<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 15, 1996
REGISTRATION NO. 333-03393
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
ROMAC INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
FLORIDA 7361 59-3264661
(State or Other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
120 WEST HYDE PARK PLACE, SUITE 200
TAMPA, FLORIDA 33606
(813) 258-8855
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
DAVID L. DUNKEL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ROMAC INTERNATIONAL, INC.
120 WEST HYDE PARK PLACE, SUITE 200
TAMPA, FLORIDA 33606
(813) 258-8855
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES OF COMMUNICATIONS TO:
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<S> <C>
MICHAEL L. JAMIESON, ESQ. BENJAMIN F. GARMER, III, ESQ.
HOLLAND & KNIGHT FOLEY & LARDNER
400 NORTH ASHLEY DRIVE, SUITE 2300 777 EAST WISCONSIN AVENUE
TAMPA, FLORIDA 33602 MILWAUKEE, WISCONSIN 53217
(813) 227-8500 (414) 271-2400
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. / / ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, par value $.01
per share................... 3,082,000 shares $23.625 $72,812,250 $19,481(3)
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</TABLE>
(1) Includes 402,000 shares to cover over-allotments, if any, pursuant to
over-allotment option granted to the underwriters.
(2) Estimated solely for purposes of determining the registration fee, pursuant
to Rule 457(c) based upon the last sale reported by the Nasdaq National
Market on May 14, 1996, as adjusted for a two for one stock split in the
form of a 100% stock dividend to be reflected on the Nasdaq National Market
on May 23, 1996. An additional 46,000 shares have been included in this
Amendment; the registration fee for 3,036,000 shares was paid with the
initial filing, based upon the last sale reported by the Nasdaq Initial
Market on May 6, 1996.
(3) $19,106 previously paid.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
ROMAC INTERNATIONAL, INC.
---------------------
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER AND CAPTION CAPTION IN PROSPECTUS
------------------------------------------ ------------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus.............................. Forepart of the Registration Statement and
Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus........................... Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges...... Prospectus Summary; Risk Factors; The
Company
4. Use of Proceeds........................... Use of Proceeds
5. Determination of Offering Price........... Outside Front Cover Page; Underwriting
6. Dilution.................................. Inapplicable
7. Selling Security Holders.................. Principal and Selling Shareholders
8. Plan of Distribution...................... Outside Front Cover Page; Underwriting
9. Description of Securities to be
Registered.............................. Description of Capital Stock
10. Interests of Named Experts and Counsel.... Inapplicable
11. Information with Respect to the
Registrant.............................. Prospectus Summary; Risk Factors; The
Company; Use of Proceeds; Dividend
Policy; Price Range of Common Stock;
Selected Consolidated Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management;
Certain Transactions; Principal and
Selling Shareholders; Description of
Capital Stock; Shares Eligible for
Future Sale; Index to Unaudited Pro
Forma Consolidated Financial
Information; Index to Consolidated
Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. Inapplicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 15, 1996
PROSPECTUS
2,680,000 SHARES
ROMAC INTERNATIONAL
LOGO
COMMON STOCK
---------------------
Of the 2,680,000 shares of common stock offered hereby, 1,610,000 shares
are being offered by Romac International, Inc. and 1,070,000 shares are being
offered by certain Selling Shareholders of the Company. The Company will not
receive any proceeds from the sale of Common Stock by the Selling Shareholders.
See "Principal and Selling Shareholders."
The Common Stock is traded on the Nasdaq National Market under the symbol
"ROMC." Except as otherwise indicated, all information in this Prospectus has
been adjusted to reflect the two-for-one stock split in the form of a 100% stock
dividend to shareholders of record on May 15, 1996, which will be reflected on
the Nasdaq National Market on May 23, 1996. On May 14, 1996, the last reported
sale price of the Common Stock on the Nasdaq National Market was $23.625 per
share.
SEE "RISK FACTORS" ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
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<S> <C> <C> <C> <C>
Per Share......................... $ $ $ $
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Total(3).......................... $ $ $ $
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</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses estimated at $500,000, all of which are payable by
the Company.
(3) The Company has granted the several Underwriters a 30-day over-allotment
option to purchase, in the aggregate, up to 402,000 additional shares of
the Common Stock on the same terms and conditions as set forth above to
cover over-allotments, if any. If the Underwriters exercise the
over-allotment option in full, the total Price to Public will be
$ , the total Underwriting Discounts and Commissions will be
$ , the total Proceeds to Company will be $ and the total
Proceeds to Selling Shareholders will be $ . See "Underwriting."
---------------------
The shares of Common Stock are offered by the Underwriters subject to prior
sale, when, as and if delivered to and accepted by the Underwriters and subject
to their right to reject orders in whole or in part. It is expected that the
delivery of the certificates representing shares of the Common Stock will be
made on or about , 1996 through the Depository Trust Company or at
the offices of Robert W. Baird & Co. Incorporated, Milwaukee, Wisconsin.
ROBERT W. BAIRD & CO.
INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE> 4
Three interlocking circles representing the Company's integrated approach
to providing specialty staffing services.
Paste-up Mac chart
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING
GROUP MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON NASDAQ IN ACCORDANCE
WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
2
<PAGE> 5
PROSPECTUS SUMMARY
The following is a summary of the more detailed information and financial
statements appearing elsewhere in this Prospectus. Unless otherwise indicated,
the information in this Prospectus assumes that the Underwriters' over-allotment
option will not be exercised, and gives retroactive effect to a two-for-one
stock split in the form of a 100% stock dividend to shareholders of record on
May 15, 1996, which will be reflected on the Nasdaq National Market on May 23,
1996. Unless the context otherwise requires, references to the "Company" or
"Romac" are to Romac International, Inc.
THE COMPANY
Romac International, Inc. is a specialty staffing services firm providing
temporary, contract, and permanent placement of professional and technical
personnel. The Company is organized into three divisions: the Professional
Temporary Division provides professional temporary personnel in the fields of
finance and accounting; the Contract Services Division provides information
systems, manufacturing services, human resources, health care, and
pharmaceutical personnel generally on a longer-term contractual basis; and the
Search Division provides permanent placement of specialized personnel in the
fields of accounting and finance, information systems, financial services,
pharmaceutical research, health care, human resources, insurance, manufacturing
services, and sales and marketing. The Company believes its range of services
provides clients with integrated solutions to their temporary, contract, and
permanent specialty staffing needs, allowing the Company to develop long-term,
consultative relationships with its clients. The Company also believes the
interaction among its three divisions generates increased placement
opportunities and enhances the Company's ability to attract and place higher
quality candidates. The Company principally serves Fortune 1000 companies in
twelve metropolitan markets through Company-owned locations and five additional
markets through franchisees and licensees.
The Company's objective is to be the nationally recognized leader in
providing specialty staffing services. The Company strives to differentiate
itself from others in the staffing industry through innovative service
offerings, a consultative and results-oriented approach to client relationships,
and high-quality personnel placements. In pursuing its objective, the Company
focuses exclusively on providing professional and technical personnel, rather
than clerical or light industrial personnel, because of the generally higher
profitability and the opportunity for growth of this market segment. The Company
believes it has a recruiting advantage over those of its competitors that lack
the ability to offer candidates temporary, contract, and permanent
opportunities. Candidates seeking permanent employment frequently accept
temporary or contract assignments through the Company until a permanent position
becomes available. The Company also believes the ROMAC(R) name recognition,
coupled with its industry expertise and innovative use of technology, provide it
with competitive benefits.
The Company's growth strategy is to increase revenue and profitability by
expanding its services in existing markets and introducing its full range of
services into new markets. In existing markets, the Company intends to further
develop existing clients and expand its client base by (i) introducing its full
range of services in all of its markets, (ii) taking advantage of the
cross-selling opportunities provided by the complementary services offered by
its three divisions, (iii) introducing new services, and (iv) acquiring
complementary businesses. The Company intends to enter new markets by opening
new Company-owned locations and making strategic acquisitions. In the last
twelve months, the Company has entered four new markets: two through start-ups,
one through franchise conversion to a Company-owned location, and one through
acquisition. In addition, the Company has developed a major accounts program,
which encourages large users of staffing services to "carve-out" the
professional and technical segments of staffing contracts and award such
business to the Company instead of large generalist staffing firms. As a result
of this program, the Company has signed several contracts with major national
corporations for certain of the Company's services. Management believes there is
substantial opportunity for growth through the continued implementation of this
strategy.
3
<PAGE> 6
The Company was formed by current management in August 1994 through the
combination of a specialty staffing services firm in operation under the
ROMAC(R) name since 1966 and three of its largest franchisees (the "1994
Combination"). Since the Company's initial public offering in August 1995, the
Company has introduced Contract Services in its Philadelphia and Chicago
locations, introduced Search services in its Houston location, and expanded into
the Pittsburgh market through a new Company-owned location. The Company has also
acquired certain assets of the following entities: Venture Networks Corporation,
Inc. (Boston), PCS Group, Inc. (Louisville), and Strategic Outsourcing, Inc.
(Boston) (collectively, the "Acquisitions"). These strategic acquisitions have
enhanced the Company's Contract Services capabilities, increased the Company's
geographic presence, and introduced human resource contract and outsourcing
services, and outplacement services, to the Company's existing product
offerings.
The temporary staffing industry has grown rapidly in recent years as
companies have utilized temporary employees to manage personnel costs while
meeting specialized or fluctuating staffing requirements. According to a study
by the National Association of Temporary and Staffing Services ("NATSS"), the
United States temporary staffing industry grew from approximately $20.4 billion
in revenue in 1991 to approximately $39.2 billion in revenue in 1995, a compound
annual growth rate of 17.7%. Furthermore, according to the Staffing Industry
Report, the professional and technical segments of the temporary staffing
industry are estimated to have grown by 25.0% from 1994 to 1995 to $8.9 billion.
This compares with estimated 1994 to 1995 growth of 15.0% and 8.0%,
respectively, in the clerical and industrial segments.
THE OFFERING
Common Stock offered by the Company....... 1,610,000 shares
Common Stock offered by the Selling
Shareholders.............................. 1,070,000 shares
Common Stock to be outstanding after the
Offering(1)............................... 11,291,782 shares
Use of Proceeds........................... For general corporate purposes
including expansion of the
Company's operations, purchase of
capital equipment, and possible
acquisitions
Nasdaq National Market Symbol............. ROMC
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(1) Does not include shares of Common Stock subject to outstanding options under
the Company's stock option plans. See "Management -- Incentive Stock Option
Plan" and "Management -- Director Compensation."
4
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
Prior to September 1, 1994, the Company's business was conducted under
separate ownership and management by FMA International, Inc. ("Romac-FMA"),
which was a Romac franchisee, the Romac franchisor, and certain other Romac
franchisees. The 1994 Combination became effective on August 31, 1994 and all of
the financial data set forth below have been restated to give effect to the 1994
Combination, which has been accounted for as a pooling of interests. Since
August 31, 1994, the Company's business has been conducted under common
ownership and its operations have been conducted by the former management of
Romac-FMA, which became the management of the Company. The information below
reflects a two-for-one stock split in the form of a stock dividend to
shareholders of record on May 15, 1996, which will be reflected on the Nasdaq
National Market on May 23, 1996.
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA THREE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
YEARS ENDED DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
----------------------------------------------- ------------ ---------------- ------------
1991 1992 1993 1994 1995 1995(1) 1995 1996 1996(1)
------- ------- ------- ------- ------- ------------ ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net service revenues....... $24,155 $31,250 $40,346 $40,789 $45,655 $ 58,485 $9,562 $16,889 $ 18,387
Gross profit............... 10,619 11,418 14,220 15,938 20,195 26,378 4,203 7,170 7,780
Income (loss) before
taxes.................... (759) 1,091 1,113 (413) 5,021 5,835 1,212 1,709 1,800
Net income (loss)(2)....... (458) 714 650 (599) 3,013 3,501 727 1,025 1,092
Net income per share(3).... $ (0.07) $ 0.11 $ 0.10 $ (0.09) $ 0.36 $ 0.41 $ 0.09 $ 0.10 $ 0.11
Weighted average shares
outstanding(4)........... 6,522 6,588 6,619 7,039 8,488 8,488 7,763 10,338 10,338
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------
AS
ACTUAL ADJUSTED(5)
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<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................................................... $ 9,026 $44,470
Total assets.................................................................................. 23,168 58,612
Total long-term debt.......................................................................... 425 425
Shareholders' equity.......................................................................... $18,078 $53,522
</TABLE>
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(1) The pro forma consolidated unaudited financial information has been prepared
to reflect the Company's operations as if the Acquisitions had occurred on
January 1, 1995, as further described elsewhere herein. See "Unaudited Pro
Forma Financial Information."
(2) Net income (loss) for the years ended December 31, 1994 and 1995, the pro
forma year ended December 31, 1995, the three months ended March 31, 1995
and 1996, and the pro forma three months ended March 31, 1996, includes
franchise termination income (net of tax) of $336,000, $261,000, $261,000,
$261,000, $64,000, and $64,000, respectively.
(3) Net income (loss) per share for the years ended December 31, 1994 and 1995,
the pro forma year ended December 31, 1995, the three months ended March
31, 1995 and 1996, and the pro forma three months ended March 31, 1996,
includes franchise termination income per share of $0.05, $0.03, $0.03,
$0.03, $0.01, and $0.01, respectively.
(4) Does not include 1,230,970 shares of Common Stock subject to outstanding
options under the Company's stock option plans. See
"Management -- Incentive Stock Option Plans" and "Management -- Director
Compensation."
(5) As adjusted to give effect to the sale by the Company of 1,610,000 shares of
Common Stock offered hereby and after deducting underwriting discounts and
commissions and estimated offering expenses and the application of the net
proceeds therefrom, assuming a public offering price of $23.625 per share.
See "Capitalization."
5
<PAGE> 8
RISK FACTORS
Prospective investors should consider carefully, in addition to the other
information contained in this Prospectus, the following factors in evaluating
the Company and its business before purchasing shares of the Common Stock
offered hereby. This Prospectus contains certain forward-looking statements that
involve risks and uncertainties. Future events and the Company's actual results
could differ materially from the results expected in these forward-looking
statements, as a result of certain of the factors set forth below and elsewhere
in this Prospectus.
POSSIBLE ADVERSE EFFECTS OF FLUCTUATIONS IN THE GENERAL ECONOMY
Historically, the general level of economic activity has significantly
affected the demand for employment services. As economic activity has slowed,
the use of temporary and contract personnel often has been curtailed before
permanent employees have been laid off. An economic downturn may adversely
affect the demand for temporary and contract personnel and may have a material
adverse effect on the Company's results of operations or financial condition. As
economic activity has increased, temporary and contract personnel often have
been added to the work force before permanent employees have been hired. During
these periods of increased economic activity and generally higher levels of
employment, the competition among staffing services firms for qualified
temporary and contract personnel is intense. Further, the Company may face
increased competitive pricing pressures during such periods. There can be no
assurance that during these periods the Company will be able to recruit the
temporary and contract personnel necessary to fill its clients' needs or that
such pricing pressures will not adversely affect the Company's results of
operations. Additionally, during periods of slowed economic activity, the use of
executive search firms tends to decline significantly. See "Business -- Industry
Overview."
DEPENDENCE ON AVAILABILITY OF QUALIFIED PERSONNEL
The Company depends upon its ability to attract and retain personnel,
particularly technical and professional personnel, who possess the skills and
experience necessary to meet the staffing requirements of its clients. The
Company must continually evaluate and upgrade its base of available qualified
personnel to keep pace with changing client needs and emerging technologies.
Competition for individuals with proven technical or professional skills is
intense and demand for such individuals is expected to remain very strong for
the foreseeable future. There can be no assurance that qualified personnel will
continue to be available to the Company in sufficient numbers and upon economic
terms acceptable to the Company. See "Business -- Contract Services Division"
and "Business -- Competition."
ABILITY TO ACHIEVE AND MANAGE GROWTH
The Company has experienced growth, driven primarily by industry trends
toward the increased use of temporary professional and technical personnel. The
Company's continued growth depends on a number of factors, including the ability
to maintain margins in the face of competitive pressures and changing regulatory
environments, the availability of sufficient working capital, continued
improvements in the recruitment, motivation, and retention of its operating
employees, and the strength of demand in the Company's markets. Any significant
delay in opening new Company-owned locations could have a material adverse
effect on the Company's results of operations. There can be no assurance that
the Company will be able to attain its desired levels of growth. See
"Business -- Growth Strategy."
IMPLEMENTATION OF ACQUISITION STRATEGY
The Company plans to pursue acquisitions of specialty staffing services
firms. There can be no assurance that the Company will be able to successfully
identify suitable acquisition candidates, complete acquisitions, integrate
acquired businesses into its operations, or expand into new markets. Once
integrated, acquisitions may not achieve comparable levels of revenues,
profitability or productivity as the existing Company-owned locations or
otherwise perform as expected. The Company is unable to predict whether or when
any prospective acquisition candidate will become available or the likelihood
that any acquisition will be
6
<PAGE> 9
completed. The Company competes for acquisition and expansion opportunities with
entities that have substantially greater resources. In addition, acquisitions
involve a number of special risks, such as diversion of management's attention,
difficulties in the integration of acquired operations and retention of
personnel, unexpected problems or legal liabilities, and tax and accounting
issues, some or all of which could have a material adverse effect on the
Company's results of operations and financial condition. The Company currently
has no definitive arrangements or understandings in effect regarding possible
acquisitions. See "The Company" and "Business -- Growth Strategy."
DEPENDENCE ON CERTAIN CLIENTS
The Company's largest client, GTE Corporation and its affiliates ("GTE"),
accounted for approximately 7.9% and 4.7% of the Company's total revenues in
1995 and the three months ended March 31, 1996, respectively. Although each
division and affiliate of GTE makes its own decisions concerning outside
vendors, the Company believes that the executive management of GTE has the
ability to prohibit dealings with particular vendors. The loss of all or a
significant part of the GTE business could have a material adverse effect on the
Company's business. The Company's ten largest clients accounted for
approximately 17.8% of the Company's total revenues during 1995, and for
approximately 19.0% of the Company's total revenues during the three months
ended March 31, 1996. The loss of or material reduction of revenues from any
significant client could have a material adverse effect on the Company. The
Company provides services on an assignment-by-assignment basis and a client can
terminate an assignment at any time. Accordingly, there can be no assurance that
existing clients will continue to use the Company's services at historical
levels, if at all.
COMPETITION
The Company faces significant competition in the markets it serves and
there are limited barriers to entry by new competitors. The Company competes for
potential clients with providers of outsourcing services, systems integrators,
computer systems consultants, other providers of staffing services, temporary
personnel agencies, and search firms. National clerical firms and accounting
firms have begun to penetrate the Company's target markets. A number of the
Company's competitors possess substantially greater resources than the Company.
From time to time the Company has experienced significant pressure from its
clients to reduce its price levels. The Company also faces the risk that certain
of its current and prospective clients will decide to provide similar services
internally. Additionally, the Company faces significant competition for
candidates in many professional and technical specialties. There can be no
assurance that the Company will be able to continue to compete effectively with
existing or potential competitors. See "Business -- Competition."
RELIANCE ON KEY EXECUTIVES AND QUALIFIED OPERATING EMPLOYEES
The Company is highly dependent on its management. The Company expects that
its continued success will largely depend upon the efforts and abilities of
David L. Dunkel, the Company's President and Chief Executive Officer and certain
other executives. The loss of services of Mr. Dunkel or any other key executive
for any reason could have a material adverse effect upon the Company. The
Company maintains key man life insurance with respect to Mr. Dunkel. See
"Management." The Company's success also depends upon its ability to identify,
develop, and retain qualified operating employees, particularly management and
client servicing employees. The Company expends significant resources in
recruiting and training its employees, and the pool of available applicants for
these positions is limited. There can be no assurance that the Company will
continue to be able to identify, develop, and retain qualified operating
management and client servicing employees. In addition, the loss of some of the
Company's operating management and client servicing employees could have an
adverse effect on the Company's operations, including the Company's ability to
establish and maintain client relationships.
EMPLOYMENT LIABILITY RISK
Providers of staffing services employ and place people in the workplaces of
other businesses. An inherent risk of such activity includes possible claims of
errors and omissions, misuse of client proprietary information, misappropriation
of funds, discrimination and harassment, employment of illegal aliens, theft of
client
7
<PAGE> 10
property, other criminal activity or torts, and other claims. It is difficult to
define with precision the possible circumstances that may lead to claims against
the Company relating to the actions of its personnel. Perceived damages to the
Company's clients could arise from a variety of alleged mistakes or failures to
act by personnel placed by the Company (e.g., the alleged negligent action or
inaction of a computer technician could be perceived to cause disruption to a
client's management information systems or the alleged mistake of an accountant
could be perceived to result in a client's financial statements being
inaccurate). In some instances, the Company, pursuant to written contracts with
certain clients, is required to indemnify such clients against some or all of
the foregoing matters. A failure of any Company employee or personnel to observe
the Company's policies and guidelines intended to reduce exposure to these
risks, relevant client policies and guidelines, or applicable federal, state, or
local laws, rules and regulations, or other circumstances that cannot be
predicted, could result in negative publicity, injunctive relief, and the
payment by the Company of monetary damages or fines, or have other material
adverse effects upon the Company. Moreover, the Company could be held
responsible for the actions at a workplace of persons not under the direct
control of the Company. There can be no assurance that the Company will not
experience such problems in the future.
Moreover, the Company is also exposed to potential claims with respect to
the placement process. Because of legal constraints and considerations, the
Company has found it increasingly difficult to perform background
investigations. To reduce its exposure, the Company maintains insurance and
fidelity bonds covering general liability, workers' compensation claims, errors
and omissions, and employee theft. There can be no assurance that such insurance
coverage will continue to be available economically in amounts adequate to cover
any such liability. See "Business -- Legal Proceedings" and
"Business -- Insurance."
POSSIBLE VOLATILITY OF STOCK PRICE
The Common Stock has experienced a significant increase in its market price
since the Company's initial public offering in August 1995. The market price of
the Common Stock could be subject to significant fluctuations in response to
operating results of the Company, changes in general conditions in the economy,
the financial markets, the employment services industry, or other developments
affecting the Company, its clients, or its competitors, some of which may be
unrelated to the Company's performance. See "Price Range of Common Stock."
RELIANCE ON INFORMATION PROCESSING SYSTEMS
The Company's business depends upon its ability to store, retrieve,
process, and manage significant databases, and periodically to expand and
upgrade its information processing capabilities. The Company's computer
equipment and software systems are maintained at its Tampa, Florida
headquarters. Interruption or loss of the Company's information processing
capabilities through loss of stored data, breakdown or malfunction of computer
equipment and software systems, telecommunications failure, conversion
difficulties, or damage to the Company's headquarters and systems caused by
fire, hurricane, lightning, electrical power outage, or other disruption could
have a material adverse effect on the Company. The Company recently has
experienced problems with computer hardware supplied by a vendor. See
"Business -- Professional Recruiters Operating System" and
"Business -- Litigation."
INCREASED COSTS FROM GOVERNMENT REGULATION
The Company is required to pay a number of federal, state, and local
payroll and related costs, including unemployment taxes, workers' compensation
and insurance, FICA, and Medicare, among others, for its employees and
personnel. Significant increases in the effective rates of any payroll related
costs likely would have a material adverse effect upon the Company. The
Company's costs could also increase as a result of health care reforms or the
possible imposition of additional requirements and restrictions related to the
placement of personnel. Recent federal and state legislative proposals have
included provisions extending health insurance benefits to personnel who
currently do not receive such benefits. There can be no assurance that the
Company will be able to increase the fees charged to its clients in a timely
manner and in a sufficient amount to cover increased costs, if any such
proposals are adopted. There is also no assurance that the Company will be able
to adapt to future regulatory changes made by the Internal Revenue Service, the
8
<PAGE> 11
Department of Labor, or other state and federal regulatory agencies. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
MANAGEMENT DISCRETION CONCERNING USE OF PROCEEDS
The Company intends to use the net proceeds of the Offering for general
corporate purposes including expansion of the Company's operations, purchase of
capital equipment, and possible acquisitions. Accordingly, management will have
substantial discretion in spending the proceeds to be received by the Company.
Pending such uses, the net proceeds will be invested in short-term, investment
grade securities, certificates of deposit, or direct guaranteed obligations of
the United States government. See "Use of Proceeds."
ANTI-TAKEOVER PROVISIONS
The Company's articles of incorporation and bylaws and Florida law contain
provisions that may have the effect of inhibiting a non-negotiated merger or
other business combination. In particular, the Company's articles of
incorporation provide for a staggered board of directors and permit the removal
of directors only for cause. Additionally, management may issue up to 15,000,000
shares of preferred stock, and fix the rights and preferences thereof, without a
further vote of the shareholders. In addition, the Company's officers have
employment agreements with the Company containing certain provisions that call
for substantial payments to be made to such officers upon any change in control
of the Company. Certain of these provisions may discourage a future acquisition
of the Company, including an acquisition in which shareholders might otherwise
receive a premium for their shares. As a result, shareholders who might desire
to participate in such a transaction may not have the opportunity to do so.
Moreover, the existence of these provisions may have a depressive effect on the
market price of the Common Stock. See "Management -- Employment Agreements,"
"Description of Capital Stock -- Certain Provisions of the Company's Articles of
Incorporation" and "Description of Capital Stock -- Certain Provisions of
Florida Law."
SHARES ELIGIBLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that future sales of
Common Stock or the availability of additional Common Stock for sale in the
public market as a result of this offering will have on the market price of the
Common Stock prevailing from time to time. Sales of substantial amounts of
Common Stock (including shares issued upon the exercise of options) in the
public market following the Offering, or the perception that such sales could
occur, could adversely affect prevailing market prices of the Common Stock. Upon
completion of the Offering, the Company will have 11,291,782 shares of Common
Stock outstanding. Of this amount, 6,424,624 shares (6,826,624 shares if the
Underwriters' over-allotment is exercised in full) will be freely tradeable
without restriction. The remaining 4,867,158 shares will be "Restricted
Securities" and may only be sold pursuant to a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), or an applicable
exemption from the registration requirements of the Securities Act, including
the exemption provided by Rule 144. These shares are subject to registration
rights agreements requiring the Company to register such shares under certain
circumstances and otherwise will be eligible for sale pursuant to Rule 144 on
September 1, 1996. See "Principal and Selling Shareholders," "Description of
Capital Stock -- Registration Rights," "Shares Eligible for Future Sale," and
"Underwriting."
9
<PAGE> 12
THE COMPANY
Romac International, Inc. was formed in August 1994 as a result of the 1994
Combination. The 1994 Combination was initiated by the largest franchisee, whose
management assumed control of the combined Company and the ROMAC(R) name. This
management group implemented the integration of the predecessor companies and
realized significant operating efficiencies. Management believes that the
integration enhanced the Company's ability to achieve uniform quality,
servicing, and pricing standards in providing its specialized services and
provides a strong base from which to expand.
Since the Company's initial public offering in August 1995, the Company has
consummated the Acquisitions. The Acquisitions have enhanced the Company's
Contract Services capabilities, increased the Company's geographic presence, and
introduced outplacement services and human resource contract and outsourcing to
the Company's existing product offerings. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
The Company's principal office is located at 120 West Hyde Park Place,
Suite 200, Tampa, Florida 33606, and its telephone number is (813) 258-8855.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,610,000 shares of
Common Stock offered by the Company hereby at an assumed public offering price
of $23.625 per share (after deducting underwriting discounts and commissions and
estimated offering expenses) are estimated to be approximately $35.4 million
(approximately $44.4 million if the Underwriters' over-allotment option is
exercised in full).
The Company intends to use its net proceeds from the Offering for expansion
of the Company's lines of service in existing Company-owned locations, for the
opening of new Company-owned locations, for possible acquisitions, and for
general corporate purposes. Pending such uses, the net proceeds will be invested
in short term, investment grade securities, certificates of deposit, or direct
or guaranteed obligations of the United States government. The Company is
currently in discussions with one of its franchisees for the purchase of certain
of such franchisee's assets. There can be no assurance that this possible
acquisition will be consummated. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
The Company will not receive any proceeds from the sale of the shares
offered by the Selling Shareholders. See "Principal and Selling Shareholders."
DIVIDEND POLICY
The Company does not intend for the foreseeable future to declare or pay
any cash dividends and intends to retain earnings, if any, for the future
operation and expansion of the Company's business.
10
<PAGE> 13
PRICE RANGE OF COMMON STOCK
The following table sets forth, for the periods indicated, the range of
high and low closing sale prices for the Common Stock, as reported on the Nasdaq
National Market since trading began on August 15, 1995, under the symbol ROMC.
The table has been adjusted to reflect a two-for-one stock split in the form of
a 100% stock dividend to shareholders of record on May 15, 1996, which will be
reflected on the Nasdaq National Market on May 23, 1996.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Third Quarter 1995 (from August 15, 1995)*................................. $ 8.875 $ 7.125
Fourth Quarter 1995........................................................ 11.750 8.188
First Quarter 1996......................................................... 16.125 11.500
Second Quarter 1996 (through May 14, 1996)................................. 23.625 15.000
</TABLE>
- ---------------
* The Company's initial public offering occurred on August 14, 1995 at a price
of $6.25 per share.
On April 30, 1996, the Common Stock was held by approximately 1,660 holders
of record. For a recent closing sale price for the Common Stock on the Nasdaq
National Market, see the cover page of this Prospectus.
CAPITALIZATION
The table below sets forth the capitalization of the Company at March 31,
1996, and as adjusted at that date to give effect to the sale of the 1,610,000
shares of Common Stock offered by the Company hereby (at an assumed public
offering price of $23.625 per share) and the application of the estimated net
proceeds therefrom. This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and Notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................................ $ 589 $36,033
======= =======
Current portion of long-term debt........................................ $ 257 $ 257
======= =======
Long-term debt........................................................... $ 425 $ 425
------- -------
Shareholders' equity:
Preferred Stock, $.01 par value; 15,000,000 shares authorized; no
shares issued....................................................... $ -- $ --
Common Stock, $.01 par value; 15,000,000 shares authorized; 9,983,156
shares issued; 11,593,156 shares issued, as adjusted(1)............. 100 116
Additional paid-in capital............................................. 13,301 48,729
Retained earnings...................................................... 5,620 5,620
Stock subscription receivables......................................... (18) (18)
Reacquired stock at cost: 338,374 shares............................... (925) (925)
------- -------
Total shareholders' equity..................................... 18,078 53,522
------- -------
Total capitalization........................................... $18,503 $53,947
======= =======
</TABLE>
- ---------------
(1) Does not include 1,230,970 shares of Common Stock subject to outstanding
options under the Company's stock option plans. See
"Management -- Incentive Stock Option Plan" and "Management -- Director
Compensation."
11
<PAGE> 14
SELECTED CONSOLIDATED FINANCIAL DATA
The following table contains certain selected consolidated financial data
should be read in conjunction with the Consolidated Financial Statements and
notes thereto included elsewhere in this Prospectus. The balance sheet data as
of December 31, 1993, 1994 and 1995 and the operating statement data for each of
the years ended December 31, 1992, 1993, 1994 and 1995, are derived from the
audited Consolidated Financial Statements of the Company. The balance sheet data
as of December 31, 1991 and 1992 and March 31, 1995 and 1996 and the operating
statement data for of the year ended December 31, 1991 and for the three months
ended March 31, 1995 and 1996, have been derived from the unaudited Consolidated
Financial Statements of the Company, which have been prepared on the same basis
as the audited Consolidated Financial Statements, and, in the opinion of
management, include all adjustments that are necessary for a fair statement of
the results for such periods.
During the first quarter of 1996, the Company completed the Acquisitions.
The pro forma statement of operations data gives effect to the Acquisitions as
if they had occurred on January 1, 1995. The following information should be
read in conjunction with the Consolidated Financial Statements and notes thereto
included elsewhere herein, and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," appearing elsewhere in this
Prospectus. This information has been adjusted to reflect a two-for-one stock
split in the form of a 100% stock dividend to shareholders of record on May 15,
1996, which will be reflected on the Nasdaq National Market on May 23, 1996.
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA THREE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
YEARS ENDED DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
----------------------------------------------- ------------ ---------------- ------------
1991 1992 1993 1994 1995 1995(1) 1995 1996 1996(1)
------- ------- ------- ------- ------- ------------ ------ ------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND CERTAIN OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net service revenues...... $24,155 $31,250 $40,346 $40,789 $45,655 $ 58,485 $9,562 $16,889 $ 18,387
Direct cost of services... 13,536 19,832 26,126 24,851 25,460 32,107 5,359 9,719 10,607
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit........ 10,619 11,418 14,220 15,938 20,195 26,378 4,203 7,170 7,780
Selling, general and
administrative
expenses................ 10,702 9,690 12,775 15,009 15,232 19,886 3,362 5,372 5,847
Depreciation and
amortization expense.... 439 302 298 248 512 1,025 89 236 282
Combination expenses...... -- -- -- 2,251 -- -- -- -- --
Other (income) expense,
net(2).................. 237 335 34 (1,157) (570) (368) (460) (147) (149)
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before taxes
and minority interest... (759) 1,091 1,113 (413) 5,021 5,835 1,212 1,709 1,800
Provision (benefit) for
taxes................... (236) 330 448 186 2,008 2,334 485 684 708
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
minority interest....... (523) 761 665 (599) 3,013 3,501 727 1,025 1,092
Minority interest in
subsidiary income....... (65) 47 15 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)(2)...... $ (458) $ 714 $ 650 $ (599) $ 3,013 $ 3,501 $ 727 $ 1,025 $ 1,092
======= ======= ======= ======= ======= ======= ======= ======= =======
Net income (loss) per
share(3)................ $ (0.07) $ 0.11 $ 0.10 $ (0.09) $ 0.36 $ 0.41 $ 0.09 $ 0.10 $ 0.11
======= ======= ======= ======= ======= ======= ======= ======= =======
Weighted average shares
outstanding............. 6,522 6,588 6,619 7,039 8,488 8,488 7,763 10,338 10,338
OTHER DATA:
Number of locations
operated at period end:
Company-owned........... 9 8 7 6 9 10 8 11 11
Franchised/licensed..... 26 23 19 15 7 7 9 6 6
</TABLE>
(continued on next page)
12
<PAGE> 15
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------------------- ----------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $1,487 $2,074 $2,579 $2,093 $13,895 $2,367 $ 9,026
Total assets.............................................. 4,986 5,908 6,135 6,984 20,952 8,614 23,168
Total long-term debt...................................... 563 314 92 24 500 1,195 425
Shareholders' equity...................................... 1,956 2,489 3,074 2,435 16,924 3,181 18,078
</TABLE>
- ---------------
(1) The unaudited pro forma consolidated financial information has been prepared
to reflect the Company's operations as if the Acquisitions had occurred on
January 1, 1995, as further described elsewhere herein. See "Unaudited Pro
Forma Consolidated Financial Information."
(2) Net income (loss) for the years ended December 31, 1994 and 1995, the pro
forma year ended December 31, 1995, the three months ended March 31, 1995
and 1996, and the pro forma three months ended March 31, 1996, includes
franchise termination income (net of tax) of $336,000, $261,000, $261,000,
$261,000, $64,000, and $64,000, respectively.
(3) Net income (loss) per share for the years ended December 31, 1994 and 1995,
the pro forma year ended December 31, 1995, the three months ended March 31,
1995 and 1996, and the pro forma three months ended March 31, 1996, includes
franchise termination income per share of $0.05, $0.03, $0.03, $0.03, $0.01,
and $0.01, respectively.
13
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in connection with the Company's
Consolidated Financial Statements and the related notes thereto incorporated by
reference herein.
OVERVIEW
The Company is a specialty staffing services firm providing temporary,
contract, and permanent placement of professional and technical personnel. The
Company currently operates in twelve metropolitan markets through Company-owned
locations and five additional metropolitan markets through franchised and
licensed locations. The Company offers its services through its three divisions,
the Professional Temporary Division, the Contract Services Division and the
Search Division.
Strategy
The Company's objective is to be the nationally recognized leader in
providing specialty staffing services. The Company strives to differentiate
itself from others in the staffing industry through innovative service
offerings, a consultative and results-oriented approach to client relationships,
and high-quality personnel placements. In pursuing its objective, the Company
focuses exclusively on providing professional and technical personnel, rather
than clerical or light industrial personnel, because of the generally higher
profitability and the opportunity for growth of this market segment. The Company
believes it has a recruiting advantage over those of its competitors that lack
the ability to offer candidates temporary, contract, and permanent
opportunities. Candidates seeking permanent employment frequently accept
temporary or contract assignments through the Company until a permanent position
becomes available. The Company also believes the ROMAC(R) name recognition,
coupled with its industry expertise and innovative use of technology, provide it
with competitive benefits.
Since the Company's initial public offering in August 1995, the Company has
introduced Contract Services in its Philadelphia and Chicago locations,
introduced Search services in its Houston location, and expanded into the
Pittsburgh market through a new Company-owned location. The Company has also
consummated the Acquisitions. These strategic acquisitions have enhanced the
Company's Contract Services capabilities, increased the Company's geographic
presence, and added human resource contract and outsourcing, and outplacement
services, to the Company's existing product offerings.
Revenue Recognition
Net service revenues consist of sales from Company-owned and licensed
offices, and royalties received from franchised operations, net of credits and
discounts. The Company recognizes revenue from the Professional Temporary and
Contract Services Divisions based on hours worked by assigned personnel on a
weekly basis. Search Division revenues are recognized in contingency search
engagements upon the successful completion of the assignment. In retained search
engagements the initial retainer is recognized upon execution of the agreement,
with the balance recognized on completion of the search. Franchise fees are
determined based upon a contractual percentage of the revenue billed by
franchises. Costs relating to the support of franchised operations are included
in the Company's selling, general and administrative expenses. Under its
licensing arrangements, the Company is the legal employer of temporary and
contract personnel and accordingly includes revenues and related direct costs of
licensed offices in its net service revenues and direct cost of services,
respectively. Commissions paid to licensees are based upon a percentage of the
gross profit generated, and is included in the Company's direct cost of
services.
Gross Profit
Gross profit for the Professional Temporary and Contract Services Divisions
is determined by deducting the direct cost of services (temporary and contract
personnel payroll wages, payroll taxes, payroll-related insurances, and licensee
commissions) from the division's net service revenues. Consistent with industry
practices, the Search Division classifies all costs as selling, general, and
administrative.
14
<PAGE> 17
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net service revenues,
certain items in the Company's consolidated statements of income for the
indicated periods:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER ENDED MARCH
31, 31,
----------------------- --------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Professional Temporary................................. 60.3% 60.0% 52.5% 55.5% 42.4%
Contract Services...................................... 22.6 20.1 26.0 19.8 37.5
Search................................................. 17.1 19.9 21.5 24.7 20.1
----- ----- ----- ----- -----
Net service revenues.............................. 100.0 100.0 100.0 100.0 100.0
Gross profit........................................... 35.2 39.1 44.2 44.0 42.5
Selling, general, and administrative expenses.......... 31.7 36.8 33.4 35.2 31.8
Income (loss) before taxes and minority interest....... 2.8 (1.0) 11.0 12.7 10.1
Net income (loss)...................................... 1.6% (1.5)% 6.6% 7.6% 6.1%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1995
Net Service Revenues. Net service revenues increased 76.0% to $16.9
million in the first three months of 1996 from $9.6 million in the first three
months of 1995, primarily as a result of a $5.7 million increase in revenue from
existing Company-owned locations and a $1.6 million increase in revenues from
acquired operations.
Professional Temporary Division revenues increased 35.8% to $7.2 million in
the first three months of 1996 from $5.3 million in the first three months of
1995. The increase resulted from an increase in the number of hours billed by
Company-owned operations during the three month period ended March 31, 1996
compared to the same period in 1995. Contract Services Division revenues
increased 231.6% to $6.3 million in the first three months of 1996 from $1.9
million in the first three months of 1995. This increase was a result of a $3.1
million increase in revenues from existing Company-owned operations and a $1.3
million increase in revenues from acquired operations. The increase attributable
to Company-owned operations resulted from an increase in the number of hours
billed during the three months ended March 31, 1996 as compared to the same
period in 1995. Search Division revenues increased 41.7% to $3.4 million in the
first three months of 1996 from $2.4 million in the first three months of 1995,
as a result of a $712,000 increase in revenues from existing Company-owned
operations and a $288,000 increase in revenues from acquired operations. The
increase in Company-owned operations resulted primarily from an increase in the
number of Search Division sales consultants, which increased the number of
placements made by the Search Division during the first three months of 1996 as
compared to the first three months of 1995. Franchise and license revenues,
which are included in the aforementioned division revenues, decreased 6.7% to
$836,000 in the first three months of 1996 from approximately $896,000 in the
first three months of 1995. The decrease was primarily due to the effects of
discontinued franchisee and licensee operations. The average hourly bill rate
for the Professional Temporary and Contract Services Divisions and the average
placement fee for the Search Division remained relatively constant for the
periods involved. The Company opened a new Company-owned location in Pittsburgh
during the three month period ended March 31, 1996.
Gross Profit. Gross profit increased 71.4% to $7.2 million in the first
three months of 1996 from $4.2 million in the first three months of 1995. Gross
profit as a percentage of net service revenues ("gross margin") decreased to
42.5% for the first three months of 1996 from 44.0% for the first three months
of 1995. This decrease was a result of the continuing changes in the Company's
business mix whereby revenues from the Professional Temporary and Contract
Services Divisions, traditionally with lower gross margins than Search Division
revenues, increased to 79.9% of the Company's net service revenues during the
three months ended March 31, 1996 as compared to 75.3% for the same period in
1995.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses increased 58.8% to $5.4 million in the first three
months of 1996 from $3.4 million in the first three months of 1995.
15
<PAGE> 18
Selling, general and administrative expenses as a percentage of net service
revenues decreased to 31.8% for the first three months of 1996 from 35.2% in the
first three months of 1995. This decrease in selling, general, and
administrative expenses as a percentage of net service revenues resulted from
greater operating efficiencies and economies of scale gained from a larger
revenue base.
Other Income. Other income decreased to approximately $147,000 in the
first three months of 1996 from approximately $461,000 in the first three months
of 1995. The decrease was primarily due to a decrease in franchise termination
fees. Franchise termination income of approximately $107,000 was recorded in the
first three months of 1996 as compared to $435,000 during the same period in
1995. See "Business -- Markets and Organizational Structure."
Income Before Taxes. Income before taxes increased 41.7% to $1.7 million
in the first three months of 1996 from $1.2 million in the first three months of
1995, primarily as a result of the above factors.
Provision for Taxes. Provision for taxes in the first three months of 1996
was approximately $684,000 as compared to $485,000 in the first three months of
1995. The effective income tax rate was constant at approximately 40.0% for the
three months ended March 31, 1996 and 1995.
Net Income. Net income increased to $1.0 million in the first three months
of 1996 from $727,000 in the first three months of 1995, primarily as a result
of the above factors.
1995 COMPARED TO 1994
Net Service Revenues. Net service revenues increased approximately 12.0%
to $45.7 million in 1995 from $40.8 million in 1994. The overall increase in net
service revenues takes into account an approximately $3.9 million decrease in
net service revenues from franchisee and licensee operations for 1995 as
compared to 1994, as several franchisee and licensee operations were
discontinued at the end of 1994.
Professional Temporary Division revenues decreased approximately 2.0% to
$24.0 million in 1995 from $24.5 million in 1994. This decrease takes into
account an approximately $3.7 million decrease in professional temporary
revenues from franchisee and licensee operations for 1995 as compared to 1994,
as several professional temporary franchisee and licensee operations were
discontinued at the end of 1994. This decrease in revenues was attributable to a
decrease in the number of professional temporary hours billed in 1995 as
compared to 1994. Contract Services Division revenues increased approximately
45.1% to $11.9 million in 1995 from $8.2 million in 1994. This increase in
revenues was attributable to an increase in the number of Contract Service
Division hours billed in 1995 as compared to 1994. Search Division revenues
increased approximately 21.0% to $9.8 million in 1995 from $8.1 million in 1994.
This increase was primarily attributable to an increase in search sales
consultants and an improved economic environment which increased the number of
Search Division placements made in 1995 as compared to 1994. Franchise and
license revenues which are included in the aforementioned revenues, decreased
approximately 45.3% to $4.7 million in 1995 from $8.6 million in 1994. The
decrease was primarily attributable to the termination of four franchise and
license arrangements during the later part of 1994, offset in part by the growth
in existing service lines of continuing licensed operations.
After taking into account the decreases in net service revenues
attributable to discontinued franchisee and licensee operations, the net service
revenues grew by approximately $4.9 million, reflecting a continued improvement
in demand for the Company's specialized staffing services. The average hourly
bill rate for the Professional Temporary and Contract Services Divisions and the
average placement fee for the Search Division remained relatively constant for
all the periods involved. The Company opened three new Company-owned locations
during 1995: Dallas in February; Philadelphia in March; and Houston in November.
Gross Profit. Gross profit increased approximately 27.0% to $20.2 million
in 1995 from $15.9 million in 1994. Gross margin increased to 44.2% in 1995 from
39.1% in 1994. The increase in gross margin resulted from the combined effects
of the decrease in franchisee and licensee revenue at lower margins and the
increase in Search Division revenue at higher margins.
16
<PAGE> 19
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses increased approximately 1.3% to $15.2 million in 1995
from $15.0 million in 1994. Selling, general and administrative expenses as a
percentage of net service revenues decreased to 33.3% in 1995 from 36.8% in
1994. This decrease in selling, general and administrative expenses as a
percentage of net service revenues resulted from greater operating efficiencies
and economies of scale gained from a larger revenue base, along with expense
savings arising from the 1994 Combination.
Combination Expenses. The Company did not incur any combination expenses
in 1995 as compared to approximately $2.3 million of advisory services,
severance costs and other expenses related to the 1994 Combination that were
incurred in 1994.
Other Income. Other income decreased to $570,000 in 1995 from
approximately $1.2 million in 1994. The decrease was primarily due to a decrease
in franchise termination fees. Franchise termination income of approximately
$435,000 was recorded in 1995 as compared to $560,000 in 1994. In addition, the
Company received $500,000 in proceeds from a life insurance policy on a deceased
Company employee in 1994.
Income (Loss) Before Taxes. Income before taxes increased to $5.0 million
in 1995 from a loss of $413,000 in 1994, primarily as a result of the above
factors.
Provision for Taxes. Provision for taxes for 1995 was approximately $2.0
million or 40.0% of income before income taxes as compared to $186,000 for 1994.
Although the Company had an operating loss for financial reporting purposes in
1994, it had income tax expense of $186,000 primarily due to non-deductible
advisory fees related to the Combination.
Net Income (Loss). Net income increased to $3.0 million in 1995 from a
loss of $599,000 in 1994, primarily as a result of the above factors.
1994 COMPARED TO 1993
Net Service Revenues. Net service revenues increased 1.2% to $40.8 million
in 1994 from $40.3 million in 1993. In 1994, management focused its efforts on
effecting the 1994 Combination and restructuring the Company. These efforts
included the renegotiation of franchise and license agreements, the
implementation of uniform operating procedures and policies, training employees
of companies involved in the 1994 Combination, hiring additional employees and
the consolidation of the Company's operations.
Professional Temporary Division revenues increased 0.8% to $24.5 million in
1994 from $24.3 million in 1993. Contract Services Division revenues decreased
9.9% to $8.2 million in 1994 from $9.1 million in 1993. The decrease resulted
primarily from the reallocation of resources from one of the Company's lower
margin customers, which decreased the number of hours billed by the Contract
Services Division during 1994 as compared to 1993. Search Division revenues
increased 17.4% to $8.1 million in 1994 from $6.9 million in 1993. The increase
was primarily attributable to an increase in Search Division sales consultants,
an expansion of services offered, and an improved economic environment, which
increased the number of placements made by the Search Division during 1994 as
compared to 1993. Franchise and license revenues, which are included in the
aforementioned division revenues, increased 19.4% to $8.6 million in 1994 from
$7.2 million in 1993. The increase was primarily attributable to the growth in
existing service lines of licensee operations, offset by the termination of four
franchise and license arrangements. The average hourly bill rate for the
Professional Temporary and Contract Services Divisions and the average placement
fee for the Search Division remained relatively constant for the periods
involved. The Company did not open any Company-owned locations in new markets in
1994.
Gross Profit. Gross profit increased 12.0% to $15.9 million in 1994 from
$14.2 million in 1993. Gross margin increased to 39.1% in 1994 from 35.2% in
1993. The increase was attributable to the increased proportion of Search
Division revenues to total revenues as Search Division revenues generate higher
gross margins than Professional Temporary and Contract Services Divisions
revenues.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses increased 17.2% to $15.0 million in 1994 from $12.8
million in 1993. The increase in selling, general and administrative
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expenses was due primarily to the hiring of additional operating employees
necessary for parallel operations during the transition period after the
Combination, an increase in commissions associated with the increase in Search
Division revenues, and the payment of approximately $1.7 million in
non-recurring compensation expense.
Combination Expenses. In 1994, the Company recorded an expense of $2.3
million related to advisory services, severance costs and other expenses
associated with the Combination.
Other (Income) Expense. Other (income) expense increased to $1.2 million
of income in 1994 from $34,000 of expense in 1993. The increase was primarily
due to franchise termination fees. Franchise termination income of approximately
$560,000 was recorded in 1994. In addition, the Company received $500,000 in
proceeds from a life insurance policy on a deceased Company employee in 1994.
Income (Loss) Before Taxes. Income from operations decreased to a loss of
$413,000 in 1994 from income of $1.1 million in 1993, primarily as a result of
the above factors.
Provision for Taxes. Although the Company had an operating loss for
financial reporting purposes in 1994, it had income tax expense of approximately
$186,000 as compared to $448,000 in 1993. The primary reason for the income tax
expense in 1994, despite operating losses, was the non-deductibility of advisory
fees relating to the 1994 Combination.
Net Income (Loss). Net income (loss) decreased to a loss of $599,000 in
1994 from $650,000 of income in 1993, primarily as a result of the above
factors.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of cash have been the proceeds of its
initial public offering, internally generated funds, and borrowings.
The Company completed its initial public offering of 2,080,000 shares of
Common Stock on August 14, 1995. The proceeds of $11,402,146 (net of
underwriters' discounts and other offering costs) were used for paying down
debt, financing capital improvements, general working capital purposes, and
financing business acquisitions.
The purchase price for the Acquisitions was approximately $5.9 million in
the aggregate and is subject to adjustment based upon attainment of certain
operating results of the acquired companies. The respective purchase agreements
require certain payments based on the earnings before income taxes for the
acquired company that are in excess of certain earnings levels. Such additional
purchase price payments, if made, will be reflected as additional goodwill and
amortized over the remaining life of the asset. See "Unaudited Pro Forma
Consolidated Financial Information."
The Company's principal use of cash is to fund payroll expenses and
accounts receivable. Professional Temporary Division and Contract Services
Division personnel are paid weekly for their services, whereas customer payments
are generally received within 45 to 60 days from date of invoice. As new offices
are established or acquired, or as existing offices expand, there will be
increasing requirements for cash resources to fund operations. The start-up of
services by the Professional Temporary or Contract Services Division in a new or
existing Company-owned location has generally required expenditures of up to
$175,000 before generating positive cash flow. Historically, such new operations
have achieved operating profitability within nine months of inception but have
not contributed significant revenue for the first 12 to 18 months.
For the three months ended March 31, 1996, the Company had negative cash
flow from operations of approximately $1.2 million, primarily as the result of
an increase in the Company's accounts receivable. During March 1996, the Company
entered into a new unsecured line of credit agreement with NationsBank, N.A.
(South). This agreement provides for up to $5.0 million of working capital to
the Company for general corporate purposes. This agreement matures on March 13,
1997 and bears interest at 150 basis points above the London Interbank Offering
Rate (LIBOR). The total amount that may be outstanding under this agreement is
limited to specified percentages of accounts receivable. This agreement contains
restrictive covenants and requires the maintenance of certain financial ratios.
As of March 31, 1996, no borrowings were
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outstanding under this facility. Prior to entering into this new agreement, the
Company terminated its previous line of credit.
The Company intends to use the net proceeds from the Offering for expansion
of the Company's lines of service in existing Company-owned locations, for the
opening of new Company-owned locations, for possible acquisitions, and for
general corporate purpose. Pending such uses, the net proceeds will be invested
in short term, investment grade securities, certificates of deposit, or direct
or guaranteed obligations of the United States government.
The Company has entered into discussions regarding the possible purchase of
certain of the assets of one of its franchisees. In August 1995, the relevant
franchise agreement was amended (the "Amendment") to provide the Company with an
option to terminate the franchise arrangement upon 90 days notice, provided that
substantially all of the assets of the franchisee are purchased by the Company.
The purchase price established by the Amendment is determined by a formula, with
a minimum purchase price of $3.0 million. There can be no assurance that this
possible acquisition will be consummated. See "Use of Proceeds."
The Company believes that the net proceeds from the Offering, combined with
cash flows from operations and credit facilities, will be adequate to meet its
capital requirements for at least the remainder of 1996.
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BUSINESS
GENERAL
Romac International, Inc. is a specialty staffing services firm providing
temporary, contract, and permanent placement of professional and technical
personnel. The Company is organized into three divisions: the Professional
Temporary Division provides professional temporary personnel in the fields of
finance and accounting; the Contract Services Division provides information
systems, manufacturing services, human resources, health care, and
pharmaceutical personnel generally on a longer-term contractual basis; and the
Search Division provides permanent placement of specialized personnel in the
fields of accounting and finance, information systems, financial services,
pharmaceutical research, health care, human resources, insurance, manufacturing
services, and sales and marketing. The Company believes its range of services
provides clients with integrated solutions to their temporary, contract, and
permanent specialty staffing needs, allowing the Company to develop long-term,
consultative relationships with its clients. The Company also believes the
interaction among its three divisions generates increased placement
opportunities and enhances the Company's ability to attract and place higher
quality candidates. The Company principally serves Fortune 1000 companies in
twelve metropolitan markets through Company-owned locations and five additional
markets through franchisees and licensees.
The Company's objective is to be the nationally recognized leader in
providing specialty staffing services. The Company strives to differentiate
itself from others in the staffing industry through innovative service
offerings, a consultative and results-oriented approach to client relationships,
and high-quality personnel placements. In pursuing its objective, the Company
focuses exclusively on providing professional and technical personnel, rather
than clerical or light industrial personnel, because of the generally higher
profitability and the opportunity for growth of this market segment. The Company
believes it has a recruiting advantage over those of its competitors that lack
the ability to offer candidates temporary, contract, and permanent
opportunities. Candidates seeking permanent employment frequently accept
temporary or contract assignments through the Company until a permanent position
becomes available. The Company also believes the ROMAC(R) name recognition,
coupled with its industry expertise and innovative use of technology, provide it
with competitive benefits.
The Company's growth strategy is to increase revenue and profitability by
expanding its services in existing markets and introducing its full range of
services into new markets. In existing markets, the Company intends to further
develop existing clients and expand its client base by (i) introducing its full
range of services in all of its markets, (ii) taking advantage of the
cross-selling opportunities provided by the complementary services offered by
its three divisions, (iii) introducing new services, and (iv) acquiring
complementary businesses. The Company intends to enter new markets by opening
new Company-owned locations and making strategic acquisitions. In the last
twelve months, the Company has entered four new markets: two through start-ups,
one through franchise conversion to a Company-owned location, and one through
acquisition. In addition, the Company has developed a major accounts program,
which encourages large users of staffing services to "carve-out" the
professional and technical segments of staffing contracts and award such
business to the Company instead of large generalist staffing firms. As a result
of this program, the Company has signed several contracts with major national
corporations for certain of the Company's services. Management believes there is
substantial opportunity for growth through the continued implementation of this
strategy.
INDUSTRY OVERVIEW
The temporary employment service industry has experienced significant
growth in response to the changing work environment in the United States.
Fundamental changes in the employer-employee relationship continue to occur,
with employers developing increasingly stringent criteria for permanent
employees while moving toward project-oriented temporary and contract hiring.
This trend has been advanced by increasing automation that has resulted in
shorter technological cycles and by global competitive pressures. Many employers
have responded to these challenges by turning to temporary and contract
personnel to keep personnel costs variable, to achieve maximum flexibility, to
outsource highly specialized skills, and to avoid the negative effects of
layoffs.
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Rapidly changing regulations concerning employee benefits, health
insurance, and retirement plans and the highly competitive business climate have
also prompted many employers to take advantage of the flexibility offered
through temporary and contract staffing. Additionally, Internal Revenue Service
and Department of Labor regulations concerning the classification of employees
and independent contractors have significantly increased demand by prompting
many independent contractors to affiliate with employers like the Company.
The temporary staffing industry has grown rapidly in recent years as
companies have utilized temporary employees to manage personnel costs while
meeting specialized or fluctuating staffing requirements. According to a study
by the National Association of Temporary and Staffing Services ("NATSS"), the
United States temporary staffing industry grew from approximately $20.4 billion
in revenue in 1991 to approximately $39.2 billion in revenue in 1995, a compound
annual growth rate of 17.7%. One of the fastest growing sectors for the Company,
as well as the industry, is information technology services. According to the
Staffing Industry Report, 1995 revenue for this sector is estimated to have been
$8.9 billion, a 25.0% increase over 1994. The Company believes that professional
and technical staffing within the temporary staffing industry requires
longer-term, more highly-skilled personnel services and offers the opportunity
for higher profitability than the clerical and light industrial staffing
segments, because of the value-added nature of professional and technical
staffing personnel. NATSS has estimated that more than 90.0% of all U.S.
businesses utilize temporary staffing services.
BUSINESS STRATEGY
The Company's objective is to be a nationally recognized leader in
providing its specialty staffing services. The key elements of the Company's
business strategy in seeking to achieve this objective include:
Focus on Specialty Staffing. The Company focuses exclusively on providing
specialty staffing services to its clients. The Company believes that providing
these specialty services to its clients offers greater profitability than the
clerical and light industrial sectors of the temporary staffing industry. In
addition, the Company believes, based upon data published by the U.S. Bureau of
Labor Statistics and other sources, that employment growth will be greater in
the Company's sectors than in the traditional clerical and light industrial
sectors. The placement of highly skilled personnel requires a distinct
operational knowledge to effectively recruit and screen candidates, match them
to client needs, and develop and manage client relationships. The Company
believes its historical focus in this market and name recognition, combined with
management's operating expertise, provide it with a competitive advantage.
Build Long-Term, Consultative Relationships. The Company has developed
long-term relationships with its clients by providing integrated solutions to
their specialty staffing requirements. Romac strives to differentiate by working
closely with its clients to maximize their return on human assets. In addition,
the Company's ability to offer a broad range of temporary and contract personnel
services coupled with its permanent placement capability, offers the client a
single-source provider of specialty staffing services. This ability enables the
Company to emphasize consultative rather than transactional client
relationships.
Segment Specialty Needs. The Company has begun implementation of its
"carve-out" marketing strategy, which encourages large contractors of staffing
services to "carve-out" the professional and technical sectors of staffing
contracts and award such business to specialty staffing services providers
instead of large generalist staffing firms. As a result of this strategy the
Company has signed several contracts with major national corporations for
certain of the Company's services. Management believes there is substantial
opportunity for growth through the continued implementation of this strategy.
Achieve Extensive Client Penetration. The Company's client development
process focuses on repeated contacts with client personnel responsible for
staffing decisions. Contacts are made within numerous functional departments and
at many different organizational levels within the client. The Company's
operating employees are trained to develop a thorough understanding of each
client's total staffing requirements. In addition, although the Company is
organized divisionally its employees are trained and incentivized to recognize
cross-selling opportunities for all of the Company's other divisions.
Apply Innovative Technology. The Company utilizes proprietary technologies
and processes in the staffing, marketing, and management of its operations. The
Company's Professional Recruiters Operating
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System ("PROS") provides operating employees with a systematic approach to
identifying, monitoring, and serving the needs of the Company's clients. Once
operating employees obtain information regarding a client's environment, the
data is entered into the Company's integrated operating system and is coded for
future follow-up. Operating employees are then prompted by means of an automated
planner to contact the client periodically to monitor and service the needs that
have been identified. The Company's emphasis on the utilization of technology
has resulted in the delivery of higher quality service, greater operating
efficiency, and increased employee productivity. See "Business -- Professional
Recruiters Operating System."
Recruit High-Quality Professionals. The Company places great emphasis on
recruiting qualified temporary, contract, and permanent placement candidates.
The Company believes it has a recruiting advantage over those of its competitors
that lack the ability to offer candidates both temporary, contract and permanent
opportunities. Candidates seeking permanent employment frequently accept
temporary or contract assignments through the Company until a permanent position
becomes available. Each candidate is screened by an operating employee with a
compatible technical background to determine qualifications and match them with
client needs.
Encourage Operating Employee Achievement. The Company's management
promotes a quality-focused, results-oriented culture. Operating employees are
selected based on their willingness to assume responsibility and promote the
Company's philosophy. All marketing, staffing, and management employees are
given numerous incentives to encourage the achievement of corporate goals. The
Company fosters a team-oriented and high energy environment, celebrates the
successes of its employees, and attempts to create a "spirited" work
environment.
GROWTH STRATEGY
The Company's growth strategy is to expand its services in existing markets
where it does not offer its full range of services, and to enter new markets.
The key elements of the Company's growth strategy are as follows:
Introduce Full Services in Markets with Existing Company-Owned
Locations. The Company currently offers its full range of services in seven of
its twelve Company-owned locations. The Company has been implementing a plan to
introduce the Contract Services Division's services into each of the remaining
Company-owned locations. As part of its expansion strategy, the Company recently
introduced Contract Services into the following Company-owned locations: Dallas
(March 1995), Boston (June 1995), Chicago (October 1995), and Philadelphia
(March 1996). The Company introduced Search Division services into Houston in
February 1996. See "Business -- Markets and Organizational Structure."
Open Company-Owned Locations. The Company continually evaluates potential
geographic expansion into new metropolitan areas. To facilitate new market
entry, the Company plans to transfer or recruit experienced personnel for
positions in new Company-owned locations as they are opened. The Company has
opened offices in Dallas (February 1995), Philadelphia (March 1995), Houston
(November 1995), Pittsburgh (February 1996), and Minneapolis (April 1996).
Leverage Existing Client Relationships and Develop New Clients. The
Company continually identifies additional growth opportunities within existing
and new clients as a result of the interrelationships among its three divisions.
The Company has established goals for cross-selling and has trained and
incentivized its operating employees to actively sell the Company's full range
of services, in an effort to maximize its reach into the marketplace.
Introduce New Services. The Company continually evaluates the introduction
of new services in an effort to meet client demands. The Company has recently
introduced contract placement of pharmaceutical, health care, and manufacturing
services personnel to complement its existing search capabilities in these
areas. Additionally, the Company recently acquired an entity that provides
outplacement services and human resource contract and outsourcing services. To
enhance the technical capabilities and perceived quality of the Contract
Services Division, the Company has formed an emerging technologies group in
which selected employees receive extensive training in information technologies
and are assigned to client environments for periods ranging from six months to
two years.
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Develop Major Accounts Program. The Company will continue to market its
full range of services to existing and new clients in order to position the
Company as the preferred vendor for specialty staffing services. The Company
believes the major accounts program enables it to further penetrate its clients
by giving the Company greater access to key staffing decision makers including
the support of the client's purchasing and procurement team. This increased
access allows the Company to achieve greater operating leverage through improved
efficiencies in the marketing process. The Company has successfully secured
several national agreements for technical and professional specialty staffing
services. The Company intends to aggressively pursue such agreements to
facilitate geographic expansion and existing market penetration.
Acquire Strategic Businesses. The Company will continue to pursue the
acquisition of complementary specialty staffing businesses. The Company's
preference is to acquire businesses in markets in which the Company currently
has a Company-owned location or formerly maintained a franchised or licensed
location, although other markets will also be explored. The Company has as its
primary acquisition candidates local or regional specialty staffing firms with
established client relationships, in markets targeted by the Company.
THE PROFESSIONAL TEMPORARY DIVISION
The Professional Temporary Division provides professional temporary
personnel in the fields of finance and accounting. For the year ended December
31, 1995, and the three months ended March 31, 1996, this division accounted for
approximately 52.5% and 42.4%, respectively, of the Company's net service
revenues. The Company currently offers professional temporary services in eleven
metropolitan markets through Company-owned locations and five other metropolitan
markets through franchised and licensed locations. In the first three months of
1996, the average bill rate for the Professional Temporary Division was
approximately $18 per hour.
The Professional Temporary Division offers its clients a reliable and
cost-effective means of handling uneven or peak workloads caused by events such
as periodic financial reporting deadlines, tax deadlines, special projects,
systems conversions, and unplanned staffing fluctuations. The Professional
Temporary Division meets such clients' needs with personnel who have an
extensive range of accounting and financial experience, including corporate
taxation, budget preparation and analysis, financial reporting, regulatory
filings, payroll preparation, cost analysis, and audit services. Through the use
of the Company's services, clients are able to avoid the cost and inconvenience
of hiring and terminating permanent employees. Typically, the duration of
assignments in the Professional Temporary Division is six to eight weeks.
Candidates for the Professional Temporary Division are obtained from the
Search Division, referrals, and advertising in local newspapers and on the
Company's home page on the World Wide Web. The Company believes it has a
competitive advantage in attracting candidates because of the interaction
between its Professional Temporary and Search Divisions. Access by the
Professional Temporary Division to the Search Division's candidate pool provides
a candidate the opportunity to obtain permanent employment as a result of a
temporary assignment, earnings that may allow a candidate to be more selective
when evaluating permanent opportunities, and additional experience that can
enhance a candidate's skills and overall marketability. Each candidate is
screened by an operating employee with a compatible background to determine his
qualifications and to match these qualifications with individual client needs.
This screening includes an in-depth interview, skill testing, reference checks,
and, in some cases, credit checks and additional background checks.
The Professional Temporary Division targets Fortune 1000 companies and
other large organizations, with a primary focus on organizations determined to
have the potential need for the Company's full range of services. In order to
maximize its marketing effectiveness, the Company provides extensive training to
its employees which emphasizes the consulting nature of its business. The
Company's employees develop marketing plans composed of multiple visits,
frequent telemarketing activity, monthly mailings, and other actions supported
through the use of the PROS and daily staff meetings. The Company believes that
these techniques and processes provide the opportunity to expand its business
within its clients' organizations, solidify client relationships, and develop
new clients. The Company recognizes that in some cases Professional Temporary
Division personnel will be offered permanent positions. If a client requests
that a temporary employee become a permanent employee, the Company typically
charges a "conversion" fee that is calculated as a percentage of the candidate's
initial annual compensation.
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THE CONTRACT SERVICES DIVISION
The Contract Services Division provides information systems, manufacturing
services, human resources, health care, and pharmaceutical personnel on a
contractual basis, which typically averages six to nine months in duration. For
the year ended December 31, 1995 and the three months ended March 31, 1996, this
division accounted for approximately 26.0% and 37.5%, respectively, of the
Company's net service revenues. In the three months ended March 31, 1996, this
division had an average bill rate of approximately $49 per hour. The Company
currently provides Contract Services in eight metropolitan markets through
Company-owned locations and two additional metropolitan markets through a
franchised location. The Company plans to introduce Contract Services to three
additional Company-owned locations in 1996.
The Contract Services Division has traditionally focused on providing
information systems personnel to assist clients whose needs range from mainframe
environments to single work stations. These consultants perform a wide range of
services, including software development, database design and management, system
administration, end-user training and acceptance, network design and
integration, information strategy development, business and systems plans, and
standardization of technology and business procedures. The size and growth of
the information services industry in recent years have been driven largely by
rapid technological advances. These advances have included the availability of
increased computing power at lower costs and the emergence of new information
systems capabilities. As a result, the ability of companies to benefit from the
application of computer technology has been greatly enhanced and has been
accompanied by a dramatic increase in the number of end users. At the same time,
the sophistication and complexity of the systems needed to serve these companies
and to deliver the desired benefits have greatly increased. Additionally, the
need to contain costs has caused many businesses to reduce the number of
personnel resulting in increased dependence upon information systems to support
important functions and to improve productivity.
The Company's base of skilled technical personnel is integral to its
success. Because technical needs are diverse and technology advances occur
frequently, technical talent is in high demand. As a result, the Contract
Services Division focuses heavily on its recruiting efforts. In addition, the
Company focuses on training its contract services personnel in sophisticated
technology applications. For example, the Company has formed an emerging
technologies group in which selected personnel receive extensive training in
information technologies and are assigned to client environments for periods
ranging from six months to two years. The Company believes that building a base
of skilled technical personnel who are available for assignment is as integral
to its success as are its client relationships.
The March 1996 acquisition of Strategic Outsourcing, Inc. ("SOI"), expanded
the Company's Contract Services capabilities with the introduction of human
resource personnel contracting. SOI, which was formed in 1989 in Boston,
provides its clients human resource personnel on a contractual basis to assist
in the development, implementation, and maintenance of a wide variety of human
resource processes. The Company currently provides human resource contracting
only in the Boston market. The Company intends to introduce this new service
offering into its existing markets.
The Company recently expanded its Contract Services Division in the first
quarter of 1996 to include manufacturing services, health care, and
pharmaceutical personnel. In the field of manufacturing services personnel, the
Contract Services Division provides a wide range of quality engineers and
quality assurance personnel. The Contract Services Division provides all levels
of hospital administration and management with respect to health care. The
Contract Services Division also serves the pharmaceutical industry through
pharmaceutical research and regulatory personnel. Because the Company recently
began serving these fields, there can be no assurance that the Company's
performance in these new areas will be as successful as the Company's
performance has been in information systems.
Company recruiters develop and maintain an active personnel inventory
designed to meet the needs of the Company's clients. To recruit qualified
personnel, the Company uses targeted telephone recruiting, obtains referrals
from its existing personnel and clients, and places newspaper advertisements.
The Search Division's services complement the Contract Services Division's
recruiting efforts, and the Company believes that this combination distinguishes
it from its competitors. To foster loyalty and commitment from its existing
personnel, the Company maintains frequent contact and offers competitive wages,
flexible schedules, and exposure to a variety of working environments.
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The Contract Services Division concentrates on marketing its services to
Fortune 1000 companies and other businesses with information systems,
manufacturing services, human resources, health care, and pharmaceutical
personnel requirements. Sales personnel emphasize the Companys's ability to
provide contract personnel who can perform a wide range of services within each
of these areas through consultative contacts with client end-users, personal
visits, mailings, and telemarketing efforts.
THE SEARCH DIVISION
The Search Division provides clients with extensive search services for
professional and technical candidates. The professional skills offered by the
Search Division are in the areas of accounting and finance, information
services, financial services, pharmaceutical research, health care, human
resources, insurance, manufacturing services, and sales and marketing. For the
year ended December 31, 1995 and the three months ended March 31, 1996, this
division accounted for approximately 21.5% and 20.1%, respectively, of the
Company's net service revenues. The Company currently offers Search services in
eleven metropolitan markets in which it has Company-owned locations and in five
additional metropolitan markets through franchised or licensed locations.
The Company performs both contingency and retained searches. A contingency
search results in payment to the Company only when a candidate is actually hired
by a client. The Company's strategy is to perform contingency searches only for
skills the Company targets as its "core-business." Client searches that are
outside a core-business area typically are at a management or executive level
and require a targeted research and recruiting effort. The Company typically
performs these searches as retained searches where the client pays a part of the
search fee in advance and the remainder upon completion of the search. The
Company's fee is typically structured as a percentage of the placed candidate's
first-year annual compensation.
Summarized below are the professional disciplines in which the Company has
placed personnel:
ACCOUNTING AND FINANCE
- - Chief Financial Officers
- - Treasurers
- - Controllers
- - Public Accountants
- - Tax Accountants
- - Staff Accountants
- - Cost Accountants
- - Internal Audit Personnel
- - Accounting Managers
- - Financial Analysts
- - Budget Analysts
- - Credit and Collections Personnel
INFORMATION SYSTEMS
- - Chief Information Officers
- - Directors of Systems Development
- - Project Managers
- - Information Engineers
- - System Designers
- - Project Leaders
- - Programmer Analysts
- - Systems Analysts
- - Systems Programmers
- - Office Automation Analysts
- - Telecommunications Analysts
- - Hardware Technicians
- - Application Programmers
- - Software Quality Assurance Personnel
- - Data Administration Personnel
- - Database Support Personnel
- - Computer Operators
- - Software Maintenance Personnel
- - Change Management Personnel
- - Database Architecture Personnel
- - Data Security/Disaster Recovery Personnel
- - Data Communication Architecture
Personnel
- - Network Design and Administration Personnel
- - Data/Voice Communications Personnel
(local and wide-area networks)
- - Client Server Support Personnel
- - Operating System Support Personnel
- - Help Desk Support and Training Personnel
- - Production Control Personnel
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FINANCIAL SERVICES
- - Large Account Commercial Lenders
- - Portfolio/Relationship Managers
- - Credit Analysts
- - Middle Market Commercial Lenders
- - Real Estate Lenders
PHARMACEUTICAL RESEARCH
- - Clinical Research Personnel
- - Medical Research Personnel
- - Analytical Chemistry Personnel
- - Regulatory Affairs Personnel
- - Medical Communications Personnel
HEALTH CARE
- - Senior Hospital Management
- - Directors and Department Managers
- - Operations Management Personnel
- - Nursing Executives and Managers
- - Risk Management and Quality Assurance Personnel
INSURANCE
- - Field General Managers
- - District Managers
- - Sales Managers
MANUFACTURING SERVICES
- - Quality Engineers
- - Industrial Hygienists
- - Quality Managers and Directors
- - ISO9000 Personnel
- - Quality Assurance Personnel
- - Purchasing and Materials Management Personnel
SALES AND MARKETING
- - Sales Representatives
- - Sales Managers
- - Marketing Managers
- - Applications Managers
- - Business Development Managers
- - Market Coordinators
- - Product Managers
- - Marketing Representatives
HUMAN RESOURCES
- - Health Benefit Personnel
- - Retirement Benefit Personnel
- - Labor Relations Personnel
- - Director Level Personnel
- - Technical Managers
- - Staffing and Generalist Personnel
- - Outplacement Specialists
- - Workers' Compensation Specialists
- - Training and Development Personnel
The Search Division maintains an active database of placement candidates as
the result of its continuous recruiting efforts and reputation in the industry.
In addition, the Search Division consultants locate many potential candidates as
the result of referrals from the Professional Temporary and Contract Services
Divisions.
The Company believes that it has developed a reputation for quality search
work and that it is recognized as a leader in its search specialties. To
minimize the risk of changes in skill demand, the Company's marketing plan
incorporates a continual review of client recruitment plans for future periods
to allow for rapid changes to "in-demand" skills. The quality of the
relationship with client personnel is a key component of the strategy, and the
Company seeks to use consultative relationships to obtain insight into emerging
growth areas. The clients targeted by the Search Division are typically the same
as those targeted by the Professional Temporary and the Contract Services
Divisions. This common focus is intended to contribute to the Company's
objective of providing integrated solutions to its clients' personnel needs.
The Company's search business is highly specialized. Certain skills, such
as accounting and finance and information systems, may be served by local
offices, while other, more highly specialized areas require a
26
<PAGE> 29
regional or national focus. The Company believes that a trend toward greater
selectivity in its clients' hiring processes has contributed to an increased
demand for its search services. This emphasis on quality fits well with the
Company's inventory of personnel. The Company expects that the Search Division
will continue to add specialties in the majority of markets served.
MARKETS AND ORGANIZATIONAL STRUCTURE
The Company serves twelve markets through Company-owned locations and an
additional five markets through franchisees and licensees. Management of the
Company-owned operations is coordinated from its headquarters in Tampa. The
Company's headquarters provides its Company-owned offices with administrative,
marketing, accounting, training, legal, and information systems support,
particularly as it relates to the standardization of the operating processes of
its offices.
The Company operates through a network of Company-owned locations,
franchised locations, and licensed locations. The following table lists the
services offered by the Company on a market by market basis.
<TABLE>
<CAPTION>
SERVICES OFFERED
--------------------------------
PROFESSIONAL CONTRACT YEAR
TEMPORARY SERVICES SEARCH OPENED
------------ -------- ------ --------
<S> <C> <C> <C> <C>
Company-Owned
Atlanta, GA.............................................. X X X 1986
Boston, MA............................................... X X X 1966
Chicago, IL.............................................. X X X 1985
Dallas, TX............................................... X X X 1995
Houston, TX.............................................. X X 1995
Louisville, KY........................................... X X 1992
Miami/Ft. Lauderdale, FL................................. X X X 1982
Minneapolis, MN.......................................... X 1996
Orlando, FL.............................................. X X 1984
Philadelphia, PA......................................... X X X 1995
Pittsburgh, PA........................................... X X 1996
Tampa, FL................................................ X X X 1980
Franchisees/Licensees
New Orleans, LA.......................................... X X X 1987
Portland, ME............................................. X X X 1972
Raleigh, NC.............................................. X X 1986
St. Louis, MO............................................ X X 1990
San Francisco, CA........................................ X X 1989
</TABLE>
ROMAC(R) franchisees pay a royalty in return for use of the ROMAC(R) name
based upon a contractual percentage of the revenue billed by the franchisee.
Licensees enter into a joint marketing and payroll processing arrangement with
the Company. In the case of licensees, the Company collects all accounts on
behalf of the licensee and pays the licensee a percentage of gross profits
generated. The Company does not intend to grant additional franchises or
licenses in the future.
In August 1994, all franchisees and licensees were offered the opportunity
to continue operating under current agreements or to terminate their
relationships with the Company on terms that included the ability to continue in
business in their previously franchised or licensed geographic areas. Because
current franchise and license agreements upon termination invoke non-competition
and non-solicitation provisions and require that certain assets (such as office
telephone numbers, customer lists, and candidate records) be turned over to the
Company, some franchisees and licensees paid termination fees in order to obtain
releases from non-competition and non-solicitation provisions and to retain the
rights to such assets. To date, all but five franchisees or licensees have
agreed to terminate their relationship with the Company.
27
<PAGE> 30
PROFESSIONAL RECRUITERS OPERATING SYSTEM
The Company has developed a proprietary integrated system designed to
maximize productivity and to aid in the management of its business. PROS is
designed to be a comprehensive approach to the operation and management of a
specialty staffing firm. It comprises sophisticated and proprietary operating
and computer systems initially developed in 1982 and continually enhanced. The
system links each Company-owned location through the use of its private network
to the Company's corporate headquarters.
PROS offers several advantages in providing information to support the
goals of the Company. Through the use of PROS, market information concerning
target clients is tracked and prioritized to focus marketing and development
efforts. Readily available management reports indicate the frequency and nature
of contact with the targeted companies to support the marketing plans. By using
these reports, managers provide direction and support to operating personnel to
ensure that priority accounts are properly served. A manager, concerned with the
status of a particular assignment at any point, can examine the detailed status
and degree of coverage on each assignment. PROS offers both detailed and summary
reports to provide a continuous view of key factors related to client service
and development and employee productivity.
In addition to client service considerations, PROS enhances the
productivity and efficiency of the operating employees. One of the primary
problems facing operating employees is the effective and productive use of
information. PROS simplifies the information recording and retrieval problem and
enables operating employees in different divisions and different geographical
areas to share information and communicate more effectively.
Finally, PROS helps the Company manage information by passing data from the
operating divisions software to the accounting software. This approach increases
productivity, as data have a single point of entry and can be readily accessed
by all functional areas within the Company. The Company intends to continue to
enhance its systems capabilities to streamline processes in order to improve
customer servicing.
COMPETITION
The specialty staffing services industry is very competitive and
fragmented. There are relatively limited barriers to entry and new competitors
frequently enter the market. A number of the Company's competitors possess
substantially greater resources than the Company. The Company faces substantial
competition from large national firms and local specialty staffing firms. Large
national firms that offer specialty staffing services include Robert Half
International, Computer Horizons, Inc., and Alternative Resources Corporation.
The local firms are typically operator-owned, and each market generally has one
or more significant competitors. In addition, the Company competes with national
clerical and light industrial staffing firms which also offer specialty
services. These companies include Interim Services, Inc., Norrell Corporation,
AccuStaff Incorporated, and Olsten Corp. In addition, national and regional
accounting firms also offer certain specialty staffing services.
The Company believes that the availability and quality of candidates, the
level of service, the effective monitoring of job performance, scope of
geographic service and the price of service are the principal elements of
competition. The Company believes that availability of quality candidates is an
especially important facet of competition. In order to attract temporary and
contract assignment candidates, the Company places emphasis upon its ability to
provide permanent placement opportunities, competitive compensation, quality and
varied assignments, and scheduling flexibility. Because many temporary and
contract assignment candidates pursue other employment opportunities on a
regular basis, it is important that the Company respond to market conditions
affecting temporary candidates. Additionally, in certain markets the Company has
experienced significant pricing pressure from some of its competitors. Although
the Company believes it competes favorably with respect to these factors, it
expects competition to increase, and there can be no assurance that the Company
will remain competitive.
PROPERTIES
The Company owns no real estate. It leases its corporate headquarters in
Tampa, Florida (see "Certain Transactions"), as well as space for its other
Company-owned locations. The aggregate square footage of office space under
leases for Company-owned locations is approximately 46,000. The leases generally
run for three to
28
<PAGE> 31
five-year terms and the aggregate annual rent paid by the Company in 1995 was
approximately $750,000. The Company believes that its facilities are adequate
for its needs and does not expect difficulty replacing such facilities or
locating additional facilities, if needed.
INSURANCE
The Company maintains a number of insurance policies. Its general liability
policy has aggregate coverage of $2.0 million, with a $1.0 million limit per
occurrence. The Company maintains an automobile liability policy with a combined
single coverage limit of $1.0 million. The Company also carries an excess
liability policy, which covers liabilities that exceed the policy limits of the
above policies, with an aggregate and a per occurrence limit of $2.0 million.
The Company also maintains professional liability and errors and omissions
policies, each with aggregate coverage of $1.0 million, covering certain
liabilities that may arise from the actions or omissions of its temporary or
permanently-placed personnel. The Company currently maintains key man life
insurance on Mr. Dunkel in the amount of $3.0 million. There can be no assurance
that any of the above coverages will be adequate for the Company's needs. See
"Risk Factors -- Employment Liability Risk."
EMPLOYEES
As of March 31, 1996, the Company and its subsidiaries employed
approximately 280 persons. Additionally, as of such date, the Company had
approximately 1,150 individuals on assignment providing professional temporary
or contract services to its clients. As the employer, the Company is responsible
for the regular and temporary payrolls and employer's share of social security
taxes (FICA), federal and state unemployment taxes, workers' compensation
insurance, and other direct labor costs relating to its temporary and contract
personnel (including temporary and contract personnel of its licensees). The
Company offers access to various insurance programs and other benefits for its
temporary and contract personnel. The Company has no collective bargaining
agreements covering any of its employees or personnel, has never experienced any
material labor disruption, and is unaware of any current efforts or plans to
organize its employees or personnel. The Company considers relations with its
employees and personnel to be good.
LEGAL PROCEEDINGS
In the ordinary course of its business, the Company is from time to time
threatened with or named as a defendant in various lawsuits, including
discrimination and harassment and other similar claims. The Company maintains
insurance in such amounts and with such coverages and deductibles as management
believes are reasonable. The principal risks that the Company insures against
are workers' compensation, personal injury, bodily injury, property damage,
professional malpractice, errors and omissions, and fidelity losses. The Company
is not currently involved in any material litigation and is not aware of any
threatened material litigation; however, the Company does have a current dispute
with a computer hardware vendor. The Company believes that the vendor delivered
computer equipment that did not meet promised performance standards. There is no
assurance that the Company will be able to obtain a satisfactory settlement
without instituting litigation or that the vendor will not assert counterclaims
against the Company. The Company does not believe that the results of any
litigation would have a material effect on its financial condition. See "Risk
Factors -- Reliance on Information Processing Systems."
29
<PAGE> 32
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to each
person who is currently a director or executive officer of the Company.
<TABLE>
<CAPTION>
DIRECTOR'S
TERM
NAME AGE POSITIONS EXPIRES
- -------------------------------------- --- -------------------------------------- ----------
<S> <C> <C> <C>
David L. Dunkel....................... 42 President, Chief Executive Officer, 1997
and Director
Maureen A. Rorech..................... 35 Vice President and Director 1999
Howard W. Sutter...................... 47 Vice President and Director 1997
Peter Dominici........................ 37 Chief Financial Officer, Secretary, 1998
Treasurer, and Director
Richard M. Cocchiaro.................. 41 Division President and Director 1999
James D. Swartz....................... 43 Vice President --
Gordon Tunstall....................... 52 Director 1998
William R. Carey, Jr.................. 48 Director 1997
</TABLE>
David L. Dunkel has served as President, Chief Executive Officer and a
director of the Company since its formation in August 1994. Prior to August
1994, he served as President and Chief Executive Officer of Romac-FMA, one of
the predecessors of the Company, for 14 years. Mr. Dunkel's prior experience
includes three years service as an accountant with Coopers & Lybrand in Boston.
Maureen A. Rorech has served as Vice President and a director of the
Company since its formation in August 1994. Prior to August 1994, Ms. Rorech
served as Division President of FMA Temporaries, Inc., a subsidiary of
Romac-FMA, with direct responsibility for all of Romac-FMA's professional
temporary operations (1990-1994). Ms. Rorech joined Romac-FMA in 1987 as
director of operations and was promoted to Division President in 1990. Prior to
joining Romac-FMA, she was responsible for the development of the professional
temporary program for the Company's predecessors on a national basis. Ms.
Rorech's previous experience also includes training and operations support for
an 80-office branch network for Career Horizons, Inc., a diversified employment
services firm.
Howard W. Sutter has served as Vice President and a director of the Company
since its formation in August 1994. Prior to August 1994, Mr. Sutter served as
Vice President of Romac-FMA (1984-1994), and Division President of Romac-FMA's
South Florida location (1982-1994). Mr. Sutter's prior experience includes three
years service as Vice President and Controller of a regional airline and six
years service as an accountant with Coopers & Lybrand in Philadelphia.
Peter Dominici has served as Chief Financial Officer, Secretary, Treasurer
and a director of the Company since its formation in August 1994. Prior to
August 1994, he served as Chief Financial Officer and Vice President of
Romac-FMA (1986-1994). Mr. Dominici, a certified public accountant, has had
seven years of prior public accounting experience encompassing extensive audit,
tax, and public company reporting responsibilities.
Richard M. Cocchiaro has served as a Division President of the Company and
a director since its formation in August 1994. He has national financial
services search responsibility. Prior to August 1994, he was a Vice President of
Romac-FMA and Division President of Romac-FMA's Chicago Search Division
(1985-1994) and Romac-FMA's Tampa Search Division (1981-1985). Mr. Cocchiaro's
prior experience includes service as an accountant with Coopers & Lybrand in
Boston.
James D. Swartz has served as Vice President of the Company since February
1996. Prior to joining Romac, he was chief financial officer of Hilton Grand
Vacations Company, a joint venture involving Hilton
30
<PAGE> 33
Hotels Corporation (1994-1996). From 1992-1994 Mr. Swartz was chief financial
officer of the Florida division of Disney Development Company, a wholly-owned
subsidiary of The Walt Disney Company. From 1982-1992 Mr. Swartz was chief
financial officer of The Wilson Company, a Tampa real estate developer. Mr.
Swartz served as an accountant with Peat Marwick & Co. in Atlanta (1979-1982).
Gordon Tunstall has served as a director of the Company since October 1995.
He is the founder of and for more than 13 years has served as President of
Tunstall Consulting, Inc., a provider of strategic consulting and financial
planning services. Mr. Tunstall is also currently a director of Discount Auto
Parts, Inc., Orthodontic Centers of America, Inc. and L.A. T Sportswear, Inc.
William R. Carey, Jr. has served as a director of the Company since October
1995. He is currently the Chairman and Chief Executive Officer of Corporate
Resource Development, Inc., an Atlanta, Georgia based sales and marketing
consulting and training firm which began in 1981 and assists some of America's
largest firms in the design, development and implementation of strategic and
tactical product marketing. Mr. Carey serves on the Board of Directors of
Outback Steakhouse, Inc. and is the National Chairman of the Council of Growing
Companies.
COMPOSITION OF THE BOARD OF DIRECTORS
Pursuant to the terms of the Company's articles of incorporation and
bylaws, the Board of Directors has the power to set the number of directors (but
not to more than 12 members) by resolution adopted by the directors of the
Company. The directors are divided into three classes, as nearly equal in number
as possible. Each director in a particular class is elected to serve a
three-year term or until his or her successor is duly elected and qualified. The
classes are staggered so that their terms expire in successive years.
Accordingly, only one class of directors is elected each year and currently the
number of directors is set at seven. The Company intends to maintain at all
times at least two independent directors on its Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Company has established an Audit Committee composed
of Messrs. Dominici, Tunstall, and Carey. The Audit Committee makes
recommendations concerning the engagement of independent public accountants,
review with the independent public accountants the plans and results of the
audit engagement, approve professional services provided by the independent
public accountants, review the independence of the independent public
accountants, consider the range of audit and non-audit fees and review the
adequacy of the Company's internal accounting controls.
Compensation Committee. The Company has established a Compensation
Committee, consisting of Messrs. Dunkel, Tunstall and Carey. The Compensation
Committee determines the compensation of the Company's executive officers.
Stock Option Committee. Messrs. Dunkel and Sutter are the members of the
Company's Stock Option Committee and are ineligible to receive discretionary
grants of stock, stock options or stock appreciation rights, under any plan of
the Company during the time they serve on the Committee. The Stock Option
Committee administers the Company's Incentive Stock Option Plan, and makes all
determinations as to grants of options. See "Management -- Incentive Stock
Option Plan."
Other Committees. The Board of Directors may establish other committees as
deemed necessary or appropriate from time to time, including, but not limited
to, an Executive Committee of the Board of Directors.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company are paid $5,000 annually
plus $500 for each board meeting attended, and $500 for each committee meeting
attended if such meetings occur on a day other than a scheduled meeting of the
Board of Directors. In addition, the Company reserved 200,000 shares of Common
Stock for future issuance upon the exercise of stock options that may be granted
to such non-employee directors. During 1995, Messrs. Tunstall and Carey were
each granted ten-year options to purchase 20,000
31
<PAGE> 34
shares of the Common Stock at an exercise price of $9.375 per share. These
options vest 50% per year beginning one year from the option grant date. All
directors receive reimbursement of reasonable out-of-pocket expenses incurred in
connection with meetings of the Board of Directors. No director who is an
employee of the Company receives separate compensation for services rendered as
a director.
DIRECTOR AND EXECUTIVE OFFICER COMPENSATION
The following table sets forth certain information with respect to all
compensation paid or earned for services rendered to the Company in all
capacities in 1994 and 1995 by the Company's President and Chief Executive
Officer and the four other executive officers of the Company whose total annual
salary and bonus for the fiscal year ending December 31, 1995, exceeded $100,000
(collectively the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ---------------------
-------------------- SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) OPTIONS
- -------------------------------------------------- ----- --------- -------- ---------------------
<S> <C> <C> <C> <C>
David L. Dunkel................................... 1995 $ 200,000 -- --
President, Chief Executive Officer, and Director 1994 150,000 $443,111 --
Maureen A. Rorech................................. 1995 150,000 -- 135,252
Vice President and Director 1994 60,000 266,500 --
Howard W. Sutter.................................. 1995 150,000 -- --
Vice President and Director 1994 90,000 183,660 --
Peter Dominici.................................... 1995 100,000 -- 20,000
Chief Financial Officer, Secretary, Treasurer 1994 75,000 105,000 154,612
and Director
Richard M. Cocchiaro.............................. 1995 75,000 -- --
Division President and Director 1994 90,000 120,454 --
</TABLE>
- ---------------
(1) Includes deferred compensation.
(2) Includes the Company's matching contribution under the deferred compensation
plan. See Note 9 of Notes to the Company's Consolidated Financial
Statements. The bonuses awarded in 1994 are not necessarily indicative of
future bonus awards pursuant to the new management employment agreements.
See "Management -- Employment Agreements."
32
<PAGE> 35
OPTION GRANTS IN 1995
The following table shows information concerning stock options granted
during 1995 to the Named Executive Officers. The exercise price of these stock
options was determined to be the fair market value of the Common Stock on the
date of grant, based upon an independent appraisal or by the closing price of
the Common Stock on the Nasdaq National Market. Stock appreciation rights have
not been granted in connection with any such stock options.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-------------------------------------------------------------------------------
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM
OPTIONS EMPLOYEES EXERCISE PRICE EXPIRATION -------------------
NAME GRANTED(#) IN FISCAL YEAR PER SHARE DATE 5% 10%
- ----------------------------- ---------- -------------- -------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
David L. Dunkel.............. -- -- -- -- -- --
Maureen A. Rorech............ 115,252 13.9% $ 2.98 01/03/05 $215,994 $547,372
20,000 2.4% 8.375 10/04/06 105,340 266,952
Howard W. Sutter............. -- -- -- -- -- --
Peter Dominici............... 20,000 2.4% 8.375 10/04/06 105,340 266,952
Richard M. Cocchiaro......... -- -- -- -- -- --
</TABLE>
AGGREGATE OPTION EXERCISES IN 1995 AND DECEMBER 31, 1995 OPTION VALUES
The following table shows information concerning options exercised during
1995 and options held by the Named Executive Officers at the end of 1995.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING OPTIONS VALUE OF IN-THE-MONEY OPTIONS
AT FISCAL YEAR END AT FISCAL YEAR END(1)
----------------------------- -----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David L. Dunkel............................ -- -- -- --
Maureen A. Rorech.......................... 33,540 101,412 $ 294,146 $ 784,114
Howard W. Sutter........................... -- -- -- --
Peter Dominici............................. 36,600 138,012 330,132 1,131,968
Richard M. Cocchiaro....................... -- -- -- --
</TABLE>
- ---------------
(1) Represents the dollar value of the difference between the value at December
31, 1995 and the option exercise price.
INCENTIVE STOCK OPTION PLAN
The Company's Incentive Stock Option Plan (the "Option Plan") provides for
the grant to employees of incentive stock options within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"). The Option
Plan is intended to provide incentives to key employees and to enhance the
Company's ability to attract and retain qualified employees. The Option Plan
originally was adopted by the Board of Directors and shareholders of the Company
in September 1994. A total of 3,000,000 shares of Common Stock has been reserved
for issuance under the Option Plan. Between September 19, 1994 and April 1,
1996, the Company's Stock Option Committee granted stock options covering a
total of 1,220,748 shares of Common Stock (net of forfeitures) to various
employees (including options to purchase 369,864 shares issued to certain
directors and executive officers) at exercise prices ranging from $2.73 per
share to $15.375 per share.
The duration of options granted under the Option Plan is ten years from the
date of grant, or such shorter period as determined by the Stock Option
Committee. The options are non-transferable other than by will or by the laws of
descent and distribution.
33
<PAGE> 36
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with David L. Dunkel,
Maureen A. Rorech, Howard W. Sutter, and Peter Dominici effective January 1,
1995. Each of these agreements is for a period of two years and provides for an
annual base salary and certain other benefits. The annual base salaries for
fiscal 1996 for Mr. Dunkel, Ms. Rorech, Mr. Sutter, and Mr. Dominici are
$200,000, $150,000, $150,000, and $110,000, respectively. The employment
agreements prohibit these executives from participating in the Company's bonus
incentive pool during the term of the agreements. The employment agreements also
provide that the executives are entitled to severance benefits if their
employment is terminated by the Company "without cause" (as defined in the
employment agreements). In such a case, the executive would receive his or her
full compensation for a period of two years. The employment agreements also
provide that upon a change in control of the Company each executive would be
entitled to receive an immediate lump sum payment equal to twice the executive's
annual salary, subject to certain limitations. In general, a change in control
is defined by the employment agreements to be any replacement of 50% or more of
the directors of the Company that follows and is directly or indirectly the
result of certain extraordinary corporate occurrences, such as a merger or other
business combination involving the Company, a tender offer for the Company's
stock, a solicitation of proxies other than by the Company's management or Board
of Directors, or an acquisition by a person or group of 25% or more of the
Company's stock. Each agreement contains a covenant not to compete, which
continues for one year following any termination.
SPLIT DOLLAR ARRANGEMENTS
In 1995, the Company entered into split dollar and cross-purchase split
dollar life insurance agreements with Messrs. Dunkel, Sutter and Cocchiaro and
Ms. Rorech and their estates whereby the Company pays part of the life insurance
premiums on behalf of the officers and their estates. The Company has been
granted a security interest in the cash value and death benefit of each policy
equal to the amount of the cumulative premium payments made by the Company. The
intent of these agreements is to provide liquidity, in the event of an executive
officer's or director's death, to pay estate taxes and to provide surviving
executive officers and directors with the ability to purchase shares from a
deceased executive officer's or director's estate, and to minimize the
possibility of a large block of the Company's common shares being put on the
open market to the potential detriment of the Company's market price. The total
premiums paid during 1995 were approximately $381,000 and are included in the
Company's financial statements as related party receivables at December 31,
1995.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board's Compensation Committee currently consists of Messrs. Dunkel,
Tunstall and Carey. Messrs. Tunstall and Carey are not employees of the Company.
Set forth below is a description of certain transactions and relationship
between the Compensation Committee members, the Chief Executive Officer and the
Company.
In October 1995, the Company entered into a strategic consulting agreement
with Corporate Resource Development, Inc., a company affiliated with William R.
Carey, Jr., a director of the Company. Services under this agreement are to be
completed by December 1996 at a cost of approximately $200,000.
34
<PAGE> 37
CERTAIN TRANSACTIONS
The Company leases office space and parking facilities from a limited
partnership in which David L. Dunkel, Howard W. Sutter, and Richard M.
Cocchiaro, officers and directors of the Company, are limited partners. Payments
under the lease are approximately $24,000 per month, expiring in 2001. Total
lease payments to the partnership were approximately $164,000, $165,000, and
$266,000 in 1993, 1994, and 1995, respectively. The Company believes the lease
payments are comparable to those that would be made to an unrelated third party.
David L. Dunkel, Maureen A. Rorech, Howard W. Sutter and Richard M.
Cocchiaro, directors and executive officers of the Company, received 2,354,592,
416,754, 1,106,658 and 988,928 shares of Common Stock, respectively, in exchange
for shares of Romac-FMA and its affiliates, pursuant to the combination of a
number of entities in connection with the 1994 Combination. These individuals
received shares of the Company at the same exchange rate as did all of the other
shareholders of the entities involved in the Combination.
35
<PAGE> 38
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of May 15, 1996 by: (i) each of the
Company's directors and Named Executive Officers; (ii) all executive officers
and directors of the Company as a group; and (iii) each person known by the
Company to own beneficially more than 5% of the Common Stock. Each of the
holders listed below has sole voting power and investment power over the shares
beneficially owned.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED SHARES BENEFICIALLY
PRIOR TO THE OWNED
OFFERING SHARES AFTER THE OFFERING
------------------- OFFERED -------------------
NAME NUMBER PERCENT FOR SALE NUMBER PERCENT
- ------------------------------------------------- --------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
David L. Dunkel(1)............................. 2,324,592 24.0% 312,096 2,012,496 17.8%
Maureen A. Rorech(1)(2)........................ 502,294 5.2% 200,000 302,294 2.7%
Howard W. Sutter(3)............................ 1,106,658 11.4% 220,000 886,658 7.9%
Peter Dominici(4).............................. 73,200 * -- 73,200 *
Richard M. Cocchiaro(5)........................ 999,528 10.3% 200,000 799,528 7.1%
James D. Swartz(6)............................. 16,000 * -- 16,000 *
Gordon Tunstall(7)............................. -- -- -- -- --
William R. Carey, Jr.(8)....................... -- -- -- -- --
All Directors and Executive Officers as a Group
(8 persons)................................. 5,022,272 51.2% 932,096 4,090,176 35.8%
SELLING SHAREHOLDERS
Sacred Heart Church............................ 30,000 * 30,000 -- --
Ralph E. Struzziero............................ 171,904 1.8% 71,904 100,000 *
James E. Tonra................................. 87,552 * 26,000 61,552 *
Matthew A. Zapp(9)............................. 71,658 * 10,000 61,658 *
</TABLE>
- ---------------
* Less than 1%.
(1) The business address for Mr. Dunkel and Ms. Rorech is 120 West Hyde Park
Place, Suite 200, Tampa, Florida 33606.
(2) Ms. Rorech has two ten-year options to purchase a total of 135,252 shares of
Common Stock, 115,252 of which are exercisable at a price of $2.98 per
share, and 20,000 of which are exercisable at a price of $8.375 per share.
The number of shares shown in the table above includes 67,080 shares that
are subject to options that are currently exercisable.
(3) The business address for Mr. Sutter is 500 West Cypress Creek, Suite 200,
Ft. Lauderdale, Florida 33309.
(4) Mr. Dominici has two ten-year options to purchase a total of 159,612 shares
of Common Stock, 139,612 of which are exercisable at a price of $2.73 per
share, and 20,000 of which are exercisable at a price of $8.375 per share.
The number of shares in the table above includes 58,200 shares that are
subject to options that are currently exercisable.
(5) The business address for Mr. Cocchiaro is 20 North Wacker Drive, Suite 1645,
Chicago, Illinois 60606.
(6) Mr. Swartz has a ten-year option to purchase a total of 60,000 shares of
Common Stock which are exercisable at a price of $12.50 per share. The
number of shares shown in the table above includes 8,000 shares that are
subject to options that are currently exercisable.
(7) Mr. Tunstall has a ten-year option to purchase a total of 20,000 shares of
Common Stock at an exercise price of $9.375 per share.
(8) Mr. Carey has a ten-year option to purchase a total of 20,000 shares of
Common Stock at an exercise price of $9.375 per share.
(9) Mr. Zapp has a ten-year option to purchase a total of 2,000 shares of Common
Stock at an exercise price of $8.375.
36
<PAGE> 39
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 15,000,000 shares of
Common Stock having a par value of $.01 per share and 15,000,000 shares of
preferred stock having a par value of $.01 per share. As of May 15, 1996,
9,681,782 shares of Common Stock and no shares of preferred stock are issued and
outstanding.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held.
Shareholders do not have the right to cumulate their votes in elections of
directors. Accordingly, holders of a majority of the issued and outstanding
Common Stock will have the right to elect all the Company's directors and
otherwise control the affairs of the Company.
Holders of Common Stock are entitled to dividends on a pro rata basis upon
declaration of dividends by the Board of Directors. Dividends are payable only
out of unreserved and unrestricted surplus that is legally available for the
payment of dividends. The Board of Directors is not required to declare
dividends, and it currently expects to retain any funds generated from
operations to finance the development of the Company's business. The payment of
dividends in the future will depend upon earnings, capital needs, and other
factors. See "Dividend Policy."
Upon a liquidation of the Company, holders of the Common Stock will be
entitled to a pro rata distribution of the assets of the Company, after payment
of all amounts owed to the Company's creditors, and subject to any preferential
amount payable to holders of preferred stock of the Company, if any.
PREFERRED STOCK
The Company's articles of incorporation permit the Company's Board of
Directors to issue shares of preferred stock in one or more series, and to fix
the relative rights, preferences, and limitations of each series. Among such
rights, preferences, and limitations are dividend rights and rates, provisions
for redemption, rights upon liquidation, conversion privileges, and voting
powers. The Board of Directors of the Company currently has no plans to issue
any shares of preferred stock. See "Risk Factors -- Availability of Preferred
Stock for Issuance."
The purpose for authorizing the Board of Directors to issue preferred stock
is, in part, to eliminate delays associated with a shareholder vote in specific
instances. The issuance of preferred stock, for example in connection with a
shareholder rights plan, could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding existing stock of the Company.
REGISTRATION RIGHTS
Pursuant to two registration rights agreements, certain shareholders
holding a total of 4,867,158 shares of Common Stock may require the Company to
use its best efforts to effect the registration of all or part of the shares
currently held by such shareholders, subject to certain terms and conditions. In
addition, if the Company proposes to register any shares of its Common Stock
under the Securities Act in the future, these shareholders will be entitled to
include their shares in the registration, subject to certain conditions and
limitations. The Company will be required to bear all the expenses of such
registration except for underwriting discounts and selling commissions. In
addition, fees and expenses of counsel for a particular selling shareholder
shall be borne by such shareholder.
CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION
The Company's articles of incorporation provide for a classified Board of
Directors. The directors are divided into three classes, as nearly equal in
number as possible. The directors are elected for three-year terms, which are
staggered so that the terms of one-third of the directors expire each year. The
articles of
37
<PAGE> 40
incorporation permit removal of directors only for cause by the shareholders of
the Company at a meeting by the affirmative vote of at least two-thirds of the
outstanding shares of Common Stock. The articles of incorporation establish an
advance notice procedure for the nomination of candidates for election as
directors, as well as for other shareholder proposals to be considered at
shareholders' meetings.
The articles of incorporation also contain a "fair price" provision, which
is intended to ensure that the consideration paid by an acquiror in certain
transactions involving the Company that follow a successful tender offer must be
no less than the highest consideration offered pursuant to the tender offer.
Among other things, such transactions must be approved by (i) the holders of at
least 80% of the outstanding Common Stock, and (ii) the holders of a majority of
the outstanding Common Stock other than the interested shareholder.
The above-described provisions may have certain anti-takeover effects. Such
provisions, in addition to the provisions described below and the possible
issuance of preferred stock discussed above, may make it more difficult for
other persons, without the approval of the Company's Board of Directors, to make
a tender offer or acquisitions of substantial amounts of the Common Stock or to
launch other takeover attempts that a shareholder might consider in such
shareholder's best interests, including attempts that might result in the
payment of a premium over the market price for the Common Stock held by such
shareholder.
CERTAIN PROVISIONS OF FLORIDA LAW
The Company is subject to several anti-takeover provisions under Florida
law that apply to a public corporation organized under Florida law, unless the
corporation has elected to opt out of those provisions in its articles of
incorporation or bylaws. The Company has not elected to opt out of those
provisions. The Florida Business Corporation Act (the "FBCA") prohibits the
voting of shares in a publicly-held Florida corporation that are acquired in a
"control share acquisition" unless the holders of a majority of the
corporation's voting shares (exclusive of shares held by officers of the
corporation, inside directors, or the acquiring party) approve the granting of
voting rights as to the shares acquired in the control share acquisition. A
"control share acquisition" is defined as an acquisition that immediately
thereafter entitles the acquiring party to vote in the election of directors
within each of the following ranges of voting power: (i) one-fifth or more but
less than one-third of such voting power, (ii) one-third or more but less than a
majority of such voting power, and (iii) more than a majority of such voting
power.
The FBCA also contains an "affiliated transaction" provision that prohibits
a publicly-held Florida corporation from engaging in a broad range of business
combinations or other extraordinary corporate transactions with an "interested
shareholder" unless (i) the transaction is approved by a majority of
disinterested directors before the person becomes an interested shareholder,
(ii) the interested shareholder has owned at least 80% of the corporation's
outstanding voting shares for at least five years, or (iii) the transaction is
approved by the holders of two-thirds of the corporation's voting shares other
than those owned by the interested shareholder. An interested shareholder is
defined as a person who together with affiliates and associates beneficially
owns more than 10% of the corporation's outstanding voting shares.
38
<PAGE> 41
SHARES ELIGIBLE FOR FUTURE SALE
After completion of the Offering, the Company will have 11,291,782 shares
of Common Stock outstanding (11,693,782 shares if the Underwriters'
over-allotment option is exercised in full). Of these shares, 6,424,624
(6,826,624 shares if the Underwriters' over-allotment option is exercised in
full), will be freely tradeable without restriction or further registration
under the Securities Act. The remaining 4,867,158 shares outstanding are
"Restricted Securities" as that term is defined in Rule 144 of the Securities
Act. The holding period imposed upon these shares by Rule 144 began to run in
August 1994. Accordingly, none of these shares may be sold pursuant to Rule 144
prior to August 1996.
In general, under Rule 144 as currently in effect, any affiliate of the
Company or any person (or persons whose shares are aggregated in accordance with
the Rule) who has beneficially owned Restricted Securities for at least two
years would be entitled to sell within any three-month period a number of shares
that does not exceed the greater of 1% of the outstanding shares of Common Stock
(approximately 113,000 shares based upon the number of shares outstanding after
the Offering) or the reported average weekly trading volume in the
over-the-counter market for the four weeks preceding the sale. Sales under Rule
144 are also subject to certain manner of sale restrictions and notice
requirements and to the availability of current public information concerning
the Company. Persons who have not been affiliates of the Company for at least
three months and who have held their shares for more than three years are
entitled to sell Restricted Securities without regard to the volume, manner of
sale, notice and public information requirements of Rule 144.
As of May 15, 1996, stock options to purchase an aggregate of 1,195,970
shares of Common Stock were outstanding under the Company's incentive stock
option plan and its non-employee director plan. In addition, as of such date,
1,939,252 shares were available for future stock option grants under these
plans. Shares of Common Stock issued upon exercise of options are eligible for
resale in the public market without restriction unless such shares are held by
affiliates. See "Management -- Incentive Stock Option Plan" and
"Management -- Director Compensation."
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company and the Selling Shareholders have agreed to sell to each
of the underwriters named below (the "Underwriters"), and each of the
Underwriters has severally agreed to purchase from the Company the respective
number of shares of common stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS COMMON SHARES
---------------------------------------------------------------------- -------------
<S> <C>
Robert W. Baird & Co. Incorporated....................................
Prudential Securities Incorporated....................................
Smith Barney Inc. ....................................................
-------------
Total....................................................... 2,680,000
============
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all 2,680,000 shares of
Common Stock offered hereby if any such Common Stock are purchased. In the event
of a default by any Underwriter, the Underwriting Agreement provides that, in
certain circumstances, purchase commitments of the non-defaulting Underwriters
may be increased or the Underwriting Agreement may be terminated.
39
<PAGE> 42
The Company and the Selling Shareholders have been advised by the
Underwriters that the several Underwriters propose to offer such Common Stock to
the public at the public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow and such dealers may re-allow a
concession not in excess of $ per share to other dealers. After the shares
of Common Stock are released for sale to the public, the offering price and
other selling terms may be changed by the Underwriters.
The Company has granted the Underwriters an option, expiring 30 days from
the date of this Prospectus, to purchase up to 402,000 additional shares of
Common Stock at the public offering price less underwriting discounts and
commissions set forth on the cover page of this Prospectus. The Underwriters may
exercise such option solely to cover over-allotments, if any, made in connection
with the sale of the Common Stock that the Underwriters have agreed to purchase.
To the extent the Underwriters exercise such option, each of the Underwriters
will have a firm commitment, subject to certain conditions, to purchase a number
of option shares proportionate to such Underwriter's initial commitment.
The Company, its officers and directors, and the Selling Shareholders have
agreed that, except with the prior written consent of Robert W. Baird & Co.
Incorporated, during the 90 days following the date of this Prospectus they will
not offer for sale, sell, grant any options, right or warrants with respect to
any shares of Common Stock or any other Company capital stock, securities or
instruments convertible into or exchangeable for Common Stock or other Company
capital stock, securities or instruments convertible into or exchangeable for
common stock of other company capital stock, or otherwise dispose of, or reduce
any risk of ownership, directly or indirectly, of any shares of Common Stock,
such other capital stock or any other securities, instruments, options or rights
convertible into or exchangeable for, or otherwise exercisable for Common Stock
or other Company capital stock, except for the Common Stock offered hereby.
Notwithstanding the foregoing, the Company may (i) grant options pursuant to the
Company's stock option plans in the ordinary course consistent with past
practice and issue shares of Common Stock upon the exercise of any such options
or under options currently outstanding, (ii) issue shares of Common Stock or
other securities convertible into Common Stock or any other capital stock of any
company solely to owners of capital stock of any company acquired by the Company
subsequent to the date 45 days from the date of this Prospectus. Any permitted
shortening of such periods and any related sales of Common Stock would not
necessarily be preceded by a public announcement of the Company or the
Representatives that such consent has been given.
The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the Underwriters against certain liabilities under
the Securities Act of 1933 or contribute to payments the Underwriters may be
required to make in respect thereof.
In connection with this offering, certain Underwriters and selling group
members who in the past have acted as market makers in the Common Stock may
engage in passive market making activities in the Common Stock on the Nasdaq
National Market in accordance with Rule 10b-6A under the Exchange Act.
Underwriters and other participants in the distribution of the Common Stock
generally are prohibited during a specified time period (the "qualifying
period") determined in light of the timing of the distribution, from bidding for
or purchasing the Common Stock or a related security except to the extent
permitted under applicable rules, primarily Rules 10b-6 and 10b-6A. Rule 10b-6A
allows, among other things, an Underwriter or member of the selling group for
the Common Stock to effect "passive market making" transactions on the Nasdaq
National Market in the Common Stock during the qualifying period at a price that
does not exceed the highest independent bid for that security at the time of the
transaction. Such a passive market maker must not display a bid for the subject
security at a price in excess of the highest independent bid, and generally must
lower its bid if all independent bids are lowered. Moreover, the passive market
maker's net purchases of such security on each day of the qualifying period
shall not exceed 30% of its average daily trading volume during a reference
period preceding the distribution.
40
<PAGE> 43
LEGAL MATTERS
Certain legal matters in connection with the sale of the shares of Common
Stock offered hereby will be passed upon for the Company by Holland & Knight,
Tampa, Florida (a partnership including professional corporations), and for the
Underwriters by Foley & Lardner, Milwaukee, Wisconsin.
EXPERTS
The Consolidated Financial Statements of Romac International, Inc. as of
December 31, 1995 and 1994 and for each of the three years in the period ended
December 31, 1995, and the Financial Statements of Venture Networks Corporation,
Inc. as of and for the year ended December 31, 1995 included in this Prospectus
have been so included in reliance on the reports of Price Waterhouse LLP,
independent certified public accountants, given on the authority of said firm as
experts in auditing and accounting.
The Financial Statements of PCS Group, Inc. as of and for the year ended
December 31, 1995 included in this Prospectus have been so included in reliance
on the report of Deming, Malone, Livesay & Ostroff, independent certified public
accountants, given on the authority of said firm as experts in auditing and
accounting.
The Financial Statements of Strategic Outsourcing, Inc. as of December 31,
1995 and 1994 and for each of the two years in the period ended December 31,
1995 included in this Prospectus, have been so included in reliance on the
report of Robert J. Dennehy, independent certified public accountant, given on
the authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
This Prospectus constitutes a part of a Registration Statement filed by the
Company with the Securities and Exchange Commission (the "Commission") under the
Securities Act with respect to the Common Stock offered hereby. This Prospectus
omits certain of the information contained in the Registration Statement, and
reference is hereby made to the Registration Statement and related exhibits and
schedules for further information with respect to the Company and the Common
Stock offered hereby. Any statements contained herein concerning the provisions
of any document are not necessarily complete, and in each such instance
reference is made to the copy of such document filed as an exhibit to the
Registration Statement. Each such statement is qualified in its entirety by such
reference. The Registration Statement and the exhibits and schedules forming a
part thereof can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and should also be available for inspection and copying at the
following regional offices of the Commission: 7 World Trade Center, Suite 1300,
New York, New York 10048; and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates.
The Company is subject to the information requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports and other
information with the Commission. such reports and other information (including
proxy and information statements) filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the following
regional offices of the Commission: 7 World Trade Center, Suite 1300, New York,
New York 10048; and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of each material may be obtained from the
public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 25049, at prescribed rates.
41
<PAGE> 44
ROMAC INTERNATIONAL, INC.
INDEX TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<S> <C>
Introduction to Unaudited Pro Forma Consolidated Financial Information................ P-2
Unaudited Pro Forma Consolidated Statements of Operations for the year ended December
31, 1995 and the three months ended March 31, 1996.................................. P-3
Notes to Unaudited Pro Forma Consolidated Statements of Operations.................... P-5
</TABLE>
P-1
<PAGE> 45
INTRODUCTION TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information for
the year ended December 31, 1995 and the three months ended March 31, 1996 have
been prepared to reflect the financial position of Romac International, Inc.
(the "Company") as if the acquisitions of Venture Networks Corporation, Inc.
("Venture Networks") in January 1996, PCS Group, Inc. ("PCS") in February 1996,
and Strategic Outsourcing, Inc. ("Strategic Outsourcing") in March 1996, had
occurred effective January 1, 1995. As all three acquisitions occurred prior to
March 31, 1996, the pro forma consolidated balance sheet as of March 31, 1996 is
not required.
VENTURE NETWORKS ACQUISITION
The acquisition was treated as a purchase for financial reporting purposes.
The Company acquired Venture Networks for $1.1 million in cash and is subject to
an earn-out agreement wherein all earnings before income taxes of Venture
Networks in excess of $325,000 for the years ending December 31, 1996, 1997 and
1998, shall be paid to Venture Networks' prior owners in the form of additional
purchase price. The transaction was financed by the proceeds of the Company's
initial public offering which had been invested in short-term securities since
August 1995.
PCS ACQUISITION
The acquisition was treated as a purchase for financial reporting purposes.
The Company acquired PCS for approximately $2.3 million in cash and is subject
to an earn-out agreement wherein two times all earnings before income taxes of
PCS in excess of $500,000, for the years ending December 31, 1996, 1997 and
1998, shall be paid to PCS's prior owners in the form of additional purchase
price, to a cumulative maximum dollar amount of $1.2 million. The transaction
was financed by the proceeds of the Company's initial public offering which had
been invested in short-term securities since August 1995.
STRATEGIC OUTSOURCING ACQUISITION
The acquisition was treated as a purchase for financial reporting purposes.
The Company acquired Strategic Outsourcing for approximately $2.5 million in
cash and is subject to an earn-out agreement wherein two times all earnings
before income taxes of Strategic Outsourcing in excess of $500,000 and 50% of
any earnings before income taxes greater than $1.0 million for the years ending
December 31, 1996, 1997, and 1998, shall be paid to Strategic Outsourcing's
prior owners in the form of additional purchase price. The agreement also calls
for a minimum payout of $500,000, $600,000, and $600,000 for fiscal years 1996,
1997 and 1998 if Strategic Outsourcing's earnings before income taxes exceed
$625,000, $750,000, and $750,000, respectively. The transaction was financed by
the proceeds of the Company's initial public offering which had been invested in
short-term securities since August 1995.
------------------------
The unaudited pro forma consolidated financial statements are derived, in
part, from historical financial statements and should be read in conjunction
with those financial statements and the notes thereto. The unaudited pro forma
consolidated financial statements are not necessarily indicative of the results
that would have occurred if the assumed transaction had occurred on the dates
indicated or the expected financial position or results of operations in the
future. The unaudited pro forma consolidated statement of income should be read
in conjunction with the separate historical financial statements of Romac
International, Inc. listed in the Index on Page F-1 and in conjunction with the
related assumptions and notes to these unaudited pro forma consolidated
financial statements. The historical earnings per share amounts have been
adjusted to reflect the two for one stock split effected as a 100% stock
dividend effective May 15, 1996.
P-2
<PAGE> 46
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------------------------
ROMAC VENTURE PCS STRATEGIC PRO FORMA
INTERNATIONAL NETWORKS GROUP OUTSOURCING ADJUSTMENTS PRO FORMA
------------- ---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net service
revenues............ $ 45,654,862 $2,112,322 $3,583,233 $ 7,134,637 $58,485,054
Direct Cost of
Services............ 25,460,019 753,031 2,355,382 3,538,338 32,106,770
------------- ---------- ---------- ----------- -----------
Gross
Profit.............. 20,194,843 1,359,291 1,227,851 3,596,299 26,378,284
Selling, general and
administrative
expenses............ 15,231,842 1,170,532 868,095 3,115,000 $(500,000)(a) 19,885,469
Depreciation and
amortization
expense............. 511,961 9,130 13,334 67,213 423,600(b) 1,025,238
Other (income)
expenses:
Dividend and
interest
(income)......... (213,936) 201,300(c) (12,636)
Interest expense.... 133,033 3,240 2,251 1,696 140,220
Other (income)
expense, net..... (489,350) (2,298) (3,603) (495,251)
------------- ---------- ---------- ----------- ----------- -----------
Income
before
income
taxes..... 5,021,293 176,389 346,469 415,993 (124,900) 5,835,244
Provision for income
taxes............... 2,008,497 -- -- 7,000 318,600(d) 2,334,097
------------- ---------- ---------- ----------- ----------- -----------
Net
income.... $ 3,012,796 $ 176,389 $ 346,469 $ 408,993 $(443,500) $ 3,501,147
========== ========= ========= ========= ========= ==========
Net income per
share(f)............ $ 0.41
==========
Weighted average
shares
outstanding(f)...... 8,487,854
</TABLE>
See Notes to the Unaudited Pro Forma Consolidated Statements of Income.
P-3
<PAGE> 47
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------------------------
ROMAC VENTURE PCS STRATEGIC PRO FORMA
INTERNATIONAL NETWORKS(E) GROUP(E) OUTSOURCING(E) ADJUSTMENTS PRO FORMA
------------- ----------- -------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net service revenues..... $ 16,889,273 $296,830 $1,200,976 $18,387,079
Direct Cost of
Services............... 9,718,793 216,855 670,892 10,606,540
------------- ----------- -------- -------------- ----------- -----------
Gross Profit........ 7,170,480 79,975 530,084 7,780,539
Selling, general and
administrative
expenses............... 5,372,375 54,402 486,779 $ (66,667)(a) 5,846,889
Depreciation and
amortization expense... 236,764 1,026 44,892(b) 282,682
Other (income) expense,
net.................... (147,439) (1,469) (148,908)
------------- ----------- -------- -------------- ----------- -----------
Income before income
taxes............. 1,708,780 24,547 44,774 21,775 1,799,876
Provision for income
taxes.................. 683,512 23,925(d) 707,437
------------- ----------- -------- -------------- ----------- -----------
Net income.......... $ 1,025,268 $ 24,547 $ 44,774 $ (2,150) $ 1,092,439
========== ========= ======== =========== ========= ==========
Net income per
share(f)............... $ .11
==========
Weighted average shares
outstanding(f)......... 10,338,208
</TABLE>
See Notes to the Unaudited Pro Forma Consolidated Statements of Income
P-4
<PAGE> 48
ROMAC INTERNATIONAL, INC.
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
Basis of Recording the Transactions. The accompanying pro forma
consolidated statements of operations for the year ended December 31, 1995 and
the three months ended March 31, 1996 have been prepared to reflect the
operations of the Company as if the following had occurred on January 1, 1995:
(i) the acquisition of Venture Networks Corporation, Inc.; (ii) the acquisition
of PCS Group, Inc.; and (iii) the acquisition of Strategic Outsourcing, Inc.
Statements of Income Adjustments. The following pro forma adjustments were
made to the historical statements of the Company.
(a) This adjustment relates to non-recurring selling, general and
administrative expenses primarily due to eliminated employee salaries and
related benefits of $330,000; third party accounts receivable processing fees of
approximately $101,000; legal fees related to a liability not assumed in the
acquisition of $30,000; rent expense of $20,000; and related party expenses of
$19,000.
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- ------------------
<S> <C> <C>
Venture Networks............................. $ -- $ --
PCS.......................................... (200,000) (16,667)
Strategic Outsourcing........................ (300,000) (50,000)
----------------- ------------------
Total.............................. $(500,000) $(66,667)
================= ==================
</TABLE>
(b) This adjustment reflects the increase in amortization expense related
to the goodwill and other intangible assets recorded under the purchase method
of accounting for the following acquisitions:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- ------------------
<S> <C> <C>
Venture Networks............................. $ 84,900 $ --
PCS.......................................... 181,400 15,117
Strategic Outsourcing........................ 157,300 29,775
----------------- ------------------
Total.............................. $423,600 $44,892
================= ==================
</TABLE>
(c) This adjustment reflects the decrease in dividend and interest income
as investments were used to finance the acquisitions. The weighted average
interest rate for 1995 for the Company was 5.95%.
(d) This adjustment reflects the increase to income tax expense based on
the pro forma adjustments to income before provision for income taxes and as if
Venture Networks, PCS and Strategic Outsourcing were taxable as C corporations
based on the Company's effective tax rate of approximately 40%.
(e) Represents operations prior to effective date of acquisition.
(f) As adjusted for a two for one stock split in the form of a 100% stock
dividend effective May 15, 1996.
P-5
<PAGE> 49
ROMAC INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
ROMAC INTERNATIONAL, INC.
Report of Independent Certified Public Accountants.................................... F-2
Consolidated Balance Sheets at December 31, 1994 and 1995 and March 31, 1996.......... F-3
Consolidated Statements of Operations for the years ended December 31, 1993, 1994 and
1995 and for the three months ended March 31, 1995 and 1996......................... F-4
Consolidated Statements of Changes in Shareholders' Equity for the years ended
December 31, 1993, 1994 and 1995 and for the three months ended March 31, 1996...... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and for the three months ended March 31, 1995 and 1996......................... F-6
Notes to Consolidated Financial Statements............................................ F-7
VENTURE NETWORKS CORPORATION, INC.
Report of Independent Certified Public Accountants.................................... F-19
Balance Sheet as of December 31, 1995................................................. F-20
Statement of Operations and Retained Earnings for the year ended December 31, 1995.... F-21
Statement of Cash Flows for the year ended December 31, 1995.......................... F-22
Notes to Financial Statements......................................................... F-23
PCS GROUP, INC.
Independent Auditors' Report.......................................................... F-26
Balance Sheet as of December 31, 1995................................................. F-27
Statement of Income and Retained Earnings for the year ended December 31, 1995........ F-28
Statement of Cash Flows for the year ended December 31, 1995.......................... F-29
Notes to Financial Statements......................................................... F-30
STRATEGIC OUTSOURCING, INC.
Report of Independent Certified Public Accountant..................................... F-33
Balance Sheets as of December 31, 1994 and 1995....................................... F-34
Statements of Operations and Retained Earnings for the two years ended
December 31, 1994 and 1995.......................................................... F-35
Statements of Cash Flows for the two years ended December 31, 1994 and 1995........... F-36
Notes to Financial Statements......................................................... F-37
</TABLE>
F-1
<PAGE> 50
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Romac International, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and changes in shareholders'
equity and of cash flows present fairly, in all material respects, the financial
position of Romac International, Inc., and its subsidiaries (the "Company") at
December 31, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles. 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
generally accepted auditing standards which require that we plan and perform the
audits 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.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Tampa, Florida
February 15, 1996, except for
the stock split described in
Note 14 for which the date
is May 15, 1996
F-2
<PAGE> 51
ROMAC INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, THREE
------------------------ MONTHS ENDED
1994 1995 MARCH 31,
---------- ----------- 1996
------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................................... $ 705,144 $ 619,766 $ 589,430
Short-term investments.......................................... 247,922 7,903,559 660,203
Trade receivables, net of allowance for doubtful accounts of
$332,900, $623,150 and $532,526, respectively................. 3,220,335 7,353,790 10,477,649
Notes receivable from franchisees, current (Note 8)............. 96,674 136,464 202,195
Receivables from related parties, current (Note 7).............. 180,965 186,219 71,985
Deferred tax asset (Note 6)..................................... 174,382 308,374 308,374
Prepaid expenses and other current assets (Note 9).............. 718,123 321,276 773,930
---------- ----------- ------------
Total current assets..................................... 5,343,545 16,829,448 13,083,766
Notes receivable from franchisees, less current portion (Note
8).............................................................. 43,468 20,000 20,000
Receivables from related parties, less current portion (Note 7)... 149,136 486,513 516,861
Deferred tax asset (Note 6)....................................... 188,661 118,505 118,505
Furniture and equipment, net (Note 3)............................. 314,531 2,405,284 2,583,080
Other assets, net (Notes 4 and 9)................................. 944,426 1,091,944 6,846,090
---------- ----------- ------------
Total assets............................................. $6,983,767 $20,951,694 $23,168,302
========== ============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and other accrued liabilities (Notes 11 &
13)........................................................... $1,595,553 $ 673,332 $ 742,110
Accrued payroll costs........................................... 1,522,743 1,457,901 2,502,950
Current portion of notes payable and capital lease obligations
(Note 5)...................................................... 66,471 208,072 192,921
Current portion of payables to related parties (Note 7)......... 23,000 23,000 64,124
Income taxes payable (Note 6)................................... 43,208 572,546 555,417
---------- ----------- ------------
Total current liabilities................................ 3,250,975 2,934,851 4,057,522
Notes payable and capital lease obligations, less current portion
(Note 5)........................................................ -- 494,485 418,707
Payables to related parties, less current portion (Note 7)........ 24,264 5,993 5,993
Other long-term liabilities (Notes 9 & 11)........................ 1,273,698 592,105 607,696
---------- ----------- ------------
Total liabilities........................................ 4,548,937 4,027,434 5,089,918
---------- ----------- ------------
Commitments and contingencies (Note 11)
Shareholders' Equity:
Preferred stock, par value $.01; 15,000,000 shares authorized
and none issued and outstanding............................... -- -- --
Common stock, $.01 par value; 15,000,000 shares authorized,
7,875,378, 9,966,208 and 9,983,156 issued, respectively (Notes
1 & 13)....................................................... 78,754 99,662 99,832
Additional paid-in capital...................................... 1,734,386 13,172,415 13,301,101
Stock repurchase obligation (Note 11)........................... (924,072) -- --
Stock subscriptions receivable (Notes 7 & 13)................... (36,182) (17,589) (17,589 )
Retained earnings............................................... 1,581,944 4,594,740 5,620,008
Less reacquired stock at cost; 0, 338,374 and 338,374 shares,
respectively (Note 11)........................................ -- (924,968) (924,968 )
---------- ----------- ------------
Total shareholders' equity............................... 2,434,830 16,924,260 18,078,384
---------- ----------- ------------
Total liabilities and shareholders' equity............... $6,983,767 $20,951,694 $23,168,302
========== ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 52
ROMAC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net service revenues............. $40,345,544 $40,789,352 $45,654,862 $9,562,347 $16,889,273
Direct cost of services.......... 26,125,588 24,851,849 25,460,019 5,359,069 9,718,793
----------- ----------- ----------- ---------- -----------
Gross profit........... 14,219,956 15,937,503 20,194,843 4,203,278 7,170,480
Selling, general and
administrative expenses........ 12,775,271 15,008,803 15,231,842 3,362,460 5,372,375
Depreciation and amortization
expense........................ 298,380 248,428 511,961 89,431 236,764
Combination expenses (Note 13)... -- 2,251,044 -- -- --
Other (income) expense:
(Notes 8 & 11)
Dividend and interest (income)... (22,963) (62,026) (213,936) -- --
Interest expense................. 11,761 29,724 133,033 -- --
Other (income) expense, net...... 44,973 (1,125,189) (489,350) (460,604) (147,439)
----------- ----------- ----------- ---------- -----------
Income (loss) before
taxes and minority
interest............. 1,112,534 (413,281) 5,021,293 1,211,991 1,708,780
Provision for income taxes
(Note 6)....................... 447,960 186,165 2,008,497 484,796 683,512
----------- ----------- ----------- ---------- -----------
Income (loss) before minority
interest....................... 664,574 (599,446) 3,012,796 727,195 1,025,268
Minority interest in subsidiary
income......................... 14,985 -- -- -- --
----------- ----------- ----------- ---------- -----------
Net income (loss) (Note
1)................... $ 649,589 $ (599,446) $ 3,012,796 $ 727,195 $ 1,025,268
========== ========== ========== ========= ==========
Net income (loss) per share
(Notes 1, 14 and 15)........... $ 0.10 $ (0.09) $ 0.36 $ 0.09 $ 0.10
========== ========== ========== ========= ==========
Weighted average shares
outstanding (Notes 1, 14 and
15)............................ 6,618,536 7,038,810 8,487,854 7,762,640 10,338,208
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 53
ROMAC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL STOCK STOCK REACQUIRED STOCK TOTAL
------------------ PAID-IN REPURCHASE SUBSCRIPTIONS RETAINED -------------------- SHAREHOLDERS'
SHARES AMOUNT CAPITAL OBLIGATION RECEIVABLE EARNINGS SHARES AMOUNT EQUITY
--------- ------- ----------- ---------- ------------- ---------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1992......... 6,616,548 $66,166 $ 619,226 -- $ (31,365) $1,834,866 -- -- $ 2,488,893
Net income......... 649,589 649,589
Additional paid-in
capital from
issuance of
subsidiary common
stock............ 84,622 84,622
Subsidiary purchase
of subsidiary
common stock..... (37,214) (37,214)
Issuance of common
stock............ 3,978 40 8,303 8,343
Payments on stock
subscriptions
receivable....... 29,980 29,980
Distribution to
shareholders..... (150,000) (150,000)
--------- ------- ----------- ---------- ------------- ---------- -------- --------- -------------
Balance at December
31, 1993......... 6,620,526 66,206 674,937 -- (1,385) 2,334,455 -- -- 3,074,213
Net income of TAP
prior to TAP
conversion from S
Corp to C Corp
(Jan. 1, 1994
through Aug. 31,
1994)............ 81,220 81,220
Constructive
distribution of S
corporation
retained
earnings......... 469,405 (469,405)
Issuance of common
stock to minority
shareholders
(Notes 7 and
13).............. 1,254,852 12,548 590,044 (36,182) 316,340 882,750
Net loss subsequent
to conversion of
TAP to C Corp
(Sept. 1, 1994
through Dec. 31,
1994)............ (680,666) (680,666)
Payments on stock
subscriptions
receivable....... 1,385 1,385
Stock repurchase
obligation (Note
11).............. $ (924,072) (924,072)
--------- ------- ----------- ---------- ------------- ---------- -------- --------- -------------
Balance at December
31, 1994......... 7,875,378 $78,754 $ 1,734,386 $ (924,072) $ (36,182) $1,581,944 -- $ -- $ 2,434,830
Issuance of common
stock............ 2,080,000 20,800 11,381,346 11,402,146
Net income......... 3,012,796 3,012,796
Exercise of stock
options.......... 10,830 108 32,165 32,273
Payments on stock
subscriptions
receivable....... 18,593 18,593
Reacquired stock
(Note 11)........ 924,072 (338,220) (924,072)
Reacquired escrow
shares........... (154) (896) (896)
Tax benefit related
to employee stock
options.......... 24,518 24,518
--------- ------- ----------- ---------- ------------- ---------- -------- --------- -------------
Balance at December
31, 1995......... 9,966,208 99,662 13,172,415 -- (17,589) 4,594,740 (338,374) (924,968) 16,924,260
(Unaudited):
Net income......... 1,025,268 1,025,268
Exercise of stock
options.......... 16,948 170 46,335 46,505
Tax benefit related
to employee stock
options.......... 82,351 82,351
--------- ------- ----------- ---------- ------------- ---------- -------- --------- -------------
Balance at March
31,
1996............. 9,983,156 $99,832 $13,301,101 $ -- $ (17,589) $5,620,008 (338,374) $(924,968) $ 18,078,384
======== ======= ========== ========= ========== ========= ======== ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 54
ROMAC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------- -------------------------
1993 1994 1995 1995 1996
---------- ---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................... $ 649,589 $ (599,446) $ 3,012,796 $ 727,195 $ 1,025,268
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization....................... 298,380 248,428 511,961 89,431 236,764
Provision for losses on accounts and notes
receivable........................................ 162,649 215,362 290,250 -- (90,624)
Gain on disposal of fixed assets.................... (11,163) (1,000) (95) -- --
Minority interest................................... 14,985 -- -- -- --
Deferred taxes...................................... (107,869) (281,201) (63,836) -- --
(Increase) decrease in operating assets:
Trade receivables, net.............................. (296,727) (202,760) (4,423,705) (1,823,140) (3,033,235)
Notes receivable from franchisees, current.......... 34,268 62,923 (39,790) (127,311) (65,731)
Prepaid expenses and other current assets........... 90,253 (493,172) 396,847 542,572 (452,654)
Notes receivable from franchisees, less current
portion........................................... 45,606 95,215 23,468 12,024 --
Other assets, net................................... (64,990) (118,403) (255,377) (130,004) (38,175)
Increase (decrease) in operating liabilities:
Accounts payable and other accrued liabilities...... 242,538 401,855 (922,221) (210,773) 68,778
Accrued payroll costs............................... 216,617 404,583 (64,842) 170,496 1,045,049
Income taxes payable................................ (200,416) (72,467) 553,856 383,931 65,222
Other long-term liabilities......................... 71,524 330,381 (681,593) (24,371) 15,591
---------- ---------- ----------- ----------- -----------
Cash (used in) provided by operating
activities.................................... 1,145,244 (9,702) (1,662,281) (389,950) (1,223,747)
---------- ---------- ----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures.................................. (247,107) (119,772) (1,302,068) (183,051) (167,368)
Proceeds from sale of furniture and equipment, net.... 48,565 13,589 11,700 -- (5,963,163)
Proceeds from the sale of short-term investments...... -- 17,796 -- 153,995 7,243,356
Payments for purchase of short-term investments....... (69,882) -- (7,655,637) -- --
---------- ---------- ----------- ----------- -----------
Cash used in investing activities............... (268,424) (88,387) (8,946,005) (29,056) 1,112,825
---------- ---------- ----------- ----------- -----------
Cash flows from financing activities:
Payments on notes receivable from stock
subscriptions....................................... 29,980 49,825 18,593 18,593 --
Payments on notes payable............................. (682,889) (196,001) (570,098) (200,002) (90,929)
Payments on notes payable to related parties.......... (16,704) (89,345) (18,271)
Proceeds from issuance of notes payable............... -- 16,294 -- (47,264) --
Issuances of notes receivable from stock
subscription........................................ -- -- -- -- 41,124
Due to related parties................................ 71,874 -- --
Payments on notes receivable from related parties..... 40,475 10,268 96,110 4,239 110,849
Issuances of notes receivable from related parties.... (47,351) (172,199) (438,741) -- (26,963)
Additional paid-in capital from issuance of subsidiary
stock............................................... 84,622 -- -- -- --
Stock repurchases from subsidiaries................... (37,214) -- -- -- --
Proceeds from issuance of common stock................ 8,343 -- 11,402,146 -- --
Proceeds from exercise of stock options............... -- -- 32,273 -- 46,505
Repurchase of stock................................... -- -- 896 -- --
Distribution to shareholders.......................... (150,000) -- -- -- --
---------- ---------- ----------- ----------- -----------
Cash provided by (used in) financing activities..... (698,864) (381,158) 10,522,908 (224,434) 80,586
---------- ---------- ----------- ----------- -----------
Increase (decrease) in cash and cash equivalents........ 177,956 (479,247) (85,378) (643,440) (30,336)
Cash and cash equivalents at beginning of year.......... 1,006,435 1,184,391 705,144 705,144 619,766
---------- ---------- ----------- ----------- -----------
Cash and cash equivalents at end of year................ $1,184,391 $ 705,144 $ 619,766 $ 61,704 $ 589,430
========= ========= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 55
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Romac International, Inc. (the "Company") was formed on August 31, 1994 as
a result of a business combination of a specialty staffing services firm, in
operation under the ROMAC(R) name since 1966, and three of its largest
franchisees, by exchanging 7,498,660 shares of its common stock for
substantially all of the outstanding stock of FMA International, Inc. and its
subsidiaries ("Romac-FMA"), Romac and Associates, Inc. and Subsidiary ("Romac
Portland"), Romac and Associates of Boston, Inc. ("Romac Boston") and by
exchanging 376,718 shares of its common stock for all of the outstanding stock
of Temporary Accounting Professionals, Inc. ("TAP"). The Company is organized
into three divisions: the Professional Temporary Division provides professional
temporary personnel in the fields of finance and accounting; the Contract
Services Division provides information systems personnel generally on a
longer-term contractual basis; and the Search Division provides permanent
placement of specialized personnel in the fields of accounting and finance,
information systems, health care, pharmaceutical research, manufacturing
services, sales and marketing, human resources and insurance. The Company serves
principally Fortune 1000 companies in nine metropolitan markets through
Company-owned locations and seven additional metropolitan markets through
franchisees and licensees.
<TABLE>
<CAPTION>
OWNED LOCATIONS FRANCHISED/LICENSED LOCATIONS
- -------------------------------- --------------------------------
<S> <C>
Atlanta San Francisco
Boston Kansas City
Chicago New Orleans
Dallas Raleigh
Fort Lauderdale/Miami Minneapolis
Houston St. Louis
Philadelphia Valley Forge
Orlando
Tampa
</TABLE>
Share Exchanges
The share exchanges described above were accounted for as poolings of
interests, and accordingly, the accompanying financial statements have been
restated to include the accounts and operations of the combined companies for
all dates and periods prior to the Combination. Shares of the Company were also
exchanged for minority interests of the merged subsidiaries of Romac-FMA
resulting in excess fair market value of the minority interest shares over the
net book value of the minority interest which is recorded as goodwill. The
results of operations attributable to the minority interests have been included
in the Company's consolidated financial statements beginning on the acquisition
date (Notes 4 & 13).
Stock Split
On April 21, 1995, the Company declared a 1.023-for-1 stock split on its
common stock. All share-related data in these consolidated financial statements
have been adjusted retroactively to give effect to this split as if it had
occurred at the beginning of the earliest period presented. Additionally, the
Company declared a 2-for-1 stock split effected as a 100% stock dividend on its
common stock effective as of May 15, 1996. See footnote 14.
Initial Public Offering
The Company completed its initial public offering of 2,080,000 shares of
common stock on August 12, 1995. The proceeds of $11,402,146, net of
underwriters' discounts and other offering costs, were used to pay down debt,
reacquire stock, general working capital purposes, and to finance business
acquisitions.
F-7
<PAGE> 56
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intercompany accounts and transactions have
been eliminated in the consolidated 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. Actual results could differ from those estimates.
Minority Interest
Minority interest represented other shareholders' interest in certain
majority-owned subsidiary companies of Romac-FMA. Prior to the share exchange
agreement, minority interests were reduced by outstanding stock subscriptions
receivable due from the minority shareholders (Note 7). Subsequent to the share
exchange agreement, stock subscriptions receivable from minority shareholders of
Romac-FMA were exchanged for stock subscriptions of the Company's shares and are
now reflected as a reduction of shareholders' equity.
Cash and Cash Equivalents
The Company classifies all highly-liquid investments with a maturity of
three months or less as cash equivalents.
Investments
Investments in mutual funds and common stock have been classified as
available for sale and, as a result, are stated at fair value. Mutual funds
available for current operations are classified in the balance sheet as
short-term investments while investments in common stock are classified as other
assets. Unrealized holding gains and losses are included as a component of
shareholders' equity until realized. At December 31, 1995, there were no
unrealized gains or losses.
Furniture and Equipment
Furniture and equipment are carried at cost, less accumulated depreciation.
Major additions are capitalized, while repairs and maintenance are charged to
expense as incurred. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets. The cost of leasehold
improvements is amortized using the straight-line method over the term of the
related leases which range from 3 to 7 years (Note 3).
Revenue Recognition
Net service revenues consist of sales from Company-owned and licensed
offices, and royalties received from franchised operations, less credits and
discounts. The Company recognizes revenue for the Professional Temporary and
Contract Services Divisions based on hours worked by assigned personnel on a
weekly basis. Search Division revenues are recognized in contingency search
engagements upon the successful completion of the assignment. In retained search
engagements the initial retainer is recognized upon execution of the agreement,
with the balance recognized on completion of the search. Reserves are
established to estimate losses due to placed candidates not remaining in
employment for the Company's guarantee period, typically 90 days. Franchise fees
are determined based upon a contractual percentage of the revenue billed by
F-8
<PAGE> 57
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
franchisees. Costs relating to the support of franchised operations are included
in the Company's selling, general and administrative expenses. The Company
includes revenues and related direct costs of licensed offices in its net
service revenues and direct cost of services, respectively. Commissions paid to
licensees is based upon a percentage of the gross profit generated, and is
included in the Company's direct cost of services.
Income Taxes
The Company accounts for income taxes under the principles of FAS 109
Accounting for Income Taxes. FAS 109 requires an asset and liability approach to
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of differences between the carrying amounts and the tax bases
of other assets and liabilities. The tax effects of deductions attributable to
employees' disqualifying dispositions of shares obtained from incentive stock
options are reflected in additional paid-in capital.
TAP elected under the Internal Revenue Code to be an S corporation.
Historically, the shareholders of TAP included their pro rata share of income or
loss in their individual returns. Accordingly, these financial statements
reflect no provision for income taxes related to pre-tax earnings of TAP through
August 31, 1994. Effective with the share exchange on August 31, 1994, TAP's S
corporation status was converted to C corporation status and TAP's subsequent
earnings are subject to corporate taxes (Note 6).
Stock Based Compensation
The Company will adopt Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" ("SFAS 123") during 1996. Upon
adoption of SFAS 123, the Company intends to retain the intrinsic value method
of accounting for stock based compensation and disclose pro forma net income and
earnings per share amounts.
Earnings Per Share
Earnings per share is computed by dividing net income (loss), by the
weighted average number of common and common share equivalents outstanding.
Common stock equivalents consist of shares subject to stock options.
Reclassifications
Certain reclassifications have been made to the prior year financial
statements to conform with 1995 presentation.
Interim Financial Information
The interim financial data is unaudited; however, in the opinion of the
Company, the interim data includes all adjustments, consisting only of normal
recurring accruals, necessary for a fair statement of the results of the interim
periods.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined by
the Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting data
to develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The fair value estimates presented herein
are based on pertinent information available to management as of December 31,
1995. Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since that
date and current estimates of fair value may differ significantly from the
F-9
<PAGE> 58
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amounts presented herein. The fair values of the Company's financial instruments
are estimated based on current market rates and instruments with the same risk
and maturities. The fair values of cash and cash equivalents, accounts
receivable, short-term investments, accounts payable, notes payable and payables
to related parties approximate the carrying values of these financial
instruments.
3. FURNITURE AND EQUIPMENT
Major classifications of furniture and equipment and related asset lives
are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
USEFUL LIFE 1994 1995
----------- ---------- ----------
<S> <C> <C> <C>
Furniture, fixtures and equipment.................. 5 years $ 923,707 $1,113,849
Computer equipment................................. 5 years 291,035 1,843,533
Equipment under capital lease...................... lease term 180,690 865,040
Leasehold improvements............................. lease term 93,654 152,689
---------- ----------
1,489,086 3,975,111
Less accumulated depreciation and amortization... 1,174,555 1,569,827
---------- ----------
$ 314,531 $2,405,284
========= =========
</TABLE>
4. OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1994 1995 1996
-------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Goodwill, net....................................... $682,303 $ 574,444 $6,298,270
Investment in common stock.......................... 52,500 52,500 52,500
Cash surrender value of life insurance policies..... 172,489 413,698 443,105
Other............................................... 37,134 51,302 52,215
-------- ---------- ----------
$944,426 $1,091,944 $6,846,090
======== ========= =========
</TABLE>
Goodwill
Goodwill of $602,592 relating to the exchange of the minority interests of
the merged subsidiaries of Romac-FMA (Notes 1 & 13) was recorded at August 31,
1994 and is being amortized straight-line over a period of 15 years.
Approximately $550,000 remains unamortized at December 31, 1995. The remaining
goodwill of $24,444 relates to previous business acquisitions and is being
amortized on a straight-line basis over a period of five years. Management
periodically reviews the potential impairment of goodwill in order to determine
the proper carrying value of goodwill as of each balance sheet date presented.
Goodwill amortization expense of $87,800, $102,300 and $107,859 was recorded for
the years ended December 31, 1993, 1994, and 1995, respectively. Goodwill
related to acquisitions subsequent to December 31, 1995 is discussed in Note 14.
Cash Surrender Value
The cash surrender value of life insurance policies relates to policies
maintained on key employees used to fund deferred compensation agreements (Note
9) and an insurance policy, with a cash surrender value of $33,103 and $40,211
at December 31, 1994 and 1995, respectively, required under the terms of a note
payable to cover a key employee in an amount sufficient to pay the unpaid
balance of principal and interest on the note. Additionally, the Company
maintains key life insurance on officers with a cash surrender value of $111,095
at December 31, 1995.
F-10
<PAGE> 59
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. NOTES PAYABLE
Notes payable are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1995
------- --------
<S> <C> <C>
12% Note payable to former shareholder due in monthly installments
of $8,334 including interest commencing June 1992 through June
1993, quarterly installments of $50,000 including interest
commencing September 1993 through March 1995 and a final
installment of $1,733 including interest in June 1995........... $50,177 $ --
Installment notes payable at interest rates ranging from 5.75% to
10%, maturing at various dates through May 1995................. 16,294 --
Obligation under capital lease with monthly payments of principal
and interest at 14% through March 1998.......................... -- 303,656
Obligations under capital lease with monthly payments of principal
and interest at 15% through March 1999.......................... -- 398,901
------- --------
66,471 702,557
Less current maturities........................................... 66,471 208,072
------- --------
$ -- $494,485
======= ========
</TABLE>
Aggregate debt maturities including notes payable from related parties (see
Note 7) at December 31, 1995 are as follows: 1996 -- $231,072; 1997 -- $313,098;
1998 -- $168,413; 1999 -- $18,967.
In December 1994, the Company reached an agreement to consolidate its line
of credit arrangements to a $1.5 million credit facility bearing an interest
rate of 2.9% plus the 30 day commercial paper rate, (8.93% and 8.71% as of
December 31, 1994 and 1995, respectively), expiring and subject to renewal on
November 30, 1995. In November, this credit facility agreement was extended
through March 31, 1996 and was increased to $2.0 million. The consolidated line
of credit is secured by the Company's accounts receivable and deposit accounts.
This line of credit agreement contains restrictive covenants which require the
maintenance of certain financial ratios. The Company is in compliance with all
covenants as of December 31, 1995. No amounts were outstanding on any of these
lines of credit at December 31, 1994 and 1995.
6. INCOME TAXES
Prior to the August 31, 1994 share exchanges (Note 1) the various entities
that combined with the Company filed separate income tax returns. The provision
for income taxes has been calculated based upon those individual tax reporting
entities and does not represent the provision for income taxes as if the
entities filed a consolidated income tax return through the date of the share
exchanges. Subsequent to the share exchanges, the provision is calculated on a
consolidated basis.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
--------- --------- ----------
<S> <C> <C> <C>
Current:
Federal........................................... $ 471,983 $ 418,170 $1,657,867
State............................................. 83,788 49,196 414,466
Deferred............................................ (107,811) (281,201) (63,836)
--------- --------- ----------
$ 447,960 $ 186,165 $2,008,497
========= ========= =========
</TABLE>
F-11
<PAGE> 60
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes for 1993 and through the date of the share
exchanges in 1994, does not include a provision for the income of TAP during the
period that TAP was an S Corporation. If TAP were taxable as a C corporation at
the highest federal marginal tax rate, the provision for income taxes would
increase, on a pro forma basis, by $13,813 and $27,615 for the years 1993 and
1994, respectively.
The provision for income taxes shown above varied from the statutory
federal income tax rates for those periods as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
-----------------------
1993 1994 1995
---- ----- ----
<S> <C> <C> <C>
Federal income tax rate....................................... 34.0% (34.0)% 34.0%
Effect of graduated tax rates................................. (2.0) -- --
TAP S corporation income...................................... (1.2) (9.1) --
State income taxes, net of federal tax benefit................ 4.4 (4.0) 5.3
Non-deductible items.......................................... 2.4 140.2 1.1
Goodwill amortization......................................... 2.3 9.2 .4
Life insurance benefits....................................... -- (47.2) .2
Other......................................................... .4 -- (1.0)
---- ----- ----
Effective tax rate............................................ 40.3% 55.1% 40.0%
==== ===== ====
</TABLE>
Nondeductible items consist primarily of merger and acquisition costs and
meals and entertainment expenses which are not deductible for tax purposes,
resulting in higher income tax expense.
Deferred income tax assets and liabilities shown on the balance sheet are
comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1995
-------- --------
<S> <C> <C>
Deferred taxes -- current:
Assets
Allowances for bad debts................................ $126,368 $244,773
Accrued liabilities..................................... 88,447 63,601
-------- --------
214,815 308,374
Liabilities
Cash to accrual adjustment.............................. (40,433) --
-------- --------
Net deferred tax asset -- current....................... $174,382 $308,374
======== ========
Deferred taxes -- non-current:
Assets
Deferred compensation................................... $126,027 $170,112
Deferred rent........................................... 68,328 50,139
-------- --------
194,355 220,251
Liabilities
Depreciation............................................... (5,694) (101,746)
-------- --------
Net deferred tax asset -- non-current...................... $188,661 $118,505
======== ========
</TABLE>
A valuation allowance on the deferred tax assets has not been recorded due
to the presence of taxable income in years available for carryback.
F-12
<PAGE> 61
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. RELATED PARTIES
Receivables from Related Parties
Receivables from related parties are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1995
-------- --------
<S> <C> <C>
Receivables from officers and shareholders................... $246,999 $559,356
Other employee receivables................................... 83,102 113,376
-------- --------
330,101 672,732
Less current maturities...................................... 180,965 186,219
-------- --------
$149,136 $486,513
======== ========
</TABLE>
Receivables from officers and shareholders include receivables for premiums
paid on split dollar life insurance policies (see Note 9). Repayment terms on
the remaining unsecured receivables range from one to five years at rates of 7%
to 11%.
Payables to Related Parties
Notes payable to related parties include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1995
-------- --------
<S> <C> <C>
Note payable to a related party, principal and 9% interest,
payable in bi-monthly installments through May, 1997....... $ 47,264 $ 28,993
Less current maturities...................................... 23,000 23,000
-------- --------
$ 24,264 $ 5,993
======== ========
</TABLE>
Related Party Leases
The Company has operating leases with related parties as discussed in Note
11.
Subsidiary Stock Subscription Notes Receivable
From 1989 to August 31, 1994, certain subsidiaries of Romac-FMA issued
stock to key employees of its respective majority owned subsidiaries of
Romac-FMA in exchange for stock subscription notes receivable. At December 31,
1994 and 1995, $36,182 and $17,589, respectively, of subscription notes
receivable were outstanding and collateralized by the respective shares of the
subsidiaries' stock. The outstanding balances of these notes receivable were
reflected as a reduction of the minority interest through August 31, 1994, at
which time the minority interests of certain subsidiaries of Romac-FMA were
exchanged for shares in the Company and the remaining outstanding subscription
receivables are now shown as a reduction of shareholders' equity.
Accrued Liabilities
In October 1995, the Company entered into a strategic consulting agreement
with a company affiliated with one of its outside board members. Services under
this agreement are to be completed by December 1996 at a cost of approximately
$200,000.
8. FRANCHISE REORGANIZATION
During fiscal 1994, the Company reached an agreement with two of its
franchisees (the Philadelphia and Memphis locations) wherein the Company agreed
to terminate the remaining term of their franchise
F-13
<PAGE> 62
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
agreements in exchange for immediate cash payments and notes receivable
aggregating $560,000 and, with respect to the Philadelphia agreement, a
percentage of gross revenue for a specified time period, in lieu of the future
cash flows anticipated under the franchise agreement. The revenues from these
transactions have been reflected as other income for the period and are included
in cash flows from operations. Approximately $100,000 and $35,174 of note
payments remain receivable from these two franchisees at December 31, 1994 and
1995, respectively.
In January 1995, the Company reached agreements with the Arlington and
Dallas franchisees to terminate their franchise agreements. The terms of the
Arlington agreement included a $260,000 note receivable at 9% interest, payable
in 18 equal monthly installments. The agreement also includes a covenant not to
compete in the Arlington market for a four month period beginning January 1,
1995. The Dallas arrangement included a $175,000 cash settlement and the Company
retained the rights to the phone listing and other business records at the
Dallas location. The revenues from these transactions have been reflected as
other income in the first quarter of 1995. Approximately $90,475 of payments
remain receivable form Arlington at December 31, 1995.
The remaining notes receivable from franchisees consists primarily of
unsecured notes for franchise fees due from various franchisees. Repayment terms
range from one to five years at rates of 7% to 9%.
Franchise royalties amounted to $1,600,000, $886,000 and $487,000, for the
years ended December 31, 1993, 1994 and 1995, respectively.
9. EMPLOYEE BENEFIT PLANS
401(k) Savings Plan
Effective May 1, 1993, Romac-FMA implemented a qualified defined
contribution 401(k) plan covering substantially all full-time employees, except
officers and certain highly compensated employees. The plan offers a savings
feature and Company matching contributions. Employer matching contributions are
discretionary and are funded annually as approved by the Board of Directors.
Assets of this plan are held in trust for the sole benefit of employees.
Employer contributions to the 401(k) totalled $23,500 $28,236 and $22,406 in
1993, 1994 and 1995, respectively. Romac Boston and Romac Portland also have
qualified defined contribution 401(k) plans covering substantially all full-time
employees. No employer matching contributions were made for the years ended
December 31, 1993, 1994 and 1995.
Employee Stock Ownership Plan
Romac Boston maintains an employee stock ownership plan covering all
eligible employees meeting the length of service requirements. Effective with
the share exchange described in Note 1, the outstanding shares of the employee
stock ownership plan for Romac Boston were exchanged for 59,786 shares of the
Company. Contributions are determined solely at the discretion of its Board of
Advisors. No contributions were made for the three years ended December 31,
1995. These shares were sold during the Company's initial public offering and
the cash proceeds were entrusted to the plan.
Deferred Compensation Plan
The Company has a non-qualified deferred compensation plan pursuant to
which eligible officers and highly compensated key employees may elect to defer
part of their compensation to later years. The Company accrues interest and
discretionary Company matching contributions. These amounts, which are
classified as other long-term liabilities, are payable upon retirement or
termination of employment, and at December 31, 1994 and 1995, aggregated
$332,440 and $433,075, respectively. The Company has insured the lives of the
participants in the deferred compensation program, to assist in the funding of
the deferred compensation liability. The cash surrender value of these
Company-owned life insurance policies of $139,386 and $262,392
F-14
<PAGE> 63
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
at December 31, 1994 and 1995, respectively, is included in other assets.
Compensation expense of $108,300, $129,200 and $45,100 was recognized for the
plan for the years ended December 31, 1993, 1994, and 1995, respectively.
Split Dollar Life Insurance
In 1995, the company entered into split dollar and cross-purchase split
dollar life insurance agreements with several officers and their estates whereby
the Company pays a portion of the life insurance premiums on behalf of the
officers and their estates. The Company has been granted a security interest in
the cash value and death benefit of each policy equal to the amount of the
cumulative premium payments made by the Company. The intent of these agreements
is to, in the event of an officer's death, provide liquidity to pay estate taxes
and to provide surviving officers with the ability to purchase shares from a
deceased officer's estate, minimizing the possibility of a large block of the
Company's common shares being put on the open market to the potential detriment
of the Company's market price and to allow the Company to maintain a
concentration of voting power among its officers. The total premiums paid of
$381,300 is included in related party receivables for the year ended December
31, 1995 (see Note 7).
10. STOCK OPTION PLANS
During 1994, the Company established an incentive stock option plan which
authorized the issuance of options to purchase common stock to employees. The
maximum number of shares of common stock that could be issued under the plan
could not exceed 818,400. In 1995 the employee stock option incentive plan was
amended to increase the number of shares of common stock that may be issued
under the plan to 1,534,500. During 1995, the Company established a non-employee
director stock option plan which authorized the issue of options to purchase
common stock to non-employee directors. The maximum number of shares of common
stock that can be issued under the plan is 200,000.
A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
NON-
EMPLOYEE EMPLOYEE
INCENTIVE DIRECTOR
STOCK STOCK EXERCISE
OPTION OPTION PRICE
PLAN PLAN TOTAL PER SHARE
---------- --------- --------- ------------
<S> <C> <C> <C> <C>
Granted................................ 275,492 -- 275,492 $ 2.73
Exercised.............................. -- -- --
---------- --------- --------- ------------
Outstanding as of December 31, 1994.... 275,492 -- 275,492
Granted................................ 831,706 40,000 871,706 $2.98-$9.375
Exercised.............................. 10,830 -- 10,830 $ 2.98
---------- --------- --------- ------------
Outstanding as of December 31, 1995.... 1,096,368 40,000 1,136,368
========== ========= ======== ===========
Exercisable at December 31:
1995.............................. 313,646
1996.............................. 304,652 20,000
1997.............................. 276,566 20,000
1998.............................. 181,286
1999.............................. 20,218
</TABLE>
Tax benefits resulting from the disqualifying dispositions of shares
acquired under the Company's employee incentive stock option plan reduced taxes
currently payable by $24,518 in 1995. Such benefits are credited to additional
paid-in capital.
F-15
<PAGE> 64
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES
Operating Leases
During 1994, the Company transferred its interest in a limited partnership
to certain shareholders of the Company by assuming the Company's subscription
note payable for the limited partnership interest for an amount of $49,000,
which approximated the fair value of the limited partnership investment. The
principal asset of the partnership is an office building in which the Company
leases space for use as its headquarters. The Company leases this space under an
operating lease with monthly payments of $24,324, expiring in April 2001. The
Company also leases office space for Romac Portland from a related party at an
annual rental of $74,700 subject to adjustment as defined through December 31,
2000. The Company leases other space and various equipment under operating
leases expiring at various dates with some leases cancellable upon 30 to 90 days
notice. The leases require payment of taxes, insurance and maintenance costs in
addition to rental payments.
Future minimum lease payments under operating leases are summarized as
follows: 1996, $988,961; 1997, $869,316; 1998, $818,384; 1999, $692,732; and
$511,572 thereafter. Minimum obligations have not been reduced by minimum
sublease rentals of $221,500 due under a noncancellable sublease.
Rental expense under all operating leases was $712,904, $621,696 and
$759,452 for 1993, 1994 and 1995.
Noncancellable Processing Commitment
The Company has an agreement with a third party processor ("processor") who
provides certain services for some of the Company's franchised and licensed
temporary placement operations; the cost of such services is a percentage of
gross billings as defined within the agreement. Pursuant to certain contract
termination provisions, the Company would be required to pay $500,000 in the
event of termination of such agreement. The agreement continues in effect until
the aggregate of all amounts actually collected and paid to the processor from
September 1, 1985 exceeds $5,000,000. The cumulative amounts processed were
$2,963,873, $3,840,205 and $4,093,619 as of December 31, 1993, 1994 and 1995,
respectively.
Stock Repurchase Agreements
Stock repurchase agreements between certain subsidiaries of the Company
(former Romac-FMA subsidiaries) and certain shareholders provide for the
purchase of their shares of the subsidiaries' stock in the event of disability
or death of the shareholder, at market value as determined by an independent
third party. The commitment under such agreements is partially funded by term
life insurance and disability policies on these shareholders owned by the
Company. In connection with these redemption agreements, the Company had
employment agreements with such key employees until consummation of the share
exchange, wherein all such employment agreements were terminated, with the
exception of those discussed below and the repurchase agreements were amended to
reflect the receipt of shares of the Company in exchange for shares owned in the
former Romac-FMA subsidiaries. On April 26, 1995, all such agreements were
amended to convert the Company's repurchase obligation to an option to purchase,
at the discretion of the Company.
In October 1994, the Company became liable to repurchase approximately
338,220 shares under one of the stock repurchase agreements due to the death of
the shareholder. Under the terms of the repurchase agreement, the liability was
to be paid in five equal annual installments beginning March 1, 1995, with
interest payable at 9%. The liability of $924,072 is included in the amount of
$184,814 and $739,258 in accrued liabilities (current portion) and other
long-term liabilities, respectively, as of December 31, 1994. The note was paid
in full as of December 31,1995. The related life insurance proceeds of
approximately $500,000 is included in other current assets and other income for
the year ended December 31, 1994. The total remaining contingent obligation
under these stock repurchase agreements at December 31, 1994 is approximately
$2,500,000. The amendment of the stock purchase agreements on April 26, 1995 by
the Company and its
F-16
<PAGE> 65
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
certain shareholders eliminated all contingent stock repurchase obligations.
Accordingly, the related life insurance policies have been terminated.
Indemnifications
Certain contingencies existing at the date of the share exchange
transaction have been specifically indemnified through escrow accounts
established under the share exchange agreements.
Litigation
The Company is involved in litigation in the ordinary course of business
which will not, in the opinion of management, have a material effect on the
results of operations or financial condition of the Company.
Employment Agreements
Effective January 1, 1995, the Company entered into employment agreements
with certain executive officers which provide for minimum compensation and
salary and certain benefit continuation for a two year period under certain
circumstances. The agreements also provide for a payment of amounts two times
their annual salary if a change in control (as defined) of the Company occurs
and include a covenant against competition with the Company which extends for
one year after termination for any reason. The Company's liability at December
31, 1995 would be approximately $1.2 million in the event of a change in control
or if all of the employees under contract were to be terminated by the Company
without good cause (as defined) under these contracts.
12. SUPPLEMENTAL CASH FLOW INFORMATION
The Company's non-cash investing and financing activities and cash payments
for interest and income taxes were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1993 1994 1995
-------- -------- ----------
<S> <C> <C> <C>
Goodwill recorded in connection with the exchange of
1,022,774 shares of common stock for outstanding
minority interest (Notes 1, 4, & 13)................ $ -- $602,592 $ --
Contribution of minority interest liability at date of
share exchange transaction to retained earnings
(Notes 1, 7 & 13)................................... -- 316,340 --
Contribution of S Corporation retained earnings to
additional paid-in capital for change in TAP tax
status to C Corporation status (Note 1)............. -- 469,405 --
Accrued liability and long-term liability for stock
repurchase obligation (Note 11)..................... -- 924,072 --
Capital lease transaction............................. -- -- 1,206,184
Cash paid during the year for:
Interest............................................ $ 81,700 $ 29,700 $ 133,033
Income taxes........................................ $734,800 $539,900 $1,514,983
</TABLE>
13. BUSINESS COMBINATION
As described in Note 1, certain minority shares exchanged under the share
exchange agreement resulted in excess fair market value of the minority interest
shares over the net book value of the minority interest being recorded as
goodwill. In connection with the share exchange agreements and related
restructuring, approxi-
F-17
<PAGE> 66
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
mately $2,250,000 of combination expenses were incurred. Included in this amount
is approximately $1.3 million of merger and acquisition costs, primarily related
to brokerage, legal and accounting fees, which were incurred and expensed in
1994. Additionally, in 1994 the Company announced the decision to consolidate
and restructure its operations. As a result, management closed its Portland
office (former corporate headquarters) effective February 1995, and terminated
eight employees at the Portland and Boston locations at an approximate cost of
$900,000 which was expensed in 1994. As of December 31, 1994 and 1995,
approximately $390,000 and $70,000 of severance remains accrued in accounts
payable and other accrued expenses and $190,000 and $160,000 of lease costs
remain accrued in other long-term liabilities, respectively.
14. SUBSEQUENT EVENTS
On January 10, 1996, the Company completed the acquisition of all of the
assets except for cash and accounts receivable of Venture Network Corporation,
Inc. ("Venture"), a business engaged in the business of providing permanent and
contract services for information systems personnel. The purchase price,
including a non-compete agreement, is approximately $1.1 million and is subject
to adjustment upon attainment of certain operating results. In February 1996,
the Company entered into an asset purchase agreement with PCS Group, Inc., a
provider of contract service information systems personnel. The purchase price,
including a non-compete agreement, is approximately $2.3 million, subject to
adjustment upon attainment of certain operating results.
Stock Split
On May 5, 1996, the Company declared a 2-for-1 stock split effected as a
100% stock dividend on its common stock effective as of May 15, 1996 to be
reflected in the Nasdaq national market on May 23, 1996. All share-related data
in these consolidated financial statements have been adjusted retroactively to
give effect to this split as if it had occured at the beginning of the earliest
period presented.
Additional Subsequent Events (Unaudited)
In March 1996, the Company acquired Strategic Outsourcing, Inc. for
approximately $2.5 million in cash subject to adjustment upon attainment of
certain operating results. As of March 31, 1996, the Company recorded goodwill
of $5,793,954 related to the acquisitions subsequent to December 31,1995, net of
$66,050 of goodwill amortization.
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Fiscal 1994
Sales..................................... $10,602,964 $10,287,830 $ 10,369,943 $ 9,528,615
Gross profit.............................. 4,424,519 4,246,911 $ 4,181,743 3,084,330
Net income (loss)......................... $ 362,963 $ 349,446 (820,707) $ (491,148)
Earnings per share........................ $ .06 $ .05 $ (.14) $ (0.6)
Fiscal 1995
Sales..................................... $ 9,562,347 $10,051,649 $ 12,092,519 $13,948,347
Gross profit.............................. 4,203,278 4,717,960 5,325,508 5,948,097
Net income (loss)......................... $ 727,195 $ 480,778 $ 707,225 $ 1,097,598
Earnings per share........................ $ .10 $ .07 $ .08 $ .11
========== ========== ========== ==========
</TABLE>
F-18
<PAGE> 67
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholder of
Venture Networks Corporation, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations and retained earnings and of cash flows present fairly, in all
material respects, the financial position of Venture Networks Corporation, Inc.,
(the "Company") at December 31, 1995, and the results of its operations and its
cash flows for the year in conformity with generally accepted accounting
principles. 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 audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards 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 audit provides a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Tampa, Florida
March 20, 1996
F-19
<PAGE> 68
VENTURE NETWORKS CORPORATION, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
ASSETS
Current Assets:
Cash.......................................................................... $ 275
Trade receivables, less allowance for doubtful accounts of $10,000............ 322,307
------------
Total current assets.................................................. 322,582
Furniture and equipment, net (Note 3)......................................... 26,419
------------
Total assets.......................................................... $349,001
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and other current liabilities................................ $ 3,210
Accrued payroll costs (Note 7)................................................ 217,045
Line of credit (Note 4)....................................................... 30,000
------------
Total current liabilities............................................. 250,255
Commitments and contingencies (Note 6)
Shareholders' Equity:
Common stock, no par value; 15,000 shares authorized; 7,500 issued and
outstanding................................................................ --
Retained earnings............................................................. 98,746
------------
Total shareholder's equity............................................ 98,746
------------
Total liabilities and shareholder's equity............................ $349,001
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE> 69
VENTURE NETWORKS CORPORATION, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31,
1995
-------------------
<S> <C>
Net service revenues........................................................ $ 2,112,322
Direct cost of services..................................................... 753,031
-------------------
Gross profit...................................................... 1,359,291
Selling, general and administrative expenses................................ 1,170,532
Depreciation................................................................ 9,130
Interest expense............................................................ 3,240
-------------------
Net income........................................................ 176,389
Retained earnings:
Beginning of year......................................................... 7,357
Less dividends............................................................ (85,000)
-------------------
End of year............................................................... $ 98,746
==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE> 70
VENTURE NETWORKS CORPORATION, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31,
1995
------------------
<S> <C>
Cash flows from operating activities:
Net income................................................................ $ 176,389
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation........................................................... 9,130
Provision for losses on accounts receivable............................ 10,000
(Increase) decrease in operating assets:
Trade receivables.................................................... (14,028)
Increase (decrease) in operating liabilities:
Accounts payable and other accrued liabilities....................... (969)
Accrued payroll costs................................................ 35,521
------------------
Cash provided by operating activities............................. 216,043
------------------
Cash flows from investing activities:
Capital expenditures...................................................... (3,592)
------------------
Cash used in investing activities...................................... (3,592)
------------------
Cash flows from financing activities:
Payments on line of credit................................................ (170,000)
Proceeds from line of credit.............................................. 30,000
Dividends................................................................. (85,000)
------------------
Cash used in financing activities...................................... (225,000)
------------------
Decrease in cash............................................................ (12,549)
Cash at beginning of year................................................... 12,824
------------------
Cash at end of year......................................................... $ 275
==============
Supplemental disclosures of cash flow information:
Cash paid for interest.................................................... $ 3,240
==============
Cash paid for taxes....................................................... 456
==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE> 71
VENTURE NETWORKS CORPORATION, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Venture Networks Corporation, Inc. (the "Company") was formed in November
1987 for the purpose of providing contract personnel services and permanent
placement of specialized personnel in the fields of information systems,
software engineering, banking and finance. In 1993, the Company discontinued
providing services in the areas of banking and finance. The Company serves
primarily the Boston market area.
Furniture and Equipment
Furniture and equipment are carried at cost, less accumulated depreciation.
Major additions are capitalized, while repairs and maintenance are charged to
expense as incurred. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets.
Revenue Recognition
Net service revenues consist of sales less credits and discounts. The
Company recognizes revenue for Contract Services based on hours worked by
assigned personnel on a weekly basis. Search Division revenues are recognized in
contingency search engagements upon the successful completion of the search.
Reserves are established to estimate losses due to placed candidates not
remaining employment for the Company's guarantee period, typically 90 days.
Major Customers
The Company provided contract and permanent placement services of $473,000
in 1995 to two customers representing approximately 22% of total service
revenues for 1995.
Income Taxes
The Company elected to be taxed under the S Corporation provisions of the
Internal Revenue Code which provide for the taxable income of the Company to be
included in the income tax return of the individual shareholders. Accordingly,
there is no provision for income taxes included in the operating results for the
Company.
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. Actual results could differ from those estimates.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined by
the Company using available market information and appropriate valuation
methodologies. The fair values of the Company's financial instruments are
estimated based on current market rates and instruments with the same risk and
maturities. The fair values of cash, accounts receivable, accounts payable and
line of credit approximate the carrying values of these financial instruments.
F-23
<PAGE> 72
VENTURE NETWORKS CORPORATION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. FURNITURE AND EQUIPMENT
Major classifications of furniture and equipment and related asset lives
are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL LIFE 1995
----------- ------------
<S> <C> <C>
Furniture, fixtures and equipment.............................. 7 years $ 14,699
Computer equipment............................................. 5 years 46,532
------------
61,231
Less accumulated depreciation.................................. (34,812)
------------
$ 26,419
==========
</TABLE>
4. LINE OF CREDIT
The Company maintains a $200,000 bank line of credit agreement under which
$30,000 was outstanding at December 31, 1995. The use of this line generally is
restricted to the extent that the company is required periodically to liquidate
its indebtedness to the bank for 30 days each year. Additionally, the Company is
subject to various covenants under the line of credit agreement. At December 31,
1995, the Company was in compliance with these covenants. Interest on borrowings
under the agreement is 1.25% above the bank's base rate; 9.50% at December 31,
1995. The line is secured by the Company's assets. The line extends through
April 30, 1996 and will not be renewed (see Note 8).
5. DISTRIBUTIONS TO SHAREHOLDERS
Venture Networks distributed $85,000 to a stockholder in 1995, a portion of
which was to fund the shareholder's individual income tax liability related to
the S corporation taxable earnings.
6. COMMITMENTS AND CONTINGENCIES
Operating Leases
Future minimum lease payments under operating leases are summarized as
follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
------------------------------------------------------------------- -------
<S> <C>
1996............................................................... $11,040
1997............................................................... 7,660
1998............................................................... 300
1999............................................................... 300
2000............................................................... 300
Thereafter......................................................... 4,050
-------
$23,650
=======
</TABLE>
The Company incurred operating lease expense of $10,395 for the year ended
December 31, 1995, under a noncancelable operating lease for office facilities.
The lease expires August 31, 1997 and contains options for renewal at the end of
the lease term.
7. PROFIT SHARING PLAN
The Company adopted a defined contribution Profit Sharing Plan (the "Plan")
effective January 1, 1988. All employees of the company who are credited with at
least 1,000 hours of service during the Company's fiscal year are eligible to
participate in the Plan. Following the first year of employment, company
contributions deposited into profit sharing accounts for each employee vest 20%
for each year of service, and
F-24
<PAGE> 73
VENTURE NETWORKS CORPORATION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
become fully vested after six years of service or upon retirement, death,
disability or termination of the Plan. Benefits are generally payable following
retirement, disability, death, hardship or termination of employment. During
1995, the company authorized a $50,000 contribution to the Plan to be allocated
to the participants on the basis of a percentage of their annual compensation.
This amount is included in selling, general and administrative expenses. The
payment will be made to the Plan trustee prior to the filing of the 1995 tax
return and in accordance with the terms of the Plan. As a result of the asset
sale subsequent to year end (see Note 8), management intends to terminate the
Plan subsequent to payment of the contribution.
8. SUBSEQUENT EVENTS
On January 10, 1996, the Company completed the sale of all of its assets
except for cash and trade receivables to Romac International, Inc. The sale
price, including a non-compete agreement, is in excess of book value of the
assets acquired and is subject to adjustment upon attainment of certain
operating results.
F-25
<PAGE> 74
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
PCS Group, Inc.
We have audited the accompanying balance sheet of PCS Group, Inc. as of
December 31, 1995 and the related statements of income, retained earnings and
cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PCS Group, Inc. as of
December 31, 1995, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
/s/ Deming, Malone, Livesay & Ostroff
DEMING, MALONE, LIVESAY & OSTROFF
Louisville, Kentucky
April 18, 1996
F-26
<PAGE> 75
PCS GROUP, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
ASSETS
Current Assets:
Cash.......................................................................... $ 9,104
Trade receivables, less allowance for doubtful accounts of $17,903............ 622,838
Related party and employee receivables (Note 7)............................... 19,596
Prepaid expenses.............................................................. 1,504
------------
Total current assets.................................................. 653,042
------------
Furniture and equipment, net (Notes 1 and 3).................................... 20,836
Other assets.................................................................... 11,275
------------
Total assets.......................................................... $685,153
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit (Note 4)....................................................... $187,047
Accounts payable and other current liabilities................................ 114,093
Related party payables (Note 7)............................................... 1,979
Accrued payroll costs......................................................... 93,438
Deferred income............................................................... 80,969
------------
Total current liabilities............................................. 477,526
------------
Commitments and contingencies (Notes 6 and 8)
Stockholders' Equity:
Common stock, no par value; 1,000 shares authorized; 100 shares issued and
outstanding................................................................ 100
Paid-in capital............................................................... 4,902
Retained earnings............................................................. 202,625
------------
Total stockholders' equity............................................ 207,627
------------
Total liabilities and stockholders' equity............................ $685,153
==========
</TABLE>
See Notes to Financial Statements
F-27
<PAGE> 76
PCS GROUP, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31,
1995
------------------
<S> <C>
Net service revenues (Note 1)............................................... $ 3,583,233
Direct cost of services..................................................... (2,355,382)
------------------
Gross profit...................................................... 1,227,851
Selling, general and administrative expenses (Note 7)....................... (868,095)
Depreciation................................................................ (13,334)
Interest expense............................................................ (2,251)
Other income................................................................ 2,298
------------------
Net income........................................................ 346,469
Retained earnings beginning of year......................................... 61,841
Distributions (Note 5)...................................................... (205,685)
------------------
Retained earnings end of year............................................... $ 202,625
==============
</TABLE>
See Notes to Financial Statements
F-28
<PAGE> 77
PCS GROUP, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Cash flows from operating activities:
Net income.................................................................... $ 346,469
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation............................................................... 13,334
Provision for losses on accounts receivable................................ 17,903
Increase (decrease) in operating assets:
Trade receivables........................................................ (289,276)
Related party receivables................................................ (19,596)
Prepaid expenses......................................................... (79)
Other assets............................................................. 4,464
Increase (decrease) in operating liabilities:
Accounts payable and other accrued liabilities........................... 87,511
Accrued payroll costs.................................................... (62,579)
Deferred income.......................................................... 80,969
Related party payables................................................... (197,758)
------------
Net cash used in operating activities................................. (18,638)
------------
Cash flows used in investing activities:
Capital expenditures.......................................................... (2,732)
------------
Net cash used in investing activities................................. (2,732)
------------
Cash flows from financing activities:
Proceeds on line of credit.................................................... 187,047
Distributions................................................................. (205,685)
Payments on related party notes receivable.................................... 37,200
------------
Net cash provided by financing activities............................. 18,562
------------
Decrease in cash................................................................ (2,808)
Cash at beginning of year....................................................... 11,912
------------
Cash at end of year............................................................. $ 9,104
==========
</TABLE>
See Notes to Financial Statements.
F-29
<PAGE> 78
PCS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
PCS Group, Inc. (the "Company") was formed in 1992 for the purpose of
providing contract and contract to hire services in the area of information
systems. The Company serves primarily the Louisville, Kentucky market area.
Furniture and equipment
Furniture and equipment are carried at cost, less accumulated depreciation.
Major additions are capitalized, while repairs and maintenance are charged to
expense as incurred. Depreciation is computed using accelerated methods over the
estimated useful lives of the assets.
Revenue recognition
Net service revenues consist of sales less credits and discounts. The
Company recognizes revenue for contract services based on hours worked by
assigned personnel on a weekly basis. Contract to hire services are recognized
based upon the successful completion of the assignment.
Major customers
The Company provided contract and contract to hire services of $1,472,470
in 1995 to three customers, representing approximately 41% of total service
revenues for 1995.
Income taxes
The Company elected to be taxed under the S Corporation provisions of the
Internal Revenue Code which provide for the taxable income of the Company to be
included in the income tax return of the individual shareholders. Accordingly,
there is no provision for income taxes included in the operating results for the
Company.
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. Actual results could differ from those estimates.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined by
the Company using available market information and appropriate valuation
methodologies. The fair values of the Company's financial instruments are
estimated based on current market rates and instruments with the same risk and
maturities. The fair value of cash, accounts receivable, accounts payable and
line of credit approximate the carrying values of these financial instruments.
F-30
<PAGE> 79
PCS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. FURNITURE AND EQUIPMENT
Major classifications of furniture and equipment and related asset lives
are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL LIFE 1995
----------- ------------
<S> <C> <C>
Furniture, fixtures and equipment.............................. 5 years $ 6,201
Computer equipment............................................. 3 years 57,977
Leasehold improvements......................................... 3 years 3,250
------------
67,428
Less accumulated depreciation.................................. 46,592
------------
$ 20,836
==========
</TABLE>
4. LINE OF CREDIT
The Company maintains a $250,000 bank line of credit agreement under which
$187,047 was outstanding at December 31, 1995. Interest on borrowings under the
agreement is 1.5% above the bank's base rate; 10% at December 31, 1995. The line
is secured by the Company's assets. The line was repaid in full on February 27,
1996 (see Note 8).
5. DISTRIBUTIONS TO SHAREHOLDERS
The Company distributed $205,685 to two stockholders in 1995, a portion of
which was to fund the stockholders' individual income tax liability related to
the S corporation taxable earnings (see Note 8).
6. COMMITMENTS AND CONTINGENCIES
Operating leases
Future minimum lease payments under operating leases for office space and
equipment are summarized as follows:
<TABLE>
<S> <C>
1996............................................................ $74,830
1997............................................................ 31,731
1998............................................................ 6,551
</TABLE>
Total rental expense for 1995 for all leases was $80,939, which is net of
amounts received under sub-leases with affiliates of $12,960.
Litigation
The Company and its shareholders have been sued by the former employer of a
shareholder/employee for alleged violations of various business contractual
relationships. The suit is in the discovery stage and if an unfavorable outcome
results, it is estimated that the range of loss could be $50,000 to $500,000
under the net profits method of damage estimation. In management's opinion, the
Company has sufficient legal defenses to prevent a judgment that would
materially affect its financial position.
F-31
<PAGE> 80
PCS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. RELATED PARTY TRANSACTIONS
The Company was party to certain transactions with companies affiliated
through common ownership. As of December 31, 1995 and for the year then ended,
the nature and amounts of these transactions are as follows:
<TABLE>
<S> <C>
Management fee expense..................................................... $18,968
Receivables................................................................ 19,296
Payables................................................................... 1,979
</TABLE>
8. SUBSEQUENT EVENT
On February 16, 1996, the Company completed the sale of the intangible
assets to Romac International, Inc. The sale price, including a non-compete
agreement, is in excess of book value of the assets acquired and is subject to
adjustment upon attainment of certain operating results. Subsequent to January
1, 1996, the Company made significant stockholder distributions approximately
$1,800,000. These distributions were a result of the sale described above and to
fund the stockholders' individual income tax liability.
F-32
<PAGE> 81
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
To the Board of Directors of
Strategic Outsourcing, Inc.
In my opinion, the accompanying balance sheets and the related statements
of income and retained earnings and of cash flows present fairly, in all
material respects, the financial position of Strategic Outsourcing, Inc. at
December 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of Strategic Outsourcing Inc.'s management; my responsibility
is to express an opinion on these financial statements based on my audits. I
conducted my audits of these statements in accordance with generally accepted
auditing standards which require that I plan and perform the audits 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. I believe that my
audits provide a reasonable basis for the opinion expressed above.
/s/ Robert J. Dennehy
ROBERT J. DENNEHY
Medfield, Massachusetts
May 8, 1996
F-33
<PAGE> 82
STRATEGIC OUTSOURCING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1995
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................................ $ 55,363 $ 77,317
Trade receivables, less allowance for doubtful accounts of $0 and
$6,000 in 1994 and 1995, respectively............................ 1,083,191 1,199,219
Prepaid expenses and other current assets........................... 3,750 14,640
---------- ----------
Total current assets........................................ 1,142,304 1,291,176
Furniture and equipment, net (Note 3)................................. 165,794 148,562
Other assets.......................................................... 11,425 11,425
---------- ----------
Total assets................................................ $1,319,523 $1,451,163
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other current liabilities...................... $ 88,664 $ 77,276
Accrued payroll costs............................................... 135,156 102,140
Current taxes payable............................................... 456 7,000
Deferred income..................................................... 104,656 72,452
Current maturities of notes payable (Note 4)........................ 202,000 0
---------- ----------
Total current liabilities................................... 530,932 258,868
Commitments and contingencies (Note 6)
Stockholders' Equity:
Common stock, no par value; 15,000 shares authorized and 2,000
issued and outstanding........................................... -- --
Paid-in capital..................................................... 2,000 2,000
Retained earnings................................................... 786,591 1,190,295
---------- ----------
Total stockholders' equity.................................. 788,591 1,192,295
---------- ----------
Total liabilities and stockholders' equity.................. $1,319,523 $1,451,163
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE> 83
STRATEGIC OUTSOURCING, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE
YEARS ENDED DECEMBER 31,
---------------------------
1994 1995
---------- ----------
<S> <C> <C>
Net service revenues.............................................. $5,737,968 $7,134,637
Direct costs of services.......................................... 2,630,941 3,538,338
---------- ----------
Gross profit.................................................... 3,107,027 3,596,299
Selling, general and administrative expenses...................... 2,633,550 3,115,000
Depreciation...................................................... 64,796 67,213
Other (income) expense............................................ 1,857 (1,907)
---------- ----------
Income before taxes............................................... 406,824 415,993
Provision for taxes............................................... 456 7,000
---------- ----------
Net income...................................................... $ 406,368 $ 408,993
========= =========
Retained earnings:
Beginning of year............................................... $ 512,748 $ 786,591
Less distributions.............................................. (132,525) (5,289)
---------- ----------
End of year..................................................... $ 786,591 $1,190,295
========= =========
Net income per share.............................................. $ 203.18 $ 204.50
========= =========
Weighted average shares outstanding (Note 1)...................... 2,000 2,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE> 84
STRATEGIC OUTSOURCING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
YEARS ENDED DECEMBER 31,
-------------------------
1994 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income....................................................... $ 406,368 $ 408,993
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.................................................. 64,796 67,213
Provision for losses on accounts receivable................... -- 6,000
(Increase) decrease in operating assets:
Trade receivables............................................. (569,188) (122,028)
Prepaid expenses.............................................. 3,131 (10,890)
Increase (decrease) in operating liabilities:
Accounts payable and other accrued liabilities................ (5,067) (11,388)
Accrued payroll costs......................................... 66,615 (33,016)
Deferred income............................................... 104,656 (32,204)
Current taxes payable......................................... -- 6,544
--------- ---------
Cash provided by operating activities.................... 71,311 279,224
Cash flows from investing activities:
Capital expenditures............................................. (99,087) (49,981)
--------- ---------
Cash used in investing activities........................ (99,087) (49,981)
Cash flows from financing activities:
Proceeds from note payable....................................... 202,000 --
Payments on note payable......................................... -- (202,000)
Repayment of stockholder loan.................................... (98,680) --
Distributions.................................................... (132,525) (5,289)
--------- ---------
Cash used in financing activities........................ (29,205) (207,289)
Increase (decrease) in cash........................................ (56,981) 21,954
Cash at beginning of year.......................................... 112,344 55,363
--------- ---------
Cash at end of year................................................ $ 55,363 $ 77,317
========= =========
Supplemental disclosures of cash flow information:
Cash paid for interest........................................... $ 1,916 $ 1,696
Cash paid for taxes.............................................. 456 456
</TABLE>
The accompanying notes are an integral part of these financial statements
F-36
<PAGE> 85
STRATEGIC OUTSOURCING
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Strategic Outsourcing, Inc. (the "Company") was formed in 1989 as a human
resources consulting firm that specializes in assisting companies in
implementing a wide variety of outsourcing, outplacement, and career planning
programs. The Company serves primarily the Northeast United States market area.
Furniture and Equipment
Furniture and equipment are carried at cost, less accumulated depreciation.
Major additions are capitalized, while repairs and maintenance are charged to
expense as incurred. Depreciation is computed using the modified accelerated
cost recovery method over the estimated useful lives of the assets.
Revenue Recognition
Net service revenues consist of sales less credits and discounts. The
Company recognizes revenue for Contract Services based on hours worked by
assigned personnel on a weekly basis. Outplacement services are billed for the
total fee for the program selected and recognized over the period services are
rendered. Deferred income reflects those outplacement services billed but not
rendered as of year end.
Major Customers
The Company provided human resources services of $1,253,246 and $958,543 in
1994 and 1995, respectively, to a customer representing approximately 22% and
13% of total service revenues for 1994 and 1995, respectively.
Income Taxes
The Company, with the consent of its shareholders, has elected to have its
income taxed under Section 1362 of the Internal Revenue Code. Under those
provisions, the Company is not taxed directly, for federal purposes for the
years ended December 31, 1994 and 1995. Instead, the taxable income of the
Company is included in the income tax return of the individual shareholders.
Accordingly, there is no federal provision for income taxes included in the
operating results of the Company.
Earnings Per Share
Earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding during the period.
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. Actual results could differ from those estimates.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined by
the Company using available market information and appropriate valuation
methodologies. The fair values of the Company's financial instruments are
estimated based on current market rates and instruments with the same risk and
maturities.
F-37
<PAGE> 86
STRATEGIC OUTSOURCING
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The fair values of cash, accounts receivable, accounts payable and current
portion of note payable approximate the carrying values of these financial
instruments.
3. FURNITURE AND EQUIPMENT
Major classifications of furniture and equipment and related asset lives
are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
USEFUL LIFE 1994 1995
----------- --------- ---------
<S> <C> <C> <C>
Furniture, fixtures and equipment.................. 7 years $ 250,987 $ 255,973
Computer equipment................................. 5 years 149,763 194,758
--------- ---------
400,750 450,731
Less accumulated depreciation...................... (234,956) (302,169)
--------- ---------
$ 165,794 $ 148,562
========= =========
</TABLE>
4. LINE OF CREDIT
The Company maintains a $300,000 bank line of credit arrangement with the
Bank of Boston under which $202,000 was outstanding at December 31, 1994.
Amounts borrowed on the line bear interest at the prime rate plus 1.25% and is
secured by all business assets of the Company and personally guaranteed by the
stockholders. The use of this line generally is restricted to the extent that
the Company is required periodically to liquidate its indebtedness to the bank
for 30 days each year. Effective August 1995, the Company terminated its
agreement with the Bank of Boston and entered into a new one year facility in
the amount of $400,000 with Merrill Lynch. Amounts borrowed on the line bear
interest at the prime rate plus 1.0% and is secured by all of the business
assets of the Company and personally guaranteed by the stockholders.
Additionally, the Company is subject to various covenants under the line of
credit agreement.
At December 31, 1995 and 1994, the Company was in compliance with these
covenants. The line was terminated on March 4, 1996 (see Note 8).
5. DISTRIBUTIONS TO SHAREHOLDERS
The Company distributed $5,289 and $132,525 in 1994 and 1995, respectively,
to two stockholders in 1995, a portion of which was to fund the stockholders'
individual income tax liability related to the S corporation taxable earnings.
6. COMMITMENTS AND CONTINGENCIES
Operating Leases
Future minimum lease payments under operating leases are summarized as
follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
--------------------------------------------------------------- --------
<S> <C>
1996........................................................... $192,968
1997........................................................... 158,850
1998........................................................... 114,264
1999........................................................... 114,264
2000........................................................... 28,566
</TABLE>
7. RELATED PARTY TRANSACTION
During 1994, a stockholder loan in the amount of $98,680 was repaid to the
Company.
F-38
<PAGE> 87
STRATEGIC OUTSOURCING
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. SUBSEQUENT EVENT
On March 4, 1996, the Company completed the sale of the intangible assets
and net fixed assets to Romac International, Inc. The sale price, including a
non-compete agreement, is in excess of net book value of the assets acquired and
is subject to adjustment upon attainment of certain operating results.
F-39
<PAGE> 88
(4/C PROCESS T/C)
COVER PAGE OF BROCHURE WITH FOUR PHOTOGRAPHS REPRESENTING EMPLOYEES OF THE
COMPANY.
EXAMPLE ADVERTISEMENT USED BY THE COMPANY.
<PAGE> 89
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY
OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY,
NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY
ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH
IT IS UNLAWFUL TO MAKE SUCH AN OFFER. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 6
The Company..................................... 10
Use of Proceeds................................. 10
Dividend Policy................................. 10
Capitalization.................................. 11
Selected Consolidated Financial Data............ 12
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 14
Business........................................ 20
Management...................................... 30
Certain Transactions............................ 34
Principal and Selling Shareholders.............. 35
Description of Capital Stock.................... 36
Shares Eligible for Future Sale................. 37
Underwriting.................................... 38
Legal Matters................................... 39
Experts......................................... 39
Additional Information.......................... 40
Index to Unaudited Pro Forma Consolidated
Financial Information......................... P-1
Index to Consolidated Financial Statements...... F-1
</TABLE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
2,680,000 SHARES
LOGO
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
ROBERT W. BAIRD & CO.
INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
, 1996
- ------------------------------------------------------------------
- ------------------------------------------------------------------
<PAGE> 90
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder. All such
fees and expenses shall be borne by the Company.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............................... $ 19,481
NASD filing fee................................................................... 6,041
Nasdaq additional listing fee..................................................... 17,500*
Printing and engraving expenses................................................... 130,000*
Accounting fees and expenses...................................................... 100,000*
Legal fees and expenses........................................................... 142,500*
Blue Sky fees and expenses........................................................ 15,000*
Miscellaneous..................................................................... 69,478*
--------
Total................................................................... $500,000*
========
</TABLE>
- ---------------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is a Florida corporation. The Florida Business Corporation Act,
as amended (the "Florida Act"), provides that, in general, a business
corporation may indemnify any person who is or was a party to any proceeding
(other than an action by, or in the right of, the corporation) by reason of the
fact that he is or was a director or officer of the corporation, against
liability incurred in connection with such proceeding, including any appeal
thereof, provided certain standards are met, including that such officer or
director acted in good faith and in a manner he reasonably believed to be in, or
not opposed to, the best interests of the corporation, and provided further
that, with respect to any criminal action or proceeding, the officer or director
had no reasonable cause to believe his conduct was unlawful. In the case of
proceedings by or in the right of the corporation, the Florida Act provides
that, in general, a corporation may indemnify any person who was or is a party
to any such proceeding by reason of the fact that he is or was a director or
officer of the corporation against expenses and amounts paid in settlement
actually and reasonably incurred in connection with the defense or settlement of
such proceeding, including any appeal thereof, provided that such person acted
in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the corporation, except that no indemnification shall
be made in respect of any claim as to which such person is adjudged liable
unless a court of competent jurisdiction determines upon application that such
person is fairly and reasonably entitled to indemnity. To the extent that any
officers or directors are successful on the merits or otherwise in the defense
of any of the proceedings described above, the Florida Act provides that the
corporation is required to indemnify such officers or directors against expenses
actually and reasonably incurred in connection therewith. However, the Florida
Act further provides that, in general, indemnification or advancement of
expenses shall not be made to or on behalf of any officer or director if a
judgment or other final adjudication establishes that his actions, or omissions
to act, were material to the cause of action so adjudicated and constitute: (i)
a violation of the criminal law, unless the director or officer had reasonable
cause to believe his conduct was lawful or had no reasonable cause to believe it
was unlawful; (ii) a transaction from which the director or officer derived an
improper personal benefit; (iii) in the case of a director, a circumstance under
which the director has voted for or assented to a distribution made in violation
of the Florida Act or the corporation's articles of incorporation; or (iv)
willful misconduct or a conscious disregard for the best interests of the
corporation in a proceeding by or in the right of the corporation to procure a
judgment in its favor or in a proceeding by or in the right of a shareholder.
Article V of the Company's Bylaws provides that the Company shall indemnify any
director, officer, employee or agent or any former director, officer, employee
or agent to the full extent permitted by Florida law.
II-1
<PAGE> 91
The underwriters also will agree to indemnify the directors and officers of
the Company against certain liabilities as set forth in Section of the
Underwriting Agreement (see Exhibit 1).
The Company has purchased insurance with respect to, among other things,
any liabilities that may arise under the statutory provisions referred to above.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Effective August 31, 1994, the Company entered into separate Share Exchange
Agreements with the shareholders of (i) Romac and Associates, Inc., a
Massachusetts corporation, Romac & Associates of Boston, Inc., a Massachusetts
corporation, FMA International, Inc., a Florida corporation, Romac & Associates
of Tampa, Inc., a Florida corporation, FMA & Associates of Tampa, Inc., a
Florida corporation, Matthew James & Associates, Inc., a Florida corporation,
FMA Temporaries, Inc., a Florida corporation, FMA Temporaries of Rhode Island,
Inc., a Florida corporation, and FMA Consulting Services of Tampa, Inc., a
Florida corporation (collectively, the "Constituent Corporations"), and (ii)
Temporary Accounting Professionals, Inc., a Massachusetts corporation ("TAP").
In the share exchange with the shareholders of the Constituent Corporations, the
Company issued a total of 7,498,660 shares of its Common Stock to the
shareholders of the Constituent Corporations in exchange for all the shares of
common stock those shareholders owned in the Constituent Corporations. In the
share exchange with the shareholders of TAP, the Company issued a total of
376,718 shares of its Common Stock to the shareholders of TAP in exchange for
all the shares of outstanding common stock of TAP. As a result of these
transactions, each of the Constituent Corporations and TAP became a wholly-owned
subsidiary (directly or indirectly) of the Company, and the former shareholders
of the Constituent Corporations and TAP became shareholders of the Company.
The shares of Common Stock issued by the Company pursuant to the share
exchanges described above were exempt from registration under the Securities Act
of 1933 by virtue of Section 4(2) thereof and Rule 506, promulgated thereunder.
The shares were issued privately to a limited number of investors. The number of
investors, excluding accredited investors, was fewer than 35. All purchasers
were either (i) accredited investors, (ii) sophisticated investors with such
knowledge and experience in financial and business matters that they were
capable of evaluating the merits and risks of the prospective investment, or
(iii) represented by purchaser representatives who, together with the
purchasers, were capable of evaluating the merits and risk of the prospective
investment. A disclosure letter was delivered to all purchasers a reasonable
time prior to the transaction, and all purchasers were given an opportunity to
ask questions and receive answers from representatives of the Company. All
offerees were advised of the limitations on resale of the Common Stock and the
Company made reasonable inquiries to determine whether the purchasers were
acquiring the shares for themselves or with a view to distribution. Appropriate
restrictive legends were placed on all certificates representing shares of the
Common Stock issued in the share exchanges. No offers or sales were made by any
form of general advertising or solicitation. Pursuant to Rule 503, the requisite
number of copies of Form D were filed with the Securities and Exchange
Commission on September 14, 1994.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S> <C>
1 -- Form of Underwriting Agreement
2.1 -- Asset Acquisition Agreement between Romac International, Inc. and Venture Networks
Corporation, Inc.**
</TABLE>
<TABLE>
<C> <S> <C>
2.2 -- Asset Acquisition Agreement between Romac International, Inc. and PCS Group, Inc.**
2.3 -- Asset Acquisition Agreement between Romac International, Inc. and Strategic
Outsourcing, Inc.**
3.1 -- Amended and Restated Articles of Incorporation*
3.2 -- Amended and Restated Bylaws*
</TABLE>
II-2
<PAGE> 92
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S> <C>
4.1 -- Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit
3.1)*
4.2 -- Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2)*
4.3 -- Form of Stock Certificate*
5.0 -- Opinion of Holland & Knight
10.1 -- Share Exchange Agreement, dated as of August 25, 1994, among the Company and the
shareholders of Romac and Associates, Inc., Romac & Associates of Boston, Inc., FMA
International, Inc., Romac and Associates of Tampa, Inc., FMA and Associates of
Tampa, Inc., Matthew James & Associates, Inc., FMA Temporaries, Inc., FMA
Temporaries of Rhode Island, Inc., and FMA Consulting Services of Tampa, Inc.
(collectively, the "Constituent Corporations")*
10.2 -- TAP Share Exchange Agreement, dated as of August 25, 1994, among the Company and the
shareholders of Temporary Accounting Professionals, Inc. ("TAP")*
10.3 -- Escrow Agreement, dated as of August 25, 1994, among the Company, the shareholders
of the Constituent Corporations, and NationsBank of Florida, N.A., as escrow agent*
10.4 -- TAP Escrow Agreement, dated as of August 31, 1994, among the Company, the
shareholders of TAP, and NationsBank of Florida, N.A., as escrow agent*
10.5 -- Shareholders' Agreement, dated as of August 31, 1994, among the Company, David L.
Dunkel, Howard W. Sutter, and Richard M. Cocchiaro, as controlling shareholders, and
certain other shareholders and holders of options to purchase shares of the
Company's Common Stock*
10.6 -- Stock Purchase Agreement, dated as of March 1, 1995, between the Company and Janene
Maddock, as the personal representative of the Estate of Richard Maddock, and form
of promissory note*
10.7 -- Romac International, Inc. Amended and Restated Incentive Stock Option Plan****
10.8 -- Form of stock option agreement*
10.9 -- Non-Employee Director Stock Option Plan*****
10.10 -- Form of Deferred Compensation Agreement between FMA International, Inc. and certain
of its officers*
10.11 -- Employment Agreement, dated as of January 1, 1995, between the Company and David L.
Dunkel, as amended on July 14, 1995*
10.12 -- Employment Agreement, dated as of January 1, 1995, between the Company and Howard W.
Sutter, as amended on July 14, 1995*
10.13 -- Employment Agreement, dated as of January 1, 1995, between the Company and Maureen
A. Rorech, as amended on July 14, 1995*
10.14 -- Employment Agreement, dated as of January 1, 1995, between the Company and Peter
Dominici, as amended on July 14, 1995*
10.15 -- Consulting Agreement dated October 27, 1995, between the Company and Corporate
Resource Development, Inc.+
10.16 -- License Agreement, dated July 18, 1990, between Romac and Associates, Inc. and
McCloud Enterprises, Inc., as amended*
10.17 -- Franchise Agreement, dated January 31, 1985, between Romac and Associates, Inc. and
PS Group, Inc., as amended*
10.18 -- License Agreement, dated January 2, 1990, between Romac and Associates, Inc. and Bye
Enterprises, Inc., as amended*
10.19 -- Form of Franchise Agreement, dated July 17, 1989, between Romac and Associates, Inc.
and John R. McLaughlin and Steven A. Reiter, as amended*
</TABLE>
II-3
<PAGE> 93
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S> <C>
10.20 -- Amendment No. 1 dated August 5, 1995 to Franchise Agreement between Romac and
Associates, Inc., and John R. McLaughlin, and Steven A. Reiter+
10.21 -- Lease Agreement, dated January 8, 1991, between Hyde Park Place Ltd. II, as lessor,
and FMA International, Inc., as lessee*
10.22 -- Parking Agreement, dated April 13, 1995, between Hyde Park Place Ltd. II, as lessor
and the Company, as lessee+
10.23 -- Lease Agreement, dated January 16, 1995, between the Company and Sun Microsystems
Finance*
10.24 -- Form of Master Finance Agreement between the Company and Informix Software, Inc.*
10.25 -- Promissory Note dated March 13, 1996, between the Company and NationsBank, N.A.
(South) and related guarantees and security agreements***
10.26 -- Form of Split Dollar and Cross-purchase Split Dollar Agreement+
10.27 -- Registration Rights Agreement, dated as of August 31, 1994, among the Company and
certain shareholders of the Constituent Corporations and TAP*
10.28 -- Shareholder Registration Rights Agreement, dated as of September 5, 1994, among the
Company and certain shareholders of the Company*
21 -- Subsidiaries of the Registrant+
23.1 -- Consent of Holland & Knight (to be contained in Exhibit 5)
23.2 -- Consent of Price Waterhouse LLP
23.3 -- Consent of Deming, Malone, Livesay & Ostroff, P.S.C.
23.4 -- Consent of Robert J. Dennehy, C.P.A.
24 -- Powers of Attorney (see power of attorney contained on page II-5)+
</TABLE>
- ---------------
* Incorporated by reference to the Company's Registration Statement
on Form S-1 (File No. 33-91738).
** Incorporated by reference to the Company's Current Report on
Form 8-K (File No. 0-26058).
*** Incorporated by reference to the Company's Annual Report on
Form 10-K (File No. 0-26058).
**** Incorporated by reference to the Company's Registration Statement
on Form S-8 (File No. 33-97134).
***** Incorporated by reference to the Company's Proxy Statement on
Schedule 14A (File No. 0-26058).
+ Previously filed
(b) Financial Statement Schedules
Consolidated financial statement schedule for the three years ended
December 31, 1994:
Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
requested information is shown in the Financial Statements of the Registrant or
Notes thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
II-4
<PAGE> 94
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 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
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 95
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Tampa, State of Florida, on the 15th day of May, 1996.
ROMAC INTERNATIONAL, INC.
By: /s/ PETER DOMINICI
------------------------------------
Peter Dominici,
Chief Financial Officer and
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------------- -------------
<C> <S> <C>
/s/ DAVID L. DUNKEL* President, Chief Executive May 15, 1996
- --------------------------------------------- Officer, and Director
David L. Dunkel (principal executive officer)
/s/ PETER DOMINICI Chief Financial Officer, May 15, 1996
- --------------------------------------------- Treasurer, and Director
Peter Dominici (principal financial and
accounting officer)
/s/ HOWARD W. SUTTER* Director May 15, 1996
- ---------------------------------------------
Howard W. Sutter
/s/ MAUREEN A. RORECH* Director May 15, 1996
- ---------------------------------------------
Maureen A. Rorech
/s/ GORDON TUNSTALL* Director May 15, 1996
- ---------------------------------------------
Gordon Tunstall
/s/ WILLIAM R. CAREY, JR.* Director May 15, 1996
- ---------------------------------------------
William R. Carey, Jr.
/s/ RICHARD M. COCCHIARO* Director May 15, 1996
- ---------------------------------------------
Richard M. Cocchiaro
*By /s/ PETER DOMINICI
- ---------------------------------------------
Peter Dominici
Attorney-in-fact
</TABLE>
II-6
<PAGE> 96
SCHEDULE II
ROMAC INTERNATIONAL, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SUPPLEMENT SCHEDULE
<TABLE>
<CAPTION>
COLUMN C
-----------------------
COLUMN B ADDITIONS
--------------- ----------------------- COLUMN E
COLUMN A BALANCE AT CHARGED TO CHARGED TO COLUMN D -------------
- ------------------------------------ BEGINNING OF COSTS AND OTHER ---------- BALANCE AT
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
- ------------------------------------ --------------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Allowance Reserve................... 1993 $223,477 $162,649 $-- $ 84,326 $ 301,800
1994 $301,800 $215,362 $-- $184,262 $ 332,900
1995 $332,900 $376,201 $-- $ 85,951 $ 623,150
</TABLE>
<PAGE> 1
Exhibit 1
F&L 5/6/96 ROMAC INTERNATIONAL, INC.
____________ Shares of Common Stock*
UNDERWRITING AGREEMENT
MAY ___, 1996
ROBERT W. BAIRD & CO. INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
As Representatives of the Several Underwriters
Identified in Schedule II Annexed Hereto
c/o Robert W. Baird & Co. Incorporated
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Ladies and Gentlemen:
SECTION 1. INTRODUCTORY. Romac International, Inc., a Florida
corporation (the "Company"), and the several shareholders of the Company
identified in Schedule I annexed hereto (the "Selling Shareholders") propose to
sell _______________ shares (the "Firm Shares") of common stock, $.01 par value
per share (the "Common Stock"), to the several underwriters identified in
Schedule II annexed hereto (the "Underwriters"), who are acting severally and
not jointly. In addition, the Company has agreed to grant to the Underwriters an
option to purchase up to ____________ additional shares of Common Stock (the
"Optional Shares") as provided in section 6 hereof. The Firm Shares and, to the
extent such option is exercised, the Optional Shares are hereinafter
collectively referred to as the "Shares."
You, as representatives of the Underwriters (the
"Representativess"), have advised the Company and the Selling Shareholders that
the Underwriters propose to make a public offering of their respective portions
of the Shares as soon hereafter as in your judgment is advisable and that the
public offering price of the Shares initially will be $_____ per share.
The Company and the Selling Shareholders hereby confirm their
respective agreements with the Underwriters and each other as follows:
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to, and agrees with, the several Underwriters,
and shall be deemed to represent and warrant to the several Underwriters on each
Closing Date (as hereinafter defined), that:
- -------------------------
* Plus an option to acquire up to _________ additional shares of
Common Stock from the Company to cover over-allotments.
<PAGE> 2
(a) Each of the Company and the subsidiaries of the
Company that are listed on Exhibit 21.1 of the Registration Statement
(as hereinafter defined) (individually, a "Subsidiary" and
collectively, the "Subsidiaries") has been duly incorporated and is
validly existing as a corporation and in good standing under the laws
of its jurisdiction of incorporation, with full corporate power and
authority to own, lease and operate its properties and to conduct its
business as presently conducted and described in the Prospectus (as
hereinafter defined) and the Registration Statement; each of the
Company and the Subsidiaries is duly registered and qualified to do
business as a foreign corporation under the laws of, and is in good
standing as such in, each jurisdiction in which such registration or
qualification is required, except where the failure to so register or
qualify would not have a material adverse effect on the condition
(financial or other), business, property, net worth, results of
operations or prospects of the Company and the Subsidiaries, taken as a
whole ("Material Adverse Effect"); and no proceeding has been
instituted in any such jurisdiction revoking, limiting or curtailing,
or seeking to revoke, limit or curtail, such power and authority or
qualification. Complete and correct copies of the articles of
incorporation and by-laws, as amended or restated ("Articles of
Incorporation" and "By-laws," respectively), of the Company and each of
the Subsidiaries as in effect on the date hereof have been delivered to
the Representatives, and no changes thereto will be made on or
subsequent to the date hereof and prior to each Closing Date.
(b) The shares of Common Stock issued and outstanding
immediately prior to the issuance and sale of the Shares to be sold by
the Company hereunder as set forth in the Prospectus have been duly
authorized and validly issued, are fully paid and nonassessable and
conform to the description thereof contained in the Prospectus and the
Registration Statement. There are no preemptive, preferential or,
except as described in the Prospectus, other rights to subscribe for or
purchase any shares of Common Stock (including the Shares), and no
shares of Common Stock have been issued in violation of such rights.
The Shares to be issued and sold by the Company to the Underwriters
have been duly authorized and, when issued, delivered and paid for
pursuant to this Agreement, will be validly issued, fully paid and
nonassessable and will conform to the description thereof contained in
the Prospectus and the Registration Statement. The delivery of
certificates for the Shares to be issued and sold by the Company
hereunder and payment therefor pursuant to the terms of this Agreement
will pass valid title to such Shares to the Underwriters, free and
clear of any lien, claim, encumbrance or defect in title. Except as
described in the Prospectus, there are no outstanding options, warrants
or other rights of any description, contractual or otherwise, entitling
any person to be issued any class of security by the Company or any
Subsidiary, and there are no holders of Common Stock or other
securities of the Company or any Subsidiary, or of securities that are
convertible or exchangeable into Common Stock or other securities of
the Company or any Subsidiary, that have rights to the registration of
such Common Stock or securities under the Securities Act of 1933, as
amended, and the regulations thereunder (together, the "Act") or the
securities laws or regulations of any of the states (the "Blue Sky
Laws").
-2-
<PAGE> 3
(c) Except for the Subsidiaries, and as otherwise set
forth in the Prospectus, the Company has no subsidiaries and does not
own any equity interest in or control, directly or indirectly, any
other corporation, limited liability company, partnership, joint
venture, association, trust or other business organization. The Company
owns directly all of the issued and outstanding capital stock of each
Subsidiary, free and clear of any and all liens, claims, encumbrances
or security interests, and all such capital stock has been duly
authorized and validly issued and is fully paid and nonassessable.
There are no outstanding options, warrants or other rights of any
description, contractual or otherwise, entitling any person to
subscribe for or purchase any shares of capital stock of any
Subsidiary.
(d) The Company has full corporate power and authority to
enter into and perform this Agreement, and the execution and delivery
by the Company of this Agreement and the performance by the Company of
its obligations hereunder and the consummation of the transactions
described herein, have been duly authorized with respect to the Company
by all necessary corporate action and will not: (i) violate any
provisions of the Articles of Incorporation or By-laws of the Company
or any Subsidiary; (ii) violate any provisions of, or result in the
breach, modification or termination of, or constitute a default under,
any provision of any agreement, lease, franchise, license, indenture,
permit, mortgage, deed of trust, evidence of indebtedness or other
instrument to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary, or any property owned or leased by
the Company or any Subsidiary, may be bound or affected; (iii) violate
any statute, ordinance, rule or regulation applicable to the Company or
any Subsidiary, or order or decree of any court, regulatory or
governmental body, arbitrator, administrative agency or instrumentality
of the United States or other country or jurisdiction having
jurisdiction over the Company or any Subsidiary; or (iv) result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any Subsidiary. No consent,
approval, authorization or other order of any court, regulatory or
governmental body, arbitrator, administrative agency or instrumentality
of the United States or other country or jurisdiction is required for
the execution and delivery of this Agreement by the Company, the
performance of its obligations hereunder or the consummation of the
transactions contemplated hereby, except for compliance with the Act,
the Securities Exchange Act of 1934, as amended, and the regulations
thereunder (together, the "Exchange Act"), the Blue Sky Laws applicable
to the public offering of the Shares by the several Underwriters and
the clearance of such offering and the underwriting arrangements
evidenced hereby with the National Association of Securities Dealers,
Inc. (the "NASD"). This Agreement has been duly executed and delivered
by and on behalf of the Company and is a valid and binding agreement of
the Company enforceable against the Company in accordance with its
terms.
(e) A registration statement on Form S-1 (Reg. No.
333-_______) with respect to the Shares, including a preliminary form
of prospectus, has been carefully prepared by the Company in conformity
with the requirements of the Act and has been filed with the Securities
and Exchange Commission (the "Commission"). Such registration
statement, as finally amended and revised at the time such registration
statement was or
-3-
<PAGE> 4
is declared effective by the Commission (including the information
contained in the form of final prospectus, if any, filed with the
Commission pursuant to Rule 424(b) and Rule 430A under the Act and
deemed to be part of the registration statement if the registration
statement has been declared effective pursuant to Rule 430A(b)) and as
thereafter amended by post-effective amendment, if any, and any and all
registration statements and amendments filed pursuant to Rule 462 under
the Act, if any, is herein referred to as the "Registration Statement."
The related final prospectus in the form first filed with the
Commission pursuant to Rule 424(b) or, if no such filing is required,
as included in the Registration Statement, or any supplement thereto,
is herein referred to as the "Prospectus." The prospectus subject to
completion in the form included in the Registration Statement at the
time of the initial filing of the Registration Statement with the
Commission, and each such prospectus as amended from time to time until
the date of the Prospectus, is referred to herein as the "Preliminary
Prospectus." The Company has prepared and filed such amendments to the
Registration Statement since its initial filing with the Commission, if
any, as may have been required to the date hereof, and will file such
additional amendments thereto as may hereafter be required. There have
been delivered to the Representativess two signed copies of the
Registration Statement and each amendment thereto, if any, together
with two copies of each exhibit filed therewith or incorporated by
reference therein, and such number of conformed copies for each of the
Underwriters of the Registration Statement and each amendment thereto,
if any (but without exhibits), and of each Preliminary Prospectus and
of the Prospectus as the Representatives have requested.
(f) Neither the Commission nor any state securities
commission has issued any order preventing or suspending the use of any
Preliminary Prospectus, nor, to the knowledge of the Company, have any
proceedings for that purpose been initiated or threatened, and each
Preliminary Prospectus filed with the Commission as part of the
Registration Statement as originally filed or as part of any amendment
or supplement thereto complied when so filed with the requirements of
the Act and, as of its date, did not include any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. As
of the effective date of the Registration Statement, and at all times
subsequent thereto up to each Closing Date, the Registration Statement
and the Prospectus contained or will contain all statements that are
required to be stated therein in accordance with the Act and conformed
or will conform in all respects to the requirements of the Act, and
neither the Registration Statement nor the Prospectus included or will
include any untrue statement of a material fact or omitted or will omit
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading. Neither the Company, nor
any person that controls, is controlled by (including the Subsidiaries)
or is under common control with the Company, has distributed or will
distribute prior to each Closing Date any offering material in
connection with the offering and sale of the Shares other than a
Preliminary Prospectus, the Prospectus, the Registration Statement or
other materials permitted by the Act and provided to the
Representatives.
(g) Price Waterhouse LLP, which has expressed its opinion
with respect to the consolidated financial statements and schedules of
the Company and Venture Networks,
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<PAGE> 5
Inc. filed with the Commission and included as a part of each
Preliminary Prospectus, the Prospectus or the Registration Statement
are independent accountants as required by the Act.
Deming, Malone, Livesay and Ostroff, P.S.C., which has
expressed its opinion with respect to the consolidated financial
statements and schedules of PCS Group, Inc. filed with the Commission
and included as a part of each Preliminary Prospectus, the Prospectus
or the Registration Statement are independent accountants as required
by the Act.
Robert F. Dennehy, which has expressed his opinion with
respect to the consolidated financial statements and schedules of
Strategic Outsourcing, Inc. filed with the Commission and included as a
part of each Preliminary Prospectus, the Prospectus or the Registration
Statement is an independent accountant as required by the Act.
(h) The consolidated financial statements of the Company
and the related notes thereto included in each Preliminary Prospectus,
the Prospectus and the Registration Statement present fairly the
financial position, results of operations and cash flows of the Company
as of their respective dates or for the respective periods covered
thereby, all in conformity with generally accepted accounting
principles consistently applied throughout the periods involved. The
financial statement schedules, if any, included in the Registration
Statement present fairly the information required to be stated therein
on a basis consistent with the consolidated financial statements of the
Company contained therein. The Company had an outstanding
capitalization as set forth in the Registration Statement and under
"Capitalization" in the Prospectus as of the date indicated therein,
and there has been no material change thereto since such date except as
disclosed in the Prospectus. The financial and statistical information
and data relating to the Company in each Preliminary Prospectus, the
Prospectus and the Registration Statement are accurately presented and
prepared on a basis consistent with the audited consolidated financial
statements and books and records of the Company. The consolidated
financial statements and schedules of the Company and the related notes
thereto, as well as the financial statements and related notes thereto
described in subsection (i) and (j) below included in each Preliminary
Prospectus, the Prospectus or the Registration Statement are the only
such financial statements and schedules required under the Act to be
set forth therein.
(i) The financial statements of Venture Networks, Inc.,
PCS Group, Inc. and Strategic Outsourcing, Inc. (the "Acquired
Companies") and the related notes thereto included in each Preliminary
Prospectus, the Prospectus and the Registration Statement present
fairly the financial position, result of operations and cash flows of
the Acquired Companies as of their respective dates or for the
respective periods covered thereby, all in conformity with generally
accepted accounting principles consistently applied throughout the
periods involved. The financial and statistical information and data
relating to the Acquired Companies in each Preliminary Prospectus, the
Prospectus and the Registration Statement are accurately presented and
prepared on a basis consistent
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<PAGE> 6
with the audited financial statements and of books and records of the
Acquired Companies.
(j) The pro forma consolidated financial statements and
the related notes thereto which give effect to the acquisition of the
Acquired Companies included in each Preliminary Prospectus, the
Prospectus and the Registration Statement present fairly the financial
position, result of operations and cash flows of the Company as of
their respective dates or for the respective periods covered thereby,
all in conformity with generally accepted accounting principles
consistently applied throughout the periods involved. The pro forma
consolidated financial and statistical information and data in each
Preliminary Prospectus, the Prospectus and the Registration Statement
are accurately presented and prepared on a basis consistent with the
pro forma consolidated financial statements.
(k) Neither the Company nor any Subsidiary is, nor with
the giving of notice or passage of time or both, would be, in violation
or in breach of: (i) its respective Articles of Incorporation or
By-laws; (ii) any statute, ordinance, order, rule or regulation
applicable to the Company or such Subsidiary; (iii) any order or decree
of any court, regulatory body, arbitrator, administrative agency or
other instrumentality of the United States or other country or
jurisdiction having jurisdiction over the Company or such Subsidiary;
or (iv) any provision of any agreement, lease, franchise, license,
indenture, permit, mortgage, deed of trust, evidence of indebtedness or
other instrument to which the Company or such Subsidiary is a party or
by which any property owned or leased by the Company or such Subsidiary
is bound or affected. Neither the Company nor any Subsidiary has
received notice of any violation of any applicable statute, ordinance,
order, rule or regulation applicable to the Company or any Subsidiary.
The Company and each Subsidiary have obtained and hold, and are in
compliance with, all permits, certificates, licenses, approvals,
registrations, franchises, consents and authorizations of governmental
or regulatory authorities required under all laws, rules and
regulations in connection with their businesses (hereinafter "permit"
or "permits"), and all of such permits are in full force and effect;
and the Company and each Subsidiary have fulfilled and performed all of
their respective obligations with respect to each such permit and no
event has occurred which would result in, or after notice or lapse of
time would result in, revocation or termination of any such permit or
result in any other impairment of the rights of the holder of such
permit. Neither the Company nor any Subsidiary is or has been (by
virtue of any action, omission to act, contract to which it is a party
or other occurrence) in violation of any applicable foreign, federal,
state, municipal or local statutes, laws, ordinances, rules,
regulations or orders (including those relating to environmental
protection, occupational safety and health and equal employment
practices) heretofore or currently in effect.
(l) There are no legal or governmental proceedings or
investigations pending or, to the knowledge of the Company, threatened
to which the Company or any Subsidiary is or may be a party or to which
any property owned or leased by the Company or any Subsidiary is or may
be subject, including, without limitation, any such proceedings that
are related to environmental or employment discrimination matters,
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<PAGE> 7
which are required to be described in the Registration Statement or the
Prospectus which are not so described, or which question the validity
of this Agreement or any action taken or to be taken pursuant hereto.
Except as described in the Registration Statement or the Prospectus,
neither the Company nor any Subsidiary: (i) is in violation of any
statute, ordinance, rule or regulation, or any decision, order or
decree of any court, regulatory body, arbitrator, administrative agency
or other instrumentality of the United States or other country or
jurisdiction having jurisdiction over the Company or such Subsidiary
relating to the use, disposal or release of hazardous or toxic
substances or relating to the protection or restoration of the
environmental or human exposure to hazardous or toxic substances
(collectively, "environmental laws"); (ii) owns or operates any real
property contaminated with any substance that is subject to any
environmental laws; (iii) is liable for any off-site disposal or
contamination pursuant to any environmental laws; or (iv) is subject to
any claim relating to any environmental laws, which violation,
contamination, liability or claim could have a Material Adverse Effect.
(m) There is no transaction, relationship, obligation,
agreement or other document required to be described in the
Registration Statement or the Prospectus or to be filed or deemed to be
filed as an exhibit to the Registration Statement by the Act, which has
not been described or filed as required. All such contracts or
agreements to which the Company or any Subsidiary is a party have been
duly authorized, executed and delivered by the Company or such
Subsidiary, constitute valid and binding agreements of the Company or
such Subsidiary, and are enforceable by and against the Company or such
Subsidiary, in accordance with the respective terms thereof.
(n) Neither the Company nor any Subsidiary owns any real
property. The Company or a Subsidiary has good and valid title to all
property and assets reflected as owned by the Company or such
Subsidiary in the Company's consolidated financial statements included
in the Registration Statement (or elsewhere in the Registration
Statement or the Prospectus), free and clear of all liens, claims,
mortgages, security interests or other encumbrance of any kind or
nature whatsoever except those, if any, reflected in such financial
statements (or elsewhere in the Registration Statement or the
Prospectus). All property (real and personal) held or used by the
Company or a Subsidiary under leases, licenses, franchises or other
agreements is held by the Company or such Subsidiary under valid,
subsisting, binding and enforceable leases, franchises, licenses or
other agreements.
(o) Neither the Company nor any person that controls, is
controlled by (including the Subsidiaries) or is under common control
with the Company has taken or will take, directly or indirectly, any
action designed to cause or result in, or which constituted, or which
could cause or result in, stabilization or manipulation, under the
Exchange Act or otherwise, of the price of any security of the Company
to facilitate the sale or resale of the Common Stock.
(p) Except as described in the Registration Statement or
the Prospectus, since the respective dates as of which information is
given in the Registration Statement or the Prospectus and prior to each
Closing Date: (i) neither the Company nor any Subsidiary
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<PAGE> 8
has or will have incurred any liability or obligation, direct or
contingent, or entered into any transaction, that is material to the
Company, except as in the ordinary course of business; (ii) the Company
has not and will not have paid or declared any dividend or other
distribution with respect to its capital stock and neither the Company
nor any Subsidiary is or will be delinquent in the payment of principal
or interest on any outstanding debt obligation; and (iii) there has not
been and will not have been any change in the capital stock, any
material change in the indebtedness of the Company or any Subsidiary,
or any change or development involving or which could be expected to
involve, a Material Adverse Effect, whether or not arising from
transactions in the ordinary course of business.
(q) Neither the Company nor any person that controls, is
controlled by (including the Subsidiaries) or is under common control
with the Company has, directly or indirectly: (i) made any unlawful
contribution to any candidate for political office, or failed to
disclose fully any contribution in violation of law; or (ii) made any
payment to any federal, state or foreign governmental officer or
official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the
United States or any jurisdiction thereof or applicable foreign
jurisdictions.
(r) The Company or a Subsidiary owns or possesses
adequate rights to use all patents, patent applications, trademarks,
service marks, trade names, trademark registrations, service mark
registrations, copyrights and licenses presently used in or necessary
for the conduct of its business or ownership of its properties, and
neither the Company nor any Subsidiary has violated or infringed upon
the rights of others, or received any notice of conflict with the
asserted rights of others, in respect thereof.
(s) The Company or a Subsidiary has in place and
effective such policies of insurance, with limits of liability in such
amounts, as are normal and prudent in the ordinary course of the
business of the Company and its Subsidiaries.
(t) No labor dispute with the employees of the Company or
any Subsidiary exists or, to the knowledge of the Company, is imminent,
and neither the Company nor any Subsidiary is a party to any collective
bargaining agreement and, to the knowledge of the Company, no union
organizational attempts have occurred or are pending. There has been no
change in the relationship of the Company or any Subsidiary with any of
its principal suppliers, manufacturers, contractors or customers
resulting in or that could result in a Material Adverse Effect.
(u) Neither the Company nor any Subsidiary is an
"investment company", an "affiliated person" of, or "promoter" or
"principal underwriter" for, an "investment company", as such terms are
defined in the Investment Company Act of 1940, as amended.
(v) All federal, state and local tax returns required to
be filed by or on behalf of the Company or any Subsidiary have been
filed (or are the subject of valid extension)
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<PAGE> 9
with the appropriate federal, state and local authorities, and all such
tax returns, as filed, are accurate in all material respects; all
federal, state and local taxes (including estimated tax payments)
required to be shown on all such tax returns or claimed to be due from
or with respect to the business of the Company or such Subsidiary have
been paid or reflected as a liability on the financial statements of
the Company or such Subsidiary for appropriate periods; all
deficiencies asserted as a result of any federal, state or local tax
audits have been paid or finally settled, and no issue has been raised
in any such audit which, by application of the same or similar
principles, reasonably could be expected to result in a proposed
deficiency for any other period not so audited; no state of facts exist
or has existed which would constitute grounds for the assessment of any
tax liability with respect to the periods which have not been audited
by appropriate federal, state or local authorities; there are no
outstanding agreements or waivers extending the statutory period of
limitation applicable to any federal, state or local tax return of any
period; and neither the Company nor any Subsidiary has ever been a
member of an affiliated group of corporations filing consolidated
federal income tax returns, other than a group of which the Company is
and has been the common parent.
(w) Except for the Company's employee benefit plans
identified in Schedule 2(w) annexed hereto (the "Plans"), neither the
Company nor any Subsidiary is a participating employer or plan sponsor
with respect to any employee pension benefit plan as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or any employee welfare benefit plan as defined in Section
3(1) of ERISA, including, without limitation, any multiemployer welfare
or pension plan. With respect to the Plans, the Company is in
substantial compliance with all applicable regulations, including ERISA
and the Code. With respect to each defined benefit retirement plan,
such plan does not have benefit liabilities (as defined in Section
4001(a)(16) of ERISA) exceeding the assets of the plan. The Company or
the administrator of each of the Plans, as the case may be, has timely
filed the reports required to be filed by ERISA and the Code in
connection with the maintenance of the Plans, and no facts, including,
without limitation, any "reportable event" as defined by ERISA and the
regulations thereunder, exist in connection with the Plans which, under
applicable law, would constitute grounds for the termination of any of
the Plans by the Pension Benefit Guaranty Corporation or for the
appointment by the appropriate United States District Court of a
trustee to administer any of the Plans.
(x) The Company and each Subsidiary maintain a system of
internal accounting controls sufficient to provide reasonable
assurances that: (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of consolidated financial
statements in conformity with generally accepted accounting principles
and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorizations; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
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<PAGE> 10
(y) None of the Company, any Subsidiary, any officer or
director of the Company or any Subsidiary, or any person who owns, of
record or beneficially, any class of securities issued by the Company
is: (i) an officer, director or partner of any brokerage firm, broker
or dealer that is a member of the NASD ("NASD Member"); or (ii)
directly or indirectly, a "person associated with" an NASD member or an
"affiliate" of an NASD member, as such terms are used in the NASD Rules
of Fair Practice. In addition, neither the Company nor any Subsidiary
has issued or transferred any Common Stock, warrants, options or other
securities, or any other items of value, to any of the Underwriters or
any "related person" of any Underwriter, as such term is used in the
NASD Rules of Fair Practice, except as provided in this Agreement.
(z) The Common Stock has been registered pursuant to
Section 12(g) of the Exchange Act. The Common Stock has been approved
for designation as a Nasdaq National Market security on The Nasdaq
Stock Market ("Nasdaq").
(aa) Neither the Company, any Subsidiary nor any affiliate
of the Company or such Subsidiary does business with the government of
Cuba or with any person or affiliate located in Cuba within the meaning
of Section 517.075 of the Florida Statutes, and the Company agrees to
comply with such Section if, prior to the completion of the
distribution of the Shares, the Company, any Subsidiary or any
affiliate of the Company or such Subsidiary commences doing such
business.
(bb) All offers and sales of the securities of the Company
and each Subsidiary prior to the date hereof were made in compliance
with the Act and all other applicable state and federal laws or
regulations.
(cc) The Company has obtained for the benefit of the
Underwriters the agreement, enforceable by Robert W. Baird & Co.
Incorporated ("Baird"), of each of the officers and directors of the
Company, that for a period of 90 days after the date of the Prospectus,
such persons will not, without the prior written consent of Baird,
directly or indirectly, offer, sell, transfer, or pledge, contract to
sell, transfer or pledge, or cause or in any way permit to be sold,
transferred, pledged, or otherwise disposed of, any: (i) shares of
Common Stock; (ii) rights to purchase shares of Common Stock
(including, without limitation, shares of Common Stock that may be
deemed to be beneficially owned by any such shareholder in accordance
with the applicable regulations of the Commission and shares of Common
Stock that may be issued upon the exercise of a stock option, warrant
or other convertible security); or (iii) securities that are
convertible or exchangeable into shares of Common Stock. The Company
has also obtained for the benefit of the Underwriters the agreement,
enforceable by Baird, of each of the shareholders of the Company who is
not a Selling Shareholder, that for a period of one year after the date
of the Prospectus, such persons will not, without the prior written
consent of Baird, exercise or cause to be exercised, directly or
indirectly, any rights to initiate the registration of shares of Common
Stock under the Act or any Blue Sky Laws.
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<PAGE> 11
(dd) A copy of the Durable Power of Attorney and Custody
Agreement executed by each Selling Shareholder and a copy of each
Selling Shareholder's Selling Shareholder's Questionnaire has been
furnished to counsel for the Underwriters prior to the date hereof,
along with such other information as such counsel may reasonably
request in connection with their review thereof.
A certificate signed by any officer of the Company and
delivered to the Representativess or to counsel for the Underwriters shall be
deemed a representation and warranty by the Company to the Underwriters as to
the matters covered thereby. A certificate delivered by the Company to its
counsel for purposes of enabling such counsel to render the opinion referred to
in section 10(d) will also be furnished to the Representativess and counsel for
the Underwriters and shall be deemed to be additional representations and
warranties to the Underwriters by the Company as to the matters covered thereby.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE SELLING
SHAREHOLDERS. Each Selling Shareholder, severally and not jointly, represents
and warrants to and agrees with the several Underwriters and the Company, and
shall be deemed to represent and warrant to the several Underwriters and the
Company on each Closing Date, that:
(a) Such Selling Shareholder has duly executed a durable
power of attorney and custody agreement ("Durable Power of Attorney and
Custody Agreement") naming David L. Dunkel, Maureen A. Rorech and Peter
Dominici, or any of them, as such Selling Shareholder's
attorney(s)-in-fact ("Attorneys-in-Fact") for the purpose of entering
into and carrying out this Agreement and naming State Street Bank and
Trust Company as custodian ("Custodian") of the Shares of such Selling
Shareholder for the purpose of selling such Shares to the Underwriters
on each Closing Date and receiving payment therefor.
(b) All consents, approvals, authorizations and orders
necessary for the execution and delivery by such Selling Shareholder of
this Agreement and the Durable Power of Attorney and Custody Agreement
and for the sale and delivery of the Shares to be sold by such Selling
Shareholder hereunder, as set forth on Schedule I annexed hereto, have
been obtained. Such Selling Shareholder has, and at the time of
delivery thereof hereunder such Selling Shareholder will have, good and
valid title to the Shares proposed to be sold by such Selling
Shareholder hereunder, free and clear of all voting trust arrangements,
liens, encumbrances, security interests, equities, claims and community
or marital property rights, other than any created by the Durable Power
of Attorney and Custody Agreement or this Agreement for the benefit of
the Underwriters. Such Selling Shareholder has full right, power and
authority to enter into this Agreement and the Durable Power of
Attorney and Custody Agreement and to sell, assign, transfer and
deliver such Shares hereunder, free and clear of all voting trust
arrangements, liens, encumbrances, security interests, equities, claims
and community or marital property rights, other than any created by the
Durable Power of Attorney and Custody Agreement or this Agreement for
the benefit of the Underwriters. Upon delivery of and payment for such
Shares hereunder, the Underwriters will acquire good and valid title
thereto,
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<PAGE> 12
free and clear of all voting trust arrangements, liens, encumbrances,
security interests, equities, claims and community or marital property
rights.
(c) Such Selling Shareholder has not distributed and will
not distribute any Preliminary Prospectus, the Prospectus or any other
material in connection with the offering and sale of the Shares. Such
Selling Shareholder has not taken and will not take, directly or
indirectly, any action designed to or which could cause or result in,
under the Exchange Act or otherwise, stabilization or manipulation of
the price of any security of the Company to facilitate the sale or
resale of the Common Stock.
(d) The execution, delivery and performance by such
Selling Shareholder of this Agreement and the Durable Power of Attorney
and Custody Agreement will not, if applicable, result in the violation
of any provisions of the Articles of Incorporation, Bylaws or other
governing documents of such Selling Shareholder, or constitute a
breach, or be in contravention, of any provision of any agreement,
franchise, license, indenture, mortgage, deed of trust or other
instrument to which such Selling Shareholder is a party or by which
such Selling Shareholder or such Selling Shareholder's property may be
bound or affected, or any statute, rule or regulation applicable to
such Selling Shareholder, or violate any order or decree of any court,
regulatory body, administrative agency or other governmental body
having jurisdiction over such Selling Shareholder or any of such
Selling Shareholder's property. No consent, approval, authorization or
other order of any court, regulatory body, administrative agency or
other governmental body is required for the execution and delivery of,
and performance under, this Agreement by such Selling Shareholder or
the consummation by such Selling Shareholder of the transactions
contemplated by this Agreement, except for compliance with the Act, the
Exchange Act, the Blue Sky Laws applicable to the public offering of
the Shares by the Underwriters and the clearance of such offering with
the NASD. Such Selling Shareholder hereby represents and warrants that
each Attorney-in-Fact has been duly appointed as attorney-in-fact by
such Selling Shareholder for the purpose of entering into and carrying
out this Agreement, and the Durable Power of Attorney and Custody
Agreement has been duly executed and delivered by or on behalf of such
Selling Shareholder to the Representatives.
(e) This Agreement the Durable Power of Attorney and
Custody Agreement are each valid and binding agreements of such Selling
Shareholder enforceable in accordance with their respective terms.
(f) Such Selling Shareholder has deposited in custody,
under the Durable Power of Attorney and Custody Agreement, certificates
in negotiable form for the Shares to be sold hereunder by such Selling
Shareholder as set forth opposite such Selling Shareholder's name on
Schedule I annexed hereto for the purpose of further delivery pursuant
to this Agreement. Such Selling Shareholder agrees that the Shares of
such Selling Shareholder on deposit with the Custodian are subject to
the interests of the Company, the Underwriters and the other Selling
Shareholders, that the arrangements made for such custody, and the
appointment of the Attorneys-in-Fact pursuant to the Durable Power of
Attorney and Custody Agreement, are to that extent irrevocable, and
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<PAGE> 13
that the obligations of such Selling Shareholder hereunder and under
the Durable Power of Attorney and Custody Agreement shall not be
terminated, except as provided in this Agreement and the Durable Power
of Attorney and Custody Agreement, by any act of such Selling
Shareholder, by operation of law, whether in the case of an individual
Selling Shareholder, by the death or incapacity of such Selling
Shareholder or, in the case of a trust or estate, by the death of the
trustee or trustees or the executor or executors or the termination of
such trust or estate, or, in the case of a partnership or corporation,
by the dissolution, winding up or other event affecting the legal life
of such entity, or by the occurrence of any other event. If any
individual Selling Shareholder, trustee or executor should die or
become incapacitated, or any such trust, estate, partnership or
corporation should be terminated, or if any other event should occur
before the delivery of the Shares hereunder, the certificates for
Shares then on deposit with the Custodian shall, to the extent such
Shares are purchased by the Underwriters, be delivered by the Custodian
in accordance with the terms and conditions of this Agreement and the
Durable Power of Attorney and Custody Agreement as if such death,
incapacity, termination or other event had not occurred, regardless of
whether or not the Custodian shall have received notice thereof. Such
Selling Shareholder represents that each Attorney-in-Fact has been
authorized by such Selling Shareholder to execute and deliver this
Agreement and the Custodian has been authorized to receive and
acknowledge receipt of the proceeds of sale of the Shares sold by such
Selling Shareholder against delivery thereof and otherwise to act on
behalf of such Selling Shareholder.
(g) Insofar as it relates to such Selling Shareholder,
each Preliminary Prospectus, as of its date, has conformed in all
material respects with the requirements of the Act and, as of its date,
has not included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein not
misleading; and on the effective date of the Registration Statement and
at all times subsequent thereto up to each Closing Date, (i) the
Registration Statement and the Prospectus, as they relate to such
Selling Shareholder, did or will conform to the requirements of the
Act, and (ii) neither the Registration Statement nor the Prospectus as
it relates to such Selling Shareholder did or will include any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading.
(h) To the knowledge of each Selling Shareholder, the
representations and warranties of the Company set forth in section 2
hereof are true and correct.
(i) The information contained in such Selling
Shareholder's Selling Shareholders' Questionnaire completed in
connection with the Company's public offering and delivered to the
Representativess was, as of the date of such questionnaire, and is, as
of the date of this Agreement, true and correct.
A certificate signed by or on behalf of any Selling
Shareholder as such and delivered to the Representativess or to counsel for the
Underwriters shall be deemed a representation and warranty by such Selling
Shareholder to the Underwriters as to the matters
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<PAGE> 14
covered thereby. A certificate delivered by or on behalf of any Selling
Shareholder to counsel for the Selling Shareholders for purposes of enabling
such counsel to render the opinion referred in Section 10(e) will also be
furnished to the Representatives and counsel for the Underwriters and shall be
deemed to be additional representations and warranties to the Underwriters by
such Selling Shareholder as to the matters covered thereby.
SECTION 4. REPRESENTATION OF UNDERWRITERS. The Representatives
will act as the representatives for the several Underwriters in connection with
the public offering of the Shares, and any action under or in respect of this
Agreement taken by the Representativess will be binding upon all of the
Underwriters.
SECTION 5. INFORMATION FURNISHED BY THE UNDERWRITERS. The
information set forth in the last paragraph on the outside front cover page of
the Prospectus concerning the terms of the offering by the Underwriters, the
paragraph on the inside front cover page of the Prospectus relating to
stabilization practices and passive market making, and the concession and
reallowance amounts appearing under the caption "Underwriting" in the Prospectus
constitute all of the information furnished to the Company by and on behalf of
the Underwriters for use in connection with the preparation of the Registration
Statement and the Prospectus, as such information is referred to in this
Agreement.
SECTION 6. PURCHASE, SALE AND DELIVERY OF SHARES.
(a) On the basis of the representations, warranties and
agreements herein contained, and subject to the terms and conditions
herein set forth, the Company agrees to sell to the Underwriters
identified in Schedule II annexed hereto _________ Firm Shares, and
each of the Underwriters agrees, severally and not jointly, to purchase
from the Company the number of Firm Shares as hereinafter set forth at
the price per share of $__________. The obligation of each Underwriter
to the Company shall be to purchase from the Company that number of
full Firm Shares which (as nearly as practicable in full shares as
determined by the Representativess) bears the same proportion to the
number of Firm Shares to be sold by the Company as the number of shares
set forth opposite the name of such Underwriter in Schedule II annexed
hereto bears to the total number of Firm Shares to be purchased by all
of the Underwriters under this Agreement.
(b) On the basis of the representations, warranties and
agreements herein contained, and subject to the terms and conditions
herein set forth, each Selling Shareholder agrees, severally and not
jointly, to sell to the Underwriters that number of full Firm Shares
set forth opposite the name of such Selling Shareholder in Schedule I
annexed hereto (a total of ________ shares from all of the Selling
Shareholders), and each of the Underwriters agrees, severally and not
jointly, to purchase from each Selling Shareholder the number of Firm
Shares as hereinafter set forth at the same purchase price per share as
stated in the preceding paragraph. The obligation of each Underwriter
to each Selling Shareholder shall be to purchase from that Selling
Shareholder that number of full Firm Shares which (as nearly as
practicable in full shares as determined by the Representativess) bears
the same proportion to the number of Firm Shares to be
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<PAGE> 15
sold by such Selling Shareholder as the number of shares set forth
opposite the name of such Underwriter in Schedule II annexed hereto
bears to the total number of Firm Shares to be purchased by all of the
Underwriters under this Agreement.
(c) On the First Closing Date (as hereinafter defined),
the Company and the Custodian on behalf of the Selling Shareholders
will deliver to the Representativess, at the offices of Robert W. Baird
& Co. Incorporated, 777 East Wisconsin Avenue, Milwaukee, Wisconsin
53202, or through the facilities of The Depository Trust Company, for
the accounts of the several Underwriters, certificates representing the
Firm Shares to be sold by them against payment in Milwaukee, Wisconsin
of the purchase price therefor by certified or official bank check or
checks in New York Clearing House (next day) funds payable to the order
of the Company with respect to the Firm Shares being sold by the
Company and to the order of the Custodian with respect to the Firm
Shares being sold by the Selling Shareholders. As referred to in this
Agreement, the "First Closing Date" shall be on the third full business
day after the date of the Prospectus, at 9:00 a.m., Milwaukee,
Wisconsin time, or at such other date or time not later than ten full
business days after the date of the Prospectus as the Representativess,
the Company and the Attorneys-in-Fact (or any of them) may agree. The
certificates for the Firm Shares to be so delivered will be in
denominations and registered in such names as the Representativess
request by notice to the Company and the Attorneys-in-Fact, or any of
them, prior to the First Closing Date, and such certificates will be
made available for checking and packaging at 9:00 a.m., Milwaukee,
Wisconsin time on the first full business day preceding the First
Closing Date at a location to be designated by the Representativess.
(d) In addition, on the basis of the representations,
warranties and agreements herein contained, and subject to the terms
and conditions herein set forth, the Company hereby agrees to sell to
the Underwriters, and the Underwriters, severally and not jointly,
shall have the right at any time within thirty days after the date of
the Prospectus to purchase up to _______ Optional Shares from the
Company at the purchase price per share to be paid for the Firm Shares,
for use solely in covering any over-allotments made by the Underwriters
in the sale and distribution of the Firm Shares. The option granted
hereunder may be exercised upon notice by the Representativess to the
Company within thirty days after the date of the Prospectus setting
forth the aggregate number of Optional Shares to be purchased by the
Underwriters and sold by the Company, the names and denominations in
which the certificates for such shares are to be registered and the
date and place at which such certificates will be delivered. Such date
of delivery (the "Second Closing Date") shall be determined by the
Representativess, provided that the Second Closing Date, which may be
the same as the First Closing Date, shall not be earlier than the First
Closing Date and, if after the First Closing Date, shall not be earlier
than three nor later than ten full business days after delivery of such
notice to exercise. The number of Optional Shares to be sold by the
Company pursuant to such notice shall equal that number of full
Optional Shares which (as nearly as practicable in full shares as
determined by the Representativess) bears the same proportion to the
number of Optional Shares to be purchased by the Underwriters as the
number of Firm Shares to be sold by the Company under this Agreement
bears to the total number of Firm Shares.
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<PAGE> 16
Certificates for the Optional Shares will be made available for
checking and packaging at 9:00 a.m., Milwaukee, Wisconsin time, on the
first full business day preceding the Second Closing Date at a location
to be designated by the Representativess. The manner of payment for and
delivery of (including the denominations of and the names in which
certificates are to be registered) the Optional Shares shall be the
same as for the Firm Shares.
(e) The Representativess have advised the Company and the
Attorneys-in-Fact that each Underwriter has authorized the
Representativess to accept delivery of the Shares and to make payment
therefor. It is understood that the Representativess, individually and
not as representatives of the Underwriters, may (but shall not be
obligated to) make payment for any Shares to be purchased by any
Underwriter whose funds shall not have been received by the
Representativess by the First Closing Date or the Second Closing Date,
as the case may be, for the account of such Underwriter, but any such
payment shall not relieve such Underwriter from any obligation under
this Agreement. As referred to in this Agreement, "Closing Date" shall
mean either the First Closing Date or the Second Closing Date.
SECTION 7. COVENANTS OF THE COMPANY. The Company covenants and
agrees with the several Underwriters that:
(a) If the effective time of the Registration Statement
is not prior to the execution and delivery of this Agreement, the
Company will use its best efforts to cause the Registration Statement
to become effective at the earliest possible time and, upon
notification from the Commission that the Registration Statement has
become effective, will so advise the Representativess and counsel to
the Underwriters promptly. If the effective time of the Registration
Statement is prior to the execution and delivery of this Agreement and
any information shall have been omitted therefrom in reliance upon Rule
430A, the Company, at the earliest possible time, will furnish the
Representativess with a copy of the Prospectus to be filed by the
Company with the Commission to comply with Rule 424(b) and Rule 430A
under the Act and, if the Representativess do not object to the
contents thereof, will comply with such Rules. Upon compliance with
such Rules, the Company will so advise the Representativess promptly.
The Company will advise the Representativess and counsel to the
Underwriters and the Attorneys-in-Fact promptly of the issuance by the
Commission or any state securities commission of any stop order
suspending the effectiveness of the Registration Statement or of the
institution of any proceedings for that purpose, or of any notification
of the suspension of qualification of the Shares for sale in any
jurisdiction or the initiation or threatening of any proceedings for
that purpose, and will also advise the Representativess and counsel to
the Underwriters and the Attorneys-in-Fact promptly of any request of
the Commission for amendment or supplement of the Registration
Statement, of any Preliminary Prospectus or of the Prospectus, or for
additional information, and the Company will not file any amendment or
supplement to the Registration Statement (either before or after it
becomes effective), to any Preliminary Prospectus or to the Prospectus
(including a prospectus filed pursuant to Rule 424(b)) if the
Representativess have not been furnished with a copy
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<PAGE> 17
prior to such filing (with a reasonable opportunity to review such
amendment or supplement) or if the Representativess object to such
filing.
(b) If, at any time when a prospectus relating to the
Shares is required by law to be delivered in connection with sales by
an Underwriter or dealer, any event occurs as a result of which the
Prospectus would include an untrue statement of a material fact, or
would omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary at any time to supplement the Prospectus to comply with the
Act the Company promptly will advise the Representativess and counsel
to the Underwriters and the Attorneys-in-Fact thereof and will promptly
prepare and file with the Commission, at its expense, an amendment to
the Registration Statement which will correct such statement or
omission or an amendment which will effect such compliance; and, if any
Underwriter is required to deliver a prospectus after the effective
date of the Registration Statement, the Company, upon request of the
Representativess, will prepare promptly such prospectus or prospectuses
as may be necessary to permit compliance with the requirements of
Section 10(a)(3) of the Act. The Company consents to the use, in
accordance with the provisions of the Act and with the Blue Sky Laws of
the jurisdictions in which the Shares are offered by the several
Underwriters and by dealers, of each Preliminary Prospectus.
(c) Neither the Company nor any Subsidiary will, prior to
the Second Closing Date, if any, incur any liability or obligation,
direct or contingent, or enter into any material transaction, other
than in the ordinary course of business, or enter into any transaction
with an "affiliate," as defined in Rule 405 under the Act, which is
required to be described in the Prospectus pursuant to Item 404 of
Regulation S-K under the Act, except as described in the Prospectus.
(d) Neither the Company nor any Subsidiary will, prior to
the Second Closing Date, if any, acquire any of the Common Stock nor
will the Company declare or pay any dividend or make any other
distribution upon its Common Stock payable to shareholders of record on
a date prior to such earlier date, except as described in the
Prospectus.
(e) The Company will make generally available to its
security holders and the Representativess an earnings statement as soon
as practicable, but in no event later than sixty days after the end of
its fiscal quarter in which the first anniversary of the effective date
of the Registration Statement occurs, covering a period of twelve
consecutive calendar months beginning after the effective date of the
Registration Statement, which will satisfy the provisions of the last
paragraph of Section 11(a) of the Act and Rule 158 promulgated
thereunder.
(f) During such period as a prospectus is required by law
to be delivered in connection with sales by an Underwriter or dealer,
the Company will furnish to the Representativess, at the expense of the
Company, copies of the Registration Statement, the Prospectus, any
Preliminary Prospectus and all amendments and supplements to any
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<PAGE> 18
such documents in each case as soon as available and in such quantities
as the Representatives may reasonably request.
(g) The Company will apply the net proceeds from the sale
of the Shares to be sold by it hereunder for the purposes set forth in
the Prospectus.
(h) The Company will cooperate with the Representatives
and counsel to the Underwriters in qualifying or registering the Shares
for sale under the Blue Sky Laws of such jurisdictions as the
Representatives designate, and will continue such qualifications or
registrations in effect so long as reasonably requested by the
Representatives to effect the distribution of the Shares. The Company
shall not be required to qualify as a foreign corporation or to file a
general consent to service of process in any such jurisdiction where it
is not presently qualified. In each jurisdiction where any of the
Shares shall have been qualified as provided above, the Company will
file such reports and statements as may be required to continue such
qualification for a period of not less than one year from the date of
the Prospectus. The Company shall promptly prepare and file with the
Commission, from time to time, such reports as may be required to be
filed by the Act and the Exchange Act, and the Company shall comply in
all respects with the undertakings given by the Company in connection
with the qualification or registration of the Shares for offering and
sale under the Blue Sky Laws.
(i) During the period of three years from the date of the
Prospectus, the Company will furnish to each of the Representatives and
to each of the other Underwriters who may so request, as soon as
available, each report, statement or other document of the Company or
its Board of Directors mailed to its shareholders or filed with the
Commission, and such other information concerning the Company as the
Representativess may reasonably request.
(j) The Company shall deliver the requisite notice of
issuance to Nasdaq and shall take all necessary or appropriate action
within its power to maintain the authorization for trading of the
Common Stock as a Nasdaq National Market security, or take such action
to authorize the Common Stock for listing on the New York Stock
Exchange or the American Stock Exchange, for a period of at least
thirty-six months after the date of the Prospectus.
(k) Except for the issuance and sale by the Company of
Common Stock upon exercise of presently existing outstanding stock
options, the sale of the Shares to be sold by the Company pursuant to
this Agreement, and the grant of employee stock options pursuant to the
Company's Incentive Stock Option Plan, a copy of which is filed as an
exhibit to the Registration Statement, and provided that none of such
options shall be exercisable during the 90-day period herein described,
the Company shall not, for a period of 90 days after the date of the
Prospectus, without the prior written consent of Baird, directly or
indirectly, offer, sell or otherwise dispose of, contract to sell or
otherwise dispose of, or cause or in any way permit to be sold or
otherwise disposed of, any: (i) shares of Common Stock; (ii) rights to
purchase shares of Common Stock; or (iii) securities that are
convertible or exchangeable into shares of Common Stock.
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<PAGE> 19
(l) The Company will maintain a transfer agent and, if
required by law or the rules of The Nasdaq Stock Market or any national
securities exchange on which the Common Stock is listed, a registrar
(which, if permitted by applicable laws and rules, may be the same
entity as the transfer agent) for its Common Stock. The Company shall,
as soon as practicable after the date hereof, use its best efforts to
obtain listing in Standard and Poor's Stock Guide, or such other
recognized securities manuals for which it may qualify for listing, and
the Company shall use its best efforts to maintain such listings for at
least five years after the First Closing Date.
(m) If at any time when a prospectus relating to the
Shares is required to be delivered under the Act, any rumor,
publication or event relating to of affecting the Company shall occur
as a result of which, in the opinion of Baird, the market price of the
Common Stock has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to the Prospectus), the Company will, after written notice
from Baird advising the Company of any of the matters set forth above,
promptly consult with Baird concerning the advisability and substance
of, and, if the Company and Baird determine that it is appropriate,
disseminate, a press release or other public statement responding to or
commenting on, such rumor, publication or event.
(n) If the sale to the Underwriters of the Shares is not
consummated for any reason other than termination of this Agreement
pursuant to section 13 hereof, without limiting any other rights the
Underwriters may have, the Company agrees to reimburse the Underwriters
upon demand for all out-of-pocket expenses (including reasonable fees
and expenses of counsel for the Underwriters), that shall have been
incurred by the Underwriters in connection with the proposed purchase
and sale of the Shares, and the provisions of sections 9 and 12 hereof
shall at all times be effective and apply. Notwithstanding the
foregoing sentence, if the sale to the Underwriters of the Shares is
not consummated for any reason other than termination of this Agreement
by the Underwriters pursuant to section 13 hereof, and the Company or
any of the shareholders of the Company enter into an agreement on or
before ________________, 199___ with respect to the sale, lease,
disposition or other transfer of all or substantially all of the
Company's assets or a majority interest in its capital stock, directly
or indirectly, by merger, share exchange, business combination or
otherwise (such sale, lease, disposition or other transfer of assets or
stock is hereinafter referred to as a "Business Combination"), then the
Company shall engage the Representativess as its financial advisors for
any such Business Combination and the Company shall pay the
Representativess a financial advisory fee in the amount of $__________
in immediately available funds upon consummation of such Business
Combination for financial advisory services to be rendered by the
Representativess in connection therewith.
(o) The Company will comply or cause to be complied with
the conditions to the obligations of the Underwriters in section 10
hereof.
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<PAGE> 20
SECTION 8. COVENANTS OF THE SELLING SHAREHOLDERS. Each Selling
Shareholder, severally and not jointly, covenants and agrees with the several
Underwriters and the Company as follows:
(a) If the effective time of the Registration Statement
is not prior to the execution and delivery of this Agreement, such
Selling Shareholder will cooperate to the extent necessary to cause the
Registration Statement to become effective at the earliest possible
time; and such Selling Shareholder will do and perform all things to be
done and performed by such Selling Shareholder prior to each Closing
Date, pursuant to this Agreement or the Durable Power of Attorney and
Custody Agreement.
(b) Such Selling Shareholder agrees to deliver to the
Custodian on or prior to the First Closing Date a properly completed
and executed United States Treasury Department Form W-9 (or other
applicable substitute form or statement specified by Treasury
Department regulations in lieu thereof).
(c) Such Selling Shareholder will pay all federal and
other taxes, if any, on the transfer or sale of the Shares being sold
by such Selling Shareholder to the Underwriters.
(d) For a period of 90 days after the date of the
Prospectus, such Selling Shareholder will not, without the prior
written consent of Baird, directly or indirectly, offer, sell,
transfer, or pledge, contract to sell, transfer or pledge or cause or
in any way permit to be sold, transferred, pledged or otherwise
disposed of any: (i) shares of Common Stock; (ii) rights to purchase
shares of Common Stock (including, without limitation, shares of Common
Stock that may be deemed to be beneficially owned by such Selling
Shareholder in accordance with the rules and regulations of the
Commission and shares of Common Stock that may be issued upon exercise
of a stock option, warrant or other convertible security); or (iii)
securities that are convertible or exchangeable into shares of Common
Stock.
(e) Such Selling Shareholder will furnish any documents,
instruments or other information which the Representatives may
reasonably request in connection with the sale and transfer of the
Shares to the Underwriters.
SECTION 9. PAYMENT OF EXPENSES. Whether or not the
transactions contemplated hereunder are consummated or this Agreement becomes
effective, or if this Agreement is terminated for any reason, the Company will
pay the costs, fees and expenses incurred in connection with the public offering
of the Shares. Such costs, fees and expenses to be paid by the Company and the
Selling Shareholders include, without limitation:
(a) All costs, fees and expenses (excluding the expenses
incurred by the Underwriters and the legal fees and disbursements of
counsel for the Underwriters, but including such fees and disbursements
described in subsection (b) of this section 9) incurred in connection
with the performance of the Company's obligations hereunder, including
without limiting the generality of the foregoing: the registration fees
related to
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<PAGE> 21
the filing of the Registration Statement with the Commission; the fees
and expenses related to the quotation of the Shares on Nasdaq or other
national securities exchange; the fees and expenses of the Company's
counsel, accountants, transfer agent and registrar; the costs and
expenses incurred in connection with the preparation, printing,
shipping and delivery of the Registration Statement, each Preliminary
Prospectus and the Prospectus (including all exhibits and financial
statements) and all agreements and supplements provided for herein,
this Agreement, the Preliminary and Supplemental Blue Sky Memoranda and
the Durable Power of Attorney and Custody Agreement, including, without
limitation, shipping expenses via overnight delivery and/or courier
service to comply with applicable prospectus delivery requirements; and
the costs and expenses associated with the production of materials
related to, and travel expenses incurred by the management of the
Company in connection with, the various meetings to be held between the
Company's management and prospective investors.
(b) All registration fees and expenses, including legal
fees and disbursements of counsel for the Underwriters incurred in
connection with qualifying or registering all or any part of the Shares
for offer and sale under the Blue Sky Laws and the clearing of the
public offering and the underwriting arrangements evidenced hereby with
the NASD.
(c) All fees and expenses related to printing of the
certificates for the Shares, and all transfer taxes, if any, with
respect to the sale and delivery of the Shares.
Notwithstanding the foregoing, each Selling Shareholder shall be solely
responsible for any transfer or sales tax imposed upon the transfer and sale of
such Selling Shareholder's Shares to the Underwriters and for such Selling
Shareholder's respective pro rata share of all fees and expenses of the
Attorneys-in-Fact and the Custodian. All costs and expenses incident to the
performance of any Selling Shareholder's obligations hereunder which are not
otherwise specifically provided for in this section will be borne and paid
solely by each such Selling Shareholder. In the event any Selling Shareholder
shall fail to pay such Selling Shareholder's pro rata share of the costs, fees
and expenses described in this section within five days after demand by the
Representativess therefor, the Company shall be obligated to pay such costs,
fees and expenses on demand.
SECTION 10. CONDITIONS TO THE OBLIGATIONS OF THE UNDERWRITERS.
The obligations of the several Underwriters under this Agreement shall be
subject to the accuracy of the representations and warranties on the part of the
Company and the Selling Shareholders herein set forth as of the date hereof and
as of each Closing Date, to the accuracy of the statements of the Company's
officers, the Selling Shareholders and the Attorneys-In-Fact on behalf of the
Selling Shareholders made pursuant to the provisions hereof, to the performance
by the Company and the Selling Shareholders of their respective obligations
hereunder, and to the following additional conditions, unless waived in writing
by the Representativess:
(a) The Registration Statement shall have been declared
effective by the Commission not later than 5:30 p.m., Washington, D. C.
time, prior to the date on the date of this Agreement, or such later
time as shall have been consented to by the Representativess, which
consent shall be deemed to have been given if the Registration
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<PAGE> 22
Statement shall have been declared effective on or before the date and
time requested in the acceleration request submitted on behalf of the
Representativess pursuant to Rule 461 under the Act; all filings
required by Rules 424(b) and 430A under the Act shall have been timely
made; no stop order suspending the effectiveness of the Registration
Statement shall have been issued by the Commission or any state
securities commission nor, to the knowledge of the Company, shall any
proceedings for that purpose have been initiated or threatened; and any
request of the Commission or any state securities commission for
inclusion of additional information in the Registration Statement, or
otherwise, shall have been complied with to the satisfaction of the
Representativess.
(b) Since the dates as of which information is given in
the Registration Statement:
(i) there shall not have occurred any change or
development involving, or which could be expected to involve,
a Material Adverse Effect, whether or not arising from
transactions in the ordinary course of business; and
(ii) the Company shall not have sustained any
loss or interference from any labor dispute, strike, fire,
flood, windstorm, accident or other calamity (whether or not
insured) or from any court or governmental action, order or
decree,
the effect of which on the Company, in any such case described in
clause (i) or (ii) above, is in the opinion of the Representatives so
material and adverse as to make it impracticable or inadvisable to
proceed with the public offering or the delivery of the Shares on the
terms and in the manner contemplated in the Registration Statement and
the Prospectus.
(c) The Representativess shall not have advised the
Company that the Registration Statement or the Prospectus contains an
untrue statement of fact that, in the opinion of the Representativess
or counsel for the Underwriters, is material, or omits to state a fact
that, in the opinion of the Representativess or such counsel, is
material and is required to be stated therein or necessary to make the
statements therein not misleading.
(d) The Representativess shall have received an opinion
of Holland & Knight (a partnership including professional corporations,
counsel for the Company addressed to the Representativess, as the
representatives of the Underwriters, and dated the First Closing Date
or the Second Closing Date, as the case may be, to the effect that:
(i) The Company has been duly incorporated and
is validly existing as a corporation and whose status is
active under the laws of its jurisdiction of incorporation,
with full corporate power and authority to own, lease and
operate its properties and conduct its business as presently
conducted and as described in the Prospectus and the
Registration Statement; the Company is duly registered and
qualified to do business as a foreign corporation under the
laws of, and is in
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<PAGE> 23
good standing as such in, each jurisdiction in which such
registration or qualification is required, except where the
failure to so register or qualify would not have a Material
Adverse Effect;
(ii) The authorized capital stock of the Company
consists of 15,000,000 shares of Common Stock, par value $.01
per share, and 15,000,000 shares of Preferred Stock, par value
$.01 per share, and all such stock conforms as to legal
matters to the descriptions thereof in the Prospectus and the
Registration Statement;
(iii) The issued and outstanding shares of capital
stock of the Company immediately prior to the issuance and
sale of the Shares to be sold by the Company hereunder have
been duly authorized and validly issued, are fully paid and
nonassessable, and there are no preemptive, preferential or,
except as described in the Prospectus, other rights to
subscribe for or purchase any shares of capital stock of the
Company, and to such counsel's knowledge, no shares of capital
stock of the Company have been issued in violation of such
rights;
(iv) Except for the Subsidiaries, the Company has
no subsidiaries, and the Company does not own any equity
interest in or control, directly or indirectly, any other
corporation, limited liability company, partnership, joint
venture, association, trust or other business organization
except as described in the Prospectus and the Registration
Statement; each Subsidiary has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, with full corporate
power and authority to own, lease and operate its properties
and to conduct its business as presently conducted and as
described in the Prospectus and the Registration Statement;
each Subsidiary is duly registered or qualified to do business
as a foreign corporation under the laws of, and is in good
standing as such in, each jurisdiction in which such
registration or qualification is required, except where the
failure to so register or qualify would not have a Material
Adverse Effect; the issued and outstanding shares of the
capital stock of each Subsidiary have been duly authorized and
validly issued, are fully paid and nonassessable and there are
no preemptive, preferential or, to such counsel's knowledge,
other rights to subscribe for or purchase any shares of
capital stock of any Subsidiary, and to such counsel's
knowledge, no shares of capital stock of any Subsidiary have
been issued in violation of such rights; the Company owns
directly and, to such counsel's knowledge, beneficially all of
the issued and outstanding capital stock of each Subsidiary,
free and clear of any and all liens, claims, encumbrances and
security interests;
(v) The certificates for the Shares to be
delivered hereunder are in due and proper form and conform to
the requirements of applicable law; and when duly
countersigned by the Company's transfer agent, and delivered
to the Representatives or upon the order of the
Representatives against payment of the agreed consideration
therefor in accordance with the provisions of this
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<PAGE> 24
Agreement, the Shares to be sold by the Company represented
thereby will be duly authorized and validly issued, fully paid
and nonassessable, and free of any preemptive, preferential or
other rights to subscribe for or purchase shares of Common
Stock;
(vi) The Registration Statement has become
effective under the Act, and to such counsel's knowledge, no
stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose
have been initiated or are threatened under the Act or any
Blue Sky Laws; the Registration Statement and the Prospectus
and any amendment or supplement thereto (except for the
financial statements and other statistical or financial data
included therein as to which such counsel need express no
opinion) comply as to form in all material respects with the
requirements of the Act; no facts have come to the attention
of such counsel which lead it to believe that either the
Registration Statement or the Prospectus or any amendment or
supplement thereto contains any untrue statement of a material
fact or omitted or will omit to state a material fact required
to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus, as of the First
Closing Date or the Second Closing Date, as the case may be,
contained any untrue statement of a material fact or omitted
or will omit to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading in light of the circumstances under which they were
made (except for the financial statements and other financial
data included therein as to which such counsel need express no
opinion); to such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened, including,
without limitation, any such proceedings that are related to
environmental or employment discrimination matters, required
to be described in the Registration Statement or the
Prospectus which are not so described or which question the
validity of this Agreement or any action taken or to be taken
pursuant thereto, nor is there any transaction, relationship,
agreement, contract or other document of a character required
to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration
Statement by the Act, which is not described or filed as
required;
(vii) The Company has full corporate power and
authority to enter into and perform this Agreement; the
performance of the Company's obligations hereunder and the
consummation of the transactions described herein have been
duly authorized by the Company by all necessary corporate
action and this Agreement has been duly executed and delivered
by and on behalf of the Company, and is a legal, valid and
binding agreement of the Company enforceable against the
Company in accordance with its terms, except that rights to
indemnity or contribution may be limited by applicable law and
except as enforceability of this Agreement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally, and by equitable
principles limiting the right to specific performance or other
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<PAGE> 25
equitable relief; no consent, approval, authorization or other
order or decree of any court, regulatory or governmental body,
arbitrator, administrative agency or other instrumentality of
the United States or other country or jurisdiction having
jurisdiction over the Company is required for the execution
and delivery of this Agreement or the consummation of the
transactions contemplated by this Agreement (except for
compliance with the Act, the Exchange Act, applicable Blue Sky
Laws and the clearance of the underwriting arrangements by the
NASD);
(viii) The execution, delivery and performance of
this Agreement by the Company will not: (A) violate any
provisions of the Articles of Incorporation or By-laws of the
Company or any Subsidiary; (B) violate any provisions of, or
result in the breach, modification or termination of, or
constitute a default under, any agreement, lease, franchise,
license, indenture, permit, mortgage, deed of trust, other
evidence of indebtedness or other instrument to which the
Company or any Subsidiary is a party or by which the Company
or such Subsidiary, or any of their respective owned or leased
property is bound, and which is filed as an exhibit to the
Registration Statement; or (C) violate any statute, ordinance,
order, rule, decree or regulation of any court, regulatory or
governmental body, arbitrator, administrative agency or other
instrumentality of the United States or other country or
jurisdiction having jurisdiction over the Company or any
Subsidiary (assuming compliance with all applicable federal
and state securities laws);
(ix) To such counsel's knowledge, except as
described in the Prospectus, there are no holders of Common
Stock or other securities of the Company, or securities that
are convertible or exchangeable into Common Stock or other
securities of the Company, that have rights to the
registration of such securities under the Act or any Blue Sky
Laws;
(x) The Common Stock is a National Market
security on The Nasdaq Stock Market and is registered under
the Exchange Act;
(xi) Neither the Company nor any Subsidiary is,
nor with the giving of notice or passage of time or both would
be, in violation of its respective Articles of Incorporation
or By-laws or, to such counsel's knowledge, in default in any
material respect in the performance of any agreement, lease,
franchise, license, permit, mortgage, deed of trust, evidence
of indebtedness or other instrument, or any other document
that is filed as an exhibit to the Registration Statement, to
which the Company or any Subsidiary is subject or bound;
(xii) Neither the Company nor any Subsidiary is an
"investment company", an "affiliated person" of, or "promoter"
or "principal underwriter" for, an "investment company", as
such terms are defined in the Investment Company Act of 1940,
as amended, and, upon its receipt of any proceeds from
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the sale of the Shares, the Company will not become or be
deemed to be an "investment company" thereunder;
(xiii) The description in the Registration
Statement and the Prospectus of statutes, law, regulations,
legal and governmental proceedings, and contracts and other
legal documents described therein fairly and correctly
present, in all material respects, the information required to
be included therein by the Act; and
(xiv) All offers and sales by the Company of its
capital stock before the date hereof were at all relevant
times duly registered under or exempt from the registration
requirements of the Act, and were duly registered under or the
subject of an available exemption from the registration
requirements of any applicable Blue Sky Laws.
In rendering such opinion, counsel for the Company may rely, to the
extent counsel deems such reliance proper, as to matters of fact upon
certificates of officers of the Company and of governmental officials, and
copies of all such certificates shall be furnished to the Representativess and
for the Underwriters on or before each Closing Date.
(e) The Representativess shall have received an opinion
from Holland & Knight (a partnership including professional
corporations), counsel for the Selling Shareholders, dated the First
Closing Date or the Second Closing Date, as the case may be, to the
effect that:
(i) Each of this Agreement and the Durable Power
of Attorney and Custody Agreement has been duly authorized,
executed and delivered by or on behalf of each Selling
Shareholder and such agreement constitutes the valid and
binding agreement of such Selling Shareholder, enforceable in
accordance with its respective terms, except that rights to
indemnity or contribution thereunder may be limited by
applicable law and except as enforceability of such agreement
may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws generally affecting the rights of
creditors and by equitable principles limiting the right to
specific performance or other equitable relief;
(ii) The execution and delivery of this Agreement
and the Durable Power of Attorney and Custody Agreement and
the consummation of the transactions herein and therein
contemplated will not, if applicable, result in the violation
of any provisions of the Articles of Incorporation, By-laws or
other governing documents of such Selling Shareholder, or
constitute a breach, or be in contravention, of any provision
of any agreement, franchise, license, indenture, mortgage,
deed of trust or other instrument to which such Selling
Shareholder is a party or by which such Selling Shareholder or
such Selling Shareholder's property may be bound or affected,
or any statute, rule or regulation applicable to such Selling
Shareholder, or violate any order or decree of any court,
regulatory or governmental body, administrative body or
instrumentality of the
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<PAGE> 27
United States or other jurisdiction having jurisdiction over
such Selling Shareholder or any of such Selling Shareholder's
property, which violation would reasonably be expected to have
a material adverse effect on the condition (financial or
otherwise), business, properties, net worth or results of
operations of such Selling Shareholder;
(iii) Such Selling Shareholder has full legal
right, power and authority, and has secured any consent,
approval, authorization and order required to enter into and
perform this Agreement and the Durable Power of Attorney and
Custody Agreement and to sell, assign, transfer and deliver
title to the Shares to be sold by such Selling Shareholder as
provided herein; and upon delivery to the Underwriters or upon
the order of the Representatives against payment of the agreed
consideration therefor in accordance with the provisions of
this Agreement, the Underwriters will acquire good and
marketable title to the Shares to be sold hereunder by such
Selling Shareholder, free and clear of all voting trust
arrangements, liens, encumbrances, security interests,
equities, claims and community or marital property rights; and
(iv) To such counsel's knowledge, the information
concerning the Selling Shareholders contained in the
Prospectus under the caption "Principal and Selling
Shareholders" complies in all material respects with the Act.
In rendering such opinion, counsel for the Selling Shareholders may
rely, to the extent counsel deems such reliance proper, as to matters of fact
upon certificates of the Selling Shareholders, and copies of all such
certificates shall be furnished to the Representatives and counsel for the
Underwriters on or before each Closing Date.
(f) The Representativess shall have received an opinion
of Foley & Lardner, counsel for the Underwriters, dated the First
Closing Date or the Second Closing Date, as the case may be, with
respect to the issuance and sale of the Shares by the Company, the
Registration Statement and other related matters as the
Representativess may require, and the Company shall have furnished to
such counsel such documents and shall have exhibited to them such
papers and records as they request for the purpose of enabling them to
pass upon such matters.
(g) The Representativess shall have received on each
Closing Date, a certificate of David L. Dunkel, President and Chief
Executive Officer, and Peter Dominici, Secretary, Treasurer and Chief
Financial Officer, of the Company, to the effect that:
(i) The representations and warranties of the
Company set forth in section 2 hereof are true and correct as
of the date of this Agreement and as of the date of such
certificate, and the Company has complied with all the
agreements and satisfied all the conditions to be performed or
satisfied by it at or prior to the date of such certificate;
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<PAGE> 28
(ii) The Commission has not issued an order
preventing or suspending the use of the Prospectus or any
Preliminary Prospectus or any amendment or supplement thereto;
no stop order suspending the effectiveness of the Registration
Statement has been issued; and to the knowledge of the
respective signatories, no proceedings for that purpose have
been initiated or are pending or contemplated under the Act or
under the Blue Sky Laws of any jurisdiction;
(iii) Each of the respective signatories has
carefully examined the Registration Statement and the
Prospectus, and any amendment or supplement thereto, and such
documents contain all statements required to be stated
therein, and do not include any untrue statement of a material
fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading, and since the date on which the Registration
Statement was initially filed, no event has occurred that was
required to be set forth in an amended or supplemented
prospectus or in an amendment to the Registration Statement
that has not been so set forth; and
(iv) Since the date on which the Registration
Statement was initially filed with the Commission, there shall
not have occurred any change or development involving, or
which could be expected to involve, a Material Adverse Effect,
whether or not arising from transactions in the ordinary
course of business, except as disclosed in the Prospectus and
the Registration Statement as heretofore amended or (but only
if the Representatives expressly consent thereto in writing)
as disclosed in an amendment or supplement thereto filed with
the Commission and delivered to the Representatives after the
execution of this Agreement; since such date and except as so
disclosed or in the ordinary course of business, the Company
has not incurred any liability or obligation, direct or
indirect, or entered into any transaction which is material to
the Company; since such date and except as so disclosed, there
has not been any change in the outstanding capital stock of
the Company, or any change that is material to the Company in
the short-term debt or long-term debt of the Company; since
such date and except as so disclosed, the Company has not
acquired any of the Common Stock or other capital stock of the
Company nor has the Company declared or paid any dividend, or
made any other distribution, upon its outstanding Common Stock
payable to shareholders of record on a date prior to such
Closing Date; since such date and except as so disclosed, the
Company has not incurred any material contingent obligations,
and no material litigation is pending or threatened against
the Company; and, since such date and except as so disclosed,
the Company has not sustained any material loss or
interference from any strike, fire, flood, windstorm, accident
or other calamity (whether or not insured) or from any court
or governmental action, order or decree.
The delivery of the certificate provided for in this
subsection (g) shall be and constitute a representation and warranty of
the Company as to the facts required in the immediately foregoing
clauses (i), (ii), (iii) and (iv) to be set forth in said certificate.
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(h) The Representativess shall have received a
certificate from each Selling Shareholder (which may be signed by such
Selling Shareholder's Attorneys-in-Fact, or any of them), dated the
First Closing Date or the Second Closing Date, as the case may be, to
the effect that: (i) the representations and warranties of such Selling
Shareholder in Section 3 of this Agreement are true and correct as of
the date of this Agreement and as of the date of such certificate, as
if again made on and as of such Closing Date, and such Selling
Shareholder has complied with all of the agreements and satisfied all
of the conditions to be performed or satisfied by such Selling
Shareholder at or prior to such Closing Date; and (ii) such Selling
Shareholder has no reason to believe that the Registration Statement or
any amendment thereto at the time it was declared effective by the
Commission contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary
to make the statements therein not misleading, or that the Prospectus,
as amended or supplemented, contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading.
(i) At the time this Agreement is executed and also on
each Closing Date, there shall be delivered to the Representativess a
letter addressed to the Representativess, as the representatives of the
Underwriters, from Price Waterhouse LLP, the Company's independent
accountants, the first letter to be dated the date of this Agreement,
the second letter to be dated the First Closing Date and the third
letter (if applicable) to be dated the Second Closing Date, which shall
be in form and substance satisfactory to the Representativess and shall
contain information as of a date within five days of the date of such
letter. There shall not have been any change or decrease set forth in
any of the letters referred to in this subsection (i) which makes it
impracticable or inadvisable in the judgment of the Representativess to
proceed with the public offering or purchase of the Shares as
contemplated hereby.
(j) The Shares shall have been qualified or registered
for sale under the Blue Sky Laws of such jurisdictions as shall have
been specified by the Representativess, the underwriting terms and
arrangements for the offering shall have been cleared by the NASD, and
the Common Stock shall have been designated for inclusion as a Nasdaq
National Market security on the Nasdaq Stock Market and shall have been
registered under the Exchange Act.
(k) Such further certificates and documents as the
Representativess may reasonably request (including certificates of
officers of the Company).
All such opinions, certificates, letters and documents shall
be in compliance with the provisions hereof only if they are satisfactory to the
Representativess and to Foley & Lardner, counsel for the Underwriters. The
Company and the Selling Shareholders shall furnish the Representativess with
such manually signed or conformed copies of such opinions, certificates, letters
and documents as the Representativess may reasonably request.
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<PAGE> 30
If any condition to the Underwriters' obligations hereunder to
be satisfied prior to or at either Closing Date is not so satisfied, this
Agreement at the election of the Representativess will terminate upon
notification to the Company and the Attorneys-in-Fact, or any one of them, for
the Selling Shareholders without liability on the part of any Underwriter,
including the Representativess, the Company or the Selling Shareholders except
for the provisions of section 7(n) hereof, the expenses to be paid by the
Company and the Selling Shareholders pursuant to section 9 hereof and except to
the extent provided in section 12 hereof.
SECTION 11. MAINTAIN EFFECTIVENESS OF REGISTRATION STATEMENT.
The Company will use its best efforts and the Selling Shareholders will use
their best efforts to prevent the issuance of any stop order suspending the
effectiveness of the Registration Statement, and, if such stop order is issued,
to obtain as soon as possible the lifting thereof.
SECTION 12. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless
each Underwriter and each person, if any, who controls any Underwriter within
the meaning of the Act or the Exchange Act, from and against any losses, claims,
damages, expenses, liabilities or actions in respect thereof ("Claims"), joint
or several, to which such Underwriter or each such controlling person may become
subject under the Act, the Exchange Act, Blue Sky Laws or other federal or state
statutory laws or regulations, at common law or otherwise (including payments
made in settlement of any litigation), insofar as such Claims arise out of or
are based upon any breach of any representation, warranty or covenant made by
the Company in this Agreement, or any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or in any application filed under any Blue Sky Law or other document executed by
the Company for that purpose or based upon written information furnished by the
Company and filed in any state or other jurisdiction to qualify any or all of
the Shares under the securities laws thereof (any such document, application or
information being hereinafter called a "Blue Sky Application") or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading. The Company agrees to reimburse each Underwriter and each such
controlling person for any legal fees or other expenses incurred by such
Underwriter or any such controlling person in connection with investigating or
defending any such Claim; provided, however, that the Company will not be liable
in any such case to the extent that: (i) any such Claim arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement, any Preliminary Prospectus,
the Prospectus or supplement thereto or in any Blue Sky Application in reliance
upon and in conformity with the written information furnished to the Company
pursuant to section 5 of this Agreement; or (ii) such statement or omission was
contained or made in any Preliminary Prospectus and corrected in the Prospectus
and (1) any such Claim suffered or incurred by any Underwriter (or any person
who controls any Underwriter) resulted from an action, claim or suit by any
person who purchased Shares which are the subject thereof from such Underwriter
in the offering, and (2) such Underwriter failed to deliver or provide a copy of
the Prospectus to such person at or prior to the confirmation of the sale of
such Shares in any case where such delivery is required by the
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<PAGE> 31
Act, unless such failure was due to failure by the Company to provide copies of
the Prospectus to the Underwriters as required by this Agreement. The
indemnification obligations of the Company as provided above are in addition to
and in no way limit any liabilities the Company may otherwise have.
(b) Each of the Selling Shareholders, severally and not
jointly, agrees to indemnify and hold harmless each Underwriter and each
controlling person from and against any Claims to which such Underwriter or each
such controlling person may become subject under the Act, the Exchange Act, Blue
Sky Laws or other federal or state statutory laws or regulations, at common law
or otherwise (including payments made in settlement of any litigation), insofar
as such Claims arise out of or are based upon any breach of any representations,
warranty or covenant made by such Selling Shareholder in this Agreement.
(c) Each Underwriter, severally and not jointly, will
indemnify and hold harmless the Company, each of its directors and each of its
officers who signs the Registration Statement, and each person, if any, who
controls the Company within the meaning of the Act or the Exchange Act, and each
Selling Shareholder against any Claim to which the Company, or any such
director, officer, controlling person or Selling Shareholder may become subject
under the Act, the Exchange Act, Blue Sky Laws or other federal or state
statutory laws or regulations, at common law or otherwise (including payments
made in settlement of any litigation, if such settlement is effected with the
written consent of such Underwriter and Baird), insofar as such Claim arises out
of or is based upon any untrue or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or in any Blue Sky
Application, or arises out of or is based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
or in any Blue Sky Application, in reliance solely upon and in conformity with
the written information furnished by the Representativess to the Company
pursuant to section 5 of this Agreement. Each Underwriter will severally
reimburse any legal fees or other expenses incurred by the Company, or any such
director, officer, controlling person or Selling Shareholder in connection with
investigating or defending any such Claim, and from any and all Claims solely
resulting from failure of an Underwriter to deliver a Prospectus, if the person
asserting such Claim purchased Shares from such Underwriter and a copy of the
Prospectus (as then amended if the Company shall have furnished any amendments
thereto) was not sent or given by or on behalf of such Underwriter to such
person, if required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Shares to such person, and if the Prospectus (as
so amended) would have cured the defect giving rise to such Claim. The
indemnification obligations of each Underwriter as provided above are in
addition to any liabilities any such Underwriter may otherwise have.
Notwithstanding the provisions of this section, no Underwriter shall be required
to indemnify or reimburse the Company, or any officer, director, controlling
person or Selling Shareholder in an aggregate amount in excess of the total
price at which the Shares purchased by any such Underwriter hereunder were
offered to the public, less the amount of any damages
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<PAGE> 32
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission.
(d) Each Selling Shareholder, severally and not jointly,
agrees to indemnify and hold harmless the Company, each of its directors and
each of its officers who signs the Registration Statement, and each person, if
any, controlling the Company within the meaning of the Act or the Exchange Act
to the same extent as the foregoing indemnity from the Company to each
Underwriter set forth in subsection (a) of this section. In case any Claim shall
be brought or asserted against the Company, its directors, such officers or any
such controlling person, in respect of which indemnity may be sought against any
Selling Shareholder, such Selling Shareholder shall have the rights and duties
given to the Company, and the Company, such directors or officers and any such
controlling person shall have the rights and duties given to the Underwriters by
subsection (a) of this section.
(e) Promptly after receipt by an indemnified party under
this section of notice of the commencement of any action in respect of a Claim,
such indemnified party will, if a Claim in respect thereof is to be made against
an indemnifying party under this section, notify the indemnifying party in
writing of the commencement thereof, but the omission so to notify the
indemnifying party will not relieve an indemnifying party from any liability it
may have to any indemnified party under this section or otherwise. In case any
such action is brought against any indemnified party, and such indemnified party
notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in and, to the extent that he, she or it
may wish, jointly with all other indemnifying parties, similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party; provided, however, if the defendants in any such action
include both the indemnified party and any indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to the indemnified party and/or other indemnified parties
which are different from or additional to those available to any indemnifying
party, the indemnified party or parties shall have the right to select separate
counsel to assume such legal defenses and to otherwise participate in the
defense of such action on behalf of such indemnified party or parties.
(f) Upon receipt of notice from the indemnifying party to
such indemnified party of the indemnifying party's election to assume the
defense of such action and upon approval by the indemnified party of counsel
selected by the indemnifying party, the indemnifying party will not be liable to
such indemnified party under this section for any legal fees or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof, unless:
(i) the indemnified party shall have employed separate
counsel in connection with the assumption of legal defenses in
accordance with the proviso to the last sentence of subsection (e) of
this section (it being understood, however, that the indemnifying party
shall not be liable for the legal fees and expenses of more than one
separate counsel, approved by Baird, if one or more of the Underwriters
or their controlling persons are the indemnified parties);
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(ii) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after the indemnified
party's notice to the indemnifying party of commencement of the action;
or
(iii) the indemnifying party has authorized the employment
of counsel at the expense of the indemnifying party.
(g) If the indemnification provided for in this section
is unavailable to an indemnified party under subsection (a), (b), (c) or (d)
hereof in respect of any Claim referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall, subject to the
limitations hereinafter set forth, contribute to the amount paid or payable by
such indemnified party as a result of such Claim:
(i) in such proportion as is appropriate to reflect the
relative benefits received by the Company, and the Underwriters from
the offering of the Shares; or
(ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above,
but also the relative fault of the Company, each Selling Shareholder
and the Underwriters in connection with the statements or omissions
which resulted in such Claim, as well as any other relevant equitable
considerations.
The relative benefits received by each of the Company, each
Selling Shareholder and the Underwriters shall be deemed to be in such
proportion so that the Underwriters are responsible for that portion represented
by the percentage that the amount of the underwriting discounts and commissions
per share appearing on the cover page of the Prospectus bears to the public
offering price per share appearing thereon, and the Company (including its
officers and directors and controlling persons), and each of the Selling
Shareholders are responsible for the remaining portion. The relative fault of
the Company, each Selling Shareholder and the Underwriters shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company, each Selling
Shareholder or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by a party as a result of the Claims
referred to above shall be deemed to include, subject to the limitations set
forth in subsections (e) and (f) of this section, any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim.
(h) The Company, the Selling Shareholders and the
Underwriters agree that it would not be just and equitable if contribution
pursuant to this section were determined by pro rata or per capita allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method or allocation which does not take into account the equitable
considerations referred to in subsection (f) of this section. Notwithstanding
the other provisions of this section, no Underwriter shall be required to
contribute any amount that is greater than
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the amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this section are several in proportion to their
respective underwriting commitments and not joint.
(i) Notwithstanding any provision of this section 12 to
the contrary, the liability of each of the Selling Shareholders arising under
this section 12 shall not exceed the purchase price received by such Selling
Shareholder from the Underwriters for the Shares sold by such Selling
Shareholder.
SECTION 13. DEFAULT OF UNDERWRITERS. It shall be a condition
to the obligations of each Underwriter to purchase the Shares in the manner as
described herein, that, except as hereinafter provided in this section, each of
the Underwriters shall purchase and pay for all the Shares agreed to be
purchased by such Underwriter hereunder upon tender to the Representatives of
all such Shares in accordance with the terms hereof. If any Underwriter or
Underwriters default in their obligations to purchase Shares hereunder on either
the First Closing Date or the Second Closing Date and the aggregate number of
Shares which such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed ten percent (10%) of the total number of Shares which
the Underwriters are obligated to purchase on such Closing Date, the
Representatives may make arrangements for the purchase of such Shares by other
persons, including any of the Underwriters, but if no such arrangements are made
by such Closing Date the nondefaulting Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to purchase
the Shares which such defaulting Underwriters agreed but failed to purchase on
such Closing Date. If any Underwriter or Underwriters so default and the
aggregate number of Shares with respect to which such default or defaults occur
is greater than ten percent (10%) of the total number of Shares which the
Underwriters are obligated to purchase on such Closing Date, and arrangements
satisfactory to the Representatives for the purchase of such Shares by other
persons are not made within thirty-six hours after such default, this Agreement
will terminate without liability on the part of any nondefaulting Underwriter,
the Company or any Selling Shareholder except for the expenses to be paid by the
Company and the Selling Shareholders pursuant to section 9 hereof and except to
the extent provided in section 12 hereof.
In the event that Shares to which a default relates are to be
purchased by the nondefaulting Underwriters or by another party or parties, the
Representativess shall have the right to postpone the First Closing Date or the
Second Closing Date, as the case may be, for not more than seven business days
in order that the necessary changes in the Registration Statement, Prospectus
and any other documents, as well as any other arrangements, may be effected. As
used in this Agreement, the term "Underwriter" includes any person substituted
for an Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
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SECTION 14. EFFECTIVE DATE. This Agreement shall become
effective upon the execution and delivery of this Agreement by the parties
hereto. Such execution and delivery shall include an executed copy of this
Agreement sent by telecopier, facsimile transmission or other means of
transmitting written documents.
SECTION 15. TERMINATION. Without limiting the right to
terminate this Agreement pursuant to any other provision hereof, this Agreement
may be terminated by the Representativess prior to or on the First Closing Date
and the over-allotment option from the Company referred to in section 6 hereof,
if exercised, may be cancelled by the Representativess at any time prior to or
on the Second Closing Date, if in the judgment of the Representativess, payment
for and delivery of the Shares is rendered impracticable or inadvisable because:
(a) additional governmental restrictions, not in force
and effect on the date hereof, shall have been imposed upon trading in
securities generally or minimum or maximum prices shall have been
generally established on the New York Stock Exchange or the American
Stock Exchange, or trading in securities generally shall have been
suspended or materially limited on either such exchange or on The
Nasdaq Stock Market or a general banking moratorium shall have been
established by either federal or state authorities in New York, Florida
or Wisconsin;
(b) any event shall have occurred or shall exist which
makes untrue or incorrect in any material respect any statement or
information contained in the Registration Statement or which is not
reflected in the Registration Statement but should be reflected therein
to make the statements or information contained therein not misleading
in any material respect; or
(c) an outbreak or escalation of hostilities or other
national or international calamity or any substantial change in
political, financial or economic conditions shall have occurred or
shall have accelerated to such extent, in the judgment of the
Representativess, as to have a material adverse effect on the financial
markets of the United States, or to make it impracticable or
inadvisable to proceed with completion of the sale of and payment for
the Shares as provided in this Agreement.
Any termination pursuant to this Section shall be without
liability on the part of any Underwriter to the Company or any Selling
Shareholder, or on the part of the Company or any Selling Shareholder to any
Underwriter, except for expenses to be paid by the Company and the Selling
Shareholders pursuant to section 9 hereof or reimbursed by the Company pursuant
to section 7(n) hereof and except as to indemnification to the extent provided
in section 12 hereof.
SECTION 16. REPRESENTATIONS AND INDEMNITIES TO SURVIVE
DELIVERY. The respective indemnities, agreements, representations, warranties,
covenants and other statements of the Company, of its officers or directors, of
the Selling Shareholders, and of the several
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<PAGE> 36
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of any
Underwriter, Selling Shareholder or the Company or any of its or their partners,
officers, directors or any controlling person, as the case may be, and will
survive delivery of and payment for the Shares sold hereunder.
SECTION 17. NOTICES. All communications hereunder will be in
writing and, if sent to the Representativess, will be mailed, delivered,
telecopied (with receipt confirmed) or telegraphed and confirmed to Robert W.
Baird & Co. Incorporated at 777 East Wisconsin Avenue, Milwaukee, Wisconsin
53202, Attention: Brenton H. Rupple, Jr., with a copy to Benjamin F. Garner,
III, Esq. Foley & Larder, 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53217
and if sent to the Company, will be mailed, delivered, telecopied (with receipt
confirmed) or telegraphed and confirmed to the Company at 120 West Hyde Park
Place, Suite 200, Tampa, Florida 33606, Attention: President, with a copy to
Michael L. Jamieson, Esq., Holland & Knight, 400 North Ashley, Suite 2300,
Tampa, Florida, 33602; and, if sent to the Selling Shareholders, will be mailed,
delivered, telecopied (with receipt confirmed) or telegraphed and confirmed to
the Attorneys-in-Fact, or either of them, in care of the Company, with copies to
Michael L. Jamieson, Esq., Holland & Knight, 400 North Ashley, Suite 2300,
Tampa, Florida, 33602.
SECTION 18. SUCCESSORS. This Agreement will inure to the
benefit of and be binding upon the parties hereto and their respective
successors, personal representatives and assigns, and to the benefit of the
officers and directors and controlling persons referred to in section 12 hereof
and no other person will have any right or obligation hereunder. The term
"successors" shall not include any purchaser of the Shares as such from any of
the Underwriters merely by reason of such purchase.
SECTION 19. PARTIAL UNENFORCEABILITY. If any section,
paragraph, clause or provision of this Agreement is for any reason determined to
be invalid or unenforceable, such determination shall not affect the validity or
enforceability of any other section, paragraph clause or provision hereof.
SECTION 20. APPLICABLE LAW; COUNTERPARTS. This Agreement shall
be governed by and construed in accordance with the internal laws of the State
of Wisconsin without reference to conflict of law principles thereunder. This
Agreement may be signed in various counterparts which together shall constitute
one and the same instrument, and shall be effective when at least one
counterpart hereof shall have been executed by or on behalf of each party
hereto.
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding
-36-
<PAGE> 37
agreement among the Company, each of the Selling Shareholders and the several
Underwriters, including the Representativess, all in accordance with its terms.
Very truly yours,
ROMAC INTERNATIONAL, INC.
By: __________________________________
David L. Dunkel, President
THE SELLING SHAREHOLDERS:
By: __________________________________
Attorney-in-Fact
By: __________________________________
Attorney-in-Fact
The foregoing Underwriting
Agreement is hereby confirmed
and accepted as of the date
first above written.
ROBERT W. BAIRD & CO. INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
By: ROBERT W. BAIRD & CO. INCORPORATED
Acting as Representatives of the several
Underwriters (including themselves) identified
in Schedule II annexed hereto.
By: ____________________________________
Authorized Representatives
-37-
<PAGE> 38
ROMAC INTERNATIONAL, INC.
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF FIRM NUMBER OF OPTIONAL
SHARES SHARES
------ ------
<S> <C> <C>
The Company
The Selling Shareholders:
</TABLE>
<PAGE> 39
ROMAC INTERNATIONAL, INC.
SCHEDULE II
<TABLE>
<CAPTION>
NUMBER OF FIRM
SHARES TO
NAME OF UNDERWRITER BE PURCHASED
------------------- ------------
<S> <C>
Robert W. Baird & Co. Incorporated.........................................
Prudential Securities Incorporated.........................................
</TABLE>
<PAGE> 40
ROMAC INTERNATIONAL, INC.
SCHEDULE III
NUMBER OF SHARES
NAME OF SHAREHOLDER OF COMMON STOCK
- ------------------- ---------------
<PAGE> 1
Exhibit 5.0
[HOLLAND & KNIGHT LETTERHEAD]
May 15, 1996
Romac International, Inc.
120 West Hyde Park Place
Suite 200
Tampa, Florida 33606
Re: Registration Statement on Form S-1
(File No. 333-03393)
Gentlemen:
We refer to the Registration Statement (the "Registration Statement")
on Form S-1 (File No. 333-03393), filed by Romac International, Inc. (the
"Company"), with the Securities and Exchange Commission, for the purpose of
registering under the Securities Act of 1933 (the "Securities Act") an aggregate
of 3,036,000 shares (the "Common Stock") of the authorized common stock, par
value $.01 per share, of the Company being offered to the public pursuant to an
underwriting agreement (the "Underwriting Agreement"), between the Company,
certain selling shareholders of the Company, and Robert W. Baird & Co.
Incorporated and Prudential Securities Incorporated, as representatives of the
underwriters.
In connection with the foregoing registration, we have acted as counsel
for the Company, and have examined originals, or copies certified to our
satisfaction, of all such corporate records of the Company, certificates of
public officials and representatives of the Company, and other documents as we
deemed it necessary to require as a basis for the opinion hereafter expressed.
Based upon the foregoing, and having regard for legal considerations
that we deem relevant, it is our opinion that the Common Stock will be, when and
if sold in accordance with the Underwriting Agreement, duly authorized, legally
issued and fully paid and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement, and to the reference to this firm under the caption
"Legal Matters" contained in the prospectus filed as part thereof. In giving
such consent, we do not thereby admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act.
Very truly yours,
HOLLAND & KNIGHT
By: /s/ ROBERT J. GRAMMIG
-------------------------------
Robert J. Grammig
RJG/ktw
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 15, 1996,
relating to the financial statements of Romac International, Inc., and of our
report dated March 20, 1996, relating to the financial statements of Venture
Networks, Inc., which appear in such Prospectus. We also consent to the
application of such report to the Financial Statement Schedules for the three
years ended December 31, 1995, listed under Item 16(b) of this Registration
Statement when such schedules are read in conjunction with the financial
statements referred to in our report. The audits referred to in such report also
included these schedules. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Tampa, Florida
May 15, 1996
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in the Prospectus constituting part of
this Registration Statement on Form S-1 of our report dated April 18, 1996,
relating to the financial statements of PCS Group, Inc., which appears in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
/s/ Deming, Malone, Livesay & Ostroff, P.S.C.
DEMING, MALONE, LIVESAY & OSTROFF, P.S.C.
Louisville, Kentucky
May 15, 1996
<PAGE> 1
Exhibit 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
I hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of my report dated May 8, 1996, relating to
the financial statements of Strategic Outsourcing, Inc., which appears in such
Prospectus. I also consent to the reference to me under the heading "Experts"
in such Prospectus.
/s/ Robert J. Dennehy
ROBERT J. DENNEHY
Medfield, Massachusetts
May 15, 1996
