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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE) FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-26058
ROMAC INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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FLORIDA 59-3264661
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
20 WEST HYDE PARK PLACE, SUITE 150, TAMPA, FLORIDA 33606
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (813) 251-1700
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE
ON WHICH REGISTERED
NONE NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of Registrant's voting stock held by
nonaffiliates of Registrant, as of March 13, 1998, was $530,379,086.
The number of shares outstanding of Registrant's Common Stock as of March
13, 1998, was 29,527,818.
DOCUMENTS INCORPORATED BY REFERENCE:
Parts of the Company's definitive proxy statement for the Annual Meeting of
the Company's Shareholders to be held on April 20, 1998 are incorporated by
reference into Part III of this Form.
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TABLE OF CONTENTS
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ITEM NO. PAGE
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Item 1. Business.................................................... 2
Item 2. Properties.................................................. 11
Item 3. Legal Proceedings........................................... 12
Item 4. Submission of Matters to a Vote of Security Holders......... 12
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 12
Item 6. Selected Financial Data..................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 13
Item 8. Financial Statements and Supplementary Data................. 17
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 17
Item 10. Directors and Executive Officers of the Registrant.......... 18
Item 11. Executive Compensation...................................... 18
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 18
Item 13. Certain Relationships and Related Transactions.............. 18
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 19
Index to Consolidated Financial Statements and Schedule............... 20
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PART I
ITEM 1. BUSINESS
This document contains certain forward-looking statements regarding future
financial condition and results of operations and the Company's business
operations. The words "expect," "estimate," "anticipate," "predict," "believe,"
and similar expressions are intended to identify forward looking statements.
Such statements involve risks, uncertainties and assumptions, including industry
and economic conditions, customer actions and other factors discussed in this
and Romac International, Inc.'s ("Romac" or the "Company") other filings with
the Securities and Exchange Commission (the "Commission"). Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual outcomes may vary materially from those indicated.
GENERAL
Romac is a provider of professional specialty staffing services in 19
markets in the United States. Romac strives to shape valuable business
relationships between organizations and the knowledgeable people who make them
successful. To better serve the needs of its customers, Romac provides its
value-added services in the following specialties: Information Technology,
Finance and Accounting, Human Resources and Operating Specialties. Romac
believes its broad range of highly specialized services provides clients with
integrated solutions to their staffing needs, allowing Romac to develop
long-term, consultative relationships. Romac principally serves Fortune 1000
clients, with the top ten clients representing 10.0% of revenue in 1997. Romac's
functional focus and range of service offerings generate increased placement
opportunities and enhance Romac's ability to identify, attract, retain, develop,
and motivate personnel and operating employees (the "KnowledgeForce").
RECENT ACQUISITIONS
Since the completion of the Company's initial public offering in August
1995, the Company has completed 14 acquisitions which have expanded the
Company's geographic coverage and its service offerings. Certain information
relating to these acquisitions is summarized in the following table.
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MOST RECENT
FISCAL YEAR
DATE OF REVENUE
NAME OF COMPANY ACQUISITION IN MILLIONS(1) FUNCTIONAL SERVICE AREA PRIMARY LOCATION
--------------- ----------- -------------- ----------------------- ----------------
<S> <C> <C> <C> <C>
Temporary Accounting Professionals,
Inc. ............................... 5/1/96 $ 0.6 Finance & Accounting Pittsburgh, PA
Bayshare, Inc. ....................... 6/1/96 6.3 Finance & Accounting San Francisco, CA
Career Enhancement International of
Massachusetts, Inc. ................ 1/1/97 4.7 Information Technology Boston, MA
Career Concepts, Inc. ................ 1/1/97 0.6 Information Technology Boston, MA
Romac & Associates of Chestnut Hill... 1/1/96 0.2 Information Technology Boston, MA
Venture Networks Corporation, Inc. ... 1/1/96 2.1 Information Technology Boston, MA
PCS Group, Inc. ...................... 2/1/96 3.6 Information Technology Louisville, KY
Strategic Outsourcing, Inc. .......... 3/1/96 5.7 Human Resources Boston, MA
Professional Application Resources,
Inc. ............................... 3/1/97 8.3 Information Technology Houston, TX
The McMahon Company................... 6/1/97 0.3 Human Resources Philadelphia, PA
Uni*Quality Systems Solutions,
Inc. ............................... 9/1/97 12.4 Information Technology Naperville, IL
Sequent Associates, Inc. ............. 9/1/97 15.9 Information Technology San Jose, CA
DP Specialists of Colorado, Inc. ..... 11/1/97 3.9 Information Technology Denver, CO
The Center For Recruiting
Effectiveness, Inc. ................ 12/1/97 2.4 Human Resources Washington, DC
</TABLE>
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(1) Represents fiscal year revenue for the year prior to acquisition by Romac.
On February 1, 1998 (amended on February 11, 1998), the Company and Source
Services Corporation ("Source") entered into a definitive merger agreement (the
"Merger Agreement") providing for the merger of Source into the Company (the
"Source Merger"). The parties intend that the transaction will be treated as a
"pooling of interests" for accounting purposes and will qualify as a tax-free
reorganization. Under the terms of the Merger Agreement, stockholders of Source
will receive 1.1932 shares of Romac common stock, par value $.01 per share, for
each of the approximately 14.1 million outstanding shares of Source common
stock, subject to adjustment based upon the Company's market price prior to
closing and certain other conditions. Following completion of the Source Merger,
David L. Dunkel will continue as chairman and chief executive officer of the
Company and James D. Swartz will be president and chief operating officer. Les
Ward, currently Chief Executive Officer of Source, will join the board of
directors of the Company and will assist in the integration program and with
special projects. Consummation of the Source Merger is subject to certain
conditions, including effectiveness of a registration statement to be filed by
the Company with the Commission, approval by the shareholders of each company,
termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, receipt of opinions from the parties'
independent accountants regarding the treatment of the Source Merger as a
"pooling of interests," and other conditions. The Source Merger is expected to
be completed during the second calendar quarter of 1998.
INDUSTRY OVERVIEW
The flexible 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 flexible 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 flexible personnel to keep labor costs variable, to achieve
maximum flexibility, to outsource highly specialized skills, and to avoid the
negative effects of layoffs.
Rapidly changing regulations concerning employee benefits, health
insurance, retirement plans, and the highly competitive business climate have
also prompted many employers to take advantage of the flexibility offered
through flexible 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 Romac.
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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 the
Staffing Industry Report, the United States temporary staffing industry grew
from approximately $20.4 billion in revenue in 1991 to approximately $47.1
billion in revenue in 1996, a compound annual growth rate of 18.2%. One of the
fastest growing sectors for Romac, as well as the industry, is information
technology services. Revenue for this sector in 1996 is estimated to have been
$11.7 billion, a 27.2% increase over 1995. Romac 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 personnel. The National
Association of Temporary and Staffing Services has estimated that more than 90%
of all U.S. businesses utilize temporary staffing services.
BUSINESS STRATEGY
Romac's objective is to be a nationally recognized leader in providing its
professional specialty staffing services. The key elements of Romac's business
strategy in seeking to achieve this objective include:
- Implement the KnowledgeForce Strategy. As the staffing industry
continues to evolve in today's economy, its impact on organizations and
their ability to attract and secure intellectual capital has been
enormous. Romac believes, and government statistics support, that the
demand for and the supply of intellectual capital is moving away from a
permanent employment status towards an increasingly fluid and flexible
employment relationship through flexible staffing. Romac believes that
the intellectual capital of today, and even more so in the future, will
be concentrated in highly skilled individuals who Romac collectively
refers to as the "KnowledgeForce." In response to its beliefs, Romac has
implemented a strategy to become known as the "KnowledgeForce Resource"
in each market it serves.
- Focus on Value-Added Services. Romac focuses exclusively on providing
specialty staffing services to its clients. Romac believes that providing
these specialty services to its clients offer greater profitability than
the clerical and light industrial sectors of the temporary staffing
industry. In addition, Romac believes, based upon data published by the
U.S. Bureau of Labor Statistics and other sources, that employment growth
will be greater in Romac'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 personnel, match them to client needs, and develop and manage the
resulting relationships. Romac believes its historical focus in this
market and name recognition, combined with management's operating
expertise, provide it with a competitive benefit.
- Build Long-Term, Consultative Relationships. Romac has developed
long-term relationships with its clients by providing integrated
solutions to their specialty staffing requirements. Romac strives to
differentiate itself by working closely with its clients to maximize
their return on human assets. In addition, Romac's ability to offer a
broad range of flexible personnel services, coupled with its permanent
placement capability, offers the client a single-source provider of
specialty staffing services. This ability enables Romac to emphasize
consultative rather than transactional client relationships.
- Implement Carve-Out Strategy. Romac 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, Romac has signed several contracts with major
national corporations for certain of Romac's services. Management
believes there is substantial opportunity for growth through the
continued implementation of this strategy.
- Achieve Extensive Client Penetration. Romac's client development process
focuses on repeated contacts with client employees responsible for
staffing decisions. Contacts are made within numerous functional
departments and at many different organizational levels within the
client. Romac's operating employees are trained to develop a thorough
understanding of each client's total staffing requirements. In addition,
although Romac is organized functionally, its operating employees are
trained and incentivized to recognize cross-selling opportunities for all
of Romac's other services.
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- Apply Innovative Technology. Romac utilizes proprietary technologies and
processes in the staffing, marketing, and management of its operations.
Romac's Professional Recruiters Operating System ("PROS") provides
operating employees with a systematic approach to identifying,
monitoring, and serving the needs of Romac's customers (clients and
personnel). Once operating employees obtain information regarding a
customer, the data is entered into Romac's integrated operating system
and is coded for future action. Operating employees are then prompted by
means of an automated planner to contact the customer periodically to
monitor and serve the needs that have been identified. Romac believes
that its emphasis on the use of technology has resulted in the delivery
of higher quality service, greater operating efficiency, and increased
operating employee productivity.
- Recruit High-Quality Professionals. Romac places great emphasis on
recruiting qualified personnel. Romac believes it has a recruiting
advantage over those of its competitors that lack the ability to offer
personnel flexible and permanent opportunities. Personnel seeking
permanent employment frequently accept flexible assignments through Romac
until a permanent position becomes available. Personnel are screened by
an operating employee with a compatible technical background to determine
qualifications and match them with client needs.
- Encourage Operating Employee Achievement. Romac's management promotes a
quality-focused, results-oriented culture. Operating employees are
selected based on their willingness to assume responsibility and promote
Romac's philosophy. All operating employees are given numerous incentives
to encourage the achievement of corporate goals. Romac fosters a
team-oriented and high energy environment, celebrates the successes of
its operating employees, and attempts to create a "spirited" work
environment.
GROWTH STRATEGY
Romac'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 Romac's growth strategy are as follows:
- Introduce Functional Service Offerings to Existing Markets. Romac
currently offers four areas of functional services and only one of
Romac's 19 markets offers the full range of services. As a result, Romac
believes that a substantial opportunity exists to increase the number of
service offerings within its existing markets. Romac intends to offer its
recently expanded full range of functional services into each of its
existing locations.
- Open New Locations. Romac continually evaluates potential geographic
expansion into new metropolitan areas. To facilitate new market entry,
Romac plans to transfer or recruit experienced operating employees for
positions in new locations as they are opened. Romac also seeks to
leverage its national accounts to facilitate its entry into new markets.
Since February 1995, Romac has opened offices in Dallas, Houston,
Minneapolis, Philadelphia, Pittsburgh, Washington, D.C., Stamford and St.
Louis.
- Leverage Existing Client Relationships and Develop New Clients. Romac
continually identifies additional growth opportunities within existing
and new clients as a result of the interrelationships among its service
offerings. Romac has established goals for cross-selling and has trained
and incentivized its operating employees to actively sell Romac's full
range of services, in an effort to maximize its reach into the
marketplace.
- Acquire Strategic Businesses. Romac intends to continue to pursue the
acquisition of complementary specialty staffing businesses. Romac's
preference is to acquire businesses in markets in which Romac currently
has a location or formerly maintained a franchised or licensed location,
although other markets will also be explored, including markets outside
the United States. Romac's primary acquisition candidates are local or
regional specialty staffing firms with established client relationships
in markets targeted by Romac. Romac currently has no understanding or
agreement with any potential acquisition candidate, except the Merger
Agreement with Source.
- Expand Major and National Accounts Program. Romac will continue to
market its full range of services to existing and new clients in order to
position Romac as the preferred vendor for specialty
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staffing services. Romac believes the major accounts program enables it to
further penetrate its clients by giving Romac greater access to key staffing
decision makers including the support of the client's purchasing and procurement
team. This increased access allows Romac to achieve greater operating
leverage through improved efficiencies in the marketing process. Romac has
successfully obtained several national agreements for professional and
technical specialty staffing services. Romac intends to aggressively
pursue such agreements to facilitate geographic expansion and existing
market penetration.
- Introduce New Services. Romac continually evaluates the introduction of
new services in an effort to meet customer demands. Romac has introduced
flexible staffing of pharmaceutical, health care, and manufacturing
services personnel to complement its existing search capabilities in
these areas. Additionally, Romac acquired an entity that provides
outplacement services and human resource contract and outsourcing
services. To enhance the technical capabilities and perceived quality of
Romac's Information Technology Services, Romac has formed Emerging
Technologies Division ("ETD") through which selected personnel receive
extensive training in emerging information technologies and are assigned
to client environments for periods generally ranging from six months to
two years.
FUNCTIONAL ORGANIZATION
In March 1997, Romac changed the manner in which it classifies its service
offerings in order to better serve the specialty needs of its customers.
Currently, in order to align itself more closely with the organizational
structure of its clients and the skills of its personnel on assignment, and
available for assignment, Romac organizes its service offerings by function.
The functional areas are defined as:
- Information Technology. Computer and Data Processing Services heads the
Bureau of Labor Statistics' list of the fastest growing industries. The
shortage of technical expertise to operate the advanced systems that
businesses have acquired over the last decade is a major catalyst
contributing to the growth of this segment. Romac's Information
Technology services focuses on more sophisticated areas of the
information technologies (i.e., systems/applications programmers, systems
analysts, and networking technicians), where the shortage of personnel is
the most acute.
The combination of a growing number of available software applications, the
increased complexity of such software applications, and the short supply of
qualified software expertise contributed to Romac's decision to create ETD in
mid-1995. ETD retrains skilled information technology professionals in cutting
edge technology solutions and then offers the services of those highly trained
individuals to Romac's clients. Romac believes the sophistication of these
technologies, coupled with the significant unmet demand, provide an attractive
opportunity for Romac to generate a new, higher margin business, and to add
value to its clients.
- Finance & Accounting. In its markets, Romac believes it has built a
strong reputation for providing qualified finance and accounting
professionals to businesses. Romac believes this reputation facilitates
Romac's recruiting and placement efforts. Romac's Finance & Accounting
personnel are experienced in areas such as corporate taxation, budget
preparation and analysis, financial reporting, cost analysis, and audit
services. Romac recently introduced its Executive Solutions service line,
which provides chief financial officers, controllers and other
higher-level financial professionals on a contract basis for assignment
lengths generally ranging from three to six months.
- Human Resources. The non-core functions of a business, such as human
resources, are the most likely to be outsourced. With increasing
employment regulations, the administrative burden on employers is
becoming more complex and more time-consuming than ever before. Romac
offers flexible and permanent staffing of human resource professionals in
the areas of recruiting, benefits administration, training, and
generalists. In addition, Romac provides outplacement, outsourcing, and
consulting services in this field.
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- Operating Specialties. This segment consists of revenues generated by
the placement of professionals skilled in the pharmaceutical,
manufacturing, health care, life insurance, and investment industries.
Examples of the types of positions that would be classified in these
categories are: research and regulatory personnel for pharmaceutical
clients, quality engineers and assurance personnel for manufacturing
companies, hospital administration and management personnel for health
care companies, and management personnel for life insurance companies.
Once the functional challenges of the client have been identified, Romac
can then consult with the client to determine its staffing and time duration
requirements. Romac offers its staffing services in one of two categories:
Flexible Staffing Services or Search Services.
Flexible Staffing Services
Flexible Staffing Services are offered by Romac to provide personnel in the
fields of information technology, finance and accounting, human resources and
operating specialties. Romac currently offers flexible staffing services in
nineteen metropolitan markets. The two primary service offerings within Flexible
Staffing are distinguished below:
Professional Temporary Services. Professional Temporary Services are
offered by Romac to provide professional temporary personnel in the fields
of finance and accounting.
Professional Temporary Services 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.
Professional Temporary Services 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 Romac'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 Services is six to twelve weeks.
Personnel for Professional Temporary Services are obtained from Search
Services, referrals, and advertising in local newspapers and on Romac's
home page on the Internet. Romac believes it has a competitive advantage in
attracting personnel because of its ability to provide assignments ranging
from short term to permanent. Access by the Professional Temporary Services
to the Search Services' personnel pool provides personnel the opportunity
to obtain permanent employment as a result of a flexible assignment,
earnings that may allow personnel to be more selective when evaluating
permanent opportunities, and additional experience that can enhance
personnel skills and overall marketability. Personnel are screened by an
operating employee with a compatible background to determine their
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.
Professional Temporary Services targets Fortune 1000 companies and
other large organizations, with a primary focus on organizations determined
to have the potential need for Romac's full range of services. In order to
maximize its marketing effectiveness, Romac provides extensive training to
its operating employees, which emphasizes the consulting nature of its
business. Romac's operating 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. Romac believes that these techniques and processes provide the
opportunity to expand its business within its clients' organizations,
solidify client relationships, and develop new clients. Romac recognizes
that in some cases Professional Temporary Services personnel will be
offered permanent positions. If a client requests that personnel become
permanent employees, Romac typically charges a "conversion" fee that is
calculated as a percentage of the initial annual compensation.
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Contract Services. Contract Services provides personnel on a
contractual basis, which typically averages six to nine months in duration.
Contract Services has traditionally focused on providing information
systems personnel to assist clients whose needs range from mainframe
environments to single work stations. Contract Services personnel 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 businesses 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
businesses 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.
Romac'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, Contract
Services focuses heavily on its recruiting efforts. In addition, Romac
focuses on training its Information Systems personnel in sophisticated
technology applications. For example, Romac has formed ETD, which selects
personnel to receive extensive training in emerging information
technologies and who are assigned to client environments for periods
generally ranging from six months to two years. Romac 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., which was
renamed Romac-HR ("Romac-HR"), expanded Romac's Contract Services functions
to include human resource personnel. Romac-HR, which was founded in 1989 in
Boston, provides its clients with human resource personnel on a contractual
basis to assist in the development, implementation, and maintenance of a
wide variety of human resource processes. Romac currently provides the
human resource contract services function in the Boston, Chicago,
Philadelphia, Tampa and Washington DC markets. Romac plans to continue to
introduce the human resource contract services function into its existing
markets.
Romac has expanded its Contract Services functions to include
manufacturing services, health care, and pharmaceutical personnel. Within
manufacturing services, Romac provides a wide range of quality engineers
and quality assurance personnel. Health care contract services provides
hospital administration and management personnel. Pharmaceutical contract
services provides pharmaceutical industry clients with research and
regulatory personnel.
Currently, Romac services these other functional areas on a national
basis solely out of its Tampa office.
Romac's operating employees develop and maintain an active personnel
inventory designed to meet the needs of Romac's clients. To recruit
qualified personnel, Romac uses targeted telephone and internet recruiting,
obtains referrals from its existing personnel and clients, and places
newspaper advertisements. The Search Services' recruiting efforts
complement those of Contract Services, and Romac believes that this
combination distinguishes it from its competitors. To foster loyalty and
commitment from its existing personnel, Romac maintains frequent contact
and offers competitive wages, benefits, flexible schedules, and exposure to
a variety of working environments.
Contract Services 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. Operating employees emphasize Romac'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.
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Search Services
Romac provides extensive search services for professional and technical
personnel. The professional skills offered by the Search Services are in the
areas of information technology, finance and accounting, financial services,
pharmaceutical research, health care, human resources, insurance, and
manufacturing.
Romac performs both contingency and retained searches. A contingency search
results in payment to Romac only when personnel are actually hired by a client.
Romac's strategy is to perform contingency searches only for skills Romac
targets as its "core-businesses." 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. Romac 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. Romac's fee is
typically structured as a percentage of the placed individual's first-year
annual compensation.
An active database of personnel is maintained as the result of its
continuous recruiting efforts and reputation in the industry. In addition,
operating employees locate many potential personnel as the result of referrals
from the Flexible Staffing Services activities.
Romac 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, Romac'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 Romac seeks to use consultative
relationships to obtain insight into emerging growth areas. The clients targeted
by the Search Services are typically the same as those targeted by the Flexible
Staffing Services. This common focus is intended to contribute to Romac's
objective of providing integrated solutions to its clients' personnel needs.
Romac's search business is highly specialized. Certain skills, such as
finance and accounting, information technology and human resources, may be
served by local offices, while other, more highly specialized operating
specialties require a regional or national focus. Romac 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 Romac's inventory of personnel. Romac expects that the Search Services will
continue to add operating specialties in the majority of markets served.
MARKETS
Romac serves 19 metropolitan markets with management of the operations
coordinated from its headquarters in Tampa. Romac's headquarters provides its
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.
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The following table lists the services offered by Romac on a market by
market basis.
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SERVICES OFFERED
--------------------------------------------------
INFORMATION FINANCE & HUMAN OPERATING YEAR
TECHNOLOGY ACCOUNTING RESOURCES SPECIALTIES OPENED/ACQUIRED
----------- ---------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Atlanta, GA......................... X X 1986
Boston, MA.......................... X X X X 1966
Chicago, IL......................... X X X 1985
Dallas, TX.......................... X X 1995
Denver, CO.......................... X 1997
Houston, TX......................... X X 1995
Louisville, KY...................... X 1992
Miami/Ft. Lauderdale, FL............ X X 1982
Minneapolis, MN..................... X 1996
Orange County, CA................... X 1997
Orlando, FL......................... X X 1984
Philadelphia, PA.................... X X X 1995
Pittsburgh, PA...................... X 1996
San Francisco, CA................... X X 1989
San Jose, CA........................ X X 1997
St. Louis, MO....................... X 1998
Stamford, CT........................ X X 1997
Tampa, FL........................... X X X X 1980
Washington, DC...................... X X 1997
</TABLE>
PROFESSIONAL RECRUITERS OPERATING SYSTEM
Romac 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 has been continually enhanced. The
system links each office location through the use of a private network to
Romac's corporate headquarters.
PROS offers several advantages in providing information to support the
goals of Romac. Through the use of PROS, market information concerning target
customers is tracked and prioritized to focus marketing and development efforts.
Readily available management reports indicate the frequency and nature of
contact with the targeted customers to support marketing plans. By using these
reports, managers provide direction and support to operating employees to ensure
that customers 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 customer development and
service and operating employee and personnel productivity.
In addition to customer 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 functional and geographical areas to
share information and communicate more effectively.
Finally, PROS helps Romac 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 Romac. Romac intends to continue to enhance its
systems capabilities to streamline processes in order to improve customer
servicing.
10
<PAGE> 12
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 Romac's competitors possess
substantially greater resources than Romac. Romac faces substantial competition
from large national firms and local specialty staffing firms. Larger national
firms that offer specialty staffing services include Robert Half International,
Computer Horizon, Inc., and Alternative Resources Corporation. The local firms
are typically operator-owned, and each market generally has one or more
significant competitors. Romac also faces competition from national clerical and
light industrial staffing firms and national and regional accounting firms that
also offer certain specialty staffing services. These companies include Interior
Services, Inc., Norrell Corporation, AccuStaff Incorporated, and Olsten Corp.
Romac believes that the availability and quality of its personnel, 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. Romac believes that availability of quality personnel is an
especially important facet of competition. In order to attract personnel, Romac
places emphasis upon its ability to provide permanent placement opportunities,
competitive compensation and benefits, quality and varied assignments, and
scheduling flexibility. Because personnel pursue other employment opportunities
on a regular basis, it is important that Romac respond to market conditions
affecting these individuals. Additionally, in certain markets Romac has
experienced significant pricing pressure from some of its competitors. Although
Romac believes it competes favorably with respect to these factors, it expects
competition to increase, and there is no assurance that Romac will remain
competitive.
INSURANCE
Romac maintains a fidelity bond and a number of insurance policies
including general liability and automobile liability, (each with excess
liability coverage), professional liability, worker's compensation and
employers' liability. Romac also maintains professional liability and crime
policies, each with aggregate coverage of $1.0 million, covering certain
liabilities that may arise from the actions or omissions of its operating
employees and personnel. Romac currently maintains key man life insurance on
certain of its executive officers in an aggregate amount of $7.5 million. Romac
believes that its insurance coverages will be adequate for its needs, although
there is no assurance that these coverages will be sufficient.
OPERATING EMPLOYEES AND PERSONNEL
As of December 31, 1997, Romac and its subsidiaries employed approximately
600 operating employees. Additionally, as of that date, Romac had approximately
2,600 personnel on assignment providing flexible staffing services to its
clients. As the employer, Romac is responsible for the operating employees and
personnel 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 operating employees and personnel. Romac offers
access to various insurance programs and other benefits for its operating
employees and personnel. Romac has no collective bargaining agreements covering
any of its operating employees or personnel, has never experienced any material
labor disruption, and is unaware of any current efforts or plans to organize its
operating employees or personnel. Romac considers relations with its operating
employees and personnel to be good.
ITEM 2. PROPERTIES
Romac owns no real estate. It leases its corporate headquarters in Tampa,
Florida, as well as space for its other locations. The aggregate area of office
space under leases for locations is approximately 154,000 square feet. The
leases generally run from month-to-month to five years and the aggregate annual
rent paid by Romac in 1997 was approximately $2.1 million. Romac believes that
its facilities are adequate for its needs and does not expect difficulty
replacing such facilities or locating additional facilities, if needed.
11
<PAGE> 13
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of its business, Romac is from time to time
threatened with or named as a defendant in various lawsuits, including
discrimination and harassment and other similar claims. Romac maintains
insurance in such amounts and with such coverages and deductibles as management
believes are reasonable. The principal risks that Romac insures against are
workers' compensation, personal injury, bodily injury, property damage,
professional malpractice, errors and omissions, and fidelity losses. Romac is
not currently involved in any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1997 covered by this Annual Report
on Form 10-K.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market(SM) under the symbol "ROMC". 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. The table has been
adjusted to reflect two-for-one stock splits, each in the form of a 100% stock
dividend reflected on the Nasdaq National Market on May 23, 1996 and October 17,
1997.
<TABLE>
<CAPTION>
FISCAL YEAR HIGH LOW
----------- ------- -------
<S> <C> <C>
1996:
First Quarter............................................ $ 8.063 $ 5.750
Second Quarter........................................... $14.875 $ 7.688
Third Quarter............................................ $15.750 $10.125
Fourth Quarter........................................... $15.125 $10.625
1997:
First Quarter............................................ $13.500 $ 8.438
Second Quarter........................................... 17.375 8.313
Third Quarter............................................ 22.500 16.875
Fourth Quarter........................................... 25.125 14.500
1998:
First Quarter (through March 13, 1998)................... $24.125 $23.750
</TABLE>
On March 13, 1998, the last reported sale for the Company's Common Stock
was at $23.750. On March 13, 1998 there were approximately 73 holders of record.
Since the Company's initial public offering, the Company has not paid any
cash dividends on its common stock.
12
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
The information set forth below is not necessarily indicative of the
results of future operations and should be read in conjunction with Consolidated
Financial Statements and the related Notes thereto incorporated into Item 8 of
this report.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net service revenues...................... $40,346 $40,789 $45,655 $94,210 $181,434
Direct costs of services.................. 26,126 24,851 25,460 53,839 110,550
------- ------- ------- ------- --------
Gross profit.............................. 14,220 15,938 20,195 40,371 70,884
Selling, general and administrative
expenses............................... 12,775 15,009 15,232 30,348 50,531
Depreciation and amortization............. 298 248 512 1,762 3,242
Combination expenses...................... -- 2,251 -- -- --
Other (income) expense, net(1)............ 34 (1,157) (570) (1,685) (1,932)
------- ------- ------- ------- --------
Income (loss) before taxes and minority
interest............................... 1,113 (413) 5,021 9,946 19,043
Provision for taxes....................... 448 186 2,008 3,965 7,500
------- ------- ------- ------- --------
Income (loss) before minority interest.... 665 (599) 3,013 5,981 11,543
Minority interest in subsidiary income.... 15 -- -- -- --
------- ------- ------- ------- --------
Net income (loss)(1)...................... $ 650 (599) 3,013 5,981 11,543
======= ======= ======= ======= ========
Net income (loss) per share(2) -- basic... $ 0.05 (.04) .19 0.28 .46
======= ======= ======= ======= ========
Weighted average shares
outstanding -- basic................... 13,237 14,078 16,087 21,716 24,896
Net income (loss) per share -- diluted.... 0.05 (.04) .18 .26 .44
======= ======= ======= ======= ========
Weighted average shares
outstanding -- diluted................. 13,237 14,078 16,965 23,319 26,398
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................... $ 2,579 $ 2,093 $13,895 $54,220 $ 97,500
Total assets.............................. 6.135 6,984 20,952 77,559 197,139
Total long-term debt...................... 92 24 500 -- 1,260
Shareholders' equity...................... 3,074 2,435 16,924 71,284 173,680
</TABLE>
- ---------------
(1) Net income (loss) for the years ended December 31, 1994, 1995, 1996, and
1997, includes franchise termination income (net of tax) of $336, $261,
$208, and $100, respectively.
(2) Net income (loss) per share for the years ended December 31, 1994, 1995,
1996, and 1997, includes franchise termination income per share of $0.02,
$0.01, $0.01, $0.00, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in connection with Romac's
Consolidated Financial Statements and the related Notes thereto incorporated
into Item 8 of this report.
OVERVIEW
Romac is a provider of professional and technical specialty staffing
services in 19 markets in the United States. Romac strives to shape valuable
business relationships between organizations and the knowledgeable people who
make them successful. To better serve the needs of its customers, Romac provides
its customers
13
<PAGE> 15
value-added services in the following specialties: Information Technology,
Finance and Accounting, Human Resources and Operating Specialties. Romac
believes its broad range of highly specialized services provides clients with
integrated solutions to their staffing needs, allowing Romac to develop
long-term, consultative relationships. Romac principally serves Fortune 1000
clients with its top ten clients representing 10.0% of its revenue for 1997.
Romac believes its functional focus and range of service offerings generate
increased placement opportunities and enhance Romac's ability to identify,
attract, retain, develop, and motivate personnel and operating employees.
Revenue Recognition
Net service revenues consist of sales, net of credits and discounts. Romac
recognizes Flexible Billings based on hours worked by assigned personnel on a
weekly basis. Search Fees are recognized in contingency search engagements upon
the successful completion of the assignment. Franchise fees were determined
based upon a contractual percentage of the revenue billed by franchisees. Costs
relating to the support of franchised operations were included in Romac's
selling, general and administrative expenses. The last remaining franchisee and
licensee agreement was terminated at the end of the second quarter of 1997.
Romac was the legal employer of flexible personnel under its licensing
arrangements, and accordingly included revenues and related direct costs of
licensed offices in its net service revenues and direct cost of services,
respectively. Commissions paid to licensees were based upon a percentage of the
gross profit generated, and were included in Romac's direct cost of services.
Gross Profit
Gross profit for the Flexible Billings is determined by deducting the
direct cost of services (flexible personnel payroll wages, payroll taxes,
payroll-related insurance, and licensee commissions) from net service revenues.
Consistent with industry practices, all costs related to Search Fees are
classified as selling, general, and administrative expense.
RESULTS OF OPERATIONS
The following table sets forth revenue mix and certain items in Romac's
consolidated statement of operations as a percentage of net service revenues for
the indicated periods:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Flexible Billings................................... 78.5% 80.2% 86.0%
Search Fees......................................... 21.5 19.8 14.0
----- ----- -----
Net service revenues................................ 100.0 100.0 100.0
===== ===== =====
Gross profit........................................ 44.2 42.9 39.1
Selling, general, and administrative expenses....... 33.4 32.2 27.9
Income before taxes................................. 11.0 10.6 10.5
Net income.......................................... 6.6% 6.3% 6.4%
</TABLE>
1997 COMPARED TO 1996
Net service revenues. Net service revenues increased 92.6% to $181.4
million in 1997 as compared to $94.2 million for the same period in 1996. This
increase was composed of a $80.6 million increase in Flexible Billings and a
$6.7 million increase in Search Fees for the year ended December 31, 1997 as
described below.
Flexible Billings increased 106.8% to $156.0 million in 1997 as compared to
$75.5 million for the same period in 1996. This increase is a result of an
increase in the number of hours billed by Romac-owned operations as compared to
the same periods in 1996. The average hourly bill rate for the year increased to
$36.0 in 1997 from $28.0 for 1996 due to the growing mix of contract business as
a percentage of total Flexible Billings. In addition, Romac's ETD division
increased its bill rates 26% in 1997 compared to the same periods in 1996 as the
demand for these highly skilled workers continues to build.
14
<PAGE> 16
Search Fees increased 35.3% to $25.3 million in 1997 as compared to $18.7
million for the same period in 1996. This increase resulted primarily from an
increase in the number of search sales consultants, which increased the number
of search placements made in 1997 as compared to the same period in 1996. The
average fee for each search placement made during the periods remained
relatively constant.
Gross profit. Gross profit increased 75.5% to $70.9 million in 1997 as
compared to $40.4 million in 1996. Gross profit as a percentage of net service
revenues decreased to 39.1% in 1997 as compared to 42.9% for the same period in
1996. This decrease was a result of the continuing change in Romac's business
mix whereby revenues from Flexible Billings, traditionally lower gross margins
than Search Fees, increased to 86.0% of Romac's net service revenues in 1997 as
compared to 80.1% for the same period in 1996.
Selling, general and administrative expenses. Selling, general, and
administrative expenses increased 66.7% to $50.5 million in 1997 as compared to
$30.3 million for the same period in 1996. Selling, general, and administrative
expenses as a percentage of net service revenues decreased to 27.9% in 1997
compared to 32.2% for the same period in 1996. This decrease in selling,
general, and administrative expense as a percentage of net service revenues
resulted from greater operating efficiencies and economies of scale gained from
a larger revenue base.
Depreciation and amortization expense. Depreciation and amortization
expense increased 77.8%, to $3.2 million for 1997 as compared to $1.8 million
for the same period in 1996. Depreciation and amortization expense as a
percentage of net service revenue decreased to 1.8% for 1997 as compared 1.9%
for the same period in 1996. The decrease as a percentage of net service
revenues for 1997 as compared to the same period in 1996 is primarily due to a
change in accounting estimate which increased the amortization period for
goodwill from 15 to 30 years related to certain acquisitions.
Other (income) expense. Other (income) expense increased 11.8% in 1997 to
$1.9 million as compared to approximately $1.7 million for the same period in
1996. The increase during 1997 compared to the same period in 1996 is due to
interest earned on the investment of the proceeds from the May 1996 and November
1997 stock offerings.
Income before taxes. Income before taxes increased 91.9% to $19.0 million
for 1997 as compared to $9.9 million for the same period in 1996, primarily as a
result of the above factors.
Provision for income taxes. Provision for income taxes increased 87.5% to
$7.5 million for 1997 compared to $4.0 million for the same period in 1996. The
effective tax rate was 39.4% in 1997 as compared to approximately 40.0% in 1996.
Net income. Net income increased 91.7% to $11.5 million for 1997 compared
to $6.0 million for the same period in 1996. This increase was due to the
revenue increases discussed above offset by a decrease in the gross profit as a
percentage of net service revenues due to the continuing change in the business
mix towards Flexible Billings, which has traditionally lower gross margins, and
a decrease in selling, general and administrative expenses as a percentage of
net service revenues (although selling, general, and administrative expenses
increased in absolute dollars) due to economies of scale gained from a larger
revenue base.
1996 COMPARED TO 1995
Net service revenues. Net service revenues increased 106.1% to $94.2
million in 1996 as compared to $45.7 million for the same period in 1995. This
increase was composed of a $39.6 million increase in Flexible Billings and a
$8.9 million increase in Search Fees for 1996. This increase in Flexible
Billings was partially offset by an approximate $1.5 million decrease in
Flexible Billings from franchisee and licensee operations for 1996 as compared
to 1995, as several franchisee and licensee operations were discontinued during
1996.
Flexible Billings increased 110.3% to $75.5 million for 1996 as compared to
$35.9 million in 1995. This increase in Flexible Billings includes a $25.3
million increase from existing Company-owned operations and $14.3 million
increase from acquired operations. The increase attributable to Company-owned
operations resulted primarily from an increase in the number of hours billed by
Company-owned operations during 1996
15
<PAGE> 17
as compared to 1995, as well as from an increase in the average hourly bill rate
for 1996 to approximately $27.0 per hour as compared to approximately $21.3 per
hour in 1995.
Search Fees increased 90.8% to $18.7 million in 1996 as compared to $9.8
million in 1995. This increase in revenues was a result of a $4.3 million
increase in revenues from existing Company-owned operations and a $4.6 million
increase in revenues attributable to acquired operations. The increase in
Company-owned operations resulted primarily from an increase in the number of
search sales consultants, which increased the number of search placements made
during 1996 as compared to 1995. The average fee for each Search placement made
remained relatively constant during the periods involved. Franchise and license
revenues, which are included in the aforementioned Flexible Billings decreased
approximately 31.9% to $3.2 million in 1996 from $4.7 million in 1995. The
decrease was primarily due to the effects of discontinued franchisee and
licensee operations during 1996.
After taking into account the decreases in net service revenues
attributable to discontinued franchisee and licensee operations, the net service
revenue comparisons reflect a continued improvement in the demand for Romac's
specialized staffing services. Romac opened two new Company-owned locations
during 1996: Pittsburgh in February and Minneapolis in April.
Gross profit. Gross profit increased 100.0% to $40.4 million in 1996 as
compared to $20.2 million in 1995. Gross profit as a percentage of net service
revenues decreased to 42.9% in 1996 as compared to 44.2% in 1995. This decrease
in gross profit margin as a percentage of net service revenues was a result of
the continuing changes in Romac's business mix whereby revenues from Flexible
Billings, which has traditionally lower gross margins than Search Fees,
increased to 80.1% of Romac's net service revenues for 1996 as compared to 78.6%
for 1995.
Selling, general and administrative expenses. Selling, general, and
administrative expenses increased 99.3% to $30.3 million in 1996 as compared to
$15.2 million in 1995. Selling, general, and administrative expenses as a
percentage of net service revenues decreased to 32.2% in 1996 as compared to
33.4% in 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.
Depreciation and amortization expenses. Depreciation and amortization
expenses increased approximately 260.0% to $1.8 million in 1996 as compared to
$500,000 in 1995, primarily because Romac incurred a full year of depreciation
expense on approximately $1.2 million of new computer and telephone equipment
that was purchased during 1995, began depreciating approximately $1.3 million of
computer and telephone equipment and approximately $700,000 of furniture and
fixtures acquired in 1996, and incurred additional amortization expense in 1996
related to goodwill recorded as a result of asset acquisitions made by Romac
during 1996.
Other (income) expense. Other (income) expense increased 198.2% to $1.7
million of income in 1996 as compared to $570,000 of income in 1995. This
increase was primarily due to interest earned by Romac on the investment of the
proceeds from its May 1996 Common Stock offering and expenses relating to
capital lease obligations entered into in 1995 declined in 1996. This increase
was partially offset by a decrease in franchisee termination income received by
Romac during the periods involved, as $346,189 was received in 1996 as compared
to $435,000 in 1995.
Income before taxes. Income before taxes increased 98.0% to $9.9 million
in 1996 as compared to $5.0 million in 1995, primarily as a result of the above
factors.
Provision for income taxes. Provision for income taxes increased 100% to
$4.0 million in 1996 as compared to $2.0 million in 1995. The effective income
tax rate was constant at approximately 40.0% for both periods.
Net income. Net income increased approximately 100% to $6.0 million in
1996 as compared to $3.0 million in 1995, primarily as a result of the above
factors.
16
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company's sources of liquidity included
approximately $77.9 million in cash and cash equivalents and approximately $19.6
million in additional net working capital. In addition, as of December 31, 1997,
there were no amounts outstanding on Romac's line of credit and $30.0 million
was available for borrowing under Romac's line of credit. Romac entered into a
new Revolving Line of Credit Loan Agreement with Nationsbank, N.A. (the "Line of
Credit") during September 1997. The Line of Credit expires on March 31, 2000 and
amounts outstanding under the line of credit accrue interest at an annual rate
equal to 65 basis points above the 90-day London Interbank Offering interest
rate ("LIBOR"). As of December 31, 1997, the interest rate on the Line of Credit
was 6.46%.
During the year ended December 31, 1997, cash flow provided by operations
was approximately $4.5 million, resulting primarily from net income, non-cash
expenses (depreciation and amortization) and increases in operating payroll
liabilities, offset by an increase in accounts receivable. The increase in
accounts receivable reflects the increased volume of business during 1997 from
existing locations and the initial funding of the accounts receivable base in
acquired operations.
During 1997, cash flow used in investing activities was approximately $54.3
million, resulting primarily from Romac's use of approximately $52.1 million in
cash for acquisitions.
In November and December 1997, Romac received approximately $86.5 million
as net proceeds of its common stock offering, part of which was used to repay
the indebtedness outstanding under the Line of Credit. Romac intends to use the
remaining net proceeds for general corporate purposes, including possible
acquisitions, expansion of Romac's operations and certain capital expenditures
related to Romac's expansion. 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.
Romac believes that cash flow from operations and borrowings under Romac's
Line of Credit, or other credit facilities that may become available to Romac in
the future will be adequate to meet the working capital requirements of Romac's
current operations for at least the next 12 months. Romac believes that the
consummation of the Source Merger will not adversely affect Romac's liquidity
and capital resources. Romac's estimate of the period that existing resources
will fund its and the combined company's working capital requirements is a
forward-looking statement that is subject to risks and uncertainties. Actual
results could differ from those indicated as a result of a number of factors,
including the use of such resources for possible acquisitions.
YEAR 2000 COMPUTER ISSUES
Many computer systems in use today were designed and developed using two
digits, rather than four, to specify years. As a result, such systems will
recognize the year 2000 as "00." This could cause many computer applications to
fail completely or to create erroneous results unless corrective measures are
taken. Romac utilizes software or related computer technologies which are
essential to its operations. The Company believes all such software is currently
Year 2000 compliant, and therein does not anticipate any material impact as a
result of the Year 2000 issue.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is included on pages 22 to 47 in Item
14 of Part IV of this Report and is incorporated into this item by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
17
<PAGE> 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 relating to executive officers and
directors of the registrant is incorporated herein by reference to the
registrant's definitive proxy statement for the Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 relating to executive compensation is
incorporated herein by reference to the registrant's definitive proxy statement
for the Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 relating to security ownership of
certain beneficial owners and management is incorporated herein by reference to
the registrant's definitive proxy statement for the Annual Meeting of
Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 relating to certain relationships and
related transactions is incorporated herein by reference to the registrant's
definitive proxy statement for the Annual Meeting of Shareholders.
18
<PAGE> 20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
1. Financial Statements. The consolidated financial statements, and
related notes thereto, of the Company with independent auditors' report
thereon are included in Part IV of this Report on the pages indicated by
the Index to Consolidated Financial Statements and Schedule as presented on
page 22 of this report.
2. Financial Statement Schedule. The financial statement schedule of
the Company is included in Part IV of this Report on the page indicated by
the Index to Consolidated Financial Statements and Schedule as presented on
page 20 of this report. The independent auditors' report as presented on
page 41 of this report applies to the financial statement schedule. This
financial statement schedule should be read in conjunction with the
consolidated financial statements, and related notes thereto, of the
Company.
Schedules not listed in the Index to Consolidated Financial Statements
and Schedule have been omitted because they are not applicable, not
required, or the information required to be set forth therein is included
in the consolidated financial statements or notes thereto.
3. Exhibits. See Item 14(c) below.
(b) Reports on Form 8-K.
(i) Report on Form 8-K, filed October 9, 1997, relating to the
purchase of substantially all the assets of Sequent Associates, Inc.
(ii) Report on Form 8-K, filed October 16, 1997, announcing third
quarter operating results.
(iii) Report on Form 8-K/A, filed October 16, 1997, filing the
financial statements for Uni*Quality System Solutions, Inc., previously
omitted from the Company's Report on Form 8-K, filed September 22, 1997
(iv) Report on Form 8-K, filed December 3, 1997, relating to the
resignation of Maureen A. Rorech from the Board of Directors.
(c) Exhibits. The exhibits listed on the Exhibits Index are filed as part
of, or incorporated by reference into, this Report.
(d) Financial Statement Schedules. See Item 14(a) above.
19
<PAGE> 21
ROMAC INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ 21
Consolidated Financial Statements:
Consolidated Balance Sheets -- December 31, 1997 and
1996................................................... 22
Consolidated Statements of Operations -- Years ended
December 31, 1997, 1996, and 1995...................... 23
Consolidated Statements of Changes in Shareholders'
Equity -- Years ended
December 31, 1997, 1996, and 1995...................... 25
Consolidated Statements of Cash Flows -- Years ended
December 31, 1997, 1996, and 1995...................... 24
Notes to Consolidated Financial Statements................ 27
Financial Statement Schedule:
Schedule II -- Valuation and Qualifying Accounts.......... 42
</TABLE>
20
<PAGE> 22
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, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles. 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 25, 1998
21
<PAGE> 23
ROMAC INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- -------
(IN 000'S)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 77,946 $39,555
Short-term investments.................................... 47 880
Trade receivables, net of allowance for doubtful accounts
of $880 and $617, respectively......................... 35,475 17,061
Notes receivable from franchisees, current................ 109 193
Receivables from related parties, current................. 233 100
Deferred tax asset, current............................... 352 243
Prepaid expenses and other current assets................. 1,637 1,214
-------- -------
Total current assets.............................. 115,799 59,246
Notes receivable from franchisees, less current portion..... 4 75
Receivables from related parties, less current portion...... 1,290 862
Deferred tax asset, less current portion.................... 310 209
Furniture and equipment, net................................ 8,206 5,346
Other assets, net........................................... 4,878 906
Goodwill, net of accumulated amortization of $2,578 and
$1,108, respectively...................................... 66,652 10,915
-------- -------
Total assets...................................... $197,139 $77,559
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and other accrued liabilities............ $ 2,680 $ 1,723
Accrued payroll costs..................................... 7,227 2,976
Current portion of capital lease obligations.............. 731 --
Current portion of payables to related parties............ 4,265 23
Income taxes payable...................................... 3,396 304
-------- -------
Total current liabilities......................... 18,299 5,026
Capital lease obligations, less current portion............. 1,260 --
Payables to related parties, less current portion........... 1,375 --
Other long-term liabilities................................. 2,525 1,249
-------- -------
Total liabilities................................. 23,459 6,275
Commitments and contingencies
Shareholders' Equity:
Preferred stock, $0.01 par; 15,000 shares authorized, none
issued and outstanding................................. -- --
Common stock, $0.01 par; 100,000 shares authorized, 29,863
and 24,267 issued and outstanding, respectively........ 299 243
Additional paid-in capital................................ 152,188 61,404
Stock subscriptions receivable............................ -- (13)
Retained earnings......................................... 22,118 10,575
Less reacquired shares at cost; 677 shares................ (925) (925)
-------- -------
Total shareholders' equity........................ 173,680 71,284
-------- -------
Total liabilities and shareholders' equity........ $197,139 $77,559
======== =======
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
22
<PAGE> 24
ROMAC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
(IN 000'S, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Net service revenues........................................ $181,434 $94,210 $45,655
Direct costs of services.................................... 110,550 53,839 25,460
-------- ------- -------
Gross profit................................................ 70,884 40,371 20,195
Selling, general and administrative expenses................ 50,531 30,348 15,232
Depreciation and amortization............................... 3,242 1,762 512
Other (income) expense:
Dividend and interest income.............................. (1,902) (1,413) (214)
Interest expense.......................................... 127 78 133
Other (income) expense, net............................... (157) (350) (489)
-------- ------- -------
Income before income taxes.................................. 19,043 9,946 5,021
Provision for income taxes.................................. 7,500 3,965 2,008
-------- ------- -------
Net income.................................................. $ 11,543 $ 5,981 $ 3,013
======== ======= =======
Net income per share:
Basic..................................................... $ .46 $ .28 $ .19
======== ======= =======
Diluted................................................... $ .44 $ .26 $ .18
======== ======= =======
Weighted average shares:
Basic..................................................... 24,896 21,716 16,087
======== ======= =======
Diluted................................................... 26,398 23,319 16,965
======== ======= =======
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
23
<PAGE> 25
ROMAC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN 000'S)
<TABLE>
<CAPTION>
SHARES AMOUNT
------ --------
<S> <C> <C>
COMMON STOCK:
Balance at December 31, 1994................................ 15,751 $ 158
Issuance of common stock.................................... 4,160 42
Exercise of stock options................................... 21 --
------ --------
Balance at December 31, 1995................................ 19,932 200
Issuance of common stock.................................... 4,024 40
Exercise of stock options................................... 311 3
------ --------
Balance at December 31, 1996................................ 24,267 243
Issuance of common stock.................................... 4,577 46
Exercise of stock options................................... 1,019 10
------ --------
Balance at December 31, 1997................................ 29,863 $ 299
====== ========
ADDITIONAL PAID-IN CAPITAL:
Balance at December 31, 1994................................ $ 1,655
Issuance of common stock.................................... 11,360
Exercise of stock options................................... 32
Tax benefit related to employee stock options............... 25
--------
Balance at December 31, 1995................................ 13,072
Issuance of common stock.................................... 47,191
Exercise of stock options................................... 512
Tax benefit related to employee stock options............... 629
--------
Balance at December 31, 1996................................ 61,404
Issuance of common stock.................................... 86,469
Exercise of stock options................................... 2,834
Tax Benefit related to employee stock options............... 1,481
--------
Balance at December 31, 1997................................ $152,188
========
STOCK REPURCHASE OBLIGATION:
Balance at December 31, 1994................................ $ (924)
Reacquired stock............................................ 924
--------
Balance at December 31, 1995, 1996 and 1997................. $ --
========
STOCK SUBSCRIPTIONS RECEIVABLE:
Balance at December 31, 1994................................ $ (36)
Payments on stock subscriptions receivable.................. 19
--------
Balance at December 31, 1995................................ (17)
Payments on stock subscriptions receivable.................. 4
--------
Balance at December 31, 1996................................ (13)
Payments on stock subscriptions receivable.................. 13
--------
Balance at December 31, 1997................................ $ --
========
</TABLE>
24
<PAGE> 26
ROMAC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY -- (CONTINUED)
<TABLE>
<CAPTION>
SHARES AMOUNT
------ --------
<S> <C> <C>
RETAINED EARNINGS:
Balance at December 31, 1994................................ $ 1,582
Net income.................................................. 3,013
--------
Balance at December 31, 1995................................ 4,595
Net income.................................................. 5,980
--------
Balance at December 31, 1996................................ 10,575
Net income.................................................. 11,543
--------
Balance at December 31, 1997................................ $ 22,118
========
REACQUIRED SHARES:
Balance at December 31, 1994................................ (676) $ (924)
Reacquired escrow shares.................................... -- (1)
------ --------
Balance at December 31, 1995, 1996 and 1997................. (676) $ (925)
====== ========
TOTAL SHAREHOLDERS' EQUITY:
Balance at December 31, 1994................................ $ 2,435
Issuance of common stock.................................... 11,402
Net income.................................................. 3,013
Exercise of stock options................................... 32
Payments on stock subscriptions receivable.................. 19
Reacquired escrow shares.................................... (1)
Tax benefit related to employee stock options............... 25
--------
Balance at December 31, 1995................................ 16,925
Issuance of common stock.................................... 47,231
Exercise of stock options................................... 515
Tax benefit related to employee stock options............... 629
Payments on stock subscriptions receivable.................. 4
Net income.................................................. 5,980
--------
Balance at December 31, 1996................................ 71,284
Issuance of common stock.................................... 86,515
Exercise of stock options................................... 2,844
Tax benefit related to employee stock options............... 1,481
Payment on stock subscriptions receivable................... 13
Net income.................................................. 11,543
--------
Balance at December 31, 1997................................ $173,680
========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
25
<PAGE> 27
ROMAC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
(IN 000'S)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 11,543 $ 5,981 $ 3,013
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 3,242 1,762 512
Provision for losses on accounts and notes
receivable........................................... 638 193 290
Deferred taxes......................................... (210) 26 (64)
(Increase) decrease in operating assets:
Trade receivables, net................................. (19,052) (9,900) (4,424)
Notes receivable from franchisees...................... 155 (111) (17)
Prepaid expenses and other current assets.............. (423) (895) 398
Other assets, net...................................... (2,487) (7) (14)
Increase (decrease) in operating liabilities:
Accounts payable and other accrued liabilities......... 957 1,050 (922)
Accrued payroll costs.................................. 4,251 1,518 (65)
Income taxes payable................................... 4,572 361 554
Other long-term liabilities............................ 1,276 657 (682)
-------- -------- -------
Cash provided by (used for) operating
activities...................................... 4,462 635 (1,421)
-------- -------- -------
Cash flows from investing activities:
Capital expenditures...................................... (3,226) (3,830) (1,302)
Acquisitions, net of cash acquired........................ (52,127) (11,254) --
Proceeds from sale of furniture and equipment, net........ 1,681 -- 12
Proceeds from the sale of short-term investments, net..... 833 7,024 --
Increase in cash surrender value of life insurance
policies............................................... (1,485) (382) (241)
Payments for purchase of short-term investments, net...... -- -- (7,656)
-------- -------- -------
Cash used in investing activities................. (54,324) (8,442) (9,187)
-------- -------- -------
Cash flows from financing activities:
Payments on notes receivable from stock subscriptions..... 13 4 19
Payments on capital lease obligations..................... (535) (703) (570)
Payments on notes payable to related parties.............. (23) (6) (18)
Payments on notes receivable from related parties......... 39 220 96
Issuance of notes receivable from related parties......... (600) (520) (439)
Proceeds from issuance of common stock.................... 86,515 47,232 11,402
Proceeds from exercise of stock options................... 2,844 515 32
Repurchase of stock....................................... -- -- 1
-------- -------- -------
Cash provided by financing activities............. 88,253 46,742 10,523
-------- -------- -------
Increase (decrease) in cash and cash equivalents............ $ 38,391 $ 38,935 $ (85)
Cash and cash equivalents at beginning of year.............. 39,555 620 705
-------- -------- -------
Cash and cash equivalents at end of year.................... $ 77,946 $ 39,555 $ 620
======== ======== =======
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
26
<PAGE> 28
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN 000S, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
ROMAC International, Inc. (the "Company") is a provider of professional and
technical specialty staffing services in 18 markets in the United States as of
December 31, 1997. The Company provides its customers value-added staffing
services in the following specialties: Information Technology, Finance and
Accounting, Human Resources and Operating Specialties. The Company provides
flexible staffing services on both a professional temporary and contract basis
and provides search services on both a contingency and retained basis. The
Company principally serves Fortune 1000 clients.
Stock Split/Dividend
On April 21, 1995, the Company declared a 1.023-for-1 stock split on its
common stock. The Company declared two-for-one stock splits effected as a 100%
stock dividends on its common stock on May 15, 1996 and October 3, 1997. All
share-related data in these consolidated financial statements have been adjusted
retroactively to give effect to these events as if they had occurred at the
beginning of the earliest period presented.
Public Offerings
The Company completed its initial public offering of 4,160 shares of common
stock on August 12, 1995. The proceeds of $11,402, net of underwriters'
discounts and other offering costs, were used to pay down debt, to reacquire
stock, for general working capital purposes and to finance business
acquisitions. The Company completed secondary offerings of 4,024 and 4,577
shares of common stock on June 4, 1996 and October 17, 1997, respectively. The
proceeds of $47,232 and $86,515, respectively, net of underwriters' discounts
and other offering costs, are being used to finance business acquisitions and to
fund general working capital purposes.
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.
Cash and Cash Equivalents
The Company classifies all highly-liquid investments with an initial
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 market value. Mutual
funds available for current operations are classified in the balance sheet as
short-term investments while investments in common stock are included in other
assets. Unrealized holding
27
<PAGE> 29
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
gains and losses are included as a component of shareholders' equity until
realized. At December 31, 1997 and 1996, there were no unrealized gains or
losses.
Furniture and Equipment
Furniture and equipment are carried at cost, less accumulated depreciation.
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 terms of the related leases which range
from 3 to 7 years.
Revenue Recognition
Net service revenues consist of sales, net of credits and discounts. The
Company recognizes Flexible Billings based on hours worked by assigned personnel
on a weekly basis. Search Fees are recognized in contingency search engagements
upon the successful completion of the assignment. Franchise fees were determined
based upon a contractual percentage of the revenue billed by franchisees. Costs
relating to the support of franchised operations were included in the Company's
selling, general and administrative expenses. The last remaining franchisee and
licensee agreement was terminated at the end of the second quarter of 1997. The
Company was the legal employer of flexible personnel under its licensing
arrangements, and accordingly, included revenues and related direct costs of
licensed offices in its net service revenues and direct cost of services,
respectively. Commissions paid to licensees were based upon a percentage of the
gross profit generated, and were included in the Company's direct cost of
services.
Income Taxes
The Company accounts for income taxes under the principles of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 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.
Stock Based Compensation
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" ("SFAS 123") during 1996. The Company
has elected to continue accounting for stock based compensation under the
intrinsic value method of accounting for stock based compensation and has
disclosed pro forma net income and earnings per share amounts using the fair
value based method prescribed by SFAS 123.
Earnings Per Share
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128") during 1997, which requires disclosure of
basic and diluted earnings per share. Under the new standard, basic earnings per
share is computed as earnings divided by weighted average shares outstanding.
Diluted earnings per share includes the dilutive effects of stock options and
other potentially dilutive securities. All prior period disclosures have been
restated to conform with current year presentation.
The adoption of this new standard had a $.04 per share impact on basic
earnings per share and an immaterial impact on diluted earnings per share for
the year ending December 31, 1997. Options to purchase 158 shares of common
stock at prices ranging from $16.13 to $20.63 per share were outstanding during
1997 but were not included in the computation of diluted earnings per share
because the options were anti-dilutive.
28
<PAGE> 30
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The options, which expire on various dates ranging from July 2, 2007 to December
11, 2007, were still outstanding at December 31, 1997.
Recently Issued Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which will require Romac to disclose, in financial statement format,
all non-owner changes in equity. Such changes include cumulative foreign
currency translation adjustments and certain minimum pension liabilities. SFAS
No. 130 is effective for fiscal years beginning after December 15, 1997 and
requires presentation of prior period financial statements for comparability
purposes. Romac expects to adopt this standard during the year ended December
31, 1998. The adoption of this standard is not expected to have a material
impact on disclosure in Romac's financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes standards for
reporting information about operating segments in annual financial statements
and interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
SFAS No. 131 is effective for fiscal years beginning after December 15, 1997 and
requires presentation of prior period financial statements for comparability
purposes. Romac is currently evaluating its required disclosures under SFAS No.
131 and expects to adopt this standard during the year ended December 31, 1998.
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,
1997 and 1996. 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
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 1997 1996
----------- ------- ------
<S> <C> <C> <C>
Furniture and equipment.............................. 5 years $ 3,271 $1,864
Computer equipment................................... 5 years 9,546 6,124
Leasehold improvements............................... lease term 575 192
------- ------
13,392 8,180
Less accumulated depreciation and amortization.................... 5,186 2,834
------- ------
$ 8,206 $5,346
======= ======
</TABLE>
Included in computer equipment is approximately $2,600 subject to a
noncancellable capital lease commitment with a three year term commencing on
July 1, 1997.
29
<PAGE> 31
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACQUISITIONS
Goodwill and intangible assets of $66,652 and $10,915 at December 31, 1997
and 1996, respectively, relate primarily to acquisitions made during 1997 and
1996.
Goodwill is amortized on a straight-line basis over a fifteen or thirty
year period and intangible assets are amortized over the life of the employment
agreement (five to eight 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 $1,469, $653 and $108 was recorded for the years ended December 31, 1997,
1996 and 1995, respectively.
During the second quarter of 1997, the Company revised its estimate of the
amortization period for goodwill from 15 to 30 years for certain acquisitions.
The change increased 1997 net income by $404, or $.02 per share.
For The Year Ended December 31, 1997
In January 1997, the Company acquired substantially all of the assets of
Career Enhancement International of Massachusetts ("CEIM"), a provider of
permanent placement and contract services for information technology personnel.
The purchase price was approximately $4,400, subject to adjustment upon
attainment of certain operating results.
In March 1997, the Company acquired all of the outstanding capital stock of
Professional Application Resources Incorporated ("PAR"), a provider of
information technology contract personnel. The purchase price was approximately
$4,700.
In September 1997, the Company acquired all of the outstanding capital
stock of Uni*Quality Systems Solutions, Inc. ("UQ"), a provider of contract
services for information technology personnel. The purchase price was
approximately $19,600, subject to adjustment upon attainment of certain
operating results. Also in September 1997, the Company acquired substantially
all of the assets of Sequent Associates, Inc. ("Sequent"), a provider of
supplemental contract personnel staffing specializing in information technology
and engineering professionals. The purchase price was approximately $20,300,
subject to adjustment upon attainment of certain operating results.
In November 1997, the Company acquired the fixed assets of DP Specialists
of Colorado, Inc. ("DPSE"), a provider of permanent placement and staff
augmentation contract services for information technology personnel. The
purchase price, including a non-compete agreement, was approximately $3,300.
In December 1997, the Company acquired substantially all of the assets of
The Center For Recruiting Effectiveness, Inc. ("CRE"), a provider of human
resources personnel on a permanent and contract basis. The purchase price was
approximately $2,100 subject to adjustment upon attainment of certain operating
results.
For The Year Ended December 31, 1996
In January 1996, the Company completed the acquisition of all of the
assets, except for cash and accounts receivable of Venture Network Corporation,
Inc. ("Venture"), a Company engaged in the business of providing permanent and
contract services for information systems personnel. The purchase price,
including a non-compete agreement, was approximately $1,100. In February 1996,
the Company acquired the intangible assets of PCS Group, Inc. ("PCS"), a
provider of contract service information systems personnel. The purchase price,
including a non-compete agreement, was approximately $2,300. In March 1996, the
Company acquired certain of the assets except for cash and accounts receivable
of Strategic Outsourcing, Inc. ("SOI") for approximately $2,500 in cash. In June
1996, the Company acquired the fixed assets and intangible assets of
30
<PAGE> 32
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Bayshare, Inc. ("Bayshare"), the former legal entity for the Romac franchise for
the San Francisco area. The purchase price was approximately $5,000 and is
subject to adjustment upon attainment of certain operating results.
During fiscal 1997, approximately $1,900 was paid as additional purchase
price related to the 1996 acquisitions. The Company fixed the earnouts on
certain acquisitions during 1997 for approximately $5,600 (see Note 8). These
amounts have been recorded as additional purchase price consideration and are
included in goodwill.
The Company has accounted for all acquisitions using the purchase method of
accounting. The results of the acquired companies' operations have been included
with those of the Company from the dates of the respective acquisitions. The pro
forma results of operations listed below reflect purchase accounting and pro
forma adjustments as if the transactions occurred as of the beginning of 1996.
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.
<TABLE>
<CAPTION>
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net service revenue.................................... $216,541 $147,903
Gross profit........................................... 80,340 55,780
Income before income taxes............................. 19,220 9,372
Net income............................................. 11,543 5,623
Earnings per share -- basic............................ $ .46 $ .26
Earnings per share -- diluted.......................... $ .44 $ .24
</TABLE>
5. OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash surrender value of life insurance policies........ $2,280 $795
Capitalized software................................... 1,900 --
Investment in common stock............................. 54 53
Other.................................................. 644 58
-------- --------
$4,878 $906
======== ========
</TABLE>
The cash surrender value of life insurance policies relates to policies
maintained on key employees used to fund deferred compensation agreements with a
cash surrender value of $1,872 and $522 at December 31, 1997 and 1996,
respectively, and key man life insurance on officers with a cash surrender value
of $408 and $273 at December 31, 1997 and 1996, respectively.
During 1997, the Company began the development and implementation of new
computer software to enhance performance of the accounting and operation
systems. Direct internal and external costs subsequent to the preliminary stage
of this project are being capitalized and classified as other assets.
Capitalized software development costs were $1,900 and $0 at December 31, 1997
and 1996, respectively. Capitalized software development costs are amortized
over the estimated useful life of the software using the straight-line method
over the estimated economic life.
31
<PAGE> 33
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LINE OF CREDIT AND CAPITAL LEASE OBLIGATION
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1996
------ ----
<S> <C> <C>
Obligation under capital lease with quarterly payments of
principal and interest at 8.3% through June 2000.......... $1,991 $--
Less current maturities..................................... 731 --
------ ---
$1,260 $--
====== ===
</TABLE>
Future minimum lease payments under capital lease obligations are $731,
$782 and $478 for 1998, 1999 and 2000, respectively.
In March 1996, the Company entered into an unsecured line of credit
agreement. This agreement provided for up to $5,000 of working capital to the
Company for general corporate purposes. This agreement was renegotiated on
September 11, 1997 and the line was increased to $30,000. This agreement matures
on March 31, 2000 and bears interest at up to 150 basis points above the average
rate at which deposits in U.S. dollars were offered in the London interbank
market ("LIBOR"). This agreement contains restrictive covenants which require
the maintenance of certain financial ratios. The Company is in compliance with
all covenants as of December 31, 1997 and 1996. No amounts were outstanding on
any of these lines of credit at December 31, 1997 or 1996.
7. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Current:
Federal........................................ $6,287 $3,239 $1,658
State.......................................... 1,423 752 414
Deferred......................................... (210) (26) (64)
------ ------ ------
$7,500 $3,965 $2,008
====== ====== ======
</TABLE>
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,
-------------------------
1997 1996 1995
----- ------ ------
% % %
<S> <C> <C> <C>
Federal income tax rate.............................. 35.0 34.0 34.0
State income taxes, net of federal tax benefit..... 4.9 5.0 5.3
Non-deductible items............................... .5 1.4 1.1
Goodwill amortization.............................. .6 (.1) .4
Life insurance items............................... -- .2 .2
Other.............................................. (1.6) (.5) (1.0)
---- ----- -----
Effective tax rate................................... 39.4 40.0 40.0
==== ===== =====
</TABLE>
Nondeductible items consist primarily of the portion of meals and
entertainment expenses which are not deductible for tax purposes.
32
<PAGE> 34
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income tax assets and liabilities shown on the balance sheet are
comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1996
----- -----
<S> <C> <C>
Deferred taxes, current:
Assets
Allowance for bad debts................................ $ 352 $ 222
Accrued liabilities.................................... -- 21
----- -----
Net deferred tax asset, current........................ $ 352 $ 243
===== =====
Deferred taxes, non-current:
Assets
Deferred compensation.................................. $ 979 $ 448
Deferred rent.......................................... 78 34
----- -----
1,057 482
Liabilities
Depreciation........................................... (747) (273)
----- -----
Net deferred tax asset, non-current.................... $ 310 $ 209
===== =====
</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.
8. RELATED PARTIES
Receivables from Related Parties
Receivables from related parties are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1996
------ ----
<S> <C> <C>
Receivables from officers and shareholders.................. $1,136 $800
Other related party receivables............................. 387 162
------ ----
1,523 962
Less current maturities..................................... 233 100
------ ----
$1,290 $862
====== ====
</TABLE>
Receivables from officers and shareholders include non interest bearing
receivables for premiums paid on split dollar life insurance policies. Repayment
terms on the remaining unsecured receivables range from one to two years at
rates of 8% to 9%.
33
<PAGE> 35
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Payables to Related Parties
Notes payable to related parties include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1996
------ ----
<S> <C> <C>
Notes payable due in annual installments through February
1999 relating to contingent purchase price adjustments on
previous acquisitions (see Note 4)........................ $5,640 $ --
Note payable to a related party, principal and 9% interest
payable in bi-monthly installments through May, 1997...... -- 23
Less current maturities..................................... 4,265 23
------ ----
$1,375 $ --
====== ====
</TABLE>
Related Party Leases
The Company has operating leases with related parties as discussed in Note
12.
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,
1997 and 1996, $0 and $14, respectively, of non interest bearing 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.
9. FRANCHISE REORGANIZATION
In 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 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 cash settlement and the Company retained the
rights to the phone listing and other business records at the Dallas location.
In 1996, the Company reached agreements with its Minneapolis, Portland and
St. Louis franchises to terminate their franchise agreements. The terms of the
Minneapolis agreement included notes receivable totaling $207 at 8% interest
payable in 18 equal monthly installments. The agreement also allowed the Company
to immediately enter the Minneapolis market. The terms of the Portland agreement
included a $106 note receivable at 9% interest payable in 149 equal weekly
installments. The agreement also includes a covenant not to compete in the
Portland market for a six month period beginning July 31, 1996. The St. Louis
agreement included a $59 note receivable at 8% interest payable in 18 equal
monthly installments. The agreement also allowed the Company to immediately
enter the St. Louis market.
In 1997, the Company reached termination agreements with the last of its
two franchises. The terms of the Raleigh agreement included notes receivable
totaling $117 at 9% interest payable in 18 equal monthly installments. This
agreement allowed the Company to immediately enter the Raleigh market. The terms
of the New Orleans agreement included notes receivable totaling $50 at 9%
interest payable in 18 equal monthly installments. This agreement allowed the
Company to immediately enter the New Orleans market.
34
<PAGE> 36
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The revenue from these transactions has been reflected as other income in
each respective year. Receivables related to these agreements of $109 and $247
at December 31, 1997 and 1996, respectively, are included in notes receivable
from franchisees. Franchise royalties amounted to $10, $450 and $487 for the
years ended December 31, 1997, 1996 and 1995, respectively. As of December 31,
1997, there were no Romac franchises remaining.
10. EMPLOYEE BENEFIT PLANS
401(k) Savings Plan
The Company has 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 this 401(k)
plan totaled $47, $40 and $22 in 1997, 1996 and 1995, respectively.
Prior to their mergers into the Company, certain subsidiaries had separate
qualified defined contribution 401(k) plans covering substantially all full-time
employees of the subsidiaries. No employer matching contributions were made for
these plans for the years ended December 31, 1997, 1996 and 1995. Employees of
these subsidiaries are now covered under the Company's plan described above.
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, 1997 and 1996, aggregated $2,278
and $1,119, 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 $1,872 and $523, at December 31, 1997 and 1996,
respectively, is included in other assets. Compensation expense of $234, $28 and
$45 was recognized for the plan for the years ended December 31, 1997, 1996 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.
Total premiums paid to date of $916 and $742 are included in related party
receivables for the years ended December 31, 1997 and 1996, respectively.
11. STOCK OPTION PLANS
During 1994, the Company established an employee 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 1,636. In 1995, the employee stock option
incentive
35
<PAGE> 37
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
plan was amended to increase the number of shares of common stock that may be
issued to 3,070. During 1996, this plan was amended to increase the number of
shares of common stock that may be issued under the plan to 6,000 to allow
persons other than employees to participate in the plan, to allow incentives in
the form of Nonqualified Stock Options, Stock Appreciation Rights and Restricted
Stock to be awarded under the plan and to effect a change in the plan name to
the Romac International, Inc. Stock Incentive Plan (the "Plan"). During 1997,
the Plan was amended to increase the number of shares of common stock that may
be issued under the Plan to 9,000.
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 this plan is 400.
A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
NON- WEIGHTED WEIGHTED
EMPLOYEE EMPLOYEE AVERAGE AVERAGE
INCENTIVE DIRECTOR EXERCISE FAIR VALUE
STOCK OPTION STOCK OPTION PRICE PER OF OPTIONS
PLAN PLAN TOTAL SHARE GRANTED
------------ ------------ ------ --------- ----------
<S> <C> <C> <C> <C> <C>
Outstanding as of
December 31, 1994..................... 552 -- 552 $ 1.37
Granted............................... 1,663 80 1,743 $ 2.69 $ .95
Exercised............................. (22) -- (22) $ 1.49
------ --- ------
Outstanding as of
December 31, 1995..................... 2,193 80 2,273 $ 2.38
Granted............................... 1,844 40 1,884 $10.96 $4.09
Exercised............................. (311) -- (311) $ 1.66
Forfeited............................. (122) -- (122) $ 8.25
------ --- ------
Outstanding as of
December 31, 1996..................... 3,604 120 3,724 $ 6.59
Granted............................... 1,139 20 1,159 $12.92 $5.59
Exercised............................. (1,019) -- (1,019) $ 2.79
Forfeited............................. (304) -- (304) $10.91
------ --- ------
Outstanding as of
December 31, 1997..................... 3,420 140 3,560 $ 9.43
====== === ====== ======
Exercisable at December 31:
1997............................... 1,060 88 1,148
1998............................... 998 12 1,010
1999............................... 725 12 737
2000............................... 296 12 308
2001............................... 123 12 135
</TABLE>
Options granted during each of the three years ended December 31, 1997 have
vesting requirements ranging from one to seven years. Options expire at the end
of ten years from the date of grant.
36
<PAGE> 38
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about employee and director
stock options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------
NUMBER WEIGHTED
OUTSTANDING AVERAGE WEIGHTED
AT REMAINING AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE
RANGE OF EXERCISE PRICES 1997 (SHARES) LIFE (YEARS) PRICE ($)
------------------------ ------------- ------------ ---------
<S> <C> <C> <C>
$1.365 - $1.49........................... 414 6.9 $ 1.45
$4.188 - $4.688.......................... 565 7.7 $ 4.19
$6.250 - $7.688.......................... 203 8.2 $ 6.30
$8.845 - $9.565.......................... 11 9.3 $ 9.24
$10.125 - $15.250........................ 2,209 9.0 $11.92
$16.125 - $20.625........................ 158 9.5 $17.18
-----
3,560
=====
</TABLE>
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
--------------------------
NUMBER
EXERCISABLE WEIGHTED
AT AVERAGE
DECEMBER 31, EXERCISE
RANGE OF EXERCISE PRICES 1997 (SHARES) PRICE ($)
------------------------ ------------- ---------
<S> <C> <C>
$1.365 - 1.490....................................... 295 $ 1.48
$4.188 - $4.688...................................... 330 $ 4.19
$6.250 - $7.688...................................... 47 $ 6.39
$10.125 - $15.250.................................... 425 $11.39
$16.125 - $20.625.................................... 51 $16.94
-----
1,148
=====
</TABLE>
Had compensation cost for the Company's option plans been determined based
on the fair value at the grant dates, as prescribed by SFAS 123, the Company's
net income and net income per share would have been as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------
1997 1996
------- ------
<S> <C> <C>
Net income:
As Reported............................................. $11,543 $5,981
Compensation expense per SFAS 123.................... (2,954) (786)
Tax benefit pro forma................................ 456 314
------- ------
$ 9,045 $5,509
======= ======
Net income per share:
Basic:
As Reported.......................................... $ .46 $ .28
Pro forma............................................ .36 .25
Diluted:
As reported.......................................... $ .44 $ .26
Pro forma............................................ .34 .24
</TABLE>
The fair value of each option is estimated on the date of grant using the
minimum value method with the following assumptions used for grants during the
applicable period: dividend yield of 0.0% for both periods; risk-free interest
rates of 5.85% - 7.03% for options granted during the year ended December 31,
1997 and 5.95% - 7.99% for options granted during the year ended December 31,
1996; a weighted average expected
37
<PAGE> 39
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
option term of 4 - 7 years for 1997 and 3 - 5 years for 1996; and a volatility
factor of 37.02% for 1997 and 35.35% for 1996.
Tax benefits resulting from the disqualifying dispositions of shares
acquired under the Company's employee incentive stock option plan reduced taxes
currently payable by $1,481 and $629 in 1997 and 1996, respectively. These tax
benefits are credited to additional paid-in-capital.
12. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office space for use as its headquarters under an
operating lease with monthly payments of $27 expiring in 2001 from a related
party. The Company also leases office space for Romac Portland from a related
party at an annual rental of $74 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 cancelable 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: 1998, $3,107; 1999, $2,870; 2000, $1,660; 2001, $629; and $233
thereafter. Minimum obligations have not been reduced by minimum sublease
rentals of $149 due under a noncancellable sublease.
Rental expense under all operating leases was $2,329, $1,379 and $759 for
1997, 1996 and 1995, respectively.
Noncancellable Processing Commitment
The Company has an agreement with a third party processor (the "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 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. The cumulative amounts processed were $4,373,
$4,279 and $4,094 as of December 31, 1997, 1996 and 1995, respectively.
Stock Repurchase Agreements
Stock repurchase agreements between certain subsidiaries of the Company
(former Romac-FMA subsidiaries) and certain shareholders provided 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 was 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 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 676
shares under one of the stock repurchase agreements due to the death of a
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 note was paid in full as of December 31, 1995. The related
life insurance proceeds of approximately $500 is included in other income for
the year ended December 31, 1994. The amendment of the stock
38
<PAGE> 40
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
purchase agreements on April 26, 1995 by the Company and its certain
shareholders eliminated all contingent stock repurchase obligations.
Accordingly, the related life insurance policies were terminated.
Litigation
The Company is involved in litigation in the ordinary course of business
which is not, in the opinion of management, expected to have a material effect
on the results of operations or financial condition of the Company.
Employment Agreements
During 1996 and 1997, 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, 1997 would
be approximately $1,100 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.
13. SUPPLEMENTAL CASH FLOWS 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,
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Notes payable issued in settlement of contingent purchase
price of previous acquisitions......................... $5,640 $ -- $ --
Capital lease transaction................................ $2,526 $ -- $1,207
Cash paid during the year for:
Interest............................................... $ 127 $ 79 $ 133
Income taxes........................................... $4,187 $3,675 $1,515
</TABLE>
14. SUBSEQUENT EVENTS
On February 1, 1998 and as amended on February 11, 1998, the Company
announced a definitive merger agreement (the "Merger") with Source Services
Corporation ("Source"), a flexible and permanent specialty staffing company. The
agreement provides for a stock-for-stock merger transaction whereby the
stockholders of Source will receive 1.1932 shares of Romac common stock for each
of the outstanding shares of Source common stock, subject to adjustment based on
Romac's market price prior to closing and certain other conditions. Based on
Romac's closing price of $22.375 per share on Friday, January 30, 1998, the
transaction would be valued at approximately $375,000. The consummation of the
Merger is subject to certain conditions including effectiveness of a
registration statement to be filed by the Company with the SEC, approval by the
stockholders of each company and the receipt of the opinions that the Merger may
be accounted for as a "pooling of interests" for accounting purposes and qualify
as a tax-free reorganization.
39
<PAGE> 41
ROMAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------
MAR. 31 JUN. 30 SEPT. 30 DEC. 31
------- ------- -------- -------
<S> <C> <C> <C> <C>
Fiscal 1997
Net service revenues...................... $34,952 $39,640 $45,915 $60,927
Gross profit.............................. 13,948 16,063 18,591 22,282
Net income................................ 2,078 2,427 3,041 3,996
Net income per share -- basic............. $ .09 $ .10 $ .12 $ .15
Net income per share -- diluted........... $ .08 $ .10 $ .12 $ .14
Fiscal 1996
Net service revenues...................... $16,889 $21,466 $26,433 $29,422
Gross profit.............................. 7,170 9,437 11,369 12,395
Net income................................ 1,025 1,288 1,805 1,863
Net income per share -- basic............. $ .06 $ .06 $ .08 $ .08
Net income per share -- diluted........... $ .05 $ .06 $ .08 $ .07
</TABLE>
40
<PAGE> 42
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Romac International, Inc.
Our audits of the consolidated financial statements referred to in our
report dated February 25, 1998 appearing in this Form 10-K of Romac
International, Inc. also included an audit of the Financial Statement Schedule
listed in Item 14 of this Form 10-K. In our opinion, this Financial Statement
Schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Tampa, Florida
February 25, 1998
41
<PAGE> 43
SCHEDULE II
ROMAC INTERNATIONAL, INC.
VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
SUPPLEMENTAL SCHEDULE
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ------------- ----------------------- ---------- -------------
CHARGED TO CHARGED TO
BALANCE AT COSTS AND OTHER BALANCE AT
DESCRIPTION BEGINNING OF EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
----------- ------------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Allowance Reserve........................ 1995 $333 $376 $ -- $ 86 $623
--
1996 623 193 199 617
--
1997 617 638 375 880
</TABLE>
42
<PAGE> 44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ROMAC INTERNATIONAL, INC.
Date: March 17, 1998 By: /s/ DAVID L. DUNKEL
------------------------------------
David L. Dunkel
Chairman of the Board
Chief Executive Officer and Director
POWER OF ATTORNEY
KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David L. Dunkel and James Swartz and each
of them, jointly and severally, his attorneys-in-fact, each with full power of
substitution, for him in any and all capacities, to sign any and all amendments
to this Report on Form 10-K, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each said attorneys-in-fact
or his substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
Date: March 17, 1998 By: /s/ JAMES D. SWARTZ
----------------------------------------------------
James D. Swartz
President and Director
Date: March 17, 1998 By: /s/ HOWARD W. SUTTER
----------------------------------------------------
Howard W. Sutter
Vice President and Director
Date: March 17, 1998 By: /s/ THOMAS M. CALCATERRA
----------------------------------------------------
Thomas M. Calcaterra
Chief Financial Officer, Secretary,
and Principal Accounting Officer
Date: March 17, 1998 By: /s/ PETER DOMINICI
----------------------------------------------------
Peter Dominici
Vice President, Treasurer, and Director
Date: March 17, 1998 By: /s/ RICHARD M. COCCHIARO
----------------------------------------------------
Richard M. Cocchiaro
Vice President and Director
Date: March 17, 1998 By: /s/ W. R. CAREY, JR.
----------------------------------------------------
W. R. Carey, Jr.
Director
</TABLE>
43
<PAGE> 45
<TABLE>
<S> <C>
Date: March 17, 1998 By: /s/ GORDON TUNSTALL
----------------------------------------------------
Gordon Tunstall
Director
Date: March 17, 1998 By: /s/ TODD MANSFIELD
----------------------------------------------------
Todd Mansfield
Director
Date: March 17, 1998 By: /s/ DAVID L. DUNKEL
----------------------------------------------------
David L. Dunkel
Director
</TABLE>
44
<PAGE> 46
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----------
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated February 1, 1998,
between Romac International, Inc. and Source Services
Corporation****
2.2 Amendment Number 1 to Agreement and Plan of Merger, dated
February 11, 1998, between Romac International, Inc. and
Source Services Corporation*****
3.1 Amended and Restated Articles of Incorporation*
3.2 Bylaws*
4.1 Amended and Restated Articles of Incorporation (incorporated
by reference to Exhibit 3.1)**
4.2 Bylaws (incorporated by reference to Exhibit 3.1)
10.5 Asset Purchase Agreement, effective September 1, 1997
between Romac International Inc. and the Sellers of Sequent
Associates, Inc.**
10.6 Stock Purchase Agreement, dated September 5, 1997, between
Romac International Inc. and the Sellers of Uni*Quality
Systems Solutions, Inc.***
10.7 $30,000,000 Revolving Line of Credit Agreement between
NationsBank, National Association and Romac International,
Inc. dated September 11, 1997
10.18 Employment Agreement, dated as of March 1, 1997, between the
Company and David L. Dunkel******
10.19 Employment Agreement, dated as of March 1, 1997, between the
Company and Howard W. Sutter******
10.20 Employment Agreement, dated as of March 1, 1997, between the
Company and Peter Dominici******
21. List of subsidiaries of Company
23. Consent of Price Waterhouse LLP
27. Financial Data Schedule (for SEC use only)
</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), filed September 22, 1997
*** Incorporated by reference to the Company's Current Report on Form 8-K
(File No. 0-26058), filed October 9, 1997.
**** Incorporated by reference to the Company's Current Report on Form 8-K
(File No. 0-26058), filed February 2, 1998.
***** Incorporated by reference to the Company's Current Report on Form 8-K
(File No. 0-26058), filed February 19, 1998.
****** Incorporated by reference to the Company's Annual Report on Form 10-K
(File No. 0-26058), filed March 28, 1997.
45
<PAGE> 1
NationsBank, N.A.
REVOLVING LINE OF CREDIT LOAN AGREEMENT
This Revolving Line of Credit Loan Agreement (the "Agreement") is dated as
of September 11th, 1997, by and between NationsBank, N.A., a national banking
association ("Bank" or "Lender"), and the Borrower and Guarantors described
below.
In consideration of the Loan or loans described below and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, Bank, Borrower and Guarantors agree as follows:
ARTICLE 1.
DEFINITIONS AND REFERENCE TERMS.
For purposes of this Agreement, and in addition to any other terms
defined herein, the following terms shall have the meaning set forth with
respect thereto:
A. General Definitions.
1. "Adjusted EBITDA" means (i) Net Income (or Net Loss) plus (ii)
interest expense plus (iii) state and federal taxes on income plus (iv)
depreciation and amortization, all determined on a consolidated basis in
accordance with Generally Accepted Accounting Principles applied on a Consistent
Basis. Adjusted EBITDA will be computed on a rolling four quarter basis and
shall include the Adjusted EBITDA of each acquisition as if such acquisition had
been owned for an entire twelve (12) month time period.
2. "Affiliate" means a Person (i) which directly or indirectly
through one or more intermediaries controls, or is controlled by, or is under
common control with the Borrowers; (ii) which beneficially owns or holds 25% or
more of any class of the outstanding voting stock (or in the case of a Person
which is not a corporation, 25% or more of the equity interest) of the Borrower;
or (iii) 25% or more of any class of the outstanding voting stock (or in the
case of a Person which is not a corporation, 25% or more of the equity interest)
of which is beneficially owned or held by the Borrowers. The term "control"
means the possession, directly or indirectly, of the power or cause the
direction of the management and policies of a Person, whether through ownership
of voting stock, by contract or otherwise.
3. "Authorized Representative" means any of the President, Chief
Executive Officer, the Treasurer, the Secretary, and, with respect to financial
matters, the Chief Financial Officer or Controller of the Borrower or any
Guarantor, as the case may be, or any other person expressly designated by the
Board of Directors of the Borrower or any Guarantor (or the appropriate
committee thereof) as an Authorized Representative of the Borrower.
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4. "Basis Point" means the amount equal to .01%. (By way of example,
50 Basis Points shall be equal to one half of one percent, or .5%).
5. "Borrower" means Romac International, Inc., a Florida
corporation.
6. "Borrower's Address:" 120 West Hyde Park, Suite 150 Tampa,
Florida 33606
7. "Business Day" means any day which is not a Saturday, Sunday or a
day on which banks in the State of Florida are authorized or obligated by law,
executive order or governmental decree to be closed.
8. "Closing Date'' means the date as of which this Agreement is
executed by the Borrower, the Lender and the Guarantors and on which the
conditions set forth in Article IV.A hereof have been satisfied.
9. "Code" means the Internal Revenue Code of 1986, as amended, any
successor provision or provisions and any regulations promulgated thereunder.
10. "Consistent Basis" in reference to the application of Generally
Accepted Accounting Principles means the accounting principles observed in the
period referred to are comparable in all material respects to those applied in
the preparation of the audited financial statements of the Borrower and
Guarantors referred to below.
11. "Cost of Acquisition" means, the proposed costs to acquire any
Person, which shall be the sum of the following: (i) the value of the capital
stock or warrants or options to acquire capital stock of Borrower or any
Guarantor to be transferred in connection therewith, (ii) any cash or other
property (excluding property described in clause (i) or the face amount of any
debt instrument given as consideration, and (iii) any indebtedness or
liabilities assumed by the Borrower or its Guarantors in connection with such
acquisition; but "Cost of Acquisition" shall not include out of pocket
transaction costs for the services and expenses of attorneys, accountants and
consultants incurred in effecting an acquisition, and other similar transaction
costs so incurred.
12. "Default" means any event or condition which, with the giving or
receipt of notice or lapse of time or both, would constitute an Event of Default
hereunder if that condition or event were not cured or removed with any
applicable grace or cure period.
13. "Dollars" and the symbol "$" means dollars constituting legal
tender for the payment of public and private debts in the United States of
America.
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14. "Environmental Laws" means, collectively, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, the
Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation
and Recovery Act, the Toxic Substances Control Act, as amended, the Clean Air
Act, as amended, the Clean Water Act, as amended, any other "Superfund" or
"Superlien" law or any other applicable statute, law, ordinance, code, rule,
regulation, order or decree, of the United States or any foreign nation or any
province, territory, state, protectorate or other political subdivision thereof,
regulating, relating to, or imposing liability or standards of conduct
concerning, any hazardous, toxic or dangerous waste, substance or material.
15. "ERISA" means, at any date, the Employee Retirement Income
Security Act of 1974, as amended, and the regulations thereunder, all as the
same shall be in effect at such date.
16. "Event of Default" means any of the occurrences set forth as
such in Article VII.A hereof.
17. "Funded Debt" means the sum of any principal outstanding under
the Loan, plus all capital lease obligations, plus any principal amount of any
loans due to officers, stockholders or affiliates, plus the principal amount of
any debt incurred by Borrower to fund the acquisition of a Person, plus all
other borrowed funds, plus all contingent liabilities, including but not limited
to any issued letters of credit or guaranty, as defined by Generally Accepted
Accounting Principles, computed on a consolidated basis.
18. "Generally Accepted Accounting Principles" or "GAAP" means those
principles of accounting set forth in pronouncements of the Financial Accounting
Standards Board, the Accounting Principles Board of the American Institute of
Certified Public Accountants or successor organization and are applicable in the
circumstances as of the date of a report, as such principles are from time to
time supplemented and amended.
19. "Government Authority" shall mean any Federal, state, municipal,
national or other governmental department, commission, board, bureau, agency or
instrumentality or political subdivision thereof or any entity or officer
exercising executive, legislative or judicial, regulatory or administrative
functions of or pertaining to any government or any court, in each case whether
a state of the United States, the United States or foreign nation, state,
province or other governmental instrumentality.
20. "Guaranty" means each Continuing Guaranty of a Guarantor (whether
delivered individually or jointly and severally with other Guarantors) in favor
of Bank whether delivered to the Bank on the Closing Date or thereafter
guaranteeing the payment of obligations, as the same may be amended, modified or
supplemented.
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21. "Guarantors" shall mean collectively all current and future
subsidiaries and all current and future affiliates of Borrower. Individual
subsidiaries and affiliates of Romac International, Inc. shall be referred to as
"Guarantor." As of the Closing Date, the following are affiliates of Borrower
(and, therefore, Guarantors):
a. Romac and Associates, Inc., a Massachusetts corporation
b. Romac and Associates of Boston, Inc., a Massachusetts corp.
c. Romac and Associates of Fort Lauderdale, Inc., a Florida
corp.
d. Romac International of Minnesota, Inc., a Florida
corporation
e. Romac International of Pennsylvania, Inc., a Florida
corporation
f. Romac International of California, Inc., a Florida
corporation
g. Romac International of Kentucky, Inc., a Florida corporation
h. Romac International of Texas, Inc., a Florida corporation
i. Romac Temporaries, Inc., a Delaware corporation
j. FMA International, Inc., a Florida corporation
k. FMA Temporaries of Chicago, Inc. a Florida corporation
l. Professional Application Resources Incorporated, a Texas
corp.
m. Romac/Lanorf, Inc., a Delaware corporation
n. Romac/Ncralf, Inc., a Delaware corporation
22. "Hazardous Material" means and includes any hazardous, toxic or
dangerous waste, substance or material, the generation, handling, storage,
disposal, treatment or emission of which is subject to any Environmental Law.
23. "LIBO Rate" means the fluctuating London InterBank Offering
interest rate per annum obtained by dividing (i) the ninety (90) day rate quoted
in the "Money Rates" section of The Wall Street Journal, by (ii) an amount equal
to 1 minus the Floating LIBOR Reserve Requirement (as such term is hereinafter
defined) for such day. The term "Floating LIBO Reserve Requirement" means the
rate at which reserves (including without limitation, any marginal,
supplemental, or emergency reserve) are required to be maintained by bank by any
applicable governmental regulatory authority on the date for which interest is
being calculated, against "Eurocurrency Liabilities" as currently defined under
Regulation D, expressed as a decimal. The LIBO Rate shall be adjusted on a daily
basis to reflect changes in the LIBO Rate and each adjustment shall be effective
on the date the change occurs.
24. "Loans" or "Facility" means collectively any and all loans
heretofore or hereafter made by Bank to the Borrower.
25. "Loan Documents" means this Agreement, the Notes, the Guaranties
and all other instruments, certificates, and documents heretofore or hereafter
executed or delivered to and in favor of Bank in connection with any Loan made,
issued or created
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under this Agreement as the same may be amended, modified or supplemented from
time to time.
26. "Obligations" means the obligations, liabilities and indebtedness
of the Borrower and Guarantors with respect to (i) the principal and interest on
the Loans and (ii) the payment and performance of all other obligations,
liabilities and indebtedness of the Borrower and Guarantors to the Bank
hereunder, under any one or more of the other Loan Documents or with respect to
the Loans.
27. "Net Worth" means the sum of the depreciation book value of the
Assets of the Borrower minus the Liabilities of the Borrower as reflected in its
consolidated balance sheet.
28. "Permitted Liens" shall means (i) liens for taxes, assessments,
or other governmental charges or levies which are not delinquent or which are
not being diligently contested in good faith by appropriate proceeds; (ii) liens
imposed by law, such as carriers, warehousemen and mechanics liens, and similar
liens arising out of the ordinary course of business not satisfied or
transferred to bond within sixty (60) days from the date the lien attaches to
any property of borrower or Guarantor; and (iii) liens or pledges arising under
workers' compensation laws, unemployment insurance or similar legislation.
29. "Persons" means an individual, partnership, corporation, trust,
unincorporated organization, association, joint venture or a government or
agency or political subdivision thereof.
30. "Prime Rate" shall mean the rate of interest announced by the
Bank from time to time as its Prime Rate which represents a reference used by
the Bank in determining the interest rate on certain loans and is not intended
to be the lowest rate of interest charged on any extension of credit to any
customer. The Prime Rate shall be adjusted on a daily basis to reflect changes
in the Prime Rate and each adjustment shall be effective on the date the change
occurs.
31. "Solvent" means, when used with respect to any Person, that at
the time of determination;
(i) the fair value of its assets (both at fair valuation and at
present fair saleable value on an orderly basis) is in excess of the total
amount of its liabilities including, without limitation, contingent obligations;
and
(ii) it is then able and expects to be able to pay its debts as
they mature; and
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(iii) it has capital sufficient to carry on its business as
conducted and as proposed to be conducted.
32. "Subsidiary" means any corporation or other entity (i) in which
more than 50% of its outstanding voting stock or more than 50% of all equity
interests is owned directly or indirectly by the Borrower and/or by one or more
of the Guarantors.
B. Accounting Terms. All accounting terms not specifically defined herein
shall have the meanings assigned to such terms and shall be interpreted in
accordance with Generally Accepted Accounting Principles applied on a Consistent
Basis; provided, however, if any change in Generally Accepted Accounting
Principles in effect on the Closing Date shall result in a change in any
calculation required to determine compliance with any provision contained in
this Agreement, the Borrower and the Bank will amend such provision in a manner
to reflect such change such that the determination of compliance with such
provision shall yield the same result as would have obtained prior to such
change in Generally Accepted Accounting Principles. Until an amendment is
entered into covenants shall be calculated in accordance with Generally
Accepted Accounting Principles as in effect immediately preceding such change.
ARTICLE II.
THE LOANS
A. Loan. Subject to the terms and conditions set forth in this Agreement
and the other Loan Documents, Bank hereby agrees to make a loan or loans to
Borrower in the aggregate principal amount of Thirty Million Dollars
($30,000,000.00). The obligation to repay the loan is evidenced by a promissory
note or notes dated of even date herewith (the promissory note or notes together
with any other promissory notes heretofore or hereafter executed by Borrower in
favor of Bank and any and all renewals, extensions or rearrangements thereof
being hereafter collectively referred to as the "Note") having a maturity date,
repayment terms and interest rate as set forth herein and in the Note.
B. Purpose of Loan. Borrower hereby covenants and warrants to Bank that
all loan proceeds of the Note shall be used for general corporate purposes,
future corporate acquisitions and the start-up of new offices and working
capital, as well as provide additional short term working capital.
C. Security for the Loan. This loan shall be unsecured. However, in
addition, Borrower hereby covenants and agrees at all times during which the
Loan or any portion thereof, including principal, interest, or other expenses
chargeable to Borrower under any of the Loan Documents, is outstanding, all
assets owned by the Borrower and each Guarantor shall be maintained by the
Borrower and each Guarantor free and clear of all
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material liens, encumbrances and pledges, except for Permitted Liens, and
acquisitions by Borrower and its Subsidiaries, as provided in Article VI,
Section B, below.
D. Revolving Credit Feature. The Loan provides for a revolving line of
credit (the "Line") under which Borrower may from time to time, borrow, repay
and re-borrow funds. Borrower may borrow, repay, and re-borrow under the Loan at
any time, up to a maximum aggregate amount outstanding at any one time equal to
the amount of the Loan as set forth in subsection A above; provided, however,
that Borrower is not in Default under any provision of the Note, any other Loan
Documents, or any other obligation of Borrower to Bank, and provided the
borrowings do not exceed any other limitations on borrowings by Borrower. Bank
shall have no liability for its refusal to advance funds based upon its
determination that any conditions of such further advances have not been met.
Bank's records of the amounts borrowed from time to time shall be conclusive
proof thereof.
E. Breakup Fee. If the Borrower should cancel, terminate, payoff in full,
or otherwise refinance all or any portion of the Loan prior to August 31, 1998
(except to the extent that Bank is the agent or lead bank on such other lending
transaction) the Borrower shall pay the Bank a Breakup Fee in the amount of
Fifteen Thousand Dollars ($15,000.00). This Breakup Fee shall not be deemed
additional interest or a penalty.
F. Repayment of the Loan. Interest shall be paid monthly commencing on
September 30, 1997, and continuing on the last day of each successive month
thereafter. Principal payments may be paid at any time; provided, however, that
all unpaid principal shall be paid in full when the Facility matures on March
31, 2000 (the "Maturity Date").
G. Rate. Interest shall accrue on the unpaid balance of the Facility at
the rate selected from the Interest Rate Options, plus the Applicable Margin.
1. Interest Rate Options. The following options are available:
a. Option One: LIBO Rate plus the Applicable Margin, calculated
in accordance with the requirements set out below.
b. Option Two: Prime Rate, calculated in accordance with the
requirements set out below.
2. Applicable Margin. The Applicable Margin shall be a function of
the Borrower's ratio of Funded Debt divided by Adjusted EBITDA and shall be
calculated quarterly based upon the Borrower's internally-prepared financial
statement or if available, Borrower's annual audited financial statement. Upon
Bank's receipt of said financial statement, Bank shall calculate the Applicable
Margin and inform Borrower of same.
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Within one (1) business day of its receipt of the Applicable Margin
calculation, Borrower shall inform the Bank of its choice of Interest Rate
Option, which Interest Rate Option shall be in effect for the quarter
subsequent to the quarter for which said financial statement was prepared. In
the event Borrower fails to notify Bank of its rate selection in a timely
manner, Borrower shall be deemed, for all purposes herein, to have selected
Option One. Prior to Borrower's selection of the applicable Interest Rate
Option, interest shall be charged on the outstanding principal balance of the
Loan at the Interest Ratio Option for the prior quarter. The monthly interest
payment due immediately subsequent to the Borrower's choice of the Interest
Rate Option shall be adjusted with the Borrower either paying any shortfall or
receiving credit for any overpayment, to reflect any difference between the
prior quarter's Interest Rate Option and the current quarter's Interest Rate
Option for payments made during the current quarter. The Funded Debt portion of
the calculation will be determined based on the then-current quarter end;
whereas the Adjusted EBITDA portion of the calculation will be determined based
on the previous four fiscal quarters.
a. Option One:
(1) If the ratio of Funded Debt to Adjusted EBITDA (hereafter,
"FD/Adj EBITDA") is less than 1.00 to 1.00, the Applicable Margin for the LIBO
Rate shall be sixty-five Basis Points (.65%).
(2) If the ratio of FD/Adj EBITDA is between 1.00 to 1.00
(inclusive) and 1.50 to 1.00, the Applicable Margin for the LIBO Rate shall be
ninety Basis Points (.90%).
(3) If the ratio of FD/Adj EBITDA is between 1.51 to 1.00 and
2.00 to 1.00, the Applicable Margin for the LIBO Rate shall be one hundred
fifteen Basis Points (1.15%).
(4) If the ratio of FD/Adj EBITDA is between 2.01 to 1.00 and
2.50 to 1.00, the Applicable Margin for the LIBO Rate shall be one hundred fifty
Basis Points (1.50%).
b. Option Two:
So long as the ratio of FD/Adj EBITDA is less than or equal to
2.50 to 1.00, the Applicable Margin for the Prime Rate shall be zero.
H. Advances. Advances under the Line shall be made by telephone
(confirmed in writing) or written communication to Bank from any Authorized
Representative; provided, however, that Bank shall have the right to rely upon
telephonic representations
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that the person claiming to be an Authorized Representative is, in fact, that
person. Unless otherwise agreed by the Bank, all advances under the Line will be
made by way of a credit into Borrower's demand deposit account maintained at the
Bank.
I. Unused Commitment Fee. Beginning on October 15, 1997, and as
additional consideration for the making of this Loan (and regardless of which
Interest Rate Option has been selected), Borrower shall pay to Bank an
additional fee equal to [$30,000,000 minus the average daily principal amount
outstanding under the Loan for the calendar quarter ending September 30, 1997]
multiplied by a specific number of Basis Points, depending on the ratio of
FD/Adj EBITDA, as more specifically set forth below:
a. If the ratio of FD/Adj EBITDA is less than 1.00 to 1.00,
seventeen and one-half Basis Points (.175%).
b. If the ratio of FD/Adj EBITDA is between 1.00 to 1.00 (inclusive)
and 1.50 to 1.00, twenty Basis Points (.20%).
c. If the ratio of FD/Adj EBITDA is between 1.51 to 1.00 and 2.00 to
1.00, twenty-five Basis Points (.25%).
d. If the ratio of FD/Adj EBITDA is between 2.01 to 1.00 and 2.50 to
1.00, thirty Basis Points (.30%).
Thereafter, for so long as the Line is in place, Borrower shall pay a fee on a
quarterly basis, determined in accordance with the above formula, which shall be
due within 15 days from the end of said calendar quarter.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
A. Representations and Warranties. The Borrower represents and warrants
with respect to itself and the Guarantors, and the Guarantors (by joining in the
execution of this Agreement) represent and warrant on their behalf (which
representations and warranties shall survive the delivery of the documents
mentioned herein and the making of Loans), that:
1. ORGANIZATION AND AUTHORITY.
a. the borrower and each guarantor is a corporation duly
organized, validly existing and in good standing under the laws of the state in
which it was formed.
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b. The Borrower and each Guarantor has the requisite power and
authority to own its properties and assets and to carry on its business as now
being conducted and as contemplated in the Loan Documents, and is qualified to
do business in every jurisdiction in which failure to do so would have a
material adverse effect on the business or operations of the Borrower or each
corporate Guarantor taken as a whole.
c. The Borrower has the power and authority to execute, deliver
and perform this Agreement and the Notes, and to borrow hereunder, and to
execute, deliver and perform each of the other Loan Documents to which it is a
party.
d. Each Guarantor has the power and authority to execute,
deliver and perform the Guaranty and the other Loan Documents to which it is a
party.
e. When executed and delivered, each of the Loan Documents to
which Borrower or any Guarantor is a party will be the legal, valid and binding
obligation or agreement, as the case may be, of such Borrower or Guarantor,
enforceable against such Borrower or Guarantor in accordance with its terms,
subject to the effect of any applicable bankruptcy, moratorium, insolvency,
reorganization or other similar law affecting the enforceability of creditors'
rights generally and to the effect of general principles of equity which may
limit the availability of equitable remedies (whether in a proceeding at law or
in equity);
2. LOAN DOCUMENTS. The execution, delivery and performance by the
Borrower and each Guarantor of each of the Loan Documents to which the Borrower
or a Guarantor is a party:
a. Have been duly authorized by all requisite corporate action
(including any required shareholder approval) of the Borrower and each corporate
Guarantor.
b. Do not violate any provisions of (1) applicable law, rule or
regulation, (2) any order of any court or other agency of government binding on
the Borrower or any Guarantor, or their respective properties, or (3) the
charter documents, documents of creation or by-laws of Borrower or any corporate
Guarantor.
c. Will not be in conflict with, result in a breach of or
constitute an Event of Default, or an event which, with notice or lapse of time,
or both, would constitute an Event of Default, under any indenture, agreement or
other instrument to which Borrower or any Guarantor is a party, or by which the
properties or assets of Borrower or any Guarantor are bound.
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d. Will not result in the creation or imposition of any lien,
charge or encumbrance of any nature whatsoever upon any of the properties or
assets of Borrower, or any Guarantor.
3. SOLVENCY. Borrower and each Guarantor are Solvent after giving
effect to the transactions contemplated by this Agreement and the other Loan
Documents.
4. SUBSIDIARIES AND STOCKHOLDERS. Borrower has no active
subsidiaries or affiliates other than the Guarantors; the outstanding shares or
other equity interests of each such subsidiary have been duly authorized and
validly issued and are fully paid and nonassessable; and Borrower owns
beneficially and of record all the shares and other interests of each Guarantor
free and clear of any lien.
5. FINANCIAL CONDITION. (i) The Borrower has heretofore furnished
to the Bank an audited balance sheet of the Borrower as of December 31, 1996,
the related statements of earnings, changes in stockholders' equity for the
fiscal year then ended as examined and certified, and the notes relating to all
the above. Except as set forth therein, such financial statements (including
the notes thereto) present fairly the financial condition of the Borrower as of
the end of such fiscal year and results of their operations and the changes in
their stockholders' equity for the fiscal year, all in conformity with
Generally Accepted Accounting Principles applied on a Consistent Basis.
a. Since December 31, 1996, there has been no material adverse
change in the condition, financial or otherwise, of the Borrower and its
subsidiaries or in the businesses, properties and operations of the Borrower
and its subsidiaries, considered as a whole, nor have such businesses or
properties, taken as a whole, been materially adversely affected as a result of
any fire, explosion, earthquake, accident, strike, lockout, organized labor
activity, combination of workers, flood, embargo or act of God.
b. Except as set forth in the financial statements referred to
above, neither Borrower nor any subsidiary has incurred, other than in the
ordinary course of business, any material indebtedness, obligations,
commitments or other liability contingent or otherwise which remain outstanding
or unsatisfied.
6. TITLE TO PROPERTIES. The Borrower and its Guarantors have title
to all their respective owned real and personal properties, and such properties
are not subject to any transfer restrictions or liens of any kind, other than
Permitted Liens, and except for purchase money financing related liens on
specific property, as provided in Article VI, Section B.
7. TAXES. The Borrower and its subsidiaries have filed or caused to
be filed all federal, state, local and foreign returns which are required to be
filed by them and except for (i) taxes and assessments being contested in good
faith and against which reserves satisfactory to the Borrower's independent
certified public accountants have been
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established and (ii) taxes and charges with respect to which failure to file or
pay will not have a material adverse effect on Borrower or its subsidiaries,
have paid or caused to be paid all taxes as shown on said returns or on any
assessment received by them, to the extent that such taxes have become due.
8. OTHER AGREEMENTS. Neither the Borrower nor any Guarantor is:
a. A party to any judgment, order, decree or any agreement or
instrument or subject to restrictions materially adversely affecting the
business, properties or assets, operation or condition (financial or otherwise)
of the Borrower or of any Guarantor; or
b. In default in the performance, observance or fulfillment of
any of the obligations, covenants or conditions contained in any agreement or
instrument to which the Borrower or any Guarantor is a party, which default has,
or if not remedied within any applicable grace period could have, a material
adverse effect on the business, operations or condition, financial or otherwise,
of the Borrower or any Guarantor.
9. LITIGATION. There is no action, suit or proceeding at law or in
equity in excess of $250,000,000 in aggregate, except as disclosed to Bank, by
or before any governmental instrumentality or agency or arbitral body pending,
or, to the knowledge of the Borrower, threatened by or against the Borrower or
any Guarantor or affecting the Borrower or any Guarantor or any properties or
rights of the Borrower or any Guarantor (other than claims arising in the
ordinary course of Borrower's business, as to which Borrower represents do not
and will not have a material adverse affect on the financial condition of
Borrower), which if adversely determined could reasonably be expected to
materially adversely affect the financial condition, business or operations of
the Borrower and the Guarantors taken as a whole. Notwithstanding the above, any
adverse final judgment against Borrower after all appeals have been exhausted
(and regardless of whether the judgment has been satisfied) that would result in
Borrower being in violation of its Affirmative Covenants, as provided in Article
V below, shall constitute a default hereunder.
10. INVESTMENT COMPANY. Neither the Borrower nor any subsidiary is an
"investment company," or 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 (15 U.S.C. section 80a-1, et seq.).
The application of the proceeds of the Loans and repayment thereof by the
Borrower and the performance by the Borrower of the transactions contemplated by
this Agreement will not violate any provision of said Act, or any rule,
regulation or order issued by the Securities and Exchange Commission thereunder,
in each case as in effect on the date hereof.
11. PATENTS, ETC. The Borrower and its subsidiaries own or have the
right to use, under valid license agreements or otherwise all material patents,
licenses, franchises, trademarks, trademark rights, trade names, trade name
rights, trade secrets and copyrights necessary to the conduct of their
businesses as now conducted, without known
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conflict with any patent, license, franchise, trademark, trade secrets and
confidential commercial or proprietary information, trade name, copyright,
rights to trade secrets or other proprietary rights of any other Person.
12. NO UNTRUE STATEMENT. Neither this Agreement nor any other Loan
Document contains any misrepresentation or untrue statement of material fact or
omits to state a material fact necessary, in light of the circumstance under
which it was made, in order to make any such representation or statement
contained therein not misleading in any material respect.
13. NO CONSENTS, ETC. Neither the respective businesses nor
properties of the Borrower or any Guarantor, nor any relationship between the
Borrower or any Guarantor and any other Person, nor any circumstance in
connection with the execution, delivery and performance of the Loan Documents
and the transactions contemplated hereby is such as to require a consent,
approval or authorization of, or filing, registration or qualification with,
any Governmental Authority or other authority or any other Person on the part
of the Borrower or any Guarantor as a condition to the execution, delivery and
performance of, or consummation of the transactions contemplated by, this
Agreement or the other Loan Documents or if so, such consent, approval,
authorization, filing, registration or qualification has been obtained or
effected, as the case may be.
14. BENEFIT PLANS.
a. None of the employee benefit plans maintained at any time
by the Borrower or any subsidiary for the benefit of its employees or the
trusts created thereunder has to its knowledge engaged in a prohibited
transaction which is not subject to a statutory or administrative exemption
which could subject any such employee benefit plan or trust to a material tax
or penalty on prohibited transactions imposed under Internal Revenue Code
Section 4975 or ERISA or under any Foreign Benefit Law.
b. None of the employee benefit plans maintained at any time by
the Borrower or any subsidiary for the benefit of its employees which are
employee pension benefit plans and which are subject to Title IV of ERISA or any
Foreign Benefit Law or the trusts created thereunder has been terminated so as
to result in a material liability of the Borrower under ERISA or under any
Foreign Benefit Law nor has any such employee benefit plan of the Borrower or
any subsidiary incurred any material liability to the Pension Benefit Guaranty
Corporation established pursuant to ERISA or any other Person exercising similar
duties and functions under any Foreign Benefit Law, other than for required
insurance premiums which have been paid or are not yet due and payable; neither
the Borrower nor any subsidiary has withdrawn from or caused a partial
withdrawal to occur with respect to any Multi-employer Plan resulting in any
assessed and unpaid withdrawal liability; the Borrower and the subsidiaries have
made or provided for all contributions to all such employee pension benefit
plans which they maintain and which are required as of the end of the most
recent fiscal year under each such plan; neither the borrower nor any
subsidiary has incurred any accumulated funding deficiency with respect to any
such plan,
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whether or not waived; nor has there been any reportable event, or other event
or condition, which presents a material risk of termination of any such
employee benefit plan by such Pension Benefit Guaranty Corporation or any other
Person exercising similar duties and functions under any Foreign Benefit Law.
c. The present value of all vested accrued benefits under the
employee pension benefit plans which are subject to Title IV of ERISA or any
Foreign Benefit Law, maintained by the Borrower or any subsidiary for the
benefit of its employees, did not, as of the most recent valuation date for each
such plan, exceed the then current value of the assets of such employee benefit
plans allocable to such benefits.
d. The consummation of the Loans provided for in Article II
will not involve any prohibited transaction under ERISA or any Foreign Benefit
Law which is not subject to a statutory or administrative exemption.
e. To the best of the Borrower's knowledge, each employee
pension benefit plan subject to Title IV of ERISA or any Foreign Benefit Law,
maintained by the Borrower or any subsidiary for the benefit of its employees,
has been administered in accordance with its terms in all material respects and
is in compliance in all material respects with all applicable requirements of
ERISA and other applicable laws, regulations and rules and any applicable
Foreign Benefit Law.
f. There has been no withdrawal liability incurred and unpaid
with respect to any Multi-employer Plan to which the Borrower or any subsidiary
is or was a contributor.
g. As used in this Agreement, the terms "employee benefit
plan," "employee pension benefit plan," "accumulated funding deficiency,"
"reportable event," and "accrued benefits" shall have the respective
meanings assigned to them in ERISA, and the term "prohibited transaction"
shall have the meaning assigned to it in Code Section 4975 and ERISA.
h. Neither the Borrower nor any subsidiary has any liability
not disclosed on any of the financial statements furnished to the Bank,
contingent or otherwise, under any plan or program or the equivalent for
unfunded post-retirement benefits, including pension, medical and death
benefits, which liability would have a material adverse effect on the financial
condition of the Borrower or any subsidiary.
i. For purposes of this subsection 14, Foreign Benefit Law
shall mean any applicable statute, law, ordinance, code, rule, regulation, order
or decree of any foreign national or any province, state, territory,
protectorate or other political subdivision
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thereof regulating, relating to, or imposing liability or standards of conduct
concerning, any pension, retirement, health care, death, disability or other
employee benefit plan.
15. NO DEFAULT. As of the date hereof, there does not exist any
Default or Event of Default hereunder;
16. HAZARDOUS MATERIALS. The Borrower and each Guarantor is in
compliance with all applicable Environmental Laws in all material respects and
neither the Borrower nor any Guarantor has been notified of any action, suit,
proceeding or investigation which calls into question compliance by the Borrower
or any Guarantor with any Environmental Laws or which seeks to suspend, revoke
or terminate any license, permit or approval necessary for the generation,
handling, storage, treatment or disposal of any Hazardous Material any of which
could have a material adverse effect on the business, operations or financial
condition of the Borrower or any Guarantor.
17. RICO. Neither the Borrower nor any Guarantor is engaged in or
has engaged in any course of conduct that could subject any of their respective
properties to any lien, seizure or other forfeiture under any criminal law,
racketeer influenced and corrupt organizations law, civil or criminal, or other
similar laws.
18. EMPLOYMENT MATTERS. The Borrower and all subsidiaries are in
compliance in all material respects with all applicable laws, rules and
regulations pertaining to labor or employment matters, including without
limitation those pertaining to wages, hours, occupational safety and taxation
the noncompliance with which could have a material adverse effect on the
business, operations or financial condition of the Borrower or its subsidiaries
and there is neither pending nor, to the knowledge of the Borrower, threatened
any litigation, administrative proceeding or investigation, in respect of such
matters, an adverse ruling or determination in which could have a material
adverse effect on the Borrower or its subsidiaries.
19. CONTINUATION OF REPRESENTATION AND WARRANTIES. All
representations and warranties made under this Agreement shall be deemed to be
made at and as of the date hereof and at and as of the date of any future
advance under any Loan.
ARTICLE IV.
CONDITIONS TO MAKING LOAN
A. Conditions of Initial Advance. The obligation of the Bank to make the
initial advance under the Loan is subject to the conditions precedent that the
Bank shall have received on the Closing Date, in form and substance
satisfactory to the Bank, the following:
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1. Executed originals of each of this Agreement, the Note and the
other Loan Documents, together with any and all schedules and exhibits thereto,
all as are satisfactory to Tew, Zinober, Barnes, Zimmet & Unice, special counsel
to the Bank.
2. Resolutions of the boards of directors or other appropriate
governing body (or of the appropriate committee thereof) of the Borrower
certified by its secretary or assistant secretary or other appropriate official
as of the Closing Date, approving and adopting the Loan Documents and
authorizing the execution and delivery thereof.
3. Specimen signatures of officers of the Borrower and each
Guarantor executing the Loan Documents on behalf of such Person, certified by
the secretary or assistant secretary or other appropriate official of the
Borrower or Guarantor, as applicable.
4. The charter documents of the Borrower certified as of a recent
date by the Secretary of State or other appropriate Governmental Authority of
its jurisdiction of incorporation.
5. The By-laws (including any amendments thereto) of the Borrower
certified as of the Closing date as true and correct by the secretary or
assistant secretary of the Person to whom such by-laws relate.
6. Certificates issued as of a recent date by the Secretary of State
or other appropriate Governmental Authority of its jurisdiction of incorporation
as to the due existence and good standing of the Borrower.
7. Appropriate certificates of qualification to do business, good
standing and, where appropriate, authority to conduct business under assumed
name, issued in respect of the Borrower and each Guarantor as of a recent date
by the Secretary of State or other appropriate Governmental Authority of each
jurisdiction in which the failure to be qualified to do business or authorized
so to conduct business could materially adverse affect the business, operations
or conditions, financial or otherwise, of the Borrower or any Guarantor.
8. Evidence of insurance required by the Loan Documents.
9. All fees payable by the Borrower on the Closing Date to the Bank.
10. With respect to real and personal property owned by Borrower,
evidence that there are no priority security interests in any of the assets of
Borrower except the Permitted Liens and except as otherwise specifically
acknowledged and approved by Bank; provided, further however, that Borrower
shall be permitted to pledge
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a purchase money security interest in specific equipment, and newly-created
Subsidiaries shall be permitted to pledge purchased assets, both in accordance
with Article VI, Section B below.
11. Such other documents, instruments, certificates and opinions as
the Bank may reasonably request on or prior to the Closing Date in connection
with the consummation of the transactions contemplated hereby.
B. Conditions of Loans. The obligations of the Lender to make any
additional advance under the Loan on or subsequent to the Closing Date are
subject to the satisfaction of the following conditions:
1. The representations and warranties of the Borrower and each
Guarantor set forth in Article III hereof and in each of the other Loan
Documents shall be true and correct in all material respects on and as of the
date of such additional advance with the same effect as though such
representations and warranties had been made on and as of such date, except to
the extent that such representations and warranties expressly relate to an
earlier date and except that the financial statements shall be deemed to be
those financial statements most recently delivered to the Bank.
2. Immediately after giving effect to the additional advance, the
aggregate principal balance of the Loan shall not exceed the total amount of the
Loan (to wit, $30,000,000.00).
3. There has occurred no material adverse change in the consolidated
financial condition of Borrower or any Guarantor.
4. The Bank has reasonably determined that the prospect of payment
or performance of the Loan has not been materially impaired.
5. No Default or Event of Default exists either before or after
giving effect to the additional advance.
6. Borrower has affirmed each of the above.
ARTICLE V.
AFFIRMATIVE COVENANTS
Until full payment and performance of all obligations of Borrower under the
Loan Documents, Borrower will, unless Bank consents otherwise in writing (and
without limiting any requirement of any other Loan Document):
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A. Financial Condition. Maintain Borrower's financial condition as
follows, determined in accordance with GAAP applied on a Consistent Basis
throughout the period involved except to the extent modified by the following
definitions:
1. Maintain a minimum Net Worth of Sixty Five Million Dollars
($65,000,000.00). This minimum Net Worth covenant shall increase annually upon
receipt of Borrower's fiscal year end financial statements, beginning with
fiscal year end 1997, by an amount which equals fifty percent (50%) of the
respective fiscal year's net income. A net loss in any fiscal year will not
result in a decrease in the net worth minimum.
2. Maintain a ratio of Funded Debt to Adjusted EBITDA not to exceed
two and one-half to one (2.50 to 1).
B. Financial Statements and Other Information. Maintain a system of
accounting in accordance with GAAP applied on a Consistent Basis throughout the
period involved. All financial statements called for below shall be prepared in
form and content reasonably acceptable to the Bank, and prepared by Borrower's
independent certified public accountants.
C. Reporting Requirements. In addition to the above, Borrower shall:
1. Furnish to Bank, within forty-five (45) days of the end of each
fiscal quarter, quarterly, internally prepared consolidated financial statements
of the Borrower and each Guarantor, including a consolidated balance sheet and
income statement, which may be in the form provided to the Securities and
Exchange Commission.
2. Furnish to Bank annually, within one hundred twenty (120) days of
the end of the Borrower's fiscal year end, a consolidated balance sheet and
income statement of the Borrower and the Guarantors on a consolidated basis
prepared in accordance with GAAP on an audited basis by Borrower's independent
certified public accountant or another top ten certified public accounting firm
in the United States, including statements of financial condition, income, cash
flow and changes in shareholders' equity which may be in the form provided to
the Securities and Exchange Commission.
3. Furnish to Bank a compliance certificate in the form attached
hereto as Exhibit "A" and incorporated herein by this reference for (and
executed by an Authorized Representative of Borrower and each corporate
Guarantor), concurrently with and dated as of the date of delivery of each of
the financial statements as required in paragraphs 1 and 2 above, containing (a)
a certification that the financial statements of even date are true and correct
and that the Borrower is not in default under the terms of this Agreement,and
(b) computations and conclusions, in such detail as Bank may request, with
respect to compliance with this Agreement, and the other Loan Documents,
including computations of all quantitative covenants.
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4. Promptly, upon becoming available to the public and in any event,
no later than the date when released, copies of all regular periodic or special
reports, schedules, and other material, financial or otherwise, which the
Borrower or any of its subsidiaries may now or hereafter be required to file
with the Securities and Exchange Commission.
5. Borrower shall submit to Bank any other financial information
that the Bank, in its sole discretion, may reasonably request from time to time.
D. Insurance. Maintain insurance with responsible insurance companies on
such of its properties, in such amounts and against such risks as is customarily
maintained by similar businesses operating in the same vicinity, specifically to
include fire and extended coverage insurance covering all assets, business
interruption insurance, workers compensation insurance and liability insurance,
all to be with such companies as are reasonably satisfactory to Bank.
Satisfactory evidence of such insurance will be supplied to Bank prior to
funding under the Loan(s) and 30 days prior to each policy renewal.
E. Existence and Compliance. Maintain its existence, good standing and
qualification to do business, where required and comply with all laws,
regulations and governmental requirements including, without limitation,
environmental laws applicable to it or to any of its property, business
operations and transactions.
F. Adverse Conditions or Events. Promptly advise Bank in writing of (i)
any condition, event or act which comes to its attention that would materially
adversely affect the financial condition or operations of Borrower or any
Guarantor, or Bank's rights under the Loan Documents, (ii) any litigation filed
by or against Borrower or any Guarantor that would materially adversely affect
the consolidated financial condition or operations of Borrower or any Guarantor
if an adverse determination occurs, (iii) any event that has occurred that would
constitute an event of default under any Loan Documents, (iv) any uninsured or
partially uninsured loss through fire, theft, liability or property damage in
excess of an aggregate of $250,000.00, and (v) any default or notice of default
with respect to any other loan to Borrower or any subsidiary.
G. Taxes and Other Obligations. Pay all of its taxes, assessments and
other obligations, including, but not limited to taxes, costs or other expenses
arising out of this transaction, as the same become due and payable, except to
the extent the same are being contested in good faith by appropriate proceedings
in a diligent manner.
H. Maintenance. Maintain all of its tangible property in good condition
and repair and make all necessary replacements thereof in the ordinary course of
business consistent with past practices, and preserve and maintain all licenses,
trademarks, privileges, permits, franchises, certificates and the like necessary
for the operation of its business.
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I. Notification of Environmental Claims. Borrower shall immediately
advise Bank in writing of (i) any and all enforcement, cleanup, remedial,
removal, or other governmental or regulatory actions instituted, completed or
threatened pursuant to any applicable federal, state, or local laws, ordinances
or regulations relating to any Hazardous Materials affecting the business
operations of Borrower or any Guarantor; and (ii) all claims made or threatened
by any third party against Borrower or any Guarantor relating to damages,
contribution, cost recovery, compensation, loss or injury resulting from any
Hazardous Materials. Borrower shall immediately notify Bank of any remedial
environmental action taken by Borrower or any Guarantor with respect to the
business operations of Borrower or any Guarantor.
J. Future Guaranties. Borrower shall cause to be provided to Bank,
within fifteen (15) days of incorporation, reactivation of an inactive
corporation, acquisition, or legal establishment, a written guaranty, in
substantially the same form of those guaranties executed by the Guarantors on
even date herewith, from any and every affiliate or subsidiary created,
reactivated, or acquired after the date hereof.
ARTICLE VI.
NEGATIVE COVENANTS
Until full payment and performance of all obligations of Borrower under the
Loan Documents, Borrower will not, without the prior written consent of Bank
(and without limiting any requirement of any other Loan Documents):
A. Transfer of Assets or Control. Sell, lease, assign or otherwise
dispose of or transfer any assets, except in the normal course of its business.
B. Liens. Grant, suffer or permit any contractual or noncontractual lien
on or security interest in any of the assets of Borrower or any Guarantor,
except in favor of Bank, and except for Permitted Liens, or fail to promptly pay
when due all lawful claims, whether for labor, materials or otherwise; provided,
however, (i) that Borrower shall have the right to purchase specific equipment
for which Borrower may grant a security interest to the seller of said equipment
as part of a standard purchase-money financing arrangement; and (ii) any
newly-created Subsidiary shall have the right, as part of any purchase-money
financing provided by the seller of the business being acquired by any such
newly-created Subsidiary, to pledge the assets being acquired by the
newly-created Subsidiary (but not any of the assets of Borrower or any
then-existing Guarantor) to the seller of said assets as security for the
purchase-money financing; provided,however, that the sum of (i) Borrower's
aggregate obligations under subsection B(i) above (including purchases made
prior to the Closing Date), (ii) the aggregate of all outstanding obligations
incurred by newly-created Subsidiaries in the acquisition of businesses under
subsection B(ii) above, and (iii) any indebtedness incurred or created pursuant
to Article VI, Section D, below, shall not exceed at any one time Seven Million
Five Hundred Thousand Dollars
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($7,500,000.00); and provided further that any purchase-money financing debts
shall be paid in full before the newly-created Subsidiary that incurred the
debt(s) can be merged into Borrower, or any other Subsidiary.
C. Extensions of Credit. Make any loan or advance to any individual,
partnership, corporation or other entity, except accounts receivable incurred in
the ordinary course of business in excess of One Million Dollars ($1,000,000.00)
in the aggregate excluding split dollar life insurance on principals.
D. Borrowings. Create, incur, assume or become liable in any manner,
directly or indirectly, for any indebtedness in excess of Seven Million Five
Hundred Thousand Dollars ($7,500,000.00) at any one time (for borrowed money,
deferred payment for the purchase of assets, lease payments, as surety or
guarantor for the debt for another, or otherwise, including under Section B(i)
and B(ii) above) other than to Bank, except for normal trade debts incurred in
the ordinary course of Borrower's business.
E. Investments. Make investments in excess of Five Million Dollars
($5,000,000.00) in the aggregate; provided, however, that Borrower shall not be
restricted on its investments of investment grade securities.
F. Character of Business. Change the general character of business as
conducted at the date hereof, or engage in any type of business not reasonably
related to its business as presently conducted.
G. Additional Liabilities. Incur (or engage in any activity in which
Borrower knows will likely result in) any additional liabilities, direct,
indirect, or contingent, except in the ordinary course of business, as permitted
by the Loan Documents.
H. Merger and Consolidation. (a) Consolidate with or merge into any other
Person, or (b) permit any other Person to merge into it, or (c) liquidate,
wind-up or dissolve or sell, transfer or lease or otherwise dispose of all or a
substantial part of its assets; provided, however, (i) any subsidiary of the
Borrower may merge or transfer all or substantially all of its assets into or
consolidate with any wholly-owned subsidiary of the Borrower or the Borrower,
(ii) any Person may merge with the Borrower if the Borrower or a subsidiary
thereof shall be the survivor thereof and such merger shall not cause, create or
result in the occurrence of any Default or Event of Default under this Agreement
or any other Loan Document; provided, however, if the surviving entity is a
subsidiary, Bank retains the right to require the assumption of the Loan upon
terms and conditions satisfactory to the Bank in its sole discretion.
I. Enter into any agreement, other than its Agreement (and the Negative
Pledge Agreement contemplated herein), with any Person other than Bank, wherein
by Borrower or any Guarantor agrees not to create any lien on its or their
assets.
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ARTICLE VII.
ADDITIONAL PROVISIONS
A. DEFAULT. Subject to Borrower's rights under any applicable notice
and/or cure provision in this Agreement or in the Note, Borrower shall be in
default under this Agreement and under each of the other Loan Documents if and
when any of the following shall occur (each being considered an "Event of
Default"): (a) the failure to pay or perform in any material respect any
obligation, liability or indebtedness of Borrower or any Guarantor
(collectively, the "Obligors") to Bank, or to any affiliate or subsidiary of
NationsBank Corporation, whether under this Agreement, the Note or any Loan
Documents, within fifteen days of when due, whether upon demand, at maturity or
by acceleration; (b) the failure to pay or perform in any material respect any
other obligation, liability or indebtedness of any Obligor to any other party
after notice from said party and if the Obligor does not contest in good faith
the validity of such obligation, liability or indebtedness; (c) the commencement
of a proceeding against any Obligor for dissolution or liquidation, the
voluntary or involuntary termination or dissolution of any Obligor or the merger
or consolidation of any Obligor with or into another entity that is not
otherwise permitted under this Agreement; (d) the insolvency of, the business
failure of, the appointment of a custodian, trustee, liquidator or receiver for
or for any of the property of, the assignment for the benefit of creditors by,
or the filing of a petition under bankruptcy, insolvency or debtor's relief law
or the filing of a petition for any adjustment of indebtedness, composition or
extension by or against any Obligor; (e) the determination by Bank that any
representation or warranty made to Bank by any Obligor in any Loan Documents or
otherwise is or was, when it was made, untrue or materially misleading; (f) the
failure of any Obligor to timely deliver such financial statements, including
tax returns, other statements of condition or other information, as Bank shall
request from time to time; (g) the entry of a judgement against any Obligor
which Bank deems to be of a material nature, in Bank's reasonable discretion and
as more fully set out in Article III.A.9. of this Agreement; (h) the seizure or
forfeiture of, or the issuance of any writ of possession, garnishment or
attachment, or any turnover order for any property of any Obligor; (i) the
reasonable determination by Bank that a material adverse change has occurred in
the financial condition of any Obligor; or (j) the failure of Borrower's
business to comply in any material respect with any law or regulation
controlling its operation.
The Borrower shall receive written notice for non-monetary defaults and
shall have thirty (30) days to cure such non-monetary defaults
Notwithstanding the restriction upon liens contained in Article VI, Section
B, above, Bank acknowledges that one of the Guarantors (Romac and Associates,
Inc., a Massachusetts corporation, and successor-by-merger to, and in some
cases, still doing business as, Romac & Associates of Orlando, Inc.) is the
Debtor under a UCC-1 Financing Statement. Within ninety (90) days from the
Closing Date, Borrower and Romac and Associates, Inc., jointly and severally,
shall cause any and all outstanding financing
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statements in which Romac and Associates, Inc. or Romac and Associates of
Orlando, Inc. are shown as the Debtor to be released (including, but not limited
to that certain statement filed June 7, 1990, showing Temporary Management
Resources, Inc. as the Secured Party, as may have been assigned from
time-to-time, and that certain amendment filed October 19, 1990, showing
StanChart Business Credit as the Secured Party). Borrower also shall cause to be
released within ninety (90) days that certain UCC-1 Financing Statement filed
December 6, 1994, showing Merrill Lynch Business Financial Services, Inc. as the
Secured Party. Borrower also shall cause to be released within ninety (90) days
any additional financing statements showing Borrower or any Subsidiary as the
Debtor that are obtained after the Closing Date and that are not acceptable to
Bank in its sole discretion. A failure to provide Bank with written evidence of
all such releases shall, without further notice or opportunity to cure,
constitute a default hereunder.
B. REMEDIES UPON DEFAULT. If an Event of Default shall occur Bank shall
have all rights, powers and remedies available under each of the Loan Documents
as well as all rights and remedies available at law or in equity.
C. NOTICES. All notices, requests or demands which any party is required
or may desire to give to any other party under any provision of this Agreement
must be in writing delivered to the other party at the following address:
Borrower: Romac International, Inc.
120 West Hyde Park, Suite 150
Tampa, Florida 33606
Attn: Mr. Thomas M. Calcaterra, Secretary and CFO
Fax No. (813) 254-9640
Bank: NationsBank, N.A.
Commercial Banking Department
400 N. Ashley Drive, 2nd Floor
Tampa, Florida 33606-4317
Attn: Kathleen E. Collins, Vice President
Fax No. (813) 224-5770
With a courtesy copy to:
Robert L. Barnes, Jr., Esquire
Tew, Zinober, Barnes, Zimmet & Unice
2655 McCormick Drive
Clearwater, Florida 33759
Fax No. (813) 726-0058
or to such other address as any party may designate by written notice to the
other party. Each such notice, request and demand shall be deemed given or made
as follows:
1. If sent by hand or overnight delivery, upon delivery;
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2. If sent by mail, certified or regular, upon the earlier of the
date of receipt or five (5) days after deposit in the U.S. Mail, first class
postage (and, if sent by certified mail, costs of certification) prepaid.
D. COSTS, EXPENSES AND ATTORNEY'S FEES. Borrower shall pay to Bank
immediately upon demand the full amount of all costs and expenses, including
reasonable attorneys' fees incurred by Bank in connection with negotiation and
preparation of this Agreement and each of the Loan Documents, whether or not the
Loan actually closes.
E. PERMITTED ACQUISITIONS. The Borrower and/or any Guarantor shall not
be permitted to acquire any Person which Person shall become a subsidiary of the
Borrower or the assets of a Person effected with the consent and approval of the
board of directors or other applicable governing body of such Person and the
duly obtained approval of such shareholders or other holder of equity interest
in such Person as may be required to be obtained under applicable law, the
charter documents of or any shareholder agreements or similar agreements
pertaining to such person if, as a consequence of such transaction, Borrower
would not be in compliance with the provisions of Article V, Section A, or any
other provision in Article VI.
If the total Cost of Acquisition to be paid exceeds fifty percent
(50%) of the Borrower's Net Worth as defined by GAAP, Borrower shall provide
written notification to Bank prior to the closing of such acquisition stating
that Borrower remains in compliance with the provisions of the financial,
affirmative and negative covenants contained in the Loan Documents. Such
compliance will be evidenced by any information related to the acquisition
reasonably requested by Bank. If the acquisition would cause Borrower to be in
non-compliance with the provisions of the Loan Documents, Borrower must obtain
Bank's written approval prior to closing such acquisition.
F. MISCELLANEOUS. Borrower and Bank further covenant and agree as
follows, without limiting any requirement of any other Loan Document:
1. CUMULATIVE RIGHTS AND NO WAIVER. Each and every right granted to
Bank under any Loan Document, or allowed it by law or equity shall be cumulative
of each other and may be exercised in addition to any and all other rights of
Bank, and no delay in exercising any right shall operate as a waiver thereof,
nor shall any single or partial exercise by Bank of any right preclude any other
or future exercise thereof or the exercise of any other right. Borrower
expressly waives any presentment, demand, protest or other notice of any kind,
including but not limited to notice of intent to accelerate and notice of
acceleration. No notice to or demand on Borrower in any case shall, of itself,
entitle Borrower to any other or future notice or demand in similar or other
circumstances.
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2. Applicable Law. This Loan Agreement and the rights and
obligations of the parties hereunder shall be governed by and interpreted in
accordance with the laws of Florida and applicable United States federal law.
3. Amendment. No modification, consent, amendment or waiver of any
provision of this Loan Agreement, nor consent to any departure by Borrower
therefrom, shall be effective unless the same shall be in writing and signed
by an officer of Bank, and then shall be effective only in the specified
instance and for the purpose for which given. This Loan Agreement is binding
upon Borrower, its successors and assigns, and inures to the benefit of Bank,
its successors and assigns; however, no assignment or other transfer of
Borrower's rights or obligations hereunder shall be made or be effective
without Bank's prior written consent, nor shall it relieve Borrower of any
obligations hereunder. There is no third party beneficiary of this Loan
Agreement.
4. Documents. All documents, certificates and other items required
under this Loan Agreement to be executed and/or delivered to Bank shall be in
form and content satisfactory to Bank and its counsel.
5. Partial Invalidity. The unenforceability or invalidity of any
provision of this Loan Agreement shall not affect the enforceability or
validity of any other provision herein and the invalidity or unenforceability
of any provision of any Loan Document to any person or circumstance shall not
affect the enforceability or validity of such provision as it may apply to
other persons or circumstances.
6. Indemnification. Borrower shall indemnify, defend and hold Bank
and its successors and assigns harmless from and against any and all claims,
demands, suits, losses, damages, assessments, fines, penalties, costs or other
expenses (including reasonable attorneys' fees and court costs) including
actual or threatened damage to the environment, agency costs of investigation,
personal injury or death, or property damage, due to a release of Hazardous
Materials, resulting form Borrower's business activities or from any condition
existing on any property owned by Borrower. Borrower further agrees that its
indemnity obligations shall include liability for damages resulting from the
personal injury or death of an employee of the Borrower, regardless of whether
the Borrower has paid the employee under the workman's compensation laws of any
state or similar federal or state legislation for the protection of employees.
The term "property damage" as used in this paragraph includes, but is not
limited to, damage to any real or personal property of the Borrower, the Bank,
and of any third parties. The Borrower's obligations under this paragraph shall
survive the repayment of the Loan and any deed in lieu of foreclosure or
foreclosure of any Deed to Secure Debt, Deed of Trust, Security Agreement or
Mortgage securing the Loan, if any.
7. Survivability. All covenants, agreements, representations and
warranties made herein or in the other Loan Documents shall survive the making
of the
Revolving Line of Credit Loan Agreement
Romac International, Inc.
-25-
<PAGE> 26
NationsBank, N.A.
Loan and shall continue in full force and effect so long as the Loan is
outstanding or the obligation of the Bank to make any advances under the Line
shall not have expired.
G. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM BASED ON
OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN
ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE
APPLICABLE STATE LAW). THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION
OF COMMERCIAL DISPUTES OF JUDICIAL ARBITRATION AND MEDIATION SERVICES, INC.
(J.A.M.S.), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY
INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION
AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS
AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO
COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES
IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
1. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF
THE BORROWER'S DOMICILE AT TIME OF THIS AGREEMENT'S EXECUTION AND ADMINISTERED
BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY
PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION
ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90
DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A
SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP
TO AN ADDITIONAL 60 DAYS.
2. RESERVATION OF RIGHTS. NOTHING IN THIS AGREEMENT SHALL BE DEEMED
TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR (II) BE A
WAIVER BY THE BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY
SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK HERETO
(A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B)
TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN
FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO)
INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE BANK
MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN
SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF
ANY ARBITRATION PROCEEDING BROUGHT
<PAGE> 27
NationsBank, N.A.
PURSUANT TO THIS AGREEMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE
INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR
ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
H. NO ORAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed under seal by their duly authorized representatives as of the date
first above written.
BORROWER: BANK:
Romac International, Inc. NationsBank, N.A.
a Florida Corporation
By: /s/ THOMAS M. CALCATERRA (Seal) By: /s/ KATHLEEN E. COLLINS (Seal)
-------------------------- -------------------------
Thomas M. Calcaterra Kathleen E. Collins
Secretary and CFO Vice President
[Corporate Seal]
GUARANTORS: GUARANTORS:
Romac and Associates, Inc., Romac and Associates of Fort
a Massachusetts corp. Lauderdale, Inc., a Florida corp.
By: /S/ THOMAS M. CALCATERRA By: /s/ THOMAS M. CALCATERRA
---------------------------------- ---------------------------------
Thomas M. Calcaterra, Secretary Thomas M. Calcaterra, Secretary
and CFO and CFO
Revolving Line of Credit Loan Agreement
Romac International, Inc.
-27-
<PAGE> 28
NationsBank, N.A.
Romac Temporaries, Inc., Romac International of Minnesota, Inc.,
a Delaware corporation a Florida corporation
By: /S/ THOMAS M. CALCATERRA By: /S/ THOMAS M. CALCATERRA
------------------------------- -------------------------------
Thomas M. Calcaterra, Secretary Thomas M. Calcaterra, Secretary
and CFO and CFO
FMA International, Inc., Romac International of Pennsylvania, Inc.,
a Florida corporation a Florida corporation
By: /S/ THOMAS M. CALCATERRA By: /S/ THOMAS M. CALCATERRA
------------------------------- -------------------------------
Thomas M. Calcaterra, Secretary Thomas M. Calcaterra, Secretary
and CFO and CFO
FMA Temporaries of Chicago, Inc., Romac International of California, Inc.,
a Florida corporation a Florida corporation
By: /S/ THOMAS M. CALCATERRA By: /S/ THOMAS M. CALCATERRA
------------------------------- -------------------------------
Thomas M. Calcaterra, Secretary Thomas M. Calcaterra, Secretary
and CFO and CFO
Romac International of Texas, Inc., Romac International of Kentucky, Inc.,
a Florida corporation a Florida corporation
By: /S/ THOMAS M. CALCATERRA By: /S/ THOMAS M. CALCATERRA
------------------------------- -------------------------------
Thomas M. Calcaterra, Secretary Thomas M. Calcaterra, Secretary
and CFO and CFO
Romac and Associates of Boston, Professional Application Resources
Inc., a Massachusetts corporation Incorporated, a Texas corporation
By: /S/ THOMAS M. CALCATERRA By: /S/ THOMAS M. CALCATERRA
------------------------------- -------------------------------
Thomas M. Calcaterra, Secretary Thomas M. Calcaterra, Secretary
and CFO and CFO
Revolving Line of Credit Loan Agreement
Romac International, Inc.
-28-
<PAGE> 29
NationsBank, N.A.
Romac/Lanorf, Inc., Romac/Ncralf, Inc.,
a Delaware corporation a Delaware corporation
By: /S/ THOMAS M. CALCATERRA By: /S/ THOMAS M. CALCATERRA
------------------------------- -------------------------------
Thomas M. Calcaterra, Secretary Thomas M. Calcaterra, Secretary
and CFO and CFO
108612.01
Revolving Line of Credit Loan Agreement
Romac International, Inc.
-29-
<PAGE> 30
EXHIBIT A
NationsBank, N.A.
400 North Ashley Drive
Tampa, Florida 33602
Attention: Commercial Banking Department
Reference is hereby made to the Revolving Line of Credit Loan Agreement dated
as of August ______, 1997 (the "Agreement") between Romac International, Inc.
(the "Borrower") and NationsBank, N.A. (the "Bank"). Capitalized terms used but
not defined herein shall have the respective meanings therefor set forth in the
Agreement. The undersigned, a duly authorized and acting Authorized
Representative, hereby certifies on behalf of Borrower to you as of
_______________________ (insert Determination Date) as follows:
1) Minimum Net Worth: __________________________________________________
Required: Maintain a minimum Net Worth of $65,000,000. The minimum Net
Worth covenant shall increase annually upon receipt of Borrower's fiscal
year end financial statements, beginning with fiscal year end 1997, by an
amount which equals fifty percent (50%) of the respective fiscal year's net
income. A net loss in any fiscal year will not result in a decrease in the
net worth minimum.
2) FUNDED DEBT TO ADJUSTED EBITDA: _____________________________________
Required: Maintain a ratio of Funded Debt to Adjusted EBITDA not to exceed
two and one-half to one (2.50:1.0.). See Revolving Line of Credit Loan
Agreement for definitions.
3) No Default
A. To the best knowledge of the undersigned, since ________________
_______________________ (the date of the last similar certification), (a) the
Borrower has not defaulted in the keeping, observance, performance or
fulfillment of any of the Loan Documents; and (b) no Default or Event of Default
specified in Article VII of the Agreement has occurred.
B. If a default or Event of Default has occurred since ___________
________________________ (the date of the last similar certification), the
Borrower proposes to take the following action with respect to such Default or
Event of Default:_____________________________________________________________
____________________________________________________
(Note: if no Default or Event of Default has occurred, insert "Not Applicable")
The Determination Date is the date of the last required financial
statements submitted to the Bank in accordance with Section C of the Agreement.
IN WITNESS WHEREOF, I have executed this Certificate this _______________ day
of __________________________, 19________.
_____________________________________
Authorized Representative for
Romac International, Inc.
<PAGE> 1
EXHIBIT 21
ROMAC INTERNATIONAL, INC.
SUBSIDIARIES
ROMAC & ASSOCIATES OF BOSTON, INC., a Massachusetts corporation
ROMAC AND ASSOCIATES OF FT. LAUDERDALE, INC., a Florida corporation
ROMAC INTERNATIONAL OF CALIFORNIA, INC., a Florida corporation
ROMAC INTERNATIONAL OF KENTUCKY, INC., a Florida corporation
ROMAC INTERNATIONAL OF MINNESOTA, INC., a Florida corporation
ROMAC INTERNATIONAL OF TEXAS, INC., a Florida corporation
ROMAC INTERNATIONAL OF PENNSYLVANIA, INC., a Florida corporation
FMA TEMPORARIES OF CHICAGO, INC., a Florida corporation
ROMAC TEMPORARIES, INC., a Delaware corporation
ROMAC & ASSOCIATES, INC., a Massachusetts corporation
FMA INTERNATIONAL, INC., a Florida corporation
ROMAC/LANORF, INC., a Delaware corporation
ROMAC/NCRALF, INC., a Delaware corporation
PROFESSIONAL APPLICATION RESOURCES, INC., a Texas corporation
UNI QUALITY SYSTEMS SOLUTIONS, INC., an Illinois corporation
ROMAC INTERNATIONAL OF CONNECTICUT, INC., a Florida corporation
ROMAC INTERNATIONAL OF COLORADO, INC., a Florida corporation
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-97134) of Romac International, Inc. and its
subsidiaries of our report dated February 25, 1998 appearing in the Annual
Report on Form 10-K. We also consent to the incorporation by reference of our
report on the Financial Statement Schedule, which appears in this Form 10-K.
Price Waterhouse LLP
Tampa, Florida
February 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 77,946
<SECURITIES> 0
<RECEIVABLES> 35,475
<ALLOWANCES> 880
<INVENTORY> 0
<CURRENT-ASSETS> 115,799
<PP&E> 8,206
<DEPRECIATION> 5,186
<TOTAL-ASSETS> 197,139
<CURRENT-LIABILITIES> 18,299
<BONDS> 0
0
0
<COMMON> 299
<OTHER-SE> 173,381
<TOTAL-LIABILITY-AND-EQUITY> 197,139
<SALES> 181,434
<TOTAL-REVENUES> 181,434
<CGS> 110,550
<TOTAL-COSTS> 110,550
<OTHER-EXPENSES> 51,714
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 127
<INCOME-PRETAX> 19,043
<INCOME-TAX> 7,500
<INCOME-CONTINUING> 11,543
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,543
<EPS-PRIMARY> .46
<EPS-DILUTED> .44
</TABLE>
