<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 8, 1998.
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
STRATEGIX SOLUTIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 7363 APPLIED FOR
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
ONE INDEPENDENT DRIVE
JACKSONVILLE, FLORIDA 32202
(904) 360-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
MARC M. MAYO, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
STRATEGIX SOLUTIONS, INC.
ONE INDEPENDENT DRIVE
JACKSONVILLE, FLORIDA 32202
(904) 360-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
JOSEPH L. SEILER III, ESQ. STEVEN L. GROSSMAN, ESQ.
LEBOEUF, LAMB, GREENE & MACRAE, L.L.P. O'MELVENY & MYERS LLP
125 WEST 55TH STREET 1999 AVENUE OF THE STARS, 7TH FLOOR
NEW YORK, NEW YORK 10019-5389 LOS ANGELES, CALIFORNIA 90067-6035
----------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following the box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, par value $0.01 per
share............................... $175,000,000 $51,625
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 8, 1998
[ ] SHARES
STRATEGIX SOLUTIONS, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
-----------
All of the shares of Common Stock offered hereby are being sold by the
Company.
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price per share will be between $ and $ . For factors to be considered in
determining the initial public offering price, see "Underwriting."
The Company is a wholly-owned subsidiary of AccuStaff Incorporated
("AccuStaff"). Upon completion of the Offering, AccuStaff will own
approximately % of the outstanding Common Stock of the Company and will
continue to control the Company. AccuStaff has advised the Company that,
subject to certain conditions, AccuStaff intends to distribute its ownership
interest in the Company in 1999 by means of a tax-free distribution to
AccuStaff's stockholders. See "The Reorganization and Proposed Spin-off",
"Principal Stockholder" and "Certain Relationships and Related Transactions."
SEE "RISK FACTORS" ON PAGE 9 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK.
Application will be made to list the Common Stock on the New York Stock
Exchange under the symbol "STG."
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-----------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
-------------- ------------ -----------
<S> <C> <C> <C>
Per Share...................... $ $ $
Total (3)...................... $ $ $
</TABLE>
- -----
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional shares at the initial public offering price per
share, less the underwriting discount, solely to cover over-allotments. If
such option is exercised in full, the total initial public offering price,
underwriting discount and proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
-----------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York on
or about , 1998, against payment therefor in immediately available funds.
Joint Lead Managers:
GOLDMAN, SACHS & CO. ROBERT W. BAIRD & CO.
INCORPORATED
LEHMAN BROTHERS
-----------
The date of this Prospectus is [ ], 1998.
<PAGE>
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN THE
COMMON STOCK, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
----------------
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Prospective investors should read the Prospectus in its entirety. As used in
this Prospectus, "Company" means Strategix Solutions, Inc. and, unless the
context otherwise requires, its subsidiaries. The Company's sole shareholder
before the Offering is AccuStaff Incorporated, a Florida corporation that is
listed on the New York Stock Exchange ("NYSE"). As described under the heading
"The Reorganization and the Proposed Spin-off," AccuStaff Incorporated has
announced that it intends, upon shareholder approval, to change its name to
"Modis Professional Services, Inc." during 1998. Unless otherwise indicated,
the information in this Prospectus assumes: (i) an initial public offering
price of $ per share of Common Stock (representing the mid-point of the
estimated price range); (ii) all financial data and ratios presented herein
have been prepared using generally accepted accounting principles ("GAAP");
(iii) the consummation of transactions other than the Spin-off described herein
under the heading "The Reorganization and Proposed Spin-off"; and (iv) no
exercise of the Underwriters' over-allotment option. As used herein, references
to the "Company" include the historical operating results and activities of,
and assets and liabilities assigned to, the businesses and operations which
comprise the Company as of the date hereof after giving effect to the
transactions other than the Spin-off described herein under the heading "The
Reorganization and Proposed Spin-off."
THE COMPANY
OVERVIEW
Strategix Solutions, Inc. (the "Company") is a leading national provider of
business services that primarily include diversified staffing and outsourcing
services to businesses and government agencies. The Company was formed in May
1998 in connection with the Reorganization (as defined below) and represents
the commercial businesses of AccuStaff Incorporated ("AccuStaff"). The Company
will operate in two divisions, Specialized Solutions and Traditional Staffing
Services. The Company provides its services through a network of 341 Company
owned offices and 36 franchised offices, with centralized support including
marketing and back office support. In the year ended December 31, 1997, the
Company generated revenues of $1.3 billion and supplied approximately 250,000
employees to clients in 36 states and the District of Columbia. On a pro forma
basis, after eliminating results of operations that have been sold or that are
in the process of being terminated, 1997 revenues were approximately $1.0
billion. The Company has experienced rapid pro forma revenue growth from $312
million in 1992 through both acquisitions and internal growth.
The Specialized Solutions division provides sophisticated customized
solutions to customers including high-end office support and office automation
resources, desktop publishing, outsourcing, mid-level information technology
("IT") staffing, web-site design and development, and end-user IT training.
This division also provides staffing of scientific skills for biotechnology and
pharmaceutical customers and skilled "light technical" staffing for electronics
and other component manufacturers. In addition, through this division, the
Company provides technical support for end-users including telecommunication
companies. The Company provides this specialized expertise under various brand
names. The division's Office Specialists, Excel, Richard Michael Group and
Placers brands provide high-end office support and office automation resources.
The e-Staff brand provides services such as desktop publishing. The Strategix
and HR Management brands offer turn-key outsourcing services. The Mindsharp
Learning Centers brand offers a wide-range of end-user IT training. The
Specialized Solutions division, which had revenues of $341 million in 1997,
representing 34% of the Company's revenues on a pro forma basis, operates
through 113 offices in 20 states and the District of Columbia.
3
<PAGE>
The Traditional Staffing Services division primarily provides clerical,
secretarial and, to a lesser extent, light industrial staffing, primarily under
the AccuStaff brand name. The office services unit, which accounts for
approximately 78% of the division's staffing revenue, supplies a wide variety
of secretarial, clerical, word processing, and office automation employees to
perform skilled tasks, as well as reception, copying, filing, and other
miscellaneous office services. This division also provides customer care and
telemarketing services for businesses. The light industrial unit, which
accounts for approximately 22% of the division's staffing revenue, supplies
employees for light industrial positions such as unskilled assembly and
packaging, light-duty warehouse work, inventory and other light-duty, labor
intensive tasks. This division also provides on-site management programs for
numerous clients where the Company's staffing employees constitute a
significant portion of a client's workforce. The Traditional Staffing Services
division, which had revenues of $655.7 million in 1997 representing 66% of the
Company's revenues on a pro forma basis, operates through 249 offices
(including franchised offices) in 32 states and the District of Columbia.
OPERATING STRATEGY
The Company's goal is to be the leading provider of quality business
solutions such as strategic staffing and outsourcing. The Company intends to
achieve its goal through a focused operating strategy. The key elements of this
operating strategy include: (i) enhancing its position as a provider of both
specialized and traditional staffing services through a broad range of
customized, value-added services; (ii) pursuing a targeting strategy; (iii)
recruiting, training and retaining qualified employees; (iv) capitalizing on
its strong reputation and brand names; (v) operating decentralized,
entrepreneurial branches with centralized support; and (vi) leveraging its
existing infrastructure and technology.
GROWTH STRATEGY
The Company pursues a focused growth strategy designed to achieve both
increased revenue and earnings. The key elements of this growth strategy are as
follows:
INTERNAL GROWTH
The Company's internal growth strategy includes: (i) positioning in market
locations, customer segments and skill segments that value high levels of
service; (ii) increasing penetration of existing markets and expansion into
contiguous markets; (iii) changing the mix of business; (iv) growing the
Company's specialized businesses, including its outsourcing, mid-level IT
services and training services; and (v) cross-selling services on an intra-
company basis as well as on an inter-company basis with AccuStaff.
ACQUISITIONS
The Company's acquisition strategy is to acquire complementary staffing and
outsourcing operations that are focused on high value, high skill business
segments that the Company believes are growing faster than the traditional
staffing segments. The Company believes that there is an opportunity, as a part
of the consolidation in the global business services industry, to focus on
acquisitions of companies that offer specialized staffing and high-end office
support. The Company's management has a proven track record of identifying
acquisition candidates that complement existing businesses, integrating them
within existing operations and utilizing them to enhance the Company's growth
performance.
4
<PAGE>
INDUSTRY OVERVIEW
The global business services and staffing industry has experienced
significant growth in recent years in response to the changing work environment
worldwide. The Company believes the focus of the industry has been gradually
changing from employers' traditional use of staffing services to manage
employee costs and meet fluctuating staffing requirements to the reduction of
administrative overhead by outsourcing a wide variety of operations that are
not part of their core business competencies. The use of specialized and
traditional flexible staffing services has allowed employers to improve
productivity, manage costs and avoid the negative effects of layoffs.
Furthermore, the ability to hire business solutions specialists on a
contractual basis or outsource specialized functions and administrative
responsibilities has permitted companies to focus on their core business while
cutting costs and attaining higher quality support services. This has been
partly in response to rapidly changing regulations worldwide regarding employee
benefits, insurance and retirement plans, as well as the high cost of hiring,
training and terminating regular employees. In addition, the Company believes
that the industry's growth is also driven by the changing demographics of the
workforce and evolving attitudes toward work patterns, both domestically and
internationally. These trends have accelerated with the pace of technological
change and global competitive pressures.
The U.S. remains the largest and most important business solutions,
outsourcing and staffing services market. According to Staffing Industry
Report, U.S. staffing industry revenue grew from approximately $29.3 billion in
1992 to approximately $66.3 billion in 1997, which represents a compound annual
growth rate of 17.7%. The National Association of Temporary and Staffing
Services has estimated that more than 90% of all U.S. businesses utilize
temporary services. However, temporary help represented only 2.01% of total
employment. The staffing market in the U.S. and most other developed economies
is highly fragmented and includes a large number of medium sized and small
businesses, many of which operate in a single geographic market. This
fragmentation combined with increased competitive pressures has produced a
trend of industry consolidation, resulting in the Company's belief that many
smaller and medium sized companies are becoming increasingly responsive to
acquisition proposals by larger firms, such as the Company.
THE REORGANIZATION
The Company currently is a wholly-owned subsidiary of AccuStaff and was
formed in May 1998. In connection with a reorganization (the "Reorganization"),
the Company will acquire all of AccuStaff's assets and subsidiaries that are
engaged in AccuStaff's commercial businesses. Pursuant to the Reorganization,
the Company will pay on or prior to the closing date of the Offering (the
"Offering Closing Date") an amount to AccuStaff equal to $150 million in
borrowings under its new $300 million credit facility (the "Credit Facility")
plus the net proceeds of the Offering.
THE SPIN-OFF
AccuStaff has announced that it intends to distribute its ownership interest
in the Company to AccuStaff's stockholders in 1999 by means of a tax-free
distribution of the Common Stock held by AccuStaff of the Company to all
AccuStaff stockholders (the "Spin-off"). The Spin-off will be subject to (i)
the receipt of a favorable ruling from the Internal Revenue Service as to the
tax-free nature of the transaction, (ii) the receipt of all material government
approvals and third-party consents necessary to consummate the Spin-off, (iii)
no order, injunction or decree issued by any court or agency of competent
jurisdiction or other legal restraint or prohibition preventing the
consummation of the Spin-off shall be in effect, and (iv) no other events or
developments shall have occurred subsequent to the
5
<PAGE>
Offering Closing Date that, in the sole judgment of the AccuStaff Board of
Directors (the "AccuStaff Board"), would result in the Spin-off having a
material adverse effect on AccuStaff or on the stockholders of AccuStaff.
----------------
The Company's executive offices are located at One Independent Drive,
Jacksonville, Florida 32202, and its telephone number is (904) 360-2000. The
Company maintains operations centers at its executive offices and also in
Woodbury, New York and Peabody, Massachusetts (respectively, the "Woodbury
Operations Center" and the "Peabody Operations Center").
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered hereby.. shares
Common Stock outstanding
after the Offering (1)...... shares
Proposed New York Stock
Exchange symbol............. "STG"
Use of Proceeds.............. The net proceeds to the Company from the
Offering are estimated to be approximately $
million after deducting underwriting discounts
and commissions and estimated offering expenses.
Pursuant to the Reorganization, such net
proceeds will be paid to AccuStaff. See "The
Reorganization and Proposed Spin-off" and "Use
of Proceeds."
</TABLE>
- --------
(1) Excludes shares of Common Stock that will be reserved for issuance
under a long term incentive plan that the Company intends to adopt prior to
the Offering ( shares of which are subject to options as of the Offering
Closing Date and approximately shares which will be exercisable under
employee stock options following the Spin-off by Company employees who held
AccuStaff stock options and who have elected to convert such options into
stapled options of AccuStaff common stock and Common Stock of the Company).
See "Management--Executive Compensation--Long Term Incentive Plan" and
"Certain Relationships and Related Transactions--Employee Benefits
Agreement."
RISK FACTORS
Potential purchasers of the Common Stock should carefully consider the
factors set forth herein under "Risk Factors" commencing on page 9, as well as
other information contained in this Prospectus.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
The following summary consolidated financial and other data for the Company
should be read in conjunction with the consolidated financial statements of the
Company and notes thereto and the other financial information, including
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Pro Forma Consolidated Financial Statements," included
elsewhere herein. This historical financial information may not be indicative
of the Company's future performance and does not necessarily reflect what the
financial position and results of operations of the Company would have been had
the Company operated as a separate, stand alone entity during the periods
covered.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, FISCAL YEAR ENDED DECEMBER 31,
------------------------------ ----------------------------------------
PRO FORMA PRO FORMA
1998(1) 1998 1997 1997(1) 1997 1996 1995
-------------------- --------- --------- ---------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Revenue................. $ 253,340 $ 319,046 $ 277,248 $996,712 $1,260,702 $1,031,431 $772,479
Cost of revenue......... 193,209 245,580 217,189 764,122 975,489 807,940 608,207
--------- --------- --------- -------- ---------- ---------- --------
Gross profit............ 60,131 73,466 60,059 232,590 285,213 223,491 164,272
Operating expenses...... 45,089 55,331 48,762 173,760 215,437 181,350 133,080
--------- --------- --------- -------- ---------- ---------- --------
Income from operations.. 15,042 18,135 11,297 58,830 69,776 42,141 31,192
Interest expense, net... 2,027 1,368 475 7,010 4,374 429 1,153
--------- --------- --------- -------- ---------- ---------- --------
Income before taxes..... 13,015 16,767 10,822 51,820 65,402 41,712 30,039
Provision for income
taxes.................. 4,881 6,288 4,111 21,464 26,739 19,079 11,655
--------- --------- --------- -------- ---------- ---------- --------
Net income.............. $ 8,134 $ 10,479 $ 6,711 $ 30,356 $ 38,663 $ 22,633 $ 18,384
========= ========= ========= ======== ========== ========== ========
Pro forma net income per
share (2).............. $ $ $ $
Pro forma weighted
average shares
outstanding (2)........
DIVISION REVENUE DATA
(UNAUDITED):
Specialized Solutions... $ 89,814 $ 89,814 $ 77,058 $341,040 $ 341,040 $ 250,705 $150,622
Traditional Staffing
Services............... 163,526 163,526 137,487 655,672 655,672 556,307 418,227
Teleservices (3)........ -- 35,624 31,409 -- 134,529 112,375 99,470
Health Care (4)......... -- 30,082 31,294 -- 129,461 112,044 104,160
--------- --------- --------- -------- ---------- ---------- --------
Total revenue........... $253,340 $ 319,046 $ 277,248 $996,712 $1,260,702 $1,031,431 $772,479
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------
PRO FORMA
ACTUAL AS ADJUSTED (5)
-------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................ $174,054 $174,054
Total assets........................................... 485,977 485,977
Due to parent.......................................... 98,874 --
Long term debt......................................... 24,410 174,410
Stockholder's equity................................... 272,109 220,983
</TABLE>
- --------
(1) Prepared on a pro forma basis to reflect (a) the sale of the Company's
Health Care business on March 30, 1998, (b) the anticipated termination of
the contract for the Teleservices division's sole customer and (c) the
consummation of transactions other than the Spin-off described under the
heading "The Reorganization and Proposed Spin-off" and the anticipated
borrowing of $150 million under the Company's Credit Facility to make a
portion of the payment to AccuStaff as part of the Reorganization. See "Pro
Forma Consolidated Financial Statements."
(2) Pro forma net income per share is based on the weighted average shares
outstanding after giving retroactive effect to shares to be issued in
connection with the Offering.
(3) The Company's management has received indications from the sole customer of
its Teleservices division that such customer intends to terminate its
contract with the Company in 1998.
(4) The Company's Health Care businesses were sold on March 30, 1998.
Therefore, the Health Care division will not provide any revenue
contribution to the Company beginning in the second quarter of 1998. See
"Pro Forma Consolidated Financial Statement" and "Business--Health Care;
Pending Sale and Government Regulation."
(5) Prepared on a pro forma basis to reflect the anticipated borrowing of $150
million under the Credit Facility to make a portion of the payment to
AccuStaff as part of the Reorganization, and as further adjusted to reflect
the sale of shares of Common Stock offered by the Company hereby, at an
assumed initial public offering price of $ per share, and the application
of the estimated net proceeds therefrom. See "Pro Forma Consolidated
Financial Statements" and "Use of Proceeds."
8
<PAGE>
RISK FACTORS
Prospective purchasers of the shares of Common Stock offered hereby should
consider carefully the risk factors set forth below, as well as the other
information set forth in this Prospectus.
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, and are intended to be covered by
the safe harbors created thereby. Such forward-looking statements are subject
to certain risks, uncertainties or assumptions and may be affected by certain
other factors, including the specific factors set forth below. Should one or
more of these risks, uncertainties or other factors materialize, or should
underlying assumptions prove incorrect, actual results, performance or
achievements of the Company may vary materially from any future results,
performance or achievements expressed or implied by such forward-looking
statements. In evaluating such statements, prospective investors should
specifically consider the various factors identified in the Prospectus,
including the matters set forth below, which could cause actual results to
differ materially from those indicated by such forward-looking statements.
RISK FACTORS RELATED TO THE COMPANY AND THE STAFFING INDUSTRY
EFFECT OF FLUCTUATIONS IN THE GENERAL ECONOMY
Demand for the Company's temporary staffing services is significantly
affected by the general level of economic activity in the Company's geographic
markets. When economic activity increases, temporary employees often are added
before full-time employees are hired. However, as economic activity slows,
many companies reduce their use of temporary employees prior to undertaking
layoffs of full-time employees. The Company may experience less demand for its
services and more competitive pricing pressure during such periods of economic
downturn. Therefore, any significant economic downturn could have a material
adverse effect on the Company's results of operations or financial condition.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
COMPETITION
The staffing services industry is intensely competitive and highly
fragmented, with few barriers to entry by potential competitors. The Company
faces significant competition in the markets it serves and will face
significant competition in any geographic markets or industry sectors that it
may enter. In each market in which the Company operates, it competes for both
clients and qualified employees with other firms offering staffing services.
There can be no assurance that the Company will not encounter increased
competition in the future, which could have a material adverse effect on the
Company's results of operations or financial condition. See "Business--
Competition."
ABILITY TO RECRUIT, TRAIN AND RETAIN EMPLOYEES
The Company depends on its ability to identify, attract, train and retain
employees who possess the skills and experience necessary to meet the staffing
requirements of its clients. Competition for individuals with proven skills is
intense. Although the Company often receives fees from clients for the
placement and hiring of its employees, the Company's competition for its
employees is often the Company's own clients. In addition, the Company must
continually evaluate, train, and develop its employees to meet clients' needs.
There can be no assurance that qualified employees will continue to be
available to the Company in sufficient numbers and on economic terms
acceptable to the Company. Failure to identify, attract, train and retain such
employees on acceptable terms could have a material adverse effect on the
Company's results of operations or financial condition.
9
<PAGE>
ABILITY TO CONTINUE ACQUISITION STRATEGY; ABILITY TO MANAGE GROWTH
The Company has experienced significant growth in the past through
acquisitions. Although the Company will continue to seek acquisition
opportunities, a number of factors may limit the Company's ability to continue
to acquire and integrate companies at the rate they occurred previously. The
amount of stock that the Company may issue in connection with acquisitions may
be limited. See "Risk Factors Related to the Reorganization and Proposed Spin-
off." Also, the Company will be subject to certain limitations on the
incurrence of new indebtedness under its Credit Facility. There can be no
assurance that the Company will continue to find and acquire suitable
acquisition candidates or that such acquisitions can be successfully
integrated into the Company. The Company has also grown through the opening of
new offices and the increase of business at existing offices. This growth
generally may be limited by the Company's ability to finance such growth.
There is no assurance that the Company will continue to grow.
INCREASED EMPLOYEE COSTS
The Company is required to pay unemployment insurance premiums and workers'
compensation for its temporary employees. Unemployment insurance premiums and
workers' compensation costs fluctuate over time as a result of changes in
unemployment levels and benefits and changes in the Company's experience
rating or applicable laws or regulations. The Company is principally self-
insured for workers' compensation coverage. The Company may incur costs
related to workers' compensation claims at a higher rate in the future due to
such causes as higher than anticipated losses or an increase in the number and
severity of claims. See "Business--Other Operational Aspects--Workers'
Compensation Program." In addition, the Company's costs could increase as a
result of future government laws or regulations that address insurance,
benefits or other insurance-related issues. There can be no assurance that the
Company will be able to increase the fees charged to its clients in a timely
manner and sufficient in amount to cover such increased costs. See "Business--
Other Operational Aspects--Temporary Employees."
LIABILITIES FOR CLIENT AND EMPLOYEE ACTIONS
The Company is in the business of employing people and placing them in the
workplace of other businesses. As a result of such activity, the Company may
be subject to possible claims of discrimination, harassment, employment of
illegal aliens, and other similar claims. The Company has policies and
guidelines in place to reduce its exposure to these risks. Any such claim may
result in negative publicity and liability including the payment by the
Company of monetary damages or fines. The Company is also exposed to liability
with respect to actions taken by its employees while on assignment, such as
damages caused by employee errors, misuse of client proprietary or
confidential information or theft of client property. To reduce such
exposures, the Company maintains general liability, errors and omissions and
fidelity insurance, although there can be no assurance that insurance coverage
will continue to be available or adequate. Any uninsured liabilities could
have a material adverse effect on the Company's results of operations or
financial condition.
SHARES ELIGIBLE FOR FUTURE SALE
AccuStaff has announced, that subject to certain conditions, AccuStaff
intends to distribute to its shareholders in 1999 all of the Common Stock of
the Company held by AccuStaff pursuant to the Spin-off. Shares of Common Stock
distributed to AccuStaff shareholders pursuant to the Spin-off generally will
be freely tradeable without restriction or further registration under the
Securities Act by persons other than affiliates of the Company. Sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, could adversely affect prevailing market prices for the Common Stock.
Notwithstanding the foregoing, AccuStaff and the Company have each agreed
that, without the prior written consent of the representatives of the
Underwriters, other than pursuant to the Spin-off, it will not offer, sell,
contract to sell or otherwise dispose of, directly or indirectly, or file with
the Commission a registration statement under the Securities Act relating to
any additional shares of Common Stock,
10
<PAGE>
or securities convertible into or exchangeable or exercisable for shares of
Common Stock, for a period of 180 days after the date of this Prospectus,
other than the exercise, if necessary, by Accustaff of its "Stock Option" (as
defined below) to purchase additional shares of Common Stock pursuant to the
Reorganization and Spinoff Agreement. See "Certain Relationships and Related
Transactions--Reorganization and Spin-off Agreement--The Spinoff,"
"Underwriting" and "Shares Eligible for Future Sale." In addition, shares of
Common Stock may also become available for sale following the Spin-off because
the Company's employees who have AccuStaff stock options and who elect to
receive Stapled Options, as defined in "Certain Relationships and Related
Transactions--Employee Benefits Agreement," will receive options for the
Company's Common Stock based upon such AccuStaff stock options. The Company is
unable to predict whether substantial amounts of Common Stock will be sold in
the open market in anticipation of, or following, the Spin-off. Any sales of
substantial amounts of Common Stock in the public market, or the perception
that such sales might occur, whether as a result of the Spin-off or otherwise,
could materially adversely affect the market price of the Common Stock. See
"Shares Eligible for Future Sale."
CERTAIN ANTI-TAKEOVER PROVISIONS
The Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") and the Amended and Restated By-laws (the "By-laws") of the
Company (the "Organizational Documents") contain certain provisions that could
impede any merger, consolidation, takeover or other business combination
involving the Company or discourage a potential acquiror from making a tender
offer or otherwise attempting to obtain control of the Company. Provisions
contained in the Organizational Documents, among other things, (i) divide the
Board of Directors of the Company into three classes, which will serve for
staggered three-year terms, (ii) provide that a director of the Company may be
removed only for cause and only by the affirmative vote of holders of
outstanding securities of the Company which represent a majority of the voting
power of all outstanding shares of capital stock of the Company eligible to
vote on such matters, (iii) provide that subsequent to the Spin-off only the
Board of Directors of the Company, the Chairman or the Chief Executive Officer
of the Company may call special meetings of the stockholders, (iv) eliminate,
subsequent to the Spin-off, the ability of the stockholders to take any action
without a meeting and (v) provide that the stockholders may amend or repeal
any of the foregoing provisions of the Certificate and certain provisions of
the Organizational Documents only by a vote of holders of outstanding
securities of the Company which represent three-fourths of the combined voting
power of the outstanding capital stock of the Company eligible to vote on such
matters. In addition, the Organizational Documents establish certain advance
notice procedures for nomination of candidates for election as directors and
for stockholders' proposals to be considered at stockholders' meetings. In
addition, the Company is subject to the provisions of the Delaware General
Corporation Law (the "DGCL"). With certain exceptions, Section 203 of the DGCL
imposes certain restrictions on mergers and other business combinations
between the Company and any holder of 15% or more of the Company's Common
Stock. See "Description of Capital Stock."
NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that an active trading market will develop and
continue upon completion of the Offering or that the market price for the
Common Stock will not decline below the initial public offering price. The
initial public offering price was determined through negotiations between the
Company and the representatives of the Underwriters and may not be indicative
of the market price for the Common Stock following the Offering. The Company
believes that various factors unrelated to its performance, such as general
economic conditions and changes or volatility in the financial markets could
cause the market price of the Common Stock to fluctuate substantially. See
"Underwriting."
ABSENCE OF HISTORY AS A SEPARATE COMPANY; LIMITED RELEVANCE OF HISTORICAL
FINANCIAL INFORMATION
The Company has never operated as a separate company. After the Offering and
prior to the Spin-off, the Company will continue to be a subsidiary of
AccuStaff, but will operate as a separate
11
<PAGE>
company. AccuStaff will have no obligation to the Company or any of its
subsidiaries except as described in "Certain Relationships and Related
Transactions." The financial information included herein may not necessarily
reflect the results of operations, financial position and cash flows of the
Company in the future or what the results of operations, financial position
and cash flows would have been had the Company been a separate, stand alone
entity during the periods presented. The financial information included herein
does not reflect many significant changes that will occur in the costs,
funding and operations of the Company as a result of the Spin-off and the
Offering. See "The Reorganization and Proposed Spin-off," "Pro Forma
Consolidated Financial Statements," and "Management's Discussion and Analysis
of Financial Condition and Results from Operations--Overview."
YEAR 2000 ISSUE
The Company is in the process of preparing its computer systems and related
software to accommodate date sensitive information relating to the Year 2000.
The Company expects that the costs related to ensuring such systems and
software to be Year 2000-compliant will not be material to the financial
condition or results of operations of the Company. In addition, the Company is
discussing with its vendors and customers the possibility of any difficulties
which may affect the Company as a result of its vendors and customers ensuring
that their computer systems and software are Year 2000-compliant. To date, no
significant concerns have been identified. However, there can be no assurance
that the Company's efforts are adequate or that no Year 2000-related computer
operating problems or expenses will arise with the Company's computer systems
and software or in the computer systems and software of the Company's vendors
and customers. Such problems or expenses could have a material adverse effect
on the Company's results of operations or financial condition.
RISK FACTORS RELATED TO THE REORGANIZATION AND PROPOSED SPIN-OFF
RISK OF NONCOMPLETION OF THE SPIN-OFF
AccuStaff has announced that, subject to certain conditions, AccuStaff will
distribute in 1999 to its stockholders all of the Company's Common Stock owned
by AccuStaff. The Spin-off is subject to the receipt of a favorable ruling
from the Internal Revenue Service as to the tax-free nature of the transaction
and certain other conditions. See "The Reorganization and Proposed Spin-off--
Conditions to the Spin-off" and "Certain Relationships and Related
Transactions--Reorganization and Spin-off Agreement." No assurance can be
given that such conditions will be satisfied or waived, or that the Spin-off
will occur. The failure of the Spin-off to occur in the time frame
contemplated or at all could materially adversely affect the Company and the
market price of the Common Stock.
CONTROL BY ACCUSTAFF PENDING SPIN-OFF; CONFLICTS OF INTEREST
Prior to the Spin-off, AccuStaff will control the Company and will continue
to be able to elect the Company's entire Board of Directors and to determine
the outcome of corporate actions requiring stockholder approval. After the
completion of the Offering and prior to the Spin-off, AccuStaff will own
approximately % of the outstanding shares of Common Stock. See "Principal
Stockholder." In addition, certain executive officers and directors of the
Company are also executive officers and directors of AccuStaff, hold shares of
common stock, par value $.01 per share, of AccuStaff ("AccuStaff common
stock"), and hold options to acquire shares of AccuStaff common stock.
Accordingly, there is a potential that such individuals may have conflicts of
interest with respect to certain decisions which may arise in the ordinary
course of the business of AccuStaff or the Company, including with respect to
relationships between AccuStaff and the Company under the intercompany
agreements and whether to complete the Spin-off. The Company's Certificate of
Incorporation specifically provides that: (i) AccuStaff may engage directly in
the same business activities as the Company; (ii) AccuStaff and its officers
and directors will not be liable to the Company or its stockholders for breach
of any fiduciary duty; and (iii) that AccuStaff and its officers and directors
have
12
<PAGE>
no obligation to offer any corporate opportunity to the Company. See "Certain
Relationships and Related Transactions" and "Description of Capital Stock--
Certain Certificate of Incorporation and By-Law Provisions."
INTERCOMPANY AGREEMENTS
AccuStaff and the Company will enter into certain intercompany agreements
effective upon consummation of the Offering, including agreements pursuant to
which AccuStaff will provide various services to the Company that are material
to the conduct of the Company's business. None of these agreements will result
from arm's-length negotiations and, therefore, there is no assurance that the
terms and conditions of such agreements will be as favorable to the Company as
might be obtained by the Company from unaffiliated third parties. After the
initial term of such agreements, the Company will need to perform such
services internally unless such agreements are otherwise extended. No
assurance can be given that AccuStaff will continue to provide the Company
with such services after the initial term of the agreements, or that the cost
of such services will not be significantly higher if the Company purchases
such services from unaffiliated providers or employs staff to handle such
functions internally.
LIMITED ABILITY TO ISSUE COMMON STOCK PRIOR TO SPIN-OFF
In order for the Spin-off to be tax-free to AccuStaff and AccuStaff's
stockholders, among various other requirements, AccuStaff must distribute to
AccuStaff's stockholders on the date of the Spin-off (the "Spin-off Date") (i)
stock of the Company possessing at least 80% of the total combined voting
power of all classes of voting stock of the Company, and (ii) 80% of the total
number of shares of each class of non-voting stock of the Company (the
"Required Spin-off Percentage"). If AccuStaff was not able to distribute to
its stockholders shares of stock of the Company constituting the Required
Spin-off Percentage, the Spin-off would not be tax-free and would not occur.
Accordingly, up to the Spin-off Date, the Company will agree in the
Reorganization and Spin-off Agreement (as defined below) not to issue
additional shares of Common Stock, or any other class of stock including
preferred stock, without the consent of AccuStaff if such issuance would, or
could, dilute or otherwise reduce AccuStaff's ownership of Common Stock, or
any other such class of stock, below the Required Spin-off Percentage or
otherwise prevent the Spin-off from receiving tax-free status. The provisions
of the Reorganization and Spin-off Agreement that would obligate the Company
and AccuStaff to pursue the Spin-off, or take or refrain from taking actions
which would or might prevent the Spin-off from qualifying for tax-free
treatment, will terminate if the Spin-off does not occur on or prior to
December 31, 1999, unless extended by AccuStaff and the Company. In addition,
in order not to impact adversely the tax-free status of the Spin-off, the
Company may be required for a period of two years, to refrain from issuing
additional shares of its capital stock in a single transaction or series of
transactions related to the Spin-off which, when combined with the Common
Stock issued in the Offering, would result in one or more persons acquiring
stock representing a 50% or greater interest in the Company. These tax
restrictions may cause the Company to alter its growth strategy. Prior to the
Spin-off Date, these restrictions may impede the ability of the Company to
issue equity securities, including Common Stock, to raise necessary equity
capital or to complete acquisitions using equity securities, including Common
Stock, as acquisition currency and thereby prevent the Company from realizing
its business and growth strategies prior to the Spin-off Date. See "Certain
Relationships and Related Transactions."
TAX INDEMNIFICATION OBLIGATION
As a condition to AccuStaff effecting the Spin-off, the Company will be
required to indemnify AccuStaff for any tax liability suffered by AccuStaff
arising out of actions by the Company for a period of two years after the
Spin-off that would cause the Spin-off to lose its qualification as a tax-free
distribution for federal income tax purposes. In the event that the Company is
required to indemnify and reimburse AccuStaff for any tax liability incurred
by AccuStaff arising out of the Spin-off, such indemnification and
reimbursement could have a material adverse effect on the business, financial
condition, results of operations and prospects of the Company. See "Certain
Relationships and Related Transactions."
13
<PAGE>
THE REORGANIZATION AND PROPOSED SPIN-OFF
Since 1992, AccuStaff has acquired and developed numerous businesses which
currently are operated in three divisions, consisting of commercial,
information technology and professional services. AccuStaff has announced its
intention to separate the Company which owns and operates AccuStaff's
commercial division from AccuStaff's other operations and businesses, and
that, subject to certain conditions, it intends to complete the Offering and
to complete the Spin-off. See "Risk Factors--Risk of Noncompletion of the
Spin-off." The Offering and the Spin-off will establish the Company as a
separate entity with objectives distinct from those of AccuStaff. The
businesses that comprise the Company historically have been operated by
AccuStaff or by wholly owned, direct and indirect, subsidiaries of AccuStaff.
In the Reorganization, AccuStaff will cause all of the common stock of the
subsidiaries comprising AccuStaff's commercial division to be contributed to
the Company. AccuStaff also will contribute to either the Company or
subsidiaries of the Company certain of AccuStaff's assets that comprise part
of its commercial division.
Pursuant to the Reorganization, the Company will pay on or prior to the
Offering Closing Date an amount to AccuStaff equal to $150 million in
borrowings under its new Credit Facility plus the net proceeds of the
Offering.
The Company and AccuStaff will enter into a Reorganization and Spin-off
Agreement and certain other agreements providing for the Reorganization, the
Offering, the Spin-off, the provision of certain interim services between
AccuStaff and the Company, and other matters. See "Certain Relationships and
Related Transactions." After the Reorganization is completed, AccuStaff,
subject to shareholder approval, has announced it will change its name to
"Modis Professional Services, Inc."
On the Offering Closing Date, AccuStaff will own approximately % of the
outstanding Common Stock ( % if the Underwriters exercise their over-allotment
option in full).
CONDITIONS TO THE SPIN-OFF
In accordance with the Reorganization and Spin-off Agreement, completion of
the Spin-off will be subject to the satisfaction, or waiver by AccuStaff's
Board, in its sole discretion, of the following conditions: (i) a Letter
Ruling shall have been obtained and remain effective to the effect that, among
other things, the Spin-off will qualify as a tax-free Spin-off for federal
income tax purposes, and will not result in recognition of any income, gain or
loss for federal income tax purposes to AccuStaff or AccuStaff's stockholders,
and such ruling shall be in form and substance satisfactory to AccuStaff;
(ii) any material governmental approvals and third party consents necessary to
consummate the Spin-off shall have been obtained and be in full force and
effect; (iii) no order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Spin-off shall be in effect; and (iv) no other events or
developments shall have occurred subsequent to the Offering Closing Date that,
in the sole judgment of the AccuStaff Board, would result in the Spin-off
having a material adverse effect on AccuStaff or on the stockholders of
AccuStaff. The AccuStaff Board will have the sole discretion to determine the
Spin-off Date at any time commencing after the Offering Closing Date.
AccuStaff has agreed to consummate the Spin-off, subject to the satisfaction,
or waiver by the AccuStaff Board, in its sole discretion, of the conditions
set forth above. The obligation of AccuStaff and the Company to consummate the
Spin-off terminates if the Spin-off has not occurred by December 31, 1999. In
addition, the Reorganization and Spin-off Agreement may be amended or
terminated at any time prior to the Spin-off Date by the Company and
AccuStaff. See "Risk Factors--Risk of Noncompletion of the Spin-off" and
"Certain Relationships and Related Transactions."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $ million after deducting underwriting discounts and
commissions and estimated offering expenses, assuming an initial public
offering price of $ per share. Pursuant to the Reorganization, such net
proceeds will be paid to AccuStaff. See "The Reorganization and Proposed Spin-
off," and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Financial Condition, Liquidity and Capital Resources."
DIVIDEND POLICY
The Company currently intends to retain its earnings to finance future
growth. Other than payments to AccuStaff pursuant to the Reorganization, the
Company does not have any present intention to pay dividends in the near
future. The Company's Board of Directors may review the Company's dividend
policy from time to time to determine the desirability and feasibility of
paying dividends after giving consideration to the Company's and its
subsidiaries' capital requirements, operating results and financial condition
and such other factors as the Board of Directors deems relevant. The Company's
Credit Facility, under certain specified circumstances, prohibits or limits
dividends that may be paid by the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
15
<PAGE>
CAPITALIZATION
The following table sets forth at March 31, 1998, the total capitalization
of the Company on (i) an actual basis, (ii) as adjusted to give effect to the
Company's anticipated borrowing of $150 million under its Credit Facility to
make a portion of the payment to AccuStaff as part of the Reorganization, and
(iii) as further adjusted to give effect to the estimated net proceeds from
the sale of shares of Common Stock offered by the Company hereby at an
assumed initial offering price of $ per share, and the application of the
net proceeds therefrom as described under "Use of Proceeds." This table should
be read in conjunction with the consolidated financial statements of the
Company and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT MARCH 31, 1998
-------------------------------
AS FURTHER
ACTUAL AS ADJUSTED ADJUSTED
-------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Due to parent................................... $ 98,874 $ $
Long-term debt.................................. 24,410
-------- ---- ----
Total debt..................................... $123,284 $ $
Stockholder's equity(1):........................
Preferred stock, $.01 par value; no shares
authorized; no shares issued and outstanding,
actual; shares authorized; shares
issued and outstanding, as adjusted..........
Common stock, $.01 par value; no shares
authorized; no shares issued and outstanding,
actual; shares authorized; shares
issued and outstanding, as adjusted (2)......
Additional paid-in capital......................
Stockholder's net investment (1) ............... 272,109
Total stockholder's equity..................... 272,109
-------- ---- ----
Total capitalization............................ $395,393 $ $
======== ==== ====
</TABLE>
- --------
(1) The Company was formed in May 1998. At March 31, 1998, the businesses that
will be included in the Company following the Reorganization were the
commercial division of AccuStaff, and stockholder's equity is reflected as
AccuStaff's net investment.
(2) Excludes shares of Common Stock that will be reserved for issuance
under a long term incentive plan that the Company intends to adopt prior
to the Offering ( shares of which are subject to options as of the
Offering Closing Date and approximately shares which will be
exercisable under employee stock options following the Spin-off by Company
employees who held AccuStaff stock options and who have elected to convert
such options into stapled options of AccuStaff common stock and Common
Stock of the Company). See "Management--Executive Compensation--Long Term
Incentive Plan" and "Certain Relationships and Related Transactions--
Employee Benefits Agreement."
16
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1998
would have been $ , or $ per share of Common Stock, based upon shares
of Common Stock outstanding. Pro forma net tangible book value per share is
equal to the Company's total tangible assets less total liabilities, divided
by the total number of shares of Common Stock outstanding on a pro forma
basis. After giving effect to the sale of the shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$ per share (after deduction of the estimated underwriting discounts and
commissions and offering expenses payable by the Company), the pro forma net
tangible book value of the Company as of March 31, 1998 would have been $ ,
or $ per share of Common Stock. This represents an immediate increase in
such pro forma net tangible book value of $ per share of Common Stock to
AccuStaff and an immediate dilution of $ per share to new investors
purchasing shares in the Offering. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....................... $
Pro forma net tangible book value before the Offering............... $
----
Increase per share attributable to new investors....................
Pro forma net tangible book value per share after the Offering........
----
Dilution per share to new investors................................... $
====
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1998,
the differences between the number of shares held by the total investment in
the Company of, and the average cost per share paid by AccuStaff and the new
investors purchasing shares of Common Stock in the Offering, assuming an
initial public offering price of $ per share:
<TABLE>
<CAPTION>
SHARE HELD TOTAL INVESTMENT
-------------------- --------------------------------
PERCENTAGE
PERCENTAGE OF OF AVERAGE COST
NUMBER THE COMPANY AMOUNT INVESTMENT PER SHARE
------ ------------- ------ ---------- ------------
<S> <C> <C> <C> <C> <C>
AccuStaff................. % $ (1) % $
New Investors............. $
Total.................... 100.0% $ 100.0%
===== =====
</TABLE>
- --------
(1) Represents the book value of the net assets transferred by AccuStaff to
the Company in exchange for shares of Common Stock.
The foregoing tables assume no exercise of the Underwriters' over-allotment
option.
17
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated balance sheet of the Company
at March 31, 1998 has been prepared assuming the consummation of the
transactions, other than the Spin-off described under the heading "The
Reorganization and Proposed Spin-off" and the Company had borrowed the $150
million anticipated to be borrowed on the Offering Date under the Credit
Facility to make a portion of the payment to AccuStaff as part of the
Reorganization, as if such transactions had been completed on March 31, 1998.
The unaudited pro forma consolidated balance sheet at March 31, 1998 does not
purport to represent what the Company's financial position actually would have
been had these transactions been completed on March 31, 1998 or to project the
Company's financial position at any future date.
The following unaudited pro forma consolidated statements of income of the
Company for the year ended December 31, 1997 and for the three months ended
March 31, 1998 have been prepared assuming (i) the discontinuance of the
operations of the Teleservices division, (ii) the sale of the Company's Health
Care business, and (iii) the consummation of the transactions other than the
Spin-off described under the heading "The Reorganization and Proposed Spin-
off" and the borrowing of the $150 million anticipated to be borrowed on the
Offering Date under the Credit Facility to make a portion of the payment to
AccuStaff as part of the Reorganization, as if such transactions had been
completed at the beginning of the respective periods. The portion of the
borrowing under the Credit Facility is based on the amount indicated as Due to
Parent on the Company's Consolidated Balance Sheet at March 31, 1998. The
unaudited pro forma consolidated statements of income for the year ended
December 31, 1997 and for the three months ended March 31, 1998 do not purport
to represent what the Company's operations actually would have been had these
transactions been completed on the indicated dates or to project the Company's
operating results for any future period. The unaudited pro forma consolidated
statements of income may not necessarily reflect what the results of
operations would have been had the Company been a separate, stand alone entity
during the periods presented. The pro forma adjustments do not reflect the
changes that may occur in the costs, funding and operations of the Company as
a result of the Reorganization and Spin-off.
The unaudited pro forma adjustments are based upon available information and
certain assumptions that the Company believes are reasonable. The unaudited
pro forma consolidated financial statements should be read in conjunction with
the accompanying notes, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the historical financial statements
of the Company and the notes thereto, all included elsewhere in this
Prospectus.
18
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
MARCH 31, PRO FORMA MARCH 31,
1998 ADJUSTMENTS 1998
--------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 14,102 $ -- $ 14,102
Accounts receivable, net................. 193,256 -- 193,256
Due from associated offices.............. 36,916 -- 36,916
Prepaid expenses......................... 9,682 -- 9,682
Deferred income taxes.................... 6,466 -- 6,466
-------- -------- --------
Total current assets................... 260,422 -- 260,422
Furniture, equipment and leasehold
improvements, net......................... 21,589 -- 21,589
Goodwill, net.............................. 193,655 -- 193,655
Other assets............................... 10,311 -- 10,311
-------- -------- --------
Total assets........................... $485,977 $ -- $485,977
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Notes payable............................ $ 2,217 $ -- $ 2,217
Accounts payable and accrued expenses.... 35,480 -- 35,480
Accrued payroll and related taxes........ 48,671 -- 48,671
-------- -------- --------
Total current liabilities.............. 86,368 -- 86,368
Due to parent.............................. 98,874 (98,874)(1) --
Notes payable, long-term portion........... 24,410 150,000 (1) 174,410
Other...................................... 4,216 -- 4,216
-------- -------- --------
Total liabilities...................... 213,868 51,126 264,994
Stockholder's equity....................... 272,109 (51,126) 220,983
-------- -------- --------
Total liabilities and stockholder's
equity................................ $485,977 $ -- $485,977
======== ======== ========
</TABLE>
19
<PAGE>
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
HEALTH CARE
AND
YEAR ENDED TELESERVICES OTHER PRO FORMA
DECEMBER 31, PRO FORMA PRO FORMA DECEMBER 31,
1997 ADJUSTMENTS(2) ADJUSTMENTS(1) 1997
------------ -------------- -------------- ------------
<S> <C> <C> <C> <C>
Revenue................. $1,260,702 $(263,990) $ -- $996,712
Cost of revenue......... 975,489 (211,367) -- 764,122
---------- --------- ------- --------
Gross profit........... 285,213 (52,623) -- 232,590
---------- --------- ------- --------
Operating expenses:
General and administra-
tive.................. 172,739 (23,300) -- 149,439
Remittance to franchi-
sees.................. 24,095 (16,275) -- 7,820
Depreciation and amor-
tization.............. 13,603 (2,102) -- 11,501
Merger related costs... 5,000 -- -- 5,000
---------- --------- ------- --------
Total operating ex-
penses............. 215,437 (41,677) -- 173,760
---------- --------- ------- --------
Income from opera-
tions.............. 69,776 (10,946) -- 58,830
Interest expense, net... 4,374 (713)(3) 3,349 7,010
---------- --------- ------- --------
Income before provision
for income taxes....... 65,402 (10,233) (3,349) 51,820
Provision for income
taxes.................. 26,739 (3,889)(4) (1,386) 21,464
---------- --------- ------- --------
Net income.............. $ 38,663 $ (6,344) $(1,963) $ 30,356
========== ========= ======= ========
<CAPTION>
THREE HEALTH CARE
MONTHS AND
ENDED TELESERVICES OTHER PRO FORMA
MARCH 31, PRO FORMA PRO FORMA MARCH 31,
1998 ADJUSTMENTS(2) ADJUSTMENTS(1) 1998
------------ -------------- -------------- ------------
<S> <C> <C> <C> <C>
Revenue................. $ 319,046 $ (65,706) $ -- $253,340
Cost of revenue......... 245,580 (52,371) -- 193,209
---------- --------- ------- --------
Gross profit........... 73,466 (13,335) -- 60,131
---------- --------- ------- --------
Operating expenses:
General and administra-
tive.................. 45,213 (5,074) -- 40,139
Remittance to franchi-
sees.................. 6,447 (4,768) -- 1,679
Depreciation and amor-
tization.............. 3,671 (400) -- 3,271
---------- --------- ------- --------
Total operating ex-
penses............. 55,331 (10,242) -- 45,089
---------- --------- ------- --------
Income from opera-
tions.............. 18,135 (3,093) -- 15,042
Interest expense, net... 1,368 (178)(3) 837 2,027
---------- --------- ------- --------
Income before provision
for income taxes....... 16,767 (2,915) (837) 13,015
Provision for income
taxes.................. 6,288 (1,093)(4) (314) 4,881
---------- --------- ------- --------
Net income.............. $ 10,479 $ (1,822) $ (523) $ 8,134
========== ========= ======= ========
</TABLE>
20
<PAGE>
STRATEGIX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
(1) Amounts shown as Due to Parent at March 31, 1998 will be replaced with
borrowings of $150,000 from the Company's $300,000 Credit Facility. For
purposes of the Pro Forma Consolidated Statements of Income, the $51,126
of additional debt as of March 31, 1998, has been treated as if it were
outstanding as of the beginning of each respective period. The incremental
interest expense at the Company's assumed borrowing rate of 6.55% under
its Credit Facility on the $51,126 of additional debt amounted to $3,349,
$1,963 net of tax benefit, and $837, $523 net of tax benefit, for the year
ended December 31, 1997 and the three months ended March 31, 1998,
respectively. However, if the entire borrowings of $150,000 under the
Credit Facility were treated for purposes of the Pro Forma Consolidated
Statements of Income as outstanding at the beginning of the respective
periods and the amounts shown as Due to Parent at such dates were treated
as a contribution to the Company's capital, the incremental interest
expense at the assumed borrowing rate of 6.55% under the Credit Facility
would have amounted to $3,270, $1,916 net of tax benefit, and $661, $413
net of tax benefit for the year ended December 31, 1997 and the three
months ended March 31, 1998, respectively and pro forma net income would
have been $28,440 and $7,721 for the year ended December 31,1997 and the
three months ended March 31, 1998, respectively.
(2) Reflects the elimination of the results of operations from the Health Care
division and the Teleservices division as of January 1, 1997.
(3) The reduction in interest expense resulted from the utilization of the
proceeds of $3,000, and notes receivable of $5,000 issued, in connection
with the sale of the Health Care division. The cash was assumed to pay
down the Due to Parent balance at an effective rate of 6.25% resulting in
a reduction of interest expense of $188 and $47 in the year ended December
31, 1997 and the three months ended March 31, 1998, respectively. The
$5,000 note receivable accrues interest at the prime rate plus 2%, which
resulted in interest income of $525 and $131 in the year ended December
31, 1997 and three months ended March 31, 1998, respectively.
(4) Reflects the tax benefit at an effective tax rate of 38.0% and 37.5% for
the year ended December 31, 1997 and the three months ended March 31,
1998, respectively, due to the reduction in pre- tax income, related to
the pro-forma adjustments.
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
The following table sets forth certain selected consolidated financial data
for the Company. The consolidated income statement data set forth below for
the years ended December 31, 1995, 1996 and 1997 and the consolidated balance
sheet data at December 31, 1996 and 1997 are derived from the consolidated
financial statements of the Company appearing elsewhere herein, which have
been audited by Coopers & Lybrand L.L.P., independent certified public
accountants. The consolidated income statement data for the years ended
January 2, 1994 and January 1, 1995 and for the three months ended March 31,
1997 and 1998 and the consolidated balance sheet data at January 2, 1994,
January 1, 1995 and December 31, 1995 and at March 31, 1997 and 1998 are
derived from the unaudited consolidated financial statements of the Company.
The Company believes that such unaudited financial data fairly reflect the
consolidated results of operations and the consolidated financial condition of
the Company for such periods. The selected consolidated financial data set
forth below should be read in conjunction with the consolidated financial
statements of the Company and the notes thereto and the other financial
information, including "Management's Discussion and Analysis of Financial
Condition and Results of Operations," included elsewhere in this Prospectus.
This historical financial information may not be indicative of the Company's
future performance and does not necessarily reflect what the financial
position and results of operations of the Company would have been had the
Company operated as a separate, stand alone entity during the periods covered.
See "Risk Factors--Absence of History as a Separate Company; Limited Relevance
of Historical Financial Information." The results of operations for an interim
period are not necessarily indicative of results that may be expected for a
full year or any other interim period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL YEAR ENDED
------------------- ------------------------------------------------------------
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, JANUARY 1, JANUARY 2,
1998 1997 1997 1996 1995 1995 1994
--------- --------- ------------ ------------ ------------ ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Revenue................. $319,046 $277,248 $1,260,702 $1,031,431 $772,479 $597,913 $495,479
Cost of revenue......... 245,580 217,189 975,489 807,940 608,207 467,366 388,337
-------- -------- ---------- ---------- -------- -------- --------
Gross profit............ 73,466 60,059 285,213 223,491 164,272 130,547 107,142
Operating expenses...... 55,331 48,762 215,437 181,350 133,080 108,904 95,240
-------- -------- ---------- ---------- -------- -------- --------
Income from operations.. 18,135 11,297 69,776 42,141 31,192 21,643 11,902
Interest expense........ 1,368 475 4,374 429 1,153 3,000 6,239
-------- -------- ---------- ---------- -------- -------- --------
Income before taxes..... 16,767 10,822 65,402 41,712 30,039 18,643 5,663
Provision for income
taxes.................. 6,288 4,111 26,739 19,079 11,655 7,423 2,019
-------- -------- ---------- ---------- -------- -------- --------
Net income.............. $ 10,479 $ 6,711 $ 38,663 $ 22,633 $ 18,384 $ 11,220 $ 3,644
======== ======== ========== ========== ======== ======== ========
Pro forma net income per
share (1).............. $ $
======== ==========
Pro forma weighted
average shares
outstanding (1)........
DIVISION REVENUE DATA
(UNAUDITED):
Specialized Solutions... $ 89,814 $ 77,058 $ 341,040 $ 250,705 $150,622 $109,463 $ 95,863
Traditional Staffing
Services............... 163,526 137,487 655,672 556,307 418,227 356,460 298,371
Teleservices (2)........ 35,624 31,409 134,529 112,375 99,470 39,598 19,900
Health Care (3)......... 30,082 31,294 129,461 112,044 104,160 92,392 81,345
-------- -------- ---------- ---------- -------- -------- --------
Total revenue........... $319,046 $277,248 $1,260,702 $1,031,431 $772,479 $597,913 $495,479
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
AS OF
--------------------------------------------------------------------------------
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, JANUARY 1, JANUARY 2,
1998 1997 1997 1996 1995 1995 1994
--------- --------- ------------ ------------ ------------ ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $174,054 $103,067 $176,466 $128,636 $ 82,110 $ 85,497 $ 29,059
Total assets............ 485,977 352,109 476,539 337,708 222,777 171,913 134,855
Long term debt.......... 24,410 19,941 24,835 3,508 7,768 4,652 30,148
Stockholder's equity.... 272,109 237,038 284,751 246,089 146,418 109,365 17,116
</TABLE>
- --------
(1) Pro forma net income per share is based on the weighted average shares
outstanding after giving retroactive effect to shares to be issued in
connection with the Offering.
(2) The Company's management has received indications from the sole customer
of its Teleservices division that such customer intends to terminate its
contract with the Company in 1998.
(3) The Company's Health Care businesses were sold on March 30, 1998.
Therefore, the Health Care division will not provide any revenue
contribution to the Company beginning in the second quarter of 1998. See
"Pro Forma Consolidated Financial Data."
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in connection with the Company's
Consolidated Financial Statements and the related notes thereto included
elsewhere herein. The Company's fiscal year ended on the Sunday closest to
December 31 for the years which preceded fiscal year 1996 when the Company
changed its fiscal year to conform with the calendar year.
OVERVIEW
The Company's businesses were conducted by AccuStaff prior to the
Reorganization through various divisions and subsidiaries. Prior to the
Offering Closing Date, and pursuant to the Reorganization, AccuStaff will
transfer to the Company the assets and liabilities related to such businesses.
The Reorganization and the transactions being undertaken in connection
therewith, including the Offering and the Spin-off, are being effected
pursuant to the Reorganization and Spin-off Agreement. AccuStaff has announced
that, subject to certain conditions, AccuStaff intends to distribute to its
shareholders in 1999 all of the Common Stock of the Company owned by AccuStaff
following the Offering.
After the completion of the Offering and prior to the Spin-off, AccuStaff
will own approximately % of the outstanding shares of Common Stock. The
Company and AccuStaff have entered into certain agreements providing for the
Reorganization and governing various interim and ongoing relationships between
and among the companies. See "Certain Relationships and Related Transactions."
The consolidated financial statements of the Company, which are discussed
below, reflect the results of operations, financial position and cash flows of
the businesses transferred to the Company from AccuStaff in the
Reorganization. Additionally, the consolidated financial statements of the
Company include certain assets, liabilities, revenues and expenses which were
not historically recorded at the level of, but are primarily associated with,
such businesses. Management believes the assumptions underlying the Company's
financial statements are reasonable.
The financial information included herein, however, may not necessarily
reflect the results of operations, financial position and cash flows of the
Company in the future or what they would have been had the Company been a
separate, stand alone entity during the periods presented. This is due to the
historical operations of the Company being part of AccuStaff. The financial
information included herein does not reflect the many significant changes that
will occur in the costs, funding and operations of the Company as a result of
the Reorganization and the Spin-off.
As set forth in the financial information included herein, the Company has
been allocated a certain amount of AccuStaff's outstanding indebtedness
related to the Company's operations and interest expense reflects interest
associated with the aggregate borrowings under AccuStaff's credit facilities
for each period presented primarily using AccuStaff's weighted average
interest rates. As part of the Reorganization, the Company has established a
new Credit Facility, the terms of which are described below. See "Liquidity
and Capital Resources." General corporate overhead related to AccuStaff's
corporate headquarters and common support divisions has been allocated to the
Company based on the ratio of the Company's revenues, operating income and
assets to AccuStaff's revenues, operating income and assets. Following the
Offering Closing Date, various support and office space will be provided by
AccuStaff to the Company pursuant to an agreement that allocates these costs
on the same basis as included in the historical financial statements. See
"Certain Relationships and Related Transactions--Services Agreement." This
allocation of general corporate overhead expense may not
24
<PAGE>
reflect the Company's actual general corporate overhead expense as a separate
entity. In addition, income taxes were calculated as if the Company filed
separate tax returns. However, AccuStaff manages its tax position for the
benefit of its entire portfolio of businesses, and its tax strategies are not
necessarily reflective of the tax strategies that the Company would have
followed or will follow as a stand alone entity.
AccuStaff has acquired numerous commercial staffing companies since its
formation in 1992 which are included in the historical transferred operations
which now comprise the businesses of the Company. The Company's historical
financial statements have been restated to reflect the results of operations
and financial position of the companies accounted for under the pooling-of-
interest method of accounting. The acquisitions accounted for under the
pooling-of-interest method were PTA International and Office Specialists, Inc.
and the businesses of Career Horizons, Inc. included in the Company. All other
acquisitions were accounted for under the purchase method of accounting and
have been included in the financial statements since the date of acquisition.
The staffing market in the U.S. and most other developed economies is highly
fragmented and includes a large number of medium sized and small businesses,
many of which operate in a single geographic market. This fragmentation
combined with increased competitive pressures has produced a trend of industry
consolidation, resulting in the Company's belief that many smaller and medium
sized companies are becoming increasingly responsive to acquisition proposals
by larger firms, such as the Company. In the future, the Company's revenue and
expenses may be significantly affected by the number and timing of the
opening, or acquisition of, additional offices. The timing of such expansion
activities can also affect period-to-period comparisons.
The Company offers a broad range of staffing and outsourcing services which
have been historically offered through four divisions; the Specialized
Solutions division, which provides sophisticated customized solutions to
customers; the Traditional Staffing Services division which provides primarily
clerical, secretarial and to a lesser extent light industrial staffing; the
Teleservices division, which provides employees for customer care and inbound
and outbound telemarketing services to MATRIXX Marketing, Inc. ("Matrixx");
and the Health Care division, which provided a wide range of employees,
primarily to individuals requiring home health care and, to a lesser extent,
to health care facilities. During the first quarter of 1998, Company's
management decided to exit the Health Care services business and accordingly
sold this business on March 30, 1998. Therefore, the Health Care division will
not provide any revenue contribution to the Company beginning in the second
quarter of 1998. See "Business--Health Care; Pending Sale and Government
Regulation." The Company's management has received indications from Matrixx
that it intends to terminate its contract with the Company this year.
Therefore, the revenue from the Teleservices Division will be reduced in
subsequent periods until the contract is fully terminated.
The Company is responsible for employee-related expenses for its temporary
employees, including workers' compensation, unemployment compensation
insurance, Medicare and Social Security taxes and general payroll expenses.
Unemployment insurance premiums and workers' compensation costs fluctuate over
time as a result of changes in unemployment levels and benefits and changes in
the Company's experience rating or applicable laws or regulations. The Company
is principally self-insured for workers' compensation coverage. The Company
may incur costs related to workers' compensation claims at a higher rate in
the future due to such causes as higher than anticipated losses or an increase
in the number and severity of claims. The Company does not provide health,
dental, disability or life insurance to its temporary employees except in
certain circumstances. Generally, the Company bills its clients for the hourly
wages paid to the temporary employees placed with the client, plus a
negotiated markup. Depending on the arrangements negotiated with the client,
the markup may be fixed or may allow direct pass-throughs of increases in
expenses such as unemployment compensation insurance and workers' compensation
insurance. The Company pays the majority of its temporary employees only for
the hours they actually work. Therefore, wages for the Company's temporary
employees are a variable cost that increase or decrease in proportion to
revenue.
25
<PAGE>
Demand for the Company's temporary staffing services is significantly
affected by the general level of economic activity in the Company's geographic
markets. When economic activity increases, temporary employees often are added
before full-time employees are hired. However, as economic activity slows,
many companies reduce their use of temporary employees prior to undertaking
layoffs of full-time employees. The Company may experience less demand for its
services and more competitive pricing pressure during such periods of economic
downturn. Therefore, any significant economic downturn could have a material
adverse effect on the Company's results of operations or financial condition.
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenues represented by
certain items in the Company's consolidated statement of income for the
indicated periods.
<TABLE>
<CAPTION>
THREE MONTHS FISCAL YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
---------------- -------------------
1998 1997 1997 1996 1995
------- ------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenue:
Specialized Solutions................. 28.1% 27.8% 27.0% 24.3% 19.5%
Traditional Staffing Services......... 51.3 49.6 52.0 53.9 54.1
Teleservices.......................... 11.2 11.3 10.7 10.9 12.9
HealthCare............................ 9.4 11.3 10.3 10.9 13.5
------- ------- ----- ----- -----
Total............................... 100.0 100.0 100.0 100.0 100.0
Cost of revenue....................... 77.0 78.3 77.4 78.3 78.7
------- ------- ----- ----- -----
Gross profit.......................... 23.0 21.7 22.6 21.7 21.3
Operating expenses.................... 17.3 17.6 17.1 17.6 17.2
------- ------- ----- ----- -----
Income from operations................ 5.7 4.1 5.5 4.1 4.1
Interest expense...................... 0.4 0.2 0.3 -- 0.2
------- ------- ----- ----- -----
Income before provision for income
taxes................................ 5.3 3.9 5.2 4.1 3.9
Provision for income taxes............ 2.0 1.5 2.1 1.9 1.5
------- ------- ----- ----- -----
Net income............................ 3.3% 2.4% 3.1% 2.2% 2.4%
======= ======= ===== ===== =====
The following table sets forth the gross profit as a percentage of revenue
("gross margin") for each of the Company's four divisions for the indicated
periods.
<CAPTION>
THREE MONTHS FISCAL YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
---------------- -------------------
1998 1997 1997 1996 1995
------- ------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Specialized Solutions................... 27.4% 25.9% 26.3% 25.5% 25.5%
Traditional Staffing Services........... 21.7 20.3 21.6 20.5 19.8
Teleservices............................ 10.4 9.8 11.2 10.0 10.0
HealthCare.............................. 32.1 29.3 29.8 30.6 31.6
</TABLE>
26
<PAGE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31,
1997
REVENUE
Revenue increased $41.8 million, or 15.1%, to $319.0 million for the three
months ended March 31, 1998 from $277.2 million in the year earlier period.
The increase was attributable by division to: Specialized Solutions, $12.8
million, or an increase of 16.6%; Traditional Staffing Services, $26.0
million, or an increase of 18.9%; Teleservices, $4.2 million, or an increase
of 13.4%; offset by a decline in Health Care of $1.2 million, or a decrease of
3.9%. The increase in the Specialized Solutions division was due to internal
growth.The increase in the Traditional Staffing Services division was due to
internal growth and growth through acquisitions. The increase in Traditional
Staffing Services revenue growth was limited by the Company's continued effort
within this division to replace existing lower margin business and concentrate
its marketing efforts on high-end office support and value-added business
services. The increase in the Teleservices division was due to internal growth
related to an increase in the services being provided to American Transtech,
Inc., an AT&T subsidiary, which in the first quarter of 1998 was sold to
Matrixx. The Company's management has received indications from Matrixx that
it intends to terminate its contract with the Company and therefore the
revenue from the Teleservices division will be reduced until the contract is
fully terminated. The decrease in the Health Care division was a result of
management's planned disposal of this business. On March 30, 1998, the
operating assets of the Health Care division were disposed of in a sale.
Therefore, the Health Care division will not provide any revenue contribution
to the Company beginning in the second quarter of 1998.
GROSS PROFIT
Gross profit increased $13.4 million, or 22.3%, to $73.5 million in the
three months ended March 31, 1998 from $60.1 million in the year earlier
period. Gross margin increased 130 basis points to 23.0% in the three months
ended March 31, 1998 from 21.7% in the year earlier period. Exclusive of the
Health Care and Teleservices divisions' results, gross margin increased 140
basis points to 23.7% in the three months ended March 31, 1998 from 22.3% in
the year earlier period. The Specialized Solutions gross margin increased to
27.4% in the three months ended March 31, 1998 from 25.9% in the year earlier
period. The Traditional Staffing Services gross margin increased to 21.7% in
the three months ended March 31, 1998 from 20.3% in the year earlier period.
These increases were due to a combination of changes in the mix of business,
increased billing rates, higher volume of business and reduced unemployment
costs and workers' compensation claims. In addition, the Traditional Staffing
Services division benefited from the Company's continued effort within this
division to replace existing lower margin business and concentrate its
marketing efforts on high-end office support and value-added business
services. The Teleservices division's gross margin increased to 10.4% in the
three months ended March 31, 1998 from 9.8% in the year earlier period. The
Health Care division experienced a slight increase in gross margin to 32.1% in
the three months ended March 31, 1998 from 29.3% in the year earlier period.
OPERATING EXPENSES
Operating expenses increased $6.5 million, or 13.3%, to $55.3 million in the
three months ended March 31, 1998 from $48.8 million in the year earlier
period. Operating expenses as a percentage of revenue decreased to 17.3% in
the three months ended March 31, 1998 from 17.6% in the year earlier period.
The slight decrease was primarily due to the Company's ability to spread
operating expenses over a larger revenue base. Operating expenses before
depreciation and amortization as a percentage of revenue decreased to 16.2% in
the three months ended March 31, 1998 from 16.5% in the year earlier period.
Included in operating expenses during the three months ended March 31, 1998
are the costs associated with projects underway to ensure accurate date
recognition and data processing with
27
<PAGE>
respect to the Year 2000 as it relates to the Company's business, operations,
customers and vendors. The related costs, which are expensed as incurred, are
included in general and administrative expense. The Company expects to
substantially complete the Year 2000 conversion projects by the end of 1998.
These costs have been immaterial to date and are not expected to have a
material impact on the Company's results of operations, financial condition or
liquidity in the future.
INCOME FROM OPERATIONS
As a result of the foregoing, income from operations increased $6.8 million,
or 60.2%, to $18.1 million in the three months ended March 31, 1998 from $11.3
million in the year earlier period. Income from operations as a percentage of
revenue increased to 5.7% in the three months ended March 31, 1998 from 4.1%
in the year earlier period.
INTEREST EXPENSE
Interest expense, as incurred and allocated, increased $0.9 million, or
180.0%, to $1.4 million in the three months ended March 31, 1998 from $0.5
million in the year earlier period. The increase in interest expense resulted
from an increase in borrowing from the Company's parent, AccuStaff, used
primarily for funding acquisitions.
INCOME TAXES
The Company's effective tax rate decreased to 37.5% for the three months
ended March 31, 1998 from 38.0% in the year earlier period due to the
Company's continuing tax planning initiatives.
NET INCOME
As a result of the foregoing, net income increased $3.8 million, or 56.7%,
to $10.5 million in the three months ended March 31, 1998 from $6.7 million in
the year earlier period. Net income as a percentage of revenue increased to
3.3% in the three months ended March 31, 1998 from 2.4% in the year earlier
period.
FISCAL 1997 COMPARED TO FISCAL 1996
REVENUE
Revenue increased $229.3 million, or 22.2%, to $1,260.7 million in fiscal
1997 from $1,031.4 million in the year earlier period. The increase was
attributable by division to: Specialized Solutions, $90.3 million, or an
increase of 36.0%; Traditional Staffing Services, $99.4 million, or an
increase of 17.9%; Teleservices, $22.2 million, or an increase of 19.7%; and
Health Care, $17.4 million, or an increase of 15.5%. The increase in the
Specialized Solutions division was due to internal growth. The increase in the
Traditional Staffing Services division was due to a combination of internal
growth and growth through acquisitions.The increase in the Teleservices
division was due to internal growth related to an increase in the services
being provided to American Transtech, Inc. The increase in the Health Care
division was due to internal growth.
GROSS PROFIT
Gross profit increased $61.7 million, or 27.6%, to $285.2 million in fiscal
1997 from $223.5 million in the year earlier period. Gross margin increased 90
basis points to 22.6% in fiscal 1997 from 21.7% in the year earlier period.
Exclusive of the Health Care and Teleservices divisions' results, gross
28
<PAGE>
margin increased 120 basis points to 23.2% in fiscal 1997 from 22.0% in the
year earlier period. The Specialized Solutions' gross margin increased to
26.3% in fiscal 1997 from 25.5% in the year earlier period. The Traditional
Staffing Services gross margin increased to 21.6% in fiscal 1997 from 20.5% in
the year earlier period. The increases were due to a combination of change in
the mix of business, increased billing rates, higher volume of business and
reduced unemployment costs and workers' compensation claims. In addition, the
Traditional Staffing Services division benefited from the Company's continued
effort within this division to replace existing lower margin business and
concentrate its marketing efforts on high-end office support and value-added
business services. The Teleservices division's gross margin increased to 11.2%
in fiscal 1997 from 10.0% in the year earlier period. The Health Care division
experienced a slight decrease to 29.8% in fiscal 1997 from 30.6% in the year
earlier period.
OPERATING EXPENSES
Operating expenses increased $34.0 million, or 18.7%, to $215.4 million in
fiscal 1997 from $181.4 million in the year earlier period. Included in the
operating costs are merger costs of $5.0 million related to the merger with
Office Specialists, Inc. in 1997 and $14.1 million related to the merger with
the businesses of Career Horizons, Inc. in 1996 that are included in the
Company. Operating expenses as a percentage of revenue before merger costs
increased to 16.7% in fiscal 1997 from 16.2% in the year earlier period. The
increase was due to the increase in depreciation and amortization to $13.6
million in 1997 from $9.7 million in the year earlier period. Operating
expenses before merger costs, depreciation and amortization as a percentage of
revenue remained relatively constant at 15.6% in fiscal 1997 as compared to
15.3% in the year earlier period. Included in operating expenses during 1997
are the costs associated with projects underway to ensure accurate date
recognition and data processing with respect to the Year 2000 as it relates to
the Company's business, operations, customers and vendors. The related costs,
which are expensed as incurred, are included in general and administrative
expense. The Company expects to substantially complete the Year 2000
conversion projects by the end of 1998. These costs did not have a material
impact on the Company's results of operations, financial condition or
liquidity during 1997.
INCOME FROM OPERATIONS
As a result of the foregoing, income from operations increased $27.7
million, or 65.8%, to $69.8 million in fiscal 1997 from $42.1 million in the
year earlier period. Income from operations before merger costs, increased
$18.6 million, or 33.1% to $74.8 million in fiscal 1997 from $56.2 million in
the year earlier period. Income from operations before merger costs as a
percentage of revenue increased to 5.9% in fiscal 1997 from 5.4% in the year
earlier period.
INTEREST EXPENSE
Interest expense, as incurred and allocated, increased $4.0 million, or
1,000.0%, to $4.4 million in fiscal 1997 from $0.4 million in the year earlier
period, resulting from an increase in net borrowings from AccuStaff used
primarily to fund acquisitions.
INCOME TAXES
The Company's effective tax rate was 40.9% in fiscal 1997 compared to 45.7%
in fiscal 1996. The effective tax rate in fiscal 1997 was increased to 40.9%
from 38.0% due to the tax effect of the $5.0 million of non-deductible merger
related costs. The effective tax rate in fiscal 1996 was increased to 45.7%
from 37.6% due to $9.1 million of non-deductible merger related costs.
NET INCOME
As a result of the foregoing, net income increased $16.1 million, or 71.2%,
to $38.7 million in fiscal 1997 from $22.6 million in the year earlier period.
Net income as a percentage of revenue increased to 3.1% in fiscal 1997 from
2.2% in the year earlier period. Exclusive of merger costs and their related
tax effects, net income would have increased $8.9 million to $43.7 million in
fiscal 1997 from $34.8 million in the year earlier period, resulting in an
increase to net income as a percentage of revenue to 3.5% in fiscal 1997 from
3.4% in the year earlier period.
29
<PAGE>
FISCAL 1996 COMPARED TO FISCAL 1995
REVENUE
Revenue increased $258.9 million, or 33.5%, to $1,031.4 million in fiscal
1996 from $772.5 million in the year earlier period. The increase was
attributable by division to: Specialized Solutions, $100.1 million, or an
increase of 66.4%; Traditional Staffing Services, $138.1 million, or an
increase of 33.0%; Teleservices, $12.9 million, or an increase of 13.0%; and
Health Care, $7.8 million, or an increase of 7.6%. The increase in the
Specialized Solutions division was due to a combination of internal growth
and, more significantly, growth through acquisitions. The increase in the
Traditional Staffing Services division was due to a combination of internal
growth and, more significantly, growth through acquisitions. The increase in
the Teleservices division was due to internal growth related to an increase in
the services being provided to American Transtech, Inc. The increase in the
Health Care division was due to internal growth.
GROSS PROFIT
Gross profit increased $59.2 million, or 36.0%, to $223.5 million in fiscal
1996 from $164.3 million in the year earlier period. Gross margin increased 40
basis points to 21.7% in fiscal 1996 from 21.3% in the year earlier period.
Exclusive of the Health Care and Teleservices divisions' results, gross margin
increased 70 basis points to 22.0% in fiscal 1996 from 21.3% in the year
earlier period. The Specialized Solutions gross margin remained constant at
25.5% for fiscal 1996 and 1995. The Traditional Staffing Services gross margin
increased to 20.5% in fiscal 1996 from 19.8% in the year earlier period. The
increase is primarily due to the Company's continuing effort to replace lower
margin business with high-end office support and business services. The
Teleservices division's gross margin remained constant at 10.0% while the
Health Care division experienced a slight decrease to 30.6% in fiscal 1996
from 31.6% in the year earlier period.
OPERATING EXPENSES
Operating expenses increased $48.3 million, or 36.3%, to $181.4 million in
fiscal 1996 from $133.1 million in the year earlier period. Included in the
operating costs are merger costs of $14.1 million related to the merger with
the businesses of Career Horizons in 1996 that are included in the Company.
Operating expenses as a percentage of revenue before merger costs decreased to
16.2% in fiscal 1996 from 17.2% in the year earlier period. The decrease was
due to the Company's ability to spread fixed costs over a larger revenue base.
Operating expenses before merger costs, depreciation and amortization as a
percentage of revenue decreased to 15.3% in fiscal 1996 from 16.4% in the year
earlier period.
INCOME FROM OPERATIONS
As a result of the foregoing, income from operations increased $10.9
million, or 34.9%, to $42.1 million in fiscal 1996 from $31.2 million in the
year earlier period. Income from operations before merger costs incurred in
fiscal 1996, increased $25.0 million, or 80.1% to $56.2 million in fiscal 1996
from $31.2 million in the year earlier period. Income from operations before
merger costs as a percentage of revenue increased to 5.4% in fiscal 1996 from
4.0% in the year earlier period.
INTEREST EXPENSE
Interest expense, as incurred and allocated, decreased $0.8 million, or
66.7%, to $0.4 million in fiscal 1996 from $1.2 million in the year earlier
period as a result of a decrease in net borrowings from AccuStaff.
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<PAGE>
INCOME TAXES
The Company's effective tax rate was 45.7% in fiscal 1996 compared to 38.8%
in the year earlier period. The effective tax rate in fiscal 1996 increased
from 37.6% to 45.7% due to $9.1 million of non-deductible merger related
costs.
NET INCOME
As a result of the foregoing, net income increased $4.2 million, or 22.8%,
to $22.6 million in fiscal 1996 from $18.4 million in the year earlier period.
Net income as a percentage of revenue decreased to 2.2% in fiscal 1996 from
2.4% in the year earlier period due to the non-deductible merger costs.
Exclusive of the merger costs, net income would have increased $16.4 million
to $34.8 million, resulted in an increase in net income as a percentage of
revenue to 3.4%.
LIQUIDITY AND CAPITAL RESOURCES
In addition to cash flow from operations, the Company historically has
relied on AccuStaff to provide the financing for its operations. These cash
flows are not necessarily indicative of the cash flows that would have
resulted if the Company were a stand alone entity.
Historically, the Company has participated in AccuStaff's centralized cash
management system whereby cash received from operations is transferred to
AccuStaff's centralized cash accounts and cash disbursements are funded from
the centralized cash accounts on a daily basis. Accordingly, cash requirements
for operating purposes and for capital expenditures were met from this source.
After the Offering Closing Date, the Company will implement its own
centralized cash management system.
For the three months ended March 31, 1998, the Company generated $34.7
million of cash flow from operations; for the year ended December 31, 1997,
the Company used $2.4 million of cash flow for operations; for the year ended
December 31, 1996, the Company generated $6.1 million of cash flow from
operations; and for the year ended December 31, 1995, the Company generated
$7.1 million of cash flow from operations. The Company's positive cash flow
from operations in the three months of 1998 reflects the increased
profitability of its operations and the increased collections in accounts
receivable. The Company's use of cash from operations for the year ended
December 31, 1997 reflects the funding of working capital for acquired
businesses as well as the increased working capital requirements of its
continuing businesses. The Company generated positive cash flow from
operations of $6.1 million in 1996. The Company experienced a substantial
increase in accounts receivable from the year earlier period which was offset
by an increase in accrued expenses, which related primarily to the merger
costs related to the Company's merger with the businesses of Career Horizons,
Inc., which have been included in the Company.
In the three months ended March 31, 1998, the Company used $18.5 million for
investing activities of which $16.2 million was used for acquisitions and $2.3
million was used for capital expenditures. The Company used $94.3 million,
$54.5 million and $51.0 million for investing activities in the years ended
December 31, 1997, December 31, 1996 and December 31, 1995, respectively, of
which $84.5 million, $48.7 million, and $45.2 million, respectively, was used
for acquisitions and $9.8 million, $5.8 million, and $5.8 million,
respectively, was used for capital expenditures. The Company made three
acquisitions in the three months ended March 31, 1998 and ten acquisitions in
each of the years ended December 31, 1997, 1996 and 1995, respectively.
For the three months ended March 31, 1998, the Company used $2.1 million of
cash flow from financing activities; for the year ended December 31, 1997, the
Company was provided $83.6 million of cash flow by financing activities; for
the year ended December 31, 1996, the Company was provided $61.6 million of
cash flow from financing activities; and for the year ended December 31, 1995,
the Company was provided $26.3 million of cash flow by financing activities.
These amounts primarily represent net advances from AccuStaff, which were used
primarily to fund acquisitions.
31
<PAGE>
At December 31, 1997, the Company's advances in excess of the cash provided
by operations of $81.3 million were classified on the Company's balance sheet
as "Due to Parent". In prior years, it has been assumed that the proceeds from
various equity and debt offerings consummated by the Company's parent were
used to pay all outstanding indebtedness, including that allocated to the
Company. Therefore, there has been no allocation of parent indebtedness at
December 31, 1996 as no such indebtedness existed. Interest expense reflects
the interest expense associated with the allocated average borrowings for each
period using the rate that approximates the weighted average interest rate
outstanding during each period. The Company will repay the outstanding "Due to
Parent" balance from its borrowings under its Credit Facility. AccuStaff has
outstanding certain irrevocable letters of credit related to the Company's
business which primarily guarantee the payment of the Company's workers'
compensation claims. At December 31, 1997, the letters of credit amounted to
$16.6 million. In addition, the Company's subsidiary, Office Specialists, Inc.
has similar letter of credit agreements which amounted to $1.0 million on
December 31, 1997.
In connection with acquisitions, the Company had outstanding at March 31,
1998, notes to shareholders of acquired companies of approximately $16.1
million.
The Company has received a commitment from NationsBank, N.A. ("NationsBank")
to provide the Company with a $300 million revolving Credit Facility. It is
anticipated that $150 million will be outstanding at the Offering Closing
Date. Advances under the Credit Facility will be available to the Company for
a term of five (5) years. Advances made under the Credit Facility (i) will
bear interest at a floating rate, determined on a basis of a LIBOR rate plus
an applicable margin, (ii) will be guaranteed by all of the Company's material
subsidiaries, and (iii) will be secured by a pledge of the stock of all of the
Company's subsidiaries. The Company will be subject to certain financial
covenants and operational covenants which will prohibit the Company from
making acquisitions if the Company is not in compliance with certain covenants
and will, under certain specified circumstances, prohibit or limit dividends
that may be paid by the Company. The Credit Facility provides a sublimit for
the issuance of letters of credit of up to $30 million.
The Company's primary source of liquidity has traditionally been cash flows
from operations. The Company believes that the Credit Facility and cash flow
from operations will be sufficient to fund its future working capital, capital
expenditure, debt service requirements and possible future acquisitions.
INFLATION
The effects of inflation on the Company's operations were not significant
during the periods presented in the financial statements. Generally,
throughout the periods discussed above, the increases in revenue have resulted
primarily from higher volumes, rather than price increases.
OTHER MATTERS
During 1997, the Financial Accounting Standards Board (1FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130 Reporting
Comprehensive Income, which requires that changes in comprehensive income be
shown in a financial statement that is displayed with the same prominence as
other financial statements. This statement is effective for the Company's 1998
fiscal year. Management does not believe that the Company has material other
comprehensive income which would require such separate disclosure.
Additionally, during 1997, the FASB issued SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information. SFAS No. 131 requires,
among other things, that certain general and financial information be
disclosed for reportable operating segments of a company. SFAS No. 131 is
effective for the Company's 1998 fiscal year end. The Company will make the
disclosures as required under this standard.
32
<PAGE>
During 1998, the American Institute of Certified Public Accountants'
Executive Committee issued Statement of Position Number 98-1 (SOP 98-1),
Accounting for the Cost of Computer Software Developed or Obtained for
Internal Use. SOP 98-1 is effective for fiscal years beginning after December
15, 1998. Management believes that the Company is substantially in compliance
with this pronouncement and that the implementation of this pronouncement will
not have a material effect on the Company's consolidated financial position,
results of operations or cash flows.
IMPACT OF THE YEAR 2000
The Company is in the process of preparing its computer systems and related
software to accommodate date sensitive information relating to the Year 2000.
The Company expects that the costs related to ensuring such systems and
software to be Year 2000-compliant will not be material to the financial
condition or results of operations of the Company. In addition, the Company is
discussing with its vendors and customers the possibility of any difficulties
which may affect the Company as a result of its vendors and customers ensuring
that their computer systems and software are Year 2000-compliant. To date, no
significant concerns have been identified. However, there can be no assurance
that the Company's efforts are adequate or that no Year 2000-related computer
operating problems or expenses will arise with the Company's computer systems
and software or in the computer systems and software of the Company's vendors
and customers. Such problems or expenses could have a material adverse effect
on the Company's results of operations or financial condition.
FORWARD LOOKING STATEMENTS
Statements made in this Report regarding the Company's expectations or
beliefs concerning future events, including capital spending, expected results
and the Company's liquidity situation during 1998, should be considered
forward-looking and subject to various risks and uncertainties. The Company's
actual results may differ materially from the results anticipated in these
forward-looking statements as a result of certain factors. For instance, the
Company's results of operations may differ materially from those anticipated
in the forward-looking statements due to, among other things: the Company's
ability to successfully identify suitable acquisition candidates, complete
acquisitions or integrate the acquired business into its operations; the
general level of economic activity in the Company's markets; increased price
competition; changes in government regulations or interpretations thereof; and
the continued availability of qualified temporary employees.
33
<PAGE>
BUSINESS
THE COMPANY
The Company is a leading national provider of business services that
primarily include diversified staffing and outsourcing services to businesses
and government agencies. The Company was formed in May 1998 in connection with
the Reorganization and represents the commercial businesses of AccuStaff. The
Company will operate in two divisions, Specialized Solutions and Traditional
Staffing Services. The Company provides its services through a network of 341
Company owned offices and 36 franchised offices, with centralized support
including marketing and back office support. In the year ended December 31,
1997, the Company generated revenues of $1.3 billion and supplied
approximately 250,000 employees to clients in 36 states and the District of
Columbia. On a pro forma basis, after eliminating results of operations that
have been sold or that are in the process of being terminated, 1997 revenues
were approximately $1.0 billion. The Company has experienced rapid pro forma
revenue growth from $312 million in 1992 through both acquisitions and
internal growth.
The Specialized Solutions division provides sophisticated customized
solutions to customers including high-end office support and office automation
resources desktop publishing, outsourcing, mid-level IT staffing and web-site
design and development, and end-user IT training. This division also provides
staffing of scientific skills for biotechnology and pharmaceutical customers
and skilled "light technical" staffing for electronics and other component
manufacturers. In addition, through this division, the Company provides
technical support for end-users including telecommunication companies. The
Company provides this specialized expertise under various brand names. The
division's Office Specialists, Excel, Richard Michael Group and Placers brands
provide high-end office support and office automation resources. The e-Staff
brand provides services such as desktop publishing. The Strategix and HR
Management brands offer turn-key outsourcing services. The Mindsharp Learning
Centers brand offers a wide-range of end-user IT training. The Specialized
Solutions division, which had revenues of $341 million in the year ended
December 31, 1997, representing 34% of the Company's revenues on a pro forma
basis, operates through 113 offices in 20 states and the District of Columbia.
The Traditional Staffing Services division primarily provides clerical,
secretarial and, to a lesser extent, light industrial staffing, primarily
under the AccuStaff brand name. The office services unit, which accounts for
approximately 78% of the division's staffing revenue, supplies a wide variety
of secretarial, clerical, word processing, and office automation resources to
perform skilled tasks, as well as reception, copying, filing, and other
miscellaneous office services. This division also provides customer care and
telemarketing services for businesses. The light industrial unit, which
accounts for approximately 22% of the division's staffing revenue, supplies
employees for light industrial positions such as unskilled assembly and
packaging, light-duty warehouse work, inventory and other light-duty, labor
intensive tasks. This division also provides on-site management programs for
numerous clients where the Company's staffing employees constitute a
significant portion of a client's workforce. The Traditional Staffing Services
division, which had revenues of $655.7 million in 1997 representing 66% of the
Company's revenues on a pro forma basis, operates through 249 offices
including franchised offices, in 32 states and the District of Columbia.
OPERATING STRATEGY
The following are key elements of the Company's operating strategy:
PROVIDE BROAD RANGE OF CUSTOMIZED, VALUE-ADDED SERVICES
The Company offers a broad selection of specialized and traditional staffing
solutions, encompassing a wide range of specialized services such as desktop
publishing, graphics support,
34
<PAGE>
web-site design and development, turn-key outsourcing services, high-end
office support and office automation, and end-user IT training, as well as
traditional temporary staffing services such as secretarial, clerical, word
processing and light industrial. The Company strives to provide added value by
customizing its services to meet its clients' needs. These services include
customized management information reporting, on-site management of temporary
employees, specialized training and behavioral testing of temporary employees
for selected lines of business. The Company believes that offering these
services enhances its long-term relationships with its clients.
PURSUE TARGETING STRATEGY
The Company focuses its major marketing efforts on customer and skill
segments that are growing faster on average than the economy. The Company has
a dedicated team to perform demographic and industry analysis to determine
growth industry sectors, and qualify target accounts, using databases and
centralized research support in an organized way to create territories for the
Company's sales force and to target attractive potential clients. This system
is called Territory Management. The Company focuses specifically on faster
growing industries where skills and service are emphasized over price in the
client's selection process.
RECRUIT, TRAIN AND RETAIN QUALIFIED STAFFING EMPLOYEES
In a tight labor market, characterized by increased work force mobility, the
ability to attract and retain highly skilled temporary and contract employees
is critical. The Company has developed innovative techniques, both centrally
and locally, including extensive use of databases, the Internet and referral
and reactivation programs to obtain competitive advantages in recruiting
qualified employees. The Company retains qualified staffing employees by
providing quality assignments and flexible schedules with competitive
compensation and benefits and continuous training through its branches and its
MindSharp Learning Centers. The Company provides its staffing employees with
career development opportunities via training to advance to more challenging
positions in a variety of industries. The Company's staffing managers and
supervisors also receive extensive training oriented towards building and
managing relationships that increase tenure of the temporary and contract
workforce.
CAPITALIZE ON STRONG REPUTATION AND BRAND NAMES
The Company believes its national network of offices and broad range of
services has created one of the most widely recognized brands, AccuStaff, in
the staffing services industry today. Moreover, the Company has developed very
strong brands in regional markets and specialized skills, for example,
e-Staff, Excel, Placers, Office Specialists, Richard Michael Group, Strategix
and HR Management. The Company will continue to use its strong brand
recognition to expand its position with both customers and employees. In
addition, the strong regional and speciality brands will be used to expand
distinctive specialized services. The Company believes that separate branding
facilitates the Company's cross-selling programs and is a primary element of
the Company's strategy for creating a solid platform for internal growth.
OPERATE DECENTRALIZED, ENTREPRENEURIAL BRANCHES WITH CENTRALIZED MANAGEMENT
AND SUPPORT SYSTEMS
The Company seeks talented managers who are capable of operating
independently and succeeding within the Company's decentralized operating
structure. Branch managers enjoy considerable autonomy in hiring, pricing,
business mix, advertising and delivery of client services. Substantially all
full-time branch staff are eligible to receive incentive compensation based on
office profitability, resulting in a team-oriented approach. Branch offices
receive strong support from the
35
<PAGE>
Company's operations centers including billing, payroll, risk management,
credit and collections services, marketing, quality standards enforcement,
guidance in hiring and training of regular staff, operating procedures,
customer service and regulatory guidance. The Company's corporate support
systems allow it to achieve administrative economies of scale while
capitalizing on the responsiveness of its decentralized branch office network
to client needs. The Company encourages entrepreneurial operation of its
branch offices but has developed corporate level programs that establish
accountability for each office. One such program is the implementation of a
uniform standard for assessment of its branch staff. The Company has developed
a matrix of benchmarks and targets used to evaluate weekly performance of
offices and branch staff. The Company employs this "Balanced Scorecard" in
certain of its locations and intends to eventually have all locations
operating under this matrix.
LEVERAGE EXISTING INFRASTRUCTURE AND TECHNOLOGY
The Company believes that a significant competitive advantage can be
obtained through the strategic use of technology. The Company currently
maintains three central processing centers, at the Company's corporate offices
in Jacksonville, Florida, and at its Woodbury and Peabody Operations Centers.
The Company anticipates that it will not rely on the Jacksonville processing
center after the Spin-off. The Woodbury and Peabody Operations Centers support
the majority of the Company's operations with customized billing, payroll, and
a wide range of management reports, including weekly, monthly and quarterly
reports that provide information ranging from client activity to customer
service representatives' productivity. The systems also support operations in
marketing, employee search and selection, quality assurance and regulatory
compliance. Because certain payroll and utilization data and functions can be
integrated with the management information systems of its customers, the
Company's management information systems also enhance its ability to
strengthen client relationships. The Company continually seeks to achieve
additional economies of scale through increased automation and seeks to
integrate each acquisition into one of its processing centers as quickly as
practical.
GROWTH STRATEGY
The following are the key elements of the Company's growth strategy:
LEVERAGE THE COMPANY'S POSITIONING EXPERTISE
The Company will leverage its expertise in positioning its businesses in
markets and segments that value high quality services. The Company utilizes
its Territory Management System to identify attractive industries, clients and
geographical markets as part of its positioning strategy. This system is
currently utilized in 18% of the Company's branches, with the remaining
branches slated for conversion through a national roll-out. The Company
believes that Territory Management will provide a competitive advantage by
efficiently focusing its marketing efforts on highly desirable companies and
industries. In turn, the Company believes this will enable it to accelerate
its internal growth rate. See "--Operating Strategy--Pursue Targeting
Strategy."
INCREASE PENETRATION OF EXISTING MARKETS AND EXPANSION INTO CONTIGUOUS
MARKETS
The Company believes that branch size (number of employees and revenues) and
market share in existing local and regional markets drive growth and
profitability. The Company believes that growth comes from building larger
branches and adding branches in existing and contiguous markets. Economies of
scale are realized through common regional management and the distribution of
advertising, recruiting and training costs over a larger revenue base.
Moreover, increased presence in local labor markets enables the Company to
achieve margin improvements because of its control over critical skills and
its ability to commit them to its faster growing customers. Additionally, the
Company believes large size in a specific market significantly enhances cross-
selling opportunities.
36
<PAGE>
CHANGE THE MIX OF BUSINESS
Across the breadth of its product line, the Company will change its mix of
business in favor of higher level and higher margin skills. The Company will
seek to continue to shift its business mix away from commodity staffing
services and towards higher skilled, value-added services and solutions such
as those offered through the Company's Specialized Solutions division.
Furthermore, across the breadth of its product line, the Company will
emphasize the continued addition of service offerings that result in a focus
on higher skilled services.
GROW SPECIALIZED BUSINESSES
The Company will continue to focus on niche markets and to expand
penetration of the Company's niche brands across its network of branches.
Moreover, the Company intends that its product line will continuously evolve
in response to changing technology and clients needs and that it will add new
branded service offerings as market needs warrant. This strategy will allow
the Company to leverage and strengthen its relationship with existing clients.
Areas of immediate focus will include:
. Outsourcing Relationships. The Company seeks to expand its client
relationships by offering comprehensive outsourcing arrangements, in
which the Company staffs and manages an entire department or function on
a turn-key basis. These relationships tend to be characterized by the
provision of additional higher level services, such as human resources
management services either (on or off-site) and staffing and management
call services.
. Mid-level Information Technology. The Company provides a range of mid-
level IT staffing services such as systems administrators, data center
operators, help desk employees, local and wide area network specialists,
web site designers and developers, software programmers and computer
trainers. These services are in high demand and are sought often by
clients that value the services and high skill levels the Company can
provide. The Company believes an increase in the volume of these mid-
level IT staffing services will raise the Company's average bill rates,
revenues and margins.
. Training. Through its MindSharp Learning Centers, the Company's training
services focus on end-user, instructor-led and self-paced application and
IT software training, custom courseware, consulting and general business
skills. These training services offer opportunities to further existing
client relationships and offer high value, high skill business segments
to new clients. The Company plans to expand the MindSharp Learning
Centers offices into additional markets. In addition, the Company
provides training services through its branches to help train and develop
the Company's staffing employees, which ultimately will generate higher
bill rates by such employees.
CROSS-SELL SERVICES
The Company encourages its divisions and brands to cross-sell their services
on an intra- company basis. In certain markets, the Company and AccuStaff
intend to cross-sell their services which include IT and professional services
offered by AccuStaff and the Specialized Solutions and Traditional Staffing
Services offered by the Company.
PURSUE STRATEGIC ACQUISITIONS
The Company's acquisition strategy is to acquire complementary staffing and
outsourcing operations that are focused on high value, high skill business
segments that the Company believes are growing faster than the traditional
staffing segments. The Company believes that there is an opportunity, as a
part of the consolidation in the global business services industry, that is
focused on acquisitions of companies that offer specialized staffing and high-
end office support. The Company's management has a proven track record of
successfully acquiring companies, integrating them within existing operations,
and utilizing them to enhance the Company's growth performance.
37
<PAGE>
ACQUISITIONS
The Company has established an experienced team responsible for identifying
suitable acquisition candidates and coordinating the integration of acquired
businesses into the Company's operations. In determining whether to proceed
with an acquisition, the Company evaluates a number of factors, including: the
historical and projected financial results; the purchase price and expected
impact on the Company's earnings per share; the enhancement to the Company's
breadth of services; the experience, reputation and personality of management;
and any expected synergies with the Company's existing operations. Although
the Company also considers whether an acquisition would provide a strategic
geographic market, the Company values an acquisition candidate's service
offerings higher than such candidate's geographic location.
The following table details the acquisitions of AccuStaff's commercial
division since 1994.
<TABLE>
<CAPTION>
REVENUES FOR
YEAR PRIOR TO
ACQUISITION ACQUISITION
COMPANY ACQUIRED DATE (IN MILLIONS)
---------------- ----------- -------------
<S> <C> <C>
Elite Personnel Services, Inc. .................. 3/98 $ 6.0
Morgan Mercedes Temporaries, Inc................. 1/98 1.8
Valley Micro Associates, Inc..................... 1/98 1.2
Office Specialists, Inc.......................... 11/97 165.0
Training Delivery Systems, Inc................... 5/97 45.3
Staffing Resources, Inc.......................... 4/97 6.5
Firstaff, Inc.................................... 3/97 15.8
Esprit Staffing Services......................... 2/97 5.0
The Placers, Inc., et al......................... 1/97 35.1
CGS Services, Inc................................ 1/97 10.1
Career Horizons, Inc............................. 11/96 385.3
Temps America East, Inc.......................... 5/96 40.8
Alternative Temps, Inc........................... 4/96 3.8
Advantage Personnel Services, Inc................ 2/96 10.8
Excel Temporary Services, Inc.................... 2/96 31.6
PTA International................................ 1/96 30.0
HR Management Services, Inc...................... 11/95 23.6
Matthews Professional Employment Specialists,
Inc............................................. 7/95 20.0
Bogard Temps, Inc................................ 7/95 7.4
Contemporary Personnel Services, Inc............. 1/95 15.0
ASOSA Employees.................................. 1/95 11.6
Debbie Temps, Inc................................ 3/94 12.7
</TABLE>
The following acquisitions were made by Career Horizons, Inc. and Office
Specialists, Inc. since 1994 until their respective acquisitions by AccuStaff.
OFFICE SPECIALISTS, INC.
<TABLE>
<CAPTION>
REVENUES FOR
YEAR PRIOR TO
ACQUISITION ACQUISITION
COMPANY ACQUIRED DATE (IN MILLIONS)
---------------- ----------- -------------
<S> <C> <C>
Key Staffing Services, Inc. ....................... 6/97 $ 6.5
Robertson & Nugent Associates, Inc. ............... 3/97 .5
Castle Key Corp. .................................. 1/97 1.5
STC, Inc. ......................................... 5/95 9.5
EWT Industries, Inc. .............................. 5/95 1.0
Agency Network Atlanta, Inc. ...................... 1/95 .5
Can Temporaries, Inc. ............................. 7/94 1.5
KOT Services, Inc. ................................ 7/94 1.0
</TABLE>
38
<PAGE>
CAREER HORIZONS, INC.
<TABLE>
<CAPTION>
REVENUES FOR
YEAR PRIOR TO
ACQUISITION ACQUISITION
COMPANY ACQUIRED DATE (IN MILLIONS)
---------------- ----------- -------------
<S> <C> <C>
Dial A Temporary, Inc. ............................ 6/96 $ 1.3
The Richard Michael Group, Inc. ................... 4/96 8.0
Century Temporary Services, Inc. .................. 4/96 12.0
Management Search, Inc. ........................... 3/96 15.9
Staff-Additions, Inc. ............................. 1/95 1.6
Staffing Resources (SC), Inc. ..................... 1/95 4.9
</TABLE>
OPERATIONS
The Company will operate in two divisions, Specialized Solutions and
Traditional Staffing Services. Each division offers a range of skills to
fulfill client requirements and are described below.
THE SPECIALIZED SOLUTIONS DIVISION
The Specialized Solutions division provides a wide range of sophisticated
customized solutions to customers under a variety of brands in particular
units. These services are provided through approximately 113 offices in 20
states and the District of Columbia. Approximately 34% of the Company's pro
forma fiscal 1997 revenue was derived from this division.
OFFICE SUPPORT
Office support services is the largest and most profitable unit of this
division. This unit focuses on providing high-end office support services
including word processing, secretarial and resident management services under
brands such as Office Specialists, Excel and Placers. By providing customized
solutions, the Company forms strategic relationships with its clients and is
thus also able to provide other high value services.
DESKTOP PUBLISHING
Building on the high-end office support platform, the desktop publishing
unit provides, under its e-Staff brand, desktop publishing services to a
variety of customers such as advertising, consulting, and marketing firms as
well as colleges and universities and corporate customers. Utilizing higher-
end graphics expertise, the Company is able to provide value-added publishing
services to such customers.
OUTSOURCING
Outsourcing services are provided under the brands Strategix and HR
Management and focus on three distinct areas: (i) human resource management
services, (ii) call center management services (including both in-bound and
out-bound services), and (iii) help desk management. By providing a wide range
of customized human resource services such as recruiting, testing, screening,
resume management, training and processing, the outsourcing services unit is
able to create a complete package of human resource management programs that
can be tailored to meet each customer's needs. The Company's expertise in
developing sophisticated and customized solutions, including aptitude testing
procedures for specific industries, makes its services especially valuable to
its customers.
INFORMATION TECHNOLOGY
The IT unit provides lower-end and mid-range IT staffing services including
systems administrators, data center operators, help desk employees, local and
wide area network specialists, web-site designers and developers, software
programmers, and computer trainers.
39
<PAGE>
SCIENTIFIC
The Company develops creative staffing solutions to meet the challenges
faced by the pharmaceutical, chemical, biotechnology, environmental,
healthcare and related industries. It provides a wide range of trained
scientists, laboratory technicians, chemists, and clinical trials specialists
to biotechnology and pharmaceutical companies, universities, and professional
testing and research labs.
LIGHT TECHNICAL
The light technical unit recruits, tests, trains and deploys skilled staff
for electronic and other component manufacturers in the high tech industry.
TRAINING
Through the MindSharp Learning Centers, the training unit provides
technology training solutions such as end-user computer training and high-end
network training in a business-to-business environment. Education services
include instructor-led and software-prompted training, conversion services,
custom courseware, consulting and general business skills training. In
addition, the Company uses MindSharp Learning Centers to train and develop its
staffing employees.
THE TRADITIONAL STAFFING SERVICES DIVISION
The Traditional Staffing Services division primarily provides office
services staffing and, to a lesser extent, light industrial staffing. These
services are provided through approximately 249 offices in 32 states and the
District of Columbia. Approximately 66% of the Company's pro forma fiscal 1997
revenue was derived from this division, which operates primarily under the
AccuStaff brand name. The division also provides private label and payroll
services.
OFFICE SERVICES
The office services unit, which accounts for approximately 78% of the
division's staffing revenues, supplies a wide variety of secretarial,
clerical, word processing, data entry and office automation resources to
perform skilled tasks, as well as reception, transcription, copying, filing
and other miscellaneous office services. A major focus of the office services
unit is the provision of these services to the financial services industry.
LIGHT INDUSTRIAL SERVICES
The light industrial unit, which accounts for approximately 22% of the
division's staffing revenues, supplies employees to perform functions such as
unskilled assembly and packaging, light-duty warehouse work, including
shipping and distribution, and inventory checking and other light-duty, labor-
intensive tasks. This unit also supplies employees to assist with banquets and
catering functions, hospitality and other labor-intensive special engagements
such as sporting or political events and meetings and conventions.
PRIVATE LABEL
The private label unit operates under two brand names: Temporary Management
Resources and Resource Funding Group. The private label unit provides
financial and back office support services to approximately 380 independently
owned temporary staffing firms ("Associated Offices"). These services include
billing and payroll services and preparation of payroll tax filings and
management reports. In addition, the private label unit advances each
Associated Office an amount equal to its gross profit after deduction of the
Company's fees and expenses.
40
<PAGE>
PAYROLL SERVICES
The payroll services unit provides customers with complete payroll
management, including computation of deductions, making of payments and filing
of reports.
OTHER OPERATIONAL ASPECTS
ON-SITE SERVICES
The Company provides on-site management programs for approximately 125
clients that delegate their staffing needs to the Company. The Company manages
all or a large portion of such clients' temporary work force, providing
recruiting, testing and management services.
BRANCH OFFICES
The Company delivers its services through a branch office network of 341
Company owned, 36 franchised, and 380 Associated Offices in 46 states, and the
District of Columbia. Wherever possible, the Company clusters offices to
permit advertising and administrative expenses to be spread over a large
number of offices in close proximity to each other.
Account coordinators in each office are responsible for sales, interviewing
temporary employees and monitoring customer relationships. Account
coordinators and other office employees report to a branch manager who is
responsible for the profitability of the branch office. Branch managers are
given a high level of authority in making decisions about the operation of
their offices and receive bonuses based on the profitability of their branch.
Other branch employees, including account coordinators, also receive bonuses
directly related to the profitability of their branch. This system encourages
account coordinators to develop ongoing relationships with their customers
after a sale has been made.
The Company grants franchisees the right to market and furnish traditional
staffing services within a designated geographic area. The Company receives
royalty fees from each franchisee based upon its sales, and in return supplies
a variety of support and marketing services and materials. Revenue from
franchising activities constituted less than 10% of the Company's revenue in
1997.
SALES AND MARKETING
The Company obtains clients through personal sales presentations, telephone
marketing calls, direct mail solicitations, referrals from other clients and
advertising in a variety of local and national media, including newspapers,
magazines and trade publications. Many of the branches supplement the
Company's advertising efforts with their own local advertising. The Company
has in-house graphics design and marketing employees to produce marketing
materials and client proposals. The Company also actively sponsors various
community activities, such as seminars on human resource-related issues, as a
way of increasing name recognition. The Company's directors and officers
participate in national trade associations, local chambers of commerce and
other civic organizations.
TEMPORARY EMPLOYEES
The Company finds that referrals from its existing workforce provide the
highest quality and largest number of new temporary employees and it pays a
referral fee to any employee responsible for recruiting a temporary employee.
In addition, temporary employees are recruited through advertising in local
and, to a lesser extent, national media. Temporary employees are employed by
the Company on an as-needed basis dependent upon client demand and are paid
only for the time they actually work. The Company employs in excess of 70,000
temporary employees during a typical week.
The Company intends to expand upon the centralized recruiting system used by
its Office Specialists, Inc. subsidiary for the recruitment of temporary
employees, especially those with higher
41
<PAGE>
skill levels. The Company believes recruiting temporary employees will remain
a function of the local offices but believes the use of its developing,
central database will provide advantages to its local offices.
The Company is responsible for and pays the employer's share of Social
Security taxes (FICA), federal and state unemployment taxes, workers'
compensation insurance and other similar costs relating to its temporary
employees.
WORKERS' COMPENSATION PROGRAM
The Company maintains multiple workers' compensation insurance programs for
claims in excess of deductibles of $350,000 per occurrence. These insurance
plans cover most of the Company's operations. Any recent acquisitions in which
the acquired companies are self-insured are integrated into the Company's plan
immediately. However, if an acquired company is fully insured or has limited
self-insurance, the Company will integrate the subsidiary at the most cost
effective date in accordance with management's analysis.
Regional field employees process and investigate workers' compensation
claims and report to the Company's full-time in-house risk manager on a
regular basis. These field employees work in conjunction with the risk manager
and a third-party administrator to manage claims and set up appropriate
accruals for the uninsured portion of claims (up to certain deductible
amounts). An independent actuary provides advice on overall workers'
compensation costs as well as an actuarial valuation regarding the adequacy of
the accruals. The accrual balances determined by the third-party administrator
and Company management are consistent with the amounts recommended by the
actuary.
In addition, the Company has a safety program in all branch offices to
provide appropriate safety training to employees prior to job assignment. The
risk manager and field employees also perform safety inspections at customer
locations to help determine potential risks for employee injury and to assist
customers in making the workplace safer. Company policies prohibit staffing of
high risk work.
EMPLOYEES
At June 1, 1998, the Company employed approximately 2,100 staff employees on
a full-time equivalent basis. Full-time employees are covered by life and
disability insurance and receive health and other benefits. During fiscal
1997, the Company employed approximately 250,000 other employees as billable
consultants or staffing employees, of which approximately 10% have certain
benefits such as life, disability and health insurance. Except for certain
employees of Training Delivery Services, Inc. and M&L Management Services
Inc., subsidiaries of the Company, who perform certain support services for
telecommunications companies, none of the employees of the Company are covered
by a collective bargaining agreement, and the Company believes that its
employee relations are satisfactory.
COMPETITION
The business services industry is intensely competitive and highly
fragmented, with few barriers to entry by potential competitors. The Company
faces significant competition in the markets it serves and will face
significant competition in any geographic markets or industry sectors that it
may enter. In each market in which the Company operates, it competes for both
clients and qualified employees with other firms offering staffing services.
The majority of competitors are significantly smaller than the Company.
However, certain of the Company's competitors have greater marketing and
financial resources than the Company. The principal competitors of the Company
include Interim Services, Inc., Norrell Corporation and a wide range of local
and regional high-end companies. Many clients use more
42
<PAGE>
than one staffing services company and it is common for a major client to use
several staffing services companies at the same time. In recent years,
however, there has been a significant increase in the number of large
potential clients consolidating their staffing services purchases with a
single company or with a small number of companies. The consolidation of
staffing services purchases has in some cases made it more difficult for the
Company to obtain business from potential clients who have already contracted
to fill their staffing needs with competitors of the Company.
The Company believes that the primary competitive factors in obtaining and
retaining clients for the Traditional Staffing Services division are the
number and location of offices, an understanding of clients' specific job
requirements, the ability to provide employees in a timely manner, the
monitoring of quality of job performance and the price of services. The
Company believes that the primary competitive factors in obtaining and
retaining clients for the Specialized Solutions division is offering superior
service in providing specialists for specialized tasks. The primary
competitive factors in obtaining qualified candidates for employment
assignments for both divisions are quality and quantity of assignments,
training, wages and benefits. Management believes that the Company is highly
competitive in these areas.
HEALTH CARE; PENDING SALE AND GOVERNMENT REGULATION
Effective March 30, 1998, AccuStaff sold its home health care businesses,
effectively the assets of the following companies: Health Force, Inc.,
Healthforce Company, Health Force Operating Corp., and Medi-Force, Inc.
(together, "Sellers"), to Communicare Health Services, Inc. and its various
affiliates (together, the "Buyers"). Pursuant to the Reorganization, the
Company will own the Sellers. The Sellers retained the liabilities associated
with this business prior to the date of sale. Those assets relating to the
conduct of such business by Sellers in the State of New York (the "New York
Assets"), which accounted for less than 20% of the health care business
revenues for the year ended December 31, 1997, will not effectively be sold to
Buyers until receipt of regulatory approvals. Such approvals tend to take a
substantial amount of time. In the interim, Sellers have contracted with
Buyers for Buyers to provide certain services to Sellers with respect to the
New York Assets pending receipt of final regulatory approvals.
The State of New York requires an approval by the Public Health Counsel of
the New York State Department of Health ("NYPHC") for any change in the
"controlling person" of an operator of a licensed home care services agency
("LHCSA"). "Controlling person" means a person or entity which directly or
indirectly has the ability to direct the actions, management or policies of an
entity whether through the ownership of voting securities or voting rights, by
contract or otherwise. Control of an entity is presumed to exist if any person
directly or indirectly owns, controls or holds the power to vote 10% or more
of the voting securities or voting rights of such entity. A person or entity
which becomes a controlling person of an operator of an LHCSA must file an
application for NYPHC approval within 30 days of becoming a controlling
person, and pending a decision by the NYPHC, such person or entity may not
exercise control over the LHCSA. Such person or entity must divest itself of
the controlling interest of the operator within 30 days if the NYPHC denies
such approval. Through the Sellers, the Company has 13 offices in New York
State which are LHCSA's.
The Buyers purchased Sellers' home health care business in part through
purchase money financing of $5 million provided by AccuStaff. The terms of
such purchase money financing provide for the Buyers to repay 50% of the
outstanding principal payable by March 30, 1999 and the remainder payable by
March 30, 2000. In addition, in order to provide Buyers with receivables
financing until a permanent credit facility with a financial institution could
be established, AccuStaff provided to Buyers an accounts receivable credit
facility pursuant to which Buyers may borrow up to $30 million, or up to 85%
of Buyers' accounts receivable, whichever is less. AccuStaff also provided to
Buyers the option to borrow up to an additional $2 million due March 30, 1999.
All such obligations bear interest at the rate of prime plus two percent per
annum. As part of the Reorganization, AccuStaff will assign these credit
documents to a subsidiary of the Company.
43
<PAGE>
TRADEMARKS
The Company, through a subsidiary, owns the federal trademark for STRATEGIX
(Registration No. 1,894,274). Applications are pending before the Patent and
Trademark Office for federal registration of the service marks ACCUSTAFF,
MINDSHARP LEARNING CENTERS, INC., e-STAFF, INC. and the ACCUSTAFF logo for its
services generally. Subsidiaries also have common law claims to the trade
names PLACERS, EXCEL TEMPORARY SERVICES, INC., EXCEL TRAINING SERVICES, INC.
and EXCEL TECHNICAL SERVICES, INC.
PROPERTIES
The Company owns no material real estate. The Company shares its corporate
headquarters with AccuStaff and pays AccuStaff an allocation of the cost of
such facilities. It leases its Woodbury Operations Center, and its Peabody
Operations Center, as well as its branch offices. Its Woodbury Operations
Center lease that expires in 2003 covers approximately 46,000 square feet with
an annual rental of approximately $813,000, and its Peabody Operations Center
lease that expires in 2007 covers approximately 44,000 square feet with an
annual rental of approximately $665,000. The branch office leases generally
run for three to five-year terms. The Company believes that its facilities are
generally adequate for its needs and does not anticipate difficulty replacing
such facilities or locating additional facilities, if needed.
LEGAL PROCEEDINGS
The Company, in the ordinary course of its business, is from time-to-time
threatened with or named as a defendant in various lawsuits, including
discrimination and harassment and other similar claims. The Company maintains
insurance in such amounts and with such coverage and deductibles as management
believes are reasonable and prudent. The principal risks that the Company
insures against are personal injury, bodily injury, property damage,
professional malpractice, errors and omissions, fidelity losses and has excess
coverage for workers compensation.
There is no pending litigation which the Company believes is likely to have
a material adverse effect on the Company.
44
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information regarding the executive officers
and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Derek E. Dewan.......... 43 Chairman of the Board of Directors
Lawrence E. Derito...... 52 Vice Chairman and Chief Executive Officer
Allen J. Gershlak....... 56 President and Chief Operating Officer
Michael D. Abney........ 62 Senior Vice President and Director
Marc M. Mayo............ 43 Senior Vice President, Secretary and General Counsel
Lawrence S. Bartlett.... 43 Senior Vice President and Chief Financial Officer
Stephen A. Maggio....... 48 Vice President-Finance
Robert P. Crouch........ 29 Vice President and Controller
Peter J. Tanous......... 60 Director
John K. Anderson Jr..... 49 Director
</TABLE>
The Board of Directors is divided into three classes. Messrs. Tanous and
Anderson comprise Class I of the Board of Directors and their terms will
expire at the Company's Annual Meeting of Stockholders in 1999. Messrs. Dewan
and Abney comprise Class II of the Board of Directors and their terms will
expire at the Company's Annual Meeting of Stockholders in 2000. Mr. Derito
comprises Class III of the Board of Directors and his term will expire at the
Company's Annual Meeting of Stockholders in 2001.
Upon consummation of the Offering, the Company anticipates that two
additional directors not associated with the Company or AccuStaff will be
added to the Board of Directors (the "Independent Directors"). In light of its
voting power in the Company, AccuStaff has the ability to change the size and
composition of the Board of Directors.
The Board of Directors is expected to appoint members to a compensation
committee of the Board of Directors (the "Compensation Committee") and an
audit committee of the Board of Directors (the "Audit Committee") after the
Independent Directors referred to above are elected. The Compensation
Committee will establish remuneration levels for certain officers of the
Company and perform such functions as may be delegated to it under employee
benefit programs and executive compensation programs. The Audit Committee will
select and engage, on behalf of the Company, the independent public
accountants to audit the Company's annual financial statements. The Audit
Committee will also review and approve the planned scope of the annual audit.
Executive officers are elected annually by the Board of Directors and serve
at its discretion. All of the current directors and executive officers of the
Company were elected to their current positions with the Company shortly
following the organization of the Company in May 1998. Messrs. Dewan, Abney,
Mayo and Crouch intend to resign as officers of the Company upon consummation
of the Spin-off. Messrs. Dewan and Abney intend to remain as directors of the
Company but Mr. Dewan will not serve as Chairman.
Biographical information for each of the individuals listed in the above
table is set forth below.
Derek E. Dewan is Chairman of the Company's Board of Directors and has been
President and Chief Executive Officer of AccuStaff since January 1, 1994 and a
Director of AccuStaff since January 28, 1994 (Chairman since June 19, 1996).
He also serves as an officer or director of all of the Company's subsidiaries.
Mr. Dewan was a partner with the accounting firm of Coopers & Lybrand
45
<PAGE>
L.L.P. for more than five years, prior to joining AccuStaff, most recently as
the managing partner of the Jacksonville, Florida office. Mr. Dewan currently
serves on the Board of Directors of the National Association of Temporary and
Staffing Services ("NATSS") and on the Boards of Transit Group, Inc. and
Payroll Transfers, Inc.
Lawrence E. Derito is Vice Chairman and Chief Executive Officer of the
Company. Except for the period between July 1995 and September 1997, when he
was Vice Chairman, he has served as President and Chief Executive Officer of
Office Specialists, Inc. since 1975. Mr. Derito was President of NATSS during
1982-83 (one year term) and served on the Board of Directors of NATSS for
seven years. He received a Masters degree in Business Administration from
Harvard Business School.
Allen J. Gershlak is President and Chief Operating Officer of the Company.
He has been President of AccuStaff's Commercial Division since November 1996.
Prior to AccuStaff's acquisition of Career Horizons, Inc. in November 1996,
Mr. Gershlak served as the Group President for Career Horizons, Inc.'s
Staffing Division from January 1995 to November 1996. From September 1986
through December 1995, Mr. Gershlak served with Olsten Corporation in various
capacities that included Vice President-Marketing, Senior Vice President-
Operations and Senior Vice President-National Sales.
Michael D. Abney is Senior Vice President and a Director of the Company and
has been a Director of AccuStaff since February 10, 1997. He also serves as an
officer or director of all of the Company's subsidiaries. He has been
Treasurer and Senior Vice President of AccuStaff since March 1995 and Chief
Financial Officer of AccuStaff since joining the company in November 1992. He
was also Secretary of AccuStaff from February 1997 until May 1998. He is a
certified public accountant and was a partner with Coopers & Lybrand LLP for
22 years prior to joining AccuStaff, most recently as managing partner of
Coopers & Lybrand LLP's Jacksonville, Florida office.
Marc M. Mayo is Senior Vice President, Secretary and General Counsel of the
Company. He has served as Senior Vice President and General Counsel of
AccuStaff since February 1, 1997 and as Secretary of AccuStaff since May 1998.
He also serves as an officer or director of substantially all of the Company's
subsidiaries. Prior thereto, Mr. Mayo was with the law firm of Coffman,
Coleman, Andrews & Grogan in Jacksonville, Florida for fourteen years, the
last nine as partner.
Lawrence S. Bartlett is Senior Vice President and Chief Financial Officer of
the Company. He has been Senior Vice President and Chief Financial Officer of
Office Specialists, Inc. since July 1995. From April 1995 to July 1995 he
served with Office Specialists, Inc. as Senior Vice President-Finance and
Administration. From July 1988 to April 1995, he served with Office
Specialists, Inc. as Vice President and Corporate Controller. He is a
certified public accountant and was employed by Coopers & Lybrand L.L.P. prior
to joining Office Specialists, Inc.
Stephen A. Maggio is Vice President-Finance of the Company. He has been Vice
President- Northeast Operations of AccuStaff since December 1997. He has also
been Controller of AccuStaff's Commercial Division since March 1997. He served
as Vice President of CHI Financial Services, Inc., a subsidiary of Career
Horizons, Inc., from March 1994 through March 1997 and as Controller of Career
Horizons, Inc. from July 1990 through March 1997. Mr. Maggio is a certified
public accountant and was employed by KPMG Peat Marwick LLP prior to joining
Career Horizons, Inc.
Robert P. Crouch is Vice President and Controller of the Company. He joined
AccuStaff in November 1995 as Internal Auditor and in June 1997 was promoted
to Vice President and Controller. From 1992 to November 1995, Mr. Crouch was
employed by Arthur Andersen LLP. Mr. Crouch is a certified public accountant.
Peter J. Tanous is a Director of the Company and has been a Director of
AccuStaff since August 15, 1997. Mr. Tanous has been President of Lynx
Investment Advisory, Inc. since 1992. Mr. Tanous currently serves on the Board
of Directors of Cedars Bank, a California State commercial bank, Kistler
Aerospace Corporation, Interstate Resources, Inc., and TechniFlite of America,
Inc.
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<PAGE>
Mr. Tanous was formerly First Vice President and International Regional
Director with Smith Barney, Harris Upham International and recently authored
the book Investment Gurus.
John K. Anderson, Jr. is a Director of the Company and has been a Director
of AccuStaff since November 7, 1996. He currently is Executive Vice President,
Treasurer and Chief Financial Officer of American Heritage Life Investment
Corporation, a publicly-held insurance holding company. Mr. Anderson served as
Chief Executive Officer of E.G. Baldwin & Associates, Inc., a regional
distributor of medical imaging products and services from September 1993 to
December 1995 and co-founder and President of National Healthcare Spin-off,
Inc. from January 1994 to December 1995 and President and Chief Executive
Officer of Capitol American Financial Corporation, a publicly-held insurance
holding company, from August 1990 to May 1993.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation information for the
chief executive officer and the four other executive officers of the Company
as of June 1, 1998 who, based on employment with AccuStaff and its
subsidiaries, were the most highly compensated for the year ended December 31,
1997. All of the information set forth in this table reflects compensation
earned by such individuals for services with AccuStaff and its subsidiaries.
Messrs. Dewan, Abney and Mayo also serve as officers of AccuStaff and in
such capacities are compensated by AccuStaff. Messrs. Dewan, Abney and Mayo do
not receive any salary from the Company. However, pursuant to the Services
Agreement, the Company pays AccuStaff for certain services which include the
services of these persons. See "Certain Relationships and Related
Transactions--Services Agreement."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
----------------- ---------------------
AWARDS
---------------------
SECURITIES
RESTRICTED UNDER- ALL OTHER
STOCK LYING COMPEN-
SALARY BONUS AWARD(S) OPTIONS/ SATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) SARS (#) ($)
- --------------------------- ---- ------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Derek E. Dewan,......... 1997 350,000 3,903,720 -- -- 30,066
Chairman of the Board 1996 350,000 1,092,640 4,887,500 1,700,000 42,678
1995 250,000 376,331 -- 750,000 34,946
Lawrence E. Derito,..... 1997 448,000 26,000 -- -- 15,127
Vice Chairman and 1996 -- -- -- -- --
Chief Executive 1995 -- -- -- -- --
Officer(1)
Allen J. Gershlak,...... 1997 219,515 219,515 -- 60,000 --
President and 1996 215,000 116,000 -- -- --
Chief Operating 1995 -- -- -- -- 6,458
Officer(2)
Michael D. Abney,....... 1997 200,000 681,948 -- -- --
Senior Vice 1996 135,000 203,180 -- 390,000 --
President 1995 110,000 60,000 -- 300,000 --
Marc M. Mayo,........... 1997 183,333 200,000 -- 100,000 5,346
Senior Vice President, 1996 -- -- -- -- --
Secretary and General 1995 -- -- -- -- --
Counsel(3)
</TABLE>
- --------
(1) Mr. Derito joined AccuStaff in 1997 when AccuStaff acquired Office
Specialists, Inc. where Mr. Derito was President of such company.
(2) Mr. Gershlak joined AccuStaff in 1996 when AccuStaff acquired Career
Horizons, Inc. where Mr. Gershlak was Group President of its staffing
division.
(3) Mr. Mayo joined AccuStaff in 1997 after leaving private practice.
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<PAGE>
OPTIONS/SARS
The following table details grants and stock options issued in the last
fiscal year to the executive officers named in the above Summary Compensation
Table in respect of AccuStaff common stock under AccuStaff's various plans.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/ EXERCISE PRICE APPRECIATION FOR
UNDERLYING SARS GRANTED TO OF BASE OPTION TERM
OPTION/SARS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ----------- ---------------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Derek E. Dewan.......... -- -- -- -- -- --
Lawrence E. Derito...... -- -- -- -- -- --
Allen J. Gershlak....... 10,000 0.31% 19.75 1/6/07 124,207 314,764
50,000 1.56% 17.875 3/19/07 562,075 1,424,407
Michael D. Abney........ -- -- -- -- -- --
Marc M. Mayo............ 100,000 3.12% 18.375 1/14/07 1,187,039 3,008,189
</TABLE>
The following table shows all options/SARs exercised in the last fiscal year
and the year-end value of all unexercised options/SARs for the executive
officers named in the above Summary Compensation Table in respect of AccuStaff
stock options or AccuStaff SARs.
AGGREGATED OPTION/SAR EXERCISED IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS/SARS AT OPTIONS/SARS AT FISCAL
ON VALUE FISCAL YEAR-END (#) YEAR-END ($)
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
---- -------- --------- -------------------- ----------------------
<S> <C> <C> <C> <C>
Derek E. Dewan.......... 383,000 8,402,865 1,493,667/513,333 14,843,810/1,530,000
Lawrence E. Derito...... -- -- --/-- --/--
Allen J. Gershlak....... 12,000 151,188 / 48,000 /207,000
Michael D. Abney........ 160,000 3,289,821 514,000/136,000 6,630,200/306,000
Marc M. Mayo............ -- -- --/100,000 --/412,500
</TABLE>
LONG TERM INCENTIVE PLAN
Prior to the Offering Closing Date, the Company intends to establish a long
term incentive plan. The Company believes that the plan will provide for the
granting of, among other stock-based incentives, incentive stock options that
qualify under Section 422 of the Code and non-statutory stock options. The
Company intends to make the terms and conditions of the plan substantially
similar to the terms and conditions contained in AccuStaff's stock option
plans. The Company has reserved for issuance shares of Common Stock of
the Company, a portion of which will be issued in connection with the "Stapled
Options," as defined and described below. See "Certain Relationships and
Related Transactions--Employee Benefits Agreement."
48
<PAGE>
DIRECTOR COMPENSATION
Directors of the Company who are not employees of the Company or its
affiliates will receive an annual retainer of $4,000 and a fee of $1,500 per
day for attending meetings of the Board of Directors and $500 per day for
participating in meetings of the Board of Directors held by means of
conference telephone and for participating in committee meetings of the Board
of Directors. In addition, the Company reimburses directors for reasonable
travel expenses incurred in attending meetings of the Board of Directors and
committees thereof.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN CONTROL
ARRANGEMENTS
Messrs. Dewan, Abney, Mayo and Crouch also serve as officers of AccuStaff
and in such capacities are compensated by AccuStaff. Messrs. Dewan, Abney,
Mayo and Crouch do not receive any salary from the Company. However, pursuant
to the Services Agreement, the Company pays AccuStaff for certain services
which include the services of these persons. See "Certain Relationships and
Related Transactions--Services Agreement."
The Company has entered into an employment agreement with Lawrence E.
Derito, the Company's Chief Executive Officer, that provides for an annual
base salary of $350,000, plus incentive compensation equal to 2% of the
increase in the Company's pre-tax income for the fiscal year over the previous
fiscal year, plus 1% of the increase in pre-tax income over a stated base
amount derived from 1998 projections. Mr. Derito's total compensation is
limited to $1 million, subject to the Board's annual review. Mr. Derito will
also be awarded non-incentive stock options under the Company's long term
incentive plan once such plan is adopted. If Mr. Derito's employment is
terminated by the Company for reasons other than cause, or for reasons of
change of control, he is entitled to a lump sum payment equal to the present
value of his annual base salary as of the date of termination. Mr. Derito will
also receive post-termination coverage under its health insurance plan until
he reaches age 65 as long as he meets the eligibility requirements thereof.
Mr. Derito's employment agreement terminates on July 31, 2001.
The Company has entered into an employment agreement with Allen J. Gershlak,
the Company's President and Chief Operating Officer, that provides for an
annual base salary of $250,000, plus incentive compensation equal to .75% of
the increase in the Company's pre-tax income for the fiscal year over the
previous fiscal year. Mr. Gershlak's total compensation is limited to
$500,000, subject to the Chief Executive Officer's and the Company's Board's
annual review. Mr. Gershlak will also be awarded non-incentive stock
options under the Company's long term incentive plan once such plan is
adopted. If Mr. Gershlak's employment is terminated by the Company for reasons
other than cause, or for reasons of change of control, he is entitled to a
lump sum payment equal to the present value of his annual base salary as of
the date of termination. Mr. Gershlak's employment agreement terminates on
July 31, 2001.
The Company has entered into an employment agreement with Lawrence S.
Bartlett, the Company's Senior Vice President and Chief Financial Officer,
that provides for an annual base salary of $225,000, plus incentive
compensation equal to .25% of the increase in the Company's pre-tax income for
the fiscal year over the previous fiscal year. Mr. Bartlett's total
compensation is limited to $375,000, subject to the Chief Executive Officer's
and the Company's Board's annual review. Mr. Bartlett will also be awarded
non-incentive stock options under the Company's long term incentive plan
once such plan is adopted. If Mr. Bartlett's employment is terminated by the
Company for reasons other than cause, or for reasons of change of control, he
is entitled to a lump sum payment equal to the present value of his annual
base salary as of the date of termination. Mr. Bartlett's employment agreement
terminates on July 31, 2001.
The Company has entered into an employment agreement with Stephen Maggio,
the Company's Vice President-Finance, that provides for an annual base salary
of $200,000, plus incentive compensation equal to .25% of the increase in the
Company's pre-tax income for the fiscal year over
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<PAGE>
the previous fiscal year. Mr. Maggio's total compensation is limited to
$300,000, subject to the Chief Executive Officer's and the Company's Board's
annual review. Mr. Maggio will also be awarded non-incentive stock
options under the Company's long term incentive plan once such plan is
adopted. If Mr. Maggio's employment is terminated by the Company for reasons
other than cause, or for reasons of change of control, he is entitled to a
lump sum payment equal to the present value of his annual base salary as of
the date of termination. Mr. Maggio's employment agreement terminates on July
31, 2001.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board's Compensation Committee has not been formed. The Board
anticipates forming such committee after the Independent Directors are
elected. The Compensation Committee will make determinations with respect to
cash and non-cash compensation to officers, directors and employees of the
Company. Prior to the election of the Independent Directors, the Board will
make compensation decisions. Messrs. Dewan, Abney and Derito are directors and
employees of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INTERCOMPANY AGREEMENTS
The following are brief summaries of certain agreements to be entered into
by the Company and AccuStaff including a Reorganization and Spin-off
Agreement, a Services Agreement, a Tax Disaffiliation Agreement, a Strategic
Marketing and Cross-Selling Agreement, and an Employee Benefits Agreement.
These agreements are the result of negotiations between affiliated parties
and, therefore, there can be no assurance that the terms of such agreements
are as favorable to the Company as terms that may have been charged by an
unaffiliated third party. The descriptions set forth below are summaries only,
and while material terms of the agreements are set forth herein, the
descriptions are qualified in their entirety to reference to the relevant
agreement filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
REORGANIZATION AND SPIN-OFF AGREEMENT
The Reorganization and Spin-off Agreement between the Company and AccuStaff
sets forth certain agreements among the Company and AccuStaff, with respect to
the principal corporate transactions required to effect the Reorganization,
the Spin-off, and certain other agreements governing the relationship among
the parties thereafter.
THE REORGANIZATION
The Reorganization and Spin-off Agreement documents certain agreements and
transactions pursuant to which the Company will acquire all of AccuStaff's
assets and subsidiaries that are or were part of AccuStaff's commercial
business. In addition, the agreement provides that the Company will pay $150
million in addition to the proceeds of the Offering to AccuStaff.
THE OFFERING
The Reorganization and Spin-off Agreement provides that the Company will
consummate the Offering. On the Offering Closing Date, AccuStaff will own
approximately % of the outstanding shares of Common Stock ( % if the
Underwriters exercise their over-allotment option in full).
THE SPIN-OFF
The Reorganization and Spin-off Agreement provides that, subject to the
terms and conditions thereof, AccuStaff and the Company will take all
reasonable steps necessary and appropriate to cause
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<PAGE>
all conditions to the Spin-off to be satisfied and to effect the Spin-off. The
AccuStaff Board will have the sole discretion to determine the Spin-off Date
at any time commencing after the Offering Closing Date and receipt of the
Letter Ruling. AccuStaff has agreed to consummate the Spin-off subject to the
satisfaction or waiver by the AccuStaff Board, in its sole discretion, of the
following conditions:
(i) the Letter Ruling shall have been obtained, and shall continue in
effect, to the effect that, among other things, the Spin-off will qualify
as a tax-free Spin-off for federal income tax purposes and the Spin-off by
AccuStaff of Common Stock to stockholders of AccuStaff will not result in
recognition of any income, gain or loss for federal income tax purposes to
AccuStaff or AccuStaff's stockholders, and such ruling shall be in form and
substance satisfactory to AccuStaff, in its sole discretion;
(ii) any material governmental approvals and third party consents
necessary to consummate the Spin-off shall have been obtained and be in
full force and effect;
(iii) no order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Spin-off shall be in effect; and
(iv) no other events or developments shall have occurred subsequent to
the Offering Closing Date that, in the sole judgment of the AccuStaff
Board, would result in the Spin-off having a material adverse effect on
AccuStaff or on the stockholders of AccuStaff.
The Company and AccuStaff will agree that, after the Offering Closing Date,
none of the parties will take, or permit any of its affiliates to take, any
action which reasonably could be expected to prevent the Spin-off from
qualifying as a tax-free Spin-off to AccuStaff and AccuStaff's stockholders.
The parties have also agreed to take any reasonable actions necessary in order
for the Spin-off to qualify as a tax-free Spin-off to AccuStaff and
AccuStaff's stockholders. Without limiting the foregoing, after the Offering
and prior to the date of the Spin-off, the Company will not issue or grant,
directly or indirectly, any shares of its capital stock or any rights,
warrants, options or other securities to purchase or acquire (whether upon
conversion, exchange or otherwise) any shares of its capital stock (whether or
not then exercisable, convertible or exchangeable), without the prior consent
of AccuStaff if such issuance or grant would reduce AccuStaff's ownership of
the Company's capital stock below the Required Spin-off Percentage.
STOCK OPTION
Beneficial ownership of at least 80% of the total voting power and value of
the outstanding Common Stock is required in order for AccuStaff to continue to
include the Company in its consolidated group for federal income tax purposes.
Beneficial ownership of at least 80% of the total voting power is required in
order for AccuStaff to be able to effect a tax-free Spin-off. The
Reorganization and Spin-off Agreement provides that AccuStaff will have a
continuing option from the Offering Closing Date to the Spin-off Date,
transferable to any of its subsidiaries, to purchase, under certain
circumstances, additional shares of Common Stock (the "Stock Option"). The
Stock Option may be exercised by AccuStaff simultaneously with the issuance of
any equity security of the Company (other than in the Offering or upon the
exercise of the Underwriters' over-allotment options), with respect to Common
Stock, only to the extent necessary to maintain its then-existing percentage
of the total voting power and value of the Company. The purchase price of the
shares of Common Stock purchased upon any exercise of the Stock Option,
subject to certain exceptions, will be based on the market price of Common
Stock.
RELEASES AND INDEMNIFICATION
The Reorganization and Spin-off Agreement provides for a full and complete
release and discharge as of the Spin-off Date of all liabilities existing or
arising from all acts and events
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<PAGE>
occurring or failing to occur or alleged to have occurred or to have failed to
occur and all conditions existing or alleged to have existed on or before the
Spin-off Date, between the Company and AccuStaff (including any contractual
agreements or arrangements existing or alleged to exist between them before
the Offering Closing Date), except as expressly set forth in the
Reorganization and Spin-off Agreement.
Except as provided in the Reorganization and Spin-off Agreement, the Company
has agreed to indemnify, defend and hold harmless AccuStaff and each of
AccuStaff's directors, officers, employees, agents and representatives from
and against all liabilities relating to, arising out of or resulting from (i)
the failure of the Company or any other Person to pay, perform or otherwise
promptly discharge any liabilities of the Company in accordance with their
respective terms, (ii) any breach by the Company of the Reorganization and
Spin-off Agreement or any of the agreements entered into by the parties in
connection with the Reorganization and Spin-off Agreement (the "Ancillary
Agreements"), and (iii) any untrue or alleged untrue statement or omission or
alleged omission contained in this prospectus or any other document filed with
the Securities and Exchange Commission ("the Commission") but only to the
extent such untrue statement or omission or alleged untrue statement or
omission relates to the Company.
Except as provided in the Reorganization and Spin-off Agreement, AccuStaff
has agreed to indemnify, defend and hold harmless the Company and each of the
Company's directors, officers, employees, agents and representatives from and
against all liabilities relating to, arising out of or resulting from (i) the
failure of AccuStaff or any other Person to pay, perform or otherwise promptly
discharge any liabilities of AccuStaff other than the liabilities of the
Company, (ii) any breach by AccuStaff of the Reorganization and Spin-off
Agreement or any of the Ancillary Agreements, and (iii) any untrue or alleged
untrue statement or omission or alleged omission contained in this prospectus
or any other document filed with the Commission but only to the extent such
untrue statement or omission or alleged untrue statement or omission relates
to AccuStaff.
The Reorganization and Spin-off Agreement also specifies certain procedures
with respect to claims subject to indemnification and related matters.
EXPENSES
The Company has agreed to pay all third-party costs, fees and expenses
relating to the Offering, all of the reimbursable expenses of the underwriters
pursuant to the Underwriting Agreement (as defined below), all of the costs of
producing, printing, mailing and otherwise distributing this Prospectus, as
well as the Underwriters' discount as provided in the Underwriting Agreement.
See "Underwriting." Except as expressly set forth in the Reorganization and
Spin-off Agreement or in any Ancillary Agreement, whether or not the Spin-off
is consummated, each party shall bear its own respective third-party fees,
costs and expenses paid or incurred in connection with the Spin-off. Except
for any other expenses related to the Reorganization that are specifically
allocable to the Company, AccuStaff will pay the remaining expenses related to
the Reorganization.
TERMINATION
The Reorganization and Spin-off Agreement may be terminated at any time
prior to the Spin- off Date by the mutual consent of AccuStaff and the
Company, or by AccuStaff at any time prior to the Offering Closing Date. In
addition, the Reorganization and Spin-off Agreement will terminate if the
Spin-off does not occur on or prior to December 31, 1999, unless extended by
AccuStaff and the Company. If the Reorganization and Spin-off Agreement is
terminated prior to the Offering Closing Date, no party thereto (or any of its
respective directors or officers) will have any liability or further
obligation to any other party. In the event of any termination of the
Reorganization and Spin-off Agreement on or after the Offering Closing Date,
only the provisions of the Reorganization and Spin-off Agreement that obligate
the parties to pursue the Spin-off, or take, or refrain from taking, actions
which would or might prevent the Spin-off from qualifying for tax-free
treatment, will terminate and the other provisions of the Reorganization and
Spin-off Agreement and each Ancillary Agreement will remain in full force and
effect.
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<PAGE>
SERVICES AGREEMENT
The Services Agreement provides for AccuStaff to continue to provide certain
services to the Company, including (i) payroll processing and billing
services; (ii) human resources and employee benefit administration services;
(iii) risk management services; (iv) MIS services; (v) financial/cash
management and purchasing and procurement services; (vi) legal services; and
(vii) shareholder relations services. Under the terms of the Services
Agreement, all or a portion of the services will be rendered by AccuStaff
subject to the oversight, supervision, and approval of the Company, acting
through its Board of Directors and Officers. The costs of such services
provided to the Company will be based upon an agreed upon allocation of
AccuStaff's costs for such services.
The Services Agreement became effective upon the Reorganization and will
have an initial term expiring on the date of the Spin-off, unless extended by
mutual agreement of AccuStaff and the Company.
TAX DISAFFILIATION AGREEMENT
The Tax Disaffiliation Agreement provides that if any one of certain events
occurs, and such event causes the Spin-off not to be a tax-free transaction to
AccuStaff, then the Company will indemnify AccuStaff for income taxes, and any
associated interest or penalties, that AccuStaff may incur by reason of the
Spin-off not so qualifying under the Code (the "Spin-off Taxes"). Such events
include any breach of representations relating to the Company's activities and
ownership of its capital stock made to AccuStaff or to the IRS in connection
with the solicitation of a Letter Ruling.
The Tax Disaffiliation Agreement will also provide that AccuStaff will
indemnify the Company for income taxes that the Company might incur based on
certain acts or omissions of AccuStaff related to the Reorganization that do
not relate to the Company's business, irrespective of whether such taxes arise
as a result of the events referred to above, and for Spin-off Taxes for which
the Company has no liability to AccuStaff under the circumstances described
above.
In addition to the foregoing indemnities, the Tax Disaffiliation Agreement
will provide for (i) the allocation and payment of taxes for periods during
which the Company and AccuStaff are included in the same consolidated group
for federal income tax purposes or the same consolidated, combined or unitary
returns for state tax purposes, (ii) the allocation of responsibility for the
filing of tax returns, (iii) the conduct of tax audits and the handling of tax
controversies and (iv) various related matters. In addition, any tax benefits
from the deduction received by the Company as a result of the exercise of the
AccuStaff portion of any Stapled Options will be paid to AccuStaff by the
Company.
For periods during which the Company is included in AccuStaff's consolidated
federal income tax returns or state consolidated, combined, or unitary tax
returns (which will include the periods on or before the Offering Closing
Date), the Company will be required to pay an amount of income tax equal to
the amount it would have paid had it filed its tax return as a separate
entity. The Company will be responsible for its own separate tax liabilities
that are not determined on a consolidated or combined basis. The Company will
also be responsible in the future for any increases to the consolidated tax
liability of the Company and AccuStaff that is attributable to the Company and
will be entitled to refunds for reductions of tax liabilities attributable to
the Company for prior periods.
The Company and its subsidiaries will be included in AccuStaff's
consolidated group for federal income tax purposes so long as AccuStaff
beneficially owns at least 80% of the total voting power and value of the
outstanding Common Stock. Each corporation that is a member of a consolidated
group during any portion of the group's tax year is severally liable for the
federal income tax liability of the group for that year. The Company (and its
subsidiaries) will cease to be members of AccuStaff's consolidated group at
the time of the Spin-off. While the Tax Disaffiliation Agreement allocates tax
liabilities between the Company and AccuStaff during the period on or prior to
the Offering Closing Date in which the Company is included in AccuStaff's
consolidated group, the Company could be liable in the event federal tax
liability allocated to AccuStaff is incurred, but not paid, by AccuStaff or
any
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<PAGE>
other member of AccuStaff's consolidated group for AccuStaff's tax years that
include such periods. In such event, the Company would be entitled to
indemnification by AccuStaff pursuant to the Tax Disaffiliation Agreement.
STRATEGIC MARKETING AND CROSS-SELLING AGREEMENT
In order to continue the business opportunities available to both AccuStaff
and the Company, each has granted to the other pursuant to a Strategic
Marketing and Cross-Selling Agreement, a non-exclusive license to market the
services of the other. Under the Strategic Marketing and Cross-Selling
Agreement, AccuStaff's market development managers, paid on a cost sharing
basis by both the Company and AccuStaff, shall continue to seek opportunities
to cross-sell both companies' services to each other's clients.
Prior to the Reorganization, AccuStaff entered into various agreements with
customers (the "Joint Contracts") to provide the types of services offered by
the Company ("Company Services") and those offered by AccuStaff ("AccuStaff
Services"). Pursuant to the Strategic Marketing and Cross-Selling Agreement,
AccuStaff has agreed to fulfill the obligations under each such Joint Contract
to provide AccuStaff Services required to be provided thereunder in accordance
with the terms and conditions thereof and the Company has agreed to fulfill
the obligations under each such Joint Contract to provide the Company Services
required to be provided thereunder in accordance with the terms and conditions
thereof. Revenues from the Joint Contracts will be allocated in accordance
with the services provided. Notwithstanding anything to the contrary in the
Strategic Marketing and Cross-Selling Agreement, the obligations of the
parties with respect to the Joint Contracts shall survive any termination of
the Strategic Marketing and Cross-Selling Agreement.
The Strategic Marketing and Cross-Selling Agreement becomes effective upon
the Offering Closing Date and will have an initial term expiring on the
earlier of eight months from the Effective Date or the date of the Spin-off,
unless earlier terminated in accordance with its terms by AccuStaff or the
Company. After the Spin-off, the Company anticipates negotiating a new
Strategic Marketing and Cross-Selling Agreement.
EMPLOYEE BENEFITS AGREEMENT
The Employee Benefits Agreement provides that the Company will assume and
agree to pay, perform, fulfill and discharge, employee benefit obligations in
accordance with their respective terms, all liabilities to, or relating to
individuals who will be employed by the Company and its affiliates as of the
Spin-off Date ("Company Employees"). Until the Spin-off Date, Company
Employees will continue to participate in AccuStaff's employee benefit plans,
although the Company will bear its allocable share of the costs of benefits
and administration of such plans. Effective immediately after the Spin-off,
the Company will establish its own employee benefit plans. The Employee
Benefits Agreement will not preclude the Company from discontinuing or
changing such plans at any time thereafter, with certain exceptions noted
below, nor will such agreement preclude the Company from adopting additional
employee benefit plans prior to the Spin-off. The Company's employee benefit
plans generally will assume all liabilities under AccuStaff's plans to Company
Employees, and any assets funding such liabilities will be transferred from
funding vehicles associated with AccuStaff's plans to the corresponding
funding vehicles associated with the Company's plans.
ACCUSTAFF STOCK OPTIONS
Pursuant to the Employee Benefits Agreement, immediately following the Spin-
off, outstanding stock options granted under AccuStaff's stock option plans
(collectively, "AccuStaff Stock Options") held by individuals employed by
AccuStaff as of and immediately following the Spin-off Date will remain
outstanding AccuStaff Stock Options, with an appropriate antidilution
adjustment to reflect the Spin-off.
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<PAGE>
Company Employees and certain AccuStaff employees who become Company
Employees after the Spin-off will no longer be employees of AccuStaff or a
subsidiary of AccuStaff for purposes of the AccuStaff stock option plans and
the stock option agreements pursuant to which their AccuStaff Stock Options
were granted. Company Employees and former AccuStaff employees who become
Company Employees as a result of the Spin-off will be given the option to
elect to either: (i) retain their existing AccuStaff Stock Options (with an
appropriate antidilution adjustment to reflect the Spin-off), which options
will remain subject to the terms and conditions (including forfeiture and
termination of employment provisions) of applicable AccuStaff stock option
plans and stock option agreements; or (ii) receive "Stapled Options," as
defined and described below. Company Employees who elect to receive Stapled
Options shall be deemed to be employees of AccuStaff for the period they
remain Employees of the Company (for purposes of stock plan eligibility only)
and will retain their AccuStaff Stock Options (without an antidilution
adjustment to reflect the Spin-off) which will continue to vest and will
remain subject to the terms and conditions of the applicable AccuStaff stock
option plan and stock option award agreement. The AccuStaff Stock Options
related to the Stapled Options will not be adjusted to reflect the Spin-off.
Instead, in addition to their AccuStaff Stock Options, Company Employees who
elect to receive Stapled Options will receive options to purchase a number of
shares of the Company ("Company Stock Options") that is reflective of the pro
rata distribution of Common Stock of the Company to AccuStaff stockholders in
the Spin-off. Exercise of each AccuStaff Stock Option related to the Stapled
Options will entitle the holder to (i) a share of AccuStaff Common Stock and
(ii) the same number of shares of Common Stock of the Company as is received
by each holder of a share of AccuStaff Common Stock. The Company Stock Options
related to the Stapled Options will, by their terms, require that any exercise
will have to be made jointly with the exercise of the counterpart AccuStaff
Stock Options related to the Stapled Options (which in turn will be adjusted
to accommodate this feature in converse, and which, together with the related
Company Stock Options being awarded as of the Spin-off will be referred to
herein as the "Stapled Options"). The total consideration required to exercise
the Stapled Options will equal the original amount required to exercise the
related AccuStaff Stock Options before the Spin-off. Notwithstanding the
foregoing, if either AccuStaff or the Company determines that legal,
accounting, tax, and/or regulatory rules or requirements applicable to options
would make compliance with any of such entity's obligations under this
paragraph impossible, illegal, impracticable or unreasonably expensive, it
shall so notify the other party, and AccuStaff and the Company shall use their
best efforts to agree to appropriate alternative arrangements. In addition to
the foregoing, any tax benefits received by the Company as a result of the
exercise of the AccuStaff portion of any Stapled Option will be paid to
AccuStaff by the Company.
It is not possible to specify how many shares of Common Stock will be
subject to the Stapled Options. It is expected that some AccuStaff Stock
Options consisting of stock options held by the Company Employees will be
exercised and that some will be forfeited, and that additional AccuStaff Stock
Options could be granted, prior to the Spin-off Date. Stockholders of the
Company are, however, likely to experience some dilutive impact from the
issuance of the Stapled Option. The number of shares of Common Stock acquired
pursuant to Stapled Options will, however, reduce the number of shares
available for issuance under the Company's long-term incentive plan. See
"Management's Long-Term Incentive Plan" and "Shares Eligible For Future Sale."
OTHER
As of the effective date of Mr. Derito's employment agreement, AccuStaff has
agreed to forgive a $1.75 million note from Mr. Derito that was secured by Mr.
Derito's pledge of certain shares of AccuStaff common stock.
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PRINCIPAL STOCKHOLDER
Prior to the consummation of the Offering, AccuStaff will own of record,
shares of Common Stock, representing all of the shares of Common Stock
outstanding prior to the consummation of the Offering. AccuStaff is able,
acting alone, to cause to be elected the entire Board of Directors of the
Company and to control the vote on all maters submitted to a vote of the
Company's stockholders, including extraordinary corporate transactions.
Currently, the Company's Board of Directors is comprised entirely of designees
of AccuStaff. Following the Offering, the shares of Common Stock owned by
AccuStaff will represent approximately % of the combined voting power of all
classes of voting stock of the Company (approximately % if the Underwriters'
over-allotment options are exercised in full), and the Company will expand its
Board of Directors to include two additional outside directors. See
"Management" and "Certain Relationships and Related Transactions."
AccuStaff has announced that it intends to consummate the Spin-off in 1999.
The Spin-off will be subject to the receipt of a favorable ruling from the
Internal Revenue Service as to the tax-free nature of the transaction and
certain other conditions. See "Certain Relationships and Related
Transactions--Reorganization and Spin-off Agreement--The Spin-off."
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OWNERSHIP OF ACCUSTAFF STOCK
The following table shows the beneficial ownership as of June 1, 1998 of (i)
each director, (ii) the executive officers named in the Summary Compensation
Table, (iii) those persons known to AccuStaff to be beneficial owners of more
than 5% of its outstanding common stock and (iv) all directors and executive
officers of the Company as a group. Unless otherwise indicated, each of the
stockholders listed below exercises sole voting and dispositive power over the
shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
NAME OWNED
- ---- ---------------------
NUMBER PERCENT(1)
---------- ----------
<S> <C> <C>
Derek E. Dewan (2)...................................... 1,673,767 1.46%
John K. Anderson, Jr. (3)............................... 12,700 *
Peter J. Tanous......................................... 0 *
Michael D. Abney (4).................................... 557,340 *
Lawrence E. Derito (5).................................. 242,064 *
Allen J. Gershlak (6)................................... 0 *
Marc M. Mayo (7)........................................ 33,334 *
American Express Company (8)............................ 6,313,816 5.5 %
Putnam Investments, Inc. (9)............................ 7,927,259 6.9 %
Massachusetts Financial Services Company (10)........... 10,266,137 8.9 %
AMVESCAP PLC (11)....................................... 5,503,093 4.8 %
FMR Corp. (12).......................................... 9,639,387 8.4 %
All directors and executive officers as a group (10 per-
sons).................................................. 2,539,873 2.21%
</TABLE>
- --------
*Indicates less than 1%.
(1) Percentage is determined on the basis of 110,448,334 shares of AccuStaff
common stock outstanding as of June 1, 1998, plus shares of AccuStaff
common stock deemed outstanding pursuant to Rule 13d-3(d)(1) promulgated
under the Securities Exchange Act of 1934, as amended (the "1934 Act").
(2) Mr. Dewan owns or has options to acquire a total of 2,783,100 shares of
AccuStaff common stock, including the 1,673,767 shares shown in the table
above. Mr. Dewan's 2,783,100 shares consist of: (i) 100 shares held in
his name; (ii) 1,673,767 shares held pursuant to options that are
exercisable within 60 days of June 1, 1998; (iii) 276,000 shares of
restricted stock which vest ratably over the next four years; and (iv)
500,000 options that will vest ratably over the next three years.
(3) Mr. Anderson beneficially owns or has options to acquire 140,700 shares
of AccuStaff common stock, including the 12,000 shares shown in the table
above. Mr. Anderson's 140,700 shares consist of: (i) 700 shares held in
his name; (ii) 12,000 shares held pursuant to options that are
exercisable within 60 days of June 1, 1998; (iii) 68,000 options which
will vest ratably over the next two years; and (iv) options for 60,000
shares which will vest ratably over the next three years.
(4) Mr. Abney owns or has options to acquire a total of 781,340 shares of
AccuStaff common stock, including 557,340 shares shown in the table
above. Mr. Abney's 781,340 shares consist of: (i) 31,340 shares held in
his name; (ii) 526,000 shares held pursuant to options that are
exercisable within 60 days of June 1, 1998; (iii) 92,660 options that
will vest ratably over the next two years; and (iv) 100,000 options which
will vest ratably over the next three years.
(5) Mr. Derito owns or has options to acquire a total of 342,064 shares of
AccuStaff common stock, including the 242,064 shares shown in the table
above. Mr. Derito's 342,064 shares consist of: (i) 242,064 shares held in
his name; and (ii) options for 100,000 shares that will vest ratably on
December 31, 1999 and December 31, 2000.
(6) Mr. Gershlak has options to acquire 60,000 shares of AccuStaff common
stock. Mr. Gershlak's options for 60,000 shares vest ratably over the
next 5 years.
(7) Mr. Mayo owns or has options to acquire a total of 250,000 shares of
AccuStaff common stock, including the 33,334 shares shown in the table
above. Mr. Mayo's 250,000 shares consist of: (i) 33,334 shares held
pursuant to options that are exercisable within 60 days of June 1, 1998;
(ii) 66,666 options that will vest ratably over the next two years; and
(iii) 150,000 shares which will vest ratably over the next three years.
(8) Based on information the Company obtained from American Express Company's
Schedule 13-G filed as of January 29, 1998. The business address of
American Express Company is American Express Tower, 200 Vesey Street, New
York, New York 10285. American Express Company reports to have shared
voting power for 399,016 shares of AccuStaff common stock and shared
dispositive power for 6,313,816 shares of AccuStaff common stock.
(9) Based on information the Company obtained from Putnam Investments, Inc.'s
Schedule 13-G filed as of January 20, 1998. The business address of
Putnam Investments, Inc. is One Post Office Square, Boston, Massachusetts
02109. Putnam Investments, Inc. reports to have shared voting power for
438,300 shares of AccuStaff common stock and shared
57
<PAGE>
dispositive power for 7,927,259 shares of AccuStaff common stock. These
shares are held through its affiliates which report that Putnam Investment
Management, Inc. has shared dispositive power for 7,140,459 shares and The
Putnam Advisory Company has shared voting power for 438,300 shares of
AccuStaff common stock and shared dispositive power for 786,800 shares of
AccuStaff common stock.
(10) Based on information the Company obtained from Massachusetts Financial
Services Company's Schedule 13-G filed as of January 20, 1998. The
business address of Massachusetts Financial Services Company is 500
Boylston Street, Boston, Massachusetts 02116. Massachusetts Financial
Services Company reports to have sole voting power for 10,225,030 shares
of AccuStaff common stock and sole dispositive power for 10,266,137
shares of AccuStaff common stock. The 10,266,137 shares of AccuStaff
common stock are held by Massachusetts Financial Services Company and
certain other affiliates that include the MFS Series Trust II--MFS
Emerging Growth Stock Fund.
(11) Based on information the Company obtained from AMVESCAP PLC's Schedule
13-G filed as of February 11, 1998. The business address of AMVESCAP PLC
is 11 Devonshire Square, London, EC2M 4YR, United Kingdom. AMVESCAP PLC
reports to have shared voting and dispositive power for 5,503,093 shares
of AccuStaff common stock. The 5,503,093 shares of AccuStaff common stock
are held by the following subsidiaries of AMVESCAP PLC: AVZ, Inc., AIM
Management Group, Inc., AMVESCAP Group Services, Inc., INVESCO, Inc., and
INVESCO North American Holdings, Inc.
(12) Based on information the Company obtained from FMR Corp.'s Schedule 13-G
filed as of February 9, 1998. The business address of FMR Corp is 82
Devonshire Street, Boston, MA 02109. FMR Corp. reports to have sole
voting power for 1,218,761 shares of Common Stock and sole dispositive
power for 9,639,387 shares of AccuStaff common stock. These shares are
held through various subsidiaries and affiliates of FMR Corp., including
Fidelity Management Research Company, an investment adviser to various
investment companies, Fidelity Management Trust Company, Fidelity
International Limited, Edward C. Johnson 3d and Abigail P. Johnson.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of (a) shares of
Common Stock, par value $0.01 per share; and (b) shares of Preferred Stock,
par value $0.01 per share, of which no shares are outstanding as of the date
hereof. Of the shares of Common Stock, shares will be outstanding and held
by AccuStaff upon consummation of the Offering. A description of the material
terms and provisions of the Company's Certificate of Incorporation affecting
the relative rights of the Common Stock and the Preferred Stock is set forth
below. The description is intended as a summary and is qualified in its
entirety by reference to the form of the Company's Certificate of
Incorporation filed as an exhibit to the Registration Statement of which this
Prospectus forms a part.
COMMON STOCK
The holders of Common Stock will be entitled to one vote for each share on
all matters voted on by stockholders, including elections of directors, and,
except as otherwise required by law or provided in any resolution adopted by
the Company's Board of Directors with respect to any series of Preferred
Stock, the holders of such shares will possess all voting power. The Company's
Certificate of Incorporation does not provide for cumulative voting in the
election of directors. Subject to any preferential rights of any outstanding
series of Preferred Stock created by the Company's Board of Directors from
time to time, the holders of Common Stock will be entitled to such dividends
as may be declared from time to time by the Company's Board of Directors from
funds available therefor, and upon liquidation will be entitled to receive pro
rata all assets of the Company available for distribution to such holders. See
"Dividend Policy."
PREFERRED STOCK
The Preferred Stock is issuable from time-to-time in one or more series and
with such designations and preferences for each series as shall be stated in
the resolutions providing for the designation and issue of each such series
adopted by the Board of Directors of the Company. The Board of Directors is
authorized by the Company's Certificate of Incorporation to determine, among
58
<PAGE>
other things, the voting, dividend, redemption and liquidation preferences and
limitations pertaining to such series. The Board of Directors, without
stockholder approval, may issue Preferred Stock with voting and other rights
that could adversely affect the voting power of the holders of the Common
Stock and could have certain antitakeover effects. The Company has no present
plans to issue any shares of Preferred Stock. The ability of the Board of
Directors to issue Preferred Stock without stockholder approval could have the
effect of delaying, deferring or preventing a change in control of the Company
or the removal of existing management.
CERTAIN CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS
The Company's Certificate of Incorporation provides that any person
purchasing or acquiring an interest in shares of capital stock of the Company
is deemed to have consented to the following provisions relating to
intercompany agreements and to transactions with interested parties and
corporate opportunities. The corporate charter of AccuStaff does not include
comparable provisions relating to intercompany agreements, transactions with
interested parties or corporate opportunities.
TRANSACTIONS WITH INTERESTED PARTIES
The Company's Certificate of Incorporation provides that no contract,
agreement, arrangement or transaction (or any amendment, modification or
termination thereof) between the Company and AccuStaff or any Related Entity
(as such terms are defined below) or between the Company and any director or
officer of the Company, AccuStaff or any Related Entity shall be void or
voidable solely for the reason that AccuStaff, a Related Entity or any one of
more of the officers or directors of the Company, AccuStaff or any Related
Entity are parties thereto, or solely because any such directors or officers
are present at, participate in or vote with respect to the authorization of
such contract, agreement, arrangement or transaction (or any amendment,
modification or termination thereof). Further, the Company's Certificate of
Incorporation provides that neither AccuStaff nor any officer or director
thereof or of any Related Entity shall be liable to the Company or its
stockholders for breach of any fiduciary duty or duty of loyalty or failure to
act in (or not opposed to) the best interests of the Company or the derivation
of any improper personal benefit by reason of the fact that AccuStaff or an
officer or director thereof or of such Related Entity in good faith takes any
action or exercises any right or gives or withholds any consent in connection
with any agreement or contract between AccuStaff or such Related Entity and
the Company. No vote cast or other action taken by any person who is an
officer, director or other representative of AccuStaff or such Related Entity,
which vote is cast or action is taken by such person in his capacity as a
director of the Company, shall constitute an action of or the exercise of a
right by or a consent of AccuStaff, such subsidiary or Related Entity for the
purpose of any such agreement or contract. For purposes of the foregoing, the
"Company" and AccuStaff include all corporations and other entities in which
the Company or AccuStaff, as the case may be, owns fifty percent or more of
the outstanding voting stock, and "Related Entity" means one or more
corporations or other entities in which one or more of the directors of the
Company have a direct or indirect financial interest.
COMPETITION BY ACCUSTAFF WITH THE COMPANY'S CORPORATE OPPORTUNITIES
The Company's Certificate of Incorporation provides that except as AccuStaff
may otherwise agree in writing:
(i) AccuStaff or any subsidiary of AccuStaff (other than the Company)
shall not have a duty to refrain from engaging directly or indirectly in
the same or similar business activities or line of business as the Company;
and
(ii) AccuStaff or any subsidiary (other than the Company), officer or
director thereof will not be liable to the Company or to its stockholders
for breach of any fiduciary duty by reason of any such activities or of
such person's participation therein.
59
<PAGE>
The Company's Certificate of Incorporation also provides that if AccuStaff
or any subsidiary of AccuStaff (other than the Company) acquires knowledge of
a potential transaction or matter which may be a corporate opportunity both
for AccuStaff or such subsidiary and for the Company, neither AccuStaff nor
such subsidiary (nor the officers and directors of either thereof) shall have
a duty to communicate or offer such corporate opportunity to the Company and
shall not be liable to the Company or its stockholders for breach of fiduciary
duty as a stockholder of the Company or controlling person of a stockholder by
reason of the fact that AccuStaff or such subsidiary pursues or acquires such
opportunity for itself, directs such corporate opportunity to another person,
or does not communicate information regarding such corporate opportunity to
the Company.
Further, the Company's Certificate of Incorporation provides that in the
event that a director, officer or employee of the Company who is also a
director, officer or employee of AccuStaff acquires knowledge of a potential
transaction or matter that may be a corporate opportunity both for the Company
and AccuStaff (whether such potential transaction or matter is proposed by a
third party or is conceived of by such director, officer or employee of the
Company), such director, officer or employee shall be entitled to offer such
corporate opportunity to the Company or AccuStaff as such director, officer or
employee deems appropriate under the circumstances in his or her sole
discretion, and no such director, officer or employee shall be liable to the
Company or its stockholders for breach of any fiduciary duty or duty of
loyalty or failure to act in (or not opposed to) the best interest of the
Company or the derivation of any improper personal benefit by reason of the
fact that (i) such director, officer or employee offered such corporate
opportunity to AccuStaff (rather than to the Company) or did not communicate
information regarding such corporate opportunity to the Company or (ii)
AccuStaff pursues or acquires such corporate opportunity for itself or directs
such corporate opportunity to another person or does not communicate
information regarding such corporate opportunity to the Company.
The enforceability of the provisions discussed above has not been
established under Delaware corporate law and, due to the absence of relevant
judicial authority, counsel to the Company is not able to deliver an opinion
as to the enforceability of such provisions. These provisions of the Company's
Certificate of Incorporation eliminate certain rights that might have been
available to stockholders under Delaware law had such provisions not been
included in the Certificate of Incorporation, although the enforceability of
such provision has not been established.
At the time of the consummation of the Offering, certain of the directors of
the Company will also be employees of AccuStaff.
The foregoing provisions of the Company's Certificate of Incorporation shall
expire on the date that AccuStaff ceases to own beneficially Common Stock
representing at least 20% of the number of outstanding shares of Common Stock.
ACTIONS UNDER INTERCOMPANY AGREEMENTS
The Company's Certificate of Incorporation will also limit the liability of
AccuStaff and its subsidiaries for certain breaches of their fiduciary duties
in connection with action that may be taken or not taken in good faith under
the intercompany agreements for any acts or omissions occurring while
AccuStaff continues to own beneficially Common Stock representing at least 20%
of the number of outstanding shares of Common Stock. See "Certain
Relationships and Related Transactions".
ADVANCE NOTICE PROVISION
The Company's By-laws provide for an advance notice procedure of the
nomination, other than by or at the direction of the Board of Directors, of
candidates for election as directors as well as of
60
<PAGE>
other stockholder proposals to be considered at annual meetings of
stockholders. In general, notice of intent to nominate a director or raise
matters at such meetings will have to be received by the Company not less than
120 or more than 150 days prior to the first anniversary of the Company's
proxy statement in connection with the previous year's annual meeting, and
must contain certain information concerning the person to be nominated or the
matters to be brought before the meeting and concerning the stockholder
submitting the proposal.
LIMITATIONS ON DIRECTORS' LIABILITY
The Company's Certificate of Incorporation and the applicable provision of
the DGCL provide that no director of the Company shall be liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty
as a director, except for liability (i) for any breach of the director's duty
of loyalty to the Company or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) in respect of certain unlawful dividend payments or stock
redemptions or repurchases or (iv) for any transaction from which the director
derived an improper personal benefit. The effect of these provisions will be
to eliminate the rights of the Company and its stockholders (through
stockholders' derivative suit on behalf of the Company) to recover monetary
damages against a director for breach of fiduciary duty as a director
(including breaches resulting from grossly negligent behavior), except in the
situations described above.
THE DELAWARE GENERAL CORPORATION LAW
The Company is a Delaware corporation subject to Section 203 of the DGCL.
Section 203 provides that, subject to certain exceptions specified therein, a
corporation shall not engage in any business combination with any "interested
stockholder" for a three-year period following the date that such stockholder
becomes an interested stockholder unless: (i) prior to such date, the Board of
Directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder; (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding certain shares); or (iii) on or
subsequent to such date, the business combination is approved by the Board of
Directors of the corporation and by the affirmative vote of at least 2/3 of
the outstanding voting stock which is not owned by the interested stockholder.
Except as specified in Section 203 of the DGCL, an interested stockholder is
defined to include (x) any person that is the owner of 15% or more of the
outstanding voting stock of the corporation, or is an affiliate or associate
of the corporation and was the owner of 15% or more of the outstanding voting
stock of the corporation, at any time within three years immediately prior to
the relevant date and (y) the affiliates and associates of any such person.
Under certain circumstances, Section 203 of the DGCL makes it more difficult
for an "interested stockholder" to effect various business combinations with a
corporation for a three-year period, although the stockholders of a
corporation may elect to exclude a corporation from the restrictions imposed
thereunder. By virtue of its beneficial ownership of Common Stock, AccuStaff
is in a position to elect to exclude the Company from the restrictions under
Section 203 of the DGCL, although it currently has no intention to do so.
TRANSFER AGENT
The Company's transfer agent and registrar for its Common Stock is SunTrust
Bank, Atlanta, Georgia.
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have shares of Common
Stock issued and outstanding (if the Underwriters' over-allotment options are
exercised in full). All of the shares of Common Stock to be sold in the
Offering will be freely tradeable without restrictions under the Securities
Act of 1933, as amended (the "Securities Act"), except for any shares acquired
by an "affiliate" of the Company (as that term is defined in Rule 144 adopted
under the Securities Act ("Rule 144")), which will be subject to the resale
limitations of Rule 144 unless sold under an effective registration statement
under the Securities Act or pursuant to another exemption from registration.
All of the outstanding shares of Common Stock are owned by AccuStaff and have
not been registered under the Securities Act and may not be sold in the
absence of an effective registration statement under the Securities Act other
than in accordance with Rule 144 or another exemption from registration.
AccuStaff has announced, that subject to certain conditions, AccuStaff intends
to distribute to its shareholders in 1999 all of the Common Stock of the
Company pursuant to the Spin-off. Shares of Common Stock distributed to
AccuStaff stockholders pursuant to the Spin-off generally will be freely
transferable, except for shares of Common Stock received by persons who may be
deemed to be affiliates. Notwithstanding the foregoing, AccuStaff and the
Company have each agreed that, without the prior written consent of the
representatives of the Underwriters, other than pursuant to the Spin-off, it
will not offer, sell, contract to sell or otherwise dispose of, directly or
indirectly, or file with the Commission a registration statement under the
Securities Act relating to any shares of Common Stock, for a period of 180
days after the date of this Prospectus other than pursuant to the Stock
Option. See "Certain Relationships and Related Transactions--Reorganization
and Spin-off Agreement--Stock Option."
In general, under Rule 144, as currently in effect, if a period of at least
one year has elapsed between the later of the date on which "restricted
shares" (as that phrase is defined in Rule 144) were acquired from the Company
and the date on which they were acquired from an "affiliate" of the Company
(an "Affiliate") (as that term is defined in Rule 144), then the holder of
such restricted shares (including an Affiliate) is entitled to sell a number
of shares within any three-month period that does not exceed the greater of
(i) one percent of the then outstanding shares of the Common Stock or (ii) the
average weekly reported volume of trading of the Common Stock during the four
calendar weeks preceding such sale. Sales under Rule 144 are also subject to
certain requirements pertaining to the manner of such sales, notices of such
sales and the availability of current public information concerning the
Company. Affiliates may sell shares not constituting restricted shares in
accordance with the foregoing volume limitations and other requirements but
without regard to the one-year period. Under Rule 144(k), if a period of at
least two years has elapsed between the later of the date on which restricted
shares were acquired from the Company and the date on which they were acquired
from an Affiliate, a holder of such restricted shares who is not an Affiliate
at the time of the sale and has not been an Affiliate for at least three
months prior to the sale would be entitled to sell the shares immediately
without regard to the volume limitations and other conditions described above.
Prior to the Offering, there has been no market for the Common Stock. No
predictions can be made of the effect, if any, that market sales of currently
outstanding shares of Common Stock or the availability of such shares for sale
will have on the market price of Common Stock prevailing from time to time.
Nevertheless, sales of substantial amounts of Common Stock in the public
market, or the perception that such sales could occur, could adversely affect
prevailing market prices for Common Stock. Beneficial ownership of at least
80% of the total voting power and value of the outstanding Common Stock is
required in order for AccuStaff to continue to include the Company in its
consolidated group for federal tax purposes, and ownership of at least 80% of
the total voting power and 80% of each class of non-voting capital stock is
required in order for AccuStaff to be able to effect a tax-free spin-off.
62
<PAGE>
Under the Employee Benefits Agreement, the Company and AccuStaff have agreed
to reserve for future issuance and to issue shares of Common Stock of the
Company to certain persons in connection with the exercise of the AccuStaff
Stock Options that were granted pursuant to the AccuStaff stock option plans
which will (if so elected by the respective optionee) be adjusted in
connection with the Spin-off so that the holders of such options are entitled,
upon exercise thereof and without the payment of any additional consideration,
to receive shares of Common Stock of the Company in an amount that is
reflective of the pro rata distribution of Common Stock of the Company to
AccuStaff stockholders in the Spin-off. See "Certain Relationships and Related
Transactions--Employee Benefits Agreement." In addition to Stapled Options,
the Company may grant shares of Common Stock and non-stock awards pursuant to
a long term incentive plan that may be adopted in the future. See
"Management--Executive Compensation--Long Term Incentive Plan." The Company
expects to file in 1998 a registration statement under the Securities Act to
register shares reserved for issuance under such plan once the details of such
plan have been determined and the plan formally adopted. Shares issued
pursuant to Options after the effective date of such registration statement
(other than shares issued to Affiliates) generally will be freely tradeable
without restriction or further registration under the Securities Act.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by LeBoeuf, Lamb, Greene & MacRae, L.L.P., a limited liability
partnership including professional corporations, New York, New York. Certain
legal matters relating to the Offering will be passed upon for the
Underwriters by O'Melveny & Myers LLP, Los Angeles, California.
EXPERTS
The consolidated balance sheets as of December 31, 1997 and 1996 and the
consolidated statements of income, stockholder's equity, and cash flows for
each of the three years in the period ended December 31, 1997, have been
included herein in reliance upon the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, exhibits, schedules and supplements thereto, the "Registration
Statement") pursuant to the provisions of the Securities Act and the rules and
regulations promulgated thereunder, for the registration of the Common Stock
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the
rules and regulations of the Commission. For further information with respect
to the Company and the Common Stock offered hereby, reference is made to the
Registration Statement, including exhibits thereto and financial statements
and notes filed as a part thereof. Statements made in this Prospectus
concerning the contents of any contract or other document are not necessarily
complete. With respect to each such contract or other document filed with the
Commission as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference.
The Registration Statement and the exhibits and schedules thereto filed by the
Company with the Commission may be inspected at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549 and at the regional offices of the Commission located
at Seven World Trade Center, New York, New York 10048 and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials may be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Room 1024,
63
<PAGE>
Washington, D.C. 20549, at prescribed rates. In addition, the Commission
maintains a Web site on the Internet at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
As a result of the Offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). So long as the Company is subject to the periodic
reporting requirements of the Exchange Act, it will continue to furnish the
reports and other information required thereby to the Commission. The Company
intends to furnish the holders of the Common Stock with annual reports
containing, among other information, audited consolidated financial statements
reported upon by an independent public accounting firm and quarterly reports
for each of the first three quarters of each fiscal year containing unaudited
condensed consolidated financial information. The Company also intends to
furnish such other reports as it may determine or as may be required by law.
64
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
STRATEGIX SOLUTIONS, INC.:
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996............. F-3
Consolidated Statements of Income for each of the three years in the
period ended December 31, 1997.......................................... F-4
Consolidated Statements of Stockholder's Equity for each of the three
years in the period ended December 31, 1997............................. F-5
Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 1997.......................................... F-6
Notes to Consolidated Financial Statements............................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of
Strategix Solutions, Inc.
We have audited the accompanying consolidated balance sheets of Strategix
Solutions, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, stockholder's equity, and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Strategix Solutions, Inc. and Subsidiaries as of December 31, 1997 and
1996, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Jacksonville, Florida
June 8, 1998
F-2
<PAGE>
STRATEGIX SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ -- $ 13,183
Accounts receivable, net of allowance of $8,610 and
$5,038............................................ 195,415 147,643
Due from associated offices........................ 41,749 38,897
Prepaid expenses................................... 9,507 5,100
Deferred income taxes.............................. 9,418 6,081
-------- --------
Total current assets............................. 256,089 210,904
Furniture, equipment and leasehold improvements,
net................................................. 21,210 16,316
Goodwill, net........................................ 189,659 102,745
Other assets......................................... 9,581 7,743
-------- --------
Total assets..................................... $476,539 $337,708
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Notes payable...................................... $ 1,658 $ 3,173
Accounts payable and accrued expenses.............. 33,866 33,773
Accrued payroll and related taxes.................. 44,099 45,322
-------- --------
Total current liabilities........................ 79,623 82,268
Due to parent........................................ 81,294 --
Notes payable, long-term portion..................... 24,835 3,508
Other................................................ 6,036 5,843
-------- --------
Total liabilities................................ 191,788 91,619
Commitments and contingencies (Notes 4 and 9)
Stockholder's equity:
Stockholder's net investment....................... 284,751 246,089
-------- --------
Total liabilities and stockholder's equity....... $476,539 $337,708
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
STRATEGIX SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollar amounts in thousands)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenue................................ $1,260,702 $1,031,431 $772,479
Cost of revenue........................ 975,489 807,940 608,207
---------- ---------- --------
Gross profit......................... 285,213 223,491 164,272
---------- ---------- --------
Operating expenses:
General and administrative........... 172,739 136,416 108,016
Remittance to franchisees............ 24,095 21,211 18,489
Depreciation and amortization........ 13,603 9,667 6,575
Merger related costs................. 5,000 14,056 --
---------- ---------- --------
Total operating expenses........... 215,437 181,350 133,080
---------- ---------- --------
Income from operations............... 69,776 42,141 31,192
Interest expense....................... 4,374 429 1,153
---------- ---------- --------
Income before provision for income
taxes................................. 65,402 41,712 30,039
Provision for income taxes............. 26,739 19,079 11,655
---------- ---------- --------
Net income............................. $ 38,663 $ 22,633 $ 18,384
========== ========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
STRATEGIX SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(dollar amounts in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Stockholder's net investment
Balance--beginning of year....................... $246,089 $146,418 $109,365
Net income....................................... 38,663 22,633 18,384
Transfers from (to) parent....................... (1) 77,038 18,669
-------- -------- --------
Balance--end of year............................. 284,751 246,089 146,418
-------- -------- --------
Total stockholder's equity..................... $284,751 $246,089 $146,418
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
STRATEGIX SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in thousands)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................. $38,663 $22,633 $18,384
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization........ 13,603 9,667 6,575
Deferred income taxes................ (3,347) 13 (424)
Changes in certain assets and
liabilities:
Accounts receivable................. (41,374) (37,744) (14,750)
Due from associated offices......... (2,852) (2,058) (370)
Prepaid expenses and other assets... (5,142) (5,672) (40)
Accounts payable and accrued
expenses........................... (764) 11,090 (6,508)
Accrued payroll and related taxes... (2,778) 6,647 5,084
Other, net.......................... 1,578 1,505 (837)
------- ------- -------
Net cash provided by (used in)
operating activities............... (2,413) 6,081 7,114
------- ------- -------
Cash flows from investing activities:
Purchase of furniture, equipment and
leasehold improvements, net of
disposals............................ (9,817) (5,781) (5,780)
Purchase of businesses, including
additional earn-outs on acquisitions,
net of cash acquired................. (84,506) (48,728) (45,219)
------- ------- -------
Net cash used in investing
activities......................... (94,323) (54,509) (50,999)
------- ------- -------
Cash flows from financing activities:
Increase in due to parent ............ 81,294 -- --
Borrowings on indebtedness............ 2,260 -- 7,601
Repayments on indebtedness............ -- (15,427) --
Transfers from (to) parent............ (1) 77,038 18,669
------- ------- -------
Net cash provided by financing
activities......................... 83,553 61,611 26,270
------- ------- -------
Net increase (decrease) in cash and cash
equivalents............................ (13,183) 13,183 (17,615)
Cash and cash equivalents, beginning of
period................................. 13,183 -- 17,615
------- ------- -------
Cash and cash equivalents, end of
period................................. $ -- $13,183 $ --
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
STRATEGIX SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)
(dollar amounts in thousands)
SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31, DECEMBER 31,
1997 1996 1995
----------- ------------ ------------
<S> <C> <C> <C>
Cash paid during the year for:
Interest................................ $ 3,616 $ 353 $ 1,116
Income taxes............................ 38,114 14,181 12,349
</TABLE>
NON-CASH INVESTING AND FINANCING ACTIVITIES
The Company completed numerous acquisitions during each of the three years
in the period ended December 31, 1997. In connection with the acquisitions,
liabilities were assumed as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Fair value of assets acquired............ $ 72,795 $ 54,716 $ 53,220
Cash paid................................ (52,508) (44,542) (32,043)
-------- -------- --------
Liabilities assumed...................... $ 20,287 $ 10,174 $ 21,177
======== ======== ========
</TABLE>
F-7
<PAGE>
STRATEGIX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
1. BACKGROUND:
Strategix Solutions, Inc. and Subsidiaries (the "Company") is a national
provider of business services that primarily include diversified staffing and
outsourcing services to businesses and governmental agencies. The Company is
currently a wholly-owned subsidiary of AccuStaff Incorporated ("AccuStaff").
In connection with a reorganization announced by AccuStaff (the
"Reorganization"), the Company will acquire all of AccuStaff's commercial
businesses. On June 8, 1998, AccuStaff announced its intention to distribute
its ownership interest in the Company to its stockholders in 1999 by means of
a tax-free distribution of Common Stock of the Company to all AccuStaff
stockholders (the "Spin-off"). Additionally, the Company has filed a
Registration Statement on Form S-1 for an initial public offering of a number
of its shares of Common Stock (the "Offering").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying consolidated financial statements reflect the results of
operations, financial position, stockholder's equity and cash flows of the
businesses to be transferred to the Company from AccuStaff in the
Reorganization (the "Company Businesses") as if the Company were a separate
entity for all periods presented. The consolidated financial statements have
been prepared primarily using the historical basis for the assets and
liabilities and historical results of operations related to the Company
Businesses and using certain allocated assets, liabilities, revenues and
expenses which were not historically recorded at the level of, but are
primarily associated with, such businesses. Changes in stockholder's net
investment represent the net income of the Company and net cash transfers to
or from AccuStaff. Additionally, the consolidated financial statements include
the allocation of certain expenses relating to the Company Businesses that
will be transferred to the Company from AccuStaff. Management believes these
allocations are reasonable. All material intercompany transactions and
balances between the Company and its subsidiaries have been eliminated.
The liabilities of the Company include outstanding direct and third-party
indebtedness and advances in excess of cash provided by operations shown as
"Due to parent" on the consolidated balance sheets. Interest expense shown in
the consolidated financial statements or the amount "Due to parent" reflects
the interest expense associated with the allocated borrowings for each period
presented using a rate that approximates the weighted average interest rate
outstanding during each period presented. General corporate overhead related
to AccuStaff's corporate headquarters and common support divisions, where not
specifically identified, has been allocated to the Company based on the ratio
of the Company's revenues, operating income, and assets to AccuStaff's
revenues, operating income and assets. Management believes these allocations
are reasonable. However, the costs of these services charged to the Company
are not necessarily indicative of the costs that would have been incurred by
the Company if the Company had performed these functions as a stand alone
entity. Subsequent to the Spin-off, the Company will perform these functions
using its own resources or purchased services and will be responsible for the
costs and expenses associated with the management of a stand alone company.
Additionally, income taxes are presented as if calculated on a separate tax
return basis.
The financial information included herein may not necessarily reflect the
consolidated results of operations, financial position, stockholder's equity
and cash flows of the Company in the future or what they would have been had
it been a separate, stand alone entity during the periods presented.
F- 8
<PAGE>
STRATEGIX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
Businesses. All intercompany transactions have been eliminated in the
accompanying consolidated financial statements.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include deposits in banks, government money market
funds, and short-term investments with original maturities of 90 days or less.
FURNITURE, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
Furniture, equipment, and leasehold improvements are recorded at cost less
accumulated depreciation and amortization. Depreciation of furniture and
equipment is computed using the straight-line method over the estimated useful
lives of the assets, ranging from 5 to 15 years. Amortization of leasehold
improvements is computed using the straight-line method over the useful life
of the asset or the term of the lease, whichever is shorter. Total
depreciation and amortization expense was $6,597, $4,415 and $3,308 for 1997,
1996 and 1995 respectively. Accumulated depreciation and amortization of
furniture, equipment and leasehold improvements as of December 31, 1997 and
1996 was $22,048 and $15,930, respectively.
GOODWILL
Goodwill represents the excess of cost over fair value of net tangible
assets acquired through acquisitions. Such excess of cost over fair value of
net tangible assets acquired is being amortized on a straight-line basis over
periods ranging from 15 to 40 years. Management periodically reviews the
potential impairment of goodwill on a non-discounted cash flow basis to assess
recoverability. If the estimated future cash flows are projected to be less
than the carrying amount, an impairment write-down (representing the carrying
amount of the goodwill which exceeds the present value of estimated expected
future cash flows) would be recorded as a period expense. Accumulated
amortization was $22,693 and $16,126 as of December 31, 1997 and 1996,
respectively.
DUE TO ACCUSTAFF
The Company has been allocated a certain amount noted as "Due to Parent" on
the accompanying balance sheets. This amount reflects the Company's historical
funding needs resulting from purchases of property and equipment,
acquisitions, current income tax liabilities and fluctuating working capital
needs, offset by payments made by the Company from its operating bank
accounts. Although intended to reflect the historical financing needs of the
Company, the balance is an allocation of AccuStaff's outstanding indebtedness
and may not be indicative of the needs of a stand alone publicly-traded
company.
REVENUE RECOGNITION
The Company recognizes as revenue, at the time the staffing services are
provided, the amounts billed to clients of Company-owned offices and
substantially all franchisees. In all such cases, the temporary worker is the
Company's employee and all costs of employing the temporary worker are the
responsibility of the Company and are included in cost of revenue. The
accounts receivable of such franchisees belong to the Company and are included
with those of the Company owned offices, as accounts receivable, in the
consolidated balance sheets.
With respect to services performed for independent temporary personnel firms
("Associated Offices") and certain other franchisees, the Company records the
service fee it receives as revenue.
F-9
<PAGE>
STRATEGIX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In such cases, the temporary worker is not employed by the Company. All costs
are the responsibility of the Associated Office or the franchisee and are not
included in cost of revenue. The Company advances to such Associated Offices
or the franchisees the amounts billed to their clients and includes the amount
of the advances on the Company's consolidated balance sheet as Due from
Associated Offices.
INCOME TAXES
Historically, the Company's operations have been included in the
consolidated income tax returns filed by AccuStaff. Income tax expense as
presented in the accompanying consolidated financial statements has been
calculated on a separate tax return basis. Deferred tax liabilities and assets
are recognized for the expected future tax consequences of events that have
been included in the financial statements. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement carrying amounts and tax basis of assets and liabilities
using enacted tax rates in effect for the year in which the differences are
expected to reverse.
REMITTANCE TO FRANCHISEES
The remittance to franchisees is that portion of gross profit owed to
substantially all franchisees after deduction of fees and expenses.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and of revenue and expenses during the period reported. Although
management believes these estimates and assumptions are adequate, actual
results may differ from the estimates and assumptions used.
EARNINGS PER SHARE
Historical earnings per share have not been presented because they would not
be meaningful, because the Company is a wholly owned subsidiary of AccuStaff.
RECENT ACCOUNTING PRONOUNCEMENTS
During 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income, which requires that changes in comprehensive income be
shown in a financial statement that is displayed with the same prominence as
other financial statements. This statement is effective for the Company's 1998
fiscal year. Management does not believe that the Company has material other
comprehensive income which would require separate disclosure.
Additionally, during 1997, the FASB issued SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information. SFAS No. 131 requires,
among other things, that certain general and financial information be
disclosed for reportable operating segments of a company. SFAS No. 131 is
effective for the Company's 1998 fiscal year. The Company will make the
disclosures required under this standard.
During 1998, the American Institute of Certified Public Accountants'
Executive Committee issued Statement of Position Number 98-1 (SOP 98-1),
Accounting for the Cost of Computer Software Developed or Obtained for
Internal Use. SOP 98-1 is effective for fiscal years beginning after December
15, 1998. Management believes that the Company is substantially in compliance
with this pronouncement and that the implementation of this pronouncement will
not have a material effect on the Company's consolidated financial position,
results of operations or cash flows.
F-10
<PAGE>
STRATEGIX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. NOTES PAYABLE:
Notes payable at December 31, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Credit Facility................................................. $10,620 $4,763
Notes payable to former shareholder of Training Delivery
Systems, Inc., including interest at 5.83% with $1,580 due May
1998 and $14,215 due May 1999.................................. 15,795 --
Other........................................................... 78 1,918
------- ------
26,493 6,681
Current portion of notes payable................................ 1,658 3,173
------- ------
Long-term portion of notes payable.............................. $24,835 $3,508
======= ======
</TABLE>
The credit facility noted above has been issued to the Company's subsidiary,
Office Specialists, Inc. ("OSI"). The facility allows for OSI to borrow the
lesser of $15,000 or a certain percentage of accounts receivable less the
outstanding letter of credit balance, as defined in the agreement. Borrowings
under the facility bear interest at the bank's base prime rate or at 2% above
the London InterBank Offering Rate. These borrowings are collateralized by
OSI's accounts receivable. The agreement also requires OSI to maintain certain
financial ratios and limits annual payments of dividends. Unless renewed, the
agreement expires May 23, 1999.
Maturities of notes payable and credit facilities, are as follows for the
fiscal years subsequent to December 31, 1997:
<TABLE>
<S> <C>
1998................................................................ $ 1,658
1999................................................................ 14,215
2000................................................................ --
2001................................................................ --
2002................................................................ 10,620
-------
$26,493
=======
</TABLE>
4. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases office space under various noncancellable operating
leases. The following is a schedule of future minimum lease payments with
terms in excess of one year:
<TABLE>
<S> <C>
1998................................................................ $ 9,107
1999................................................................ 7,473
2000................................................................ 5,441
2001................................................................ 3,488
2002................................................................ 2,046
Thereafter.......................................................... 3,519
-------
$31,074
=======
</TABLE>
Total rent expense for fiscal 1997, 1996 and 1995 was $10,123, $8,527 and
$6,240, respectively.
F-11
<PAGE>
STRATEGIX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
LITIGATION
The Company is a party to a number of lawsuits and claims arising out of the
ordinary conduct of its business. In the opinion of management, based on the
advice of in-house and external legal counsel, the lawsuits and claims pending
will not have a material adverse effect on the Company's financial position.
5. INCOME TAXES:
A comparative analysis of the provision for income taxes is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Current:
Federal............................................. $26,562 $16,093 $ 9,807
State............................................... 3,524 2,973 2,272
------- ------- -------
30,086 19,066 12,079
------- ------- -------
Deferred:
Federal............................................. (2,986) 10 (378)
State............................................... (361) 3 (46)
------- ------- -------
(3,347) 13 (424)
------- ------- -------
$26,739 $19,079 $11,655
======= ======= =======
</TABLE>
The difference between the actual income tax provision and the tax provision
computed by applying the statutory federal income tax rate to income before
provision for income taxes is attributable to the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------
1997 1996 1995
------------------- ------------------- -------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Tax computed using the
federal statutory
rate................... $22,891 35.0% $14,599 35.0% $10,514 35.0%
State income taxes, net
of federal income tax
effect................. 1,767 2.7 1,878 4.5 1,322 4.4
Acquired subsidiaries
change from cash to
accrual basis.......... 611 0.9 -- -- -- --
Non-deductible merger
related costs.......... 1,750 2.7 3,169 7.6 -- --
Permanent differences
and other.............. (280) (0.4) (567) (1.4) (181) (0.6)
------- ---- ------- ---- ------- ----
$26,739 40.9% $19,079 45.7% $11,655 38.8%
======= ==== ======= ==== ======= ====
</TABLE>
F-12
<PAGE>
STRATEGIX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of the deferred tax assets and liabilities recorded in the
accompanying consolidated balance sheet are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------- -------
<S> <C> <C>
Gross deferred tax assets:
Self-insurance reserves.................................... $ 7,383 $ 4,496
Deferred income............................................ -- 71
Allowance for doubtful accounts receivable................. 1,232 523
Purchase accounting adjustments............................ 1,102 681
Other...................................................... 1,499 984
------- -------
Total gross deferred tax assets.......................... 11,216 6,755
------- -------
Gross deferred tax liabilities:
Amortization of computer software costs.................... (319) (41)
Depreciation and amortization of furniture, equipment and
leasehold improvements.................................... (2,793) (2,448)
Amortization of goodwill................................... (421) (629)
Acquired subsidiaries change from cash to accrual basis.... (699) --
------- -------
Total gross deferred tax liabilities..................... (4,232) (3,118)
------- -------
Net deferred income tax asset (1)........................ $ 6,984 $ 3,637
======= =======
</TABLE>
- --------
(1) Deferred tax liabilities of $2,434 and $2,444 have been included in the
balance sheet caption "other" at December 31, 1997 and 1996, respectively.
Management has determined, based on the history of prior taxable earnings
and its expectations for the future, taxable income will more likely than not
be sufficient to fully realize deferred tax assets and, accordingly, has not
reduced deferred tax assets by a valuation allowance.
6. EMPLOYEE BENEFIT PLANS:
PROFIT SHARING PLAN
AccuStaff has a profit sharing plan that includes a 401(k) plan, which
covers all non-highly compensated (as defined by IRS regulations) full-time
employees of the Company over age twenty-one with at least one year of
employment and 1,000 hours of service. The plan allows eligible employees to
contribute up to 10% of compensation with AccuStaff providing a match of
employee contributions at 50% up to the first 5% of total compensation. The
Company intends to establish its own 401(k) plan with similar terms in the
future. Until that time, the Company will bear its allocable share of the
costs of the AccuStaff plan.
AccuStaff has assumed many 401(k) plans of acquired subsidiaries. The
Company intends to merge any plans associated with the Company Businesses into
the Company's plan in the future. Amounts charged to earnings with respect to
the plans were $832, $878 and $695 for the years ended December 31, 1997, 1996
and 1995, respectively.
7. CONCENTRATION OF CREDIT RISK:
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and trade accounts receivable. The
Company places its cash with what it believes to be high credit quality
institutions. At times such investments may be in excess of the FDIC insurance
limit. The Company routinely assesses the financial strength of its customers
and, as a consequence, believes that its trade accounts receivable credit risk
exposure is limited.
F-13
<PAGE>
STRATEGIX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. SIGNIFICANT CUSTOMER INFORMATION:
Since 1995, the Company has been American Transtech, Inc.'s (ATI's) primary
provider of temporary staffing services for ATI's telecommunications
operations. Those services are being provided through PeopleSystems, Inc., an
affiliate of the Company, utilizing the Company's temporary employees. On
March 3, 1998 ATI's parent company, AT&T, sold the assets and operations of
ATI to MATRIXX Marketing, Inc. (Matrixx), a subsidiary of Cincinnati Bell,
Inc. The staffing services supplied to ATI represented 10.7%, 10.9% and 12.9%
of revenue for fiscal 1997, 1996 and 1995 respectively. The Company's
management has received indications from Matrixx that Matrixx intends to
terminate its contract with the Company and therefore revenue from the
Teleservices Division will be reduced until the contract is fully terminated.
9. ACCRUED WORKERS' COMPENSATION CLAIMS:
The Company is primarily self-insured with respect to workers' compensation
claims for all employees, supplemented by insurance coverage which limits the
Company's liability per occurrence to $350. The excess insurance coverage
provides coverage in excess of the limit of the Company's liability per
occurrence. In addition, several of the Company's subsidiaries are fully
insured under various plans and, therefore, are not included in the self
insured plans.
Included in the Consolidated Balance Sheet caption "Accrued payroll and
related taxes" is an accrual of $15.6 million and $14.6 million as of December
31, 1997 and 1996, respectively for the estimated amount of unsettled workers'
compensation claims. This estimate was based, in part, on an evaluation of the
information provided by the Company's third-party administrator and its
independent actuary, and represents management's best estimate of the
Company's future liability. The Company's management believes that the
difference, if any, between the amounts recorded at December 31, 1997, for its
estimated liability and the costs of settling the actual claims, will not be
material to the consolidated results of operations.
AccuStaff has outstanding certain irrevocable letters of credit related to
the Company's Business which primarily guarantee the payment of the uninsured
portion of the Company's workers' compensation claims. At December 31, 1997
and 1996, the letters of credit amounted to $16,595 and $15,225, respectively.
In addition, the Company's subsidiary, OSI, had a similar letter of credit
agreement which amounted to $1,000 and $1,375 on December 31, 1997 and 1996,
respectively.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Carrying amounts of certain of the Company's financial instruments including
cash and cash equivalents, accounts receivable, accounts payable, accrued
payroll and other accrued liabilities approximate fair value due to their
short maturities. The fair value of debt instruments is based on rates
available to the Company for debt with similar terms and maturities and
approximates their carrying amounts.
11. STOCK BASED COMPENSATION PLANS:
AccuStaff has two plans which allow for the granting of AccuStaff stock
options and other AccuStaff stock-based awards to officers, directors and
certain key employees of AccuStaff, including those of the Company. Generally,
stock options have a ten-year term and vest within three to five years of
grant. There were no AccuStaff stock appreciation rights granted or
outstanding during the three year period ended December 31, 1997.
F-14
<PAGE>
STRATEGIX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company follows the disclosure only provisions of SFAS No. 123,
"Accounting for Stock- Based Compensation," but applies Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its plans.
If the Company had elected to recognize compensation cost for the issuance of
AccuStaff options to Company employees (and for an allocation of the options
issued to AccuStaff employees who provide administrative services to the
Company) based on the fair value at the grant dates for awards under those
plans consistent with the method prescribed by SFAS No. 123, net income and
earnings per share would have been impacted as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996
----------- -----------
<S> <C> <C>
Net Income
As reported.......................................... $ 38,663 $ 22,633
Proforma compensation expense, net of tax benefit.... (1,355) (1,329)
----------- -----------
Proforma............................................. $ 37,308 $ 21,304
=========== ===========
</TABLE>
The pro forma effect on net income for 1997 and 1996 is not representative
of the pro forma effect on net income in future years because it does not take
into consideration pro forma compensation expense related to grants made prior
to 1996.
The weighted average fair value at the date of grant for the AccuStaff
options granted to Company employees during 1997 and 1996 were $6.16 and $4.57
respectively, and were estimated using the Black-Scholes option pricing model.
The following weighted average assumptions were used to value the AccuStaff
options: expected dividend yield of 0% in 1997 and 1996; expected volatility
of .30 in 1997 and 1996; risk-free interest rate of 6.12% in 1997 and 5.9% in
1996; and an expected holding period of 3.4 years in 1997 and 3.5 years in
1996.
12. RELATED PARTY TRANSACTIONS:
During 1997, the Company loaned approximately $1.8 million to an officer of
the Company. The promissory note issued to the Company by the officer is
collateralized by approximately 60,200 shares of common stock of AccuStaff
Incorporated. The note, which bears interest at a rate of 6.8%, matures in
1999.
13. SUBSEQUENT EVENTS (UNAUDITED):
In connection with the proposed reorganization and the subsequent spin-off,
the Company and AccuStaff plan to execute and deliver a Reorganization and
Spin-off Agreement and certain related agreements, the proposed forms of which
are summarized below.
REORGANIZATION AND SPIN-OFF AGREEMENT
Pursuant to the Reorganization and Spin-off Agreement, AccuStaff will
transfer to the Company substantially all of the assets and liabilities
associated with the Company Businesses. The Reorganization and Spin-off
Agreement, among other things, will provide that the Company will indemnify
AccuStaff for all liabilities relating to the Company's businesses and
operations or otherwise assigned to the Company.
Pursuant to the Reorganization and Spin-off Agreement, the Company will pay
on or prior to the closing date of the Offering an amount to AccuStaff equal
to $150 million in borrowings under its new $300 million credit facility plus
the net proceeds of the Offering. The Company anticipates using the remaining
balance of its credit facility to fund acquisitions and, from time to time,
fund its working capital needs.
F-15
<PAGE>
STRATEGIX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
TAX DISAFFILIATION AGREEMENT
The Company will enter into a Tax Disaffiliation Agreement with AccuStaff
and its other domestic subsidiaries that will apply to income taxes
attributable to the period from the Company's incorporation through the Spin-
off. The agreement will set forth principles to be applied in allocating the
tax liability among those entities filing returns on a consolidated or
combined basis. The Tax Disaffiliation Agreement governs contingent tax
liabilities and benefits, tax contests and other tax matters with respect to
tax periods ending or deemed to end on the date of the Spin-off. Under such
agreement, adjustments to taxes that are clearly attributable to the business
of one party will be borne solely by that party. In addition, any tax benefits
from the deduction received by the Company as a result of the exercise of the
AccuStaff portion of any Stapled Options will be paid to AccuStaff by the
Company. Adjustments to all other tax liabilities generally will be borne by
AccuStaff and by the Company.
EMPLOYEE BENEFITS AGREEMENT
The Company intends to adopt a long term incentive plan, under which stock
options, stock appreciation rights ("SAR's") and other awards would be
granted. Details of the plan, if adopted, will be described elsewhere in this
prospectus. No grants under this Plan have been made at December 31, 1997.
Under the Employee Benefits Agreement by and between the Company and
AccuStaff, certain employees of the Company will be eligible for the grant of
stock options. Certain AccuStaff stock awards held by Company employees will
remain outstanding as AccuStaff stock awards for a period following the
Offering Closing Date.
Pursuant to the Employee Benefits Agreement, immediately following the Spin-
off, outstanding stock options granted under AccuStaff's stock option plans
(collectively, "AccuStaff Stock Options") held by individuals employed by
AccuStaff as of and immediately following the Spin-off Date will remain
outstanding AccuStaff Stock Options, with an appropriate antidilution
adjustment to reflect the Spin-off.
Company Employees and certain AccuStaff employees who become Company
Employees after the Spin-off will no longer be employees of AccuStaff or a
subsidiary of AccuStaff for purposes of the AccuStaff stock option plans and
the stock option agreements pursuant to which their AccuStaff Stock Options
were granted. Company Employees and former AccuStaff employees who become
Company Employees as a result of the Spin-off will be given the option to
elect to either: (i) retain their existing AccuStaff Stock Options (with an
appropriate antidilution adjustment to reflect the Spin-off), which options
will remain subject to the terms and conditions (including forfeiture and
termination of employment provisions) of applicable AccuStaff stock option
plans and stock option agreements; or (ii) receive "Stapled Options," as
defined and described below. Company Employees who elect to receive Stapled
Options shall be deemed to be employees of AccuStaff for the period they
remain Employees of the Company (for purposes of stock plan eligibility only)
and will retain their AccuStaff Stock Options (without an antidilution
adjustment to reflect the Spin-off) which will continue to vest and will
remain subject to the terms and conditions of the applicable AccuStaff stock
option plan and stock option award agreement. The AccuStaff Stock Options
related to the Stapled Options will not be adjusted to reflect the Spin-off.
Instead, in addition to their AccuStaff Stock Options, Company Employees who
elect to receive Stapled Options will receive options to purchase a number of
shares of the Company ("Company Stock Options") that is reflective of the pro
rata distribution of Common Stock of the Company to AccuStaff stockholders in
the Spin-off. Exercise of each AccuStaff Stock Option related to the Stapled
Options will entitle the holder to (i) a share of AccuStaff Common Stock and
(ii) the same number of shares of Common Stock of the Company as is received
by each holder
F-16
<PAGE>
STRATEGIX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of a share of AccuStaff Common Stock. The Company Stock Options related to the
Stapled Options will by their terms require that any exercise will have to be
made jointly with the exercise of the counterpart AccuStaff Stock Options
(which in turn will be adjusted to accommodate this feature in converse, and
which, together with the related Company Stock Options being awarded as of the
Spin-off will be referred to herein as the "Stapled Options"). The total
consideration required to exercise the Stapled Options will equal the original
amount required to exercise the related AccuStaff Stock Options before the
Spin-off. Notwithstanding the foregoing, if either AccuStaff or the Company
determines that legal, accounting, tax, and/or regulatory rules or
requirements applicable to options would make compliance with any of such
entity's obligations under this paragraph impossible, illegal, impracticable
or unreasonably expensive, it shall so notify the other party, and AccuStaff
and the Company shall use their best efforts to agree to appropriate
alternative arrangements. In addition to the foregoing, any tax benefits from
the deduction received by the Company as a result of the exercise of the
AccuStaff portion of any Stapled Option will be paid to AccuStaff by the
Company.
At December 31, 1997, there were approximately 1.4 million shares of
AccuStaff Common Stock subject to options for AccuStaff Common Stock held by
Company employees. Approximately 660,000 of such options were exercisable at
December 31, 1997.
SERVICES AGREEMENT
The Services Agreement (the "Services Agreement") will provide for AccuStaff
to continue to provide certain services to the Company, including (i) payroll
processing and billing services; (ii) human resources and employee benefit
administration services; (iii) risk management services; (iv) MIS services;
(v) financial/cash management and purchasing and procurement services; (vi)
legal services; and (vii) shareholder relations services. Under the terms of
the Services Agreement, all or a portion of the services will be rendered by
AccuStaff subject to the oversight, supervision, and approval of the Company,
acting through its Board of Directors and Officers. The costs of such services
provided to the Company will be based upon an agreed upon allocation of
AccuStaff's costs for such services.
STRATEGIC MARKETING AND CROSS-SELLING AGREEMENT
In order to continue the business opportunities available to both AccuStaff
and the Company, each will grant to the other pursuant to a Strategic
Marketing and Cross-Selling Agreement, a non-exclusive license to market the
services of the other. Under the Strategic Marketing and Cross-Selling
Agreement, AccuStaff's market development managers, paid on a cost sharing
basis by both the Company and AccuStaff, shall continue to seek opportunities
to cross-sell both companies' services to each other's clients.
Prior to the Reorganization, AccuStaff entered into various agreements with
customers (the "Joint Contracts") to provide the types of services offered by
the Company ("Company Services") and those offered by AccuStaff ("AccuStaff
Services"). Pursuant to the Strategic Marketing and Cross-Selling Agreement,
AccuStaff has agreed to fulfill the obligations under each such Joint Contract
to provide AccuStaff Services required to be provided thereunder in accordance
with the terms and conditions thereof and the Company has agreed to fulfill
the obligations under each such Joint Contract to provide the Company Services
required to be provided thereunder in accordance with the terms and conditions
thereof. Revenues from the Joint Contracts will be allocated in accordance
with the services provided. Notwithstanding anything to the contrary in the
Strategic Marketing and Cross-Selling Agreement, the obligations of the
parties with respect to the Joint Contracts shall survive any termination of
the Strategic Marketing and Cross-Selling Agreement.
F-17
<PAGE>
CREDIT FACILITY
The Company has received a commitment from NationsBank, N.A. ("NationsBank")
to provide the Company with a $300 million revolving Credit Facility. It is
anticipated that $150 million will be outstanding at the closing date of the
Offering. Advances under the Credit Facility will be available to the Company
for a term of five (5) years. Advances made under the Credit Facility (i) will
bear interest at a floating rate, determined on a basis of a LIBOR rate plus
an applicable margin, (ii) will be guaranteed by all of the Company's material
subsidiaries, and (iii) will be secured by a pledge of the stock of all of the
Company's subsidiaries. The Company will be subject to certain financial
covenants and operational covenants which will prohibit the Company from
making acquisitions if the Company is not in compliance with certain covenants
and will, under certain specified circumstances, prohibit or limit dividends
that may be paid by the Company. The Credit Facility provides a sublimit for
the issuance of letters of credit of up to $30 million.
SALE OF HEALTH CARE DIVISION
Effective March 30, 1998, the Company sold the assets, excluding accounts
receivable, and operations of its Health Care division to CommuniCare Health
Services, Inc. for $8 million.
14. QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
FOR THE
FOR THE THREE MONTHS ENDED YEAR
------------------------------------ ENDED
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, DEC. 31,
1997 1996 1997 1997 1997
-------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Revenue........................ $277,248 $315,665 $338,588 $329,201 $1,260,702
Gross profit................... 60,059 71,240 76,173 77,741 285,213
Net income..................... 6,711 11,001 12,142 8,809 38,663
<CAPTION>
FOR THE
FOR THE THREE MONTHS ENDED YEAR
------------------------------------ ENDED
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, DEC. 31,
1996 1996 1996 1996 1996
-------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Revenue........................ $217,931 $255,361 $279,184 $278,955 $1,031,431
Gross profit................... 45,940 54,804 60,197 62,550 223,491
Net income..................... 6,163 8,251 8,719 (500) 22,633
</TABLE>
F-18
<PAGE>
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
STRATEGIX SOLUTIONS, INC.:
Condensed Consolidated Balance Sheets (unaudited) as of March 31, 1998
and December 31, 1997................................................... F-20
Condensed Consolidated Statements of Income (unaudited) for the three
months ended March 31, 1998 and 1997.................................... F-21
Condensed Consolidated Statements of Cash Flows (unaudited) for the three
months ended March 31, 1998 and 1997.................................... F-22
Notes to Condensed Consolidated Financial Statements (unaudited) for the
three months ended March 31, 1998 and 1997.............................. F-23
</TABLE>
F-19
<PAGE>
STRATEGIX SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.............. $ 14,102 $ --
Accounts receivable, net.. 193,256 195,415
Due from associated
offices.................. 36,916 41,749
Prepaid expenses.......... 9,682 9,507
Deferred income taxes..... 6,466 9,418
-------- --------
Total current assets.... 260,422 256,089
Furniture, equipment and
leasehold improvements,
net........................ 21,589 21,210
Goodwill, net............... 193,655 189,659
Other assets................ 10,311 9,581
-------- --------
Total assets............ $485,977 $476,539
======== ========
LIABILITIES AND
STOCKHOLDER'S EQUITY
Current liabilities:
Notes payable............. $ 2,217 $ 1,658
Accounts payable and
accrued expenses......... 35,480 33,866
Accrued payroll and
related taxes............ 48,671 44,099
-------- --------
Total current
liabilities............ 86,368 79,623
Due to parent............... 98,874 81,294
Notes payable, long-term
portion.................... 24,410 24,835
Other....................... 4,216 6,036
-------- --------
Total liabilities....... 213,868 191,788
-------- --------
Commitments and
contingencies (Note 2)
Stockholder's equity:
Stockholder's net
investment............... 272,109 284,751
-------- --------
Total liabilities and
stockholder's equity... $485,977 $476,539
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-20
<PAGE>
STRATEGIX SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollar amounts in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------
MARCH 31, MARCH 31,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenue................................................. $319,046 $277,248
Cost of revenue......................................... 245,580 217,189
-------- --------
Gross profit.......................................... 73,466 60,059
-------- --------
Operating expenses:
General and administrative............................ 45,213 40,213
Depreciation and amortization......................... 3,671 3,132
Remittance to franchisees............................. 6,447 5,417
-------- --------
Total operating expenses............................ 55,331 48,762
-------- --------
Income from operations................................ 18,135 11,297
Interest expense........................................ 1,368 475
-------- --------
Income before provision for income taxes................ 16,767 10,822
Provision for income taxes.............................. 6,288 4,111
-------- --------
Net income.............................................. $ 10,479 $ 6,711
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-21
<PAGE>
STRATEGIX SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------
MARCH 31, MARCH 31,
1998 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 10,479 $ 6,711
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 3,671 3,132
Deferred income taxes.............................. (406) 2,555
Changes in certain assets and liabilities:
Accounts receivable.............................. 9,624 6,346
Due from associated offices...................... 4,833 (174)
Prepaid expenses and other assets................ 1,554 1,183
Accounts payable and accrued expenses............ 1,614 3,087
Accrued payroll and related taxes................ 4,573 2,814
Other, net....................................... (1,286) (2,428)
-------- --------
Net cash provided by operating activities...... 34,656 23,226
-------- --------
Cash flows from investing activities:
Purchase of furniture, equipment and leasehold
improvements, net of disposals...................... (2,347) (1,057)
Purchase of businesses, including additional earn-
outs on acquisitions, net of cash acquired.......... (16,157) (32,965)
-------- --------
Net cash used in investing activities.......... (18,504) (34,022)
-------- --------
Cash flows from financing activities:
Increase in due to parent ........................... 17,580 --
Borrowings on indebtedness .......................... 3,491 13,375
Transfers to parent ................................. (23,121) (15,762)
-------- --------
Net cash used in financing activities.............. (2,050) (2,387)
-------- --------
Net increase (decrease) in cash and cash equivalents... 14,102 (13,183)
Cash and cash equivalents, beginning of period......... -- 13,183
-------- --------
Cash and cash equivalents, end of period............... $ 14,102 $ --
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-22
<PAGE>
STRATEGIX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(dollar amounts in thousands)
1. BACKGROUND AND BASIS OF PRESENTATION:
Strategix Solutions, Inc. (the "Company") is currently a wholly-owned
subsidiary of AccuStaff Incorporated ("AccuStaff"). AccuStaff has announced
its intention to distribute to its stockholders, subject to certain
conditions, all of its interest in the Company following the Offering and
before December 31, 1999.
The accompanying financial statements reflect the results of operations,
financial position and cash flows of the businesses that will be transferred
to the Company from AccuStaff (the "Company Businesses") pursuant to a
reorganization announced by AccuStaff (the "Reorganization") as if the Company
were a separate entity for all periods presented. The consolidated financial
statements have been prepared primarily using the historical basis in the
assets and liabilities and historical results of operations related to the
Company Businesses. Changes in stockholder's net investment represent the net
income of the Company and net cash transfers to or from AccuStaff.
Additionally, the condensed consolidated financial statements include the
allocation of certain expenses relating to the Company's Businesses that will
be transferred to the Company from AccuStaff. Management believes these
allocations are reasonable. All material intercompany transactions and
balances between the Company and its subsidiaries have been eliminated.
The liabilities of the Company include outstanding direct and third-party
indebtedness and the amounts of allocated AccuStaff debt and related interest
expense as discussed in Note 13 to the December 31, 1997 consolidated
financial statements of the Company. The allocated AccuStaff debt is shown as
"Due to parent" on the consolidated balance sheets. Interest expense shown in
the financial statements reflects the interest expense associated with the
allocated borrowings for each period presented using a rate that approximates
the weighted average interest rate outstanding during each period presented.
General corporate overhead related to AccuStaff's corporate headquarters and
common support divisions, where not specifically identified, has been
allocated to the Company based on the ratio of the Company's revenues,
operating income and assets to AccuStaff's revenues, operating income and
assets. Management believes these allocations are reasonable. However, the
costs of these services charged to the Company are not necessarily indicative
of the costs that would have been incurred by the Company if the Company had
performed these functions as a stand alone entity. Subsequent to the
reorganization, the Company will perform these functions using its own
resources or purchased services and will be responsible for the costs and
expenses associated with the management of a stand alone public corporation.
Additionally, income taxes are presented as if calculated on a separate tax
return basis.
The financial information included herein may not necessarily reflect the
consolidated results of operations, financial position and cash flows of the
Company in the future or what they would have been had it been a separate,
stand-alone entity during the periods presented.
The condensed consolidated financial statements of the Company have been
prepared pursuant to the rules and regulations of the SEC, and in the opinion
of Management, include all adjustments necessary for a fair presentation of
the results of operations, financial position and cash flows for each period
shown. All adjustments are of a normal and recurring nature. 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
F-23
<PAGE>
STRATEGIX SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
December 31, 1997 condensed consolidated balance sheet was derived from
audited financial statements, but does not include all disclosures required by
generally accepted accounting principles. It is suggested that these financial
statements be read in conjunction with the December 31, 1997 financial
statements and notes thereto included elsewhere in the Prospectus.
2. CONTINGENCIES:
The Company is from time to time subject to routine complaints incidental to
the business. The Company believes that the results of any complaints and
proceedings will not have a materially adverse effect on the Company's
financial condition.
3. RECENT ACCOUNTING PRONOUNCEMENTS:
During 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income, which requires that changes in comprehensive income be
shown in a financial statement that is displayed with the same prominence as
other financial statements. This statement is effective for the Company's 1998
fiscal year. Management does not believe that the Company has material other
comprehensive income which would require separate disclosure.
Additionally, during 1997, the FASB issued SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information. SFAS No. 131 requires,
among other things, that certain general and financial information be
disclosed for reportable operating segments of a company. SFAS No. 131 is
effective for the Company's 1998 fiscal year. The Company will make the
disclosures required under this standard.
During 1998, the American Institute of Certified Public Accountants'
Executive Committee issued Statement of Position Number 98-1 (SOP 98-1),
Accounting for the Cost of Computer Software Developed or Obtained for
Internal Use. SOP 98-1 is effective for fiscal years beginning after December
15, 1998. Management believes that the Company is substantially in compliance
with this pronouncement and that the implementation of this pronouncement will
not have a material effect on the Company's consolidated financial position,
results of operations or cash flows.
F-24
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each
of such Underwriters, for whom Goldman, Sachs & Co., Robert W. Baird & Co.
Incorporated and Lehman Brothers, Inc., are acting as representatives, has
severally agreed to purchase from the Company, the respective number of shares
of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
- ----------- ------------
<S> <C>
Goldman, Sachs & Co................................................
Robert W. Baird & Co. Incorporated.................................
Lehman Brothers Inc................................................
----
Total............................................................
====
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at
such price less a concession of $ per share. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time
to time be varied by the representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of
additional shares of Common Stock solely to cover over-allotments, if any. If
the Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the shares of Common Stock
offered.
The Company and AccuStaff have each agreed that, during the period beginning
from the date of this Prospectus and continuing to and including the date 180
days after the date of this Prospectus, it will not offer, sell, contract to
sell or otherwise dispose of any securities of the Company (other than
pursuant to employee stock option plans existing, or on the conversion or
exchange of convertible or exchangeable securities outstanding, on the date of
this Prospectus) which are substantially similar to the shares of Common Stock
or which are convertible into or exchangeable for securities which are
substantially similar to the shares of Common Stock without the prior written
consent of the representatives, except for the shares of Common Stock offered
in connection with the offering or shares purchased by AccuStaff pursuant to
the Stock Option. See "Certain Relationships and Related Transactions--
Reorganization and Spin-off Agreement--Stock Option."
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of shares
of Common Stock offered by them.
In connection with the Offering, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the Offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Common Stock; and syndicate short positions involve
the sale by the Underwriters of a greater number of shares of Common Stock
than they are required to purchase from
U-1
<PAGE>
the Company in the Offering. The Underwriters also may impose a penalty bid,
whereby selling concessions allowed to syndicate members or other broker-
dealers in respect of the securities sold in the Offering for their account
may be reclaimed by the syndicate if such securities are repurchased by the
syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Common Stock,
which may be higher than the price that might otherwise prevail in the open
market; and these activities, if commenced, may be discontinued at any time.
These transactions may be effected on the NYSE in the over-the-counter market
or otherwise.
Prior to this offering, there has been no public market for the shares. The
initial public offering price will be negotiated among the Company and the
representatives. Among the factors to be considered in determining the initial
public offering price of the Common Stock, in addition to prevailing market
conditions, will be the Company's historical performance, estimates of the
business potential and earnings prospects of the Company, an assessment of the
Company's management and the consideration of the above factors in relation to
market valuation of companies in related businesses.
Application will be made to list the Common Stock on the NYSE under the
symbol "STG". In order to meet one of the requirements for listing the Common
Stock on the NYSE, the Underwriters have undertaken to sell lots of 100 or
more shares to a minimum of 2,000 beneficial holders.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act.
U-2
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION, MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SITUATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 9
The Reorganization and
Proposed Spin-off....................................................... 14
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Pro Forma Consolidated Financial Statements.............................. 18
Selected Consolidated Financial Data..................................... 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 24
Business................................................................. 34
Management............................................................... 45
Certain Relationships and Related Transactions........................... 50
Principal Stockholder.................................................... 56
Ownership of AccuStaff Stock............................................. 57
Description of Capital Stock............................................. 58
Shares Eligible for Future Sale.......................................... 62
Legal Matters............................................................ 63
Experts.................................................................. 63
Available Information.................................................... 63
Index to Financial Statements............................................ F-1
Underwriting............................................................. U-1
</TABLE>
------------
THROUGH AND INCLUDING , 1998 (THE 25TH DAY AFTER THE DATE OF THE
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[ ] SHARES
STRATEGIX
SOLUTIONS, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------
[LOGO APPEARS HERE]
------------
GOLDMAN, SACHS & CO.
ROBERT W. BAIRD & CO.
INCORPORATED
LEHMAN BROTHERS
REPRESENTATIVES OF THE
UNDERWRITERS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Company has agreed to pay all expenses in connection with the issuance
and distribution of the securities being registered. The estimated expenses in
connection with the issuance and distribution of the securities being
registered, other than underwriting compensation, are:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $51,625
NASD Filing Fee.................................................. 18,000
New York Stock Exchange listing.................................. *
Blue Sky fees and expenses....................................... *
Legal fees and expenses.......................................... *
Accounting fees and expenses..................................... *
Transfer Agent fees and expenses................................. *
Printing, engraving and postage expenses......................... *
Miscellaneous.................................................... *
-------
Total.......................................................... *
=======
</TABLE>
- --------
*To be filed by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the General Corporation Law of the State of Delaware permits
a corporation, under specified circumstances, to indemnify its directors,
officers, employees or agents against expenses (including attorney's fees),
judgments, fines and amounts paid in settlements actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties by reason of the fact that they were or are directors, officers,
employees or agents of the corporation, if such directors, officers, employees
or agents acted in good faith and in a manner they reasonably believed to be
in or not opposed to the best interests of the corporation and, with respect
to any criminal action or proceeding, had no reason to believe their conduct
was unlawful. In a derivative action, i.e., one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to
a matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent
that the court in which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to indemnity for such expenses despite such
adjudication of liability.
Section 6.4 of the Company's By-laws provides for indemnification by the
Company of its directors, officers and employees to the fullest extent
permitted by the DGCL. The Company's By-laws also provide that the Company may
purchase insurance on behalf of one or more of its directors, irrespective of
whether the Company would be obligated to indemnify or advance expenses to
such director. The Company has purchased insurance to protect directors,
officers, employees or other agents and the Company from any liability
asserted against them for acts taken or omissions occurring in their
capacities as such.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
Certificate of Incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of
II-1
<PAGE>
the director's duty of loyalty to the corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for payments of unlawful
dividends or unlawful stock repurchases or redemptions, or (iv) for any
transaction from which the director derived an improper personal benefit. The
Company's Certificate of Incorporation provides for such limitation of
liability.
Reference is also made to Section 7(c) of the Underwriting Agreement filed
as Exhibit 1.1 to the Registration Statement for information concerning the
Underwriters' obligation to indemnify the Company and its officers and
directors in certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <C> <S>
1.1 -- Underwriting Agreement
2.1 -- Reorganization and Spin-off Agreement by and between AccuStaff
Incorporated and Strategix Solutions, Inc.
3.1 -- Amended and Restated Certificate of Incorporation
3.2 -- By-laws
4.1 -- Form of Certificate for shares of Common Stock
5.1 -- Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P.
10.1 -- Services Agreement by and between AccuStaff Incorporated and
Strategix Solutions, Inc.
10.2 -- Tax Disaffiliation Agreement by and between AccuStaff
Incorporated and Strategix Solutions, Inc.
10.3 -- Strategic Marketing and Cross-Selling Agreement by and between
AccuStaff Incorporated and Strategix Solutions, Inc.
10.4 -- Employee Benefit Agreement by and between AccuStaff Incorporated
and Strategix Solutions, Inc.
10.5 -- Form of Indemnification Agreement for the Directors and
Executive Officers of Strategix Solutions, Inc.
10.6 -- Employment Agreement for Lawrence E. Derito.
10.7 -- Employment Agreement for Allen J. Gershlak.
10.8 -- Employment Agreement for Lawrence S. Bartlett
10.9 -- Employment Agreement for Stephen A. Maggio
10.10 -- Credit Agreement by and between NationsBank, N.A. and Strategix
Solutions, Inc.
11.1 -- Statement re computation of per share earnings
15.1 -- Letter re Unaudited Interim Financial Information
21.1 -- List of Subsidiaries
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P. (included in
Exhibit 5.1)
24.1 -- Power of Attorney (included with the signatures in Part II of
this Registration Statement)
27.1 -- Financial Data Schedule
</TABLE>
(b) Financial Statement Schedules
None required.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions described under "Item 14, Indemnification
of Directors and Officers" above, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment to the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430a and contained
in the form of prospectus filed by the Company pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Jacksonville, State of
Florida, on May 28, 1998.
Strategix Solutions, Inc.
(Registrant)
By: /s/ Derek E. Dewan
-----------------------------------
Derek E. Dewan
Chairman of the Board of Directors
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears on
the signature page to this Registration Statement constitutes and appoints
Derek E. Dewan, Michael D. Abney, Marc M. Mayo and Robert P. Crouch, and each
or any of them, his or her true and lawful attorneys-in-fact and agents, will
full power of substitution and resubstitution, for him or her and in his or
her name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement and any and all Registration Statements filed pursuant to Rule
462(b) under the Securities Act of 1933, and to file the same, with all
exhibits and other documents in connection therewith, with the Securities and
Exchange Commission, and grants unto said attorneys-in-fact and agents, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully to all intents
and purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or his or her substitute
or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ Derek E. Dewan Chairman of the May 28, 1998
- ------------------------------------- Board of Directors
DEREK E. DEWAN (Principal Executive
Officer)
/s/ Lawrence D. Derito Vice Chairman and May 28, 1998
- ------------------------------------- Chief Executive
LAWRENCE D. DERITO Officer
/s/ Michael D. Abney Senior Vice President May 28, 1998
- ------------------------------------- and Director
MICHAEL D. ABNEY
/s/ Peter J. Tanous Director May 28, 1998
- -------------------------------------
PETER J. TANOUS
/s/ John K. Anderson, Jr. Director May 28, 1998
- -------------------------------------
JOHN K. ANDERSON, JR.
II-4
<PAGE>
/s/ Robert P. Crouch Vice President and May 28, 1998
- ------------------------------------- Controller (Principal
ROBERT P. CROUCH Accounting Officer)
/s/ Lawrence S. Bartlett Senior Vice President May 28, 1998
- ------------------------------------- and Chief Financial
LAWRENCE S. BARTLETT Officer (Principal
Financial Officer)
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
<C> <S>
1.1 -- Underwriting Agreement**
2.1 -- Reorganization and Spin-off Agreement by and between AccuStaff
Incorporated and Strategix Solutions, Inc.**
3.1 -- Amended and Restated Certificate of Incorporation**
3.2 -- Amended and Restated By-laws**
4.1 -- Form of Certificate for shares of Common Stock**
5.1 -- Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P.**
10.1 -- Services Agreement by and between AccuStaff Incorporated and
Strategix Solutions, Inc.**
10.2 -- Tax Disaffiliation Agreement by and between AccuStaff
Incorporated and Strategix Solutions, Inc.**
10.3 -- Strategic Marketing and Cross-Selling Agreement by and between
AccuStaff Incorporated and Strategix Solutions, Inc.**
10.4 -- Employee Benefit Agreement by and between AccuStaff
Incorporated and Strategix Solutions, Inc.**
10.5 -- Form of Indemnification Agreement for the Directors and
Executive Officers of Strategix Solutions, Inc.**
10.6 -- Employment Agreement for Lawrence E. Derito.**
10.7 -- Employment Agreement for Allen J. Gershlak.**
10.8 -- Employment Agreement for Lawrence S. Bartlett**
10.9 -- Employment Agreement for Stephen A. Maggio**
10.1 -- Credit Agreement by and between NationsBank (South), N.A. and
Strategix Solutions, Inc.**
11.1 -- Statement re computation of per share earnings**
15.1 -- Letter re Unaudited Interim Financial Information**
21.1 -- List of Subsidiaries**
23.1 -- Consent of Coopers & Lybrand L.L.P.*
23.2 -- Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P. (included in
Exhibit 5.1)
24.1 -- Power of Attorney (included with the signatures in Part II of
this Registration Statement)
27.1 -- Financial Data Schedule*
</TABLE>
- --------
* Indicates document filed herewith.
** To be filed by amendment.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated June 8, 1998 on our audits of the consolidated financial statements
of Strategix Solutions, Inc. and Subsidiaries. We also consent to the reference
to our firm under the caption "Experts".
Coopers & Lybrand L.L.P.
June 8, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF STRATEGIX SOLUTIONS, INC. FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND MARCH 31, 1998 AND FOR THE TWELVE MONTHS ENDED DECEMBER 31,
1995, DECEMBER 31, 1996, AND DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1998 JAN-01-1997 JAN-01-1997 JAN-01-1996 JAN-01-1995
<PERIOD-END> MAR-31-1998 MAR-31-1997 DEC-31-1997 DEC-31-1996 DEC-31-1995
<CASH> 14,102 0 0 13,183 0
<SECURITIES> 0 0 0 0 0
<RECEIVABLES> 204,735 149,038 204,025 152,681 105,752
<ALLOWANCES> 11,479 4,862 8,610 5,038 1,860
<INVENTORY> 0 0 0 0 0
<CURRENT-ASSETS> 260,422 194,461 256,089 210,904 148,401
<PP&E> 44,518 40,097 43,258 32,246 22,193
<DEPRECIATION> 22,929 21,531 22,048 15,930 9,206
<TOTAL-ASSETS> 485,977 352,109 476,539 337,708 222,777
<CURRENT-LIABILITIES> 86,368 91,394 79,623 82,268 66,291
<BONDS> 0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
<COMMON> 0 0 0 0 0
<OTHER-SE> 272,109 237,038 284,751 246,089 146,418
<TOTAL-LIABILITY-AND-EQUITY> 485,977 352,109 476,539 337,708 222,777
<SALES> 319,046 277,248 1,260,702 1,031,431 772,479
<TOTAL-REVENUES> 319,046 277,248 1,260,702 1,031,431 772,479
<CGS> 0 0 0 0 0
<TOTAL-COSTS> 245,580 217,189 975,489 807,940 608,207
<OTHER-EXPENSES> 0 0 0 0 0
<LOSS-PROVISION> 1,434 366 1,576 2,059 1,742
<INTEREST-EXPENSE> 1,368 475 4,374 429 1,153
<INCOME-PRETAX> 16,767 10,822 65,402 41,712 30,039
<INCOME-TAX> 6,288 4,111 26,739 19,079 11,655
<INCOME-CONTINUING> 10,479 6,711 38,663 22,633 18,384
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> 10,479 6,711 38,663 22,633 18,384
<EPS-PRIMARY> 0 0 0 0 0
<EPS-DILUTED> 0 0 0 0 0
</TABLE>
