of such
dated and after giving effect to the Loan Documents executed by such
Subsidiary;
(b) Subject to the thirty day compliance period set forth in clause
(a) of this Section 7.19, cause at all times the Agent to have a duly
------------
perfected first priority security interest in (i) 100% of the capital stock
and related interests and rights of a Domestic Subsidiary or (ii) not less
than 65% of the Voting Stock and 100% of the non-voting common stock and
related interests and rights of any Direct Foreign Subsidiary.
(i) Section 8.01 is hereby amended by deleting the number "3.00" and
------------
placing in lieu thereof the number "3.25".
(j) Section 8.02 is hereby amended by deleting said section in its entirety
------------
and placing in lieu thereof the following:
"8.02 Consolidated Fixed Charge Coverage Ratio. Permit at the end of
----------------------------------------
each fiscal quarter the Consolidated Fixed Charge Coverage Ratio to be less than
that set forth opposite each such period:
<TABLE>
<CAPTION>
Four-Quarter Period Ending Consolidated Fixed Charge Coverage Ratio
- -----------------------------------------------------------------------------------------------
<S> <C>
Closing - September 30, 1998 1.40 to 1.00
- -----------------------------------------------------------------------------------------------
Thereafter 1.50 to 1.00
- -----------------------------------------------------------------------------------------------
</TABLE>
(k) Section 8.03 is hereby amended by deleting said section in its entirety
------------
and placing in lieu thereof the following:
"8.03 Consolidated Capitalization Ratio. Permit at any time the
Consolidated Capitalization Ratio to exceed 0.55 to 1.00."
(l) Section 8.05 is hereby amended as follows:
------------
(i) deleting the amount "$200,000" in paragraph (d) and placing in
lieu thereof the amount "$1,000,000";
(ii) deleting paragraph (e) in its entirety and placing in lieu
thereof the following:
"(e) Indebtedness in the form of seller notes related to
Acquisitions permitted by Section 8.07; provided that such seller
------------- --------
notes are subordinated in writing to the Obligations on terms
acceptable to the Agent and provided further that the aggregate
-------- -------
principal amount outstanding of such seller notes shall in no event
exceed $2,500,000 at any time;"
(iii) deleting the amount "$100,000.00" in paragraph (h) and placing
in lieu thereof the amount "$500,000";
(m) Section 8.07 is hereby amended as follows:
------------
-6-
<PAGE>
(i) deleting clause (D) of paragraph (iv) in its entirety and placing
in lieu thereof the following:
"(D) if the Person to be (or whose assets are to be)
Acquired is domiciled outside of the United States of America or if
the Cost of Acquisition shall exceed (x) $7,500,000 for any single
Acquisition or (y) cause the aggregate Cost of Acquisitions over the
life of the Revolving Credit Facility to exceed $15,000,000, the
consent of the Required Lenders shall be required, and"
(n) Section 8.09 is hereby amended by deleting it in its entirety and
------------
placing in lieu thereof the following:
"8.09 Dividends or Distributions. Declare or pay any dividend or
--------------------------
other distribution, direct or indirect, on account of any shares of any
class of stock of the Borrower or any of the Guarantors (other than those
payable or distributable solely to the Borrower or another Guarantor) now
or hereafter outstanding, except a dividend payable solely in shares of a
class of stock to the holders of that class."
(o) Section 9.01(e) is hereby amended by deleting the amount "$50,000" and
---------------
placing in lieu thereof the amount "$500,000";
(p) Section 9.01(i) is hereby amended by deleting the amount "$50,000" and
---------------
placing in lieu thereof the amount "$500,000";
(q) Section 11.01(a)(i) is hereby amended by deleting the amount
-------------------
"$2,500,000" and placing in lieu thereof the amount "$5,000,000".
2. REPRESENTATIONS AND WARRANTIES. In order to induce the Agent and the
------------------------------
Lenders to enter into this Amendment Agreement, the Borrower hereby represents
and warrants that the Credit Agreement has been re-examined by the Borrower and
that except as disclosed by the Borrower in writing to the Lenders as of the
date hereof:
(a) The representations and warranties made by the Borrower in Article
-------
VI thereof are true on and as of the date hereof (except for those
--
representations and warranties which expressly relate to an earlier date)
except that the financial statements referred to in Section 6.01(f) shall
-------
be those most recently furnished to each Lender pursuant to Section 7.01;
-------------
(b) There has been no material adverse change in the condition,
financial or otherwise, of the Borrower and its Subsidiaries since the
Closing Date, other than changes in the ordinary course of business, and no
event has occurred which could reasonably be likely to have a Material
Adverse Effect; and
(c) No condition exists which would constitute a Default or an Event
of Default on the part of the Borrower under the Credit Agreement or the
Notes, either immediately or with the lapse of time or the giving of
notice, or both.
3. CONDITIONS PRECEDENT. The effectiveness of this Amendment Agreement is
--------------------
subject to the receipt by the Agent of the following:
-7-
<PAGE>
(a) five counterparts of this Amendment Agreement duly executed by all
signatories hereto; and
(b) copies of all additional agreements, instruments and documents
which the Agent may reasonably request, such documents, when appropriate,
to be certified by appropriate governmental authorities; and
(c) receipt of payment by the Agent for all its fees, costs and
expenses incurred in connection with the preparation, negotiation and
execution of this Amendment Agreement, including without limitation the
reasonable fees and disbursements of counsel to the Agent.
All proceedings of the Borrower relating to the matters provided for herein
shall be satisfactory to the Lenders, the Agent and their counsel.
4. ENTIRE AGREEMENT. This Amendment Agreement sets forth the entire
----------------
understanding and agreement of the parties hereto in relation to the subject
matter hereof and supersedes any prior negotiations and agreements among the
parties relative to such subject matter. No promise, condition, representation
or warranty, express or implied, not herein set forth shall bind any party
hereto, and no one of them has relied on any such promise, condition,
representation or warranty. Each of the parties hereto acknowledges that,
except as in this Amendment Agreement otherwise expressly stated, no
representations, warranties or commitments, express or implied, have been made
by any party to the other. None of the terms or conditions of this Amendment
Agreement may be changed, modified, waived or canceled orally or otherwise,
except by writing, signed by all the parties hereto, specifying such change,
modification, waiver or cancellation of such terms or conditions, or of any
proceeding or succeeding breach thereof.
5. CONSENT OF GUARANTORS. The Guarantors have joined in the execution of
---------------------
this Amendment Agreement for the purposes of consenting hereto and for the
further purpose of confirming their guaranty of the Obligations of the Borrower
as provided in the Guaranty Agreement. Without limiting the generality of the
foregoing, each Guarantor acknowledges the increase in the amount of the
Obligations as a result of the terms of this Amendment Agreement.
6. FULL FORCE AND EFFECT OF AGREEMENT. Except as hereby specifically
----------------------------------
amended, modified or supplemented, the Credit Agreement and all other Loan
Documents are hereby confirmed and ratified in all respects and shall remain in
full force and effect according to their respective terms.
7. COUNTERPARTS. This Amendment Agreement may be executed in any number
------------
of counterparts, each of which shall be deemed an original as against any party
whose signature appears thereon, and all of which shall together constitute one
and the same instrument.
8. GOVERNING LAW. Section 11.10 of the Credit Agreement shall apply to
------------- -------------
this Amendment Agreement.
9. ENFORCEABILITY. Should any one or more of the provisions of this
--------------
Amendment Agreement be determined to be illegal or unenforceable as to one or
more of the parties hereto, all other provisions nevertheless shall remain
effective and binding on the parties hereto.
10. CREDIT AGREEMENT. All references in any of the Loan Documents to the
----------------
Credit Agreement shall mean and include the Credit Agreement as amended hereby.
-8-
<PAGE>
11. SUCCESSORS AND ASSIGNS. This Amendment Agreement shall be binding
----------------------
upon and inure to the benefit of each of the Borrower, the Lenders, the Agent
and their respective successors, assigns and legal representatives; provided,
--------
however, that the Borrower, without the prior written consent of the Lenders,
- -------
may not assign any rights, powers, duties or obligations hereunder.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment Agreement
to be duly executed by their duly authorized officers, all as of the day and
year first above written.
ACSYS, INC.
WITNESS:
/s/ Jerri L. Davis By: /s/ Timothy Mann, Jr.
- ------------------
Name: Timothy Mann, Jr.
/s/ Lisa M. Durham Title: Chief Executive Officer
- ------------------ -----------------------
-10-
<PAGE>
GUARANTORS:
----------
DAVID C. COOPER AND
ASSOCIATES, INC.
WITNESS:
/s/ Jerri L. Davis By: /s/ Timothy Mann, Jr.
- ------------------
Name: Timothy Mann, Jr.
/s/ Michelle Edwards Title: President
- ------------------
ACSYS FINANCIAL STAFFING, INC.
WITNESS:
/s/ Jerri L. Davis By: /s/ Timothy Mann, Jr.
- ------------------
Name: Timothy Mann, Jr.
/s/ Michelle Edwards Title: President
- ------------------
EKT, INC.
WITNESS:
/s/ Jerri L. Davis By: /s/ Timothy Mann, Jr.
- ------------------
Name: Timothy Mann, Jr.
/s/ Michelle Edwards Title: President
- ------------------
INFINITY ENTERPRISES, INC.
WITNESS:
/s/ Jerri L. Davis By: /s/ Timothy Mann, Jr.
- ------------------
Name: Timothy Mann, Jr.
/s/ Michelle Edwards Title: President
- ------------------
CAMA OF TAMPA, INC.
WITNESS:
/s/ Jerri L. Davis By: /s/ Timothy Mann, Jr.
- ------------------
Name: Timothy Mann, Jr.
/s/ Michelle Edwards Title: President
- ------------------
-11-
<PAGE>
ACSYS RESOURCES, INC.
WITNESS:
/s/ Jerri L. Davis By: /s/ Timothy Mann, Jr.
- ------------------
Name: Timothy Mann, Jr.
/s/ Lisa M. Durham Title: President
- ------------------
C.P.A. STAFFING, INC.
WITNESS:
/s/ Jerri L. Davis By: /s/ Timothy Mann, Jr.
- ------------------
Name: Timothy Mann, Jr.
/s/ Lisa M. Durham Title: President
- ------------------
RYLAN FORBES CONSULTING GROUP, INC.
WITNESS:
/s/ Jerri L. Davis By: /s/ Timothy Mann, Jr.
- ------------------
Name: Timothy Mann, Jr.
/s/ Lisa M. Durham Title: President
- ------------------
ICON SEARCH & CONSULTING, INC.
WITNESS:
/s/ Jerri L. Davis By: /s/ Timothy Mann, Jr.
- ------------------
Name: Timothy Mann, Jr.
/s/ Lisa M. Durham Title: Treasurer and Secretary
- ------------------
AI INVESTMENTS, INC.
WITNESS:
/s/ Mary Avery By: /s/ Donald J. Bromley
- ------------------
Name: Donald J. Bromley
Title: Vice President
-12-
<PAGE>
DRAMONDI, INC.
WITNESS:
/s/ Jerri L. Davis By: /s/ Timothy Mann, Jr.
- ------------------
Name: Timothy Mann, Jr.
/s/ Lisa M. Durham Title: President
- ------------------
-13-
<PAGE>
NATIONSBANK, NATIONAL ASSOCIATION,
as Agent and Lender
WITNESS:
By: /s/ Barbara P. Levy
- ------------------
Name: Barbara P. Levy
- ------------------ ---------------
Title: Vice President
--------------
-14-
<PAGE>
Exhibit 10.12.1
Registration Rights Joinder Agreement dated May 22, 1998 by and among the
Company and certain holders of the capital stock of the Company.
<PAGE>
REGISTRATION RIGHTS JOINDER AGREEMENT
THIS JOINDER AGREEMENT (this "Agreement") is made and entered into as of
May 22, 1998, by and among ACSYS, INC., a Georgia corporation (the "Company"),
and the shareholders thereof whose signatures appear below (the "New
Shareholders").
Premises
--------
Pursuant to an Agreement and Plan of Merger, dated as of March 31, 1998
(the "Merger Agreement"), by and among the Company, Icon Search & Consulting Co.
("Icon") and certain shareholders of Icon, the New Shareholders have become
shareholders of the Company and as such desire to derive the benefits and
burdens associated with being a shareholder of the Company.
The Company is party to an Amended and Restated Registration Rights
Agreement, dated as of September 3, 1997 (as the same may be further amended
from time to time, the "Registration Rights Agreement"), with the Company's
existing shareholders ("Existing Shareholders") governing certain rights and
obligations of the Existing Shareholders as shareholders of the Company.
Capitalized terms used and not otherwise defined herein shall have the
respective meanings ascribed thereto in the Registration Rights Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company and each New Shareholder hereby agree as
follows:
1. The Company and each of the New Shareholders agrees that, from and
after the Effective Time (as defined in the Merger Agreement), by virtue of such
New Shareholders' execution of this Agreement, (i) each of the New Shareholders
shall, without any further action on the part of the Company or either of the
New Shareholders, become parties to the Registration Rights Agreement subject to
and bound by all the terms and provisions of the Registration Rights Agreement,
(ii) the shares of Company Common Stock received by the New Shareholders in the
Merger (as defined in the Merger Agreement) shall be "Merger Shares" for all
purposes under the Shareholders Agreement, and (iii) each of the New
Shareholders shall be a "Shareholder" for purposes of the Shareholders
Agreement.
2. A legend in substantially the form required by Section 3.2 of the
Registration Rights Agreement shall appear on each certificate representing
shares of Company Common Stock issued to the New Shareholders pursuant to the
purchase of Company Common Stock.
3. (a) In addition to the foregoing, within 30 days after the Effective
Time, the Company shall file a "shelf" registration statement pursuant to Rule
415 under the Securities Act (the "Shelf Registration") with respect to 15% of
the Merger Shares to be issued under the Merger Agreement. The Company shall,
subject to Section 3(b) hereof, use its reasonable best efforts to cause the
Shelf Registration to become effective as soon as practicable after the date of
filing thereof, and shall use its reasonable best efforts to keep the Shelf
Registration continuously effective from the date such Shelf Registration is
effective until the second anniversary of the Effective Time in order to permit
the prospectus forming a part thereof to be usable by New Shareholders during
such period. Subject to Section 3(b) hereof, the Company shall supplement or
amend the Shelf Registration as required by the registration form utilized by
the Company or by the instructions applicable to such registration form or by
the Securities Act or the rules and regulations promulgated thereunder. The
Company shall furnish to the holders of the Registrable Securities to which the
Shelf Registration relates copies of any such supplement or amendment
sufficiently in advance (but in
-1-
<PAGE>
no event less than five business days in advance) of its use and/or filing with
the Commission to allow such holders a meaningful opportunity to comment
thereon. Except to the extent otherwise provided in this Section 3, the
provisions of the Registration Rights Agreement (including those pertaining to
blue sky laws) shall apply in all respects to the Shelf Registration.
(b) Notwithstanding the provisions of Section 3(a), the Company may, by notice
to the holders of Registrable Securities covered by the Shelf Registration,
suspend the rights of such holders to make offers and sales pursuant to the
Shelf Registration for a reasonable period of time (in no event to exceed
45 days) (a "Suspension Period") if the Chief Executive Officer or Chief
Financial Officer of the Company shall determine in good faith that such
offer or sale (A) would require disclosure that would materially interfere
with a material financing, merger, sale or acquisition of assets,
recapitalization or other similar corporate action of the Company that is
pending or contemplated by the Company to occur or be announced publicly
within 45 days or (B) would require premature disclosure of non-public
information the disclosure of which, in the good faith determination of the
Chief Executive Officer or Chief Financial Officer of the Company, would be
materially adverse to the Company.
(c) All expenses of the Shelf Registration (including, but not limited
to, any qualifications under the blue-sky or other state securities laws,
compliance with governmental requirements of preparing and filing any post-
effective amendments required for the lawful distribution of any securities to
the public in connection with registration, of supplying prospectuses, offering
circulars or other documents, and all other registration and filing fees,
printing expenses, fees and disbursements of independent public accountants of
the Company, fees of the Company's counsel, fees of the National Association of
Securities Dealers, Inc., transfer taxes, fees of transfer agents and
registrars, and the reasonable fees and disbursements of a single special
counsel retained by a majority in interest of the Shareholders, but excluding
all underwriting discounts and selling commissions applicable to the sale, if
any, shall be paid by the Company. All underwriting discounts and selling
commissions applicable to the sale, if any, shall be borne by participating
sellers in proportion to the number of shares sold by each.
IN WITNESS WHEREOF, each of the parties hereto has executed or caused this
Agreement to be executed by its duly authorized representative as an agreement
under seal as of the date first above written.
ACSYS, INC.
By: /s/ Timothy Mann, Jr.
---------------------
Name: Timothy Mann, Jr.
Title: Chief Executive Officer
-2-
<PAGE>
NEW SHAREHOLDERS:
/s/ Robert Bailey
-----------------
ROBERT BAILEY
/s/ Gary Campbell
-----------------
GARY CAMPBELL
/s/ Robert M. Kwatnez
---------------------
ROBERT M. KWATNEZ
/s/ Steven M. Sutton
--------------------
STEVEN M. SUTTON
-3-
<PAGE>
EXHIBIT 10.18
Employment Agreement between the Company and Robert M. Kwatnez
dated as of March 31, 1998 and effective on May 22, 1998
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of March 31, 1998
(the "Effective Date"), by and between Acsys, Inc. ("Acsys"), a Georgia
corporation, Icon Search and Consulting, Inc. (the "Company"), a Georgia
corporation and a wholly owned subsidiary of Acsys, and Robert M. Kwatnez, an
individual resident of Georgia (the "Executive").
WHEREAS, Executive is an executive officer and shareholder of the Company;
WHEREAS, the Company recognizes the contributions of the Executive in such
capacity;
WHEREAS, the Company is entering into an Agreement and Plan of Merger,
dated of even date herewith (the "Merger Agreement"), providing for the merger
of the Company with a subsidiary of Acsys (the "Merger");
WHEREAS, Executive is expected to make a significant contribution to the
success and development of the Company from and after the Merger; and
WHEREAS, Executive is willing to render services to the Company and/or one
or more of its subsidiaries on the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by Executive, the Company and Acsys,
including, without limitation, the promises and covenants of the parties set
forth herein, the parties hereto, intending to be legally bound, hereby agree as
follows:
ARTICLE I
---------
EMPLOYMENT
----------
Section 1.1 Term of Employment. The term of Executive's employment
------------------
hereunder shall commence on the date on which the Merger is consummated in
accordance with the Merger Agreement (the "Effective Date") and continue for a
period of three (3) years thereafter, unless earlier terminated as provided in
this Agreement. At the end of the initial three-year term, this Agreement shall
automatically renew for consecutive one-year terms unless either party hereto
gives written notice to the other of its intent to terminate sixty (60) days
prior to the end of any term.
Section 1.2 Duties and Responsibilities of Executive. Executive is hereby
----------------------------------------
employed full time as the Vice President of the Company. Executive shall devote
his full time, energy, and skill to such office and shall do and perform all
services and acts necessary or advisable to fulfill the duties of such office.
In his capacity as an officer of the Company, Executive shall report to the
President of the Company, and shall conduct and perform such additional services
and activities as may be determined from time to time by such superior officer
which are normal and customary for a similar executive of a similarly situated
company. Executive's authority and responsibility in the Company shall at all
times be subject to the review and discretion of the Board of Directors, who
shall have the final authority to make decisions regarding the business of the
Company. Executive acknowledges that he has a duty of loyalty to the Company
and shall not engage in, directly and indirectly, any other business or activity
that could materially and adversely affect the Company's business or the
Executive's ability to perform his duties under this Agreement, provided,
however, that the Executive shall be free to participate in board, civic and
charitable activities so long as such activities do not interfere with his
duties and responsibilities hereunder.
<PAGE>
Section 1.3 Compensation. For services to be rendered by Executive under
------------
this Agreement, the Company shall pay Executive a base salary of $260,000 per
annum payable in semi-monthly installments. The Executive shall also be paid a
bonus described on Exhibit A. At the sole discretion of the Board of Directors
of the Company, Executive's annual gross salary may be increased from time to
time throughout the term of this Agreement. At no time during the term hereof
shall the Executive's base salary be decreased from the amount of the base
salary then in effect.
Section 1.4 Benefits.
--------
(a) Annual Leave. Executive shall be entitled to up to 26 days paid
vacation annually during his employment by the Company hereunder. Any vacation
not used during any calendar year shall be forfeited, except that two weeks'
unused vacation may be carried forward to the year following the year in which
such vacation entitlement accrued.
(b) Pension, Welfare and Fringe Benefit Plans. Executive shall be
-----------------------------------------
entitled to participate in each "employee welfare benefit plan" (within the
meaning of ERISA (S) 3(1)), "employee pension benefit plan" (within the meaning
of ERISA (S) 3(2)) and "specified fringe benefit plan" (within the meaning of
Code (S) 6039D) which is sponsored, maintained or contributed to by the Company
and in which executives of the Company (a) who are not represented by a
collective bargaining agent or (b) who are executives or officers may
participate in accordance with the terms and provisions of such plans. The
Executive shall receive credit for service with the Company prior to the Merger
for all purposes of such plans (including availability of options, optional
forms of benefit, or subsidies), except benefit accrual. To the extent
permitted by each such plan, any pre-existing limitations or conditions under
such plans shall be waived with respect to Executive and Executive shall be
allowed immediate participation and eligibility in all such plans.
Contributions by the Executive to such plans shall be required only to the
extent required of similarly situated executives.
(c) Notwithstanding the foregoing, the Executive shall be entitled to
continue (for the duration of this Agreement) to have provided by the Company
for business purposes and use: (i) a Company-provided automobile of a make and
model substantially similar to that currently provided to Executive by the
Company; (ii) automobile insurance, required maintenance of such Company-
provided automobile, and the payment of other reasonable expenses associated
with such Company-provided automobile; and (iii) a Company-provided cellular
telephone and the payment of reasonable expenses associated therewith.
(d) Life Insurance Policies. The Company agrees that it will
-----------------------
reasonably cooperate with the Executive so that the ownership of certain
policies insuring the life of Executive will be transferred from the Company to
the Executive.
Section 1.5 Business Expenses. Executive shall be entitled to
-----------------
reimbursement of all ordinary and necessary business expenses reasonably
incurred for business travel, communications (including cell phones and pager),
entertainment and meals in connection with the performance of Executive's duties
under this Agreement in accordance with the Company's generally established
policies for reimbursement of business expenses incurred by similarly situated
executives. The Company expects Executive to attend and participate in
continuing education seminars and courses with respect to the staffing industry
and business management related to his duties, and the Company will reimburse
all ordinary and necessary expenses of such attendance and participation. Such
continuing education courses and seminars will be scheduled in conjunction with
the other officers of the Company to assure coordination of schedules.
<PAGE>
ARTICLE II
----------
COVENANTS OF EXECUTIVE
----------------------
Section 2.1 Confidentiality. Executive recognizes the interest of the
---------------
Company in maintaining the confidential nature of its proprietary and other
business and commercial information. In connection therewith, Executive
covenants that during the term of his employment with Company under this
Agreement, and for a period of one (1) year thereafter, Executive shall not,
directly or indirectly, except as authorized by the Board of Directors, publish,
disclose or use for his own benefit or for the benefit of a business or entity
(other than the Company or its subsidiaries) or otherwise, any secret or
confidential matter, or proprietary or other information not in the public
domain that was acquired by Executive during his employment, relating to the
Company's, Acsys' or any of their respective subsidiaries' businesses,
operations, customers, suppliers, products, employees, financial affairs or
industry practices, technology, know-how or intellectual property or other
similar information (the "Proprietary Information"). If and to the extent that
Proprietary Information also is a Trade Secret (as defined under applicable
law), the time limit provided in Section 2.5 shall apply to the disclosure of
such Proprietary Information.
Executive will abide by the Company's policies and regulations, as
established from time to time, for the protection of its Proprietary
Information. Executive acknowledges that all records, files, data, documents
and the like relating to suppliers, customers, costs, prices, systems, methods,
personnel, technology and other materials relating to the Company or its
affiliated entities shall be and remain the sole property of the Company and/or
such affiliated entity and shall, upon the request of the Company, turn over all
copies of such Proprietary Information to the Company (together with a written
statement certifying as to his compliance with the foregoing).
Section 2.2 Non-Solicitation of Customers. During the term of Executive's
-----------------------------
employment with the Company, and for a period of one (1) year thereafter, unless
Executive is terminated other than for Cause (as defined below) or Executive
resigns for Good Reason (as defined below), Executive shall not directly or
indirectly, through one or more intermediaries or otherwise, solicit or attempt
to solicit Customers, in the Restricted Territory, to induce or encourage them
to acquire or obtain from anyone other than the Company, service competitive
with or substitute for any Company Service. For purposes of this Section, a
"Customer" refers to any person or group of persons with whom Employee has
direct material contact with regard to selling, delivery or support of Company
Services, including servicing such person's or group's account, during the
period of two (2) years preceding termination of Employee's employment; and
"Company Services" refers to the services that the Company offered or sold
within six (6) months prior to the date of termination of Employee's employment.
For purposes of this Article II, the "Restricted Territory" shall be the area
that is within a thirty (30) mile radius of the city of Atlanta, or such other
city in which the Company maintains an office at which Executive is located on
the date of termination of Executive's employment with the Company and such
other cities in which the Company maintains offices at which Executive had
material customer contacts within the year preceding the termination of
Executive's employment with the Company.
Section 2.3 Non-Compete. During the term of Executive's employment with
-----------
the Company, and for a period of two (2) years thereafter, unless Executive is
terminated other than for
<PAGE>
Cause (as defined below) or Executive resigns for Good Reason (as defined
below), Executive shall not, without the prior written consent of the Board of
Directors, which consent may be withheld at the sole discretion of the Board of
Directors, engage or participate in, as a business executive or equity owner of
any business or enterprise that directly competes in the Restricted Area with
any line of business in which (i) the Company was engaged at the time of
termination of Executive's employment with the Company and (ii) Executive was
materially involved with regard to the selling, delivery or support of services
within such line of business; provided, however, that nothing in this Section
2.3 shall prohibit Executive from acquiring or holding, for investment purposes
only, less than five percent (5%) of the outstanding publicly traded securities
of any corporation which may compete directly or indirectly with the Company or
any of its subsidiaries.
Section 2.4 Non-Solicitation of Employees. During the term of his
-----------------------------
employment with the Company, and for a period of one (1) year thereafter, unless
Executive is terminated other than for Cause (as defined below) or Executive
resigns for Good Reason (as defined below), Executive shall not, directly or
indirectly, through one or more intermediaries or otherwise, employ, induce,
solicit for employment, or assist others in employing, inducing or soliciting
for employment any individual who is at any time during such period an employee
of the Company for the purpose of providing services that are the same or
similar to the types of services offered or engaged in by the Company, Acsys or
any of their respective subsidiaries with the Executive providing services at
the time of termination of Executive's employment with the Company.
Section 2.5 Trade Secrets. The Executive shall not, at any time, either
-------------
during the term of his employment or after any termination of employment, use or
disclose any Trade Secrets (as defined under applicable law) of the Company,
Acsys, or any of their respective subsidiaries, except in fulfillment of his
duties as the Executive during his employment, for so long as the pertinent
information or data remain Trade Secrets, whether or not the Trade Secrets are
in written or tangible form.
Section 2.6 Consideration. Executive acknowledges that his agreement to
-------------
the covenants provided in this Article II constitutes a major portion of the
consideration for the entry by the Company into this Agreement, and that the
Company's covenants under this Agreement are of direct and material benefit to
Executive and are good and adequate consideration for the covenants given
herein. Executive also acknowledges that the Company has a present and future
expectation of business within the geographic areas served by the Company and
from the present and proposed customers of the Company. Executive acknowledges
the reasonableness of the term, geographic area and scope of the covenants set
forth in this Agreement, and agrees that he will not, in any action, suit or
other proceeding, deny the reasonableness of, or assert the unreasonableness of,
the premises, consideration or scope of the covenants set forth herein.
Executive further acknowledges that complying with the provisions contained in
this Agreement will not preclude him from engaging in a lawful profession, trade
or business, or from becoming gainfully employed.
ARTICLE III
-----------
TERMINATION OF EMPLOYMENT
-------------------------
Section 3.1 Termination by Company. Executive's employment may be
----------------------
terminated by the Company by giving notice during the term of this Agreement
upon the occurrence of one or more of the following events:
<PAGE>
(a) Executive's death or disability which renders Executive incapable
of performing his duties after reasonable accommodation (without undue hardship)
for more than one hundred twenty (120) calendar days (termination under this
Section 3.1(a) shall be deemed termination without Cause);
(b) for any reason following a determination by the Board of Directors
to terminate Executive's employment (termination under this Section 3.1(b) shall
be deemed termination without Cause); or
(c) "for Cause", which for purposes of this Agreement shall mean that
the Executive shall have:
(i) committed an intentional act of fraud, embezzlement or theft
in connection with his duties or in the course of his employment with the
Company which has a material adverse effect upon the Company;
(ii) inflicted intentional wrongful material damage to any
material asset of the Company or the Company;
(iii) intentionally and wrongfully materially violated Article II
of this Agreement, which violation has a material adverse effect upon the
Company;
(iv) been convicted of a felony or any similar crime carrying a
prison term of at least one year (regardless of whether imprisonment is actually
imposed);
(v) a habitual and debilitating use of alcohol or drugs; or
(vi) failed to meet performance expectations, as determined
by the Company's Board of Directors in good faith, provided, however, that
--------
in the event of this subsection (vi) being the sole reason for termination for
Cause, Executive shall have the cure provisions and rights provided for in
Section 3.1(d) hereof.
(d) In the event of a determination by the Company's Board of
Directors that the Executive has failed to meet performance expectations, the
Company shall furnish to Executive in writing a notice of proposed termination
setting forth a specific statement of the deficiencies in his performance.
Executive shall then have a period of ninety (90) days after the giving of such
written notice of proposed termination by the Company in which to attempt to
effect a cure of the specified deficiencies. If at the end of such ninety (90)
day period no such cure has been effected to the reasonable satisfaction of the
Board of Directors of the Company, then Executive's employment shall be
terminated as of the end of such ninety (90) day period. The Company shall be
obligated to provide to Executive only one such notice of proposed termination,
and if subsequent to effecting a cure of specified deficiencies the Executive is
determined by the Board of Directors to have again failed to meet performance
expectations, then his employment may be terminated immediately upon the
Company's giving of notice of termination to Executive which specifies his
deficiencies in performance.
Section 3.2 Good Reason. For purposes of this Agreement, "Good Reason"
-----------
shall mean, without the express written consent of Executive, the occurrence of
any of the following events unless such events are fully corrected within thirty
(30) days following written notification by Executive to the Company that he
intends to terminate his employment hereunder for one of the reasons set forth
below:
<PAGE>
(a) a material breach by the Company of any material provision of this
Agreement or the Registration Rights Joinder Agreement, dated as of March
31, 1998, to which Executive is a party, including, but not limited to, the
assignment to Executive of any duties inconsistent with Executive's
position in the Company or a material adverse alteration in the nature or
status of Executive's responsibilities;
(b) relocation of Executive out of the metropolitan Atlanta area
provided, however, that the Executive shall from time to time, as may be
necessary to facilitate the Company's business, be required to render a
portion of his services hereunder at the Company's corporate headquarters
in Washington D.C.; or
(c) the occurrence of a "Change in Control" as defined below.
For purposes of this Agreement a "Change in Control" shall mean an event as a
result of which: (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")), is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act,
except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 30% of the total voting power of the voting stock of
the Company; (ii) the Company consolidates with, or merges with or into another
corporation or sells, assigns, conveys, transfers, leases or otherwise disposes
of all or substantially all of its assets (or substantially all of the assets
of, or of the Acsys' interest in, the Company) to any person or any corporation
consolidates with, or merges with or into, the Company, in any such event
pursuant to a transaction in which the outstanding voting stock of the Company
is changed into or exchanged for cash, securities or other property, other than
any such transaction where (A) the outstanding voting stock of the Company is
changed into or exchanged for (x) voting stock of the surviving or transferee
corporation or (y) cash, securities (whether or not including voting stock) or
other property, and (B) the holders of the voting stock of the Company
immediately prior to such transaction own, directly or indirectly, not less than
30% of the voting power of the voting stock of the surviving corporation
immediately after such transaction; or (iii) individuals who at the date of the
Merger constitute the Board of the Company (together with any new directors
whose election by such Board or whose nomination for election by the
stockholders of the Company was approved by a vote of 66-2/3% of the directors
then still in office who were directors at the date of the Merger or whose
election or nomination for election was previously so approved) ceased for any
reason to constitute a majority of the Board of the Company then in office; or
(iv) the Company is liquidated or dissolved or adopts a plan of liquidation.
Section 3.3 Severance. For purposes of this Agreement, Executive's
---------
entitlement to any severance payments upon termination of his employment shall
be as set forth below:
(a) Termination Without Cause. If Executive is terminated without
-------------------------
Cause or resigns for Good Reason at any time, Executive shall be entitled to
severance pay of a lump sum equal to three times the sum of (i) his annual
salary then in effect plus (ii) the amount of his bonus as calculated based on
the results of operations for the twelve months prior to such termination.
(b) Voluntary Termination. If Executive voluntarily resigns for
---------------------
reason other than Good Cause, Executive shall receive a lump sum severance
payment equal to his then current annual salary. Executive shall provide a
minimum of thirty (30) days prior notice to the President of his resignation.
In the event Executive shall provide thirty (30) days prior written notice of
his intent to resign, the Company may accept such resignation effective as of
any date during such thirty (30) day
<PAGE>
period as the Company deems appropriate, provided that Executive shall receive
from the Company his salary and be entitled to participate at the Company's
expense in any Company sponsored benefit programs in which he was a participant
as of the effective date of his resignation for the duration of such thirty (30)
day period.
(c) For Cause. Executive shall not be entitled to any severance pay
---------
whatsoever if his employment is terminated "for Cause" pursuant to Section
3.1(c) of this Agreement, unless severance pay is approved by the Board of
Directors of the Company in its sole discretion, provided, however, that the
Executive shall receive such annual salary that is accrued but unpaid up to the
date of such termination for Cause. If termination is for Cause pursuant to
Section 3.1(c)(vi), then Executive shall be entitled to severance equal to pay
for the remainder of the then current term of this Agreement, or equal to one
year's salary at his then current rate, whichever is greater.
ARTICLE IV
----------
GENERAL PROVISIONS
------------------
Section 4.1 Withholding of Taxes. The Company may withhold from any
--------------------
amounts payable under this Agreement all federal, state, city or other taxes and
withholdings as shall be required pursuant to any applicable law, rule or
regulation.
Section 4.2 Notice. For purposes of this Agreement, all communications
------
including, without limitation, notices, consents, requests or approvals,
provided for herein shall be in writing and shall be deemed to have been duly
given when personally delivered or five (5) business days after having been
mailed by United States registered mail or certified mail, return receipt
requested, postage prepaid, addressed to the Company (to the attention of the
Secretary of the Company) at its principal executive office or to Executive at
his principal residence, or to such other address as any party may have
furnished to the other in writing and in accordance herewith, except the notices
of change of address shall be effective only upon receipt.
Section 4.3 Validity; Severability. The covenants set forth in this
----------------------
Agreement are and shall be deemed and construed as separate and independent
covenants. It is not the intent of any party hereto to violate any public
policy of any jurisdiction in which this Agreement may be enforced. If any
term, covenant, condition or provision of this Agreement, or the application
thereof to any person or circumstance, shall to any extent be held invalid or
unenforceable by a court of competent jurisdiction because its duration, the
territory and/or the restricted activities are invalid or unreasonable in scope,
(i) each such term, covenant or provision of this Agreement shall be valid and
be enforced to the fullest extent permitted by law, shall be reformed to the
extent (and only to the extent) necessary to make it valid, enforceable and
legal taking into consideration the reasonable concerns and needs of the
Company's business interests such that the intent of the Company, in
consummating the transactions contemplated by the Agreement, will not be
impaired, provided that such invalid or unenforceable term, covenant, condition
or provision shall be curtailed, limited or eliminated only to the extent
necessary to remove such invalidity or unenforceability with respect to the
applicable law as it shall then be applied, and (ii) the remainder of this
Agreement or the application of such term, covenant, condition or provision to
persons or circumstances other than those as to which it is held invalid or
unenforceable shall not be affected thereby.
Section 4.4 Remedies. The restrictions contained in Article II of this
--------
Agreement are considered by the parties hereto to be fair and reasonable and
necessary for the protection of the legitimate business interests of the
Company. It is recognized that damages in the event of breach of
<PAGE>
the provisions of this Agreement by Executive would be difficult, if not
impossible, to ascertain, and it is therefore agreed that the Company, in
addition to and without limiting any other remedy or right it may have, shall
have the right to an injunction or other equitable relief in any court of
competent jurisdiction, enjoining any such breach. The existence of this right
shall not preclude any other rights and remedies at law or in equity which the
Company may have. Any violation of the restrictions contained in Article II of
this Agreement shall automatically toll and suspend the period of restraint for
the amount of time that the violation continues, provided that the Company seeks
enforcement of such restraint promptly after discovery of the violation.
Executive agrees to indemnify and hold harmless the Company from and against any
loss, damage, liability, cost or expense, including but not limited to
reasonable attorneys fees, suffered or incurred by the Company as and when
incurred, by reason of, or arising out of, any breach of the covenants contained
in this Agreement.
Section 4.5 Entire Agreement. This Agreement supersedes any other
----------------
agreements, oral or written, between the parties with respect to the subject
matter hereof, and contains all of the agreements and understandings between the
parties with respect to the employment of Executive by the Company. Any waiver
or modification of any term of this Agreement shall be effective only if it is
set forth in a writing signed by both parties hereto.
Section 4.6 Successors and Binding Agreement.
--------------------------------
(a) This Agreement shall be binding upon and inure to the benefit of
the Company and any Successor of or to the Company, but shall not otherwise be
assignable or delegable by the Company. "Successor" shall mean any successor in
interest, including, without limitation, any entity, individual or group of
persons acquiring directly or indirectly all or substantially all of the
business or assets of the Company, as the case may be, whether by sale, merger,
consolidation, reorganization or otherwise.
(b) The Company shall require any Successor to agree at the time of
becoming a Successor to perform this Agreement to the same extent as the
original parties would be required if no succession had occurred.
(c) This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors, administrators, heirs,
distributes and legatees.
(d) This Agreement is personal in nature and neither of the parties
shall, without the consent of the other, assign, transfer or delegate this
Agreement or any rights or obligations hereunder except as expressly provided in
this Section 4.6.
Section 4.7 Governing Law. This Agreement shall be governed by, and
-------------
construed and enforced in accordance with the laws of the State of Georgia
without regard to the choice of law rules utilized in that jurisdiction.
Section 4.8 Captions. The captions in this Agreement are solely for
--------
convenience of reference and shall not be given any effect in the construction
or interpretation of this Agreement.
Section 4.9 Miscellaneous. No provisions of this Agreement may be modified,
-------------
waived or discharged unless such waiver, modification or discharge is agreed to
in a writing signed by Executive and the Company. No waiver by a party hereto
at any time of any breach by another party hereto or compliance with any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provision or conditions at the
same or at
<PAGE>
any prior or subsequent time. Failure by the Company to insist upon strict
compliance with any of the terms, covenants or conditions hereof shall not be
deemed to be a waiver of such term, covenant or condition, nor shall any
relinquishment of any right of power hereunder by the Company any one or more
times be deemed a waiver or relinquishment of such right or power by the Company
at any other time or times.
Section 4.10 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
"Company":
ICON SEARCH AND CONSULTING, INC. "Executive":
By: /s/ Robert D. Bailey /s/ Robert M. Kwatnez
----------------------- -----------------------
SIGNATURE ROBERT M. KWATNEZ
Robert D. Bailey Print Residence Address:
- --------------------------
Print Name 11875 Morning Mist Drive
------------------------
President
- --------------------------- Alpharetta, Georgia 30005
Print Title --------------------------
ACSYS, INC.
By: /s/ Timothy Mann, Jr.
----------------------
Timothy Mann, Jr.
Chief Executive Officer
- ---------------------------
Print Title
<PAGE>
EXHIBIT A
---------
BONUS CALCULATION
Executive shall receive quarterly bonuses for calendar year 1998 as follows:
Q2 1998: 10% OF ALL EBIT IN EXCESS OF $1,016,000
Q3 1998: 10% OF ALL EBIT IN EXCESS OF $1,520,000
Q4 1998: 10% OF ALL EBIT IN EXCESS OF $2,080,000
The quarterly bonus will be prorated for the remaining portion of the quarter
that the transaction is closed. the EBIT will be prorated actual EBIT for the
period the transaction closes based on the above benchmarks for the quarter.
the amounts will be prorated by the number of days remaining in the quarter that
the closing occurs.
After calendar year 1998, Executive shall receive such bonus compensation as
determined by the Board of Directors of the Company from time to time. Such
bonus compensation shall be determined based on the performance of the Company
and Acsys as a whole and the success of the integration of such businesses as
the Company may acquire.
<PAGE>
EXHIBIT 10.19
Non-Solicitation and Non-Competition Agreement between the Company and Robert M.
Kwatnez dated as of March 31, 1998 and effective on May 22, 1998
<PAGE>
NON-SOLICITATION AND NON-COMPETITION AGREEMENT
----------------------------------------------
THIS NON-SOLICITATION AND NON-COMPETITION AGREEMENT (this "Agreement") is
made and entered into as of March 31, 1998, by and between Acsys, Inc., a
Georgia corporation ("Acsys"), and Robert M. Kwatnez, an individual resident of
Georgia ("Shareholder").
WHEREAS, Shareholder is a shareholder and an officer of Icon Search and
Consulting, Inc. (the "Company");
WHEREAS, the Company is entering into an Agreement and Plan of Merger,
dated of even date herewith (the "Merger Agreement"), by and among Acsys, a
subsidiary of Acsys, the Company and the shareholders of the Company, including
Shareholder, pursuant to which a subsidiary of Acsys will be merged with and
into the Company (the "Merger") and the Company will become a wholly owned
subsidiary of Acsys;
WHEREAS, in order to induce Acsys to enter into the Merger Agreement and to
consummate the Merger contemplated thereby, Shareholder has agreed to enter into
this Agreement; and
WHEREAS, contemporaneously with the execution of this Agreement,
Shareholder is entering into an employment agreement with the Company (the
"Employment Agreement").
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by Shareholder and Acsys including,
without limitation, the promises and covenants of the parties set forth herein,
the parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE I
---------
COVENANTS OF SHAREHOLDER
------------------------
Section 1.1 Confidentiality. Shareholder recognizes the interest of Acsys
---------------
in maintaining the confidential nature of the proprietary and other business and
commercial information of the Company. In connection therewith, Shareholder
covenants that, during the term of Shareholder's employment with the Company and
for a period of one (1) year thereafter, Shareholder shall not, directly or
indirectly, except as authorized by the Board of Directors of Acsys, publish,
disclose or use for his own benefit or for the benefit of a business or entity
(other than the Company or Acsys, or their respective subsidiaries) or
otherwise, any secret or confidential matter, or proprietary or other
information not in the public domain that was acquired by Shareholder during his
employment, relating to the Company's businesses, operations, customers,
suppliers, products, employees, financial affairs or industry practices,
technology, know-how or intellectual property or other similar information (the
"Proprietary Information").
Shareholder will abide by the Company's policies and regulations, as
established from time to time, for the protection of its Proprietary
Information. Shareholder acknowledges that all records, files, data, documents
and the like relating to suppliers, customers, costs, prices, systems, methods,
personnel, technology and other materials relating to the Company or its
affiliated entities shall be and remain the sole property of the Company and/or
such affiliated entity and shall, upon the request of the Company, turn over all
copies of such Proprietary Information to the Company (together with a written
statement certifying as to his compliance with the foregoing).
-1-
<PAGE>
Section 1.2 Non-Solicitation of Customers. For a period of one (1) year
-----------------------------
after the date on which the Merger is consummated in accordance with the Merger
Agreement (the "Effective Date"), Shareholder shall not directly or indirectly,
through one or more intermediaries or otherwise, solicit or attempt to solicit
Customers, in the Restricted Territory, to induce or encourage them to acquire
or obtain from anyone other than the Company, service competitive with or
substitiute for any Company Service. For purposes of this Section, a "Customer"
refers to any person or group of persons with whom Shareholder has direct
material contact with regard to selling, delivery or support of Company
Services, including servicing such person's or group's account, during the
period of two (2) years preceding the date hereof or the Effective Date; and
"Company Services" refers to the services that the Company offered or sold
within six (6) months prior to the date hereof or the Effective Date. For
purposes of this Article II, the "Restricted Territory" shall be the area that
is within a thirty (30) mile radius of the city of Atlanta, or such other city
in which the Company maintains an office at which Shareholder is located on the
date hereof and such other cities in which the Company maintains offices at
which Shareholder had material customer contacts within the year preceding the
date hereof.
Section 1.3 Non-Compete. For a period of two (2) years after the
-----------
Effective Date, Shareholder shall not, without the prior written consent of the
Board of Directors, which consent may be withheld at the sole discretion of the
Board of Directors, engage or participate in, as a business executive or equity
owner of any business or enterprise that directly competes in the Restricted
Area with any line of business in which (i) the Company was engaged as of the
date hereof and (ii) Shareholder was materially involved with regard to the
selling, delivery or support of services within such line of business; provided,
however, that nothing in this Section 1.3 shall prohibit Shareholder from
acquiring or holding, for investment purposes only, less than five percent (5%)
of the outstanding publicly traded securities of any corporation which may
compete directly or indirectly with the Company or any of its subsidiaries.
Section 1.4 Non-Solicitation of Employees. For a period of one (1) year
-----------------------------
after the Effective Date, Shareholder shall not, directly or indirectly, through
one or more intermediaries or otherwise, employ, induce, solicit for employment,
or assist others in employing, inducing or soliciting for employment any
individual who is at any time during such period an employee of the Company for
the purpose of providing services that are the same or similar to the types of
services offered or engaged in by the Company as of the date hereof or on the
Effective Date.
Section 1.5 Trade Secrets. Shareholder shall not, at any time, use or
-------------
disclose any Trade Secrets (as defined under applicable law) of the Company,
Acsys, or any of their respective subsidiaries, except in fulfillment of his
duties as an employee of the Company, Acsys or any affiliate thereof, for so
long as the pertinent information or data remain Trade Secrets, whether or not
the Trade Secrets are in written or tangible form.
Section 1.6 Consideration. Shareholder agrees and acknowledges that the
-------------
covenants contained herein are provided in connection with the sale of a
business by Shareholder to Acsys. Shareholder acknowledges that his entering
into this Agreement constitutes a major portion of the consideration for the
entry by Acsys into the Merger Agreement, and that the Merger Agreement
(including payment by Acsys to Shareholder of the Merger Shares (as such term is
defined in the Merger Agreement) for Shareholder's shares of common stock of the
Company) is of direct and material benefit to Shareholder and is good and
adequate consideration for the covenants given herein. Shareholder also
acknowledges that Acsys and the Company have a present and future expectation of
business within the geographic areas presently served by the Company and from
the present customers of the Company. Shareholder acknowledges the
reasonableness of the term,
-2-
<PAGE>
geographic area and scope of the covenants set forth in this Agreement, and
agrees that he will not, in any action, suit or other proceeding, deny the
reasonableness of, or assert the unreasonableness of, the premises,
consideration or scope of the covenants set forth herein. Shareholder further
acknowledges that complying with the provisions contained in this Agreement will
not preclude him from engaging in a lawful profession, trade or business, or
from becoming gainfully employed in such a way as to provide a standard of
living for himself, the members of his family, and those dependent upon him or
the sort and fashion to which he and they have become accustomed and may expect.
ARTICLE II
----------
GENERAL PROVISIONS
------------------
Section 2.1 Notice. For purposes of this Agreement, all communications
------
including, without limitation, notices, consents, requests or approvals,
provided for herein shall be in writing and shall be deemed to have been duly
given when personally delivered or five (5) business days after having been
mailed by United States registered mail or certified mail, return receipt
requested, postage prepaid, addressed to Acsys (to the attention of the
Secretary of Acsys) at its principal executive office or to Shareholder at his
principal residence, or to such other address as any party may have furnished to
the other in writing and in accordance herewith, except the notices of change of
address shall be effective only upon receipt.
Section 2.2 Validity; Severability. The covenants set forth in this
----------------------
Agreement are and shall be deemed and construed as separate and independent
covenants. It is not the intent of any party hereto to violate any public
policy of any jurisdiction in which this Agreement may be enforced. If any
term, covenant, condition or provision of this Agreement, or the application
thereof to any person or circumstance, shall to any extent be held invalid or
unenforceable by a court of competent jurisdiction because its duration, the
territory and/or the restricted activities are invalid or unreasonable in scope,
(i) each such term, covenant or provision of this Agreement shall be valid and
be enforced to the fullest extent permitted by law, shall be reformed to the
extent (and only to the extent) necessary to make it valid, enforceable and
legal taking into consideration the reasonable concerns and needs of Acsys's
business interests such that the intent of Acsys, in consummating the
transactions contemplated by the Agreement, will not be impaired, provided that
such invalid or unenforceable term, covenant, condition or provision shall be
curtailed, limited or eliminated only to the extent necessary to remove such
invalidity or unenforceability with respect to the applicable law as it shall
then be applied, and (ii) the remainder of this Agreement or the application of
such term, covenant, condition or provision to persons or circumstances other
than those as to which it is held invalid or unenforceable shall not be affected
thereby.
Section 2.3 Remedies. The restrictions contained in Article I of this
--------
Agreement are considered by the parties hereto to be fair and reasonable and
necessary for the protection of the legitimate business interests of Acsys. It
is recognized that damages in the event of breach of the provisions of this
Agreement by Shareholder would be difficult, if not impossible, to ascertain,
and it is therefore agreed that Acsys, in addition to and without limiting any
other remedy or right it may have, shall have the right to an injunction or
other equitable relief in any court of competent jurisdiction, enjoining any
such breach. The existence of this right shall not preclude any other rights
and remedies at law or in equity which Acsys may have. Any violation of the
restrictions contained in Article I of this Agreement shall automatically toll
and suspend the period of restraint for the amount of time that the violation
continues, provided that Acsys seeks enforcement of such restraint promptly
after discovery of the violation. Shareholder agrees to indemnify and hold
-3-
<PAGE>
harmless Acsys from and against any loss, damage, liability, cost or expense,
including but not limited to reasonable attorneys fees, suffered or incurred by
Acsys as and when incurred, by reason of, or arising out of, any breach of the
covenants contained in this Agreement.
Section 2.4 Entire Agreement. This Agreement supersedes any other
----------------
agreements, oral or written, between the parties with respect to the subject
matter hereof, and contains all of the agreements and understandings between the
parties with respect to the subject matter hereof. Any waiver or modification
of any term of this Agreement shall be effective only if it is set forth in a
writing signed by both parties hereto.
Section 2.5 Successors and Binding Agreement. This Agreement shall be
--------------------------------
binding upon and inure to the benefit of Acsys and any Successor of or to Acsys.
"Successor" shall mean any successor in interest, including, without limitation,
any entity, individual or group of persons acquiring directly or indirectly all
or substantially all of the business or assets of Acsys, as the case may be,
whether by sale, merger, consolidation, reorganization or otherwise. This
Agreement shall inure to the benefit of and be enforceable by Shareholder's
personal or legal representatives, executors, administrators, heirs, distributes
and legatees.
Section 2.6 Captions. The captions in this Agreement are solely for
--------
convenience of reference and shall not be given any effect in the construction
or interpretation of this Agreement.
Section 2.7 Governing Law. This Agreement shall be governed by, and
-------------
construed and enforced in accordance with the laws of the State of Georgia
without regard to the choice of law rules utilized in that jurisdiction.
Section 2.8 Miscellaneous. No provisions of this Agreement may be
-------------
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in a writing signed by Shareholder and Acsys. No waiver by a party
hereto at any time of any breach by another party hereto or compliance with any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provision or conditions at the
same or at any prior or subsequent time. Failure by Acsys to insist upon strict
compliance with any of the terms, covenants or conditions hereof shall not be
deemed to be a waiver of such term, covenant or condition, nor shall any
relinquishment of any right or power hereunder by Acsys any one or more times be
deemed a waiver or relinquishment of such right or power by Acsys at any other
time or times.
Section 2.9 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
-4-
<PAGE>
"Acsys": "SHAREHOLDER":
ACSYS, INC. /s/ Robert M. Kwatnez
---------------------------
ROBERT M. KWATNEZ
By: /s/ Timothy Mann, Jr. Print Residence Address:
------------------------
Timothy Mann, Jr.
Chief Executive Officer 11875 Morning Mist Drive
----------------------------
Alpharetta, Georgia 30005
----------------------------
-5-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS OF ACSYS INC AND SUBSIDIARIES REPORTED ON FORM 10Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> APR-01-1998 APR-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 3,523 370
<SECURITIES> 0 0
<RECEIVABLES> 16,978 12,846
<ALLOWANCES> 690 (503)
<INVENTORY> 0 0
<CURRENT-ASSETS> 21,134 14,168
<PP&E> 4,679 3,110
<DEPRECIATION> 1,497 1,182
<TOTAL-ASSETS> 42,076 33,249
<CURRENT-LIABILITIES> 8,659 9,143
<BONDS> 0 0
0 0
0 0
<COMMON> 27,464 7,598
<OTHER-SE> 2,465 3,204
<TOTAL-LIABILITY-AND-EQUITY> 42,076 33,249
<SALES> 27,381 17,765
<TOTAL-REVENUES> 27,381 17,765
<CGS> 14,469 9,423
<TOTAL-COSTS> 14,469 9,423
<OTHER-EXPENSES> 13,413 8,866
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 53 217
<INCOME-PRETAX> (492) (687)
<INCOME-TAX> 509 261
<INCOME-CONTINUING> (1,001) (948)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,001) (948)
<EPS-PRIMARY> (.07) (.13)
<EPS-DILUTED> (.07) (.13)
</TABLE>
