<PAGE>
As filed with the Securities and Exchange Commission on September 1, 2000
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
RESOURCES CONNECTION, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 8742 33-0832424
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation) Classification Code Number) Identification Number)
</TABLE>
695 Town Center Drive, Suite 600
Costa Mesa, California 92626
(714) 430-6400
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Donald B. Murray
Chief Executive Officer
Resources Connection, Inc.
695 Town Center Drive, Suite 600
Costa Mesa, California 92626
(714) 430-6400
(Name, address, including zip code, and telephone number, including area code,
of agents for service)
Copies To:
David A. Krinsky Patrick T. Seaver
Charlotte L. Bischel Shayne Kennedy
O'Melveny & Myers LLP Latham & Watkins
610 Newport Center Drive, Suite 1700 650 Town Center Drive, Suite 2000
Newport Beach, California 92660 Costa Mesa, California 92626-1918
(949) 760-9600 (714) 540-1235
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration
Statement.
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, as amended (the "Securities Act") check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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(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,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
================================================================================
Proposed Maximum
Title of Securities Aggregate Offering Amount of
To be Registered Price(1)(2) Registration Fee
--------------------------------------------------------------------------------
Common Stock ($0.01 par value)........... $103,500,000 $27,324
================================================================================
(1) Includes shares that the underwriters will have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(o) under the Securities Act.
---------------
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 or until the registration statement shall become effective
on such date as the Securities and Exchange Commission, acting pursuant to
said Section 8(a), may determine.
================================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 1, 2000
[ ] Shares
[LOGO OF RESOURCES CONNECTION]
Common Stock
--------
Prior to this offering, there has been no public market for our common stock.
The initial public offering price of our common stock is expected to be between
$ and $ per share. We have applied to list our common stock
on The Nasdaq Stock Market's National Market under the symbol "RECN".
We are selling shares of our common stock and the selling stockholders
are selling shares of our common stock. We will not receive any of the
proceeds from the shares of common stock sold by the selling stockholders.
The underwriters have an option to purchase a maximum of additional
shares from the selling stockholders to cover over-allotments of shares.
Investing in our common stock involves risks. See "Risk Factors" on page 8.
<TABLE>
<CAPTION>
Underwriting Proceeds to Proceeds to
Price to Discounts and Resources Selling
Public Commissions Connection Stockholders
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Per Share..............
Total..................
</TABLE>
Delivery of the shares of common stock will be made on or about ,
2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Joint Lead and Book-Running Managers
Credit Suisse First Boston Deutsche Banc Alex. Brown
Robert W. Baird & Co.
The date of this prospectus is , 2000.
<PAGE>
[inside front cover]
[small logo]
Resources Connection, Inc. is a leading professional services
firm that provides experienced accounting and finance, human
capital management and information technology professionals to
clients on a project-by-project basis.
[bar graph [bar graph
showing showing
revenue EBITDA in
growth in fiscal 1997,
fiscal 1997, 1998, 1999
1998, 1999 and 2000]
and 2000]
THE PROFESSIONAL SERVICES FIRM OF THE FUTURE
[bar graph [bar graph
showing showing
associate location
growth in growth in
fiscal 1997, fiscal 1997,
1998, 1999 1998, 1999
and 2000] and 2000]
<PAGE>
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Page
---- ----
<S> <C> <C> <C>
Prospectus Summary.................... 3 Related-Party Transactions............ 45
Risk Factors.......................... 8 Principal and Selling Stockholders.... 47
Forward-Looking Statements............ 15 Description of Capital Stock.......... 49
Use of Proceeds....................... 16 Shares Eligible for Future Sale....... 52
Dividend Policy....................... 16 U.S. Federal Tax Considerations
Capitalization........................ 17 for Non-U.S. Holders................. 54
Dilution.............................. 18 Underwriting.......................... 57
Selected Historical Consolidated Notice to Canadian Residents.......... 60
Financial Data....................... 19 Legal Matters......................... 61
Management's Discussion and Analysis Experts............................... 61
of Financial Condition and Results Additional Information................ 61
of Operations........................ 21 Index to Consolidated Financial
Business.............................. 28 Statements...........................F-1
Management............................ 37
</TABLE>
----------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
Dealer Prospectus Delivery Obligation
Until (25 days after commencement of the offering), all dealers
that effect transactions in these securities, whether or not participating in
this offering, may be required to deliver a prospectus. This is in addition to
the dealer's obligation to deliver a prospectus when acting as an underwriter
and with respect to unsold allotments or subscriptions.
i
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all of the information you should consider before
buying shares in this offering. You should read the entire prospectus
carefully. References in this prospectus to "Resources Connection," "company,"
"we," "us" and "our" refer to the business of Resources Connection LLC for all
periods prior to the sale of Resources Connection LLC by Deloitte & Touche LLP,
and to Resources Connection, Inc. and its subsidiaries for all periods after
the sale. References to "Deloitte & Touche" refer to Deloitte & Touche LLP.
References in this prospectus to "fiscal," "year" or "fiscal year" refer to
our fiscal years that consist of the 52- or 53-week period ending on the
Saturday closest to May 31st.
Overview
Resources Connection, Inc. is a leading professional services firm that
provides experienced accounting and finance, human capital management and
information technology professionals to clients on a project-by-project basis.
We assist our clients with discrete projects requiring specialized professional
expertise such as mergers and acquisitions due diligence, transitions of
management information systems, financial analyses (e.g., product costing and
margin analyses), tax-related projects, and compensation program design and
implementation. We also assist our clients with periodic needs such as
budgeting and forecasting, audit preparation and public reporting.
We were founded in 1996 and operated as an independent subsidiary of
Deloitte & Touche until April 1999, when we completed a management-led buyout.
Since our inception, we have opened 35 offices in the United States and 3
offices abroad and have established a growing and diverse client base of over
1,500 clients, including 43 of the Fortune 100, 15 of the Fortune e50 Index and
three of the Big Five accounting firms. We have grown revenues internally from
$9.3 million in fiscal 1997 to $126.3 million in fiscal 2000, a three-year
compounded annual growth rate, or CAGR, of 138%. Over the same period, we have
increased our earnings before interest, income taxes, depreciation and
amortization, or EBITDA, from $878,000 to $18.1 million. We have been
profitable every year since our inception.
Our management team, virtually all of whom have Big Five experience, has
created a culture that combines the commitment to quality and client-service
focus of a Big Five accounting firm with the entrepreneurial energy of an
innovative, high-growth company. Because of this culture, we believe we have
been able to attract and retain highly-qualified experienced associates, which,
in turn, is a significant component of our success. We employ more than 1,050
associates on assignment, who have an average of 18 years of professional
experience in a wide range of industries and functional areas; approximately
50% of our associates are CPAs and approximately 28% have MBAs. We offer our
associates careers that combine many of the advantages of working for a
traditional professional services firm with the flexibility of project-based
work. We provide our associates with challenging work assignments, competitive
compensation and benefits, and continuing education and training opportunities,
while offering flexible work schedules and more control over choosing client
engagements.
Our founders created Resources Connection to capitalize on the increasing
demand for high-quality, outsourced professional services and to address the
needs of companies that are not adequately met by traditional professional
services providers. These providers, which include consulting firms, loaned
employees of Big Five accounting firms, and traditional and Internet-based
staffing firms, offer services which may require a company to make compromises
in terms of quality, cost or internal resource allocation. We believe that we
provide our clients with superior service and a value proposition which
differentiates us from our competitors because we are able to combine all of
the following:
. a relationship-oriented approach to better assess our clients' project
needs;
. highly-qualified professionals with the requisite skills and experience;
3
<PAGE>
. competitive rates on an hourly, instead of a per project, basis; and
. greater client control over their projects.
Market Opportunity
The outsourcing of professionals, according to Staffing Industry Analysts,
Inc., is one of the fastest growing segments of the industry for outsourcing
employees, with revenues estimated to grow from $9.1 billion in 1999 to $14.4
billion in 2001, representing a CAGR of 25.8%. Accounting and finance
professionals are estimated to account for approximately half of this segment.
This growth is driven by the recognition that companies can strategically
access specialized skills and expertise and increase labor flexibility by
outsourcing their professional services. At the same time, we believe many
professionals are embracing project-based careers because of the more flexible
hours and work arrangements, and the opportunity for skill development that
they provide. Resources Connection is positioned to capitalize on the
confluence of these industry trends by providing clients with high-quality,
project-based professional assistance and by offering professionals rewarding,
flexible careers.
Growth Strategy
We believe we have significant opportunity for continued strong internal
growth in our core business; however, we will also evaluate potential strategic
acquisitions on an opportunistic basis. Our objective is to be the leading
provider of project-based professional services by:
. capturing more of our clients' total outsourced professional services
expenditures;
. adding additional clients in a broad range of industries;
. expanding our presence both in the United States and internationally;
and
. providing additional professional services lines to meet our clients'
project-based needs.
Our Company
Resources Connection was founded as a division of Deloitte & Touche in June
1996, and from January 1997 until April 1999, operated the company as Resources
Connection LLC, a Delaware limited liability company and a wholly-owned
subsidiary of Deloitte & Touche. In November 1998, our management formed
RC Transaction Corp., a Delaware corporation, to raise capital for an intended
management-led buyout of Resources Connection LLC. The management-led buyout
was consummated in April 1999 and, since that time, RC Transaction Corp.,
renamed Resources Connection, Inc. in August 2000, has owned all of the
membership units of Resources Connection LLC. Resources Connection is an
independent company which is no longer affiliated with Deloitte & Touche. Our
business is operated primarily through Resources Connection LLC. Our principal
executive offices are located at 695 Town Center Drive, Suite 600, Costa Mesa,
California 92626. Our telephone number is (714) 430-6400. Our website is
http://www.resourcesconnection.com. We do not intend the information found on
our website to be a part of this prospectus.
4
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by:
Resources Connection, Inc....................... shares
Selling stockholders............................ shares
Total....................................... shares
Common stock to be outstanding after the offering.. shares
Use of proceeds.................................... Repay senior and
subordinated debt, fund
growth, provide working
capital and for other
general corporate
purposes. See "Use of
Proceeds."
Nasdaq National Market symbol...................... RECN
</TABLE>
Common stock to be outstanding after this offering is based on 15,630,000
shares of common stock outstanding as of August 26, 2000. It does not include:
. 2,129,000 shares of common stock issuable on the exercise of stock
options outstanding as of August 26, 2000; and
. 211,000 shares of common stock reserved for issuance under the Resources
Connection, Inc. 1999 Long-Term Incentive Plan, or the 1999 Long-Term
Incentive Plan, as of August 26, 2000.
Except as otherwise indicated, all of the information in this prospectus:
. reflects the conversion of each outstanding share of Class B Common
Stock and Class C Common Stock into 144,740 shares of Common Stock at
the closing of this offering; and
. assumes no exercise of the underwriters' over-allotment option.
5
<PAGE>
Summary Consolidated Financial Information
The following table summarizes our consolidated financial data. You should
read the summary financial data below in conjunction with our consolidated
financial statements and related notes beginning on page F-1 and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing on page 21. Resources Connection commenced operations on June 1,
1996. The consolidated statements of income data for the years ended May 31,
1997 and 1998 were derived from the financial statements of our wholly-owned
subsidiary, Resources Connection LLC. After forming Resources Connection, Inc.
on November 16, 1998, we completed the acquisition of Resources Connection LLC
on April 1, 1999. The information for the year ended May 31, 1999 presents the
combined operating data of Resources Connection LLC for the period from June 1,
1998 to March 31, 1999 and Resources Connection, Inc. for the period from
November 16, 1998 to May 31, 1999. Such information is presented in order to
facilitate comparison of results between years. The historical results
presented are not necessarily indicative of future results. The pro forma as
adjusted balance sheet data reflect our sale of shares of common
stock in this offering at an assumed initial public offering price of $ per
share, after deducting estimated underwriting discounts, commissions and
offering expenses.
<TABLE>
<CAPTION>
Resources
Connection,
Inc. and
Resources
Connection Resources
Resources Connection LLC LLC Combined Connection, Inc.
------------------------- ------------ ----------------
Year Ended Year Ended Year Ended Year Ended
May 31, 1997 May 31, 1998 May 31, 1999 May 31, 2000
------------ ------------ ------------ ----------------
(unaudited)
(dollar amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
Consolidated Statements
of Income Data:
Revenue................. $9,331 $29,508 $70,822 $126,332
Direct cost of
services............... 5,367 16,671 39,871 73,541
------ ------- ------- --------
Gross profit............ 3,964 12,837 30,951 52,791
Selling, general and
administrative
expenses............... 3,086 9,035 21,345 34,649
Amortization of
intangible assets...... -- -- 371 2,231
Depreciation expense.... 9 79 148 284
------ ------- ------- --------
Income from operations.. 869 3,723 9,087 15,627
Interest expense........ -- -- 734 4,717
------ ------- ------- --------
Income before provision
for income taxes....... 869 3,723 8,353 10,910
Provision for income
taxes (1).............. 348 1,489 3,363 4,364
------ ------- ------- --------
Net income (1).......... $ 521 $ 2,234 $ 4,990 $ 6,546
====== ======= ======= ========
Net income per share:
Basic................. $ 0.42
========
Diluted............... $ 0.42
========
Number of shares used in
computing net income
per share:
Basic................. 15,630
========
Diluted............... 15,714
========
Other Data:
EBITDA (2).............. $ 878 $ 3,802 $ 9,606 $ 18,142
Number of offices open
at end of year......... 9 18 28 35
Total number of
associates on
assignment at end of
year................... 127 326 697 1,056
</TABLE>
-------
(1) As a limited liability company, income taxes on any income realized by
Resources Connection LLC were the obligation of its members and,
accordingly, no provision for income taxes was recorded by Resources
Connection LLC. Pro forma net income has been computed for periods through
May 31, 1999, as if Resources Connection LLC had been fully subject to
federal and state income taxes as a C corporation.
(2) "EBITDA" represents earnings before interest, income taxes, depreciation
and amortization. EBITDA is presented here to provide additional
information about our operations and should not be construed as a better
indicator of operating performance than income from operations as
determined in accordance with generally accepted accounting principles, or
GAAP, or a better indicator of liquidity than cash flow from operating
activities as determined in accordance with GAAP.
6
<PAGE>
<TABLE>
<CAPTION>
May 31, 2000
-------------------
Pro Forma
Actual As Adjusted
------- -----------
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents................................... $ 4,490
Working capital............................................. 9,932
Total assets................................................ 70,106
Long-term debt, including current portion................... 41,771
Stockholders' equity........................................ 17,185
</TABLE>
7
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making a
decision to buy our common stock. If any of the following risks actually
occurs, our business could be harmed. In that case, the trading price of our
common stock could decline, and you may lose all or part of your investment.
When determining whether to buy our common stock you should also refer to the
other information in this prospectus, including our financial statements and
the related notes.
Risks Related to Our Business
We must provide our clients with highly qualified and experienced associates,
and the loss of a significant number of our associates, or an inability to
attract and retain new associates, could adversely affect our business and
operating results.
Our business involves the delivery of professional services, and our success
depends on our ability to provide our clients with highly qualified and
experienced associates who possess the skills and experience necessary to
satisfy their needs. Such professionals are in great demand, particularly in
certain geographic areas, and are likely to remain a limited resource for the
foreseeable future. Our ability to attract and retain associates with the
requisite experience and skills depends on several factors including, but not
limited to, our ability to:
. provide our associates with full-time employment;
. obtain the type of challenging and high-quality projects which our
associates seek;
. pay competitive compensation and provide competitive benefits; and
. provide our associates with flexibility as to hours worked and
assignment of client engagements.
We cannot assure you that we will be successful in accomplishing each of
these items and, even if we are, that we will be successful in attracting and
retaining the number of highly qualified and experienced associates necessary
to maintain and grow our business.
The market for professional services is highly competitive, and if we are
unable to compete effectively against our competitors our business and
operating results could be adversely affected.
We operate in a competitive, fragmented market, and we compete for clients
and associates with a variety of organizations that offer similar services. The
competition is likely to increase in the future due to the expected growth of
the market and the relatively few barriers to entry. Our principal competitors
include:
. consulting firms;
. employees loaned by the Big Five accounting firms;
. traditional and Internet-based staffing firms; and
. the in-house resources of our clients.
We cannot assure you that we will be able to compete effectively against
existing or future competitors. Many of our competitors have significantly
greater financial resources, greater revenues and greater name recognition,
which may afford them an advantage in attracting and retaining clients and
associates. In addition, our competitors may be able to respond more quickly to
changes in companies' needs and developments in the professional services
industry.
An economic downturn or change in the use of outsourced professional services
associates could adversely affect our business.
We have not been in business during an economic downturn and our business
may be significantly affected if there is an economic downturn in the future.
If the general level of economic activity slows, our clients may
8
<PAGE>
delay or cancel plans that involve professional services, particularly
outsourced professional services. Consequently, the demand for our associates
could decline, resulting in a loss of revenues. In addition, the use of
professional services associates on a project-by-project basis could decline
for non-economic reasons. In the event of a non-economic reduction in the
demand for our associates, our financial results could suffer.
Our business depends upon our ability to secure new projects from clients and,
therefore, we could be adversely affected if we fail to do so.
We do not have long-term agreements with our clients for the provision of
services. The success of our business is dependent on our ability to secure new
projects from clients. For example, if we are unable to secure new client
projects because of improvements in our competitors' service offerings or
because of an economic downturn decreasing the demand for outsourced
professional services, our business is likely to be materially adversely
affected.
We may be unable to adequately protect our intellectual property rights,
including our brand name. If we fail to adequately protect our intellectual
property rights, the value of such rights may diminish and our results of
operations and financial condition may be adversely affected.
We believe that establishing, maintaining and enhancing the Resources
Connection brand name is essential to our business. We have filed an
application for a United States trademark registration for "Resources
Connection" and an application for service mark registration of our name and
logo. We may be unable to secure either registration. We are aware of other
companies using the name "Resources Connection" or some variation thereof.
There could be potential trade name or trademark infringement claims brought
against us by the users of these similar names or trademarks, and those users
may have trademark rights that are senior to ours. If an infringement suit were
to be brought against us, the cost of defending such a suit could be
substantial. If the suit were successful, we could be forced to cease using the
service mark "Resources Connection." Even if an infringement claim is not
brought against us, it is also possible that our competitors or others will
adopt service names similar to ours or that our clients will be confused by
another company using a name or trademark similar to ours, thereby impeding our
ability to build brand identity. We cannot assure you that our business would
not be adversely affected if confusion did occur or if we are required to
change our name.
We may be legally liable for damages resulting from the performance of projects
by our associates or for our clients' mistreatment of our associates.
Many of our engagements with our clients involve projects that are critical
to our clients' businesses. If we fail to meet our contractual obligations, we
could be subject to legal liability or damage to our reputation, which could
adversely affect our business, operating results and financial condition. Our
agreements with our clients typically contain provisions designed to limit our
exposure to legal claims relating to our services, including limitations of
liability and exclusions of express or implied warranties, consequential
damages and other remedies. However, it is possible that some or all of these
provisions may not protect us or may not be enforceable under some
circumstances or under the laws of some jurisdictions. It is likely, because of
the nature of our business, that we will be sued in the future. Claims brought
against us could have a serious negative effect on our reputation and on our
business, financial condition and results of operations.
Because we are in the business of placing our associates in the workplaces
of other companies, we are subject to possible claims by our associates
alleging discrimination, sexual harassment, negligence and other similar
activities by our clients. The cost of defending such claims, even if
groundless, could be substantial and the associated negative publicity could
adversely affect our ability to attract and retain associates and clients.
We may not be able to grow our business, manage our growth or sustain our
current business.
We have grown rapidly since our inception in 1996 by opening new offices and
by increasing the volume of services we provide through existing offices. There
can be no assurance that we will continue to be able to
9
<PAGE>
maintain or expand our market presence in our current locations or to
successfully enter other markets or locations. Our ability to successfully grow
our business will depend upon a number of factors, including our ability to:
. compete with existing and future competitors;
. expand work from our existing clients;
. grow our client base;
. expand profitably into new cities;
. provide additional professional services lines;
. maintain margins in the face of pricing pressures;
. attract and retain qualified associates and management personnel; and
. manage costs.
Even if we are able to continue our growth, the growth will result in new
and increased responsibilities for our management as well as increased demands
on our internal systems, procedures and controls, and our administrative,
financial, marketing and other resources. These new responsibilities and
demands may adversely affect our business, financial condition and results of
operation.
An increase in our international activities will expose us to additional
operational challenges that we might not otherwise face.
As we increase our international activities, we will have to confront and
manage a number of risks and expenses that we would not otherwise face if we
conducted our operations solely in the United States. If any of these risks or
expenses occur, there could be a material negative effect on our operating
results. These risks and expenses include:
. difficulties in staffing and managing foreign offices as a result of,
among other things, distance, language and cultural differences;
. expenses associated with customizing our professional services for
clients in foreign countries;
. foreign currency exchange rate fluctuations, when we sell our
professional services in denominations other than U.S. dollars;
. protectionist laws and business practices that favor local companies;
. political and economic instability in some international markets;
. multiple, conflicting and changing government laws and regulations;
. trade barriers;
. reduced protection for intellectual property rights in some countries;
and
. potentially adverse tax consequences.
We may acquire companies in the future, and these acquisitions could disrupt
our business.
We may acquire companies in the future. Entering into an acquisition entails
many risks, any of which could harm our business, including:
. diversion of management's attention from other business concerns;
. failure to integrate the acquired company with our existing business;
10
<PAGE>
. failure to motivate, or loss of, key employees from either our existing
business or the acquired business;
. potential impairment of relationships with our employees and clients;
. additional operating expenses not offset by additional revenue;
. incurrence of significant non-recurring charges;
. incurrence of additional debt with restrictive covenants or other
limitations;
. dilution of our stock as a result of issuing equity securities; and
. assumption of liabilities of the acquired company.
We have a limited operating history as an independent company.
We commenced operations in June 1996 as a division of Deloitte & Touche.
From January 1997 through April 1999, we operated as a wholly-owned subsidiary
of Deloitte & Touche. In April 1999, we were sold by Deloitte & Touche.
Therefore, our business as an independent company has a limited operating
history. Consequently, the historical and pro forma information contained
herein may not be indicative of our future financial condition and performance.
The loss of our association with Deloitte & Touche could reduce our ability to
attract and retain associates and clients and will require us to enhance our
infrastructure and local networks.
Our association with Deloitte & Touche, from our inception in June 1996
until April 1999, helped establish us as a high-quality professional services
company and contributed to our ability to open, integrate, and establish a
presence in new office locations. Apart from certain transition assistance,
which ends no later than November 2000, and our joint venture with Deloitte &
Touche Taiwan, which is not owned or controlled by Deloitte & Touche, since
April 1999 our contact with Deloitte & Touche has been reduced to the services
we provide it. The loss of our association with Deloitte & Touche may adversely
affect our business and our ability to attract new clients, keep existing
clients and hire and retain qualified associates. We face the challenges of
developing a presence in areas where we establish new offices and integrating
new office locations so that they are fully operational and functional without
the infrastructure previously provided by Deloitte & Touche.
Our business could suffer if we lose the services of a key member of our
management.
Our future success depends upon the continued employment of certain of our
senior management professionals, particularly Donald B. Murray, our chief
executive officer. While we have signed employment agreements with four of our
six senior management professionals, including Mr. Murray, these agreements are
terminable under certain circumstances. We do not have employment agreements
with the other two members of our management team. The loss of the services of
any of the members of our management team could have a material adverse effect
upon our business, financial condition and results of operations.
Our quarterly financial results may be subject to significant fluctuations
which may increase the volatility of our stock price.
Our results of operations could vary significantly from quarter to quarter.
Factors that could affect our quarterly operating results include:
. our ability to attract new clients and retain current clients;
. the mix of client projects;
. the announcement or introduction of new services by us or any of our
competitors;
. the expansion of the professional services offered by us or any of our
competitors into new locations both nationally and internationally;
11
<PAGE>
. the entry of new competitors into any of our markets;
. the number of holidays in a quarter, particularly the day of the week on
which they occur;
. changes in the pricing of our professional services or those of our
competitors;
. the amount and timing of operating costs and capital expenditures
relating to management and expansion of our business; and
. the timing of acquisitions and related costs, such as compensation
charges which fluctuate based on the market price of our common stock.
Due to these and other factors, we believe that quarter-to-quarter
comparisons of our results of operations are not meaningful indicators of
future performance. It is possible that in some future periods, our results of
operations may be below the expectations of investors. If this occurs, the
price of our common stock could decline.
We may be subject to laws and regulations that impose difficult and costly
compliance requirements and subject us to potential liability and the loss of
clients.
We are subject to regulations applicable to businesses generally, such as
employment laws and regulations. In addition, in connection with providing
services to clients in certain regulated industries, we are subject to certain
industry-specific regulations, including licensing and reporting requirements.
Complying with these requirements is costly and, if we fail to comply, we could
be prevented from rendering services to clients in those industries in the
future.
Risks Related to this Offering
Our securities have no prior market and our stock price is likely to be
volatile, which could result in substantial losses for investors purchasing
shares in this offering.
Before this offering, there was no public market for our common stock. A
consistent public market for our common stock may not develop or be sustained
after this offering. Fluctuations in the market price of our common stock could
occur in response to factors such as:
. actual or anticipated variations in quarterly operating results;
. loss of a significant client or group of clients;
. changes in financial estimates by securities analysts;
. failure to meet analyst predictions and projections;
. changes in market valuations of professional services companies;
. improvements in the professional services of our competitors;
. announcements of significant acquisitions, strategic partnerships, joint
ventures or capital commitments by us or our competitors;
. additions or departures of key personnel; and
. sales of our common stock or other securities in the future.
In addition, stock markets in general, and The Nasdaq National Market in
particular, have experienced extreme price and volume fluctuations that have
often been unrelated or disproportionate to the operating performance of
companies listed on these markets. The trading prices and valuations of many
companies' stocks are at or near historical highs, which are substantially
above historical levels. These trading prices and valuations may not be
sustainable. These broad market and industry factors may materially adversely
affect the market price of our common stock, regardless of our actual operating
performance.
12
<PAGE>
Shares you purchase in this offering will be immediately and substantially
diluted and may be further diluted in the future.
The initial public offering price is substantially higher than the net
tangible book value of our common stock. As a result, if you purchase shares in
this offering, your ownership interest will be immediately and substantially
diluted. The dilution is expected to be $ per share. If outstanding
options to purchase shares of common stock are exercised, you will be further
diluted. If additional capital is raised through the issuance of equity
securities, you will experience further dilution. As a result of these
dilutions, in the event of a liquidation, you may receive significantly less
than the purchase price that you paid for your shares. In addition, any new
equity securities may have rights, preferences or privileges senior to those of
your shares.
Potential sales of shares eligible for future sale after this offering could
cause our stock price to decline.
If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options, in the public market
following this offering, the market price of our common stock could fall. These
sales also might make it more difficult for us to sell equity or equity-related
securities in the future at a time and price that we deem appropriate. The
shares sold in this offering will be freely tradable immediately upon
completion of this offering. In addition, on the 181st day after completion of
this offering, approximately shares of our common stock held by existing
stockholders will be freely tradable, subject in some instances to the volume
and other limitations of Rule 144. Additionally, of the 2,129,000 shares of
common stock that may be issued upon the exercise of options outstanding as of
August 26, 2000, approximately 344,500 shares of common stock will be vested
and eligible for sale 180 days after the date of this prospectus. Sales of
these shares and other shares of common stock held by existing stockholders
could cause the market price of our common stock to decline. For a further
description of the eligibility of shares for sale into the public market
following the offering, see "Shares Eligible for Future Sale."
Our existing stockholders will continue to control us after this offering, and
they may make decisions with which you disagree.
Upon consummation of this offering, Evercore Partners Inc., and certain of
its affiliates, will own approximately % of the outstanding shares of common
stock, or % if the underwriters' over-allotment option is exercised in full,
and our executive officers, directors and principal stockholders, including
Evercore Partners Inc. and certain of its affiliates, will own approximately
% of the outstanding shares of common stock, or % if the underwriters'
over-allotment option is exercised in full. As a result, Evercore Partners Inc.
and/or these other stockholders will be able to control us and direct our
affairs, including the election of directors and approval of significant
corporate transactions. This concentration of ownership also may delay, defer
or even prevent a change in control of our company, and make some transactions
more difficult or impossible without the support of these stockholders. These
transactions might include proxy contests, tender offers, mergers or other
purchases of common stock that could give you the opportunity to realize a
premium over the then-prevailing market price for shares of our common stock.
It may be difficult for a third party to acquire our company, and this could
depress our stock price.
Delaware corporate law and our amended and restated certificate of
incorporation and bylaws contain provisions that could delay, defer or prevent
a change of control of our company or our management. These provisions could
also discourage proxy contests and make it difficult for you and other
stockholders to elect directors and take other corporate actions. As a result,
these provisions could limit the price that future investors are willing to pay
for your shares. These provisions:
. authorize our board of directors to establish one or more series of
undesignated preferred stock, the terms of which can be determined by
the board of directors at the time of issuance;
13
<PAGE>
. divide our board of directors into three classes of directors, with each
class serving a staggered three-year term. As the classification of the
board of directors generally increases the difficulty of replacing a
majority of the directors, it may tend to discourage a third party from
making a tender offer or otherwise attempting to obtain control of us
and may maintain the composition of the board of directors;
. prohibit cumulative voting in the election of directors unless required
by applicable law. Under cumulative voting, a minority stockholder
holding a sufficient percentage of a class of shares may be able to
ensure the election of one or more directors;
. require that any action required or permitted to be taken by our
stockholders must be effected at a duly called annual or special meeting
of stockholders and may not be effected by any consent in writing;
. state that special meetings of our stockholders may be called only by
the chairman of the board of directors, our chief executive officer, by
the board of directors after a resolution is adopted by a majority of
the total number of authorized directors, or by the holders of not less
than 10% of our outstanding voting stock;
. establish advance notice requirements for submitting nominations for
election to the board of directors and for proposing matters that can be
acted upon by stockholders at a meeting;
. provide that certain provisions of our certificate of incorporation can
be amended only by supermajority vote of the outstanding shares, and
that our bylaws can be amended only by supermajority vote of the
outstanding shares or our board of directors;
. allow our directors, not our stockholders, to fill vacancies on our
board of directors; and
. provide that the authorized number of directors may be changed only by
resolution of the board of directors.
Management's use of the net proceeds from this offering may not increase our
operating results or market value.
Management plans to use approximately $41.8 million of our net proceeds from
this offering to satisfy senior and subordinated debt obligations of the
company as of May 31, 2000. The remaining proceeds, approximately $ million,
will be used to fund growth, provide working capital and for general corporate
purposes. Consequently, our management will have broad discretion with respect
to the application of these net proceeds, and you will not have the
opportunity, as part of your investment in our common stock, to assess whether
the proceeds are being used appropriately. The offering proceeds may be used
for purposes that do not increase our operating results or market value.
Pending application of the proceeds, they might be placed in investments that
do not produce income or that lose value.
The selling stockholders will receive benefits from this offering which we will
not share.
The selling stockholders will receive $ million of net proceeds from this
offering, excluding the underwriters' over-allotment option. We will not
receive any of these proceeds. In addition, this offering will establish a
public market for our common stock and provide increased liquidity to the
selling stockholders for the shares they own after this offering.
We do not plan to pay dividends in the future.
We have not paid cash dividends in the past and do not plan to pay dividends
in the foreseeable future. We currently intend to retain all earnings for the
growth of our business.
14
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements relate
to future events or our future financial performance. We have attempted to
identify forward-looking statements by terminology including "anticipates,"
"believes," "can," "continue," "could," "estimates," "expects," "intends,"
"may," "plans," "potential," "predicts," "should" or "will" or the negative of
these terms or other comparable terminology. These statements are only
predictions and involve known and unknown risks, uncertainties and other
factors, including the risks outlined under "Risk Factors," that may cause our,
or our industry's, actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by these forward-
looking statements.
We assume no obligation to publicly update or revise these forward-looking
statements for any reason, or to update the reasons actual results could differ
materially from those anticipated in these forward-looking statements, even if
new information becomes available in the future.
This prospectus contains estimates made by independent parties relating to
market size and growth. These estimates involve a number of assumptions and
limitations. We cannot assure you that these estimates of market size are
accurate or that projections of market growth will be achieved. Projections,
assumptions and estimates of our future performance and the future performance
of our industry are necessarily subject to a high degree of uncertainty and
risk due to a variety of factors, including those described in "Risk Factors"
and elsewhere in this prospectus.
15
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of shares of
common stock, offered by us at an assumed initial public offering price of $
per share, will be $ million, after deducting the estimated underwriting
discounts and commissions and estimated offering expenses. We will not receive
any proceeds from the sale of shares by the selling stockholders.
We intend:
. to use approximately $16.5 million of the net proceeds to repay our
senior debt obligations, bearing interest, at our option, at the prime
rate plus 2% and a Eurodollar-based rate plus 3% and having a maturity
date of April 2003, pursuant to our existing credit agreement as of May
31, 2000;
. to use approximately $25.3 million of the net proceeds to redeem the
balance due on our subordinated notes as of May 31, 2000, bearing 12%
interest per annum and having a maturity date of April 15, 2004; and
. to fund the growth of our business and for working capital and general
corporate purposes.
We may also use a portion of the net proceeds for acquisitions of businesses
that complement our business. We currently have no commitments or agreements to
make any acquisitions and may not make any acquisitions in the future. Pending
these uses, we intend to invest the net proceeds in United States government
securities and other short-term, investment-grade, interest-bearing
instruments. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" for additional
information regarding our sources and uses of capital.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings to finance the growth and
development of our business and do not anticipate paying any cash dividends in
the foreseeable future. Our credit agreement currently prohibits us from
declaring or paying any dividends or other distributions on any shares of our
capital stock other than dividends payable solely in shares of capital or the
stock of our subsidiaries. Any future determination to pay cash dividends will
be at the discretion of our board of directors and will depend upon our
financial condition, results of operations, capital requirements, general
business condition, contractual restrictions contained in our credit agreement
and other agreements, and other factors deemed relevant by our board of
directors.
16
<PAGE>
CAPITALIZATION
The following table sets forth at May 31, 2000 our capitalization on an
actual basis and a pro forma as adjusted basis to reflect the sale of
shares of common stock in this offering at the initial public
offering price of $ per share, the conversion of all authorized
shares of Class B Common Stock and Class C Common Stock to Common Stock, and
the use of approximately $16.5 million to repay our bank debt and approximately
$25.3 million to redeem our subordinated notes. You should read this
information together with the "Selected Historical Consolidated Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the financial statements and related notes contained
elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of May 31, 2000
--------------------
Pro Forma
Actual As Adjusted
------- -----------
(in thousands
except share and
per share data)
<S> <C> <C>
Debt (including current maturities):
Senior Secured Credit Facility.......................... $16,500
Subordinated Notes...................................... 25,271
-------
Total Debt............................................ 41,771
Stockholders' equity:
Preferred Stock, $0.01 par value, 5,000,000 shares
authorized; and no shares issued or outstanding,
actual; 5,000,000 shares authorized and no shares
issued and outstanding, pro forma as adjusted..........
Common Stock, $0.01 par value, 35,000,000 shares
authorized, and 15,630,000 shares issued and
outstanding, actual; 35,000,000 shares authorized,
and issued and outstanding, pro forma as
adjusted
Common Stock, 25,000,000 shares designated, and
15,485,260 shares issued and outstanding, actual; no
shares designated, issued or outstanding, pro forma
as adjusted.......................................... 155
Class B Common Stock, 3,000,000 shares designated, and
144,740 shares issued and outstanding, actual; no
shares designated, issued or outstanding, pro forma
as adjusted.......................................... 1
Class C Common Stock, 7,000,000 shares designated, and
no shares issued and outstanding, actual; no shares
designated, issued or outstanding, pro forma as
adjusted.............................................
Additional paid-in capital.............................. 10,222
Deferred stock compensation............................. (499)
Accumulated other comprehensive loss.................... (32)
Retained earnings ...................................... 7,338
-------
Total stockholders' equity............................ 17,185
-------
Total capitalization.................................. $58,956
======= ---
</TABLE>
This table excludes the following shares:
. 2,129,000 shares of common stock issuable on the exercise of stock
options outstanding as of August 26, 2000; and
. 211,000 shares of common stock reserved for future grant or issuance
under the 1999 Long-Term Incentive Plan as of August 26, 2000.
17
<PAGE>
DILUTION
Our net tangible book value at May 31, 2000 was $(24.4 million), or
approximately $(1.56) per share. Pro forma net tangible book value per share
represents the amount of our total tangible assets less total liabilities,
divided by the number of shares of common stock outstanding after giving effect
to the conversion of all Class B Common Stock and Class C Common Stock to
Common Stock. Dilution in pro forma net tangible book value per share
represents the difference between the amount per share paid by purchasers of
shares of our common stock in this offering and the net tangible book value per
share of our common stock immediately afterwards. After giving effect to our
sale of shares of common stock offered by this prospectus and after
deducting the underwriting discounts and commissions and estimated offering
expenses payable by us, our pro forma as adjusted net tangible book value at
May 31, 2000 would have been approximately $ million, or $ per
share. This represents an immediate increase in pro forma net tangible book
value of $ per share to existing stockholders and an immediate dilution in
pro forma net tangible book value of $ per share to new stockholders
purchasing shares of common stock in this offering. The following table
illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed public offering price per share........................ $
---
Net tangible book value per share as of May 31, 2000......... $(1.56)
------
Increase per share attributable to new stockholders..........
------
Pro forma as adjusted net tangible book value per share after
the offering..................................................
---
Dilution per share to new stockholders......................... $
===
</TABLE>
The following table summarizes the difference between the existing
stockholders and new stockholders with respect to the number of shares of
common stock purchased from us, the total consideration paid to us, and the
average price per share paid. The information is presented as of May 31, 2000,
and is based on an assumed initial public offering price of $ per share,
before deducting the underwriting discount and commissions and our estimated
offering expenses.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 15,630,000 % $10,056,300 % $0.64
New stockholders............ % % $
---------- --- ----------- ---
Total..................... 100% $ 100%
========== === =========== ===
</TABLE>
The foregoing discussion and tables assume no exercise of options to
purchase 2,129,000 shares of common stock, at a weighted average exercise price
of $4.01 per share outstanding as of August 26, 2000 and does not include
211,000 shares of common stock reserved for issuance under the 1999 Long-Term
Incentive Plan. If any of these options are exercised, the new stockholders
will be further diluted. For more information about these options, see
"Management--1999 Long-Term Incentive Plan," "Description of Capital Stock" and
Notes 10 and 14 to Resources Connection, Inc. Notes to Consolidated Financial
Statements.
18
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
You should read the following selected historical consolidated financial
data in conjunction with our consolidated financial statements and related
notes beginning on page F-1 and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing on page 21. The
statement of income data for the year ended May 31, 1997, and the consolidated
balance sheet data at May 31, 1997 were derived from the unaudited financial
statements of Resources Connection LLC and are not included in this prospectus.
The statements of income data for the year ended May 31, 1998, and the period
from June 1, 1998 to March 31, 1999, and the balance sheet data at May 31, 1998
were derived from the financial statements of Resources Connection LLC that
have been audited by PricewaterhouseCoopers LLP, independent accountants, and,
with respect to the statement of income data, are included elsewhere in this
prospectus. The consolidated statements of income data for the period from
November 16, 1998 to May 31, 1999, and the year ended May 31, 2000, and the
consolidated balance sheet data at May 31, 1999 and 2000 were derived from our
consolidated financial statements that have been audited by
PricewaterhouseCoopers LLP and are included elsewhere in this prospectus.
Historical results are not necessarily indicative of results that may be
expected for any future periods.
<TABLE>
<CAPTION>
Resources Connection LLC Resources Connection, Inc.
----------------------------------------- ------------------------------
Period from Period from
Year Ended Year Ended June 1, 1998 to November 16, 1998 Year Ended
May 31, 1997 May 31, 1998 March 31, 1999 to May 31, 1999 May 31, 2000
------------ ------------ --------------- ----------------- ------------
(unaudited)
(dollar amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statements
of Income Data:
Revenue................. $9,331 $29,508 $55,438 $15,384 $126,332
Direct cost of
services............... 5,367 16,671 31,253 8,618 73,541
------ ------- ------- ------- --------
Gross profit............ 3,964 12,837 24,185 6,766 52,791
Selling, general and
administrative
expenses............... 3,086 9,035 17,071 4,274 34,649
Amortization of
intangible assets...... -- -- -- 371 2,231
Depreciation expense.... 9 79 118 30 284
------ ------- ------- ------- --------
Income from operations.. 869 3,723 6,996 2,091 15,627
Interest expense........ -- -- -- 734 4,717
------ ------- ------- ------- --------
Income before provision
for income taxes....... 869 3,723 6,996 1,357 10,910
Provision for income
taxes.................. -- -- -- 565 4,364
------ ------- ------- ------- --------
Net income.............. $ 869 $ 3,723 $ 6,996 $ 792 $ 6,546
====== ======= ======= ======= ========
Pro Forma Data (1):
Income before provision
for income taxes....... $ 869 $ 3,723 $ 6,996
Pro forma provision for
income taxes........... 348 1,489 2,798
------ ------- -------
Pro forma net income.... $ 521 $ 2,234 $ 4,198
====== ======= =======
Net income per share:
Basic................. $ 0.09 $ 0.42
======= ========
Diluted............... $ 0.09 $ 0.42
======= ========
Number of shares used in
computing net income
per share:
Basic................. 8,691 15,630
======= ========
Diluted............... 8,691 15,714
======= ========
Other Data:
EBITDA (2).............. $ 878 $ 3,802 $ 7,114 $ 2,492 $ 18,142
Number of offices open
at end of period....... 9 18 27 28 35
Total number of
associates on
assignment at end of
period................. 127 326 675 697 1,056
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Resources
Resources Connection,
Connection LLC Inc.
------------------ ---------------
As of May 31,
----------------------------------
1997 1998 1999 2000
----------- ------ ------- -------
(unaudited)
<S> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents................... $ -- $3,168 $ 876 $ 4,490
Working capital............................. 1,133 4,504 7,150 9,932
Total assets................................ 1,409 7,976 58,954 70,106
Long-term debt, including current portion... -- -- 42,531 41,771
Stockholders' equity........................ 1,205 4,928 10,610 17,185
</TABLE>
--------
(1) As a limited liability company, income taxes on any income realized by
Resources Connection LLC were the obligation of its members and,
accordingly, no provision for income taxes was recorded by Resources
Connection LLC. Pro forma net income has been computed for periods through
May 31, 1999, as if Resources Connection LLC had been fully subject to
federal and state income taxes as a C corporation.
(2) "EBITDA" represents earnings before interest, income taxes, depreciation
and amortization. EBITDA is presented here to provide additional
information about our operations and should not be construed as a better
indicator of operating performance than income from operations as
determined in accordance with generally accepted accounting principles, or
GAAP, or a better indicator of liquidity than cash flow from operating
activities as determined in accordance with GAAP.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results
of operations should be read in conjunction with our financial statements and
related notes. This discussion and analysis contains forward-looking statements
that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors including, but not limited to, those discussed in
"Risk Factors" starting on page 8 and elsewhere in this prospectus.
Overview
Resources Connection is a leading professional services firm that provides
experienced accounting and finance, human capital management and information
technology professionals to clients on a project-by-project basis. We assist
our clients with discrete projects requiring specialized professional expertise
such as mergers and acquisitions due diligence, transitions of management
information systems, financial analyses (e.g., product costing and margin
analyses), tax-related projects, and compensation program design and
implementation. We also assist our clients with periodic needs such as
budgeting and forecasting, audit preparation and public reporting.
We began operations in June 1996 as a division of Deloitte & Touche and
operated as a wholly-owned subsidiary of Deloitte & Touche from January 1997
until April 1999. In November 1998, our management formed RC Transaction Corp.,
renamed Resources Connection, Inc., to raise capital for an intended
management-led buyout. In April 1999, we completed a management-led buyout in
partnership with our investor Evercore Partners, Inc., four of its affiliates
and six other investors. In connection with the buyout, we entered into a
transition services agreement with Deloitte & Touche, whereby Deloitte & Touche
agreed to provide certain services to us at negotiated rates during the period
that we maintained our offices within their locations. We have completed the
transition of all of our previously co-located offices. Our general and
administrative expenses for the first ten months of fiscal 1999 included
charges for services supplied by Deloitte & Touche, as the parent of Resources
Connection LLC. The charges for these services may not necessarily be at rates
available from third parties. Pursuant to the transition services agreement,
our general and administrative expenses for the last two months of fiscal 1999
and all of fiscal 2000 include charges for services provided by Deloitte &
Touche. These transition services were negotiated at arms length.
Growth in revenue, to date, has generally been the result of establishing
offices in major markets throughout the United States. We established nine
offices during fiscal 1997, our initial fiscal year, all in the Western United
States. In fiscal 1998, we established nine additional offices, which extended
our geographic reach to the Midwest and Eastern United States. In fiscal 1999,
we opened ten more offices and established a new service line in information
technology. In fiscal 2000, we established four more domestic offices,
established a new service line in human capital management and also began
operations in Toronto, Canada; Taipei, Taiwan; and Hong Kong, People's Republic
of China. Our new service lines were introduced in a limited number of our
offices. To date in fiscal 2001, we have established three domestic offices. As
a result, we currently serve our clients through 35 offices in the United
States and three offices abroad.
We earn revenue primarily by charging our corporate clients on an hourly
basis for the professional services of our associates. We recognize revenue
once services have been rendered. To a much lesser extent, we also earn revenue
if a client hires an associate onto their permanent payroll. This type of
revenue is recognized at the time our client completes the hiring process and
represented less than 4% of our revenue in each of fiscal 1998, 1999 and 2000.
The costs to pay our professional associates and all related benefit and
incentive costs, including provisions for paid time off and other employee
benefits, are included in direct cost of services. We pay our associates on an
hourly basis for all hours worked on client engagements. We generally pay
associates only when working on client assignments, and therefore, direct cost
of services tend to vary directly with the volume of revenue we earn. We
expense the benefits we pay to our associates, which include paid vacation and
holidays; referral bonus programs;
21
<PAGE>
group health, dental and life insurance programs; a matching 401(k) retirement
plan; and professional development and career training. In addition, we pay the
related costs of employment, including state and federal payroll taxes,
workers' compensation insurance, unemployment insurance and associated costs.
Typically, an associate must work a threshold number of hours to be eligible
for all of the benefits. We recognize direct cost of services when incurred.
Selling, general and administrative expenses include the payroll and related
costs of our national and local management as well as general and
administrative, marketing and recruiting costs. Our sales and marketing efforts
are led by our management team who are paid a salary and earn bonuses based on
certain operating results for our company and in their geographic market.
Results of Operations
The following tables set forth, for the periods indicated, certain combined
and consolidated statements of income data. The combined statements of income
data of Resources Connection LLC for the period from June 1, 1998 to March 31,
1999 and Resources Connection, Inc. for the period from our date of inception,
November 16, 1998, to May 31, 1999 is presented in order to facilitate
management's discussion and analysis of financial results. These historical
results are not necessarily indicative of future results.
<TABLE>
<CAPTION>
Resources Connection,
Inc. and Resources
Resources Connection LLC Resources
Connection LLC Combined Connection, Inc.
-------------- --------------------- ----------------
Year Ended Year Ended Year Ended
May 31, 1998 May 31, 1999 May 31, 2000
-------------- --------------------- ----------------
(in thousands)
<S> <C> <C> <C>
Consolidated Statements
of Income Data:
Revenue................. $29,508 $70,822 $126,332
Direct cost of
services............... 16,671 39,871 73,541
------- ------- --------
Gross profit............ 12,837 30,951 52,791
Selling, general and
administrative
expenses............... 9,035 21,345 34,649
Amortization of
intangible assets...... -- 371 2,231
Depreciation expense.... 79 148 284
------- ------- --------
Income from operations.. 3,723 9,087 15,627
Interest expense........ -- 734 4,717
------- ------- --------
Income before provision
for income taxes....... 3,723 8,353 10,910
Provision for income
taxes(1)............... 1,489 3,363 4,364
------- ------- --------
Net income(1)........... $ 2,234 $ 4,990 $ 6,546
======= ======= ========
Our operating results for fiscal 1998, 1999 and 2000 are expressed as a
percentage of revenue below.
<CAPTION>
Year Ended May 31,
-----------------------------------------------------
1998 1999 2000
-------------- --------------------- ----------------
<S> <C> <C> <C>
Revenue................. 100.0% 100.0% 100.0%
Direct cost of
services............... 56.6 56.4 58.2
------- ------- --------
Gross profit............ 43.4 43.6 41.8
Selling, general and
administrative
expenses............... 30.5 30.1 27.4
Amortization of
intangible assets...... -- 0.6 1.8
Depreciation expense.... 0.3 0.1 0.2
------- ------- --------
Income from operations.. 12.6 12.8 12.4
Interest expense........ -- 1.0 3.7
------- ------- --------
Income before provision
for income taxes....... 12.6 11.8 8.7
Provision for income
taxes(1)............... 5.0 4.7 3.5
------- ------- --------
Net income(1)........... 7.6% 7.1% 5.2%
======= ======= ========
</TABLE>
--------
(1) As a limited liability company, income taxes on any income realized by
Resources Connection LLC were the obligation of its members and,
accordingly, no provision for income taxes was recorded by Resources
Connection LLC. Pro forma net income has been computed for periods through
May 31, 1999, as if Resources Connection LLC had been fully subject to
federal and state income taxes as a C corporation.
22
<PAGE>
Fiscal 2000 compared to Fiscal 1999
Revenue. Revenue increased $55.5 million, or 78.4%, to $126.3 million in
fiscal 2000 from $70.8 million in fiscal 1999. The increase in total revenues
was primarily the result of the growth in the number of associates on
assignment from 697 at the end of fiscal 1999 to 1,056 at the end of fiscal
2000 and a moderate increase in the average revenue per hour. During fiscal
2000, we opened seven new offices, introduced our human capital management
service line to certain existing markets and expanded our recently introduced
information technology service line in existing market places. These new
offices and our new service line contributed $5.1 million to revenues during
the year or 9.2% of our increase in revenue. Offices opened prior to fiscal
1999 had an annual average revenue growth rate of 64.7%.
Direct Cost of Services. Direct cost of services increased $33.7 million, or
84.5%, to $73.5 million in fiscal 2000 from $39.9 million in fiscal 1999. This
increase was the result of the growth in the number of associates on assignment
from 697 at the end of fiscal 1999 to 1,056 at the end of fiscal 2000. In
addition, we enriched certain of our benefit programs for associates during
fiscal 2000 and more of our associates qualified for benefits. The direct cost
of services as a percentage of revenue in fiscal 2000 was 58.2% as compared to
56.4% in fiscal 1999, reflecting primarily the impact of these enriched benefit
programs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $13.3 million, or 62.4%, to $34.6 million in
fiscal 2000 from $21.3 million in fiscal 1999. This increase was attributable
to the additional cost of operating and staffing the seven new offices opened
in fiscal 2000, a full year of operation for the ten offices that had opened in
fiscal 1999 and growth in offices opened prior to fiscal 1999. Selling, general
and administrative expenses decreased as a percentage of revenue from 30.1% in
fiscal 1999 to 27.4% in fiscal 2000, due to these expenses being spread over a
larger revenue base.
Amortization and Depreciation Expense. Amortization of intangible assets,
which increased from $371,000 in fiscal 1999 to $2.2 million in fiscal 2000,
was related to our acquisition of Resources Connection LLC. Fiscal 2000 results
reflect a full year of amortization expense compared with only two months of
expense in fiscal 1999.
Depreciation expense increased from $148,000 in fiscal 1999 to $284,000 in
fiscal 2000, reflecting the continuing growth in our number of offices, our
investment in technology, and our expenditures for leasehold improvements and
furniture for offices moved from co-located Deloitte & Touche office space.
Interest Expense. Interest expense increased from $734,000 in fiscal 1999 to
$4.7 million in fiscal 2000, related primarily to the debt incurred in
connection with the acquisition of Resources Connection LLC. This debt was
outstanding for all of fiscal 2000 compared to only two months in fiscal 1999.
Income Taxes. The provision for income taxes increased to $4.4 million in
fiscal 2000 from $3.4 million in fiscal 1999. The effective tax rate decreased
from 40.3% in fiscal 1999 to 40.0% in fiscal 2000. The provision for Resources
Connection LLC is shown on a pro forma basis. Resources Connection LLC operated
as a limited liability company from January 1997 to April 1999. Income taxes on
any income realized by Resources Connection LLC during this period were the
obligation of its members and, accordingly, no provision for income taxes was
recorded. Our effective rate differs from the federal statutory rate primarily
due to state taxes, net of federal benefit.
Fiscal 1999 compared to Fiscal 1998
Revenue. Revenue increased $41.3 million, or 140.0%, to $70.8 million in
fiscal 1999 from $29.5 million in fiscal 1998. The increase in total revenues
was primarily the result of the growth in the number of associates on
assignment from 327 at the end of fiscal 1998 to 697 at the end of fiscal 1999
and a moderate increase in the average revenue per hour. During fiscal 1999, we
opened ten new offices and introduced an information technology service line in
certain existing markets. These new offices and our new service line
contributed $9.8 million to revenues during the year or 23.7% of our increase
in revenue. Offices opened prior to fiscal 1998 had an annual average revenue
growth rate of 57.5%.
23
<PAGE>
Direct Cost of Services. Direct cost of services increased $23.2 million, or
138.9%, to $39.9 million in fiscal 1999 from $16.7 million in fiscal 1998. This
increase was the result of the growth in the number of associates on assignment
from 327 at the end of fiscal 1998 to 697 at the end of fiscal 1999. The direct
cost of services as a percentage of revenue was 56.4% in fiscal 1999 as
compared to 56.6% in fiscal 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $12.3 million, or 136.7%, to $21.3 million in
fiscal 1999 from $9.0 million in fiscal 1998. This increase was attributable to
the additional cost of operating and staffing the ten new offices opened in
fiscal 1999, the full year of operations of the nine offices that had opened in
fiscal 1998 and growth in offices opened prior to fiscal 1998. Selling, general
and administrative expenses decreased as a percent of revenue from 30.5% in
fiscal 1998 to 30.1% in fiscal 1999, due to these expenses being spread over a
larger revenue base.
Amortization and Depreciation Expense. Amortization of intangible assets,
related to our acquisition of Resources Connection LLC, was $371,000 in fiscal
1999. There was no amortization of intangible assets in fiscal 1998.
Depreciation expense increased from $79,000 in fiscal 1998 to $148,000 in
fiscal 1999, reflecting the continuing growth in our number of offices and our
investment in technology.
Interest Expense. Interest expense in fiscal 1999 was $734,000, related to
the debt incurred to provide financing for the acquisition of Resources
Connection LLC. There was no interest expense incurred in fiscal 1998.
Income Taxes. The pro forma provision for income taxes was $3.4 million, an
effective rate of 40.3%, and $1.5 million, an effective rate of 40.0%, in
fiscal 1999 and 1998, respectively. Our effective rate differs from the federal
statutory rate primarily due to state taxes, net of federal benefit.
Quarterly Results
The following table sets forth our unaudited quarterly consolidated
statements of income data for each of the eight quarters in the two-year period
ended May 31, 2000. In the opinion of management, this data has been prepared
on a basis substantially consistent with our audited consolidated financial
statements appearing elsewhere in this prospectus, and reflect and include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the data. The quarterly data should be read together with our
consolidated financial statements and related notes appearing elsewhere in this
prospectus. The operating results are not necessarily indicative of the results
to be expected in any future period.
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------------
Aug. 31, Nov. 30, Feb. 28, May 31, Aug. 31, Nov. 30, Feb. 29, May 31,
1998 1998 1999 1999 1999 1999 2000 2000
-------- -------- -------- ------- -------- -------- -------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements
of Income Data:
Revenue................. $11,684 $15,354 $19,766 $24,018 $25,533 $28,581 $33,384 $38,834
Direct cost of
services............... 6,475 8,608 11,369 13,419 14,491 16,626 19,765 22,659
------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 5,209 6,746 8,397 10,599 11,042 11,955 13,619 16,175
Selling, general and
administrative
expenses............... 3,692 4,963 6,031 6,659 6,813 8,050 9,365 10,421
Amortization of
intangible assets...... -- -- -- 371 511 577 572 571
Depreciation expense.... 33 33 39 43 51 49 31 153
------- ------- ------- ------- ------- ------- ------- -------
Income from operations.. 1,484 1,750 2,327 3,526 3,667 3,279 3,651 5,030
Interest expense........ -- -- -- 734 1,154 1,186 1,199 1,178
------- ------- ------- ------- ------- ------- ------- -------
Income before provision
for income taxes....... 1,484 1,750 2,327 2,792 2,513 2,093 2,452 3,852
Provision for income
taxes(1)............... 594 700 931 1,138 1,006 835 981 1,542
------- ------- ------- ------- ------- ------- ------- -------
Net income(1)........... $ 890 $ 1,050 $ 1,396 $ 1,654 $ 1,507 $ 1,258 $ 1,471 $ 2,310
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
--------
(1) As a limited liability company, income taxes on any income realized by
Resources Connection LLC were the obligation of its members and,
accordingly, no provision for income taxes was recorded by Resources
Connection. Pro forma net income has been computed for periods through May
31, 1999, as if Resources Connection LLC had been fully subject to federal
and state income taxes as a C corporation.
24
<PAGE>
Our quarterly results have fluctuated in the past and we believe they will
continue to do so in the future. Factors that could affect our quarterly
operating results include:
. our ability to attract new clients and retain current clients;
. the mix of client projects;
. the announcement or introduction of new services by us or any of our
competitors;
. the expansion of the professional services offered by us or any of our
competitors into new locations both nationally and internationally;
. the entry of new competitors into any of our markets;
. the number of holidays in a quarter, particularly the day of the week on
which they occur;
. changes in the pricing of our professional services or those of our
competitors;
. the amount and timing of operating costs and capital expenditures
relating to management and expansion of our business; and
. the timing of acquisitions and related costs, such as compensation
charges which fluctuate based on the market price of our common stock.
Due to these and other factors, we believe that quarter-to-quarter
comparisons of our results of operations are not meaningful indicators of
future performance.
Liquidity and Capital Resources
Our primary source of liquidity is cash provided by our operations and, to
the extent necessary, available commitments under our revolving line of credit.
Deloitte & Touche provided operating capital and accounts receivable financing
through March 1999; however, by the end of fiscal 1997, we generated positive
cash flows from operations, and we continued to do so in fiscal years 1998,
1999 and 2000.
In April 1999, in connection with the acquisition of Resources Connection
LLC, we entered into a $28.0 million credit agreement with a group of banks
which provides for an $18.0 million term loan facility and a $10.0 million
revolving credit facility. Principal payments on the term loan are due
quarterly and the credit agreement expires on October 1, 2003. At the end of
fiscal 2000, the amount outstanding on the term loan was $16.5 million and we
had no outstanding borrowings under the revolving credit facility. Borrowings
under the credit agreement are secured by all of our assets. Our interest rate
options under our credit agreement are prime rate plus 2% and a Eurodollar-
based rate plus 3%. At the end of fiscal 2000, the term loan bore interest at
8.75%. Interest is payable on both the term loan and revolving credit facility
at various intervals no less frequent than quarterly. Under the terms of the
credit agreement, the term loan must be repaid upon consummation of this
offering.
In April 1999, we issued $22.0 million in 12% subordinated promissory notes
to certain investors. The notes are subordinate to our bank facilities.
Interest accrues on the notes at 12% and is payable on a quarterly basis;
however, we may elect and have elected to defer payment of the interest and to
add the balance due to the outstanding principal balance. All principal,
including accrued interest, is due on April 15, 2004. At the end of fiscal
2000, the outstanding balance was $25.3 million.
Net cash provided by operating activities totaled $10.5 million in fiscal
2000, $3.0 million in fiscal 1999 on a pro forma combined basis (including $5.0
million in cash acquired in connection with our acquisition of Resources
Connection LLC) and $3.6 million in fiscal 1998. Cash provided by operations
resulted primarily from the net earnings of the company partially offset by
growth in working capital.
25
<PAGE>
Net cash used in investing activities totaled $3.3 million in fiscal 2000,
$51.1 million in fiscal 1999 and $431,000 in fiscal 1998. Other than in fiscal
1999, when we used cash to purchase Resources Connection LLC, cash used in
investing activities was a result of purchases of property and equipment.
Net cash used in financing activities totaled $3.6 million in fiscal 2000
and net cash generated by financing activities totaled $50.8 million in fiscal
1999. We had no financing activities in fiscal 1998. Net cash generated from
financing activities in fiscal 1999 resulted from the issuance of common stock,
the issuance of subordinated debt and proceeds from bank debt associated with
the purchase of Resources Connection LLC and the resultant financing of the
ongoing operations of our company thereafter. Cash used in financing activities
during fiscal 2000 resulted from the repayment of our term debt and the net
decrease in borrowings under our revolving line of credit.
Our ongoing operations and anticipated growth in the geographic markets we
serve will require us to continue making investments in capital equipment,
primarily technology hardware and software. In addition, we may consider making
certain strategic acquisitions. We anticipate that our current cash, proceeds
from this offering, existing availability under our revolving line of credit
and the ongoing cash flows from our operations will be adequate to meet our
working capital and capital expenditure needs for at least the next 12 months.
If we require additional capital resources to grow our business, either
internally or through acquisition, we may seek to sell additional equity
securities or to secure additional debt financing. The sale of additional
equity securities or the addition of new debt financing could result in
additional dilution to our stockholders. We may not be able to obtain financing
arrangements in amounts or on terms acceptable to us in the future. In the
event we are unable to obtain additional financing when needed, we may be
compelled to delay or curtail our plans to develop our business which could
have a material adverse affect on our operations, market position and
competitiveness.
Qualitative and Quantitative Disclosure About Market Risk
Interest Rate Risk. At the end of fiscal 2000, we had $4.5 million of cash
and highly liquid short-term investments. These investments are subject to
changes in interest rates, and to the extent interest rates were to decline, it
would reduce our interest income. At the end of fiscal 2000, we had outstanding
term debt totaling $16.5 million. We can select to accrue interest based on an
index tied to the prime rate, or the Eurodollar, or a combination thereof. We
have entered into an interest rate swap with a credit-worthy counterparty to
fix the interest rate on $12.6 million of our term debt, but the remaining
balance is subject to interest rate risk based on fluctuations in the base rate
for our loan. A 100 basis point increase in interest rates, approximately 10%
of our end of year interest rate on debt, affecting our financial instruments
would have an immaterial effect on our results of operations, financial
position or cash flows.
Foreign Currency Exchange Rate Risk. To date, our foreign operations have
not been significant to our overall operations, and our exposure to foreign
currency exchange rate risk has been low. However, as our strategy to continue
expanding foreign operations progresses, we expect more of our revenues will be
derived from foreign operations denominated in the currency of the applicable
markets. As a result, our operating results could become subject to
fluctuations based upon changes in the exchange rates of foreign currencies in
relation to the U.S. dollar. Although we intend to monitor our exposure to
foreign currency fluctuations, including the use of financial hedging
techniques when we deem it appropriate, we cannot assure you that exchange rate
fluctuations will not adversely affect our financial results in the future.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board, or FASB, issued SFAS
No. 133 "Accounting for Derivative Instruments and Hedging Activities," which
was later amended by SFAS No. 137 "Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133."
SFAS No. 133 established standards for the accounting and reporting for
derivative instruments, including
26
<PAGE>
certain derivative instruments embedded in other contracts, and hedging
activities. The statement generally requires recognition of gains and losses on
hedging instruments, based on changes in fair value or the earnings effect of a
forecasted transaction. SFAS No. 133, as amended by SFAS No. 137, is effective
for all fiscal quarters of fiscal years beginning after June 15, 2000.
Management does not believe that SFAS No. 133 or SFAS No. 137 will have a
material impact on the consolidated financial statements of the company.
In March 2000, the FASB issued Interpretation No. 44, or FIN 44, entitled
"Accounting for Certain Transactions Involving Stock Compensation," which is an
interpretation of Accounting Principles Board No. 25, or APB 25. This
interpretation clarifies:
. the definition of an employee for purposes of applying APB 25;
. the criteria for determining whether a plan qualifies as a
noncompensatory plan;
. the accounting consequences of various modifications to the terms of a
previously fixed stock option or award; and
. the accounting for an exchange of stock compensation awards in a
business combination.
This interpretation is effective July 1, 2000. We believe that the adoption
of FIN 44 will not have a material impact on our financial position or results
of operations.
27
<PAGE>
BUSINESS
Overview
Resources Connection is a leading professional services firm that provides
experienced accounting and finance, human capital management and information
technology professionals to clients on a project-by-project basis. We assist
our clients with discrete projects requiring specialized professional expertise
such as mergers and acquisitions due diligence, transitions of management
information systems, financial analyses (e.g., product costing and margin
analyses), tax-related projects, and compensation program design and
implementation. We also assist our clients with periodic needs such as
budgeting and forecasting, audit preparation and public reporting.
We were founded in June 1996 by a team at Deloitte & Touche, led by our
current Chief Executive Officer, who was then a senior partner with Deloitte &
Touche. Our other founding members include our current Chief Financial Officer,
then also a partner, and the current managing director of our New York area
practice. Our founders created Resources Connection to capitalize on the
increasing demand for high-quality, outsourced professional services and to
address the needs of companies that are not adequately served by traditional
professional services providers. We operated as a division of Deloitte & Touche
from our inception in June 1996 until January 1997. From January 1997 until
April 1999, we operated as an independent subsidiary of Deloitte & Touche.
During these periods due to regulatory constraints applicable to us as part of
a Big Five accounting firm, we were unable to provide certain services to some
of our clients. In April 1999, we completed a management-led buyout. Subsequent
to the management-led buyout, we were able to expand the scope of services we
provide to our clients.
Our business model combines the client service orientation and commitment to
quality of a Big Five accounting firm with the entrepreneurial culture of an
innovative, high-growth company. We are positioned to take advantage of what we
believe are two converging trends in the outsourced professional services
industry: increasing demand for outsourced professional services by corporate
clients, and increasing supply of professionals interested in working on an
outsourced basis. We believe our business model allows us to offer challenging
yet flexible career opportunities, attract highly qualified, experienced
professionals and, in turn, attract clients.
As of August 26, 2000, we employed more than 1,050 professional service
associates on assignment. Our associates have an average of 18 years of
professional experience in a wide range of industries and functional areas;
approximately 50% of our associates are CPAs and approximately 28% have MBAs.
We offer our associates careers that combine many of the advantages of working
for a traditional professional services firm with the flexibility of project-
based work. We provide our associates challenging work assignments, competitive
compensation and benefits, and continuing education and training opportunities,
while offering flexible work schedules and more control over choosing client
engagements.
We have established a growing and diverse client base of over 1,500 clients,
including 43 of the Fortune 100, 15 of the Fortune e50 Index and three of the
Big Five accounting firms. We serve our clients through 35 offices in the
United States and 3 offices abroad. We have grown revenues internally from
$9.3 million in fiscal 1997 to $126.3 million in fiscal 2000, a three-year CAGR
of 138%. Over the same period, we have increased our EBITDA from $878,000 to
$18.1 million. We have been profitable every year since our inception.
We believe our distinctive culture is a valuable asset and is in large part
due to our management team which has extensive experience in the professional
services industry. Virtually all of our senior management and office directors
have Big Five experience and all of our management has an equity interest in
our company. This team has created a culture of professionalism which we
believe fosters in our associates a feeling of personal responsibility for, and
pride in, client projects and enables us to deliver superior value to our
clients.
Industry Background
Increasing Demand for Outsourced Professional Services
The outsourcing of professionals, according to Staffing Industry Analysts,
Inc., is one of the fastest growing segments of the industry for outsourcing
employees, with revenues estimated to grow from $9.1 billion in 1999
28
<PAGE>
to $14.4 billion in 2001, representing a CAGR of 25.8%. Accounting and finance
professionals are estimated to account for approximately half of this segment.
We believe this growth is driven by the recognition that by outsourcing
professionals, companies can:
. strategically access specialized skills and expertise;
. effectively supplement internal resources;
. increase labor flexibility; and
. reduce their overall hiring and training costs.
Typically, companies use a variety of alternatives to fill their project-
based professional services needs. Companies outsource entire projects to
consulting firms, which provides access to the expertise of the firm but often
entails significant cost and less management control of the project. Companies
also supplement their internal resources with employees from the Big Five
accounting firms; however, these arrangements are on an ad hoc basis and have
been increasingly limited by regulatory concerns. Companies use temporary
employees from traditional and Internet-based staffing firms, who may be less
experienced or less qualified than employees of professional services firms.
Finally, some companies rely solely on their own employees who may lack the
requisite time, experience or skills. Thus, each of these alternatives for
meeting project-based needs may require a company to make compromises in terms
of quality, cost or internal resource allocation.
Increasing Supply of Project Professionals
Concurrent with the growth in demand for outsourced professional services,
we believe that the number of professionals seeking to work on a project basis
has increased due to a desire for:
. more flexible hours and work arrangements while maintaining competitive
wages and benefits and a professional culture;
. challenging engagements that advance their careers, develop their skills
and add to their experience base; and
. a work environment providing a diversity of, and more control over,
client engagements.
The employment alternatives historically available to professionals may
fulfill some, but not all, of an individual's career objectives. A professional
working for a Big Five accounting firm or a consulting firm may receive
challenging assignments and training, but may encounter a career path with less
flexible hours and limited control over work engagements. Alternatively, a
professional who works as an independent contractor faces the ongoing task of
sourcing assignments and significant administrative burdens.
Resources Connection Solution
Resources Connection is positioned to capitalize on the confluence of these
industry trends. We believe that Resources Connection provides clients seeking
project-based professional services a superior value proposition because we are
able to combine all of the following:
. a relationship-oriented approach to better assess our clients' project
needs;
. highly-qualified professionals with the requisite skills and experience;
. competitive rates on an hourly, instead of a per project, basis; and
. greater client control of their projects.
We believe that our ability to deliver the combination of these benefits to
our clients provides us with a distinctive competitive position in the
outsourced professional services industry.
29
<PAGE>
Resources Connection Strategy
Our Business Strategy
We are dedicated to providing highly-qualified and experienced accounting
and finance, human capital management and information technology professionals
to meet our clients' project-based and interim professional services needs. Our
objective is to be the leading provider of these outsourced professional
services. We have developed the following business strategies to achieve this
objective:
. Hire and retain highly-qualified, experienced associates. We believe our
highly-qualified, experienced associates provide us with a distinct
competitive advantage. Therefore, one of our priorities is to continue
to attract and retain high-caliber associates. We believe we have been
successful in attracting and retaining qualified professionals by
providing challenging work assignments, competitive compensation and
benefits, and continuing education and training opportunities, while
offering flexible work schedules and more control over choosing client
engagements.
. Maintain our distinctive culture. Our corporate culture is central to
our business strategy and we believe has been a significant component of
our success. Our senior management, virtually all of whom are Big Five
alumni, has created a culture that combines the commitment to quality
and client service focus of a Big Five accounting firm with the
entrepreneurial energy of an innovative, high-growth company. We seek
associates and management with talent, integrity, enthusiasm and loyalty
to strengthen our team and support our ability to provide clients with
superior service and value. We believe that our culture has been
instrumental to our success in hiring and retaining highly-qualified
associates and, in turn, attracting clients.
. Build consultative relationships with clients. We emphasize a
relationship-oriented approach to business rather than a transaction- or
assignment-oriented approach. We believe the professional services
experience of our management and associates enables us to understand the
needs of our clients and to deliver an integrated, relationship-oriented
approach to meeting their professional services needs. We regularly meet
with our existing and prospective clients to understand their businesses
and help them define their project needs. Once a project is defined, we
identify associates with the appropriate skills and experience to meet
the client's needs. We believe that by partnering with our clients to
solve their professional services needs, we can generate new
opportunities to serve them. The strength of our client relationships is
demonstrated by the fact that 46 of our top 50 clients in fiscal 1999
remained clients in fiscal 2000.
. Build the Resources Connection brand. We are establishing Resources
Connection as the premier provider of high-quality, project-based
professional services. Our primary means of building our brand is by
consistently providing superior value-added services to our clients. We
have also focused on building a significant referral network through our
more than 1,050 associates on assignment and more than 150 management
employees, most of whom have established relationships with a number of
potential clients. In addition, we have ongoing national and local
marketing efforts which reinforce the Resources Connection brand.
Our Growth Strategy
All of our growth since inception has been internal. We believe we have
significant opportunity for continued strong internal growth in our core
business and will evaluate potential strategic acquisitions on an opportunistic
basis. Key elements of our growth strategy include:
. Expanding work from existing clients. A principal component of our
strategy is to secure additional project work from the more than 1,500
clients we served in fiscal 2000. Prior to the management-led buyout, we
were unable to provide certain services to some of our clients due to
regulatory constraints applicable to us as part of a Big Five accounting
firm. Subsequent to the management-led buyout, we were able to expand
the scope of the services we provide to our clients. We believe that
30
<PAGE>
the amount of revenue we currently receive from most of our clients
represents a relatively small percentage of the amount they spend on
outsourced professional services, and that, consistent with industry
trends, they will continue to increase the amount they spend on these
services. We believe that by continuing to deliver high-quality services
and by further developing our relationships with our clients, we will
capture a significantly larger share of our clients' expenditures for
outsourced professional services.
. Growing our client base. We will continue to focus on attracting new
clients. In both fiscal 1999 and fiscal 2000, we increased our client
base by over 500 new clients. We plan to develop new client
relationships primarily by leveraging the significant contact networks
of our management and associates and through referrals from existing
clients. In addition, we believe we will attract new clients by building
our brand name and reputation and through our national and local
marketing efforts.
. Expanding geographically. We plan to expand geographically to meet the
demand for outsourced professional services. We expect to add to our
existing domestic office network with new offices strategically located
to meet the needs of our existing clients and to create additional new
client opportunities. We believe that there are also significant
opportunities to grow our business internationally and, consequently, we
intend to expand our international presence on a strategic and
opportunistic basis.
. Providing additional professional services lines. We will continue to
explore, and consider entry into, new professional services lines. Since
fiscal 1999, we have diversified our professional services lines by
entering into the human capital management and the information
technology segments. Our considerations when evaluating new professional
services lines include growth potential, profitability, cross-marketing
opportunities and competition.
Associates
We believe that an important component of our success over the past four
years has been our highly-qualified and experienced associates. As of August
26, 2000, we employed over 1,050 associates on assignment. Our associates have
an average of 18 years of professional experience in a wide range of industries
and functional areas; approximately 50% of our associates are CPAs and
approximately 28% have MBAs. We provide our associates with challenging work
assignments, competitive compensation and benefits, and continuing education
and training opportunities, while offering flexible work schedules and more
control over choosing client engagements.
Our associates are employees of Resources Connection. We pay each associate
an hourly rate, pay overtime, and offer benefits, including paid vacation and
holidays; referral bonus programs; group health, dental and life insurance
programs each with a 50% contribution by the associate; a matching 401(k)
retirement plan; and professional development and career training. Typically,
an associate must work a threshold number of hours to be eligible for all of
the benefits. In June 2000, we launched a long-term, incentive plan for our
associates, which affords them the opportunity to earn an annual cash bonus
that vests over time. We intend to maintain competitive compensation and
benefit programs.
Clients
We provide our services to a diverse client base in a broad range of
industries. Since the beginning of fiscal 2000, we have served over 1,500
clients, including 26 of the Fortune 50 companies, 43 of the Fortune 100, 15 of
the Fortune e50 Index, seven of Fortune's 10 Most Admired Companies and three
of the Big Five accounting firms. Our revenues are not concentrated with any
particular client or clients, or within any particular industry. In fiscal
2000, no single client accounted for more than 4% of our revenues and the top
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<PAGE>
10 clients accounted for approximately 13% of our revenues. The following is a
list of some representative clients we provided services to in fiscal 2000:
<TABLE>
<S> <C>
Air BP, a subsidiary of BP Amoco Credit Suisse First Boston Corporation
Aventis Pharmaceuticals Kaiser Permanente Insurance Company
Banc of America Securities LLC Nordstrom
CB Richard Ellis UCLA Medical Center
</TABLE>
Services
Our current professional services capabilities include accounting and
finance, human capital management and information technology. Our engagements
are project-based and often last three months or longer.
Accounting and Finance
In fiscal 2000, we generated $118.8 million in revenue from providing
accounting and finance services, representing 94.1% of our total revenues in
that fiscal year. Types of these services include:
Special Projects: Our accounting and finance associates work on a variety of
special projects including:
. financial analyses, such as product costing and margin analyses;
. tax-related projects, such as tax compliance and analysis of tax
liabilities resulting from acquisitions; and
. resolving complex accounting problems, such as large out-of-balance
accounts and unreconciled balances.
Sample Engagement: We have provided two associates over a 14-month
period to assist the global operations and finance group of a major bank in
establishing a cash management system which would be used to monitor its
daily cash needs in U.S. dollars and various foreign currencies. Our
associates were responsible for:
. reviewing the daily trades of foreign securities and projecting the
surplus/shortfall for the various currencies resulting from these
trades;
. recommending transfers, purchases of foreign currencies and
borrowings; and
. redesigning and testing systems to accurately report foreign currency
activities.
Mergers and Acquisitions: Our accounting and finance associates have
assisted with the following functions for clients involved in mergers and
acquisitions:
. due diligence work;
. integration of financial reporting and accounting systems; and
. public reporting filings associated with the transaction.
Sample Engagement: Since March 2000, we have provided 53 associates to
assist with the post-acquisition integration of a multi-billion dollar
solid waste management company. Our services were delivered through 19 of
our offices with coordination provided by one of our offices. We assigned a
specially designated project manager to oversee the delivery of our
services, thereby facilitating project management and client control. Our
associates were responsible for:
. performing controller responsibilities at various sites, including
preparing internal financial statements, closing the general ledger
and managing the accounting staff;
. restructuring the fixed asset reporting system;
. assisting with the transition of financial functions during the
divestiture of solid waste facilities and closing of other
facilities;
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<PAGE>
. assisting with converting the newly acquired facilities' systems to
the parent's systems; and
. preparing fuel tax returns and related tax schedules.
Finance and Accounting System Implementation and Conversion: When a company
implements a new system, the conversion often entails additional work that
burdens management's time. To address this problem, we provide associates that:
. assist with the finance and accounting issues of system implementations;
and
. maintain daily operations during the implementation and conversion
process in order to minimize disruption to the organization.
Sample Engagement: We have provided 15 associates over a 14-month period
to assist one of the world's largest energy groups in converting to a new
proprietary accounting software system through operations worldwide,
developing the relevant required software documentation and relocating its
accounting and commercial services departments between two metropolitan
areas. Our associates were responsible for:
. documenting and preparing a flowchart of the accounting system and
existing business processes, practices and workflows;
. reviewing internal controls and developing an operations manual;
. documenting the new accounting system processes and procedures;
. performing pre- and post-conversion testing;
. hiring and training new employees; and
. designing training programs.
Periodic Accounting and Finance Needs: Our associates help clients with
periodic needs such as:
. interim senior financial management, including controller or accounting
manager tasks;
. monthly/quarterly/year-end closings;
. audit preparation;
. public reporting; and
. budgeting and forecasting.
Sample Engagement: We have provided 40 associates over a 19-month period
to assist a multi-unit medical company, currently under reorganization,
with a comprehensive review and clean-up of the company's consolidated
balance sheet in preparation for their year-end audit. Our associates were
responsible for:
. designing a work program and package format to be used by 23
associates in teams across six states;
. completing a detailed review of approximately 180 entities' balance
sheets, compiling documentation, and obtaining support for the
entire trial balance; and
. proposing adjusting entries and recommending subsequent internal
accounting control system and procedure changes.
Assist Start-Ups: We provide accounting and finance professional services to
start-up companies who do not yet have the appropriate management or staff to
support their accounting and finance functions.
Sample Engagement: We have provided two associates over a nine-month
period to assist an Internet incubator that provides services to start-up
companies in setting up its accounting function. Our associates were
responsible for:
. designing a scalable general ledger system to accommodate multiple
entities;
. setting up the accounts payable system for all entities including
check disbursements and wire transfers of funds;
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<PAGE>
. designing a system for processing semi-monthly payroll;
. developing cash receipts function including the performance of all
treasury functions (collections, deposits, investments); and
. creating a model for projecting cash flows from individual entities.
Human Capital Management
Our human capital management professional services group was formed in June
1999. These services are currently available in nine of our offices. In fiscal
2000, we generated $2.3 million in revenue from our human capital management
service line, representing 1.8% of our total revenues in that fiscal year.
Types of services include:
. development of human capital management procedures, training and
policies;
. compensation program design and implementation;
. interim senior human resources management; and
. assistance in complying with governmental employment regulations.
Sample Engagement: We have provided three associates over a three-month
period to assist a leading provider of business information and related
products and services with a number of projects. Our associates were
responsible for:
. evaluating the existing human resources information system, or HRIS;
. reviewing vendors and implementing a new HRIS system;
. updating human resources policies and procedures to reflect
consistent corporate policies across numerous acquired companies;
and
. evaluating the various retirement benefits for each of the multiple
subsidiaries and acquired companies.
Information Technology
Our information technology professional services group was formed in June
1998. These services are currently available in eight of our offices. In fiscal
2000, we generated $5.2 million in revenue from our information technology
service line, accounting for 4.1% of our total revenues. Types of these
services include:
. providing interim information technology management such as interim
chief technology officers and chief information officers;
. leading systems selection process; and
. assisting with project management of information systems
implementations, conversions and upgrades.
Sample Engagement: Resources Connection provided an interim chief
information officer with significant foodservice operations/restaurant
experience over a 21-month period to support a rapidly growing chain of
upscale restaurants with 106 locations in 22 states. Our associate was
responsible for:
. designing technology initiatives;
. establishing and maintaining an information technology department
capable of supporting and delivering technology solutions;
. monitoring and guiding multiple project teams;
. communicating with various business units; and
. prioritizing projects and resources.
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<PAGE>
Operations
We generally provide our professional services to clients at a local level
through our 38 offices, with the oversight and consultation of our corporate
management team located in our corporate service center. The office director
and client service manager in each office are responsible for initiating client
relationships, providing associates specifically skilled to perform client
projects, ensuring client satisfaction throughout engagements and maintaining
client relationships post-engagement. Throughout this process, the corporate
management team is available to consult with the office director with respect
to client services.
Our offices are operated in a decentralized, entrepreneurial manner. Our
office directors are given significant autonomy in the daily operations of
their respective offices, and with respect to such offices, are responsible for
overall guidance and supervision, budgeting and forecasting, sales and
marketing, pricing and hiring. We believe that a substantial portion of the
buying decisions made by our clients are made on a local or regional basis and
that our offices most often compete with other professional services providers
on a local or regional basis. Since our office directors are in the best
position to understand the local and regional outsourced professional services
market and clients often prefer local providers, we believe that a
decentralized operating environment maximizes operating performance and
contributes to employee and client satisfaction.
We believe that our ability to successfully deliver professional services to
clients is dependent on our office directors working together as a collegial
and collaborative team, at times working jointly on client projects. To build a
sense of team effort and increase camaraderie among our office directors, we
have an incentive program for our office management which awards annual bonuses
based on both the performance of the company and the performance of the
manager's particular office. In addition, each member of our office management
owns equity in our company. We also have a management mentor program whereby
each new office director is trained by an experienced office director, who is
responsible for providing support to the new office director on an ongoing
basis.
From our corporate headquarters in Costa Mesa, California, we provide our
offices with centralized administrative, marketing, finance and legal support.
Our financial reporting is centralized in our corporate service center. This
center also handles billing, accounts payable and accounts receivable, and
administers human resources including employee compensation and benefits. In
addition, we have a corporate networked information technology platform with
centralized financial reporting capabilities and a front office client
management system. These centralized functions minimize the administrative
burdens on our office management and allow them to spend more time focusing on
client development.
Business Development
Our business development initiatives are comprised of:
. local sales initiatives focused on existing clients and target
companies;
. brand marketing activities; and
. national and local direct mail programs.
Our business development efforts are driven by the networking and sales
efforts of our management. The office director and client service manager in
each of our offices develop a list of targeted potential clients and key
existing clients. They are responsible for initiating and fostering
relationships with the senior management of these companies. These local
efforts are supplemented with national marketing assistance. We have a national
business development director who, with our top executives, assists with major
client opportunities. We believe that these efforts have been effective in
generating incremental revenues from existing clients and developing new client
relationships.
Our brand marketing initiatives help develop Resources Connection's image in
the markets we serve. Our brand is reinforced by our professionally-designed
website, brochures and pamphlets, direct mail and advertising
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<PAGE>
materials. We believe that our branding initiatives coupled with our superior
client service differentiate us from our competitors and establish Resources
Connection as a credible and reputable professional services firm.
Our national marketing group develops our direct mail campaigns to focus on
our targeted client and associate populations. These campaigns are intended to
support our branding, sales and marketing, and associate hiring initiatives.
Competition
We operate in a competitive, fragmented market and compete for clients and
associates with a variety of organizations that offer similar services. Our
principal competitors include:
. consulting firms;
. loaned employees of the Big Five accounting firms;
. traditional and Internet-based staffing firms; and
. the in-house resources of our clients.
We compete for clients on the basis of the quality of professionals, the
timely availability of professionals with requisite skills, the scope and price
of services, and the geographic reach of services. We believe that our
attractive value proposition, comprised of our highly-qualified associates,
relationship-oriented approach, and professional culture, enables us to
differentiate ourselves from our competitors. Although we believe we compete
favorably with our competitors, many of our competitors have significantly
greater financial resources, generate greater revenues and have greater name
recognition than our company.
Employees
As of August 26, 2000, we had a total of 1,753 employees, including 237
corporate and office-level employees and 1,516 professional services
associates. None of our employees is covered by a collective bargaining
agreement.
Facilities
We maintain 35 domestic offices in the following metropolitan areas:
<TABLE>
<S> <C> <C>
Phoenix, Arizona Atlanta, Georgia New York, New York
Costa Mesa, California Honolulu, Hawaii Charlotte, North Carolina
Los Angeles, California Boise, Idaho Cincinnati, Ohio
Santa Clara, California Chicago, Illinois (2 locations) Cleveland, Ohio
San Diego, California Boston, Massachusetts Portland, Oregon
San Francisco, California Baltimore, Maryland Philadelphia, Pennsylvania
Denver, Colorado Detroit, Michigan Pittsburgh, Pennsylvania
Hartford, Connecticut Minneapolis, Minnesota Austin, Texas
Stamford, Connecticut Las Vegas, Nevada Dallas, Texas
Washington, D.C. Parsippany, New Jersey Houston, Texas (2 locations)
Orlando, Florida Princeton, New Jersey Seattle, Washington
</TABLE>
In addition to housing our Costa Mesa, California practice, our corporate
offices are located in Costa Mesa, California in a 16,366 square foot facility
under a lease expiring in April 2005. We maintain three offices abroad,
including an office in Toronto, Canada; Taipei, Taiwan; and Hong Kong, People's
Republic of China.
Legal Proceedings
We are not currently subject to any material legal proceedings; however, we
may from time to time become a party to various legal proceedings arising in
the ordinary course of our business.
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<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth information about our executive officers and
directors as of August 26, 2000:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Donald B. Murray........ 53 Chairman of the Board of Directors, Chief
Executive Officer, President and Director
Stephen J. Giusto....... 37 Chief Financial Officer, Executive Vice President
of Corporate Development, Secretary and Director
Karen M. Ferguson....... 36 Executive Vice President and Director
Brent M. Longnecker..... 44 Executive Vice President
John D. Bower........... 39 Vice President, Finance
Kate W. Duchene......... 37 Chief Legal Officer, Executive Vice President of
Human Relations and Assistant Secretary
David G. Offensend...... 47 Director
Ciara A. Burnham........ 33 Director
Gerald Rosenfeld........ 53 Director
Leonard Schutzman....... 53 Director
John C. Shaw............ 66 Director
C. Stephen Mansfield.... 60 Director
</TABLE>
Donald B. Murray. Mr. Murray co-founded Resources Connection in June 1996
and served as our Managing Director from inception until April 1999. Mr. Murray
has served as our Chairman, Chief Executive Officer and President since the
management buyout in April 1999. Prior to founding Resources Connection,
Mr. Murray was Partner-In-Charge of Accounting and Assurance Services for
Deloitte & Touche's Orange County, California office from 1988 to 1996. From
1984 to 1987, Mr. Murray was the Partner-In-Charge of the Touche Ross & Co.
Woodland Hills office, an office he founded in 1984. Mr. Murray was admitted to
the Deloitte & Touche partnership in 1983.
Stephen J. Giusto. Mr. Giusto co-founded Resources Connection in June 1996
and served as our National Director of Operations from inception until April
1999. Mr. Giusto has served as our Chief Financial Officer, Executive Vice
President of Corporate Development and Secretary since April 1999. Mr. Giusto
is also a director of Resources Connection, a position he has held since April
1999. Prior to founding Resources Connection, Mr. Giusto was in Deloitte &
Touche's Orange County real estate practice from 1992 to 1996. He also
previously served for two years in the Deloitte & Touche national office in the
Office of the Managing Partner. Mr. Giusto was admitted to the Deloitte &
Touche partnership in 1996.
Karen M. Ferguson. Ms. Ferguson co-founded Resources Connection in June
1996. From inception to August 1998, Ms. Ferguson served as Managing Director
of our Northern California practice. She currently serves as the Managing
Director of our New York area practice and as an Executive Vice President,
positions she has held since August 1998 and April 1999, respectively. Ms.
Ferguson is also a director of Resources Connection, a position she has held
since April 1999. Prior to joining us, Ms. Ferguson was a director with
Accounting Solutions, a regional Northern California contract staffing firm
from 1994 to 1995. From 1985 to 1994 Ms. Ferguson was in the San Francisco
office of Deloitte & Touche, most recently as a Senior Manager.
Brent M. Longnecker. Mr. Longnecker is as an Executive Vice President of
Resources Connection, a position he has held since June 1999. From 1985 to
1999, Mr. Longnecker held various positions at KPMG and Deloitte & Touche, most
recently as Partner-In-Charge of the performance management and compensation
consulting practices at Deloitte & Touche. Mr. Longnecker also serves on the
faculty of Certified Professional Education, Inc. and as a director of the
Strategy Factory, Inc. and SkyAuction.com, Inc.
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<PAGE>
John D. Bower. Mr. Bower is our Vice President, Finance, a position he has
held since April 1999. Mr. Bower served as our Director of Financial Reporting
and Controller from January 1998 to April 1999. Mr. Bower served as Vice
President, Finance of Mossimo, Inc., a clothing manufacturing company, from
January 1997 to November 1997 and as Director, Finance for FHP International
Corporation, a health maintenance organization, from June 1992 to January 1997.
From 1982 through 1992, Mr. Bower worked in the Orange County, California
office of Deloitte & Touche, most recently as a Senior Manager.
Kate W. Duchene. Ms. Duchene is our Chief Legal Officer, a position she has
held since December 1999. Ms. Duchene is also our Assistant Secretary and
Executive Vice President, Human Relations, positions she has held since August
2000. Prior to joining Resources Connection, Ms. Duchene practiced law with
O'Melveny & Myers LLP in Los Angeles, California, specializing in labor and
employment matters. Ms. Duchene was with O'Melveny & Myers LLP from October
1990 through December 1999, most recently as a Special Counsel.
David G. Offensend. Mr. Offensend is a director of Resources Connection, a
position he has held since April 1999. Mr. Offensend is one of the founding
principals of Evercore Partners and a managing member of the general partner of
Evercore Capital Partners L.P. Prior to founding Evercore Partners in 1995,
Mr. Offensend was Vice President of Keystone Inc., the investment organization
of Robert M. Bass. Prior to joining Keystone in 1990, Mr. Offensend was a
Managing Director of Lehman Brothers where he was President and Chief Executive
Officer of the Lehman Brothers Merchant Banking Partnerships. Mr. Offensend is
also a director of Specialty Products & Insulation Co.
Ciara A. Burnham. Ms. Burnham is a director of Resources Connection, a
position she has held since April 1999. Since July 1997, she has been a
managing director of Evercore Capital Partners LLP. From March 1996 to July
1997, Ms. Burnham was an equity research analyst with Sanford C. Bernstein &
Co., an investment banking firm. From 1993 to 1996, she was employed by
McKinsey & Co. in various capacities, including engagement manager. Ms. Burnham
also serves on the board of directors of Skyauction.com, Inc.
Gerald Rosenfeld. Mr. Rosenfeld is a director of Resources Connection, a
position he has held since April 1999. Mr. Rosenfeld is the Chief Executive
Officer of Rothschild North America, a position he has held since January 2000.
Previously, from November 1998 to January 2000, he was the Managing Member of
G. Rosenfeld & Co. LLC, an investment banking and consulting firm. Prior to
that time, Mr. Rosenfeld was Senior Managing Director of NationsBanc Montgomery
Securities LLC from April to November 1998, and a Managing Director and head of
Investment Banking of Lazard Freres & Co. LLC from 1992 to 1998. Mr. Rosenfeld
is also a director of ContiGroup, Inc.
Leonard Schutzman. Mr. Schutzman is a director of Resources Connection, a
position he has held since April 1999. From April 1999 to November 1999, Mr.
Schutzman was a member of Venture Marketing Group LLC. From 1976 to 1993, he
held several positions at Pepsi-Co., Inc., most recently as Senior Vice
President and Treasurer. Mr. Schutzman also serves on the board of directors of
BML Pharmaceutical, Inc. and SkyAuction.com, Inc. He is a member of the board
of advisors of Evercore Capital Partners LLP.
John C. Shaw. Mr. Shaw is a director of Resources Connection, a position he
has held since June 1999. Mr. Shaw currently also serves as a partner of The
Shaw Group LLC, a general management and consulting company he founded in
February 1997. From February 1997 to December 1999, Mr. Shaw served as the Dean
of the Peter F. Drucker Graduate School of Management at Claremont Graduate
University. In addition, from November 1994 to February 1997, Mr. Shaw served
as Chairman of Wellpoint Health Networks, Inc., a managed health care company.
C. Stephen Mansfield. Mr. Mansfield is a director of Resources Connection, a
position he has held since August 2000. Mr. Mansfield is a lecturer at
California Polytechnic State University, San Luis Obispo, a position he has
held since 1999. From 1983 to 1989, Mr. Mansfield was the Partner-In-Charge of
the Deloitte, Haskins & Sells Orange County office. Mr. Mansfield retired from
Deloitte & Touche LLP in 1990, as a senior partner. Mr. Mansfield is also a
director of PBOC Holdings, Inc.
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<PAGE>
Board Composition
Upon the closing of this offering, in accordance with the terms of our
amended and restated certificate of incorporation, the terms of office of our
board of directors will be divided into three classes:
. Class I directors, whose term will expire at the annual meeting of
stockholders to be held in 2001;
. Class II directors, whose term will expire at the annual meeting of
stockholders to be held in 2002; and
. Class III directors, whose term will expire at the annual meeting of
stockholders to be held in 2003.
Our Class I directors will be Ms. Ferguson, Mr. Mansfield and Mr.
Schutzman, our Class II directors will be Ms. Burnham, Mr. Giusto and Mr.
Shaw, and our Class III directors will be Mr. Murray, Mr. Offensend and Mr.
Rosenfeld. At each annual meeting of stockholders after the initial
classification, the successors to directors whose terms will then expire will
be elected to serve from the time of election and qualification until the
third annual meeting following election. Any additional directorships
resulting from an increase in the number of directors will be distributed
among the three classes so that, as nearly as possible, each class will
consist of one-third of the directors. This classification of our board of
directors may have the effect of delaying or preventing changes in control or
management of our company.
Board Committees
At the time this offering closes, our board of directors will establish an
audit committee. The audit committee will consist of Mr. Mansfield, Mr.
Rosenfeld and Mr. Shaw. The audit committee will make recommendations to our
board of directors regarding the selection of independent auditors, review the
results and scope of the audit and other services provided by our independent
auditors, and review and evaluate our audit and control functions.
We do not have a compensation committee and our board of directors makes
all decisions concerning executive compensation. At the time this offering
closes, our board of directors will establish a compensation committee
consisting of the following directors: Mr. Offensend, Mr. Rosenfeld and Mr.
Shaw. The compensation committee will make recommendations regarding our
equity compensation plans and make decisions concerning salaries and incentive
compensation for our employees and consultants.
Compensation Committee Interlocks and Insider Participation
None of the members of the compensation committee of our board of directors
is an officer or employee of our company. No executive officer of our company
serves as a member of the board of directors or compensation committee of any
entity that has one or more executive officers serving on our compensation
committee.
Director Compensation
Our directors do not currently receive any cash compensation for services
on our board of directors or any committee thereof, but directors have been
reimbursed for expenses they incur in attending board and committee meetings.
Mr. Shaw has participated in the 1999 Long-Term Incentive Plan.
After this offering, our compensation package for our non-employee
directors will include:
. $12,000 per year to be paid in cash or discounted stock options;
. a one-time grant of 5,000 shares at the time a director joins the board;
. discretionary stock option grants; and
. reimbursement for expenses they incur in attending board and committee
meetings.
Directors who serve on committees may receive a flat fee of $300 per
committee meeting attended as well.
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<PAGE>
Executive Compensation
Summary of Compensation
The following table sets forth summary information concerning compensation
awarded to, earned by, or accrued for services rendered to us in all
capacities during fiscal 2000 by our Chief Executive Officer and the five
other most highly compensated officers whose total salary and bonuses exceeded
$100,000 in fiscal 2000. The individuals listed in the table below are
collectively referred to as the named executive officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
----------------------------------------
Name and Principal Position Salary Bonus Other Total
--------------------------- -------- -------- ------- --------
<S> <C> <C> <C> <C>
Donald B. Murray, Chief Executive
Officer............................. $425,000 $212,500(1) $ 0 $637,500
Stephen J. Giusto, Chief Financial
Officer............................. $250,000 $125,000(1) $ 0 $375,000
Karen M. Ferguson, Executive Vice
President........................... $200,000 $130,000(2) $ 0 $330,000
Brent M. Longnecker, Executive Vice
President........................... $300,000 $150,000(2) $50,000(3) $500,000
John D. Bower, Vice President,
Finance............................. $ 99,039 $ 62,800(1) $ 0 $161,839
David L. Schnitt, former National
Director of Information Technology
Services(4)......................... $126,922 $ 64,000(2) $ 0 $190,922
</TABLE>
--------
(1) Consists of bonuses earned in fiscal 2000 and paid in fiscal 2001.
(2) Consists of bonuses earned in fiscal 2000 and paid in part in fiscal 2000
and in part in fiscal 2001.
(3) In May 1999, Mr. Longnecker received a loan in the amount of $200,000 from
the company. On January 1, 2000, Resources Connection forgave $50,000 of
the loan.
(4) Mr. Schnitt served as our National Director of Information Technology
Services from April 1999 to April 2000. He is currently on an unpaid leave
of absence from Resources Connection and is serving as the chief executive
officer of Complete Backoffice.com, Inc.
Stock Options and Long-Term Incentive Awards
No options or long-term incentive awards were granted to named executive
officers during fiscal 2000.
Exercise of Options And Year-End Values
No stock options have been exercised since our inception.
Employee Benefit Plans
1998 Employee Stock Purchase Plan
In December 1998, we adopted the Resources Connection, Inc. 1998 Employee
Stock Purchase Plan, or the 1998 Employee Stock Purchase Plan, to provide an
additional means to attract, motivate, reward and retain officers and
management-level employees. The plan gives the administrator the authority to
grant awards to select participants. We do not, however, anticipate granting
any additional awards under the 1998 Employee Stock Purchase Plan. The
following summary is qualified by reference to the complete plan, which is
filed hereto as an exhibit.
Share Limits. A total of 5,630,000 shares of our common stock may be issued
under the plan (not including shares that are repurchased by us which upon
repurchase become again available for issuance). This share limit and the
number of shares subject to each award under the plan is subject to adjustment
for certain changes in our capital structure, reorganizations and other
extraordinary events.
Awards. An award under the plan gives the participant the right to acquire
a specified number of shares of our common stock, at a specified price, for a
limited period of time. Officers and management-level
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<PAGE>
employees of Resources Connection, Inc. may be selected to receive awards under
the plan. The purchase price for each share of stock acquired under the plan
must be at least 85% (100% in the case of an owner of 10% or more of the voting
stock of Resources Connection, Inc.) of the fair market value of the stock on
the date the related award was granted. Awards under the plan generally are
nontransferable. The stock purchased on exercise of an award generally will be
subject to a vesting schedule--20% of the shares of stock purchased on exercise
of the award generally will vest each year following the exercise of the award
and the shares will fully vest on the fifth anniversary of the participant's
hire date with Resources Connection. If the participant's employment terminates
before his or her stock is fully vested, we generally may repurchase the
unvested stock for the price that participant paid to acquire the stock. The
administrator may accelerate the vesting of stock acquired under the plan in
the event of a change in control.
Administration. A committee of one or more directors appointed by the board
will administer the plan. The administrator of the plan has broad authority to
approve awards and determine the specific terms and conditions of awards, and
construe and interpret the plan. Our board of directors may amend, suspend or
discontinue the plan at any time. Plan amendments will generally not be
submitted to stockholders for their approval unless applicable law requires
such approval.
Certain Specific Awards. As of August 26, 2000, 5,630,000 shares had been
acquired under the plan, of which 1,895,600 had become vested and 3,734,400
were not yet vested, no shares were subject to outstanding but unexercised
awards, and no shares remained available for award purposes under the plan.
1999 Long-Term Incentive Plan
In June 1999, our board of directors adopted the 1999 Long-Term Incentive
Plan to provide an additional means to attract, motivate, reward and retain key
personnel. The plan was approved by our stockholders on June 17, 1999. The plan
gives our board of directors, or a committee appointed by our board of
directors, the authority to determine who may participate in the plan and to
grant different types of stock incentive awards. Employees, officers,
directors, and consultants of Resources Connection or one of our subsidiaries
may be selected to receive awards under the plan. The following summary is
qualified by reference to the complete plan, which is filed hereto as an
exhibit.
Share Limits. We initially reserved a total of 2,340,000 shares of our
common stock for issuance under the plan. In August 2000, we increased this
number to 5,040,000 shares. Our board of directors has authorized our
management to further increase the number of shares reserved for issuance under
the plan to . The aggregate number of shares subject to stock options and
stock appreciation rights granted under the plan to any one person in a
calendar year cannot exceed 200,000 shares.
Awards. Awards under the plan may be in the form of nonqualified stock
options, incentive stock options, stock appreciation rights, or SARs, limited
stock appreciation rights or SARs limited to specific events, such as in a
change in control or other special circumstances, restricted stock, performance
share awards, or stock bonuses. Awards under the plan generally will be
nontransferable.
Nonqualified stock options and other awards may be granted at prices below
the fair market value of the common stock on the date of grant. Restricted
stock awards can be issued for nominal or the minimum lawful consideration.
Incentive stock options must have an exercise price that is at least equal to
the fair market value of the common stock, or 110% of fair market value of the
common stock for any 10% owners of our common stock, on the date of grant.
These and other awards may also be issued solely or in part for services.
Administration. Our board of directors, or a committee of directors
appointed by the board, has the authority to administer the plan. The
administrator of the plan has broad authority to:
. designate recipients of awards;
. determine or modify, subject to any required consent, the terms and
provisions of awards, including the price, vesting provisions, terms of
exercise and expiration dates;
. approve the form of award agreements;
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<PAGE>
. determine specific objectives and performance criteria with respect to
performance awards;
. construe and interpret the plan; and
. reprice, accelerate and extend the exercisability or term, and establish
the events of termination or reversion of outstanding awards.
Change in Control. Upon a change in control event, the compensation
committee may provide that each option and stock appreciation right will become
immediately vested and exercisable, each award of restricted stock will
immediately vest free of restrictions, and each performance share award will
become payable to the holder of the award. Generally speaking, a change in
control event will be triggered under the plan:
. upon stockholder approval of our dissolution or liquidation;
. upon stockholder approval of the sale of all or substantially all of our
assets to an entity that is not an affiliate;
. upon stockholder approval of a merger, consolidation, reorganization, or
sale of all or substantially all of our assets in which any person
becomes the beneficial owner of 50% or more of our outstanding common
stock.
Plan Amendment, Termination and Term. Our board of directors may amend,
suspend or discontinue the plan at any time, but no such action will affect any
outstanding award in any manner materially adverse to a participant without the
consent of the participant. Plan amendments will be submitted to stockholders
for their approval as required by applicable law.
The plan will terminate on June 16, 2009; however, the committee will retain
its authority until all outstanding awards are exercised or terminated. The
maximum term of options, SARs and other rights to acquire common stock under
the plan is ten years after the initial date of the award, subject to
provisions for further deferred payment in certain circumstances.
Payment for Shares. The exercise price of options or other awards may
generally be paid in cash or, subject to certain restrictions, shares of our
common stock. Subject to any applicable limits, we may finance or offset shares
to cover any minimum withholding taxes due in connection with an award.
Federal Tax Consequences. The current federal income tax consequences of
awards authorized under the plan follow certain basic patterns. Generally,
awards under the plan that are includable in the income of the recipient at the
time of exercise, vesting or payment (such as nonqualified stock options, stock
appreciation rights, restricted stock and performance awards), are deductible
by Resources Connection, and awards that are not required to be included in the
income of the recipient (such as incentive stock options) are not deductible by
Resources Connection.
Generally speaking, Section 162(m) of the Internal Revenue Code provides
that a public company may not deduct compensation (except for certain
compensation that is commission or performance-based) paid to its chief
executive officer or to any of its four other highest compensated officers to
the extent that the compensation paid to such person exceeds $1,000,000 in a
tax year. The regulations exclude from these limits compensation that is paid
pursuant to a plan in effect prior to the time that a company is publicly held.
We expect that compensation paid under the plan will not be subject to Section
162(m) in reliance on this transition rule, as long as such compensation is
paid (or stock options, stock appreciation rights, and/or restricted stock
awards are granted) before the earlier of a material amendment to the plan or
the annual stockholders meeting in the year 2004.
In addition, we may not be able to deduct certain compensation attributable
to the acceleration of payment and/or vesting of awards in connection with a
change in control event should that compensation exceed certain threshold
limits under Section 280G of the Internal Revenue Code of 1986, as amended, or
the Internal Revenue Code.
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Certain Specific Awards. As of August 26, 2000, 2,129,000 shares of common
stock were subject to outstanding options granted under the plan, 80,500 of
which had vested and 2,048,500 of which were unvested, and 211,000 shares of
common stock remained available for grant purposes under the plan. The
outstanding options were granted for 10-year terms and at exercise prices
between $3.00 and $5.00 per share. The shares covered by currently outstanding
options represent the 10-year stock option grants authorized by our board of
directors on June 17, 1999.
401(k) Plan
Resources Connection has a defined contribution 401(k) plan which covers all
employees who have completed three months of service and are age 21 or older.
Participants may contribute up to 15% of their annual salary or the maximum
allowed by statute. As defined in the plan agreement, the company may make
matching contributions in such amount, if any, up to 6% of employees' annual
salaries. We may, at our sole discretion, determine the matching contribution
made from year to year. To receive a matching contribution, an employee must be
employed by us on the last day of the fiscal year.
Employment Agreements
We have entered into employment agreements with Mr. Murray, Mr. Giusto, Ms.
Ferguson and Mr. Longnecker. Certain aspects of these employment agreements are
specific to the agreement:
Mr. Murray. Pursuant to his employment agreement, Mr. Murray serves as our
Chief Executive Officer and receives an annual base salary of $425,000. The
employment agreement has an initial term ending on March 31, 2004. If any
payment Mr. Murray receives pursuant to his employment agreement is deemed to
constitute "excess parachute payment" under Section 280G of the Internal
Revenue Code, Mr. Murray is entitled to an excise tax gross-up payment not to
exceed $1.0 million.
Mr. Giusto. Pursuant to his employment agreement, Mr. Giusto serves as our
Chief Financial Officer and receives an annual base salary of $250,000. The
employment has an initial term ending on March 31, 2002.
Ms. Ferguson. Pursuant to her employment agreement, Ms. Ferguson serves as
an Executive Vice President and receives an annual base salary of $250,000,
increased in June 2000 from an initial annual base salary of $200,000. The
employment has an initial term ending on March 31, 2002. If Ms. Ferguson is
terminated without cause, in addition to the severance payment described below,
she will also receive reimbursement for her relocation expenses up to $100,000.
Mr. Longnecker. Pursuant to his employment agreement, Mr. Longnecker serves
as an Executive Vice President and receives an annual base salary of $300,000.
The employment has an initial term ending on April 30, 2002. If any payment Mr.
Longnecker receives pursuant to his employment agreement is deemed to
constitute "excess parachute payment" under Section 280G of the Internal
Revenue Code, Mr. Longnecker is entitled to an excise tax gross-up payment not
to exceed $750,000. Pursuant to his employment agreement, on May 1, 1999, we
loaned $200,000 to Mr. Longnecker as further described in "Related-Party
Transactions."
Each of the above-described employment agreements has the following uniform
terms:
Automatic Renewal. Upon termination of the initial term of the employment
agreement, the agreement will automatically renew for one year periods unless
we or the employee or Resources Connection elect not to extend the agreement.
Termination Without Cause or Good Reason Resignation by Employee. In the
event we do not renew the agreement or the employee is terminated other than
for cause as defined in the agreement to include, among other things,
conviction of a felony, fraudulent conduct, failure to perform duties or
observe covenants of the agreement,
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or theft, or if the employee terminates his or her employment for "good reason"
defined in the agreement to include, among other reasons, a change in control,
the employee will receive severance pay which includes:
. any accrued but unpaid base salary as of the date of the employee's
termination;
. the earned but unpaid annual bonus, if any;
. the target annual incentive compensation, if any, that the employee
would have been entitled to receive pursuant to the employment agreement
in respect of the fiscal year in which the termination occurs; and
. the employee's then current base salary multiplied by the greater of
either (1) two, for Mr. Giusto and Ms. Ferguson, or three, for Mr.
Murray and Mr. Longnecker, and (2) the number of years (including
fractions) remaining in the initial term of the agreement.
The employment agreements also provide that the employee shall be entitled
to receive employee benefits to which the employee may be entitled under the
employee benefit plans and continued participation in our group health
insurance plans at our expense until the earlier of three years from the date
of termination or the employee's eligibility for participation in the group
health plan of a subsequent employer.
Indemnification of Directors and Executive Officers and Limitation on Liability
Our Amended and Restated Bylaws provide that we shall indemnify our
directors and officers and may indemnify our other employees and agents to the
fullest extent permitted by Delaware law, except with respect to proceedings
initiated by these persons. We are also empowered under our bylaws to enter
into indemnification contracts with our directors and officers and to purchase
insurance on behalf of any person we are required or permitted to indemnify.
In addition, our Amended and Restated Bylaws provide that our directors will
not be personally liable to us or our stockholders for monetary damages for any
breach of fiduciary duty as a director, except for liability:
. for any breach of the director's duty of loyalty to us or its
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law; or
. for any transaction from which the director derives an improper personal
benefit.
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RELATED-PARTY TRANSACTIONS
The following is a description of transactions:
. to which we have been a party during the last three years;
. in which the amount involved exceeds $60,000; and
. in which any director, executive officer or holder of more than 5% of
our capital stock had or will have a direct or indirect material
interest.
You should also review certain arrangements with our executive officers that
are described under "Management."
Registration Rights.
Pursuant to a Stockholders Agreement between the company and certain of our
stockholders, if at any time after a public offering of our shares of common
stock we propose to register our common stock under the Securities Act for our
own account or the account of any of our stockholders or both, the stockholders
party to the Stockholders Agreement are entitled to notice of the registration
and to include registrable shares in that offering, provided that the
underwriters of that offering have the right to limit the number of shares
included in the registration. These registration rights will continue until the
second anniversary of this offering. All holders with registration rights have
agreed not to exercise their registration rights until 180 days following the
date of this prospectus unless both Credit Suisse First Boston Corporation and
Deutsche Bank Securities Inc. agree otherwise. After this offering, the
following stockholders owning 5% or more of our outstanding shares, directors
and officers will have these registration rights:
<TABLE>
<CAPTION>
Number of Registrable Shares
Name of Common Stock
---- ----------------------------
<S> <C>
Donald B. Murray............................ 54,690
Stephen J. Giusto........................... 20,000
Brent M. Longnecker......................... 75,000
John D. Bower............................... 4,690
Gerald Rosenfeld............................ 185,010
Entities affiliated with Evercore Capital
Partners L.L.C............................. 7,887,370
</TABLE>
Longnecker Loan.
Pursuant to our employment agreement with Mr. Longnecker, on May 1, 1999, we
loaned $200,000 to Mr. Longnecker. The loan is interest-free and matures on
April 1, 2007. On January 1, 2000, $50,000 of the loan was forgiven as a
portion of Mr. Longnecker's compensation. Additional amounts may be forgiven at
the discretion of our chief executive officer. If Mr. Longnecker is terminated
for cause, as defined in his employment agreement, or terminates his employment
without good reason, as defined in his employment agreement, all remaining loan
amounts owed will be due and payable.
Sale of Shares Pursuant to the 1998 Employee Stock Purchase Plan.
In November 1998, we formed RC Transaction Corp., renamed Resources
Connection, Inc. In December 1998, we issued 5,243,000 shares of our common
stock pursuant to the 1998 Employee Stock Purchase Plan to certain members of
our management for an aggregate purchase price of $52,430. Between January and
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<PAGE>
February 1999, we issued and sold the remaining 387,000 shares of our common
stock to certain members of our management for an aggregate purchase price of
$3,870. Directors and officers who participated in these transactions include:
<TABLE>
<CAPTION>
Number of Shares
of Common Stock
Name Acquired
---- ----------------
<S> <C>
Donald B. Murray ........................................... 1,450,600
Stephen J. Giusto .......................................... 400,000
Karen M. Ferguson........................................... 355,000
Brent M. Longnecker......................................... 200,000
John D. Bower............................................... 70,000
Kate W. Duchene............................................. 20,000
</TABLE>
Management-led Buyout.
In April 1999, we entered into a series of transactions pursuant to which we
purchased all of the membership units of Resources Connection LLC from Deloitte
& Touche. We financed the purchase in part with capital provided by our
management and an investor group led by Evercore Capital Partners L.L.C. and
certain of its affiliates. We issued and sold 9,855,260 shares of our Common
Stock and 144,740 shares of our Class B Common Stock to 22 accredited investors
and 30 additional investors. Simultaneously, we issued and sold subordinated
notes, bearing 12% annual interest with a maturity date of April 1, 2004, in an
aggregate principal amount of $22.0 million to the same investors. We intend to
use the proceeds of this offering to prepay the outstanding principal and all
accrued and unpaid interest on the notes. Stockholders owning 5% or more of our
outstanding shares, directors and officers who participated in these
transactions include:
<TABLE>
<CAPTION>
Number of Shares Aggregate
Number of Shares of Class B Principal Amount of
of Common Stock Common Stock Subordinated Notes
Name Acquired Acquired Acquired
---- ---------------- ---------------- -------------------
<S> <C> <C> <C>
Donald B. Murray........ 54,690 0 $ 120,318
Stephen J. Giusto....... 20,000 0 $ 44,000
Brent M. Longnecker..... 75,000 0 $ 165,000
John D. Bower........... 4,690 0 $ 10,318
Gerald Rosenfeld........ 185,010 0 $ 239,990
Entities affiliated with
Evercore Capital
Partners L.L.C......... 7,742,630 144,740 $17,889,654
</TABLE>
Options Granted to Our Chief Legal Officer and Executive Vice President, Human
Relations
In December 1999, we granted Ms. Duchene options to purchase up to 50,000
shares of our common stock at an exercise price of $3.00 per share. The options
vest 25% each year on the anniversary date of the grant. At the initial
offering price, the aggregate value of these options, less aggregate exercise
price, is $ .
Relationship Between Our Financial Printing Company and Our Chief Legal
Officer/Executive Vice President, Human Relations.
In connection with this offering, we have hired R.R. Donnelley Financial
Printing, or Donnelley, to provide printing and related services. We estimate
that the total amount we will pay to Donnelley for its services in connection
with this offering will be $ . The spouse of Ms. Duchene is employed
by Donnelley. We may engage Donnelley in the future to provide additional
printing and related services.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table contains information about the beneficial ownership of
our common stock before and after our initial public offering for:
. each person who beneficially owns more than five percent of the common
stock;
. each of our directors;
. each named executive officer and each executive officer;
. all directors, named executive officers and executive officers as a
group; and
. all selling stockholders.
Unless otherwise indicated, the address for each person or entity named
below is c/o Resources Connection, Inc., 695 Town Center Drive, Suite 600,
Costa Mesa, California 92626.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as indicated by footnote, and except
for community property laws where applicable, the persons named in the table
below have sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them. The table assumes no exercise
of the underwriters' over-allotment option. If the underwriters' over-allotment
option is exercised in full, the selling stockholders will sell up to an
aggregate of additional shares of common stock on a pro rata basis. The
percentage of beneficial ownership before the offering is based on 15,630,000
shares of common stock outstanding as of August 26, 2000.
PRINCIPAL AND SELLING STOCKHOLDER TABLE
<TABLE>
<CAPTION>
Percentage of
Number of Shares Shares
Beneficially Owned Outstanding
------------------- -----------------
Before After Before After Number of Shares to be
Offering Offering Offering Offering Sold in Offering
--------- --------- -------- -------- ----------------------
<S> <C> <C> <C> <C> <C>
Donald B. Murray........ 1,505,290 1,505,290 9.63% --
Stephen J. Giusto....... 420,000 420,000 2.69% --
Karen M. Ferguson....... 355,000 355,000 2.27% --
Brent M. Longnecker..... 275,000 275,000 1.76% --
John D. Bower........... 74,690 74,690 * --
Kate W. Duchene......... 20,000 20,000 * --
David G. Offensend(1)... 7,887,370 7,887,370 50.46% --
Ciara A. Burnham(1)..... 7,887,370 7,887,370 50.46% --
Gerald Rosenfeld........ 185,010 1.18% --
Leonard Schutzman(1).... -- -- * --
John C. Shaw(2)......... 7,500 7,500 * --
C. Stephen Mansfield.... -- -- * --
David L. Schnitt(3)..... 276,250 276,250 1.77% --
Named Executive
Officers,
Executive Officers and
Directors as a group
(11 persons)........... 3,118,740 19.94%
Evercore Partners
L.L.C.(1).............. 7,887,370 50.46%
DB Capital Investors,
LP(4).................. 382,480 2.45%
BancBoston Investments
Inc.(5)................ 382,480 2.45%
Mainz Holdings Ltd.(6).. 370,030 2.37%
Richard D. Gersten(7)... 10,880 *
Paul S. Lattanzio(8).... 87,070 *
</TABLE>
--------
* Represents less than 1%.
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(1) Shares shown as owned by Evercore Partners L.L.C. are the aggregate number
of shares owned of record by Evercore Capital Partners L.P., Evercore
Capital Partners (NQ) L.P., Evercore Capital Offshore Partners L.P. and
Evercore Co-Investment Partnership L.P., or, collectively, the Evercore
Investors. Evercore Partners L.L.C. is directly or indirectly the general
partner of each of the Evercore Investors. David G. Offensend, a managing
member of Evercore Partners L.L.C., may be deemed to share beneficial
ownership of any shares beneficially owned by Evercore Partners L.L.C., but
hereby disclaims such beneficial ownership, except to the extent of his
pecuniary interest in the Evercore Investors or Evercore Partners L.L.C.
Ciara A. Burnham and Leonard Schutzman are director nominees and are
executives of, or consultants to, Evercore Partners, Inc. Ms. Burnham and
Mr. Schutzman disclaim beneficial ownership of any shares beneficially
owned by Evercore Partners L.L.C., except to the extent of his or her
pecuniary interest in the Evercore Investors or Evercore Partners L.L.C.
The address for Evercore Partners L.L.C. is 65 East 55th Street, 33rd
Floor, New York, New York 10022. The address for Mr. Offensend, Ms. Burnham
and Mr. Schutzman is c/o Evercore Partners L.L.C.
(2) Mr. Shaw has been a director of Resources Connection since June 1999. Mr.
Shaw has 7,500 shares of common stock subject to options exercisable within
60 days of August 26, 2000. Mr. Shaw's address is The Shaw Group LLC, P.O.
Box 3369, Newport Beach, California 92659.
(3) Mr. Schnitt's address is c/o Ledgent, Inc., 1111 Knox Street, Torrance,
California 90502.
(4) DB Capital Investors, LP has been a stockholder of Resources Connection
since April 1999 and acquired its shares in connection with the management-
led buyout. The address for DB Capital Investors, LP is 130 Liberty Street,
25th Floor, New York, New York 10006.
(5) BancBoston Investments Inc. has been a stockholder of Resources Connection
since April 1999 and acquired its shares in connection with the management-
led buyout. The address for BancBoston Investments Inc. is 175 Federal
Street, Boston, Massachusetts 02110.
(6) Mainz Holdings has been a stockholder of Resources Connection since April
1999 and acquired its shares in connection with the management-led buyout.
The address for Mainz Holdings is UMS Universal Management Services, 6 Rue
du Nant, P.O. Box 6184, 1211 Geneva 6, Switzerland.
(7) Mr. Gersten has been a stockholder of Resources Connection since April 1999
and acquired his shares in connection with the management-led buyout. Mr.
Gersten's address is c/o North Castle Partners, LLC, 60 Arch Street,
Greenwich, Connecticut 06830.
(8) Mr. Lattanzio has been a stockholder of Resources Connection since April
1999 and acquired his shares in connection with the management-led buyout.
Mr. Lattanzio's address is c/o TD Capital, 31 W. 52nd Street, New York, New
York 10019.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Prior to the closing of this offering and the filing of our amended and
restated certificate of incorporation, our authorized capital stock consists of
35,000,000 shares of common stock, $0.01 par value per share, and 5,000,000
shares of preferred stock, $0.01 par value per share. Our common stock is
divided into three classes, Common Stock, of which there are 25,000,000 shares
designated and 15,485,260 shares issued and outstanding; Class B Common Stock,
of which there are 3,000,000 shares designated and 144,740 shares issued and
outstanding; and Class C Common Stock, of which there are 7,000,000 shares
designated and no shares issued and outstanding. We have issued options to
purchase 2,129,000 shares of our Class C Common Stock. The rights of the
holders of Common Stock and Class B Common Stock and Class C Common Stock are
identical, except that each share of the Common Stock is entitled to one vote
on all matters to be voted on by stockholders and each share of the Class B
Common Stock and Class C Common Stock is non-voting. None of our authorized
preferred stock has been designated and there are no shares of preferred stock
issued and outstanding.
At the closing of this offering, all outstanding shares of our Class B
Common Stock and Class C Common Stock will automatically convert to shares of
our Common Stock. Immediately following the closing of this offering and the
filing of our amended and restated certificate of incorporation, our authorized
capital stock will consist of 35,000,000 shares of common stock, $0.01 par
value per share, and 5,000,000 shares of preferred stock, $0.01 par value per
share. As of August 26, 2000, there were 15,630,000 shares of common stock
outstanding, held of record by 118 stockholders, and options to purchase
2,129,000 shares of common stock.
Common Stock
Under the amended and restated certificate of incorporation, the holders of
common stock are entitled to one vote per share on all matters to be voted on
by the stockholders. After payment of any dividends due and owing to the
holders of preferred stock, holders of common stock are entitled to receive
dividends declared by the board of directors out of funds legally available for
dividends. In the event of our liquidation, dissolution or winding up, holders
of common stock are entitled to share in all assets remaining after payment of
liabilities and liquidation preferences of outstanding shares of preferred
stock. Holders of common stock have no preemptive, conversion, subscription or
other rights. There are no redemption or sinking fund provisions applicable to
the common stock. All outstanding shares of common stock are, and all shares of
common stock to be outstanding upon completion of this offering will be, fully
paid and nonassessable.
Preferred Stock
Under the amended and restated certificate of incorporation, the board has
the authority, without further action by stockholders, to issue up to 5,000,000
shares of preferred stock. The board may issue preferred stock in one or more
series and may determine the rights, preferences, privileges, qualifications
and restrictions granted to or imposed upon the preferred stock, including
dividend rights, conversion rights, voting rights, rights and terms of
redemption, liquidation preferences and sinking fund terms, any or all of which
may be greater than the rights of the common stock. The issuance of preferred
stock could adversely affect the voting power of holders of common stock and
reduce the likelihood that common stockholders will receive dividend payments
and payments upon liquidation. The issuance of preferred stock could also have
the effect of decreasing the market price of the common stock and could delay,
deter or prevent a change in control of our company. We have no present plans
to issue any shares of preferred stock.
The Notes
In April 1999, Resources Connection issued notes in the aggregate amount of
$22.0 million consisting of junior subordinated debt of Resources Connection,
to certain investors. The notes consist of a general, unsecured promise by
Resources Connection to pay the holder of the note the principal amount of the
note plus interest which shall accrue at 12% per annum based on a 360-day year.
The notes will mature on or about April 15, 2004. The interest is payable
quarterly; however, Resources Connection may, at its option, add the
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<PAGE>
amount of interest payable to the unpaid principal amount of the notes. Our
senior credit facility prohibits payment of interest on the notes while any
amounts are outstanding under the senior credit facility and that interest on
the notes is, in fact, only to be paid by adding the amount thereof to the
principal amount of the notes.
We intend to use the proceeds of this offering to pay the outstanding
aggregate principal amount under our senior credit facility and to prepay $25.3
million outstanding under the Notes, which includes outstanding principal
together with all accrued and unpaid interest on the notes.
The notes are junior subordinated debt, which means that the holders of
senior indebtedness have priority in terms of payment and other rights over the
holders of the notes. If we have funds that are insufficient to pay the holders
of the notes in full, each holder is entitled to receive a pro rata payment
based upon the aggregate unpaid principal amount held by each holder.
Registration Rights
Pursuant to a Stockholders Agreement between the company and certain of our
stockholders, if at any time after a public offering of our shares of common
stock we propose to register our common stock under the Securities Act for our
own account or the account of any of our stockholders or both, the stockholders
party to the Stockholders Agreement are entitled to notice of the registration
and to include registrable shares in that offering, provided that the
underwriters of that offering do not limit the number of shares included in the
registration. The Stockholders Agreement will terminate upon the closing of
this offering, however, the registration rights will continue until the second
anniversary of the termination of the Stockholders Agreement. All holders with
registration rights have agreed not to exercise their registration rights until
180 days following the date of this prospectus unless both Credit Suisse First
Boston Corporation and Deutsche Bank Securities Inc. agree otherwise. The
stockholders with these registration rights hold an aggregate of
shares, after deducting shares to be sold pursuant to this offering by selling
stockholders. We are required to bear substantially all costs incurred in these
registrations, other than underwriting discounts and commissions. The
registration rights described above could result in future expenses for us and
adversely affect any future equity or debt offerings.
Anti-Takeover Provisions
Delaware Law
We are governed by the provisions of Section 203 of the Delaware Law. In
general, Section 203 prohibits a public Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. A"business combination" includes mergers, asset sales or
other transactions resulting in a financial benefit to the interested
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more of
the company's voting stock. The statute could delay, defer or prevent a change
in control of our company.
Certificate of Incorporation and Bylaw Provisions
Various provisions contained in our amended and restated certificate of
incorporation and bylaws could delay or discourage some transactions involving
an actual or potential change in control of us or our management and may limit
the ability of stockholders to remove current management or approve
transactions that stockholders may deem to be in their best interests and could
adversely affect the price of our common stock. These provisions:
. authorize our board of directors to establish one or more series of
undesignated preferred stock, the terms of which can be determined by
the board of directors at the time of issuance;
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. divide our board of directors into three classes of directors, with each
class serving a staggered three-year term. As the classification of the
board of directors generally increases the difficulty of replacing a
majority of the directors, it may tend to discourage a third party from
making a tender offer or otherwise attempting to obtain control of us
and may maintain the composition of the board of directors;
. prohibit cumulative voting in the election of directors unless required
by applicable law. Under cumulative voting, a minority stockholder
holding a sufficient percentage of a class of shares may be able to
ensure the election of one or more directors;
. require that any action required or permitted to be taken by our
stockholders must be effected at a duly called annual or special meeting
of stockholders and may not be effected by any consent in writing;
. state that special meetings of our stockholders may be called only by
the Chairman of the board of directors, our Chief Executive Officer, by
the board of directors after a resolution is adopted by a majority of
the total number of authorized directors, or by the holders of not less
than 10% of our outstanding voting stock;
. establish advance notice requirements for submitting nominations for
election to the board of directors and for proposing matters that can be
acted upon by stockholders at a meeting;
. provide that certain provisions of our certificate of incorporation can
be amended only by supermajority vote of the outstanding shares, and
that our bylaws can be amended only by supermajority vote of the
outstanding shares or our board of directors;
. allow our directors, not our stockholders, to fill vacancies on our
board of directors; and
. provide that the authorized number of directors may be changed only by
resolution of the board of directors.
The Nasdaq Stock Market's National Market
We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the trading symbol RECN.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and
we cannot assure you that a significant public market for our common stock will
develop or be sustained after this offering. As described below, no shares
currently outstanding will be available for sale immediately after this
offering due to certain contractual and securities law restrictions on resale.
Sales of substantial amounts of our common stock in the public market after
these restrictions lapse could adversely affect the prevailing market price and
our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding shares
of common stock, assuming no exercise of the outstanding options to purchase
2,129,000 shares of our common stock. Of these shares, the shares
offered for sale through the underwriters will be freely tradable without
restriction under the Securities Act unless purchased by our affiliates or
covered by a separate lock-up agreement with the underwriters.
The remaining shares of common stock held by existing stockholders
are restricted securities. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption from registration
described below under Rules 144, 144(k) or 701 promulgated under the Securities
Act.
As a result of the lock-up agreements described in "Underwriting" and the
provisions of Rules 144, 144(k) and 701 described below, these restricted
shares will be available for sale in the public market as follows:
. no shares may be sold prior to 180 days from the date of this
prospectus;
. shares will have been held long enough to be sold under Rule
144 or Rule 701 beginning 181 days after the date of this prospectus;
and
. the remaining shares may be sold under Rule 144 or 144(k) once they have
been held for the required time.
Rule 144. In general, under Rule 144, a person who has beneficially owned
restricted securities for at least one year would be entitled to sell within
any three-month period a number of shares that does not exceed the greater of:
. 1% of the number of shares of our common stock then outstanding that
will equal approximately shares immediately after this
offering; or
. the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
Sales under Rule 144 are also limited by manner-of-sale provisions and
notice requirements and to the availability of current public information about
us.
Rule 144(k). Under Rule 144(k), a person who is not deemed to have been one
of our affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years is
entitled to sell these shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144 discussed
above.
Rule 701. In general, under Rule 701, any of our employees, consultants or
advisors who purchase or receive shares from us under a compensatory stock
purchase plan or option plan or other written agreement will be eligible to
resell their shares beginning 90 days after the date of this prospectus,
subject to the 180-day lockup agreements discussed in "Underwriting." Non-
affiliates will be able to sell their shares subject only to the manner-of-sale
provisions of Rule 144. Affiliates will be able to sell their shares without
compliance with the holding period requirements of Rule 144.
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<PAGE>
Registration Rights. Upon completion of this offering, the holders of
shares of our common stock will be entitled to rights with respect to
the registration of their shares under the Securities Act. See "Description of
Capital Stock--Registration Rights." Except for shares purchased by affiliates,
registration of their shares under the Securities Act would result in these
shares becoming freely tradable without restriction under the Securities Act
immediately upon the effectiveness of the registration. All holders with
registration rights have agreed not to exercise their registration rights until
180 days following the date of this prospectus unless both Credit Suisse First
Boston Corporation and Deutsche Bank Securities Inc. agree otherwise.
Stock Options. Immediately after this offering, we intend to file a
registration statement under the Securities Act covering the shares of common
stock reserved for issuance upon exercise of outstanding options. The
registration statement is expected to be filed and become effective as soon as
practicable after the closing of this offering. Accordingly, shares registered
under the registration statement will be available for sale in the open market
beginning 180 days after the effective date of the registrant statement of
which this prospectus is a part, except with respect to Rule 144 volume
limitations that apply to our affiliates.
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<PAGE>
U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
The following is a general discussion of the principal U.S. federal income
and estate tax consequences of the ownership and disposition of our common
stock by a Non-U.S. Holder. As used in this prospectus, the term "Non-U.S.
Holder" is a person that is not:
. a citizen or individual resident of the United States for U.S. federal
income tax purposes;
. a corporation or other entity taxable as a corporation created or
organized in or under the laws of the United States or of any political
subdivision of the United States;
. an estate whose income is includible in gross income for U.S. federal
income tax purposes regardless of its source; or
. a trust, in general, if it is subject to the primary supervision of a
court within the United States and the control of one or more U.S.
persons.
An individual may, subject to some exceptions, be treated as a resident of
the United States for U.S. federal income tax purposes, instead of a
nonresident, by, among other things, being present in the United States for at
least 31 days in the calendar year and for an aggregate of at least 183 days
during a three-year period ending in the current calendar year--counting for
these purposes all of the days present in the current year, one-third of the
days present in the immediately preceding year and one-sixth of the days
present in the second preceding year. Residents are subject to U.S. federal
taxes as if they were U.S. citizens.
This discussion does not consider:
. U.S. state and local or non-U.S. tax consequences;
. specific facts and circumstances that may be relevant to a particular
Non-U.S. Holder's tax position, including, if the Non-U.S. Holder is a
partnership, that the U.S. tax consequences of holding and disposing of
our common stock may be affected by determinations made at the partner
level;
. the tax consequences for the shareholders, partners or beneficiaries of
a Non-U.S. Holder;
. special tax rules that may apply to some Non-U.S. Holders, including
without limitation, banks, insurance companies, dealers in securities
and traders in securities; or
. special tax rules that may apply to a Non-U.S. Holder that holds our
common stock as part of a straddle, hedge or conversion transaction.
The following discussion is based on provisions of the U.S. Internal Revenue
Code of 1986, applicable Treasury regulations, and administrative and judicial
interpretations, all as of the date of this prospectus, and all of which may
change, retroactively or prospectively. The following summary is for general
information. Accordingly, each Non-U.S. Holder should consult a tax advisor
regarding the U.S. federal, state, local and non-U.S. income and other tax
consequences of acquiring, holding and disposing of shares of our common stock.
Dividends
We do not anticipate paying cash dividends on our common stock in the
foreseeable future. In the event, however, that dividends are paid on shares of
common stock, dividends paid to a Non-U.S. Holder of common stock generally
will be subject to withholding of U.S. federal income tax at a 30% rate, or a
lower rate as may be provided by an applicable income tax treaty. Canadian
holders of the common stock, for example, will generally be subject to a
reduced rate of 15% under the Canada-U.S. Income Tax Treaty. Non-U.S. Holders
should consult their tax advisors regarding their entitlement to benefits under
a relevant income tax treaty.
Dividends that are effectively connected with a Non-U.S. Holder's conduct of
a trade or business in the United States or, if an income tax treaty applies,
attributable to a permanent establishment, or in the case of an
54
<PAGE>
individual, a fixed base, in the United States, as provided in that treaty,
referred to as U.S. trade or business income, are generally subject to U.S.
federal income tax on a net income basis at regular graduated rates, but are
not generally subject to the 30% withholding tax if the Non-U.S. Holder files
the appropriate U.S. Internal Revenue Service form with the payor. Any U.S.
trade or business income received by a Non-U.S. Holder that is a corporation
may also, under some circumstances, be subject to an additional "branch profits
tax" at a 30% rate or a lower rate as specified by an applicable income tax
treaty.
Dividends paid prior to 2001 to an address in a foreign country are
presumed, absent actual knowledge to the contrary, to be paid to a resident of
that country for purposes of the withholding discussed above and for purposes
of determining the applicability of a tax treaty rate. For dividends paid after
December 31, 2000:
. a Non-U.S. Holder of common stock who claims the benefit of an
applicable income tax treaty rate generally will be required to satisfy
applicable certification and other requirements;
. in the case of common stock held by a foreign partnership, the
certificate requirement will generally be applied to the partners of the
partnership and the partnership will be required to provide certain
information, including a U.S. taxpayer identification number; and
. look-through rules will apply for tiered partnerships.
A Non-U.S. Holder of common stock that is eligible for a reduced rate of
U.S. withholding tax under an income tax treaty may obtain a refund or credit
of any excess amounts withheld by filing an appropriate claim for a refund with
the IRS.
Gain on Disposition of Common Stock
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of common stock unless:
. the gain is U.S. trade or business income, in which case, the branch
profits tax described above may also apply to a corporate Non-U.S.
Holder;
. the Non-U.S. Holder is an individual who holds the common stock as a
capital asset within the meaning of Section 1221 of the Internal Revenue
Code, is present in the United States for more than 182 days in the
taxable year of the disposition and meets other requirements;
. the Non-U.S. Holder is subject to tax pursuant to the provisions of the
U.S. tax law applicable to some U.S. expatriates; or
. we are or have been a "U.S. real property holding corporation" for U.S.
federal income tax purposes at any time during the shorter of the five-
year period ending on the date of disposition or period that the Non-
U.S. Holder held our common stock.
Generally, a corporation is a "U.S. real property holding corporation" if
the fair market value of its "U.S. real property interests" equals or exceeds
50% of the sum of the fair market value of its worldwide real property
interests plus its other assets used or held for use in trade or business. We
believe that we have not been, are not currently, and do not anticipate
becoming, a "U.S. real property holding corporation," and thus we believe that
the effects which could arise if we were ever a "U.S. real property holding
corporation" will not apply to a Non-U.S. Holder. Even if we were, or were to
become, a "U.S. real property holding corporation," no adverse tax consequences
would apply to a Non-U.S. Holder whose holdings, direct and indirect, at all
times during the applicable period, constituted 5% or less of our common stock,
provided that our common stock was regularly traded on an established
securities market.
Federal Estate Tax
Common stock owned or treated as owned by an individual who is a Non-U.S.
Holder at the time of death will be included in the individual's gross estate
for U.S. federal estate tax purposes, unless an applicable estate tax or other
treaty provides otherwise and, therefore, may be subject to U.S. federal estate
tax.
55
<PAGE>
Information Reporting and Backup Withholding Tax
We must report annually to the IRS and to each Non-U.S. Holder the amount of
dividends paid to that holder and the tax withheld with respect to those
dividends. Copies of the information returns reporting those dividends and
withholding may also be made available to the tax authorities in the country in
which the Non-U.S. Holder is a resident under the provisions of an applicable
income tax treaty or agreement.
Under some circumstances, U.S. Treasury Regulations require information
reporting and backup withholding at a rate of 31% on certain payments on common
stock. Under currently applicable law, Non-U.S. Holders of common stock
generally will be exempt from these information reporting requirements and from
backup withholding on dividends prior to 2001 to an address outside the United
States. For dividends paid after December 31, 2000, however, a Non-U.S. Holder
of common stock that fails to certify its Non-U.S. Holder status in accordance
with applicable U.S. Treasury Regulations may be subject to backup withholding
at a rate of 31% on payments of dividends.
The payment of the proceeds of the disposition of common stock by a holder
to or through the U.S. office of a broker through a non-U.S. branch of a U.S.
broker generally will be subject to information reporting and backup
withholding at a rate of 31% unless the holder either certifies its status as a
Non-U.S. Holder under penalties of perjury or otherwise establishes an
exemption. The payment of the proceeds of the disposition by a Non-U.S. Holder
of common stock to or through a non-U.S. office of non-U.S. broker will not be
subject to backup withholding or information reporting unless the non-U.S.
broker is a "U.S. related person." In the case of the payment of proceeds from
the disposition of common stock by or through a non-U.S. office of a broker
that is a U.S. person or a "U.S. related person," information reporting, but
currently not backup withholding, on the payment applies unless the broker
receives a statement from the owner, signed under penalty of perjury,
certifying its non-U.S. status or the broker has documentary evidence in its
files that the holder is a Non-U.S. Holder and the broker has no actual
knowledge to the contrary. For this purpose, a "U.S. related person" is:
. a "controlled foreign corporation" for U.S. federal income tax purposes;
. a foreign person, 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year
preceding the payment, or for such part of the period that the broker
has been in existence, is derived from activities that are effectively
connected with the conduct of a U.S. trade or business; or
. effective after December 31, 2000, a foreign partnership if, at any time
during the taxable year, (A) at least 50% of the capital or profits
interest in the partnership is owned by U.S. persons or (B) the
partnership is engaged in a U.S. trade or business.
Effective after December 31, 2000, backup withholding may apply to the
payment of disposition proceeds by or through a non-U.S. office of a broker
that is a U.S. person or a "U.S. related person" unless certification
requirements are satisfied or an exemption is otherwise established and the
broker has no actual knowledge that the holder is a U.S. person. Non-U.S.
Holders should consult their own tax advisors regarding the application of the
information reporting and backup withholding rules to them, including changes
to these rules that will become effective after December 31, 2000. Any amounts
withheld under the backup withholding rules from a payment to a Non-U.S. Holder
will be refunded, or credited against the holder's U.S. federal income tax
liability, if any, provided that the required information is furnished to the
IRS.
56
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we and the selling stockholders have agreed to
sell to the underwriters named below, for whom Credit Suisse First Boston
Corporation and Deutsche Bank Securities Inc., as joint bookrunners, and Robert
W. Baird & Co. Incorporated are acting as representatives, the following
respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number
of
Underwriter Shares
----------- ------
<S> <C>
Credit Suisse First Boston Corporation................................
Deutsche Bank Securities Inc..........................................
Robert W. Baird & Co. Incorporated....................................
Total...............................................................
----
</TABLE>
As joint bookrunners, Credit Suisse First Boston Corporation and Deutsche
Bank Securities Inc. have equal responsibility for managing this offering. The
underwriting agreement provides that the underwriters are obligated to purchase
all the shares of common stock in the offering, if any are purchased, other
than those shares covered by the over-allotment option described below. The
underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering may be terminated.
The selling stockholders have granted the underwriters a 30-day option to
purchase from them on a pro rata basis up to additional shares at the
initial public offering price less the underwriting discounts and commissions.
The option may be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and the selling group members may allow a discount of $ per
share on sales to other broker/dealers. After the initial public offering, the
public offering price and concession and discount to dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
and the selling stockholders will pay:
<TABLE>
<CAPTION>
Per Share Total
------------------- -------------------
Without With Without With
Over- Over- Over- Over-
Allotment Allotment Allotment Allotment
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Underwriting Discounts and
Commissions paid by us............. $ $ $ $
Underwriting Discounts and
Commissions paid by the selling
stockholders...................... $ $ $ $
Expenses payable by us.............. $ $ $ $
</TABLE>
The representatives have informed us that the underwriters do not expect
discretionary sales to exceed % of the shares of common stock being offered.
DB Capital Investors, LP is one of the selling stockholders and an affiliate
of Deutsche Bank Securities Inc. DB Capital Investors, LP intends to sell
shares of our common stock, which constitutes more than 1% of the total
shares offered in this offering. The offering therefore is being conducted in
accordance with the applicable provisions of Rule 2710(c)(7)(C) of the National
Association of Securities Dealers, Inc. Conduct Rules. Rule 2710(c)(7)(C)
prohibits DB Capital Investors, LP from selling in this offering more than 1%
of the securities offered unless the initial public offering price of the
shares of common stock is not higher than that recommended by a "qualified
independent underwriter" meeting certain standards. Accordingly, Credit Suisse
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<PAGE>
First Boston Corporation is assuming the responsibilities of acting as the
qualified independent underwriter in pricing the offering and conducting due
diligence. The initial public offering price of the shares of common stock is
no higher than the price recommended by Credit Suisse First Boston Corporation.
Credit Suisse First Boston Corporation will be paid a fee of $10,000 for its
services as qualified independent underwriter.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act of 1933
relating to, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, or publicly
disclose the intention to make any offer, sale, pledge, disposition or filing,
unless both Credit Suisse First Boston Corporation and Deutsche Bank Securities
Inc. agree otherwise, for a period of 180 days after the date of this
prospectus, except issuances pursuant to the exercise of employee stock options
outstanding on the date hereof.
Our officers, directors and all of our stockholders have agreed that they
will not offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any shares of our common
stock, enter into a transaction which would have the same effect, or enter into
any swap, hedge or other arrangement that transfers, in whole or in part, any
of the economic consequences of ownership of common stock whether any of these
transactions are to be settled by delivery of our common stock or other
securities, in case or otherwise, or publicly disclose the intention to make
any offer, sale, pledge or disposition, or to enter into any swap, hedge or
other arrangement, unless, in each case, both Credit Suisse First Boston
Corporation and Deutsche Bank Securities Inc. agree otherwise, for a period of
180 days after the date of this prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of common stock for employees, directors,
consultants and other persons associated with us who have expressed an interest
in purchasing common stock in this offering. The number of shares available for
sale to the general public in the offering will be reduced to the extent these
persons purchase the reserved shares. Any reserved shares not so purchased will
be offered by the underwriters to the general public on the same terms as the
other shares.
We and the selling stockholders have agreed to indemnify the underwriters
against liabilities under the Securities Act of 1933, or contribute to payments
which the underwriters may be required to make in that respect.
We have applied to have our common stock quoted on The Nasdaq Stock Market's
National Market under the trading symbol RECN.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiation
between us and the underwriters. The principal factors to be considered in
determining the public offering price include the following:
. the information included in this prospectus and otherwise available to
the representatives;
. market conditions for initial public offerings;
. the history and the prospects for the industry in which we will compete;
. the ability of our management;
. the prospects for our future earnings;
. the present state of our development and our current financial
condition;
. the general condition of the securities markets at the time of this
offering; and
. the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
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<PAGE>
We cannot be sure that the initial public offering price will correspond to
the price at which the common stock will trade in the public market following
this offering or that an active trading market for the common stock will
develop and continue after this offering.
In connection with the offering the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934.
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Over-allotment involves sales by the underwriters of shares in excess of
the number of shares the underwriters are obligated to purchase, which
creates a syndicate short position. The short position may be either a
covered short position or a naked short position. In a covered short
position, the number of shares over-alloted by the underwriters is not
greater than the number of shares that they may purchase in the over-
allotment option. In a naked short position, the number of shares
involved is greater than the number of shares in the over-allotment
option. The underwriters may close out any short position by either
exercising their over-allotment option and/or purchasing shares in the
open market.
. Syndicate covering transactions involve purchases of common stock in the
open market after the distribution has been completed in order to cover
syndicate short positions. In determining the source of shares to close
out the short position, the underwriters will consider, among other
things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
over-allotment option. If the underwriters sell more shares than could
be covered by the over-allotment option--a naked short position--that
position can only be closed out by buying shares in the open market. A
naked short position is more likely to be created if the underwriters
are concerned that there may be downward pressure on the price of the
shares in the open market after pricing that could adversely effect
investors who purchase in the offering.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may have the effect of raising or maintaining the market price of the
common stock or preventing or retarding a decline in the market price of the
common stock. As a result, the price of the common stock may be higher than the
price that would otherwise exist in the open market. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
A prospectus in electronic format may be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters
for the sale to their online brokerage account holders. Internet distributions
will be allocated by the underwriters that will make internet distributions on
the same basis as other allocations.
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<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we and the selling
stockholders prepare and file a prospectus with the securities regulatory
authorities in each province where trades of common stock are made. Any resale
of the common stock in Canada must be made under applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made under available statutory exemptions or under a
discretionary exemption granted by the applicable Canadian securities
regulatory authority. Purchasers are advised to seek legal advice prior to any
resale of the common stock.
Representations of Purchasers
By purchasing common stock in Canada and accepting a purchase confirmation,
a purchaser is representing to us, the selling stockholders and the dealer from
whom the purchase confirmation is received that:
. the purchaser is entitled under applicable provincial securities laws to
purchase the common stock without the benefit of a prospectus qualified
under those securities laws,
. where required by law, the purchaser is purchasing as principal and not
as agent, and
. the purchaser has reviewed the text above under "Resale Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the United States federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein and the selling stockholders may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or a substantial
portion of the assets of the issuer and such persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
the issuer or such persons in Canada or to enforce a judgment obtained in
Canadian courts against such issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser pursuant to this offering. The report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one report must
be filed for common stock acquired on the same date and under the same
prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and about the eligibility of the common
stock for investment by the purchaser under relevant Canadian legislation.
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<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered in this prospectus will
be passed upon for us by O'Melveny & Myers, LLP, Newport Beach, California.
Latham & Watkins, Costa Mesa, California, will pass upon certain legal matters
in connection with this offering for the underwriters.
EXPERTS
The consolidated financial statements of Resources Connection, Inc. and its
subsidiaries as of May 31, 1999 and 2000 and for the period from inception,
November 16, 1998, through May 31, 1999, and for the year ended May 31, 2000,
included in this prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of Resources Connection LLC for the period June 1,
1998 through March 31, 1999, and for the year ended May 31, 1998, included in
this prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act, with respect to the common
stock offered by this prospectus. As permitted by the rules and regulations of
the Commission, this prospectus, which is a part of the registration statement,
omits certain information, exhibits, schedules and undertakings included in the
registration statement. For further information pertaining to us and the common
stock offered under this prospectus, reference is made to the registration
statement and the attached exhibits and schedules. Although required material
information has been presented in this prospectus, statements contained in this
prospectus as to the contents or provisions of any contract or other document
referred to in this prospectus may be summary in nature, and in each instance
reference is made to the copy of this contract or other document filed as an
exhibit to the registration statement, and each statement is qualified in all
respects by this reference. A copy of the registration statement may be
inspected without charge at the office of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Securities and Exchange Commission's
regional offices located at the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th
Floor, New York, New York 10048. Copies of all or any part of the registration
statement may be obtained from the Securities and Exchange Commission's offices
upon the payment of the fees prescribed by the Securities and Exchange
Commission. In addition, registration statements and certain other filings made
with the commission through its Electronic Data Gathering, Analysis and
Retrieval ("EDGAR") system, including our registration statement and all
exhibits and amendments to our registration statement, are publicly available
through the commission's website at http://www.sec.gov.
After this offering, we will have to provide the information and reports
required by the Securities Exchange Act of 1934, as amended, and we will file
periodic reports, proxy statements and other information with the Securities
and Exchange Commission. Upon approval of the common stock for listing on The
Nasdaq Stock Market's National Market, these reports, proxy and information
statements and other information may also be inspected at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.
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<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RESOURCES CONNECTION, INC.
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheets as of May 31, 1999 and 2000.................. F-3
Consolidated Statements of Income for the period from inception,
November 16, 1998, through May 31, 1999 and for the year ended May 31,
2000.................................................................. F-4
Consolidated Statements of Stockholders' Equity for the period from
inception,
November 16, 1998, through May 31, 1999 and for the year ended May 31,
2000.................................................................. F-5
Consolidated Statements of Cash Flows for the period from inception,
November 16, 1998, through May 31, 1999 and for the year ended May 31,
2000.................................................................. F-6
Notes to Consolidated Financial Statements............................... F-7
RESOURCES CONNECTION LLC
Report of Independent Accountants........................................ F-18
Statements of Income for the year ended May 31, 1998 and for the period
from June 1, 1998
through March 31, 1999................................................. F-19
Statements of Cash Flows for the year ended May 31, 1998 and for the
period from June 1, 1998
through March 31, 1999................................................. F-20
Notes to Financial Statements............................................ F-21
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and the Board of Directors
of Resources Connection, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, stockholders' equity and cash flows present
fairly, in all material respects, the financial position of Resources
Connection, Inc., formerly RC Transaction Corp., and its subsidiaries at May
31, 1999 and 2000, and the results of their operations and their cash flows for
the period from inception, November 16, 1998 through May 31, 1999, and the year
ended May 31, 2000 in conformity with accounting principles generally accepted
in the United States. 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 of these
statements in accordance with auditing standards generally accepted in the
United States, which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Costa Mesa, California
July 17, 2000
F-2
<PAGE>
RESOURCES CONNECTION, INC.
CONSOLIDATED BALANCE SHEETS
As of May 31, 1999 and 2000
<TABLE>
<CAPTION>
1999 2000
----------- -----------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents.......................... $ 875,836 $ 4,490,187
Trade accounts receivable, net of allowance for
doubtful accounts of $907,070 in 1999 and
$1,586,215 in 2000................................ 11,913,015 18,166,413
Deferred income taxes.............................. 852,507 1,300,210
Prepaid expenses and other current assets.......... 821,226 745,621
----------- -----------
Total current assets............................. 14,462,584 24,702,431
Intangible assets, net............................. 43,859,369 41,582,699
Property and equipment, net........................ 459,683 3,196,185
Other assets....................................... 171,944 624,778
----------- -----------
Total assets..................................... $58,953,580 $70,106,093
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued expenses.............. $ 2,502,772 $ 2,519,289
Accrued salaries and related obligations........... 2,728,409 7,450,190
Other liabilities.................................. 581,197 800,938
Current portion of term loan....................... 1,500,000 4,000,000
----------- -----------
Total current liabilities........................ 7,312,378 14,770,417
Deferred income taxes.............................. 379,589
Term loan.......................................... 16,500,000 12,500,000
Revolving line of credit........................... 2,100,000
Subordinated notes payable......................... 22,430,834 25,270,750
----------- -----------
Total liabilities................................ 48,343,212 52,920,756
----------- -----------
Commitments and contingencies (Note 13)
Stockholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares
authorized; zero shares issued and outstanding...
Common stock, $0.01 par value, 35,000,000 shares
authorized; 15,630,000 shares issued and
outstanding...................................... 156,300 156,300
Additional paid-in capital........................ 9,698,754 10,221,589
Deferred stock compensation....................... (36,879) (499,074)
Accumulated other comprehensive loss.............. (31,548)
Retained earnings................................. 792,193 7,338,070
----------- -----------
Total stockholders' equity....................... 10,610,368 17,185,337
----------- -----------
Total liabilities and stockholders' equity....... $58,953,580 $70,106,093
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
RESOURCES CONNECTION, INC.
CONSOLIDATED STATEMENTS OF INCOME
For The Period From Inception, November 16, 1998, Through May 31, 1999 And For
The Year Ended May 31, 2000
<TABLE>
<CAPTION>
For The Period
From Inception,
November 16, For The
1998, Through Year Ended
May 31, 1999 May 31, 2000
--------------- ------------
<S> <C> <C>
Revenue........................................... $15,384,578 $126,332,155
Direct cost of services, primarily payroll and
related taxes for professional services
employees........................................ 8,618,234 73,541,194
----------- ------------
Gross profit.................................... 6,766,344 52,790,961
Selling, general and administrative expenses...... 4,274,171 34,648,822
Amortization of intangible assets................. 370,661 2,230,633
Depreciation expense.............................. 30,029 284,737
----------- ------------
Income from operations.......................... 2,091,483 15,626,769
Interest expense.................................. 733,903 4,716,974
----------- ------------
Income before provision for income taxes........ 1,357,580 10,909,795
Provision for income taxes........................ 565,387 4,363,918
----------- ------------
Net income...................................... $ 792,193 $ 6,545,877
=========== ============
Net income per common share:
Basic........................................... $ 0.09 $ 0.42
=========== ============
Diluted......................................... $ 0.09 $ 0.42
=========== ============
Weighted average common shares outstanding:
Basic........................................... 8,691,224 15,630,000
=========== ============
Diluted......................................... 8,691,224 15,714,241
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
RESOURCES CONNECTION, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For The Period From Inception, November 16, 1998, Through
May 31, 1999 And For The Year Ended May 31, 2000
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Deferred Other Total
------------------- Paid-In Stock Comprehensive Retained Stockholders'
Shares Amount Capital Compensation Loss Earnings Equity
---------- -------- ----------- ------------ ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
shares to founders for
cash................... 5,630,000 $ 56,300 $ -- $ -- $ -- $ -- $ 56,300
Issuance of common
shares for cash........ 9,855,260 98,553 9,756,707 9,855,260
Issuance of Class B
common shares for
cash................... 144,740 1,447 143,293 144,740
Issuance costs of common
shares................. (238,125) (238,125)
Deferred stock
compensation........... 36,879 (36,879)
Net income for the
period from inception,
November 16, 1998,
through May 31, 1999... 792,193 792,193
---------- -------- ----------- --------- -------- ---------- -----------
Balances as of May 31,
1999................... 15,630,000 156,300 9,698,754 (36,879) 792,193 10,610,368
Deferred stock
compensation........... 522,835 (522,835)
Amortization of deferred
stock compensation..... 60,640 60,640
Comprehensive income:
Currency translation
adjustment, net of
tax................... (31,548) (31,548)
Net income for the year
ended May 31, 2000.... 6,545,877 6,545,877
-----------
Total comprehensive
income................. 6,514,329
---------- -------- ----------- --------- -------- ---------- -----------
Balances as of May 31,
2000................... 15,630,000 $156,300 $10,221,589 $(499,074) $(31,548) $7,338,070 $17,185,337
========== ======== =========== ========= ======== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
RESOURCES CONNECTION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Period From Inception, November 16, 1998, Through
May 31, 1999 And For The Year Ended May 31, 2000
<TABLE>
<CAPTION>
For The Period
From Inception,
November 16, For The Year
1998, Through Ended
May 31, 1999 May 31, 2000
--------------- ------------
<S> <C> <C>
Cash flows from operating activities
Net income...................................... $ 792,193 $ 6,545,877
Adjustments to reconcile net income to net cash
provided by operating activities, net of
effects of acquisition of Resources Connection
LLC in April, 1999:
Depreciation and amortization................. 400,690 2,515,370
Amortization of debt issuance costs........... 12,420 298,458
Amortization of deferred stock compensation... 60,640
Bad debt expense.............................. 200,000 1,048,502
Changes in operating assets and liabilities:
Trade accounts receivable................... (1,217,009) (7,301,900)
Prepaid expenses and other current assets... (509,473) 75,605
Other assets................................ (167,338) (484,382)
Accounts payable and accrued expenses....... 768,763 35,096
Accrued salaries and related obligations.... (573,479) 4,721,781
Other liabilities........................... 311,716 219,741
Accrued interest payable portion of notes
payable.................................... 430,834 2,839,916
Deferred income taxes....................... 559,288 (68,114)
------------ -----------
Net cash provided by operating
activities............................... 1,008,605 10,506,590
------------ -----------
Cash flows from investing activities
Purchase of Resources Connection LLC, net of
cash acquired and including transaction costs.. (50,866,539) (271,000)
Purchases of property and equipment............. (21,066) (3,021,239)
------------ -----------
Net cash used in investing activities..... (50,887,605) (3,292,239)
------------ -----------
Cash flows from financing activities
Proceeds from issuance of subordinated notes
payable........................................ 22,000,000
Proceeds from term loan......................... 18,000,000
Payments on term loan........................... (1,500,000)
Net borrowings (repayments) on revolving loan... 2,100,000 (2,100,000)
Costs of debt issuances......................... (1,163,339)
Issuance of common stock........................ 10,056,300
Costs of equity issuances....................... (238,125)
------------ -----------
Net cash provided by (used in) financing
activities............................... 50,754,836 (3,600,000)
------------ -----------
Net increase in cash............................ 875,836 3,614,351
Cash and cash equivalents at beginning of
period......................................... -- 875,836
------------ -----------
Cash and cash equivalents at end of period...... $ 875,836 $ 4,490,187
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
RESOURCES CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 1999 And 2000
1. Description of the Company and its Business
Resources Connection, Inc., formerly RC Transaction Corp.,was incorporated
on November 16, 1998. The Company provides professional services to a variety
of industries and enterprises through its subsidiary, Resources Connection LLC
("LLC"), and foreign subsidiaries (collectively the "Company"). Prior to its
acquisition of LLC on April 1, 1999, Resources Connection, Inc. had no
substantial operations. LLC, which commenced operations in June 1996, provides
clients with experienced professionals who specialize in accounting, finance,
tax, information technology and human resources on a project-by-project basis.
The Company operates in the United States, Canada, Hong Kong and Taiwan. The
Company is a Delaware corporation. LLC is a Delaware organized limited
liability company.
The Company's fiscal year consists of 52 or 53 weeks, ending on the Saturday
nearest the last day of May in each year. For convenience, all references
herein to years or periods are to years or periods ended May 31. The period
ended May 31, 1999 consists of 28 weeks, which includes 8 weeks of operations
of LLC. The fiscal year ending May 31, 2000 consists of 52 weeks.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Revenue Recognition
Revenues are recognized when services are rendered by the Company's
professionals. Conversion fees are recognized in certain circumstances when one
of the Company's professionals accepts an offer of permanent employment from a
client. Conversion fees were less than 4% of revenue for the period ended
May 31, 1999 and for the year ended May 31, 2000. All costs of compensating the
Company's professionals are the responsibility of the Company and are included
in direct cost of services.
Foreign Currency Translation
The financial statements of subsidiaries outside the United States are
generally measured using the local currency as the functional currency. Assets
and liabilities of these subsidiaries are translated at current exchange rates,
income and expense items are translated at average exchange rates prevailing
during the period and the related translation adjustments are recorded as a
component of comprehensive income within stockholders' equity. Gains and losses
from foreign currency transactions are included in the consolidated statements
of income.
Per Share Information
The Company follows Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share," which establishes standards for the computation,
presentation and disclosure requirements for basic and diluted earnings per
share for entities with publicly held common shares and potential common
shares. Basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding. In computing diluted
earnings per share, the weighted average number of shares outstanding is
adjusted to reflect the effect of potentially dilutive securities.
F-7
<PAGE>
RESOURCES CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Potential common shares totaling 750,500 were not included in the diluted
earnings per share amounts for the period ended May 31, 2000 as their effect
would have been anti-dilutive. For the year ended May 31, 2000, potentially
dilutive securities consisted solely of stock options and resulted in potential
common shares of 84,241.
All share and per share amounts have been adjusted to give retroactive
effect to the 10-for-1 stock split (see Note 10) for all periods presented.
Cash and Cash Equivalents
The Company considers cash on hand, deposits in banks, and short-term
investments purchased with an original maturity date of three months or less to
be cash and cash equivalents. The carrying amounts reflected in the
consolidated balance sheets for cash and cash equivalents approximate the fair
values due to the short maturities of these instruments.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation and
amortization. Depreciation and amortization is computed using the straight-line
method over the estimated useful lives of the related assets which range from 3
to 10 years. Leasehold improvements are amortized using the straight-line
method over the estimated useful life of the asset or the term of the lease,
whichever is shorter. Costs for normal repairs and maintenance are expensed to
operations as incurred, while renewals and major refurbishments are
capitalized.
Assessments of whether there has been a permanent impairment in the value of
property and equipment are periodically performed by considering factors such
as expected future operating income, trends and prospects, as well as the
effects of demand, competition and other economic factors. Management believes
no permanent impairment has occurred.
Intangible Assets
Goodwill represents the purchase price of LLC in excess of the fair market
value of its net tangible assets at acquisition date, and is being amortized on
a straight-line basis over 20 years. A noncompete agreement is stated at cost
and amortized on a straight-line basis over the four-year life of the
agreement. The costs related to the issuance of debt are capitalized and
amortized to interest expense on a straight-line basis over the 4.5 year life
of the related debt. Debt issuance costs of $12,420 and $298,458 were amortized
to interest expense for the period ended May 31, 1999 and the year ended May
31, 2000, respectively. The carrying value of intangible assets is periodically
reviewed by management and impairment adjustments are recognized when the
expected future operating cash flows to be derived from such intangible assets
are less than their carrying value. The Company believes that no impairment of
intangible assets has occurred.
Interest Rate Swap
The Company has entered into an interest rate swap to manage its term loan
debt with the objective of minimizing the volatility of the Company's borrowing
cost. At May 31, 2000, the Company held an interest rate swap to fix the
interest rate on $12.6 million of the debt under the term loan. Under this
agreement, the Company will pay the counterparty interest at a fixed rate of
8.96% and the counterparty will pay the Company interest at a variable rate
based upon the Eurodollar rate plus 3%. At May 31, 2000, the variable rate
applicable to this agreement was 9.69%. Net payments or receipts under the
agreement are recorded in interest expense on a current basis. The related
amount payable to, or receivable from, the counterparty is included in interest
payable on the consolidated balance sheet. At May 31, 2000, the interest rate
swap agreement had a fair value of approximately $176,000 in assets based upon
quoted market prices of comparable instruments.
F-8
<PAGE>
RESOURCES CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock-Based Compensation
The Company has adopted the disclosure-only provision of SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 defines a fair value
based method of accounting for stock based compensation. Fair value of the
stock based awards is determined considering factors such as the exercise
price, the expected life of the award, the current price of the underlying
stock and its volatility, expected dividends on the stock, and the risk-free
interest rate for the expected term of the award. Under the fair value method,
compensation cost is measured at the grant date based on the fair value of the
award and is recognized over the service period.
The Company continues to measure compensation cost under the intrinsic value
method provided by Accounting Principles Board Opinion No. 25 ("APB 25") and to
include the required pro forma disclosures. Under the intrinsic value method,
compensation cost is measured at the grant date as the difference between the
estimated market value of the underlying stock and the exercise price.
Compensation cost is recognized ratably over the service period.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under this method, deferred income taxes are
recognized for the estimated tax consequences in future years of differences
between the tax bases of assets and liabilities and their financial reporting
amounts at each year-end based on enacted tax laws and statutory rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established to reduce deferred tax
assets to the amount expected to be realized when, in management's opinion, it
is more likely than not that some portion of the deferred tax assets will not
be realized. The provision for income taxes represents current taxes payable
net of the change during the period in deferred tax assets and liabilities.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
was later amended by SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133."
SFAS No. 133 established standards for the accounting and reporting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and hedging activities. This Statement generally requires
recognition of gains and losses on hedging instruments, based on changes in
fair value or the earnings effect of a forecasted transaction. SFAS No. 133, as
amended by SFAS No. 137, is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. Management does not believe that SFAS No. 133,
as amended by SFAS No. 137, will have a material impact on the Company's
consolidated financial statements.
In March 2000, the FASB issued Interpretation No. 44, or FIN 44, entitled
"Accounting for Certain Transactions Involving Stock Compensation," which is an
interpretation of APB 25. This interpretation clarifies:
.the definition of an employee for purposes of applying APB 25;
.the criteria for determining whether a plan qualifies as a noncompensatory
plan;
. the accounting consequences of various modifications to the terms of a
previously fixed stock option or award; and
.the accounting for an exchange of stock compensation awards in a business
combination.
F-9
<PAGE>
RESOURCES CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
This interpretation is effective July 1, 2000. Management believes that the
adoption of FIN 44 will not have a material impact on the Company's
consolidated financial statements.
Reclassifications
Certain reclassifications have been made to the prior period consolidated
financial statements to conform to the current year presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Although management believes these estimates and assumptions
are adequate, actual results could differ from the estimates and assumptions
used.
3. Resources Connection LLC Acquisition
On April 1, 1999, the Company completed the acquisition of all of the
outstanding membership interests of LLC for approximately $55 million in cash,
excluding cash acquired and transaction costs. The Company has accounted for
this transaction under the purchase method of accounting. The purchase price
exceeded the estimated fair value of LLC's net tangible assets by approximately
$43.3 million, which was allocated to intangible assets, consisting of goodwill
of $42.8 and a noncompete agreement of $500,000. The results of operations of
LLC are included in the consolidated statements of income from the date of
acquisition.
In connection with this acquisition, the Company entered into a transition
services agreement ("Agreement") with the seller whereby the seller agreed to
provide certain services (as defined in the Agreement) to the Company at
negotiated terms during the period the Company maintained offices within the
seller's locations. The use of the services may not necessarily have been
provided at terms available from third parties. Therefore, the accompanying
financial statements of the Company may not necessarily be indicative of the
financial position and results that would have occurred if the Company had
undertaken such transactions with third parties. At May 31, 1999 and 2000, the
Company maintained 25 and 5 offices, respectively, within the seller's
locations. The Company expects to have completed all relocations by August 31,
2000.
4. Property and Equipment
Property and equipment consist of the following at May 31:
<TABLE>
<CAPTION>
1999 2000
-------- ----------
<S> <C> <C>
Computers and equipment................................ $430,308 $2,440,297
Furniture.............................................. 16,490 547,321
Leasehold improvements................................. 42,914 523,333
-------- ----------
489,712 3,510,951
Less accumulated depreciation and amortization......... (30,029) (314,766)
-------- ----------
$459,683 $3,196,185
======== ==========
</TABLE>
F-10
<PAGE>
RESOURCES CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Intangible Assets
Intangible assets consist of the following at May 31:
<TABLE>
<CAPTION>
1999 2000
----------- -----------
<S> <C> <C>
Noncompete agreement............................... $ 500,000 $ 500,000
Goodwill........................................... 42,579,111 42,831,532
Debt issuance costs................................ 1,163,339 1,163,339
----------- -----------
44,242,450 44,494,871
Less accumulated amortization...................... (383,081) (2,912,172)
----------- -----------
$43,859,369 $41,582,699
=========== ===========
</TABLE>
6. Income Taxes
The following table represents the current and deferred income tax provision
for federal and state income taxes:
<TABLE>
<CAPTION>
For The Period
From Inception,
November 16, 1998, For The Year
Through Ended
May 31, 1999 May 31, 2000
------------------ ------------
<S> <C> <C>
Current
Federal.................................... $ -- $3,569,500
State...................................... 6,099 862,532
-------- ----------
6,099 4,432,032
-------- ----------
Deferred
Federal.................................... 438,668 (83,303)
State...................................... 120,620 15,189
-------- ----------
559,288 (68,114)
-------- ----------
$565,387 $4,363,918
======== ==========
</TABLE>
The components of the provision for deferred income taxes are as follows:
<TABLE>
<CAPTION>
For The Period
From Inception,
November 16, 1998, For The Year
Through Ended
May 31, 1999 May 31, 2000
------------------ ------------
<S> <C> <C>
Allowance for doubtful accounts.............. $ 20,252 $(276,170)
Property and equipment....................... (417) 67,305
Goodwill and noncompete agreement............ 46,638 265,806
Accrued liabilities.......................... 535,898 4,034
State taxes.................................. (43,083) (129,089)
-------- ---------
Net deferred income tax provision............ $559,288 $ (68,114)
======== =========
</TABLE>
F-11
<PAGE>
RESOURCES CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The provision for income taxes differs from the amount that would result
from applying the federal statutory rate as follows:
<TABLE>
<CAPTION>
For The Period
From Inception,
November 16, 1998, For The Year
Through Ended
May 31, 1999 May 31, 2000
------------------ ------------
<S> <C> <C>
Statutory tax rate........................... 34.0% 34.0%
State taxes, net of federal benefit.......... 6.1% 5.4%
Other, net................................... 1.5% 0.6%
---- ----
Effective tax rate........................... 41.6% 40.0%
==== ====
</TABLE>
The components of the net deferred tax asset consist of the following as of
May 31:
<TABLE>
<CAPTION>
1999 2000
--------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts...................... $ 380,969 $ 657,139
Accrued expenses..................................... 588,423 584,389
State taxes.......................................... 74,411
--------- ---------
969,392 1,315,939
--------- ---------
Deferred tax liabilities:
Property and equipment............................... (15,569) (82,874)
Goodwill and noncompete agreement.................... (46,638) (312,444)
State taxes.......................................... (54,678)
--------- ---------
(116,885) (395,318)
--------- ---------
Net deferred tax asset................................. $ 852,507 $ 920,621
========= =========
</TABLE>
7. Accrued Salaries and Related Obligations
Accrued salaries and related obligations consist of the following as of May
31:
<TABLE>
<CAPTION>
1999 2000
---------- ----------
<S> <C> <C>
Accrued salaries, bonuses and related obligations.... $1,945,109 $5,837,762
Accrued vacation..................................... 783,300 1,612,428
---------- ----------
$2,728,409 $7,450,190
========== ==========
</TABLE>
8. Long-Term Obligations (Term Loan, Revolving Credit and Subordinated Notes
Payable)
In April 1999, in connection with the acquisition of LLC, the Company
entered into a $28 million credit agreement with a group of banks which
provides for an $18 million term loan facility and a $10 million revolving
credit facility, including a standby letter of credit feature (the "Credit
Agreement"). Principal payments on the term loan are due quarterly, and the
Credit Agreement expires October 1, 2003. At May 31, 1999 and 2000, outstanding
borrowings on the term loan are $18,000,000 and $16,500,000, respectively. At
May 31, 1999 and 2000, outstanding borrowings on the revolving credit facility
are $2,100,000 and zero, respectively. Borrowings under the Credit Agreement
are collateralized by all of the Company's assets.
Prime rate plus 2% and a Eurodollar-based rate plus 3% interest rate options
are available for borrowing under the Credit Agreement. On May 31, 1999 and
2000, the term loan bore interest at 8% and 8.75%,
F-12
<PAGE>
RESOURCES CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
respectively. The weighted average interest rate on the outstanding borrowings
under the revolving credit facility was 9.35% at May 31, 1999. No amounts were
outstanding under the revolving credit facility at May 31, 2000. Interest is
payable on both facilities at various intervals no less frequent than
quarterly. In addition, an annual facility fee of 0.05% is payable on the
unutilized portion of the $10 million revolving credit facility.
The Credit Agreement contains certain financial and other restrictive
covenants. These covenants include, but are not limited to, a restriction on
the amount of dividends that may be distributed to shareholders, and
maintaining defined levels of earnings before interest, taxes, depreciation and
amortization ("EBITDA"), a debt leverage ratio and an interest coverage ratio.
The Company was in compliance with these covenants as of May 31, 1999 and 2000.
In April 1999, the Company issued $22,000,000 in 12% subordinated promissory
notes (the "Notes") to certain investors. The Notes are subordinate to the
facilities provided by the Credit Agreement. Interest accrues on the Notes at
12%. Interest is payable on the Notes on a quarterly basis; however, the
Company may elect and has elected to defer payment of the interest and to add
the balance due ($3,270,750 at May 31, 2000) to the outstanding principal
balance. All principal, including accrued interest, is due on April 15, 2004.
The fair values of the Notes and the Company's debt under the Credit
Agreement approximate their carrying amounts and have been estimated based on
current rates offered to the Company for debt of the same remaining maturities.
Scheduled maturities of long-term obligations are as follows:
<TABLE>
<CAPTION>
Years Ending May 31:
--------------------
<S> <C>
2001.......................................................... $ 4,000,000
2002.......................................................... 4,750,000
2003.......................................................... 5,250,000
2004.......................................................... 27,770,750
-----------
$41,770,750
===========
</TABLE>
9. Concentrations of Credit Risk
The Company maintains cash and cash equivalent balances with a high credit
quality financial institution. At times, such balances are in excess of
federally insured limits.
Financial instruments which potentially subject the Company to concentration
of credit risk consist primarily of trade receivables. However, concentrations
of credit risk are limited due to the large number of customers comprising the
Company's customer base and their dispersion across different business and
geographic areas. The Company monitors its exposure to credit losses and
maintains an allowance for anticipated losses. To reduce credit risk, the
Company performs credit checks on certain customers.
10. Stockholders' Equity
The Company has authorized for issuance 25,000,000 shares of common stock,
in addition to 3,000,000 shares of Class B common stock and 7,000,000 shares of
Class C common stock with a $0.01 par value. At May 31, 1999 and 2000, there
are 15,485,260, 144,740 and zero shares outstanding of common stock, Class B
common stock and Class C common stock, respectively. The 25,000,000 shares of
common stock are voting while Class B and Class C common stock are nonvoting.
Class B and Class C common stock are equal to the 25,000,000 shares of common
stock with respect to all other rights and preferences.
F-13
<PAGE>
RESOURCES CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has authorized for issuance 5,000,000 shares of preferred stock
with a $0.01 par value. The Board of Directors has the authority to issue
preferred stock in one or more series and to determine the related rights and
preferences. No shares are outstanding at May 31, 1999 and 2000.
The Company issued 5,630,000 shares of its common stock to founding
shareholders at a price of $0.01 per share (see Note 14).
In April 1999, the Company issued 10,000,000 units at a price of $3.20 per
unit, each unit consisting of one share of common stock at $1.00 per unit and a
subordinate promissory note of $2.20 per unit (see Note 8).
On March 9, 2000, the Company's Board of Directors authorized a 10-for-1
split of its shares of common stock and shares under options. All share and per
share amounts in the accompanying consolidated financial statements have been
adjusted to give retroactive effect to the stock split for all periods
presented.
11. Benefit Plan
The Company established a defined contribution 401(k) plan ("the plan") on
April 1, 1999, which covers all employees who have completed three months of
service and are age 21 or older. Participants may contribute up to 15% of their
annual salary up to the maximum amount allowed by statute. As defined in the
plan agreement, the Company may make matching contributions in such amount, if
any, up to a maximum of 6% of individual employees' annual salaries. The
Company, in its sole discretion, determines the matching contribution made from
year to year. To receive matching contributions, the employee must be employed
on the last day of the fiscal year. For the period from inception, November 16,
1998, through May 31, 1999 and the year ended May 31, 2000, the Company
contributed approximately $101,000 and $427,000, respectively, to the plan.
12. Supplemental Disclosure Of Cash Flow Information
For the period and year ended May 31:
<TABLE>
<CAPTION>
1999 2000
----------- ----------
<S> <C> <C>
Interest paid...................................... $ -- $1,824,051
Income taxes paid.................................. $ -- $4,155,900
Noncash investing and financing activities:
Deferred stock compensation...................... $ 36,879 $ 522,835
Acquisition of LLC, net of $5,033,027 cash acquired
and including transaction costs:
Fair values of noncash tangible assets acquired.... $12,533,518
Liabilities assumed and incurred................... (4,746,090)
Goodwill........................................... 42,579,111
Noncompete agreement............................... 500,000
-----------
Cash paid........................................ $50,866,539
===========
</TABLE>
During the year ended May 31, 2000, it was determined that the Company owed
additional consideration of approximately $225,000 relating to the acquisition
of LLC. Such amount has been allocated to the purchase price and is included in
accrued expenses at May 31, 2000.
F-14
<PAGE>
RESOURCES CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During the year ended May 31, 2000, the Company paid $271,000 in transaction
costs related to the acquisition of LLC, of which $244,000 had been included in
accrued liabilities at May 31, 1999.
13. Commitments and Contingencies
Lease Commitments
At May 31, 2000, the Company had operating leases, primarily for office
premises, expiring at various dates. At May 31, 2000, the Company had no
capital leases. Future minimum rental commitments under operating leases are as
follows:
<TABLE>
<CAPTION>
Years Ending May 31:
--------------------
<S> <C>
2001.......................................................... $ 3,052,023
2002.......................................................... 2,992,504
2003.......................................................... 2,826,407
2004.......................................................... 2,796,750
2005.......................................................... 2,076,471
Thereafter.................................................... 1,116,393
-----------
Total....................................................... $14,860,548
===========
</TABLE>
Rent expense for the period ended May 31, 1999 and for the year ended May
31, 2000 totaled $305,749 and $2,368,187, respectively.
Employment Agreements
The Company has employment agreements with certain key members of management
expiring between 2002 and 2004. These agreements provide the employees with a
specified severance amount depending on whether the employee is terminated with
or without good cause as defined in the agreement.
14. Incentive Stock Plans
1998 Restricted Stock Purchase Plan
Under the terms of the Resources Connection, Inc. 1998 Restricted Stock
Purchase Plan (the "Purchase Plan"), a total of 5,630,000 shares of common
stock may be issued. The Purchase Plan gives the administrator authority to
grant awards to management-based employees at a price of at least 85% of the
fair market value of the stock (100% of the fair market value of the stock in
the case of an individual possessing more than 10% of the total outstanding
stock of the Company) on the date the related award was granted. An award under
the Purchase Plan gives the participant the right to acquire a specified number
of shares of common stock, at a specified price, for a limited period of time.
Awards under the Purchase Plan are generally nontransferable. The stock
purchased upon exercise of an award generally vests over five years. If the
participant's employment terminates before the participant's stock is fully
vested, the Company may repurchase the unvested stock for the price initially
paid by the participant. The administrator may accelerate the vesting of stock
acquired under the Purchase Plan in the event of a change in control.
In November 1998, management formed Resources Connection, Inc. (formerly RC
Transaction Corp.). In December 1998, 5,243,000 awards were granted and
exercised pursuant to the Purchase Plan at a price of $0.01 per share. In
January 1999 and February 1999, 297,000 and 90,000 awards, respectively, were
granted and exercised pursuant to the Purchase Plan at a price of $0.01 per
share. Of such shares of common stock, 785,200 and 1,880,000, respectively,
were vested as of May 31, 1999 and 2000. During May 1999 and the year ended May
31, 2000, repurchased unvested shares of common stock were sold to eligible
employees pursuant to the terms of the 1998 Restricted Stock Purchase Plan. The
amount of unearned compensation recognized for
F-15
<PAGE>
RESOURCES CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
stock re-sold under the Purchase Plan totaled $36,879 during May 1999 and
$375,981 during the year ended May 31, 2000. Related compensation expense
totaled zero and $53,520 for the period and the year ended May 31, 1999 and
2000, respectively. The Company does not anticipate granting any additional
awards under the Purchase Plan.
1999 Long-Term Incentive Plan
Under the terms of the Resources Connection, Inc. 1999 Long-Term Incentive
Plan (the "Incentive Plan"), the Company is authorized to grant restricted
stock awards, incentive stock options ("ISOs"), nonqualified stock options
("NQSOs"), stock appreciation rights and bonus awards to directors, officers,
key employees, consultants and other agents. Under the terms of the Incentive
Plan, the option price for the ISOs and NQSOs shall not be less than the fair
market value of the shares of the Company's stock on the date of the grant. For
ISOs, the exercise price per share may not be less than 110% of the fair market
value of a share of common stock on the grant date for any individual
possessing more than 10% of the total outstanding stock of the Company.
Management's estimate of the fair market value of the shares of the Company's
common stock is based upon a valuation of the Company obtained from an
independent appraisal firm. The maximum number of shares of common stock
available for grant is 2,340,000. Stock options granted under the Incentive
Plan become exercisable generally over periods of one to five years and expire
within a period of not more than ten years from the date of grant. There were
no options exercisable at May 31, 1999 and 2000.
A summary of the option activity under the Incentive Plan is as follows:
<TABLE>
<CAPTION>
Number of Weighted Weighted
Shares Average Average
Under Exercise Fair
Option Price Value
--------- -------- --------
<S> <C> <C> <C>
Options outstanding at May 31, 1999.............. -- $ -- $ --
Granted, above fair market value............... 1,495,500 $4.01 $3.11
Granted, below fair market value............... 330,000 $3.00 $3.44
---------
Options outstanding at May 31, 2000.............. 1,828,500 $3.82
=========
</TABLE>
As of May 31, 2000, options outstanding have a range of per share exercise
prices between $3.00 and $5.00 and a weighted average remaining contractual
life of 9.67 years.
As of May 31, 2000, the Company recorded deferred compensation related to
options granted to employees of $146,854 representing the difference between
the deemed fair market value of the common stock, as determined for accounting
purposes, and the exercise price of the options at the date of grant. Of this
amount, $7,120 in amortization has been recognized during the year ended May
31, 2000. The Company amortizes deferred compensation over the related service
period of the underlying options.
F-16
<PAGE>
RESOURCES CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has adopted the disclosure-only provisions of SFAS No 123. Had
compensation cost for the Company's Incentive Plan been determined based on the
fair value at the grant date for awards and consistent with the provisions of
SFAS No. 123, the Company's net income for the periods ended May 31, would have
been adjusted to the pro forma amount indicated below:
<TABLE>
<CAPTION>
1999 2000
-------- ----------
<S> <C> <C>
Net Income:
As reported........................................... $792,193 $6,545,877
Pro forma............................................. $792,193 $5,947,457
Net Income Per Common Share--Basic and Diluted:
As reported........................................... $ 0.09 $ 0.42
Pro forma............................................. $ 0.09 $ 0.38
</TABLE>
For purposes of computing the pro forma amounts, the fair value of stock-
based compensation was estimated using the Black-Scholes option-pricing model
with the following assumptions:
<TABLE>
<CAPTION>
1999 2000
----------- -----------
<S> <C> <C>
Weighted-average expected life (years)............... 7 7
Annual dividend per share............................ None None
Risk-free interest rate.............................. 6.47%-6.98% 6.47%-8.07%
Expected volatility.................................. 75% 75%
</TABLE>
Because the determination of the fair value of all options granted includes
the factors described in the preceding paragraph, and because additional option
grants are expected to be made each year, the above pro forma disclosures are
not likely to be representative of the pro forma effect on reported net income
for future years.
15. Segment Information and Enterprise Reporting
No single customer accounted for more than 4% of revenue during the period
ended May 31, 1999 and for the year ended May 31, 2000.
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company operates in one reportable
segment as it provides experienced accounting and finance, human capital
management and information technology professionals to clients on a project-by-
project basis. Substantially all of the Company's assets are located within the
United States. For the year ended May 31, 2000, the first year the Company had
foreign operations, foreign revenue comprised less than 1% of the Company's
consolidated revenue.
16. Related Party Transactions
In April 1999, the Company issued $22,000,000 in 12% subordinated promissory
notes to certain investors (see Note 8).
On May 1, 1999, a member of management received a loan of $200,000 from the
Company. The loan is interest free and matures on April 1, 2007. During the
year ended May 31, 2000, $50,000 of this loan was forgiven. At May 31, 2000,
$150,000 of the receivable was outstanding.
F-17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members
of Resources Connection LLC
In our opinion, the accompanying statements of income and of cash flows of
Resources Connection LLC, present fairly, in all material respects, the results
of its operations and its cash flows for the year ended May 31, 1998 and for
the period from June 1, 1998 through March 31, 1999, in conformity with
accounting principles generally accepted in the United States. 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 of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether
these statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
these statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits of these statements provide a
reasonable basis for the opinion expressed above.
As discussed in Notes 1, 2, and 3 to these financial statements, the Company
entered into significant related party transactions with its member, Deloitte &
Touche LLP. The accompanying historical financial statements of the Company may
not necessarily be indicative of the results that would have occurred if the
Company had undertaken such transactions with an unrelated third party.
PricewaterhouseCoopers LLP
Costa Mesa, California
August 6, 1999
F-18
<PAGE>
RESOURCES CONNECTION LLC
STATEMENTS OF INCOME
For The Year Ended May 31, 1998
And For The Period June 1, 1998 Through March 31, 1999
<TABLE>
<CAPTION>
For The For The Period
Year Ended June 1, 1998
May 31, Through
1998 March 31, 1999
----------- --------------
<S> <C> <C>
Revenue............................................ $29,507,588 $55,437,836
Direct cost of services, primarily payroll and
related taxes for professional services
employees......................................... 16,670,680 31,252,773
----------- -----------
Gross profit..................................... 12,836,908 24,185,063
Selling, general and administrative expenses....... 9,034,986 17,070,808
Depreciation and amortization expense.............. 79,117 118,358
----------- -----------
Net income....................................... $ 3,722,805 $ 6,995,897
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
RESOURCES CONNECTION LLC
STATEMENTS OF CASH FLOWS
For The Year Ended May 31, 1998
And For The Period June 1, 1998 Through March 31, 1999
<TABLE>
<CAPTION>
For The Period
For The Year June 1, 1998
Ended Through
May 31, 1998 March 31, 1999
------------ --------------
<S> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 3,722,805 $ 6,995,897
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 79,117 118,358
Bad debt expense............................... 278,760 533,000
Changes in operating assets and liabilities:
Trade accounts receivable.................... (3,306,645) (6,736,505)
Receivable from member....................... (2,500,000) (10,500,000)
Payable to member............................ 4,325,023 8,540,750
Prepaids and other assets.................... (18,850) (297,509)
Accounts payable and accrued expenses........ 257,344 869,284
Accrued salaries and related obligations..... 682,867 2,322,972
Other liabilities............................ 78,633 181,847
----------- ------------
Net cash provided by operating activities.. 3,599,054 2,028,094
----------- ------------
Cash flows from investing activities:
Purchases of property and equipment.............. (431,014) (163,107)
----------- ------------
Net cash used in investing activities...... (431,014) (163,107)
----------- ------------
Net increase in cash....................... 3,168,040 1,864,987
Beginning cash balance............................. -- 3,168,040
----------- ------------
Ending cash balance................................ $ 3,168,040 $ 5,033,027
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
RESOURCES CONNECTION LLC
NOTES TO FINANCIAL STATEMENTS
1. Description Of The Company And Its Business:
Resources Connection LLC (the "Company") is a Delaware organized limited
liability company and provides high-end professional services to a variety of
industries and enterprises throughout the United States. The Company provides
clients with experienced professionals in accounting, finance, tax and
information technology on a project-by project-basis.
The Company was formed in September 1996. The Company is 99% owned by
Deloitte & Touche LLP ("D&T") and 1% owned by Deloitte & Touche Acquisition
Company LLC (collectively referred to as the "Members"). The Members do not
have any liability for the obligations or liabilities of the Company except to
the extent provided for in the Delaware Limited Liability Company Act (the
"Act"). The Company will dissolve upon the first to occur of, among others, the
following: (a) the written consent of the Members; (b) the resignation,
expulsion, bankruptcy or dissolution of a Member or the occurrence of any other
event under the Act which terminates the continued membership of a Member in
the Company, unless the remaining Member agrees in writing within 90 days to
continue the business of the Company; or (c) December 31, 2095.
In the normal course of business, the Company has been supplied with a
variety of services by D&T as well as having supplied a variety of services to
D&T that are substantial in amount. The accompanying financial statements have
been prepared from the separate records maintained by the Company; however, the
services supplied by and to D&T may not necessarily have been provided at terms
available from unrelated entities. Therefore, the accompanying financial
statements of the Company may not necessarily be indicative of the conditions
that would have existed if the Company had operated as an independent entity.
The following table summarizes the approximate amount of services and
related allocated expenses charged to the Company for services provided by D&T.
Charges for such services are included in selling, general and administrative
expenses in the accompanying statements of income:
<TABLE>
<CAPTION>
For The Period
For The June 1, 1998
Year Ended Through
May 31, 1998 March 31, 1999
------------ --------------
<S> <C> <C>
Occupancy........................................ $344,000 $ 767,000
Computer charges................................. 80,000 155,000
Telephone........................................ 16,000 34,000
Administrative salaries.......................... 122,000 250,000
Other charges.................................... 153,000 203,000
-------- ----------
Total allocated charges........................ $715,000 $1,409,000
======== ==========
</TABLE>
The financial statements include all necessary personnel costs and pro rata
allocations of overhead from D&T on a basis which management believes
represents a reasonable allocation of such costs.
D&T processes and pays the Company's accounts payable, which obligation is
offset by periodic sweeps of the Company's separately maintained bank account,
resulting in a net receivable due from D&T and a net payable due to D&T.
Interest is not charged for any such amounts due to or from D&T.
Revenue includes fees charged for services provided directly to D&T of
approximately $3.1 million and $4.9 million for the year ended May 31, 1998 and
for the approximate ten month period ended March 31, 1999, respectively.
The Company's fiscal year consists of 52 or 53 weeks, ending on the Saturday
nearest the last day of May in each year. For convenience, all references
herein to years or periods are to years or periods ended May 31. The year ended
May 31, 1998 was 52 weeks long and the period ended March 31, 1999 was 44 weeks
long.
F-21
<PAGE>
RESOURCES CONNECTION LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. Summary Of Significant Accounting Policies:
Revenue Recognition:
Revenues are recognized when services are rendered by the Company's
professional staff. Conversion fees are recognized in certain circumstances
when one of our Company's professional staff accepts an offer of permanent
employment from a client. Conversion fees were less than 4% of revenues for the
year ended May 31, 1998 and the period ended March 31, 1999. All costs of
compensating the Company's professional staff are the responsibility of the
Company and are included in direct cost of services.
Depreciation And Amortization:
Depreciation and amortization is computed using the straight-line method
over the estimated useful lives of the related assets which range from 3 to 10
years. Leasehold improvements are amortized using the straight-line method over
the estimated useful life of the asset or the term of the lease, whichever is
shorter. Costs for normal repairs and maintenance are expensed to operations as
incurred, while renewals and major refurbishments are capitalized.
Taxes:
As a limited liability company, income taxes on any income or losses
realized by the Company are the obligation of its Members and, accordingly, no
provision for income taxes has been recorded in the financial statements.
Use Of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Although management believes these estimates and assumptions
are adequate, actual results could differ from the estimates and assumptions
used.
Reclassifications:
Certain reclassifications have been made to the prior year financial
statements to conform with the current period presentation.
3. Related Party Transactions:
Lease Arrangements:
Specific amendments to D&T lease agreements were negotiated for separate
office space in two of the Company's locations. The Company reimburses D&T for
the rent incurred under these amended lease agreements. D&T allocates rent to
the Company for all other locations, which may not necessarily reflect terms
available from unrelated parties. Total rent expense, including allocations as
included in Note 1, was approximately $480,000 and $828,000 for the year ended
May 31, 1998 and for the approximate ten month period ended March 31, 1999,
respectively.
Retirement Plan:
The Company participates in D&T's defined contribution 401(k) plan ("the
plan"), which covers administrative employees who have completed one year of
service and are age 21 or older. Participants may
F-22
<PAGE>
RESOURCES CONNECTION LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
contribute up to 15% of their annual salary up to the maximum allowed by
statute. As defined in the plan agreement, the Company is obligated to match
10% of employee contributions to a maximum of 6% of individual employees'
annual salaries; the Company may, at its discretion, match up to an additional
15% of employee contributions to a maximum of 6% of individual employees'
annual salaries. For the year ended May 31, 1998 and for the approximate ten
month period ended March 31, 1999, the Company contributed approximately
$35,000 and $98,000, respectively, to the plan.
Other:
The Company has entered into other significant related party transactions
with its Member, D&T. See Note 1 for further detail.
4. Subsequent Events:
On April 1, 1999, D&T sold the Company to management of the Company and a
group of investors. All of the outstanding membership interests of the Company
were sold for approximately $55 million in cash, excluding cash acquired and
transaction costs.
F-23
<PAGE>
[inside back cover]
[small logo]
[map depicting office locations and professional services lines delivered at
each office location]
[colored dot] Finance and Accounting
[colored dot] Finance and Accounting & Information Technology
[colored dot] Finance and Accounting & Human Capital Management
[colored dot] Finance and Accounting, Information Technology & Human Capital
Management
United States International
Atlanta Costa Mesa Minneapolis San Diego Hong Kong
Austin Dallas New York San Francisco Taipei
Baltimore Denver Orlando Santa Clara Toronto
Boise Detroit Parsippany Seattle
Boston Hartford Philadelphia Stamford
Charlotte Honolulu Phoenix Washington, D.C.
Chicago (2) Houston (2) Pittsburgh
Cincinnati Las Vegas Portland
Cleveland Los Angeles Princeton
<PAGE>
[LOGO OF RESOURCES CONNECTION]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth all expenses payable by the Resources
Connection, Inc. (the "Registrant") in connection with the sale of the common
stock being registered. All of the amounts shown are estimates, except for the
SEC registration fee, the NASD filing fee and The Nasdaq National Market
application fee.
<TABLE>
<CAPTION>
Amount to
Be Paid
---------
<S> <C>
Registration fee................................................... *
NASD filing fee.................................................... *
Nasdaq Stock Market Listing Application fee........................ *
Blue sky qualification fees and expenses........................... *
Printing and engraving expenses.................................... *
Legal fees and expenses............................................ *
Accounting fees and expenses....................................... *
Transfer agent and registrar fees.................................. *
Miscellaneous...................................................... *
---
Total............................................................ $ *
===
</TABLE>
--------
* Estimated.
Item 14. Indemnification Of Officers And Directors
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act").
The Registrant's Second Restated Certificate of Incorporation and Amended
and Restated Bylaws include provisions to (i) eliminate the personal liability
of its directors and officers for monetary damages resulting from breaches of
their fiduciary duty to the extent permitted by Section 102(b)(7) of the
General Corporation Law of Delaware (the "Delaware Law") and (ii) require the
Registrant to indemnify its directors and officers to the fullest extent
permitted by Section 145 of the Delaware Law, including circumstances in which
indemnification is otherwise discretionary. Pursuant to Section 145 of the
Delaware Law, a corporation generally has the power to indemnify its present
and former directors, officers, employees and agents against expenses incurred
by them in connection with any suit to which they are or are threatened to be
made, a party by reason of their serving in such positions so long as they
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, they had no reasonable cause to believe their conduct was
unlawful. The Registrant believes that these provisions are necessary to
attract and retain qualified persons as directors and officers. These
provisions do not eliminate the directors' duty of care, and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of non-
monetary relief will remain available under Delaware Law. In addition, each
director will continue to be subject to liability for breach of the director's
duty of loyalty to the Registrant, for acts or omissions not in good faith or
involving intentional misconduct, for knowing violations of law, for acts or
omissions that the director believes to be contrary to the best interests of
the Registrant or its stockholders, for any transaction from which the director
derived an improper personal benefit, for acts or omissions involving a
reckless disregard for the director's duty to the Registrant or its
stockholders when the director was aware or should have been aware of a risk of
serious injury to the Registrant or its stockholders, for acts or omissions
that constitute an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the Registrant or its stockholders, for
improper transactions between the director and the Registrant and for
II-1
<PAGE>
improper distributions to stockholders and loans to directors and officers. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities law or state or federal environmental laws.
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or director.
The Registrant has applied for an insurance policy covering the officers and
directors of the Registrant with respect to certain liabilities, including
liabilities arising under the Securities Act or otherwise.
Item 15. Recent Sales Of Unregistered Securities
Appropriate legends were affixed to the stock certificates issued in the
transactions described below. All recipients had adequate access, through
employment or other relationships, to information about the Registrant.
(a) In November 1998, we formed RC Transaction Corp. (renamed Resources
Connection, Inc.). In December 1998, we issued 5,243,000 shares of our common
stock to certain members of our management pursuant to the 1998 Employee Stock
Purchase Plan for an aggregate purchase price of $52,430. Between January 1999
and February 1999, we issued and sold the remaining 387,000 shares of common
stock to certain members of our management for an aggregate purchase price of
$3,870. Between February 1999 and August 2000, pursuant to the terms of the
1998 Employee Stock Purchase Plan we reacquired 388,000 shares of our common
stock from employees who employment was being terminated. We resold these
reaquired shares to certain employees for an aggregate purchase price of
$264,000. We relied on the exemption provided by Rule 701 of the General
Regulations under the Securities Act of 1933, as amended.
(b) On and around April 1, 1999, we issued and sold 9,855,260 shares of our
Common Stock and 144,740 shares of our Class B Common Stock to 22 accredited
investors and 30 additional investors for an aggregate purchase price of
$10,000,000. Simultaneously, we issued and sold subordinated notes, bearing 12%
interest per annum with a maturity date of April 15, 2004, in an aggregate
principal amount of $22,000,000 to the same investors. We relied on the
exemption provided by Section 4(2) under the Securities Act and Regulation D
promulgated thereunder. The recipients of the above-described securities
represented their intention to acquire the securities for investment only and
not with a view to distribution thereof.
(c) Between June 17, 1999 and August 26, 2000, we have granted stock options
to certain of our employees pursuant to our 1999 Long-Term Incentive Plan. We
relied on the exemption provided by Rule 701 of the General Regulations under
the Securities Act of 1933, as amended.
Item 16. Exhibits And Financial Statement Schedule
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1(a) Restated Certificate of Incorporation.
3.1(b) Amendment to Restated Certificate of Incorporation.
3.2 Form of Second Restated Certificate of Incorporation, to be filed and
become effective upon the closing of this offering.
3.3 Bylaws, as currently in effect.
3.4 Form of Amended and Restated Bylaws, as amended, to become effective
upon closing of this offering.
4.1 Stockholders Agreement, dated April 1, 1999, between Resources
Connection, Inc. and certain stockholders of Resources Connection,
Inc.
4.2* Specimen Stock Certificate.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
5.1* Opinion of O'Melveny & Myers, LLP.
10.1 Resources Connection, Inc. 1998 Employee Stock Purchase Plan.
10.2 Resources Connection, Inc. 1999 Long-Term Incentive Plan.
10.3 Employment Agreement, dated April 1, 1999, between Resources
Connection, Inc. and Donald B. Murray.
10.4 Employment Agreement, dated April 1, 1999, between Resources
Connection, Inc. and Stephen J. Giusto.
10.5 Employment Agreement, dated April 1, 1999, between Resources
Connection, Inc. and Karen M. Ferguson.
10.6 Employment Agreement, dated April 1, 1999, between Resources
Connection, Inc. and Brent M. Longnecker.
10.7 Credit Agreement, dated April 1, 1999, by and among Resources
Connection, Inc., RCLLC Acquisition Corp., Resources Connection LLC,
Bankers Trust Company, as collateral agent.
10.8 Pledge Agreement, dated as of April 1, 1999, made by each of Resources
Connection, Inc., RCLLC Acquisition Corp. and Resources Connection
LLC to Bankers Trust Company, as collateral agent.
10.9 Security Agreement, dated April 1, 1999, among Resources Connection,
Inc., certain of its subsidiaries and Bankers Trust Company, as
collateral agent.
10.10 Sublease, dated as of March 1, 2000, by and between Enterprise Profit
Solutions Corporation and Resources Connection LLC.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Consent of O'Melveny & Myers LLP. Reference is made to Exhibit 5.1.
24.1 Power of Attorney. Reference is made to page II-9.
27 Financial Data Schedule.
</TABLE>
--------
* To be filed by amendment.
(b) Financial Statement Schedules.
Schedule II--Valuation and Qualifying Accounts.
All other schedules are omitted because they are not required, are not
applicable or the information is included in our financial statements or notes
thereto.
Item 17. Undertakings
The 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.
Insofar as indemnification for liabilities arising under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") may be permitted to
directors, officers and controlling persons of the registrant pursuant to
provisions described in Item 14 or otherwise, the registrant has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Exchange Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in
II-3
<PAGE>
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Exchange Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Exchange Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Exchange Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Stockholders and the Board of Directors of Resources Connection, Inc.
Our audits of the consolidated financial statements of Resources Connection,
Inc. referred to in our report dated July 17, 2000 appearing in this
registration statement on Form S-1 also included an audit of the financial
statement schedule listed in Item (16)(b) of this Form S-1. In our opinion,
this financial statement schedule presents fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidated financial statements.
PricewaterhouseCoopers LLP
Costa Mesa, California
July 17, 2000
II-5
<PAGE>
RESOURCES CONNECTION, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Purchase of
Beginning Charged to Write- Resources Ending
Balance Operations offs Connection LLC Balance
--------- ---------- --------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts
Period from November
16, 1998 (date of
inception) to May 31,
1999................. $ -- $ 200,000 $(248,220) $955,290 $ 907,070
Year Ended May 31,
2000................. $907,070 $1,048,502 $(369,357) $ $1,586,215
</TABLE>
II-6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Members of Resources Connection LLC
Our audits of the financial statements of Resources Connection LLC referred
to in our report dated August 6, 1999 appearing in this registration statement
on Form S-1 also included an audit of the financial statement schedule listed
in Item (16)(b) of this Form S-1. In our opinion, this financial statement
schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related financial statements.
PricewaterhouseCoopers LLP
Costa Mesa, California
August 6, 1999
II-7
<PAGE>
RESOURCES CONNECTION LLC
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Beginning Charged to Write- Ending
Balance Operations offs Balance
--------- ---------- --------- --------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts
Year Ended May 31, 1998............. $266,560 $278,760 $(123,030) $422,290
Period from June 1, 1998 to March
31, 1999........................... $422,290 $533,000 $ $955,290
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Newport
Beach, County of Orange, State of California, on August 31, 2000.
/s/ Donald B. Murray
By: _________________________________
Donald B. Murray
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Donald B. Murray and Stephen J. Giusto, and each
of them, as his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place, and stead,
in any and all capacities, to sign any and all amendments (including post-
effective amendments, exhibits thereto and other documents in connection
therewith) to this Registration Statement and any subsequent registration
statement filed by the registrant pursuant to Rule 462(b) of the Securities Act
of 1933, as amended, which relates to this Registration Statement, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his 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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Donald B. Murray Chief Executive Officer, August 31, 2000
_________________________________ President and Director
Donald B. Murray (Principal Executive Officer)
/s/ Stephen J. Giusto Chief Financial Officer, August 31, 2000
_________________________________ Executive Vice President of
Stephen J. Giusto Corporate Development, Secretary
and Director (Principal
Financial Officer)
/s/ Karen M. Ferguson Executive Vice President and August 31, 2000
_________________________________ Director
Karen M. Ferguson
/s/ David G. Offensend Director August 31, 2000
_________________________________
David G. Offensend
/s/ Ciara A. Burnham Director August 31, 2000
_________________________________
Ciara A. Burnham
/s/ Gerald Rosenfeld Director August 31, 2000
_________________________________
Gerald Rosenfeld
/s/ Leonard Schutzman Director August 31, 2000
_________________________________
Leonard Schutzman
/s/ John C. Shaw Director August 31, 2000
_________________________________
John C. Shaw
/s/ C. Stephen Mansfield Director August 31, 2000
_________________________________
C. Stephen Mansfield
</TABLE>
II-9
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
EXHIBITS
to
FORM S-1
----------------
RESOURCES CONNECTION, INC.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1(a) Restated Certificate of Incorporation.
3.1(b) Amendment to Restated Certificate of Incorporation.
3.2 Form of Second Restated Certificate of Incorporation, to be filed and
become effective upon the closing of this offering.
3.3 Bylaws, as currently in effect.
3.4 Amended and Restated Bylaws, as amended, to be filed and become
effective upon the closing of this offering.
4.1 Stockholders Agreement, dated April 1, 1999, between Resources
Connection, Inc. and certain stockholders of Resources Connection,
Inc.
4.2* Specimen Stock Certificate.
5.1* Opinion of O'Melveny & Myers LLP.
10.1 Resources Connection, Inc. 1998 Employee Stock Purchase Plan.
10.2 Resources Connection, Inc. 1999 Long-Term Incentive Plan.
10.3 Employment Agreement, dated April 1, 1999, between Resources
Connection, Inc. and Donald B. Murray.
10.4 Employment Agreement, dated April 1, 1999, between Resources
Connection, Inc. and Stephen J. Giusto.
10.5 Employment Agreement, dated April 1, 1999, between Resources
Connection, Inc. and Karen M. Ferguson.
10.6 Employment Agreement, dated April 1, 1999, between Resources
Connection, Inc. and Brent M. Longnecker.
10.7 Credit Agreement, dated April 1, 1999, by and among Resources
Connection, Inc., RCLLC Acquisition Corp., Resources Connection LLC,
Bankers Trust Company, as collateral agent.
10.8 Pledge Agreement, dated as of April 1, 1999, made by each of Resources
Connection, Inc., RCLLC Acquisition Corp. and Resources Connection
LLC to Bankers Trust Company, as collateral agent.
10.9 Security Agreement, dated April 1, 1999, among Resources Connection,
Inc., certain of its subsidiaries and Bankers Trust Company, as
collateral agent.
10.10 Sublease, dated as of March 1, 2000, by and between Enterprise Profit
Solutions Corporation and Resources Connection LLC.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Consent of O'Melveny & Myers LLP. Reference is made to Exhibit 5.1.
24.1 Power of Attorney. Reference is made to page II-9.
27 Financial Data Schedule.
</TABLE>
--------
* To be filed by amendment.
