<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 12, 1996
REGISTRATION NO. 333-16187
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------
SOS STAFFING SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
UTAH 7363 87-0295503
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER) INCORPORATION OR ORGANIZATION)
</TABLE>
------------------------
1415 SOUTH MAIN STREET
SALT LAKE CITY, UTAH 84115
(801) 484-4400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
RICHARD D. REINHOLD
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
SOS STAFFING SERVICES, INC.
1415 SOUTH MAIN STREET
SALT LAKE CITY, UTAH 84115
(801) 484-4400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
RICHARD G. BROWN, ESQ. J. KENNETH MENGES, JR., P.C.
BRIAN G. LLOYD, ESQ. AKIN, GUMP, STRAUSS,
KIMBALL, PARR, WADDOUPS, BROWN & GEE HAUER & FELD, L.L.P.
185 SOUTH STATE STREET, SUITE 1300 1700 PACIFIC AVENUE, SUITE 4100
SALT LAKE CITY, UTAH 84111 DALLAS, TEXAS 75201-4618
(801) 532-7840 (214) 969-2800
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
------------------------
If any of the securities being registered on this form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statements for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
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</TABLE>
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
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Common Stock, $0.01 par value.......... 2,530,000 $10.125 $25,616,250 $7,763*(3)
- -----------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Includes 330,000 shares which the Underwriters have the option to purchase
solely to cover over-allotments, if any. Number of shares to be registered
reflects a reduction of 1,725,000 shares from the number of shares indicated
in the Registrant's prior filing.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Previously paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 12, 1996
PROSPECTUS
2,200,000 SHARES
LOGO
COMMON STOCK
------------------------------
Of the 2,200,000 shares of Common Stock offered hereby, 2,000,000 shares
are being sold by SOS Staffing Services, Inc. (the "Company") and 200,000 shares
are being sold by certain shareholders of the Company (the "Selling
Shareholders"). See "Principal and Selling Shareholders." The Company will not
receive any proceeds from the sale of shares of the Common Stock by the Selling
Shareholders. See "Use of Proceeds."
The Common Stock is quoted on the Nasdaq National Market under the symbol
"SOSS." On December 11, 1996, the last sale price of the Common Stock, as
reported by the Nasdaq National Market, was $10.125 per share. See "Price Range
of Common Stock."
------------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
Per Share................... $ $ $ $
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Total(3).................... $ $ $ $
</TABLE>
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(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deducting offering expenses, estimated at $400,000, payable by the
Company.
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to 330,000 additional shares of
Common Stock solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
The shares of Common Stock are offered by the Underwriters, subject to
receipt and acceptance of such shares by them. The Underwriters reserve the
right to reject any order in whole or in part. It is expected that the shares
will be ready for delivery in New York, New York, on or about ,
1996.
------------------------------
UNTERBERG HARRIS
PAINEWEBBER INCORPORATED
GEORGE K. BAUM & COMPANY
, 1996
<PAGE> 3
[ARTWORK]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
------------------------
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS, OR THEIR AFFILIATES, MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS
IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10b-6A
UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Unless otherwise indicated, all information in this Prospectus
assumes that the Underwriters' over-allotment option is not exercised.
THE COMPANY
SOS Staffing Services, Inc. ("SOS" or the "Company") is a leading regional
provider of temporary staffing services in the Mountain States (Utah, Colorado,
Idaho, Wyoming, Arizona, Nevada, New Mexico and Montana). In addition, the
Company has recently expanded its office network into other western states
(California, Oregon and Texas). The Company serves a broad range of service
sectors, including clerical, light industrial, industrial, information
technology, technical and other professional sectors. The Company's network
consists of 82 offices, including 27 in Colorado, 24 in Utah, eight in Arizona,
six in Nevada, five in Idaho, three in each of California and Wyoming, two in
each of Oregon and New Mexico, and one in each of Texas and Montana. During the
39 weeks ended September 29, 1996, the Company provided approximately 42,000
temporary staffing employees to approximately 7,000 business, professional and
service organizations and government agencies.
The temporary staffing industry, which, according to the National
Association of Temporary Staffing Services ("NATSS"), reported a compound annual
payroll growth rate in excess of 18.0% between 1991 and 1995, continues to
benefit from increased competitive pressures on businesses to reduce costs. In
recent years, businesses have increasingly used temporary staffing employees as
a strategy for converting fixed labor costs to flexible, manageable costs and
for meeting specialized or fluctuating employment requirements. According to
NATSS, in 1995 the average number of daily temporary staffing employees as a
percentage of the total U.S. work force reached approximately 1.8%, up from
approximately 1.0% in 1991.
In recent years, the Company has benefitted significantly from its location
in the Mountain States, which continue to experience strong economic and
population growth. Management believes the attraction of the Mountain States
results from the region's economic growth, diverse economic base, productive
work force and high quality of life. USA Today has forecasted that Nevada, New
Mexico, Utah and Idaho will experience four of the five highest state economic
growth rates during 1996. Job growth in the Company's regional market continues
to be strong. According to the U.S. Bureau of Labor Statistics, the only states
in the nation to report nonfarm employment growth rates for August 1995 to
August 1996 in excess of 4.0% were Utah, Colorado, Nevada, Arizona, New Mexico,
Idaho and Oregon. In addition, each of Montana, California and Washington
reported a growth rate between 2.0% and 3.9%. The national rate during the same
period was 2.7%. The temporary staffing industry in the states in which the
Company operates is also forecasted to experience significant growth in 1996.
The Omnicomp Group, an industry consulting organization, projects that in 1996
the total temporary staffing payroll in the Mountain States and the 11 states in
which the Company operates will increase by approximately 15.1% and 12.7%,
respectively. Management believes the economic strength and projected job growth
in the Mountain States will support the Company's anticipated growth in the
region and enable the Company to pursue additional growth opportunities in other
states.
Management believes the Company has substantial opportunities to continue
to expand its office network as well as its range of services. The Company's
growth strategy is to continue to increase sales, profitability and market share
by acquiring additional offices and opening new offices in the Mountain States,
and pursuing additional growth opportunities in other western states. Since the
completion of its initial public offering in July 1995, the Company has acquired
18 staffing companies and has announced an agreement to acquire an additional
company. The acquisitions completed since the Company's initial public offering
have expanded the Company's ability to provide specialized services which
generally offer higher margins. Through its acquisition of Wolfe & Associates,
Inc. ("Wolfe") in November 1996, Impact Staffing in August 1996, and the
business and assets of three entities comprising The Performance Group of
Denver, Colorado (collectively, "The Performance Group") in July 1996, the
Company expanded its services in the rapidly growing information technology
segment. In addition, in February 1996 and December 1995, the Company acquired
the businesses and assets of Geomine Personnel, Inc., a provider of temporary
geologists, hydrologists and engineers to the mining, hydrology and
environmental industries ("Geomine"), and PAMS Temporary Service, Inc., Patient
Account Management Services, Inc. and National Collex Corporation, three related
entities that provide medical administrative support staffing and account
collection services (collectively, "PAMS"), respectively.
3
<PAGE> 5
A key element of the Company's growth strategy is the establishment of hub
offices in key population areas followed by the clustering of additional offices
in existing and surrounding markets. As offices exceed certain thresholds, SOS
has determined that dividing such offices into one or more additional offices
results in continued growth and greater recruiting capabilities, market
penetration and profitability. The Company has successfully employed this
strategy to establish significant market share in smaller, often less
competitive, markets of the Mountain States. Successful implementation of the
Company's hub and spoke strategy has contributed to the Company's achievement of
an internal revenue growth rate of 23.0% during the 39-week period ended
September 29, 1996, as compared to the same period in the prior year. The
Company has also achieved an average internal revenue growth rate of over 20.0%
over the past five fiscal years.
The Company's business strategies have differentiated its services and
enhanced its profitability. SOS actively pursues higher margin accounts and
de-emphasizes marketing to lower margin accounts and high risk job
classifications. The Company intends to emphasize providing qualified temporary
employees to the information technology segment, one of the fastest growing
segments of the temporary staffing industry, which offers higher margins than
traditional staffing operations. In addition, the Company provides local
managers with significant performance incentives and discretion to respond to
specific market and customer needs. Local managers are supported by strong
centralized marketing, recruiting, risk management, training and management
information systems resources.
ACQUISITIONS
Since completing its initial public offering in July 1995, the Company has
opened 16 offices through internal growth, acquired 18 staffing businesses,
representing 24 offices, and has announced an agreement to acquire an additional
staffing business which, if completed, would add one additional office. The
Company's completed and proposed acquisitions during the period are summarized
in the following table. See "Unaudited Pro Forma Condensed Consolidated
Financial Data" and "Business -- Acquisitions" for additional information
concerning these acquisitions.
<TABLE>
<CAPTION>
ESTIMATED
ACQUISITION REVENUES(1)
ACQUIRED COMPANY DATE (MILLIONS) OFFICES HEADQUARTERS PRIMARY SERVICES
- ------------------------------ ---------------- ------------- ------ --------------- ----------------------
<S> <C> <C> <C> <C> <C>
ACE(2) Pending $ 1.0 1 Yuma, AZ Clerical/Industrial
Wolfe & Associates November 1996 4.0 3 Albuquerque, NM Information Technology
R.H.W., Inc. November 1996 0.5 1 Billings, MT Clerical/Industrial
Fort Collins,
Executive Personnel October 1996 0.2 -- CO Clerical/Industrial
Steamboat Temps October 1996 0.3 1 Steamboat, CO Clerical/Industrial
A USA Temps October 1996 1.3 1 Prescott, AZ Clerical/Industrial
Key Personnel September 1996 1.0 1 Amarillo, TX Clerical/Industrial
Performance Plus August 1996 0.6 1 Orem, UT Clerical/Industrial
Impact Staffing August 1996 4.0 2 Portland, OR Information Technology
Excell Personnel July 1996 0.2 1 Greeley, CO Clerical/Industrial
The Performance Group July 1996 3.0 1 Denver, CO Information Technology
Allyn Colorado Enterprises July 1996 2.5 4 Aspen, CO Clerical/Industrial
VIP Employment Services April 1996 1.5 1 Lakewood, CO Technical
Snake River T.E.M.P.S. April 1996 1.0 2 Burley, ID Clerical/Industrial
Geomine Personnel February 1996 2.8 1 Sparks, NV Mining/Environmental
PAMS December 1995 5.5 2 Phoenix, AZ Medical Support
Customized Personnel Services September, 1995 0.2 -- Durango, CO Clerical/Industrial
Active Personnel Services September 1995 1.0 1 Phoenix, AZ Clerical/Industrial
Add-A-Temp August 1995 3.0 1 Las Vegas, NV Clerical/Industrial
--
---
Total $33.6 25
=== ==
</TABLE>
- ---------------
(1) Represents estimated annualized revenues at the time of each acquisition,
which were based on recent operating results of each acquired company, and
may not be indicative of future operating results.
(2) The Company's proposed acquisition of American Corporate Enterprises, Inc.
("ACE") is subject to the satisfaction of certain conditions. Although the
acquisition is presently scheduled to be completed in December 1996, there
can be no assurance of such completion.
4
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered
By the Company................................... 2,000,000 shares
By the Selling Shareholders...................... 200,000 shares
Common Stock to be outstanding after this
offering......................................... 8,706,020 shares(1)
Use of proceeds.................................... To repay debt, to pay earnout obligations
associated with recent acquisitions, to finance
additional acquisitions, to support continued
growth of operations, including opening
additional offices and to provide working
capital. See "Use of Proceeds."
Nasdaq National Market symbol...................... SOSS
</TABLE>
SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
39 WEEKS ENDED
-------------------------------------
FISCAL YEAR (52/53 WEEKS) ENDED
----------------------------------------------- OCTOBER 1,
1995 1995(2) SEPTEMBER 29, 1996
------------------------- ---------- -----------------------
1993(2) 1994(2) ACTUAL(2) PRO FORMA(3) ACTUAL ACTUAL PRO FORMA(3)
------- ------- --------- ------------ ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Service revenues....................... $49,433 $63,740 $87,533 $107,673 $ 63,334 $92,834 $101,906
Gross profit........................... 8,349 12,418 18,180 23,838 13,195 19,099 21,711
Operating income....................... 1,033 2,372 4,321 5,081 3,371 4,815 5,182
Net income............................. $ 1,113 $ 2,427 $ 2,677 $ 2,683 $ 2,092 $ 2,948 $ 2,865
Net income per common share............ $ 0.43 $ 0.40 $ 0.35 $ 0.44 $ 0.42
Weighted average common shares
outstanding.......................... 6,229(4) 6,714 6,061 6,760 6,760
OPERATING DATA:
Offices at period end................ 22 34 48 44 73
Temporary personnel utilized......... 27,234 32,479 41,854 32,526 42,438
Hours billed (in thousands).......... 5,021 6,326 7,828 5,684 7,815
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 29, 1996
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(5) AS ADJUSTED(6)
------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................................................... $11,816 $ 11,691 $ 19,927
Total assets...................................................................... 32,031 36,788 43,655
Total debt........................................................................ 7,825 11,869 --
Shareholders' equity.............................................................. 17,646 17,646 36,382
</TABLE>
- ---------------
(1) Does not include 272,140 shares of Common Stock reserved for issuance upon
the exercise of options outstanding at December 10, 1996 at an average
exercise price of $8.52 and 121,840 shares of Common Stock reserved for the
future grant of options under the Company's 1995 Stock Incentive Plan.
(2) The Company completed its initial public offering in July 1995 and in
connection therewith terminated its S Corporation election. Data for fiscal
1995 and the 39 weeks ended October 1, 1995 has been adjusted to reflect a
pro forma provision for income taxes. In addition, prior to the initial
public offering, the Company compensated its CEO at levels sufficient to pay
income taxes associated with its S corporation status. Effective January
1995, the Company entered into a three-year employment contract with the CEO
which provides for annual compensation of $195,000. Total CEO compensation
for fiscal 1993 and 1994 was $466,000 and $982,000, respectively.
(3) Gives effect to the Company's acquisition of certain material businesses, as
if such acquisitions were consummated as of the beginning of fiscal 1995.
See "Unaudited Pro Forma Condensed Consolidated Financial Data" and
"Business -- Acquisitions."
(4) Prior to the completion of its initial public offering, the Company
distributed approximately $8.0 million of its accounts receivable to its S
Corporation shareholders. The weighted average common shares outstanding
reflects the issuance of 1,230,769 shares at the initial public offering
price of $6.50 per share, as if the distribution had occurred at the
beginning of fiscal 1995.
(5) Adjusted to give effect to the acquisition of Wolfe as if it were
consummated as of September 29, 1996.
(6) Adjusted to reflect the sale by the Company of 2,000,000 shares of Common
Stock offered hereby at an assumed offering price of $10.125 per share and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
5
<PAGE> 7
RISK FACTORS
An investment in the shares of Common Stock being offered hereby involves a
high degree of risk. Before making a decision to purchase any of the shares of
Common Stock described in this Prospectus, prospective investors should consider
carefully the following risk factors as well as the other information contained
in this Prospectus. The Company cautions the reader that this list of factors
may not be exhaustive. This Prospectus contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth in the following risk
factors and elsewhere in this Prospectus. See "Disclosure Regarding
Forward-Looking Statements."
RISKS OF GROWTH STRATEGY. The Company's plans for growth, both internal
and through acquisition of other temporary staffing service businesses, are
subject to numerous and substantial risks. The Company's continued growth is
dependent upon a number of factors including the availability of working capital
to support such growth; the Company's response to existing and emerging
competition; the Company's ability to maintain sufficient profit margins in the
face of pricing pressures; the Company's efforts to develop and maintain
customer and employee relationships; and the hiring, training and retention of
qualified region, area, district and office managers. Expansion beyond the
geographic areas where offices are presently located will increase demands on
the Company's management. In addition, entry into specialized staffing services
in which the Company has no prior experience may require the Company to adopt
new management techniques. The Company could also experience unexpected delays
or other problems with respect to opening new offices. Any significant delay in
the opening of new offices or the failure of new offices to achieve anticipated
performance levels could adversely impact the Company's operations and expansion
plans. See "Business -- Growth Strategy."
ACQUISITION RISKS. The Company's growth strategy contemplates expansion
through acquisitions of staffing service businesses. The Company must, however,
compete for acquisitions with numerous other staffing companies with
significantly greater financial resources than the Company. With the additional
capital recently raised by many staffing companies, competition for acquisitions
has become increasingly intense. Accordingly, there can be no assurance that the
Company will be able to acquire targeted businesses on terms favorable to the
Company or at all. The acquisition of additional business operations and the
subsequent integration of such acquisitions could result in significant costs
and expenses to the Company, interrupt the Company's operations, place
additional burdens on Company management, systems and controls and divert the
attention of management from the ongoing operations of the Company, particularly
in the fiscal quarters immediately following the consummation of such
transactions. Further, there can be no assurance that any particular acquisition
will be successfully integrated into the Company's operations or will achieve
profitability. In addition, acquisitions by the Company could involve the
incurrence of additional debt, future amortization of goodwill and intangible
assets or the issuance of equity securities which have a dilutive effect, all of
which could adversely affect the Company's operating results. See
"Business -- Growth Strategy."
RISK OF ECONOMIC FLUCTUATIONS. The temporary staffing industry is
affected, to a large extent, by trends in national or local economic conditions.
During periods of slowing economic activity or high unemployment, many companies
reduce their usage of temporary staffing employees before laying off regular
employees. A majority of the Company's revenues are presently derived from its
operations in Utah and Colorado, and substantially all of the Company's revenues
to date have been derived from the Mountain States. Deteriorating economic
conditions in the Mountain States or other western states could materially
adversely affect the Company's business, financial condition and results of
operations. See "Business -- Regional Growth." There can be no assurance that
future economic downturns will not have a material adverse effect on the
Company's performance.
DEPENDENCE ON KEY MANAGEMENT. The Company has been and will continue to be
highly dependent on the experience and skills of its senior management,
particularly its Chairman and Chief Executive Officer and President and Chief
Operating Officer. See "Management." In addition, the Company is highly
dependent on its ability to hire, develop and retain qualified region, area,
district and office managers, as well as on the
6
<PAGE> 8
productivity of its managers. The Company has entered into confidentiality and
limited non-solicitation agreements with its managers; however, there can be no
assurance that such agreements will be enforceable in all jurisdictions or for
the periods set forth therein, or that the Company would not incur significant
expense attempting to enforce such agreements. See "Business -- Operations --
Offices." The loss of key management or the inability of the Company to attract
and retain qualified region, area, district and office management could have a
material adverse effect on the Company's operations.
COMPETITION. The temporary staffing industry is highly competitive and
fragmented, and there are limited barriers to entry in the industry. The Company
competes with national, regional and local full-service companies and
specialized temporary staffing services, some of which have significantly
greater marketing and financial resources than those of the Company. The Company
also competes with other staffing companies in its efforts to recruit and
develop a base of qualified personnel within a geographic market. As the Company
pursues its growth strategy of expansion into geographic markets outside the
Mountain States, its success will depend in part on its ability to gain market
share from competitors and to develop new markets for its services. The Company
expects that the level of competition will remain high, and there can be no
assurance that the Company will not encounter increased competition in the
future. In particular, the Company believes the developing practice of large
national and regional companies to make centralized purchasing decisions for
temporary staffing services on a national or regional basis will increase
competition in certain market segments. Continued or increased competition could
limit the Company's ability to maintain or increase its market share and
maintain its existing margins and could have a material adverse effect on the
Company's business, financial condition or results of operations.
EMPLOYEE-RELATED COSTS. The Company is responsible for employee-related
expenses for its temporary staff employees, including workers' compensation and
unemployment insurance. The Company maintains workers' compensation insurance
for all claims in excess of a loss cap of $200,000, except with respect to
certain divisions which are covered by state insurance funds in states where
private insurance is not permitted. The Company maintains a reserve for the
estimated costs of workers' compensation claims based on the Company's prior
experience and information provided by the Company's insurer. Management
believes that the established reserve for workers' compensation obligations is
adequate, but there can be no assurance that the actual cost of such workers'
compensation obligations will not exceed the established reserve. In addition,
the Company may incur higher workers' compensation costs in the future due to
higher than anticipated losses from known claims, an increase in the number and
severity of new claims, an increase in the cost of workers' compensation
insurance or changes in workers' compensation laws. Unemployment insurance
premiums are set by the states in which the Company's temporary staff employees
render their services, and may be increased by such states at any time. A
significant increase in employee-related costs could have a material adverse
effect on the Company's results. See "Business -- Business Strategy -- Focus on
Risk Management" and "-- Operations -- Risk Management Program."
AVAILABILITY OF QUALIFIED TEMPORARY STAFFING PERSONNEL. The Company
competes with other temporary staffing companies, as well as Company customers
and other employers, for qualified personnel. In addition, a substantial number
of the Company's temporary staffing employees during any given year will
terminate their employment with the Company to accept employment with Company
customers. The Company may in the future encounter difficulty in recruiting
sufficient temporary staffing employees of the caliber the Company is committed
to provide to the Company's customers. In addition, during periods of higher
employment, the Company may incur increased expense associated with recruiting
qualified temporary staffing employees. The Company's inability to attract and
retain a sufficient number of additional qualified temporary staffing employees
to support the Company's projected growth, or the loss of a significant number
of qualified temporary staffing employees, could adversely affect the Company's
operating results and business strategy. See "Business -- Operations --
Temporary Staffing Employee Recruitment."
TEMPORARY STAFFING EMPLOYMENT RISKS. The Company's temporary staffing
employees are typically employed in the workplace of the Company's customers.
Accordingly, the Company is exposed to potential liability to its customers in
respect of any claims arising out of the services performed by the Company's
temporary staffing employees, such as misuse of client information or theft of
client property. In addition, the Company has exposure to potential claims by
its temporary staffing employees of discrimination and
7
<PAGE> 9
harassment in the customer's workplace and other similar claims. As an employer,
the Company is also exposed to claims resulting from the violation of other
employment-related laws and regulations, as well as violations of immigration
laws. Because the Company estimates that it will employ approximately 55,000
temporary staffing employees during 1996, as well as more than 400 regular
employees, the Company's exposure to employment-related claims may be
significantly greater than comparably-sized employers in other industries. The
failure of any Company employee to follow Company policies and guidelines may
result in negative publicity, injunctive relief or the payment by the Company of
monetary damages or fines. Temporary staffing services also are affected by
fluctuations or interruptions in the businesses of their customers.
SEASONAL VARIATIONS IN RESULTS. The Company's business follows the
seasonal trends of its customers' businesses which are, in turn, affected by the
climates in the states in which the customers operate. The Company usually
experiences higher revenues in its third quarter because of increased
construction activity and hiring of temporary staffing employees to replace
student workers who return to school in August and September. Historically, the
Company has experienced lower revenues in the first quarter due to unfavorable
weather conditions and lower overall economic activity. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Results of Operations" and "-- Seasonality."
CONCENTRATION OF OWNERSHIP. Following this offering, Richard D. Reinhold,
the Company's Chairman and Chief Executive Officer, and Sandra E. Reinhold, his
wife, will control the vote of approximately 44.3% of the outstanding shares of
the Common Stock (42.7% if the Underwriters' over-allotment option is exercised
in full). As a result, they will have the ability to influence the election of
all the Company's directors and the outcome of issues submitted to the Company's
shareholders. See "Principal and Selling Shareholders" and "Description of
Capital Stock." Such concentration of ownership could have the effect of making
it more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, control of the Company. Future sales by Mr. and Mrs.
Reinhold of substantial amounts of Common Stock, or the potential for such
sales, could adversely affect the prevailing market price for the Common Stock.
See "Shares Eligible for Future Sale."
LEGAL PROCEEDINGS. The Company is always subject to the risk that it may
be a party to legal proceedings. The temporary staffing industry is subject in
particular to potential liability to customers arising in connection with the
services performed by the Company's temporary staffing employees, and claims of
temporary staffing employees relating to the customers' workplaces. See
"-- Temporary Staffing Employment Risks." In addition, in February 1996, the
Company was served with a wrongful termination lawsuit which seeks compensatory
damages of $4.5 million and punitive damages of $4.0 million. See
"Business -- Legal and Administrative Proceedings." The defense of such
litigation could result in substantial expense for the Company and divert the
attention of management from the operations of the Company, which could have an
adverse effect on the Company's business, financial condition and results of
operations. Moreover, there can be no assurance that the Company will prevail in
such litigation.
DISCRETION IN USE OF PROCEEDS. Approximately $6.0 million of the estimated
net proceeds to the Company from the sale of Common Stock offered hereby has
been allocated to working capital and general corporate purposes, including
potential acquisitions of temporary staffing services businesses. Accordingly,
management of the Company will have discretion in allocating a substantial
portion of the net proceeds from the sale of Common Stock. See "Use of
Proceeds."
HEALTH CARE REFORM. The Company's regulatory compliance costs could
increase as a result of certain proposed health care reforms. Due to the wide
variety of national and state proposals which have been proposed from time to
time, their impact cannot be predicted. Although the Company currently provides
health care coverage to its regular employees and gives its temporary staffing
employees the option to purchase coverage under plans provided through NATSS,
certain proposals, if enacted, would require the Company to provide health care
benefits to its temporary staffing employees and pay a major portion of the
cost, thereby increasing the Company's cost of services. There can be no
assurance that the Company would be able to increase rates charged to its
customers in a timely manner and sufficient amount to cover increased costs
related to health insurance benefits that may be extended to temporary staffing
employees.
8
<PAGE> 10
SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of Common
Stock or the perception that such sales could occur, could adversely affect
prevailing market prices for the Common Stock. Upon completion of this offering,
the Company will have approximately 8,706,020 shares of Common Stock outstanding
(9,036,020 shares if the Underwriters' over-allotment option is exercised in
full), of which approximately 4,838,770 shares (5,168,770 shares if the
Underwriters' over-allotment option is exercised in full) will be eligible under
applicable securities laws for immediate sale in the public market without
restriction, except for any shares purchased by an "affiliate" of the Company,
as that term is defined under the rules and regulations of the Securities Act of
1933, as amended (the "Securities Act"), which will be subject to the resale
limitations of Rule 144 under the Securities Act. The remaining approximately
3,867,250 outstanding shares will be "restricted securities" as that term is
defined under Rule 144. The holders of all such restricted shares have agreed,
subject to certain exceptions, not to offer, sell, contract to sell, grant any
option or other right for the sale of, or otherwise dispose of any shares of
Common Stock or any securities, indebtedness or other rights exercisable for or
convertible or exchangeable into Common Stock for a period of 180 days from the
date of this Prospectus without the written consent of Unterberg Harris, on
behalf of the Underwriters. Upon the expiration of the 180-day period, all of
such restricted shares may be eligible for sale, subject to certain
restrictions, in the open market pursuant to Rule 144. See "Shares Eligible for
Future Sale" and "Underwriting."
LIMITED PUBLIC TRADING HISTORY; POSSIBLE VOLATILITY OF STOCK PRICE. Since
June 1995, the Common Stock has been quoted on the Nasdaq National Market. The
market price of the Common Stock has risen substantially since the Company's
initial public offering in July 1995. Prior to that time, there was no public
market for the Common Stock. The trading price of the Common Stock could
fluctuate widely in response to variations in quarterly operating results,
announcements by the Company or its competitors, industry trends, legislative or
regulatory changes, general economic conditions or other events or factors.
ANTI-TAKEOVER CONSIDERATIONS. The Company's Amended and Restated Articles
of Incorporation and Amended and Restated Bylaws and the Utah Revised Business
Corporation Act contain certain provisions that may have the effect of deterring
a non-negotiated merger or other business combination. The Board of Directors of
the Company will have the authority, without further action by the Company's
shareholders, to fix the rights and preferences, and issue shares, of the
Company's Preferred Stock. These provisions, and other provisions of the
Company's Amended and Restated Articles of Incorporation, may have the effect of
deterring hostile takeovers or delaying or preventing changes in control or
management of the Company, including transactions in which shareholders might
otherwise receive a premium for their shares over the then-current market
prices. These provisions may limit the ability of shareholders to approve
transactions that they may deem to be in their best interests. See "Description
of Capital Stock." In addition, the ownership of 44.3% of the Common Stock
(42.7% if the Underwriters' over-allotment option is exercised in full) by the
Company's Chairman and Chief Executive Officer and his wife could prevent or
delay changes in control or management of the Company. See "-- Concentration of
Ownership."
9
<PAGE> 11
THE COMPANY
SOS was organized in Utah in 1973, initially doing business as SOS
Employment Services and subsequently as SOS Temporary Services. One of its
founders, Richard D. Reinhold, continues as the Company's Chairman and Chief
Executive Officer. The Company's corporate name was changed in fiscal 1995 to
SOS Staffing Services, Inc., reflecting the diversity of temporary staffing
services the Company presently offers.
Temporary clerical and light industrial staffing services are offered
primarily through the Company's SOS Staffing Services offices. The Company also
does business under several service-specific names in various markets where
market size permits diversification, including Skill Staff (construction and
manufacturing services), Industrial Specialists (trucking, labor and warehousing
services), Account Staff (accounting and financial services), SOS Technical
Services (engineering, programming, design and other technical services), The
Performance Group, Impact Staffing and Wolfe & Associates (information
technology consulting and staffing services), ServCom Management Services
(professional employer services), PAMS (medical administrative support services)
and CGS Personnel, Inc. (mining, mineral exploration and environmental
professional services).
In July 1995, the Company completed its initial public offering of
2,645,000 million shares of Common Stock, realizing net proceeds of $12.6
million (the "IPO"). A majority of the proceeds of the IPO have been utilized by
the Company for acquisitions of temporary staffing businesses in the Mountain
States and other western states and funding the initial working capital
requirements of such acquired businesses.
Since the IPO, the Company has completed the acquisition of 18 staffing
companies. These acquisitions have enabled the Company to expand its geographic
base, as well as the breadth of services it offers to its customers. See
"Business -- Growth Strategy" and "-- Acquisitions."
Unless the context otherwise indicates, all references to SOS or the
Company in this Prospectus include the offices or businesses operating under the
names set forth above. The Company's principal executive offices are located at
1415 South Main Street, Salt Lake City, Utah 84115 and its telephone number is
(801) 484-4400.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934 (the "Exchange Act"). All statements, other than statements of
historical fact, included in this Prospectus, including, without limitation,
statements under "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business" regarding the
Company's financial position, business strategy and plans and objectives of
management of the Company for future operations, are forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from the Company's expectations are
disclosed under "Risk Factors" and elsewhere in this Prospectus, including,
without limitation, in conjunction with the forward-looking statements included
in this Prospectus. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by this section.
10
<PAGE> 12
USE OF PROCEEDS
The proceeds to the Company from the sale of the 2,000,000 shares of Common
Stock offered by the Company hereby (at an assumed offering price of $10.125 per
share) are estimated to be $18.7 million, net of estimated commissions and
expenses. If the Underwriters' over-allotment option is exercised in full, the
total proceeds to the Company from the sale of 2,330,000 shares, net of
estimated commissions and expenses will be $21.9 million. The Company will not
receive any proceeds from the sale of shares of Common Stock by the Selling
Shareholders.
Approximately $11.0 million of the net proceeds will be used to repay
long-term debt incurred by the Company to finance its growth strategy. The
Company's long-term debt bears interest at a rate equal to LIBOR plus 1.75%
(currently approximately 7.75%). Approximately $0.5 million of the net proceeds
will be used to repay borrowings expected to be outstanding on the Company's
line of credit on the closing date of this offering. The line of credit bears
interest at a rate of 8.25% per annum, and has been used to fund the Company's
working capital needs and a portion of the cost of the Company's recent
acquisitions. In addition, the net proceeds will be used to pay earnouts
associated with the Company's recent acquisitions, which are estimated to be
approximately $1.0 million over the next six to nine months.
The Company intends to use a substantial portion of the balance of the net
proceeds for the acquisition of temporary staffing businesses, principally in
the western United States. To the extent the proceeds of this offering are not
utilized for acquisitions, they will be added to working capital and used to
support growth in the Company's operations, including establishing additional
offices.
Pending use of the net proceeds of this offering for the above purposes,
the Company intends to invest such funds in investment grade, short-term,
interest bearing securities.
DIVIDEND POLICY
Other than a distribution of accounts receivable to its S-corporation
shareholders prior to the Company's termination of its S-corporation election
effective June 26, 1995, the Company has never declared or paid any dividends or
distributions on its capital stock and does not anticipate paying any such
dividends in the foreseeable future. In addition, the Company's current line of
credit prohibits the payment of dividends without the prior approval of the
lender. The Company currently intends to retain any future earnings to provide
funds for the further development and growth of its business, including
potential acquisitions of temporary staffing businesses. The ability of the
Company to pay dividends in the future will be dependent upon earnings levels,
liquidity, capital needs, applicable covenants in the Company's loan agreements,
general business conditions and other factors considered relevant by the
Company's Board of Directors.
11
<PAGE> 13
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 29, 1996, pro forma to give effect to the acquisition of Wolfe, as if
it were consummated on September 29, 1996, and as adjusted to give effect to the
sale of the shares of Common Stock offered by the Company hereby (at an assumed
offering price of $10.125 per share) and the application of the estimated net
proceeds therefrom as described under "Use of Proceeds." See "Unaudited Pro
Forma Condensed Consolidated Financial Data." The table should be read in
conjunction with the historical financial statements of the Company and the
notes thereto, and the other financial information appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 29, 1996
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
<S> <C> <C> <C>
Short-term debt............................................ $ 1,325 $ 1,369 $ --
------- ------- -------
Long-term debt............................................. 6,500 10,500 --
------- ------- -------
Shareholders' Equity:
Common stock, par value $.01 per share, 20,000,000 shares
authorized; 6,704,760 shares issued and outstanding
(actual and Pro Forma); 8,704,760 shares issued and
outstanding (Pro Forma As Adjusted)................... 67 67 87
Additional paid-capital.................................. 13,130 13,130 31,846
Retained earnings........................................ 4,449 4,449 4,449
------- ------- -------
Total shareholders' equity....................... 17,646 17,646 36,382
------- ------- -------
Total capitalization............................. $25,471 $ 29,515 $36,382
======= ======= =======
</TABLE>
PRICE RANGE OF COMMON STOCK
The Common Stock has been quoted on the Nasdaq National Market under the
symbol "SOSS" since the IPO in July 1995. The following table sets forth, for
the periods indicated, the high and low closing sale prices for the Common
Stock, as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
Fiscal 1995:
Quarter ended October 1, 1995................................... $ 8.375 $6.625
Quarter ended December 31, 1995................................. 9.750 7.625
Fiscal 1996:
Quarter ended March 31, 1996.................................... 13.000 8.375
Quarter ended June 30, 1996..................................... 14.625 11.000
Quarter ended September 29, 1996................................ 12.750 9.000
Quarter ending December 29, 1996 (through December 11, 1996).... 12.875 9.875
</TABLE>
The last sale price of the Common Stock, as reported by the Nasdaq National
Market, on December 11, 1996 was $10.125 per share. As of December 11, 1996, the
number of shares of Common Stock outstanding was 6,706,020 shares, held by
approximately 56 stockholders of record, which does not include shares held in
securities position listings.
12
<PAGE> 14
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed consolidated financial data is
based upon the historical financial statements of the Company included elsewhere
in this Prospectus, adjusted to give effect to certain material acquisitions
completed by the Company in 1995 and 1996.
The unaudited pro forma condensed consolidated balance sheet as of
September 29, 1996 reflects the effect of the Company's acquisition of Wolfe as
if it had occurred on such date.
The unaudited pro forma condensed consolidated income statements for the
fiscal year ended December 31, 1995 and for the 39 weeks ended September 29,
1996 reflect the effect of the acquisitions as if they had occurred at the
beginning of fiscal year 1995.
The pro forma adjustments are based upon available information and certain
assumptions that management believes are reasonable. The unaudited pro forma
condensed consolidated statements of income are not necessarily indicative of
the future results of operations of the Company, its financial position or the
results of operations which may have occurred had these transactions occurred at
the beginning of fiscal year 1995.
The unaudited pro forma condensed consolidated statements of income should
be read in conjunction with the consolidated financial statements of the Company
and related notes thereto, and Management's Discussion and Analysis of Financial
Condition and Results of Operations, included elsewhere in this Prospectus.
13
<PAGE> 15
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 29, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
------------------ PRO FORMA
SOS WOLFE ADJUSTMENTS PRO FORMA
------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Current Assets:
Cash............................................ $ 493 $ 35 $ 528
Accounts receivable, net........................ 17,270 535 17,805
Current portion of workers' compensation
deposit...................................... 623 -- 623
Prepaid expenses and other...................... 388 4 392
Deferred tax asset.............................. 184 -- 184
Amounts due from related parties................ 409 -- 409
------- ------ ---------
Total Current Assets.................... 19,367 574 19,941
Property and Equipment, Net....................... 1,874 469 $ (315)(b) 2,028
Other Assets...................................... 10,790 88 3,941 (a) 14,819
------- ------ ----------- ---------
Total Assets............................ $32,031 $1,131 $ 3,626 $36,788
======= ====== ========= ========
Current Liabilities:
Line of credit.................................. $ 1,325 $ -- $ 1,325
Current portion of long-term debt............... -- 112 $ (68)(b) 44
Accounts payable................................ 131 -- 131
Accrued payroll costs........................... 2,457 366 2,823
Current portion of workers' compensation
reserve...................................... 1,102 -- 1,102
Accrued liabilities............................. 1,999 127 2,126
Income taxes payable............................ 537 162 699
------- ------ ----------- ---------
Total Current Liabilities............... 7,551 767 (68) 8,250
Long-term Liabilities............................. 6,834 305 4,000 (a) 10,892
(247)(b)
Shareholders' Equity.............................. 17,646 59 (59)(a) 17,646
------- ------ ----------- ---------
Total Liabilities and Equity............ $32,031 $1,131 $ 3,626 $36,788
======= ====== ========= ========
</TABLE>
14
<PAGE> 16
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------------------------
PERFORMANCE SELECTED PRO FORMA
SOS PAMS GROUP WOLFE OTHER ADJUSTMENTS PRO FORMA
------- ------ ----------- ------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Service revenues............................. $87,533 $5,327 $ 2,735 $3,252 $8,826 $107,673
Direct costs of services..................... 69,353 3,774 1,661 1,916 7,131 83,835
------- ------ ------ ------ ------ ------
Gross profit................................. 18,180 1,553 1,074 1,336 1,695 23,838
Selling, general and administrative
expenses................................... 13,859 1,262 987 1,257 1,415 $(618)(c) 18,757
------- ------ ------ ------ ------ ------
346(d)
249(e)
Income from operations....................... 4,321 291 87 79 280 23 5,081
Other income (expense), net.................. 85 (60 ) 42 (1) 4 (603)(f) (533 )
------- ------ ------ ------ ------ ------ ------
Income before provision for income taxes..... 4,406 231 129 78 284 (580) 4,548
Provision (benefit) for income taxes......... 1,729 -- (33) 35 6 128(g) 1,865
------- ------ ------ ------ ------ ------ ------
Net income................................... $ 2,677 $ 231 $ 162 $ 43 $ 278 $(708) $ 2,683
======= ====== ====== ====== ====== ====== ======
Net income per common share.................. $ 0.43 $ 0.40
======= ======
Weighted average common shares............... 6,229 485(h) 6,714
======= ====== ======
</TABLE>
FOR THE 39 WEEKS ENDED SEPTEMBER 29, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------------------
PERFORMANCE SELECTED PRO FORMA
SOS GROUP WOLFE OTHER ADJUSTMENTS PRO FORMA
------- ----------- ------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Service revenues........................... $92,834 $ 1,425 $2,770 $4,877 $101,906
Direct costs of services................... 73,735 899 1,551 4,010 80,195
------- ------ ------ ------ --------
Gross profit............................... 19,099 526 1,219 867 21,711
Selling, general and administrative
expenses................................. 14,284 321 1,031 651 $ (43)(c) 16,529
------- ------ ------ ------ --------
170(d)
115(e)
Income from operations..................... 4,815 205 188 216 (242) 5,182
Other income (expense), net................ (61) 12 (10) -- (418)(f) (477 )
------- ------ ------ ------ ----- --------
Income before provision for income taxes... 4,754 217 178 216 (660) 4,705
Provision (benefit) for income taxes....... 1,806 29 73 -- (68)(g) 1,840
------- ------ ------ ------ ----- --------
Net income................................. $ 2,948 $ 188 $ 105 $ 216 $ (592) $ 2,865
======= ====== ====== ====== ===== ========
Net income per common share................ $ 0.44 $ 0.42
======= ========
Weighted average common shares............. 6,760 6,760
======= ========
</TABLE>
15
<PAGE> 17
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
(1) BASIS OF PRESENTATION
The unaudited pro forma condensed consolidated financial statements are
based on adjustments to the historical consolidated financial statements of the
Company to give effect to the acquisitions described in Note 2. The unaudited
pro forma condensed consolidated balance sheet assumes the acquisition of Wolfe,
made after September 29, 1996, was consummated on that date. The unaudited pro
forma condensed consolidated statements of income assume all material
acquisitions described in Note 2 were consummated as of the beginning of the
1995 fiscal year. The unaudited pro forma condensed consolidated statements of
income are not necessarily indicative of results that would have occurred had
the acquisitions been consummated as of the beginning of the periods presented
or that might be attained in the future. The pro forma financial statements
should be read in conjunction with the historical consolidated financial
statements of the Company, the historical financial statements of the
significant acquired companies and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
(2) ACQUISITIONS
All acquisitions have been accounted for as purchases and, accordingly, the
results of operations of the companies identified below have been included in
the consolidated results of operations of SOS from the date of acquisition. The
pro forma information presented does not include the effect of the contingent
earnout payments which the Company records as additional goodwill when earned or
paid.
PAMS -- In December 1995, the Company acquired certain assets and
operations of PAMS, with operations in Phoenix and Tucson, Arizona, for
approximately $1.9 million and contingent future earnouts up to a maximum of
$1.7 million.
The Performance Group -- In July 1996, the Company purchased certain assets
and substantially all of the business operations of The Performance Group for
approximately $3.6 million and contingent future earnouts up to a maximum of
$1.8 million.
Wolfe. -- In November 1996, the Company purchased the stock of Wolfe of
Albuquerque, New Mexico for approximately $4.0 million and future contingent
earnouts not to exceed $6.0 million.
Other Selected Acquisitions -- Consists of several additional material
asset acquisitions having an aggregate purchase price of approximately $2.3
million and aggregate contingent future earnouts up to a maximum of
approximately $2.0 million.
(3) PRO FORMA ADJUSTMENTS
The following pro forma adjustments have been made to the historical
condensed consolidated balance sheet of SOS to give effect to the acquisition of
Wolfe described in Note 2 as if it had occurred as of September 29, 1996 and to
the historical statements of income as if the acquisitions described in Note 2
were consummated as of the beginning of the periods presented:
(a) To reflect the acquisition of Wolfe and the long-term borrowings
under the Company's credit agreement to fund the acquisition.
(b) To eliminate assets not acquired and liabilities not assumed by
SOS in connection with the Wolfe acquisition.
(c) To reduce expenses for the difference between compensation of
certain key managers prior to consummation of the acquisitions and their
compensation following the acquisitions as provided in the respective
employment agreements with SOS.
16
<PAGE> 18
(d) To reflect amortization of goodwill which is being amortized on a
straight-line basis over 30 years.
(e) To reflect amortization of other intangible assets (principally
non-compete agreements) which are being amortized on a straight-line basis
ranging from 1 to 6 years.
(f) To reflect interest expense on the borrowings used to fund certain
acquisitions and the elimination of historical interest expense related to
debt not assumed by SOS.
(g) To reflect the change in income taxes related to pro forma
adjustments, and income taxes on the acquired companies that were S
corporations prior to the acquisition.
(h) To reflect the additional shares of Common Stock that would have
been outstanding as a result of the Company's IPO which closed in July
1995, the proceeds from which were utilized to fund acquisitions.
17
<PAGE> 19
SELECTED FINANCIAL AND OPERATING DATA
The following table sets forth selected financial and operating data of the
Company. The selected statement of income data for the fiscal years ended 1992,
1993, 1994 and 1995 and the selected balance sheet data as of the fiscal years
ended 1993, 1994 and 1995 are derived from the financial statements of the
Company which have been audited by Arthur Andersen LLP, independent public
accountants. The selected financial data for and as of the fiscal year ended
1991 are derived from financial statements of the Company which were audited by
deWaal, Keeler & Company, P.C., certified public accountants. The selected
financial data for and as of the 39 weeks ended October 1, 1995 and September
29, 1996 is derived from the unaudited financial statements of the Company
which, in the opinion of management, contain all adjustments, (consisting of
normal recurring adjustments), necessary for a fair presentation of the
Company's financial position and results of operations. The data should be read
in conjunction with the financial statements and related notes included
elsewhere herein.
<TABLE>
<CAPTION>
39 WEEKS
ENDED
FISCAL YEAR (52/53 WEEKS) ENDED ----------
-------------------------------------------------------------------- OCTOBER 1,
1991(1) 1992(1) 1993(1) 1994(1) 1995 1995(1)
------- ------- ------- ------- -------------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
PRO
ACTUAL(1) FORMA(2) ACTUAL
------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Service revenues.......................... $29,430 $42,034 $49,433 $63,740 $87,533 $107,673 $ 63,334
Direct costs of services.................. 24,637 35,578 41,084 51,322 69,353 83,835 50,139
------- ------- ------- ------- ------- -------- -------
Gross profit.............................. 4,793 6,456 8,349 12,418 18,180 23,838 13,195
Selling general and administrative
expenses................................ 4,468 5,637 7,316 10,046 13,859 18,757 9,824
------- ------- ------- ------- ------- -------- -------
Operating income.......................... 325 819 1,033 2,372 4,321 5,081 3,371
Other income (expense), net............... 86 48 80 55 85 (533) 30
------- ------- ------- ------- ------- -------- -------
Income before provision for income
taxes................................... 411 867 1,113 2,427 4,406 4,548 3,401
Provision for income taxes................ -- -- -- -- 1,729 1,865 1,309
------- ------- ------- ------- ------- -------- -------
Net income................................ $ 411 $ 867 $ 1,113 $ 2,427 $ 2,677 $ 2,683 $ 2,092
======= ======= ======= ======= ======= ======== =======
Net income per common share............... $ 0.43 $ 0.40 $ 0.35
======= ======== =======
Weighted average common shares
outstanding............................. 6,229(3) 6,714 6,061
======= ======== =======
OPERATING DATA:
Offices at period end................... 11 17 22 34 48 44
Temporary personnel utilized............ 18,562 22,689 27,234 32,479 41,854 32,526
Hours billed (in thousands)............. 3,136 4,182 5,021 6,326 7,828 5,684
<CAPTION>
SEPTEMBER 29,
1996
-------------------------------
<S> <C> <C>
PRO
ACTUAL FORMA(2)
------------
<S> <C> <C>
STATEMENT OF INCOME DATA:
Service revenues.......................... $ 92,834 $101,906
Direct costs of services.................. 73,735 80,195
------- --------
Gross profit.............................. 19,099 21,711
Selling general and administrative
expenses................................ 14,284 16,529
------- --------
Operating income.......................... 4,815 5,182
Other income (expense), net............... (61) (477)
------- --------
Income before provision for income
taxes................................... 4,754 4,705
Provision for income taxes................ 1,806 1,840
------- --------
Net income................................ $ 2,948 $ 2,865
======= ========
Net income per common share............... $ 0.44 $ 0.42
======= ========
Weighted average common shares
outstanding............................. 6,760 6,760
======= ========
OPERATING DATA:
Offices at period end................... 73
Temporary personnel utilized............ 42,438
Hours billed (in thousands)............. 7,815
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER
29, 1996
FISCAL ----------
-------------------------------------------------------
1991 1992 1993 1994 1995 ACTUAL
------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................... $ 2,682 $ 3,400 $ 4,330 $ 5,057 $ 9,645 $ 11,816
Total assets............................ 4,796 6,991 7,458 11,597 19,327 32,031
Total debt.............................. 1,478 1,892 806 2,780 1,450 7,825
Shareholders' equity.................... 3,191 4,058 5,171 7,098 14,668 17,646
<CAPTION>
PRO FORMA AS
PRO FORMA(4) ADJUSTED(5)
------------ --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital......................... $ 11,691 $ 19,927
Total assets............................ 36,788 43,655
Total debt.............................. 11,869 --
Shareholders' equity.................... 17,646 36,382
</TABLE>
- ---------------
(1) The Company completed the IPO in July 1995 and in connection therewith
terminated its S Corporation election. Data for fiscal 1995 and the 39 weeks
ended October 1, 1995 has been adjusted to reflect a pro forma provision for
income taxes. In addition, prior to the IPO, the Company compensated its CEO
at levels sufficient to pay income taxes associated with its S corporation
status. Effective January 1995, the Company entered into a three-year
employment contract with the CEO which provides for annual compensation of
$195,000. Total CEO compensation for fiscal years 1991 -- 1994 was
approximately $273,000, $340,000, $466,000 and $982,000, respectively.
(2) Gives effect to the Company's acquisition of certain material businesses, as
if such acquisitions were consummated as of the beginning of fiscal 1995.
See "Unaudited Pro Forma Condensed Consolidated Financial Data" and
"Business -- Acquisitions."
(3) Prior to the completion of the IPO, the Company distributed approximately
$8.0 million of its accounts receivable to its S corporation shareholders.
The weighted average common shares outstanding reflects the issuance of
1,230,769 shares at the initial public offering price of $6.50 per share, as
if the distribution had occurred at the beginning of fiscal 1995.
(4) Adjusted to give effect to the acquisition of Wolfe as if it were
consummated as of September 29, 1996.
(5) Adjusted to reflect the sale by the Company of 2,000,000 shares of Common
Stock offered hereby at an assumed offering price of $10.125 per share and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this Prospectus. The
Company's fiscal year consists of a 52- or 53-week period ending on the Sunday
closest to December 31.
GENERAL
The Company provides a full range of staffing services through a network of
offices in eleven states. Since the IPO in July 1995, the network grew from 42
to 82 offices. The Company has expanded its office network by acquiring existing
staffing service companies and opening new offices in the Mountain States, as
well as other western states. Generally, the Company has entered key
metropolitan areas by initially acquiring or opening a central or "hub" office,
and subsequently developing additional offices in smaller surrounding markets.
As offices reach certain threshholds, the Company divides them into one or more
additional offices resulting in greater efficiency, profitability and market
penetration.
Since the IPO, the Company has acquired 18 staffing companies, representing
24 offices, and has executed an agreement to acquire an additional office. The
purchase prices of these acquisitions have ranged from $30,000 to $4,000,000,
plus contingent earnouts. The Company has generally negotiated an earnout
component of the purchase price paid for acquisitions, which the Company
believes more accurately reflects the appropriate value for the acquired
business, provides a significant incentive for sellers who remain in a
management capacity with the acquired company, aligns the interests of the
Company and the sellers and enhances the likelihood of successfully integrating
the acquired company into SOS.
Since the IPO, the Company also opened 16 new offices through internal
expansion. Capital costs of new office openings, excluding working capital
requirements, have typically ranged from $10,000 to $25,000. To date, most of
the Company's internally developed offices have achieved profitability within
six to 12 months, while offices resulting from the division of an existing
larger office are usually profitable from inception.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to service revenues of selected items in the Company's income
statement:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 39 WEEKS ENDED
--------------------------------- ---------------------------------------
OCTOBER 1,
1993(1) 1994(1) 1995 1995 SEPTEMBER 29, 1996
----- ----- ----------------- ----------- -------------------------
ACTUAL PRO FORMA ACTUAL ACTUAL PRO FORMA
----- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Service revenues............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Direct cost of services........ 83.1 80.5 79.3 77.9 79.2 79.4 78.7
----- ----- ----- ----- ----- ----- -----
Gross profit................... 16.9 19.5 20.7 22.1 20.8 20.6 21.3
Selling, general and
administrative expenses...... 14.3 14.5 15.8 17.4 15.5 15.4 16.2
----- ----- ----- ----- ----- ----- -----
Operating income............... 2.6% 5.0% 4.9% 4.7% 5.3% 5.2% 5.1%
===== ===== ===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) Prior to 1995, the Company compensated its CEO at levels sufficient to pay
income taxes associated with S corporation status. Effective January 1995,
the Company entered into an employment contract with the CEO which provides
for annual compensation of $195,000. Fiscal 1993 and 1994 selling, general
and administrative expenses have been adjusted to reflect CEO compensation
in such amount, resulting in reductions of $271,000 and $787,000,
respectively.
19
<PAGE> 21
THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 1996 COMPARED TO THIRTY-NINE WEEKS ENDED
OCTOBER 1, 1995
SERVICE REVENUES. Substantially all of the Company's service revenues are
based on the time worked by its temporary staffing employees on customer
assignments. Service revenues are recognized as income at the time staffing
services are provided. Service revenues for the 39 weeks ended September 29,
1996 were $92.8 million, an increase of $29.5 million, or 47%, from $63.3
million for the same period of 1995. Approximately $15.1 million of the increase
was attributable to offices acquired in 1995 and 1996. Service revenues
(excluding acquisitions) grew by $14.4 million, or approximately 23%, during the
period, consisting of approximately $12.8 million attributable to growth from
existing offices and approximately $1.6 million attributable to opening new
offices. The increase in service revenues attributable to comparable offices was
consistent with increases in hours billed.
GROSS PROFIT. The Company defines gross profit as service revenues less
the cost of providing services, which includes wages of temporary staffing and
consulting employees, employer payroll taxes (FICA, unemployment and other
general payroll costs) and workers' compensation costs. Gross profit for the 39
weeks ended September 29, 1996 was $19.1 million, an increase of $5.9 million,
or 45%, from $13.2 million for the same period of 1995. Gross profit margin for
the 39 weeks ended September 29, 1996 was 20.6%, compared to 20.8% for the same
period of 1995, reflecting, in part, upward pressure on wages due to lower
unemployment rates in the Company's service areas. Gross profit margin varies
depending on the type of services offered. Temporary staffing services business
typically generates higher margins while payrolling and professional employer
services business typically generates lower margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses include compensation of regular employees, rent,
recruitment of temporary staffing employees, costs associated with opening new
offices, depreciation and amortization and advertising. Selling, general and
administrative expenses have generally increased as service revenues and the
number of offices have increased. Selling, general and administrative expenses
for the 39 weeks ended September 29, 1996 amounted to $14.3 million, or 15.4% of
service revenues, compared to $9.8 million, or 15.5% of service revenues, for
the same period of 1995.
OPERATING INCOME. Operating income for the 39 weeks ended September 29,
1996 was $4.8 million, an increase of $1.4 million, or 43%, from $3.4 million
for the same period of 1995. Operating margin for the 39 weeks ended September
29, 1996 was 5.2%, compared to 5.3% for the same period of 1995.
INCOME TAXES. The pro forma provision for income taxes for the 39 weeks
ended October 1, 1995 assumes the Company had been taxed as a C corporation
prior to its conversion from an S corporation, which occurred on June 26, 1995.
FISCAL 1995 COMPARED TO FISCAL 1994
SERVICE REVENUES. Service revenues for fiscal 1995 were $87.5 million, an
increase of $23.8 million, or 37.3%, from $63.7 million in 1994. Approximately
$14.2 million of the increase was attributable to acquisitions, approximately
$6.6 million was attributable to comparable office sales and approximately $3.0
million was attributable to opening new offices. The increase in service
revenues attributable to comparable offices was consistent with increases in
hours billed, coupled with a better mix of business, resulting in a higher
average bill rate.
GROSS PROFIT. Gross profit for fiscal 1995 was $18.2 million, an increase
of $5.8 million, or 46%, from $12.4 million in fiscal 1994. Gross profit margin
for fiscal 1995 was 20.7% compared to 19.5% in fiscal 1994. The improvement in
gross profit margin was due primarily to the Company's focus on higher margin
business in each segment where it provides staffing services and its emphasis on
a higher margin mix of business. Gross margins were also positively affected by
continued emphasis on the use of flexible pricing strategies and workers'
compensation loss control.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for fiscal 1995 amounted to $13.9 million, or 15.8% of
service revenues, compared to $9.3 million (adjusted for CEO
20
<PAGE> 22
compensation), or 14.5% of service revenues, for fiscal 1994. The increase in
selling, general and administrative expenses as a percentage of service revenues
was attributable largely to the addition of personnel at the Company's
headquarters and regional office levels to support the Company's growth,
including planned future growth. Other increases in selling, general and
administrative expenses were attributable to capital costs of opening new
offices and integrating newly-acquired offices and costs related to becoming a
public company.
OPERATING INCOME. Operating income for fiscal 1995 was $4.3 million, an
increase of $1.1 million, or 37%, from $3.2 million (adjusted for CEO
compensation) in fiscal 1994. Operating margin was 4.9% in fiscal 1995 and 5.0%
in fiscal 1994, as the increase in gross margin was largely offset by increases
in selling, general and administrative expenses.
FISCAL 1994 COMPARED TO FISCAL 1993
SERVICE REVENUES. Service revenues for fiscal 1994 were $63.7 million, an
increase of $14.3 million, or 28.9%, from $49.4 million in fiscal 1993.
Approximately $9.6 million of the increase was attributable to comparable office
sales, approximately $3.8 million was attributable to acquisitions and
approximately $0.9 million was attributable to new offices. The increase in
service revenues attributable to comparable offices was consistent with
increases in hours billed. The remaining increases were due to new offices
opened in new markets or new offices acquired.
GROSS PROFIT. Gross profit for fiscal 1994 was $12.4 million, an increase
of $4.1 million, or 48.7%, from $8.3 million in fiscal 1993. Gross profit margin
for fiscal 1994 was 19.5%, up from 16.9% in fiscal 1993. The improvement in
gross profit margins was attributable to implementation of workers' compensation
loss control programs and the training of the Company's managers in flexible
pricing during fiscal 1993. Gross margins were also impacted by the Company's
focus on higher margin business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses (adjusted for CEO compensation) for fiscal 1994 amounted
to $9.3 million, or 14.5% of service revenues, compared to $7.0 million, or
14.3% of service revenues, in 1993. The increase in selling, general and
administrative expenses as a percentage of service revenues was attributable
principally to personnel additions required to support the new programs that
increased gross profit margins.
OPERATING INCOME. Operating income adjusted for CEO compensation was $3.2
million in fiscal 1994, an increase of $1.9 million or 146% from $1.3 million in
fiscal 1993. Operating margin was 5.0% in fiscal 1994, compared to 2.6% in
fiscal 1993. The increase in the operating margin reflects the substantial
increase in the Company's gross margin, partially offset by increases in
selling, general and administrative expenses.
PRO FORMA OPERATING RESULTS COMPARED TO ACTUAL RESULTS FOR THE 39 WEEKS ENDED
SEPTEMBER 29, 1996
The following pro forma financial information is presented to provide a
comparison of actual operating results to pro forma operating results due to
certain of the Company's material acquisitions since the IPO in July 1995. See
"Unaudited Pro Forma Condensed Consolidated Financial Data."
SERVICE REVENUES. Pro forma service revenues from acquisitions added $9.1
million to actual service revenues. Total pro forma service revenues amounted to
$101.9 million.
GROSS PROFIT. Pro forma gross profit increased $2.6 million over actual
results to a total of $21.7 million. Pro forma gross profit as a percentage of
service revenues amounted to 21.3%, compared to 20.6% from actual results for
the same period. The difference in gross profit margin is largely attributable
to a higher mix of information technology business in the pro forma results
which has a higher gross profit margin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Pro forma selling, general
and administrative expenses were $2.2 million over actual results, reflecting
the additional expenses of the acquired companies as well as additional
amortization of intangible assets associated with the acquisition of those same
companies. As a percentage of service revenues, pro forma selling, general and
administrative expenses amounted to 16.2%, compared to actual operating results
of 15.4%. The increase in selling, general and administrative expenses as
21
<PAGE> 23
a percentage of service revenues is due primarily to a higher mix of business
from information technology which resulted in additional operating expenses and
intangible asset amortization.
OPERATING INCOME. Pro forma operating income amounted to $5.2 million, an
increase of $0.4 million. Pro forma operating income as a percentage of service
revenues amounted to 5.1%, compared to the actual percentage of 5.2%.
PRO FORMA OPERATING RESULTS COMPARED TO ACTUAL RESULTS FOR FISCAL 1995
SERVICE REVENUES. The pro forma impact of certain material acquisitions
was $20.2 million. If these acquisitions had occurred at the beginning of 1995,
service revenues would have amounted to $107.7 million, compared to actual
service revenues of $87.5 million.
GROSS PROFIT. Pro forma gross profit amounted to $23.8 million, an
increase of $5.6 million over the actual results reported. As a percentage of
services, gross profit amounted to 22.1%, compared to the actual percentage of
20.7%. The increase in gross profit as a percentage of service revenues is
attributable to the significant increase in the information technology business
represented by the acquisitions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The acquisitions added $4.9
million in selling, general and administrative expenses, as compared to the
actual results. As a percentage of service revenues, selling, general and
administrative expenses amounted to 15.8%, compared to pro forma results of
17.4%. The increase in selling, general and administrative expenses as a
percentage of service revenues was due primarily to the acquisition of
information technology companies which increased operating expenses as well as
intangible asset amortization.
OPERATING INCOME. Pro forma operating income amounted to $5.1 million, an
increase of $0.8 million over the actual operating results of $4.3 million. Pro
forma operating income as a percentage of service revenues was 4.7% compared to
the 4.9% actually reported. The decrease in operating income as a percentage of
service revenues is due to increased selling, general and administrative
expenses.
QUARTERLY RESULTS OF OPERATIONS
The following table presents certain unaudited quarterly financial and
other operating data for each of the four quarters in fiscal 1995 and the first
three quarters of fiscal 1996. This information is derived from unaudited
financial statements of the Company that include, in the opinion of the Company,
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation when read in conjunction with the consolidated financial
statements of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Q1 Q2 Q3 Q4 Q1 Q2 Q3
1995 1995 1995 1995 1996 1996 1996
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Service revenues................ $19,573 $20,510 $23,251 $24,199 $25,034 $29,954 $37,846
Direct cost of services......... 15,550 16,246 18,343 19,214 19,793 23,851 30,091
------- ------- ------- ------- ------- ------- -------
Gross profit.................... 4,023 4,264 4,908 4,985 5,241 6,103 7,755
Selling, general and
administrative expenses....... 2,883 3,399 3,494 4,083 4,097 4,616 5,571
------- ------- ------- ------- ------- ------- -------
Operating income................ $ 1,140 $ 865 $ 1,414 $ 902 $ 1,144 $ 1,487 $ 2,184
======= ======= ======= ======= ======= ======= =======
</TABLE>
22
<PAGE> 24
The following table sets forth for the periods indicated the percentage of
revenues represented by the indicated items:
<TABLE>
<CAPTION>
Q1 Q2 Q3 Q4 Q1 Q2 Q3
1995 1995 1995 1995 1996 1996 1996
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Service revenues.................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Direct cost of services........... 79.4 79.2 78.9 79.4 79.1 79.6 79.5
----- ----- ----- ----- ----- ----- -----
Gross profit...................... 20.6 20.8 21.1 20.6 20.9 20.4 20.5
Selling, general and
administrative expenses......... 14.8 16.6 15.0 16.9 16.3 15.4 14.7
----- ----- ----- ----- ----- ----- -----
Operating income.................. 5.8% 4.2% 6.1% 3.7% 4.6% 5.0% 5.8%
===== ===== ===== ===== ===== ===== =====
</TABLE>
The Company's quarterly results reflect increases in service revenues and
gross profit for each of the last seven fiscal quarters. Results of operations
for the quarters shown include the results of operations of temporary services
businesses acquired during such periods. Quarterly results are also affected by
seasonal trends in the Company's business. See "-- Seasonality."
LIQUIDITY AND CAPITAL RESOURCES
For the 39 weeks ended September 29, 1996, cash flows used in operating
activities amounted to $2.4 million, primarily as a result of increases in
account receivables due to increased sales, partially offset by increases in
accrued payroll costs. For fiscal 1995, cash used in operating activities was
$5.6 million. The use of cash in operating activities during fiscal 1995 was
impacted by the distribution of $8.0 million in accounts receivable to the
Company's S Corporation shareholders.
The Company's investing activities during the 39 weeks ended September 29,
1996 used cash in the amount of $7.7 million, principally to purchase assets of
acquired businesses and property and equipment. See "Business -- Acquisitions"
and the Notes to the Company's Consolidated Financial Statements for a
description of the material terms of these acquisitions.
Cash flows from financing activities during the 39 weeks ended September
29, 1996 amounted to $7.9 million, consisting primarily of borrowings against
the Company's credit facility used to fund the Company's acquisition of
temporary staffing companies. Cash flows from financing activities totaled $9.5
million in fiscal 1995, principally as a result of the Company's sale of 2.2
million shares of Common Stock in its initial public offering in July 1995. The
offering proceeds, net of underwriting commissions and offering costs, totaled
approximately $12.6 million. Cash flow generated from the sale of Common Stock
in the offering was partially offset by principal payments on outstanding debt
and repayments of amounts advanced against the Company's line of credit. In
addition, as of the end of fiscal 1995, the Company had a note payable in the
amount of $1.5 million, which was paid in January, 1996, relating to the
purchase of PAMS. See "Business -- Acquisitions."
The Company's primary sources of short-term and long-term liquidity and
capital resources are its cash reserves and an unsecured line of credit with a
bank. The Company's line of credit allows for maximum borrowings of $20.0
million. At September 29, 1996, the Company had outstanding borrowings of $7.8
million, consisting of short-term borrowings of $1.3 million, which bore
interest at the prime rate charged by the lender (at September 29, 1996, 8.25%)
and long-term borrowings of $6.5 million, which bore interest at a rate equal to
LIBOR plus 1.75% (at September 29, 1996, 7.75%). The Company also had
commitments for letters of credit of $3.7 million outstanding at September 29,
1996, for purposes of securing its worker's compensation premium obligation,
which is considered as a reduction of borrowing availability on the line of
credit. At September 29, 1996, $8.5 million was still available on the line of
credit. At the end of fiscal 1995, the Company had no outstanding borrowings on
its prior line of credit, which was terminated on July 15, 1996. Borrowings on
the prior line of credit bore interest at the prime rate charged by the
Company's lender, which was 8.50% at December 31, 1995. The Company also had
outstanding letters of credit in the aggregate amount of $1.8 million, as of
December 31, 1995. These letters of credit were used to secure the Company's
worker's compensation premium obligations and were treated as a reduction of
borrowing availability under the
23
<PAGE> 25
Company's prior line of credit. Management believes that the Company's new
credit facility, together with cash reserves and cash flow from operations, is
sufficient to fund the currently pending acquisition and the Company's
operations and capital expenditures for at least the next twelve months. The
Company will utilize proceeds of this offering to repay indebtedness and
earnouts associated with previous acquisitions, to make additional acquisitions,
to provide working capital and to establish additional offices.
SEASONALITY
The Company's business follows the seasonal trends of its customers'
businesses which are, in turn, affected by the climate in the states in which
the customers do business. The Company usually experiences higher revenues in
its third quarter because of increased construction activity and hiring of
temporary staffing employees to replace student workers who return to school in
August and September. Historically, the Company has experienced lower revenues
in the first quarter due to unfavorable weather conditions and lower overall
economic activity; however, as the Company expands its office network to include
western states with more moderate climates, the Company may experience less
impact from unfavorable weather conditions.
IMPACT OF INFLATION
The Company believes that over the past three years inflation has not had a
significant impact on the Company's results of operations.
OTHER MATTERS
In October 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123
establishes a fair value method for accounting for stock-based compensation
plans, either through recognition or disclosure. SFAS 123 is not expected to
have a material impact on the Company's financial position or results of
operations.
24
<PAGE> 26
BUSINESS
GENERAL
SOS is a leading regional provider of temporary staffing services in the
Mountain States (Utah, Colorado Idaho, Wyoming, Arizona, Nevada, New Mexico and
Montana). In addition, the Company has recently expanded its office network into
other western states (California, Oregon and Texas). The Company serves a broad
range of service sectors, including clerical, light industrial, industrial,
information technology, technical and other professional sectors. The Company's
network consists of 82 offices, including 27 in Colorado, 24 in Utah, eight in
Arizona, six in Nevada, five in Idaho, three in each of California and Wyoming,
two in each of Oregon and New Mexico, and one in each of Texas and Montana.
During the 39 weeks ended September 29, 1996, the Company provided approximately
42,000 temporary staffing employees to approximately 7,000 businesses,
professional and service organizations and government agencies.
Since the completion of the IPO in July 1995, the Company has acquired 18
staffing companies and has executed an agreement to acquire an additional
company. The acquisitions completed by the Company since the IPO have expanded
the Company's ability to provide specialized services, including information
technology services, which generally offer higher margins. These acquisitions
included three information technology consulting and staffing companies (Wolfe,
Impact Staffing and The Performance Group). In addition, the Company's
acquisitions of Wolfe, Impact Staffing and Key Personnel also advanced the
Company's strategy of expanding the Company's office network beyond the Mountain
States. See " -- Acquisitions" and " -- Growth Strategy."
In addition to the SOS Staffing Services(R) trademark, the Company does
business under service-specific names in various markets where size permits
diversification, including Skill Staff (construction and manufacturing
services), Industrial Specialists (trucking, labor and warehousing services),
Account Staff (accounting services), SOS Technical Services (engineering,
programming, design and other technical services), ServCom Management Services
(professional employer services), PAMS (medical administrative support
services), CGS Personnel, Inc. (mining, mineral exploration and environmental
professional services), The Performance Group (information technology services),
Impact Staffing (information technology services) and Wolfe & Associates
(information technology services).
TEMPORARY STAFFING INDUSTRY
The temporary staffing industry in the United States has grown rapidly over
the past 25 years. The staffing industry, of which the temporary staffing
segment is the largest part, has been among the country's fastest growing
industries during the last five years according to the U.S. Bureau of Labor
Statistics. According to NATSS, over the past 25 years the temporary staffing
industry total annual payroll has grown at a compound annual rate in excess of
18.0%. The average number of daily temporary staffing employees rose from
184,400, or approximately 0.3%, of the total U.S. workforce, to 2,160,000, or
approximately 1.8% of the total U.S. workforce, over the same period. Staffing
Industry Report, a leading industry publication, estimates that the temporary
help segment of the staffing industry will generate revenues in excess of $45
billion in 1996.
Historically, the demand for temporary staffing employees has been driven
primarily by a need to temporarily replace regular employees due to illness,
vacation or termination. More recently, competitive pressures have forced
businesses to focus on reducing costs, including converting fixed labor costs to
variable and flexible costs. Increasingly, the use of temporary staffing
employees has become widely accepted as a valuable tool for managing personnel
costs and for meeting specialized or fluctuating employment requirements.
According to NATSS, more than 90.0% of all businesses used temporary staffing
employees in 1995.
The effective use of temporary staffing employees enables businesses to
staff their organizations with a core level of regular employees and to augment
their regular work force as needed. By utilizing temporary staffing employees,
businesses avoid the management and administrative costs incurred in hiring,
training and terminating regular employees. A business pays only for the actual
hours worked by temporary staffing employees and may terminate their services
upon completion of the assignment without the adverse effects of layoffs. An
ancillary benefit, particularly for smaller businesses, is that the usage of
temporary staffing
25
<PAGE> 27
employees shifts employment costs and risks (e.g., workers' compensation and
unemployment insurance) to the temporary staffing company, which can spread the
costs and risks over a larger pool of employees.
The range of temporary staffing services has expanded substantially since
the early days of the industry. Technological advances, as well as changing
attitudes towards workforce management, have resulted in a proliferation of new
temporary staffing positions in such areas as information technology and other
specialized industry segments. Furthermore businesses have begun using temporary
staffing employees to reduce administrative overhead by outsourcing operations
that are not part of the organizations core business functions. Outsourcing
involves a provider assuming responsibility for managing a specific facility or
function, such as mailroom, data processing or maintenance operations. Temporary
staffing companies also offer on-site services, which involve locating one of
the temporary staffing company's regular employees on-site at the customer's
place of business to manage all of the customer's temporary employee staffing
requirements.
REGIONAL GROWTH
In recent years, the Company has benefitted significantly from its location
in the Mountain States, which continue to experience strong economic and
population growth. Management believes the attraction of the Mountain States
results from the region's economic growth, diverse economic base, productive
work force and high quality of life. Management also believes certain areas of
the Mountain States, particularly the Salt Lake City metropolitan area, will
experience further economic expansion as a result of the selection of Salt Lake
City as the site for the Olympic Winter Games in 2002. USA Today has forecasted
that Nevada, New Mexico, Utah and Idaho will experience four of the five highest
state economic growth rates during 1996.
Job growth in the Company's regional market continues to be strong.
According to the U.S. Bureau of Labor Statistics, the only states in the nation
to report nonfarm employment growth rates for August 1995 to August 1996 in
excess of 4.0% were Utah, Colorado, Nevada, Arizona, New Mexico, Idaho and
Oregon. In addition, each of Montana, California and Washington reported a
growth rate between 2.0% and 3.9%. Specifically the metropolitan markets of Salt
Lake City/Ogden, UT and Provo/Orem, UT generated growth rates of 5.6% and 5.7%,
respectively. The national rate during the same period was 2.7%.
The temporary staffing industry in the states in which the Company operates
is also forecasted to experience significant growth in 1996. The Omnicomp Group,
an industry consulting organization, projects that in 1996 the total temporary
staffing payroll in the Mountain States and the 11 states in which the Company
operates will increase by approximately 15.1% and 12.7%, respectively.
Management believes the economic strength and projected job growth in the
Mountain States will support the Company's anticipated growth in the region and
enable the Company to pursue additional growth opportunities in other states.
ACQUISITIONS
Since the completion of the IPO in July 1995, the Company has aggressively
pursued a strategy of increasing sales, profitability and market share by
acquiring staffing businesses in target markets in the Mountain States and other
western states. Since that time, the Company has acquired 18 staffing
businesses, consisting of 24 offices and has executed an agreement to acquire an
additional office. Through these acquisitions, the Company has expanded its
presence in the rapidly expanding information technology staffing sector, and
added medical administrative support and professional mining, geology, hydrology
and environmental services. In addition the Company has expanded its geographic
presence through its acquisition of offices in California, Oregon, Texas,
Nevada, New Mexico and Montana. Since the IPO, the Company's office network has
grown from 42 offices in five states to 82 offices in 11 states. The
acquisitions completed or proposed by the Company since the completion of the
IPO are set forth below.
COMPLETED ACQUISITIONS
Wolfe. In November 1996, the Company acquired Wolfe. Wolfe is an
information technology consulting firm headquartered in Albuquerque, New Mexico
that also provides temporary staffing services to
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the information technology industry, including telecommunications consulting
services. Wolfe has offices in Tustin and Pleasanton, California and
Albuquerque, New Mexico, employs sales representatives in Chicago, Illinois and
Minneapolis, Minnesota and maintains an on-site facility at a customer location
in Juneau, Alaska.
R.H.W., Inc. In November 1996, the Company acquired the assets of R.H.W.
which does business as "The Temporary Connection" and "The Employment
Connection" in Billings, Montana, providing temporary clerical and light
industrial staffing. Management believes the Company's acquisition of R.H.W.
will provide a hub from which the Company will be able to establish offices in
other Montana markets.
A USA Temps. Also in October 1996, the Company completed its acquisition
of the assets of A USA, a provider of clerical and industrial temporary staffing
through a single office located in Prescott, Arizona. The A USA acquisition
represented the Company's first Arizona office north of Phoenix, in an area that
management believes shows a potential for rapid growth.
Steamboat Temps, Inc. Also in October 1996, the Company acquired the
assets of Steamboat. Steamboat provides clerical and industrial temporary
staffing services through a single office in Steamboat Springs, Colorado. The
Company acquired Steamboat with a view toward strengthening its presence in the
central Colorado market.
Executive Personnel Associates, Inc. Also in October 1996, the Company
completed the acquisition of Executive Personnel, a provider of clerical and
industrial temporary staffing services in Ft. Collins, Colorado. The Executive
Personnel operations have been combined with a pre-existing SOS office in Ft.
Collins, Colorado.
Key Personnel Service, Inc. In September 1996, the Company acquired the
assets of Key Personnel. Key Personnel operates one office in Amarillo, Texas,
through which it provides temporary clerical and industrial personnel. The
acquisition of Key Personnel provided the Company with its first office in the
State of Texas.
Impact Staffing. In August 1996, the Company acquired the assets and
business operations of Impact Staffing, a subsidiary of Pacific Design
Engineering, Inc. Impact Staffing is an information technology and engineering
staffing company based near Portland, Oregon, with a second office located in
San Diego, California. The Company believes the information technology and
engineering staffing services currently provided by Impact Staffing represent
two of the fastest growing segments of the staffing industry and augment the
Company's existing resources in those segments, consistent with the Company's
business strategy. See "-- Business Strategy."
Performance Plus. Also in August 1996, the Company acquired the assets and
business operations of the Provo, Utah office of Performance Plus, Inc.
Performance Plus provides clerical and industrial staffing services in the
Provo, Utah area.
Excell Personnel. In July 1996, the Company acquired the assets and
business operations of Excell Personnel Employment, LLC, a clerical and
industrial temporary staffing business with one office located in Greeley,
Colorado.
The Performance Group. Also in July 1996, the Company completed the
acquisition of the assets and business of The Performance Group, three related
entities which specialize in the information technology segment of the staffing
industry. The Performance Group provides information technology staffing,
consultants and permanent placement services through a single office located in
Denver, Colorado.
Allyn Colorado Enterprises, Inc. Also in July 1996, the Company acquired
the assets and business operations of Allyn, a provider of clerical and
industrial services through four offices located in Aspen, Vail, Gunnison and
Dillon, Colorado.
VIP Employment Services Limited, LLC . In April 1996, the Company acquired
the assets and business operations of VIP, located in Lakewood, Colorado. VIP
provides technical and information technology services through a single office.
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Snake River T.E.M.P.S., Inc. Also, in April 1996, the Company acquired
certain assets and the business operations of Snake River T.E.M.P.S. Snake River
T.E.M.P.S. provides general clerical and industrial services through two offices
located in Burley and Twin Falls, Idaho.
Geomine. In February 1996, the Company acquired certain assets and
substantially all of the business operations of Geomine of Sparks, Nevada. Upon
its acquisition of Geomine, the Company established a new division operating
under the name of CGS Personnel that provides temporary geologists, hydrologists
and engineers to the mining, hydrology and environmental industries, primarily
in the western United States.
PAMS. In December 1995, the Company acquired certain assets and
substantially all of the business of PAMS. PAMS provides medical administrative
support and account collection services though two offices located in Phoenix
and Tucson, Arizona. Management believes the PAMS acquisition gave the Company a
foothold in the market for temporary administrative support staff for medical
facilities.
Customized Personnel Services. In September 1995, the Company acquired the
assets and business operations of Customized Personnel, a provider of general
clerical and industrial services based in Durango, Colorado, in exchange for the
Company's transfer of its TSI Traffic Control operations based in Grand
Junction, Colorado.
Active Personnel Services, Inc. Also in September 1995, the Company
acquired the assets and business operations of Active, located in Phoenix,
Arizona. Active provides general clerical and industrial services through a
single office. The Active acquisition also allowed the Company to convert a
recruiting facility in Tempe, Arizona to a full service office.
Add-A-Temp, Inc. In August 1995, the Company acquired the assets and
substantially all of the business operations of Add-A-Temp. Add-A-Temp provides
general clerical and industrial services through a single office located in Las
Vegas, Nevada.
PROPOSED ACQUISITION
American Corporate Enterprises, Inc. ("ACE"). In March 1996, the Company
executed an agreement to acquire the assets and business operations of ACE,
located in Yuma, Arizona. ACE provides clerical, light industrial and industrial
services to customers in the Yuma area, as well as adjacent areas. The
completion of the ACE acquisition is subject to the satisfaction of certain
conditions that the Company currently believes will be satisfied in December
1996. There can be no assurance, however, that such conditions will be satisfied
or that the ACE acquisition will be completed.
GROWTH STRATEGY
Management believes the Company has substantial opportunities to expand the
geographic range of its office network and to broaden the range of services it
offers to its customers. The Company's growth strategy is to continue to
increase sales, profitability and market share by completing additional
acquisitions and opening new offices in the Mountain States and other western
states, pursuing expansion through acquisitions outside the region, as well as
increasing revenues from existing offices. Since the IPO, the Company has added
a total of 16 offices through internal growth and 24 offices through
acquisitions, resulting in 82 offices as of the date of this Prospectus.
PURSUE ACQUISITIONS. Since the completion of the IPO, the Company has
completed the acquisition of 18 staffing companies in the Mountain States and
other western states. The Company intends to aggressively pursue acquisitions as
a key element of its growth strategy. The Company will target acquisitions in
markets in the western United States where the Company seeks to establish or
develop staffing operations, particularly acquisitions of specialty providers
such as information technology companies. In addition, the Company will target
major markets in the Mountain States where the Company seeks to increase its
market share and smaller markets in the Mountain States where SOS does not
currently have offices. The Company has also identified a number of potential
acquisition candidates that provide specialized staffing services in the
Mountain States and other western states for continued expansion. In targeting
acquisitions, SOS focuses on established businesses with a history of profitable
operations. Acquisition criteria include the strength of an
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acquisition candidate's operations, its market share and its compatibility with
the Company's existing lines of business. Compatibility may include having lines
of business consistent with those of SOS or specialty lines of business that can
be expanded through the Company's existing office network. Management believes
the Company's expertise and experience allows acquired businesses to be
integrated into the Company at relatively low incremental costs and enables
fixed costs to be spread over an increasing revenue base.
FOCUS ON INTERNAL GROWTH. The Company maintains an aggressive posture in
increasing revenues from existing offices. Growth of any specific office is
restricted by its proximity to clients and by the availability of temporary
workers. As offices exceed certain thresholds, SOS has determined that dividing
such offices into one or more additional offices results in continued growth and
greater recruiting capabilities, market penetration and profitability. Economies
of scale benefit the offices due to common area management and the spreading of
management and administrative costs over a larger revenue base. A key element of
the Company's growth strategy is the establishment of hub offices in key
population areas followed by the clustering of additional offices (including
offices providing specialized staffing services) in existing and surrounding
markets.
The Company estimates the capital cost of establishing a new office ranges
from $10,000 to $25,000, exclusive of working capital requirements. The
Company's new offices have historically achieved profitability in six to 12
months, while offices created by division of an existing office are usually
profitable from inception. The Company currently operates at least one office in
every major market in the Mountain States with a population base in excess of
100,000. SOS has also identified over 40 additional potential office sites in
smaller Mountain States markets, specialty office sites in existing markets and
office sites in new markets to which it intends to expand.
BUSINESS STRATEGY
SOS has differentiated its services and enhanced profitability through the
specific business strategies outlined below:
FOCUS ON HIGHER MARGIN BUSINESS. The Company's operating results since
1991 have been significantly improved by its strategy to focus on higher margin
business. The Company has implemented this business strategy in two ways. First,
the Company has expanded its range of services, in part through acquisitions
funded with the proceeds of the Company's IPO, to include higher margin
specialty services such as information technology, administrative staffing
support services for medical facilities and professional services in the mining,
mineral exploration and environmental industries. The Company intends to
continue to develop its capability to provide qualified employees to the
information technology sector, one of the fastest growing segments of the
temporary staffing industry. Second, the Company has continued its efforts to
market temporary staffing services to higher margin accounts. The Company has
de-emphasized marketing to accounts where competitive pricing makes margins
unacceptable or to accounts where workers' compensation costs adversely affect
profitability. As part of this continuing strategy, managers are trained in
flexible pricing of services.
OFFER A WIDE VARIETY OF SERVICES. The Company's strategy includes offering
its customers a wide variety of temporary staffing services, including temporary
clerical, light industrial, industrial, construction, manufacturing,
professional and technical services. The Company also provides related services
to its customers, including payrolling, skill and drug testing and risk
management consulting. In larger markets, the Company offers these services
through several separate offices operating under established names. The Company
also provides professional employer organization ("PEO") services on a limited
basis, which offers to SOS customers the benefit of employee leasing. The
Company also provides outsourcing services to customers whereby the Company
contracts to perform a particular business function for an agreed price, which
includes providing staffing, equipment and supplies. The Company is also
expanding its on-site services where SOS locates an on-site manager to manage
all of the customer's temporary employee staffing requirements.
PURSUE OPPORTUNITIES IN SMALLER MARKETS. Over the last several years, SOS
has focused on opening hub offices in key metropolitan areas followed by
establishing offices in surrounding markets. This decentralized office
management strategy locates multiple offices in close proximity to customers and
temporary staffing
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employees. The Company believes this strategy has allowed it to rapidly gain
market share with low entry costs. Once a hub office has been established, the
Company focuses on leveraging hub office resources to market and deliver
services to surrounding smaller markets. In these markets, which are often too
small to attract competition from national companies, the Company has achieved
significant penetration in short periods and often becomes the dominant provider
of temporary staffing services.
PROVIDE ENTREPRENEURIAL OFFICES WITH STRONG CENTRAL SUPPORT. The Company's
offices are supported by strong central functions at corporate headquarters that
include marketing, recruiting and retention programs, workers' compensation and
other insurance services, training, accounts payable, purchasing, credit,
collection, legal review and other administrative support services. Each office
has access to the Company's computer system and its proprietary software that
provides information on customer requirements, available applicants, temporary
staffing employees on assignment and other information which facilitates
efficient response to customer job orders.
The Company has established budgets and quality performance standards which
are utilized at all offices. A substantial portion of region, area, district and
office manager compensation is incentive-based and focused on meeting budgets
and quality standards. Managers are also given considerable discretion to
respond to specific customer requirements. Office managers report to region,
area or district managers who typically have responsibility for three to ten
offices.
EMPHASIZE SERVICE AND VALUE. The Company focuses on providing service and
value to its customers. The Company's staff employees seek to establish and
maintain long-term relationships with customers by developing knowledge of
customers' businesses, responding promptly to customer orders and monitoring job
performance and customer satisfaction. The Company has implemented this strategy
by targeting customer accounts where service and quality are perceived to be as
important as pricing of services, which allows the Company to be more selective
and to provide higher quality staffing while maintaining desired profit margins.
FOCUS ON RISK MANAGEMENT. A significant component of the Company's direct
cost of providing services is workers' compensation expense. The Company
utilizes a comprehensive workers' compensation program that includes aggregate
and occurrence loss caps with full coverage above the loss caps. SOS utilizes
the same insurance carrier to handle claims administration. The Company has also
developed claims avoidance and claims management procedures involving loss
control programs, monitoring of safety conditions at customer locations and
policies which prohibit staffing of high-risk work, such as logging or roofing.
This risk management strategy has favorably impacted rates and contributed to
improvements in gross profit margins. Under the direction of the Company's
professional risk manager, claims are investigated and closely monitored.
Reserves for claims below the loss cap are established by the Company's insurer
and supplemented with additional reserves established by the Company.
OPERATIONS
OFFICES. The Company presently operates 82 offices, including 27 in
Colorado, 24 in Utah, eight in Arizona, six in Nevada, five in Idaho, three in
each of Wyoming and California, two in each of Oregon and New Mexico, and one in
each of Texas and Montana. Each of the offices operates as an independent profit
center with each manager having overall responsibility for sales and marketing,
recruiting and retention of temporary staffing employees and customer relations.
An office staff typically consists of the manager and up to six regular staff
personnel who market to the Company's customers, process applicants, match
customer needs with available temporary staffing employees and monitor temporary
staffing employee performance. Office managers report to region, area or
district managers, who typically have responsibility for three to ten offices.
The Company established two new regions for management purposes -- Utah and
Eastern Colorado. Where possible, the offices are grouped around a hub office in
a key metropolitan center or organized into regions, areas or districts
supervised by a regional, area or district manager. The Company believes that
grouping of offices permits leveraging of marketing and administrative costs and
facilitates market penetration.
During the 39 weeks ended September 29, 1996, on a pro forma basis giving
effect to the acquisitions described in the unaudited pro forma condensed
consolidated financial information set forth in this Prospectus, the Company's
clerical, light industrial, industrial and technical/information technology
groups contributed
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21%, 38%, 10% and 13% of the Company's revenues, respectively. See "Unaudited
Pro Forma Condensed Consolidated Statements of Income." In addition, the Company
offers payrolling and professional employer services which contributed, on a pro
forma basis, approximately 14% and 4% of the Company's revenues for 1995,
respectively. The Company's SOS Staffing Services offices provide personnel for
a wide range of temporary staffing needs. In larger markets, these offices focus
on providing clerical and light industrial personnel, while specialty needs are
provided by specialty offices. In smaller markets, SOS offices offer a broader
variety of temporary staffing services, including specialty services. The
Company's Skill Staff offices provide temporary staff services in the
construction, manufacturing, steel fabrication, machining, welding and other
skilled labor occupations. Some of the Skill Staff offices are stand-alone,
while operations in smaller markets are combined with an SOS Staffing Services
office. Industrial Specialists offices located in Salt Lake City, Utah and
Denver, Colorado provide temporary staff laborers, warehouse workers, drivers
and dock workers. SOS Technical Services offices provide temporary staffing for
customers with technical job requirements, including engineers, chemists,
geologists, designers, drafters, technicians, information systems and technology
personnel, system designers, illustrators, artists and writers. The Company's
Account Staff office provides temporary staffing for accounting, bookkeeping,
auditing, data entry and financial analysis. The Company's PAMS division
specializes in providing temporary help in the medical administrative support
area and, through the trade name National Collex, provides collection services
and special project billing services to medical facilities. In January 1996, the
Company acquired CGS Personnel, which provides contract and temporary geologists
and related personnel to the mining, mineral exploration and environmental
industries. Also in 1996, the Company augmented its capabilities in the
information technology segment with its acquisition of Wolfe, Impact Staffing
and The Performance Group. See "-- Acquisitions." The Company's ServCom office
provides professional employer services to customers whose regular employees are
transferred to SOS to enable the Company to administer payroll and benefits to
the employee group over an indefinite period.
OTHER SERVICES. The Company offers payrolling, outsourcing and on-site
services. Payrolling typically involves the transfer of a customer's short-term
seasonal or special use employees to the Company's payroll for a designated
period. Outsourcing represents a growing trend among businesses to contract with
third parties to provide a particular function or business department for an
agreed price over a designated period. On-site services involve locating a
regular SOS employee at the customer's place of business to manage all of the
customer's temporary staffing requirements. The Company views outsourcing and
on-site services as significant opportunities to expand its business and to
utilize its temporary staffing employees to provide these services. Finally, the
Company provides administrative professional services, offering SOS customers
skills testing, drug testing and risk management services. Skills testing
available to SOS customers includes cognitive, personality and psychological
evaluations. Drug tests are confirmed through an independent certified
laboratory. Risk management services include on-site safety inspection and
consulting services. These services are made available to customers for a fee on
a cost-effective and convenient basis.
CUSTOMERS AND MARKETING. During the 39 weeks ended September 29, 1996, the
Company provided approximately 42,000 temporary staffing employees to
approximately 7,000 business, professional and service organizations and
government agencies. No customer accounted for more than three percent of the
Company's service revenues in 1995 and the Company's top ten customers accounted
for less than 12% of service revenues for the same period. SOS' services are
marketed through its network of offices whose managers, supported by the
Company's marketing staff, make regular personal sales visits to larger
customers and prospects. The Company emphasizes long-term personal relationships
with customers which are developed through regular contact, periodic assessment
of customer requirements and regular monitoring of temporary employee
performance. New customers are also obtained through customer referrals,
telemarketing and advertising in a variety of local and regional media,
including television, radio, direct mail, Yellow Pages, newspapers, magazines
and trade publications. The Company is also a sponsor of job fairs and other
community events.
TEMPORARY STAFFING EMPLOYEE RECRUITMENT. The Company employs recruiters
who regularly visit schools and professional associations and present career
development programs to various organizations. In addition, the Company obtains
applicants from referrals by its temporary staffing employees and from
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advertising on radio, television, in the Yellow Pages and through other print
media. The Company's technical and information technology divisions have also
recently begun to recruit over the Internet.
At SOS, each applicant is interviewed with emphasis on past work
experience, personal characteristics and individual skills. The Company utilizes
the Dictionary of Occupational Titles ("DOT Codes") published by the Department
of Labor to evaluate and assign temporary staffing employees. The Company
maintains software training programs at its offices for applicants and employees
who may be trained and tested at no cost to the applicant, employee or Company
customer. During the 39 weeks ended September 29, 1996, the Company assigned
approximately 42,000 temporary staffing employees to customers. To promote
loyalty and retention among its temporary staffing employees, the Company
generally issues paychecks during the same week worked, and provides its
temporary staffing employees with certain employee benefits, including access to
a Section 401(k) defined contribution plan, a credit union and health insurance
programs offered through NATSS.
RISK MANAGEMENT PROGRAM. SOS is responsible for all employee-related
expenses for its temporary staff employees including workers' compensation,
unemployment insurance, social security taxes, state and local taxes and other
general payroll expenses. From 1993 through 1995, the Company maintained a paid
loss retro workers' compensation program through American International Group
("AIG"). Under the terms of that agreement, the Company maintained a loss cap of
$250,000, except for Skill Staff and ServCom, which maintained loss caps of
$100,000 under a separate policy. In those years, the Company made deposits and
paid premiums and expenses in advance for all anticipated costs to AIG. The
difference between payments made and actual expenses for each year were returned
to the Company over the next succeeding four years. In 1996, the Company
implemented a deductible workers' compensation program through CIGNA Property
and Casualty ("CIGNA"). The loss cap under the new policy is $200,000. Under the
CIGNA program, the Company deposits a one-month escrow for paid losses,
reimburses that escrow deposit monthly for actual losses and pays all other
costs and premiums over the course of the year. CIGNA has assigned to the
Company's headquarters full-time claims adjusters. The Company believes the
Company has benefitted, and will continue to benefit, from the change in
insurance carriers, due principally to reduced deposit requirements, reduced
excess insurance premiums and more efficient claims handling. Temporary staffing
employees in Wyoming and Nevada are insured through those states' insurance
funds because private insurance is not permitted in those states. The Company
employs a full-time professional risk manager and staff who work closely with
the insurance carriers to manage claims and establish appropriate reserves.
The Company has also developed workers' compensation loss control programs
which seek to limit claims through employee training and avoidance of high risk
job assignments such as roofing or logging. All temporary staffing employees are
required to agree in advance to drug testing following any work-related accident
and all major accidents are investigated. Finally, all claims are monitored in
cooperation with the Company's insurer with regular review and emphasis on early
closure. The Company believes that its risk management programs have
significantly contributed to improved profitability. See "-- Business
Strategy -- Focus on Risk Management."
INFORMATION SYSTEMS
The Company's central management information system is linked to all of the
Company's larger offices, either through a frame-relay system or modem. Smaller
offices also utilize stand-alone computers and software for routine office
functions. The centralized system supports Company-wide operations such as
payroll, billing, accounting and sales and management reports. The Company's
retrieval software permits efficient matching of customers' requirements with
available temporary staffing employees. All of the offices acquired by the
Company, with the exception of Wolfe, have been integrated into the Company's
management information system.
The operating system software utilized by the Company is licensed on a
perpetual royalty-free basis. The Company's proprietary application software is
regularly updated and revised to meet the Company's specific requirements. All
files are backed up routinely and stored off-site and critical files are backed
up on a daily
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basis. The present system has capacity to service the Company's anticipated
growth without significant capital expenditures for the foreseeable future.
COMPETITION
The temporary staffing industry is comprised of more than 3,500 national,
regional and independent companies operating over 12,000 offices throughout the
nation, making the industry highly competitive and highly fragmented. The
Company faces intense competition from large national and international
companies with substantially greater financial and marketing resources than
those of the Company, including Manpower, Inc., Kelly Services Inc., Adia/Ecco,
The Olsten Corporation and Accustaff, Inc. In addition, SOS competes with many
regional and local temporary service companies.
The Company competes for qualified temporary staffing employees and for
customers who require the services of such employees. The principal competitive
factors in attracting and retaining qualified temporary staffing employees are
competitive salaries and benefits, quality and frequency of assignments and
responsiveness to employee needs. The Company believes that many persons who
seek temporary employment are also seeking regular employment and that the
availability of assignments which may lead to regular employment is an important
factor in its ability to attract qualified temporary staffing employees.
The principal competitive factors in obtaining customers are a strong sales
and marketing program, having qualified temporary staffing employees to assign
in a timely manner, matching of customer requirements with available temporary
staffing employees, competitive pricing and satisfactory work production. The
Company believes its strong emphasis on providing service and value to its
customers and temporary staffing employees are important competitive advantages.
TRADE NAMES
The Company uses a variety of trademarks and trade names that are generally
descriptive of the temporary staffing services offered, including SOS Staffing
Services(R), SOS Temporary Services, Skill Staff, Account Staff, Industrial
Specialists, SOS Technical Services, ServCom, PAMS Employment Services and
National Collex. Beginning in January, June, August and November 1996, the
Company began using the CGS Personnel (formerly Geomine Personnel) The
Performance Group, Impact Staffing, and Wolfe & Associates trade names,
respectively. The Company has registered or reserved these names in certain
Mountain States and in a number of other states where they may be used in the
future.
PROPERTIES
Presently, the Company provides temporary staffing services through 82
offices in eleven states. These offices typically consist of 1,200 to 1,500
square feet and are leased by the Company for terms of three to five years.
Offices in larger or smaller markets may vary in size from the typical office.
The Company does not expect that maintaining or finding suitable lease space at
reasonable rates in its markets or in areas where the Company contemplates
expansion will be difficult.
The Company's executive and administrative offices are located in Salt Lake
City, Utah. The premises consist of approximately 15,600 square feet and are
leased from a related party for a term ending on March 31, 2005 with an option
to renew for 10 additional years. The Company believes that the lease terms are
at least as favorable as could be obtained from any unrelated third party. See
"Certain Relationships and Related Party Transactions."
LEGAL AND ADMINISTRATIVE PROCEEDINGS
In the ordinary course of its business, the Company is periodically
threatened with or named as a defendant in various lawsuits. The Company
maintains insurance in such amounts and with such coverage and deductibles as
management believes to be reasonable and prudent. The principal risks covered by
insurance include worker's compensation, personal injury, bodily injury,
property damage, errors and omissions and fidelity losses and general liability.
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In February 1996, a former employee of the Company filed a wrongful
termination lawsuit against the Company in Third District Court, Salt Lake
County, State of Utah. The complaint seeks compensatory damages of $4.5 million
and punitive damages of $4.0 million, respectively. The Company believes the
claim is without merit and that the Company has valid defenses to all of the
allegations raised by the plaintiff. There is no other pending litigation that
the Company currently anticipates could have a material adverse effect on the
Company's financial condition or results of operations.
STAFF EMPLOYEES
At November 24, 1996, the Company had approximately 407 staff employees
including 32 administrative employees, 11 regional, area and district managers,
59 office managers and 305 other staff employees. The Company's training
department provides general and job specific training to all staff employees,
including continuing training with experienced counterparts. None of the
Company's staff employees is covered by collective bargaining agreements. The
Company considers its relationship with its staff employees to be good.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The Company's executive officers, directors and nominees for director are
as follows:
<TABLE>
<CAPTION>
TERM AS
DIRECTOR
NAME AGE POSITION EXPIRES
- ------------------------------------- --- ------------------------------------- --------
<S> <C> <C> <C>
Richard D. Reinhold.................. 58 Chairman of the Board, Chief 1998
Executive Officer and Director
Howard W. Scott, Jr. ................ 61 President, Chief Operating Officer 1997
and Director
Richard J. Tripp..................... 47 Senior Vice President of 1997
Administration and Director
Gary B. Crook........................ 43 Vice President, Chief Financial N/A
Officer and Treasurer
W. B. Collings....................... 57 Controller and Assistant Secretary N/A
John K. Morrison..................... 34 Secretary and General Counsel N/A
Stanley R. deWaal.................... 61 Director 1999
JoAnn W. Wagner...................... 57 Director 1998
R. Thayne Robson..................... 67 Director 1997
Randolph K. Rolf..................... 54 Director 1999
</TABLE>
The Board of Directors is divided into three classes serving staggered
three-year terms. Directors for each class are elected at the annual meeting of
shareholders held in the year in which the term for such class expires. All
officers serve at the discretion of the Board of Directors.
RICHARD D. REINHOLD has been Chairman of the Board and Chief Executive
Officer since founding the Company in 1973. He also served as President from
1973 to April 1995. Prior to founding the Company, Mr. Reinhold worked for
several national temporary service firms, including Greyhound Temporary
Services, for which Mr. Reinhold served as Vice President from 1971 to 1973. Mr.
Reinhold also served as President of NATSS from 1989 to 1990, and as President
of the Utah Association of Temporary Services in 1982 and 1985. Mr. Reinhold
obtained a B.S. degree in Marketing from the University of Kansas in 1960.
HOWARD W. SCOTT, JR. joined the Company in February 1994 as Vice President
and was appointed as President and Chief Operating Officer in April 1995. Mr.
Scott has over 30 years of experience in the temporary services industry. He
served as President of Dunhill Personnel System, Inc. from 1991 to 1994, and as
President of CDI Temporary Services, a subsidiary of CDI Corp., from 1978 to
1991. Mr. Scott also served two terms as the President of NATSS from 1971 to
1973 and, in October 1993, was awarded its highest honor, the NATSS Leadership
Hall of Fame award. Mr. Scott obtained a B.S. degree in Journalism from
Northwestern University in 1957.
RICHARD J. TRIPP has been with the Company since its founding in 1973,
serving most recently as Vice President of Administration of the Company and a
director since August 1991. He was appointed as Senior Vice President of
Administration in April 1995. From 1973 until his promotion to Vice President of
Administration in 1991, Mr. Tripp held a variety of positions with the Company
in customer service, and as an office and area manager. Mr. Tripp obtained a
B.S. degree in Psychology from Brigham Young University in 1973. Mr. Tripp also
served two terms as President of the Utah Association of Temporary Services from
1987 to 1989.
GARY B. CROOK joined the Company in May 1995 as Chief Financial Officer,
Vice President and Treasurer. From October 1993 to December 1994, Mr. Crook
served as a consultant to the General Manager
35
<PAGE> 37
and Acting Chief Financial Officer of Al Azizia--Panda United, Inc., a
corporation located in Riyadh, Saudi Arabia, engaged in the business of grocery
retailing and distribution. From June 1991 to September 1993, Mr. Crook was the
Vice President and Controller for Food-4-Less Supermarkets, Inc. in La Habra,
California. From September 1986 to June 1991, Mr. Crook served as the Vice
President of Administration and Controller of Alpha Beta Company, a subsidiary
of American Stores Company, also in La Habra, California. Mr. Crook obtained a
B.S. degree in Business Economics and a M.B.A. degree from the University of
Utah.
W. B. COLLINGS currently serves the Company as Controller, a position he
has held since joining the Company in May 1993, and was also appointed Assistant
Secretary in April 1995. From March 1991 to May 1993, Mr. Collings was
self-employed as an accountant. From October 1978 until March 1991, Mr. Collings
served as the Chief Financial Officer of Information Now, Inc., a Utah
corporation engaged in developing, installing and supporting computer software.
Mr. Collings obtained a B.S. degree in Business Administration from Brigham
Young University in 1961, and thereafter completed two additional years of
graduate study in accounting.
JOHN K. MORRISON was appointed as Secretary of the Company in April 1995.
He was employed as general counsel in January 1995. Prior to joining the Company
in January 1995, Mr. Morrison was employed as an attorney for the
Anti-Discrimination Division of the Utah Industrial Commission from July 1993
through December 1994. From October 1991 to July 1993, Mr. Morrison was engaged
in the private practice of law in Salt Lake City, Utah. Mr. Morrison obtained
his Juris Doctorate degree in 1991 from the University of Utah. He obtained a
B.A. degree in Political Science and a B.S. degree in Economics from the
University of Utah in 1987.
STANLEY R. DEWAAL was elected a director of the Company in May 1995. Mr.
deWaal is currently President and a director of DeWaal, Keeler & Co., a Utah
professional corporation of certified public accountants of which Mr. deWaal was
a founder in 1975. Mr. deWaal has been a licensed certified public accountant
since 1967. Mr. deWaal also currently serves as a member of the Board of
Directors of the Hansen Planetarium, a non-profit organization.
R. THAYNE ROBSON has been a director of the Company since June 1995. Mr.
Robson currently serves as Director of the Utah Bureau of Economic and Business
Research, Professor of Management and Research and Professor of Economics for
the University of Utah and has done so since 1978. He also currently serves as a
director for ARUP Alliance, Inc., a Salt Lake-based medical test laboratory, a
director for Western Mortgage, a Utah corporation engaged in mortgage banking
and correspondence, and as trustee for Aquila Rocky Mountain Equity Fund and
Tax-Free Fund for Utah, mutual funds managed by Aquila Management Corporation, a
New York corporation. Mr. Robson has been and continues to be involved in
numerous civic and community endeavors, including serving as a member of the
Utah Governor's Economic Coordinating Committee since 1982, Trustee of the Salt
Lake Convention and Visitors Bureau since 1984, special advisor and member of
the Executive Committee of the Economic Development Corporation of Utah since
1985, ex-officio Director of the Salt Lake Downtown Alliance since 1991, a
director of the Community Board of Salt Lake Valley IHC Hospitals since 1992,
and trustee of Crossroads Research Institute, a Utah non-profit research
institute, since 1986.
RANDOLPH K. ROLF has been a director of the Company since June 1995. Mr.
Rolf is currently the Chairman of the Board, President and Chief Executive
Officer of Unitog Company ("Unitog"), a public company based in Kansas City,
Missouri, which manufactures, sells and rents industrial uniforms. He has served
as Chairman of the Board of Unitog since May 1991 and as President and Chief
Executive Officer since May 1988.
JOANN W. WAGNER has been a director of the Company since July 1995 and has
been retained by the Company as a consultant since July 1, 1995. See
"-- Compensation of Directors." Since June 1995, Ms. Wagner has been an
independent consultant to the temporary staffing industry. From January 1994
until July 1995, Ms. Wagner was not employed in the temporary staffing business
pursuant to the terms of a noncompetition agreement between Ms. Wagner and
Interim Services Inc. ("Interim Services"). From January 1991 until January
1994, Ms. Wagner served as the Vice President of Market Development for Interim
Services. From November 1987 until 1991, Ms. Wagner served as the President and
a director of
36
<PAGE> 38
Interim Systems Corporation, a publicly-traded corporation engaged in the
temporary staffing business, which was acquired by H&R Block, Inc. in 1991. Ms.
Wagner served as President of NATSS from 1991 to 1992.
EXECUTIVE COMPENSATION
The compensation of Richard D. Reinhold, the Company's Chief Executive
Officer, and the other executive officers of the Company whose salary and bonus
for the fiscal year ended December 31, 1995 exceeded $100,000 (collectively, the
"Named Executive Officers") is shown on the following three tables.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
------------------------------------------- COMPENSATION
FISCAL OTHER ANNUAL ------------ ALL OTHER
NAME AND POSITION YEAR SALARY BONUS(1) COMPENSATION OPTIONS COMPENSATION(2)
- --------------------------- ------ -------- -------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Richard D. Reinhold........ 1995 $185,090 $ 0 $ 0 0 $ 47,556
Chairman of the Board and 1994 195,000 0 786,840(3) 0 48,396
Chief Executive Officer
Howard W. Scott, Jr. ...... 1995 178,350 19,000 0 25,000 0
President and Chief 1994 138,462 10,000 0 0 500
Operating Officer
Richard J. Tripp........... 1995 150,000 17,500 0 20,000 47,576(4)
Senior Vice President 1994 150,000 20,634 0 0 115,401(4)
</TABLE>
- ---------------
(1) Includes performance bonuses of $19,000 and $7,500 paid in 1996 to Howard W.
Scott, Jr. and Richard J. Tripp, respectively, based on the Company's
performance during the 1995 fiscal year. Also includes a performance bonus
of $10,000 paid in 1995 to Howard W. Scott, Jr. based upon the Company's
performance during the 1994 fiscal year.
(2) Represents matching contributions made by the Company pursuant to the
Company's 401(k) plan and premiums paid by the Company pursuant to the
Company's split-dollar life insurance plan, as follows: Richard D.
Reinhold, 401(k) contributions of $840 for the 1994 fiscal year and
insurance premiums of $47,556 for each of the 1995 and 1994 fiscal years;
Howard W. Scott, Jr., 401(k) contributions of $500 for the 1994 fiscal
year; and Richard J. Tripp, 401(k) contribution of $931 for the 1994 fiscal
year and insurance premiums of $3,993 for each of the 1995 and 1994 fiscal
years.
(3) Represents amounts distributed to Mr. Reinhold pursuant to the Company's
status as a Subchapter S Corporation.
(4) Includes compensation in the amount of $43,583 deferred from earlier years
at Mr. Tripp's request that was paid in fiscal 1995 and $110,477
distributed to Mr. Tripp in fiscal 1994 in settlement and termination of a
change of control and severance agreement between Mr. Tripp and the
Company.
37
<PAGE> 39
OPTION GRANTS IN THE LAST YEAR
The following table sets forth the grants of options made by the Company
during the fiscal year ended December 31, 1995 to the Named Executive Officers.
As of December 31, 1995, the Company had not granted any stock appreciation
rights. In addition to the options set forth below, the Company granted an
aggregate of 104,000 options to 25 directors and key employees of the Company in
fiscal 1995. The information set forth below does not include the grant of
options to purchase 15,000 shares and 10,000 shares granted to Messrs. Scott and
Tripp, respectively, subsequent to December 31, 1995. All options granted are
incentive stock options granted under the Company's 1995 Stock Incentive Plan.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
OF STOCK PRICE
PERCENT OF APPRECIATION FOR
TOTAL OPTIONS OPTION TERM
GRANTED TO EXERCISE (IN DOLLARS)
OPTIONS EMPLOYEES IN OR BASE EXPIRATION -------------------
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
- ------------------------------------ ------- ------------- ------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Howard W. Scott, Jr................. 25,000(1) 19.4% $6.50 06/26/05 $102,195 $258,983
Richard J. Tripp.................... 20,000(1) 15.5% 6.50 06/26/05 81,756 207,187
</TABLE>
- ---------------
(1) Options granted on June 27, 1995, of which 20% became exercisable on the
date of grant and an additional 16% will become exercisable on each of the
next five anniversaries of the date of grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTIONS
VALUES
The following table sets forth the number of unexercised options to acquire
shares of Common Stock held on December 31, 1995 by the Named Executive Officers
and the aggregate value of such options. No options to acquire shares of Common
Stock were exercised by the Named Executive Officers during the fiscal year
ended December 31, 1995. As of December 31, 1995, the Company had not granted
any options to acquire shares of Common Stock to Mr. Richard D. Reinhold, the
Chief Executive Officer of the Company, nor had the Company granted any stock
appreciation rights to any of the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE/MONEY OPTIONS
AT DECEMBER 31, 1995 DECEMBER 31, 1995(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Howard W. Scott, Jr........................ 5,000 20,000 $14,375 $57,500
Richard J. Tripp........................... 4,000 16,000 11,500 46,000
</TABLE>
- ---------------
(1) Reflects the difference between the exercise price of the unexercised
options and the market value of shares of the Common Stock on December 29,
1995 (the last business day in 1995). On December 29, 1995, the last sale
price of the Common Stock, as reported by the Nasdaq National Market, was
$9.375 per share.
STOCK INCENTIVE PLAN
On May 4, 1995, the Board of Directors adopted and the Company's
shareholders subsequently approved the 1995 Stock Incentive Plan (the "Incentive
Plan"). The Incentive Plan is designed to give the Company maximum flexibility
in designing stock-based incentive awards for its employees and directors.
Awards under the Incentive Plan may be in the form of stock options, stock
appreciation rights ("SARs"), restricted shares of Common Stock or stock units,
commonly known as phantom stock awards. The Incentive Plan is administered by a
committee (the "Committee") of two or more disinterested directors appointed by
the Board of Directors.
Grants under the Incentive Plan may be made to directors, executive
officers and key employees of the Company who are expected to make significant
contributions to the Company. Except with respect to the annual grant of options
to non-employee directors described below, the Committee, in its sole
discretion, determines the number and type of awards granted to a participant
under the Incentive Plan, and the terms and conditions of such award, including
any vesting conditions. The Incentive Plan specifically provides for an
38
<PAGE> 40
annual grant to non-employee directors or nominees of 1,000 options which are
immediately exercisable at the fair market value of shares of Common Stock on
the date of grant. All other terms of such options shall be as fixed by the
provisions of the Incentive Plan. See "-- Compensation of Directors." The
Incentive Plan provides that up to 400,000 shares of Common Stock are available
for issuance under the Incentive Plan, and that no participant may receive
awards for more than an aggregate of 50,000 options, restricted shares or stock
units in any single calendar year.
Options may be incentive stock options, as that term is defined in Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), as well as
nonstatutory stock options. The exercise price of an option may not be less than
the fair market value of a share of Common Stock on the date of the grant. The
Committee may grant SARs in tandem with any option granted in an amount equal to
or less than the number of options so granted. Generally, SARs may be exercised
at any time after the underlying option vests. Upon exercise, each SAR entitles
a participant to receive from the Company a payment equal to the excess of the
fair market value of a share of Common Stock, determined at the time the SAR is
exercised, over the exercise price of the related option. At the discretion of
the Committee, payments may be made in cash, shares of Common Stock or a
combination thereof.
Restricted shares are shares of Common Stock which are subject to
forfeiture in the event that the applicable vesting conditions are not
satisfied. Holders of restricted shares are entitled to the same voting and
dividend rights as holders of other shares of Common Stock. Stock units,
commonly known as phantom stock, are unfunded bookkeeping entries representing
the equivalent of one share of Common Stock. Holders of stock units have no
voting rights or other rights of a shareholder, but are entitled to receive
"dividend equivalents" in an amount equal to the amount of dividends paid on the
same number of shares of Common Stock. Stock units and corresponding dividend
equivalents will be valued and settled at a time and in a manner determined by
the Committee and may be paid, in the discretion of the Committee, in the form
of cash, shares of Common Stock or a combination thereof.
401(K) BENEFIT PLAN
The Company has a 401(k) profit sharing plan in which all employees are
eligible to enroll on the January 1st or July 1st which occurs after the
employee has worked 1,000 hours or, if later, attained the age of 18. Employee
contributions may be invested in several alternatives, including shares of
Common Stock. Company contributions to the plan, including matching
contributions, may be made at the discretion of the Company and may be made in
shares of Common Stock. Company contributions are 50% vested after three years
of service, 75% vested after four years of service and 100% vested after five
years of service. Matching contributions to the 401(k) plan were made by the
Company on behalf of the Named Executive Officers as indicated above in the
Summary Compensation Table.
COMPENSATION OF DIRECTORS
Each non-employee member of the Board of Directors receives a fee of $1,000
per Board meeting attended. No separate compensation is paid for attendance at
committee meetings. All directors are also reimbursed for expenses in connection
with attendance at Board and committee meetings. These payments are in addition
to the options granted to non-employee directors and nominees as described under
"Stock Incentive Plan" above.
The Company entered into a one-year consulting agreement with JoAnn W.
Wagner, which commenced on July 1, 1995. Pursuant to the agreement, Ms. Wagner
has assisted and advised the Company with respect to identifying and evaluating
potential acquisitions for the Company and negotiating the terms of such
acquisitions. Ms. Wagner's compensation under the agreement was $3,500 per
month, which included the $1,000 per Board meeting fee otherwise payable to Ms.
Wagner as a director of the Company. At the conclusion of the one-year term, the
Company and Ms. Wagner agreed to extend the agreement, upon the
39
<PAGE> 41
same terms and conditions, provided that the agreement may be terminated by
either party upon 30 days notice.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Reinhold,
Scott and Tripp, the terms of which commenced on January 1, 1995 and expire on
the third anniversary thereof. Pursuant to such agreements, the Company has
agreed to employ Messrs. Reinhold, Scott and Tripp for the term of their
respective agreements in their current positions and duties, which may be
modified, however, at the discretion of the Board of Directors. Annual salaries
for Messrs. Reinhold, Scott and Tripp under the agreements are $195,000,
$190,000 and $150,000, respectively. The agreements terminate upon the death or
disability of the officer or termination of the officer's employment for cause.
The Agreements also contain covenants of the officers that, during the term of
their employment and continuing for two years after the termination of their
employment for any reason, with or without cause, they will not compete with the
Company nor disclose or make use of confidential information of the Company. The
officers are also subject to the confidentiality and limited non-solicitation
agreements executed by the Company's regular employees.
COMMITTEES AND MEETINGS
The Board of Directors has standing Audit and Compensation Committees. The
members of the Audit Committee are Stanley R. deWaal (Chairperson), R. Thayne
Robson and JoAnn W. Wagner. The members of the Compensation Committee are JoAnn
W. Wagner (Chairperson), R. Thayne Robson and Randolph K. Rolf.
The Audit Committee met twice during the 1995 fiscal year. The functions of
the Audit Committee are: (i) to review and approve the selection of, and all
services performed by, the Company's independent auditor; (ii) to review the
Company's internal controls; and (iii) to review and report to the Board of
Directors with respect to the scope of audit procedures, accounting principles
and internal accounting and financial controls of the Company.
The Compensation Committee met twice during the 1995 fiscal year. The
Compensation Committee has oversight responsibility for all executive
compensation and benefit programs of the Company. The Compensation Committee
reviews and approves all executive compensation and benefit plans, including the
Incentive Plan.
During the fiscal year ended December 31, 1995, there were six meetings
held by the Board of Directors. No director attended fewer than 75% of the total
number of meetings of the Board of Directors and of the committees on which he
or she served.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Certain provisions of the Utah Revised Business Corporation Act (the
"Revised Act") provide that the Company may indemnify its officers and directors
for liability incurred in connection with conduct that was in good faith and
that the officer or director reasonably believed was in, or not opposed to, the
best interests of the Company, and, in the case of a criminal proceeding, he or
she had no reasonable cause to believe the conduct was unlawful. Such
indemnification for liability could include liability arising under the
Securities Act. In addition, the Company's Amended and Restated Bylaws and
Articles of Incorporation provide that the Company may indemnify its officers
and directors to the maximum extent permitted by the Revised Act. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors and officers of the Company pursuant to the foregoing
provisions, the Company has been informed that, in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
40
<PAGE> 42
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The Company entered into an agreement, effective as of January 1995, to
purchase substantially all of the assets of the construction division of Skill
Staff of Colorado, Inc. ("SSCI") operated in the Denver, Colorado Springs, and
Grand Junction, Colorado areas. SSCI was principally owned by the adult children
of Richard D. Reinhold and Sandra E. Reinhold, the Company's principal
shareholders. Pursuant to such agreement, the Company paid $50,000 in cash and
issued a note in the amount of $300,000 which was paid in full in fiscal 1995.
The Company believes that the terms of the transaction were at least as
favorable as the terms that could have been obtained from an unaffiliated third
party in a similar transaction.
In July 1994, the Company entered into an agreement to acquire certain
assets of the Skill Staff, ServCom, and TSI Traffic Control divisions of
Temporary Services, Inc. ("TSI"). TSI was principally owned by the adult
children of Richard D. Reinhold and Sandra E. Reinhold. The Company paid
$125,000 in cash and issued a note in the amount of $250,000 which was paid in
full in fiscal 1995. The Company believes that the terms of this transaction
also were at least as favorable as the terms that could have been obtained from
an unaffiliated third party in a similar transaction.
The Company currently leases its corporate office building from Reed F.
Reinhold, Rand F. Reinhold, Rena R. Qualls, and Robb F. Reinhold, adult children
of Richard D. and Sandra E. Reinhold, pursuant to a lease agreement which
expires in March 2005 with a ten-year renewal option in favor of the Company.
The Company paid approximately $46,000 and $65,000 in rental payments to Richard
D. and Sandra E. Reinhold in fiscal years 1994 and 1995, respectively. The
lease, which was amended as of January 1995 to include additional space,
provides for future minimum lease payments amounting to approximately $73,000
per fiscal year. The Company believes that the terms of the lease are at least
as favorable as the terms that could have been obtained from an unaffiliated
third party in a similar transaction.
The Company has entered into a franchise agreement effective as of January
1995, with TSI of Utah, Inc. ("TSIU"), a company incorporated and owned by Reed
F. Reinhold, which provides industrial temporary staffing services. Pursuant to
the agreement, TSIU has acquired the right to operate a temporary services
business in a designated market area under the name "TSI Temporary Services" and
to utilize the Company's methods, procedures, standards and specifications in
the operation of such business. In consideration of such rights, TSIU will pay
to the Company a portion of the gross margin derived from the operation of such
business (the "Service Fee"). Under the agreement, the Company funds a payroll
bank account from which TSIU pays the wages of temporary employees. TSIU
invoices its clients directly for all services performed and clients are
instructed to remit payment therefor directly to the Company. The amount of
funds advanced by the Company to TSIU through the payroll account which were
outstanding as of December 31, 1995 was approximately $461,000, which amount was
secured by approximately $479,000 of TSIU receivables from clients. The Company
has a right of first refusal with respect to any transfer by TSIU of an
ownership interest in TSIU and an option to purchase TSIU's assets upon the
termination or expiration of the franchise agreement for any reason.
In March 1995, the Company and Richard J. Tripp amended a change of control
and severance agreement initially executed in 1989 (the "Tripp Agreement"). The
amendment settled all claims of Mr. Tripp and the Company with respect to the
Tripp Agreement, subject to the Company's payment of the following amounts.
Pursuant to the amendment, Mr. Tripp was paid the sum of $110,477 as a
distribution of the vested portion of the benefits payable under the Tripp
Agreement. In addition, it was agreed that the unvested portion of the benefits,
which amounted to $63,735 as of March 1995 would continue to vest at a rate of
ten percent per year for ten years, and would, upon vesting, be payable upon the
earlier of Mr. Tripp's termination of employment, attainment of age 59 or
retirement.
In fiscal 1995, the Company entered into a one-year consulting agreement
with JoAnn W. Wagner, a director of the Company, the term of which agreement was
recently extended. See "Management -- Compensation of Directors."
41
<PAGE> 43
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Common Stock as of the date of this Prospectus, and as adjusted
to reflect the sale of the shares of Common Stock offered hereby by: (i) each
selling shareholder (ii) each person known by the Company to beneficially own
more than 5% of the outstanding shares of Common Stock; (iii) each of the
Company's directors and nominees for directors; (iv) each of the Named Executive
Officers; and (v) all directors and executive officers as a group. Unless
otherwise indicated, each of the shareholders has sole voting and investment
power with respect to the shares beneficially owned.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
BEFORE OFFERING AFTER OFFERING
---------------------- SHARES ----------------------
NAME SHARES PERCENT OFFERED SHARES PERCENT
- ---------------------------------------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Richard D. Reinhold..................... 3,945,000(1) 58.8% 90,000(2) 3,855,000(3) 44.3%
c/o SOS Staffing Services, Inc.
1415 South Main Street
Salt Lake City, Utah 84115
Sandra E. Reinhold...................... 3,945,000(1) 58.8% 90,000(2) 3,855,000(3) 44.3%
c/o SOS Staffing Services, Inc.
1415 South Main Street
Salt Lake City, Utah 84115
Corporation of the President of The
Church of Jesus Christ of Latter-day
Saints................................ 110,000 1.6% 110,000 -- *
50 East North Temple
Salt Lake City, Utah 84150
The Richard D. and Sandra E. Reinhold
Charitable Foundation................. 90,000 1.3% 90,000 -- *
c/o SOS Staffing Services, Inc.
1415 South Main Street
Salt Lake City, Utah 84115
Reinhold Limited........................ 80,000 1.2% -- 80,000 1.2%
c/o SOS Staffing Services, Inc.
1415 South Main Street
Salt Lake City, Utah 84115
Richard J. Tripp........................ 13,200(3) * -- 13,200(3) *
Howard W. Scott......................... 12,600(3) * -- 12,600(3) *
Randolph K. Rolf........................ 9,000(3)(4) * -- 9,000(3)(4) *
Stanley R. deWaal....................... 5,000(3)(5) * -- 5,000(3)(5) *
JoAnn W. Wagner......................... 4,500(3) * -- 4,500(3) *
R. Thayne Robson........................ 4,000(3) * -- 4,000(3) *
All directors and executive officers as
a group (ten persons)................. 4,003,650(3) 59.3% 90,000 3,913,650 45.0%
</TABLE>
- ---------------
* Represents less than 1% of outstanding shares.
(1) Of the shares reflected as beneficially owned by Richard D. Reinhold and
Sandra E. Reinhold, 1,890,000 shares are held of record by Sandra E.
Reinhold, 1,885,000 shares are held of record by Richard D. Reinhold, 90,000
shares are held of record by the Richard D. and Sandra E. Reinhold
Charitable Foundation (the "Reinhold Foundation") and 80,000 shares are held
of record by Reinhold Limited, a family limited partnership of which Richard
D. Reinhold and Sandra E. Reinhold are general partners.
42
<PAGE> 44
(2) All of the 90,000 shares reflected as being offered by Richard D. Reinhold
and Sandra E. Reinhold in this offering are held of record by the Reinhold
Foundation.
(3) The number of shares beneficially owned include exercisable options to
acquire shares of Common Stock. Following are the number of options held by
the above-referenced beneficial owners and the number of such options which
are exercisable: Richard J. Tripp, 30,000 options, 9,200 exercisable; Howard
W. Scott, 40,000 options, 12,000 exercisable; Randolph K. Rolf, 11,000
options, 4,000 exercisable; Stanley R. deWaal, 11,000 options, 4,000
exercisable; JoAnn W. Wagner, 11,000 options, 4,000 exercisable; R. Thayne
Robson, 10,000 options, 3,000 exercisable; and all directors and executive
officers as a group, 150,000 options, 46,400 exercisable.
(4) Includes 5,000 shares owned of record by the Randolph K. Rolf Trust.
(5) Includes 1,000 shares owned of record by the spouse of Mr. deWaal.
43
<PAGE> 45
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred
Stock, no par value.
COMMON STOCK
Each outstanding share of Common Stock, subject to the rights of holders of
Preferred Stock, if any, is entitled to participate equally in dividends as and
when declared by the Board of Directors and is entitled to participate equally
in any distribution of net assets made to the shareholders upon liquidation of
the Company. There are no redemption, sinking fund, conversion or preemptive
rights with respect to the shares of Common Stock. All shares of Common Stock
have equal rights and preferences. The holders of Common Stock are entitled to
one vote for each share held of record on all matters voted upon by shareholders
and may not cumulate votes for the election of directors. Thus, the owners of a
majority of the shares of Common Stock outstanding may elect all of the
directors, if they choose to do so, and the owners of the balance of such shares
would not be able to elect any directors.
PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of Preferred
Stock from time to time in one or more series without shareholder approval. No
shares of Preferred Stock are presently outstanding. The Board of Directors is
authorized, without any further action by the shareholders of the Company, to
determine the designation, powers, preferences and relative, participating,
optional or other special rights and qualifications, limitations or restrictions
of any series of Preferred Stock and the number of shares constituting any such
series. Holders of Preferred Stock, if issued, will be entitled to such voting
rights as the Board of Directors, in its sole discretion, shall determine. Thus,
the Board of Directors, without shareholder approval, could authorize the
issuance of Preferred Stock with rights which could adversely affect the rights
of the holders of Common Stock. Any future issuance of Preferred Stock may have
the effect of delaying or preventing a change in control of the Company without
further action by the shareholders and may adversely affect the voting and other
rights of the holders of Common Stock. The Company has no present plans to issue
any Preferred Stock.
CERTAIN PROVISIONS OF THE AMENDED AND RESTATED ARTICLES OF INCORPORATION AND
BYLAWS
A number of provisions of the Company's Amended and Restated Articles of
Incorporation and Amended and Restated Bylaws deal with matters of corporate
governance and the rights of shareholders.
PREFERRED STOCK. The Amended and Restated Articles of Incorporation
provide the Board of Directors the ability to issue shares of Preferred Stock
and to set the voting rights, preferences and other terms thereof. The ability
of the Board of Directors to authorize the issuance of Preferred Stock may have
an anti-takeover effect and may discourage takeover attempts not first approved
by the Board of Directors (including a takeover which certain shareholders may
deem to be in their best interests). To the extent takeover attempts are
discouraged, fluctuations in the market price of the Common Stock, which may
result from actual or rumored takeover attempts, may be inhibited.
APPROVAL OF CERTAIN CORPORATE TRANSACTIONS. The Company's Amended and
Restated Bylaws provide that the affirmative vote of the holders of at least
two-thirds of the Company's issued and outstanding shares entitled to cast a
vote on such a proposal shall be required for approval of a plan of merger,
share exchange, sale or lease of all or substantially all of the Company's
property or for the dissolution of the Company.
STAGGERED TERMS OF DIRECTORS. The Board of Directors consists of seven
persons, and is elected in staggered terms, allowing each member to serve for
three years, generally with one-third of the directors to be elected each year.
The classification system of electing directors may discourage a third party
from making a tender offer or otherwise attempting to obtain control of the
Company and may maintain the incumbency of the Board of Directors, as it
generally makes it more difficult for shareholders to replace a majority of the
Board of Directors.
44
<PAGE> 46
UTAH CONTROL SHARES ACQUISITION ACT
The Utah Control Shares Acquisition Act (the "Control Shares Act") provides
that any person or entity which acquires 20% or more of the outstanding voting
shares of a publicly-held Utah corporation is denied voting rights with respect
to the acquired shares, unless a majority of the disinterested shareholders of
the corporation elects to restore such voting rights. A "control share
acquisition" is generally defined as the direct or indirect acquisition of
either ownership or voting power associated with issued and outstanding control
shares. The shareholders of a corporation may elect to exempt the stock of the
corporation from the provisions of the Control Shares Act through adoption of a
provision to that effect in the articles of incorporation or bylaws of the
corporation. The Company's Amended and Restated Articles of Incorporation and
Amended and Restated Bylaws do not exempt the Common Stock from the Control
Shares Act.
The provisions of the Control Shares Act may discourage companies
interested in acquiring a significant interest in or control of the Company from
doing so.
TRANSFER AGENT AND REGISTRAR
First Security Bank of Utah, N.A., Salt Lake City, Utah is the transfer
agent and registrar for the Common Stock.
45
<PAGE> 47
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this offering, the Company will have 8,706,020 shares
of Common Stock outstanding (9,036,020 shares if the Underwriters'
over-allotment option is exercised in full). Of these shares, approximately
4,838,770 shares (5,168,770 shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable without restriction under the
Securities Act or further registration under the Securities Act, except for any
shares purchased by an "affiliate" of the Company (as defined in the Securities
Act and the rules and regulations thereunder) which will be subject to the
resale limitations of Rule 144 promulgated under the Securities Act. The
remaining approximately 3,867,250 shares are deemed to be "restricted
securities," as that term is defined under Rule 144 promulgated under the
Securities Act. The holders of these restricted shares have agreed, subject to
certain exceptions, not to offer, sell, contract to sell, grant any option or
other right for the sale of, or otherwise dispose of any shares of Common Stock
or any securities, indebtedness or other rights exercisable for or convertible
or exchangeable into Common Stock for a period of 180 days from the date of this
Prospectus without the consent of Unterberg Harris, on behalf of the
Underwriters. Upon the expiration of the 180-day lock-up period, all of such
restricted shares may be eligible for sale, subject to certain restrictions, in
the open market pursuant to Rule 144.
In general, under Rule 144, as currently in effect, beginning 180 days
after the effective date of the Registration Statement of which this Prospectus
is a part, a shareholder (or shareholders whose shares are aggregated),
including an affiliate of the Company, who beneficially has owned his or her
restricted securities (as that term is defined in Rule 144) for at least two
years from the later of the date such securities were acquired from the Company
or (if applicable) the date they were acquired from an affiliate, is entitled to
sell, within any three-month period, a number of such shares that does not
exceed the greater of 1% of the then outstanding shares of Common Stock or the
average weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144,
provided certain requirements concerning availability of public information,
manner of sale and notice of sale are satisfied. In addition, affiliates of the
Company must comply with the restrictions and requirements of Rule 144, other
than the two-year holding period requirement, in order to sell shares of Common
Stock which are not restricted securities. Under Rule 144(k), if a period of at
least three years has elapsed between the later of the date the restricted
securities were acquired from the Company or the date they were acquired from an
affiliate of the Company, a shareholder who is not an affiliate of the Company
at the time of sale and has not been an affiliate at any time during the 180
days prior to the sale would be entitled to sell the shares immediately without
compliance with the foregoing requirements under Rule 144, other than the
requirements as to the availability of current public information about the
Company.
Since June 1995, the Common Stock has been quoted on the Nasdaq National
Market under the symbol "SOSS." No prediction can be made of the effect, if any,
that sales of shares of Common Stock under Rule 144 or the availability of
shares for sale will have on the market price of the Common Stock prevailing
from time to time after the offering. The Company is unable to estimate the
number of shares that may be sold in the public market under Rule 144, because
such amount will depend on the trading volume in, and market price for, the
Common Stock and other factors. Nevertheless, sales of substantial amounts of
Common Stock in the public market, or the perception that such sales could
occur, could adversely affect the market price of the Common Stock. See
"Underwriting."
46
<PAGE> 48
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Company and the Selling Shareholders have
agreed to sell to each of the Underwriters named below (the "Underwriters"), and
the Underwriters, for whom Unterberg Harris, PaineWebber Incorporated and George
K. Baum & Company are acting as representatives (the "Representatives"), have
severally agreed to purchase, the respective number of shares of Common Stock
set forth opposite their respective name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Unterberg Harris..........................................................
PaineWebber Incorporated..................................................
George K. Baum & Company..................................................
---------
Total........................................................... 2,200,000
=========
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
shares of Common Stock offered hereby if any such shares are purchased. In the
event of a default by an Underwriter, the Underwriting Agreement provides that,
in certain circumstances, such commitments of non-defaulting Underwriters may be
increased or the Underwriting Agreement may be terminated. The Company and the
Selling Shareholders have agreed to indemnify the Underwriters against certain
civil liabilities, including liabilities under the Securities Act, or to
contribute to payments the Underwriters may be required to make in respect
thereof.
The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock offered hereby to the public at
the public offering price per share set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may
re-allow, a discount not in excess of $ per share on sales to certain
other dealers. After the public offering, the offering price, discount and
re-allowance may be changed.
The Company has granted the Underwriters an option, which may be exercised
within 30 days after the date of this Prospectus, to purchase up to an
additional 330,000 shares of Common Stock solely to cover over-allotments, if
any, at the public offering price set forth on the cover page of this
Prospectus, less the underwriting discount. To the extent that the Underwriters
exercise the option, each of the Underwriters will have a firm commitment,
subject to certain conditions, to purchase approximately the same percentage of
such shares that the number of shares of Common Stock to be purchased by it
shown on the foregoing table bears to the total number of shares initially
offered hereby.
In connection with this offering, the Underwriters and selling group
members, if any, or their respective affiliates who are qualified registered
market makers on the Nasdaq National Market, may engage in passive market-making
transactions in the Common Stock on the Nasdaq National Market during the two
business day period prior to the commencement of the offers or sales of the
Common Stock, in accordance with Rule 10b-6A under the Exchange Act. Passive
market-making consists of displaying bids on the Nasdaq National Market limited
by the bid prices of market makers not connected with this offering and
purchases limited by such prices and effected in response to order flow. Net
purchases by a passive market maker on each day are generally limited in amount
to 30% of the passive market maker's average daily trading volume in the Common
Stock during the two full consecutive calendar months immediately prior to the
filing with the Commission of the Registration Statement and must be
discontinued when such limit is reached. Passive market making may stabilize the
market price of the Common Stock at a level above that which might otherwise
prevail and, if commenced, may be discontinued at anytime.
47
<PAGE> 49
Except for shares sold to cover over-allotments, if any, the Company, each
of the Company's officers and directors, the Reinhold Foundation and Reinhold
Limited have agreed to a "lock-up" arrangement under which they will not offer,
sell or otherwise dispose of any shares of Common Stock without the prior
written consent of Unterberg Harris, acting on behalf of the Underwriters, for a
period of 180 days after the date of this Prospectus. See "Shares Eligible for
Future Sale."
LEGAL MATTERS
The validity of the shares of Common Stock being offered hereby and certain
other matters are being passed upon for the Company by Kimball, Parr, Waddoups,
Brown & Gee, Salt Lake City, Utah. Certain legal matters relating to the
offering will be passed upon for the Underwriters by Akin, Gump, Strauss, Hauer
& Feld, L.L.P., Dallas, Texas.
EXPERTS
The Financial Statements included in this Prospectus and elsewhere in the
Registration Statement, to the extent and for the periods indicated in their
reports, have been audited by Arthur Andersen LLP, independent public
accountants, and are included herein in reliance upon the authority of said firm
as experts in giving said reports.
The financial data included in this Prospectus for the periods indicated
have been derived from financial statements audited by DeWaal, Keeler & Company,
P.C., certified public accountants, and are included herein upon the authority
of such firm.
ADDITIONAL INFORMATION
Arthur Andersen LLP has served as the Company's independent public
accountants since November 1994. At that time, the Company's Board of Directors
decided to retain Arthur Andersen LLP to audit the Company's financial
statements for the fiscal years 1992, 1993 and 1994, and the Company's former
auditors were not retained. The former auditor's report on the Company's
financial statements for the fiscal years ended 1992 and 1993 does not cover the
financial statements of the Company included in this Prospectus. Such report did
not contain an adverse opinion or disclaimer of opinion and was not modified as
to uncertainty, audit scope or accounting principles. There were no
disagreements with the former auditors on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure at the
time of the change or with respect to the Company's financial statements for
fiscal years 1992 and 1993, which, if not resolved to the former auditors'
satisfaction, would have caused them to make reference to the subject matter of
the disagreement in connection with their report. Prior to retaining Arthur
Andersen LLP, the Company had not consulted with Arthur Andersen LLP regarding
accounting principles.
The Company is subject to the periodic reporting and other informational
requirements of the Securities Exchange Act of 1934, as amended. As long as the
Company is subject to such periodic reporting and information requirements, it
will file with the Commission all Commission reports, proxy statements and other
information required thereby, which may be inspected at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's regional offices located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511 and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material may be obtained by mail from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. In addition, electronically filed documents, including
reports, proxy statements and other information filed by the Company, can be
obtained from the Commission's Web site at http://www.sec.gov. The Company's
Common Stock is quoted on the Nasdaq National Market, and reports and other
information concerning the Company may also be inspected and copies at the
office of the Nasdaq National Stock Market, Inc., 9513 Key West Avenue,
Rockville, Maryland 20850.
48
<PAGE> 50
The Company has filed a Registration Statement on Form S-1 under the
Securities Act with the Securities and Exchange Commission (the "Commission"),
Washington, D.C., with respect to the Common Stock offered by this Prospectus.
This Prospectus, filed as part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement, certain portions
of which have been omitted as permitted by the rules and regulations of the
Commission. For further information regarding the Company and the shares offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules thereto, which may be inspected without charge and copied at
prescribed rates at the public reference facilities maintained by the Commission
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. Such information
may also be available on the Web site maintained by the Commission at
http://www.sec.gov. Statements contained in this Prospectus as to the contents
of any contract or other document referred to herein are not necessarily
complete and in each instance reference is made to the copy of such contract or
document filed as an exhibit to the Registration Statement, each such statement
being qualified in its entirety by such reference.
49
<PAGE> 51
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SOS STAFFING SERVICES, INC.:
Report of Independent Public Accountants............................................ F-2
Consolidated Balance Sheets as of January 1, 1995 and December 31, 1995............. F-3
Consolidated Statements of Income for the Years Ended January 2, 1994, January 1,
1995 and December 31, 1995....................................................... F-5
Consolidated Statements of Shareholders' Equity for the Years Ended January 2, 1994,
January 1, 1995 and December 31, 1995............................................ F-6
Consolidated Statements of Cash Flows for the Years Ended January 2, 1994, January
1, 1995 and December 31, 1995.................................................... F-7
Notes to Consolidated Financial Statements.......................................... F-9
Unaudited Condensed Consolidated Balance Sheet as of September 29, 1996............. F-18
Unaudited Condensed Consolidated Statements of Income for the 39 Weeks Ended October
1, 1995 and September 29, 1996................................................... F-20
Unaudited Condensed Consolidated Statements of Cash Flows for the 39 Weeks Ended
October 1, 1995 and September 29, 1996........................................... F-21
Notes to Unaudited Condensed Consolidated Financial Statements...................... F-23
PAMS TEMPORARY EMPLOYMENT SERVICE, INC. AND AFFILIATES:
Report of Independent Public Accountants............................................ F-27
Combined Balance Sheets as of December 31, 1994 and September 30, 1995.............. F-28
Combined Statements of Operations and Retained Earnings for the Year Ended December
31, 1994 and for the Nine Months Ended September 30, 1995........................ F-29
Combined Statements of Cash Flows for the Year Ended December 31, 1994 and for the
Nine Months Ended September 30, 1995............................................. F-30
Notes to Combined Financial Statements.............................................. F-31
PERFORMANCE PROFESSIONALS, INC. AND AFFILIATES:
Report of Independent Public Accountants............................................ F-34
Combined Balance Sheets as of December 31, 1994 and 1995 and as of June 30, 1996.... F-35
Combined Statements of Income and Retained Earnings for the Years Ended December 31,
1994 and 1995 and for the Six Months Ended June 30, 1995 and 1996................ F-36
Combined Statements of Cash Flows for the Years Ended December 31, 1994 and 1995 and
for the Six Months Ended June 30, 1995 and 1996.................................. F-37
Notes to Combined Financial Statements.............................................. F-38
WOLFE & ASSOCIATES, INC.:
Report of Independent Public Accountants............................................ F-40
Balance Sheets as of February 28, 1995, February 29, 1996 and as of September 30,
1996............................................................................. F-41
Statements of Income and Retained Earnings for the Years Ended February 28, 1995 and
February 29, 1996 and for the Seven Months Ended September 30, 1995 and 1996..... F-42
Statements of Cash Flows for the Years Ended February 28, 1995 and February 29, 1996
and for the Seven Months Ended September 30, 1995 and 1996....................... F-43
Notes to Financial Statements....................................................... F-44
</TABLE>
F-1
<PAGE> 52
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO SOS STAFFING SERVICES, INC.:
We have audited the accompanying consolidated balance sheets of SOS Staffing
Services, Inc. (a Utah Corporation) and subsidiary as of January 1, 1995 and
December 31, 1995, and the related consolidated statements of income,
shareholders' equity and cash flows for each of three fiscal years in the period
ending December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of SOS Staffing
Services, Inc. and subsidiary as of January 1, 1995 and December 31, 1995, and
the results of their operations and their cash flows for each of the three
fiscal years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
January 31, 1996 (except with
respect to the matters discussed
in Note 13, as to which the date
is February 26, 1996)
F-2
<PAGE> 53
SOS STAFFING SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31,
1995 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash............................................................ $ 613,049 $ 2,717,389
Accounts receivable, less allowances of $92,600
and $142,600, respectively................................... 7,043,257 9,784,022
Current portion of workers' compensation deposit................ 1,430,337 568,658
Prepaid expenses and other...................................... 63,583 191,616
Deferred tax asset.............................................. -- 61,803
Amounts due from related parties................................ 15,016 460,897
----------- -----------
Total current assets......................................... 9,165,242 13,784,385
----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Computer equipment.............................................. 829,313 1,011,363
Office equipment................................................ 822,738 1,087,262
Leasehold improvements and other................................ 510,134 789,633
----------- -----------
2,162,185 2,888,258
Less accumulated depreciation and amortization.................. (976,105) (1,267,233)
----------- -----------
Total property and equipment, net............................ 1,186,080 1,621,025
----------- -----------
OTHER ASSETS:
Workers' compensation deposit, less current portion............. 557,663 142,164
Intangible assets less accumulated amortization of $4,770
and $50,780, respectively.................................... 281,432 3,582,924
Deposits and other assets....................................... 407,035 196,850
----------- -----------
Total other assets........................................... 1,246,130 3,921,938
----------- -----------
Total assets................................................. $11,597,452 $19,327,348
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
F-3
<PAGE> 54
SOS STAFFING SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31,
1995 1995
---------- ------------
<S> <C> <C>
CURRENT LIABILITIES:
Line of credit.................................................. $ 2,530,251 $ --
Note payable.................................................... -- 1,450,000
Accounts payable................................................ 96,607 126,349
Accrued payroll costs........................................... 589,934 1,275,617
Current portion of workers' compensation reserve................ 764,590 735,799
Accrued liabilities............................................. 76,645 477,361
Income taxes payable............................................ -- 74,576
Current portion of note payable to related party................ 50,000 --
----------- -----------
Total current liabilities.................................... 4,108,027 4,139,702
----------- -----------
NOTE PAYABLE TO RELATED PARTY, less current portion............... 200,000 --
----------- -----------
WORKERS' COMPENSATION RESERVE, less current portion............... 191,148 183,950
----------- -----------
DEFERRED INCOME TAX LIABILITY..................................... -- 336,155
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 2, 3 and 5)
SHAREHOLDERS' EQUITY:
Common stock $0.01 par value; 20,000,000 shares authorized;
4,500,000, and 6,700,000 shares issued and outstanding,
respectively................................................. 45,000 67,000
Additional paid-in capital...................................... -- 13,099,497
Retained earnings............................................... 7,053,277 1,501,044
----------- -----------
Total shareholders' equity................................... 7,098,277 14,667,541
----------- -----------
Total liabilities and shareholders' equity................... $11,597,452 $19,327,348
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
F-4
<PAGE> 55
SOS STAFFING SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JANUARY 2, 1994, JANUARY 1, 1995 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
52 WEEKS ENDED
-------------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
SERVICE REVENUES.................................... $49,433,300 $63,739,807 $87,532,903
DIRECT COSTS OF SERVICES............................ 41,084,403 51,322,089 69,353,212
----------- ----------- -----------
Gross profit...................................... 8,348,897 12,417,718 18,179,691
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES........................... 7,315,789 10,045,998 13,858,600
----------- ----------- -----------
INCOME FROM OPERATIONS.............................. 1,033,108 2,371,720 4,321,091
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense.................................. (29,961) (35,492) (145,646)
Interest income................................... 44,382 27,041 109,684
Other, net........................................ 65,775 64,118 120,604
----------- ----------- -----------
Total, net..................................... 80,196 55,667 84,642
----------- ----------- -----------
INCOME BEFORE PROVISION FOR
INCOME TAXES...................................... 1,113,304 2,427,387 4,405,733
PROVISION FOR INCOME TAXES.......................... -- -- (1,465,791)
----------- ----------- -----------
NET INCOME.......................................... $ 1,113,304 $ 2,427,387 $ 2,939,942
=========== =========== ===========
PRO FORMA INFORMATION:
Unaudited (see note 8)
Net income before pro forma adjustment............ $ 2,939,942
Income taxes adjustment........................... (262,862)
-----------
PRO FORMA NET INCOME................................ $ 2,677,080
===========
PRO FORMA NET INCOME PER
COMMON SHARE...................................... $ 0.43
===========
PRO FORMA WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING......................... 6,229,021
===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-5
<PAGE> 56
SOS STAFFING SERVICES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, January 3, 1993..... 4,500,000 $45,000 $ -- $ 4,012,586 $ 4,057,586
Net income................. -- -- -- 1,113,304 1,113,304
--------- ------- ----------- ----------- -----------
BALANCE, January 2, 1994..... 4,500,000 45,000 -- 5,125,890 5,170,890
Distributions to
shareholders............ -- -- -- (500,000) (500,000)
Net income................. -- -- -- 2,427,387 2,427,387
--------- ------- ----------- ----------- -----------
BALANCE, January 1, 1995..... 4,500,000 45,000 -- 7,053,277 7,098,277
Distributions to
shareholders............ -- -- -- (8,750,023) (8,750,023)
Contributions from
shareholders............ -- -- -- 750,000 750,000
Change in tax status....... -- -- 492,152 (492,152) --
Sale of common stock, net
of issuance costs....... 2,200,000 22,000 12,607,345 -- 12,629,345
Net income................. -- -- -- 2,939,942 2,939,942
--------- ------- ----------- ----------- -----------
BALANCE, December 31,
1995.................... 6,700,000 $67,000 $13,099,497 $ 1,501,044 $14,667,541
========= ======= =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-6
<PAGE> 57
SOS STAFFING SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 2, 1994, JANUARY 1, 1995 AND DECEMBER 31, 1995
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
52 WEEKS ENDED
--------------------------------------------
1993 1994 1995
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................... $ 1,113,304 $ 2,427,387 $ 2,939,942
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization.................... 161,255 184,652 374,114
Deferred income taxes............................ -- -- 274,352
Loss on disposition of assets.................... -- -- 3,554
Changes in operating assets and liabilities:
Accounts receivable, net...................... 55,761 (1,712,236) (10,740,788)
Workers' compensation deposit................. (1,102,000) (886,000) 1,277,178
Prepaid expenses and other.................... 247,649 (29,583) (128,033)
Amounts due from related parties.............. 7,086 (2,112) (445,881)
Deposits and other assets..................... 28,796 (82,527) 7,667
Accounts payable.............................. (947) 65,705 29,742
Accrued payroll costs......................... (177,439) (200,741) 685,683
Workers' compensation reserve................. 629,855 325,883 (35,989)
Accrued liabilities........................... (11,056) 47,109 57,650
Income taxes payable.......................... -- -- 74,576
----------- ----------- ------------
Net cash provided by (used in) operating
activities............................. 952,264 137,537 (5,626,233)
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment............... (246,057) (709,144) (684,092)
Proceeds from sale of property and equipment..... -- 7,247 --
Cash paid in acquisition of certain assets....... -- (125,000) (1,340,707)
Deposits related to acquisition of certain
assets........................................ -- (206,278) 206,278
----------- ----------- ------------
Net cash used in investing activities.... (246,057) (1,033,175) (1,818,521)
----------- ----------- ------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-7
<PAGE> 58
SOS STAFFING SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 2, 1994, JANUARY 1, 1995 AND DECEMBER 31, 1995
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
52 WEEKS ENDED
------------------------------------------
1993 1994 1995
----------- ---------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net........ $ -- $ -- $12,629,345
Net (repayments) borrowings on line of credit...... (1,032,996) 1,724,150 (2,530,251)
Principal payments on long-term debt............... (53,374) -- (550,000)
Capital contribution from shareholders............. -- -- 750,000
Distributions to shareholders...................... -- (500,000) (750,000)
----------- ---------- -----------
Net cash (used in) provided by financing
activities.................................... (1,086,370) 1,224,150 9,549,094
----------- ---------- -----------
NET (DECREASE) INCREASE IN CASH...................... (380,163) 328,512 2,104,340
CASH AT BEGINNING OF YEAR............................ 664,700 284,537 613,049
----------- ---------- -----------
CASH AT END OF YEAR.................................. $ 284,537 $ 613,049 $ 2,717,389
=========== ========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest........................................ $ 32,604 $ 28,636 $ 134,917
Income taxes.................................... -- -- 1,117,214
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During fiscal year 1995, the Company acquired $100,382 of equipment,
$11,760 of deposits and $3,347,499 of intangibles from various companies in
exchange for $1,340,707 in cash, notes payable of $1,750,000, equipment of
$25,868 and $343,066 of accrued earnouts (see Note 3).
During fiscal year 1995, the Company distributed approximately $8.0 million
of its accounts receivable to its S Corporation shareholders (see Note 7).
During fiscal year 1994, the Company acquired $88,798 of equipment and
$286,202 of intangibles from Temporary Services, Inc. in exchange for $125,000
in cash and a note payable of $250,000 (see Note 3).
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-8
<PAGE> 59
SOS STAFFING SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS
SOS Staffing Services, Inc. and subsidiary (collectively the "Company") is
a regional provider of temporary staffing services in the Mountain States (Utah,
Colorado, Idaho, Wyoming, Arizona, Nevada, New Mexico and Montana). The Company
provides clerical, light industrial, industrial, technical and professional
temporary staffing employees to various businesses, professional and service
organizations and government agencies through its network of 82 offices. A
majority of the Company's business results from its offices in Utah and
Colorado.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Company's fiscal year ends on the Sunday closest to December 31, which
results in a 52- or 53-week year. The fiscal years ended January 2, 1994 (fiscal
1993), January 1, 1995 (fiscal 1994) and December 31, 1995 (fiscal 1995) each
contained 52 weeks.
Principles of Consolidation
The consolidated financial statements include the accounts of SOS Staffing
Services, Inc. and its wholly owned subsidiary SOS Collection Services, Inc.
(d.b.a. National Collex). All significant intercompany transactions have been
eliminated in consolidation.
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 reported
periods. Actual results could differ from those estimates.
Revenue Recognition
Service revenues are recognized at the time staffing services are provided.
Property and Equipment
Property and equipment are stated at cost and depreciated using the
straight-line method over their estimated useful lives. Leasehold improvements
are amortized over the terms of the respective leases or the estimated economic
lives of the assets, whichever is shorter. The depreciation and amortization
periods are as follows:
<TABLE>
<S> <C>
Computer equipment...................................... 2 - 5 years
Office equipment........................................ 3 - 7 years
Leasehold improvements and other........................ 5 - 17 years
</TABLE>
Upon retirement or other disposition of property and equipment, the cost
and related accumulated depreciation and amortization are removed from the
accounts. The resulting gain or loss is reflected in income. Major renewals and
betterments are capitalized while minor expenditures for maintenance and repairs
are charged to expense as incurred.
F-9
<PAGE> 60
SOS STAFFING SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Workers' Compensation
For the fiscal year ended December 31, 1995, the Company had a paid loss
retro workers' compensation insurance arrangement with a unit of American
International Group, Inc. ("AIG"). All of the Company's business divisions were
insured by AIG for losses over $250,000 per occurrence, except with respect to
certain divisions which are covered by a separate policy providing coverage for
losses over $100,000 per occurrence.
Under the terms of the arrangement, the Company was required to fund an
estimated premium amount into a deposit account from which claims are paid. AIG
is required to refund to the Company 60 percent of the unused deposit account
balance six months following the policy year with the remaining balance to be
refunded evenly over the succeeding four years.
The Company estimates its worker's compensation reserves and expenses for
each period based upon estimates of the costs of reported claims and incurred
but not yet reported claims. These estimates are based upon information provided
by AIG and historical claims information monitored by the Company. Such reserve
amounts are only estimates and there can be no assurance that the Company's
future workers' compensation obligations will not exceed the amount of its
reserves. However, management believes that the difference, if any, between the
amounts recorded for its estimated liability and the costs of settling the
actual claims, will not be material to the results of operations.
Effective January 1, 1996, the Company entered into a workers' compensation
insurance arrangement with CIGNA Property and Casualty ("CIGNA"). The new policy
is a deductible arrangement with coverage for losses over $200,000 per
occurrence. The Company believes, that the new policy will provide greater
flexibility in funding and monitoring claims.
Intangible Assets
Intangible assets include goodwill of approximately $281,000 and
$3,344,000, net of accumulated amortization as of January 1, 1995 and December
31, 1995, respectively. Goodwill is amortized using the straight-line method
over a period of 30 years. Other intangible assets include covenants not to
compete and employee and customer lists and are being amortized using the
straight-line method over 3 to 6 years.
The Company evaluates at each balance sheet date whether events and
circumstances have occurred that indicate the carrying amounts of intangibles
may warrant revision or may not be recoverable. When factors indicate that
intangibles should be evaluated for possible impairment, the Company uses an
estimate of the future undiscounted net cash flows of the related business over
the remaining life of the intangible assets in measuring whether the intangibles
are recoverable.
Income Taxes
The Company recognizes deferred tax assets or liabilities for expected
future tax consequences of events that have been recognized in the financial
statements or tax returns. Under this method, deferred tax assets or liabilities
are determined based upon the difference between the financial statement and
income tax bases of assets and liabilities using enacted tax rates expected to
apply when differences are expected to be settled or realized.
Prior to June 26, 1995, the Company had elected for federal and state
income tax purposes to include its taxable income with that of its shareholders
(an S Corporation election). Accordingly, the Company had no provision for
income taxes in its financial statements.
F-10
<PAGE> 61
SOS STAFFING SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Stock Split and Authorized Common Stock
In connection with the Company's initial public offering in July 1995, the
Board of Directors and shareholders approved a 225 for 1 stock split and a
change in the authorized common stock to 20,000,000 shares at $0.01 par value
per share. This stock split has been retroactively reflected in the consolidated
financial statements.
Accounting for the Impairment of Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets to be Disposed of" (effective for financial statements for
years beginning after December 15, 1995). SFAS No. 121 establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held and used and for
long-lived assets and certain identifiable intangibles to be disposed of. SFAS
No. 121 is not expected to have a material impact on the Company's financial
position or results of operations.
(3) ACQUISITIONS
Temporary Services, Inc.
In July 1994, the Company purchased certain assets of the Skill Staff,
Servcom, and TSI Traffic Control divisions of Temporary Services, Inc. ("TSI"),
a company principally owned by the adult children of certain stockholders of the
Company, in exchange for $125,000 in cash and an unsecured note payable of
$250,000 which was paid in full during fiscal 1995. This acquisition was
accounted for as a purchase. The excess of the purchase price over the estimated
fair value of the acquired tangible assets, consisting primarily of equipment,
was approximately $286,000 and has been allocated to goodwill.
Skill Staff of Colorado, Inc.
In January 1995, the Company purchased certain assets and substantially all
of the business of the Skill Staff construction division in the Aurora, Colorado
Springs, and Grand Junction, Colorado offices of Skill Staff of Colorado, Inc.
("SSCI"), a company principally owned by the adult children of certain
shareholders of the Company. The Company paid $50,000 in cash and issued a note
payable for $300,000 which was paid in full during fiscal 1995. This acquisition
was accounted for as a purchase. The excess of the purchase price over the
estimated fair value of the acquired tangible assets was approximately $324,000
and has been allocated to goodwill.
AddTemps Phoenix, Inc.
In January 1995, the Company acquired certain assets and operations of
AddTemps Phoenix, Inc. ("AddTemps") for $125,000. After earnouts the final
purchase price was $150,000. This acquisition was accounted for as a purchase.
The excess of the purchase price over the estimated fair value of the acquired
tangible assets was approximately $130,000 and has been allocated to goodwill.
V.M., Inc.
In January 1995, the Company acquired the operations of V.M., Inc. of
Evanston, Wyoming for $30,000. Earnouts during 1995 were $15,000, resulting in a
final purchase price of $45,000. The transaction has been accounted for as a
purchase and the total acquisition cost of $45,000 was allocated to goodwill.
F-11
<PAGE> 62
SOS STAFFING SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Travel Station, Inc.
In December 1994, one of the Company's shareholders acquired all of the
outstanding stock of Travel Station, Inc. in exchange for $35,000 in cash. In
January 1995, the Company acquired the assets and assumed liabilities of $16,278
of Travel Station, Inc. from the shareholder and paid $35,000 to the
shareholder. This acquisition has been accounted for as a purchase. The excess
of the purchase price over the estimated fair value of the acquired tangible net
assets was approximately $44,000 and has been allocated to goodwill.
Add-A-Temp, Inc.
In August 1995, the Company acquired certain assets and operations of
Add-A-Temp, Inc. of Las Vegas, Nevada for approximately $545,000. Additional
earnouts paid and accrued amounted to $75,000 for a total value of $620,000.
Under the terms of the agreement, potential future earnouts not accrued can not
exceed $50,000. This acquisition has been accounted for as a purchase. The
excess of the purchase price over the estimated fair value of the acquired
tangible assets was approximately $608,000 and approximately $441,000 has been
allocated to goodwill and $167,000 has been allocated to other intangible
assets.
Active Temporary Services
In September, 1995, the Company purchased certain assets and substantially
all of the business of Active Temporary Services of Phoenix, Arizona for
approximately $110,000 plus accrued earnouts and costs of $55,000. This
acquisition has been accounted for as a purchase. The excess of the purchase
price over the estimated fair market value of the acquired tangible assets was
approximately $157,000 and approximately $146,000 has been allocated to goodwill
and $11,000 has been allocated to other intangible assets.
PAMS Temporary Employment Service, Inc. and National Collex Corporation
In December 1995, the Company purchased certain assets and substantially
all of the business of PAMS Temporary Employment Service, Inc., and National
Collex Corporation with operations in Phoenix and Tucson, Arizona. The purchase
price was $1,850,000 plus contingent future earnout payments up to a maximum of
$1,650,000. During 1995 cash of $400,000 was paid and the Company entered into a
promissory note of $1,450,000 which was paid in full in January 1996. The
earnout payments are made monthly based upon the achievement of certain net
operating results. The Company intends to account for earnout payments as
additional purchase price when payment becomes probable. As of December 31, 1995
the Company has accrued $173,000 for earnout payments. This acquisition has been
accounted for as a purchase. The excess of the purchase price over the estimated
fair value of the acquired tangible assets was approximately $1,977,000 and
$1,907,000 has been allocated to goodwill and $70,000 has been allocated to
other intangible assets.
Pro Forma Acquisition Information -- Unaudited
The unaudited pro forma acquisition information for fiscal years 1993, 1994
and 1995 presents the results of operations as if the material acquisitions had
occurred at the beginning of fiscal 1994 except for the TSI acquisition, which
is assumed to have occurred at the beginning of fiscal 1993. The results of
operations give effect to certain adjustments, including amortization of
intangible assets and interest expense on acquisition debt. The pro forma
results have been prepared for comparative purposes only and do not purport to
be indicative of what would have occurred had the acquisitions been made at the
beginning of the applicable periods as described above or of the results which
may occur in the future.
F-12
<PAGE> 63
SOS STAFFING SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
UNAUDITED RESULTS OF OPERATIONS
-------------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Service revenues............................ $53,050,138 $81,449,358 $94,428,253
=========== =========== ===========
Income from operations...................... $ 963,064 $ 2,572,217 $ 4,606,715
=========== =========== ===========
Net income.................................. $ 1,043,260 $ 2,665,120 $ 3,124,561
=========== =========== ===========
</TABLE>
(4) LINE OF CREDIT AND NOTES PAYABLE
Line of Credit
The Company has a revolving credit agreement with a bank which provides for
a maximum commitment of $10,000,000. The commitment expires in June 1996 at
which time outstanding borrowings are due and payable. However, management
expects to renew the agreement prior to its expiration. Under the agreement,
interest is charged at the bank's prime rate (8.5% at December 31, 1995) and is
required to be paid monthly. The Company is required to pay a quarterly fee
equal to three-eighths of one percent on the loan balance. As of December 31,
1995, no loans were outstanding under the agreement.
The agreement contains certain restrictive covenants including maintenance
of a minimum tangible net worth and restrictions on the amount of capital
expenditures. As of December 31, 1995, the Company was in compliance with the
covenants.
Under the agreement, the Company has available letters of credit equal to
the maximum commitment less any outstanding loans. As of December 31, 1995, one
letter of credit in the amount of approximately $1,836,000 was outstanding.
Notes Payable
As of December 31, 1995, the Company has a short-term note payable due to
two individuals of $1,450,000 which was incurred in connection with the
acquisition of PAMS Temporary Employment Services, Inc. (see Note 3). This note
was paid in full in January 1996.
As of January 1, 1995, the Company had a note payable due to a related
party of $250,000 which was incurred in connection with the acquisition of TSI
(See Note 3). The note bore interest at a certain bank's prime rate and was paid
in full during fiscal 1995.
F-13
<PAGE> 64
SOS STAFFING SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) COMMITMENTS AND CONTINGENCIES
Noncancelable Operating Leases
The Company leases office facilities under noncancelable operating leases.
Management expects that, in the normal course of business, leases that expire
will be renewed or replaced by other leases. The Company leases certain of these
facilities from a related party (see Note 12).
Future minimum lease payments under noncancelable operating leases are as
follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDING
-------------------------------------------------
<S> <C>
1996...................................... $ 743,144
1997...................................... 520,799
1998...................................... 374,050
1999...................................... 285,655
2000...................................... 139,194
Thereafter................................ 311,026
----------
$2,373,868
==========
</TABLE>
Facility rental expense for the fiscal years 1993, 1994 and 1995 totaled
approximately $276,000, $405,000 and $649,000, respectively.
Legal Matters
From time to time the Company is involved in legal matters generally
incident to its business. It is the opinion of management, after discussions
with legal counsel, that the ultimate dispositions of these matters will not
have a material impact on the financial condition, liquidity or results of
operations of the Company.
Subsequent to December 31, 1995 a former employee filed a wrongful
termination suit against the Company (see Note 13).
(6) INITIAL PUBLIC OFFERING
In July 1995, the Company completed an initial public offering and issued
2,200,000 shares of common stock. The proceeds received from the offering, net
of underwriting commissions and offering costs, totaled approximately
$12,629,000.
(7) DISTRIBUTIONS TO SHAREHOLDERS
Prior to the Company's initial public offering, the Company distributed
approximately $8.0 million of its accounts receivable to its S Corporation
shareholders. This distribution increased the taxable income of the Company, the
tax on which was payable by the S Corporation shareholders. In addition, prior
to the initial public offering, the Company made distributions to shareholders
totaling $750,000 for the anticipated tax applicable to the S Corporation
earnings. Prior to the termination of the S Corporation election, it was
determined that the $750,000 was not needed for such income taxes and the
shareholders returned the distributions by contributing capital to the Company.
(8) PRO FORMA UNAUDITED STATEMENT OF INCOME INFORMATION
The pro forma income taxes adjustment has been determined assuming the
Company had been taxed as a C corporation for federal and state income tax
purposes, after giving effect to the compensation adjustment as described above.
F-14
<PAGE> 65
SOS STAFFING SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The pro forma weighted average common shares outstanding reflects the
effect of the issuance of 1,230,769 shares at an offering price of $6.50 per
share, as if the accounts receivable distribution of $8.0 million had occurred
at the beginning of 1994.
(9) INCOME TAXES
Effective June 26, 1995, the Company's S Corporation election was
terminated. In accordance with Statement of Financial Accounting Standards No.
109, the Company recorded a net deferred tax liability and the related deferred
tax provision of $445,000 for the tax effect of the differences between
financial statement and income tax bases of assets and liabilities that existed
at the termination date of the S Corporation election.
The components of the provision for income taxes for the period in fiscal
1995 since the termination of the S Corporation status are as follows:
<TABLE>
<S> <C>
Current provision
Federal................................................ $1,030,662
State.................................................. 160,777
----------
1,191,439
----------
Deferred provision (benefit)
Federal................................................ (152,956)
State.................................................. (17,692)
Change from S Corporation status....................... 445,000
----------
274,352
----------
Total provision for income taxes.................... $1,465,791
==========
</TABLE>
The following is a reconciliation between the statutory federal income tax
rate and the Company's effective income tax rate which is derived by dividing
the provision for income taxes by income before provision for income taxes for
the fiscal year ended December 31, 1995.
<TABLE>
<S> <C>
Statutory federal income tax rate............................. 34.0%
State income taxes, net of federal benefit.................... 3.3
Change from S Corporation status.............................. (4.5)
Other......................................................... 0.5
----
33.3%
====
</TABLE>
F-15
<PAGE> 66
SOS STAFFING SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of the deferred tax assets and liabilities at December 31,
1995 are as follows:
<TABLE>
<S> <C>
Deferred income tax assets
Workers' compensation reserves......................... $ 349,505
Allowance for doubtful accounts........................ 54,203
Other.................................................. 9,690
---------
413,398
---------
Deferred income tax liabilities
Cash to accrual adjustments............................ (645,248)
Depreciation........................................... (26,648)
Other.................................................. (15,854)
---------
(687,750)
---------
Net deferred income tax liability........................ $(274,352)
=========
</TABLE>
(10) STOCK OPTION PLAN
The Company established a nonqualified and incentive stock option plan
("the Plan"). The Plan provides for the issuance of a maximum of 400,000 shares
of common stock to officers, directors, consultants and other key employees. The
Plan will allow for the grant of incentive or nonqualified options and is
administered by the Board of Directors. Incentive options and nonqualified
options will be granted at not less than 100 percent of the fair market value of
the underlying common stock on the date of grant. No stock options granted will
be exercisable after ten years from the date of grant.
During the fiscal year 1995 the Company granted nonqualified and incentive
options to purchase a total of 149,000 shares of common stock to certain
officers, directors and employees of the Company. These options have an exercise
price ranging from $6.50 to $9.00 per share. The options vest 20% at the date of
grant and 16% or 20% each year thereafter until fully vested. At December 31,
1995, options to purchase 29,800 shares are exercisable.
(11) EMPLOYEE BENEFIT PLAN
The Company has a 401(k) defined contribution plan. Employee contributions
may be invested in several alternatives. Company contributions to the plan,
including matching contributions, may be made at the discretion of the Company.
The Company's contributions to the plan were approximately $20,000, $15,000 and
$30,000 for the fiscal years 1993, 1994 and 1995, respectively.
(12) RELATED PARTY TRANSACTIONS
As of January 1, 1995 and December 31, 1995, the Company had receivables
due from Temporary Services, Inc. (TSI), $3,896 and $0, respectively, and
receivables due from Skill Staff of Colorado, Inc. (SSCI) of $11,120 and $0,
respectively. During fiscal years 1993, 1994 and 1995, TSI paid the Company
$50,000, $30,500 and $0 for management services, respectively. The Company
received interest payments of approximately $19,600 from TSI in fiscal 1994.
Also, the Company guaranteed TSI's note payable to a bank which note was paid in
full by TSI during fiscal 1995.
During fiscal 1994, the Company advanced $24,000 to TSI of Utah, Inc.
(TSIU), a company incorporated by an adult son of certain majority shareholders,
which provides industrial temporary staffing services. TSIU has entered into a
franchise agreement with the Company to use the TSI name. Under the franchise
agreement, the Company has agreed to fund employee costs and collect customer
billings on behalf
F-16
<PAGE> 67
SOS STAFFING SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
of TSIU. The Company receives a service fee based upon a percentage of TSIU's
gross profit. As of December 31, 1995, the Company has a receivable due from
TSIU of approximately $460,900 for employee costs in excess of collections which
is secured by uncollected receivables of TSIU of approximately $479,000. During
fiscal years 1994 and 1995, the Company recorded service fee revenues of
approximately $5,400 and $43,000, respectively, relating to the agreement.
During fiscal year 1994 and part of fiscal year 1995, the Company rented
certain office space on a month-to-month basis from a limited partnership owned
primarily by certain shareholders of the Company and their adult children.
During fiscal years 1994 and 1995, the Company paid rent of $14,400 and $8,400,
respectively.
The Company leases its corporate office building from the adult children of
certain majority shareholders under a ten-year lease agreement with an option to
renew for ten additional years. Rental payments made during fiscal 1993, 1994
and 1995 amounted to approximately $43,300, $45,900 and $64,800, respectively.
Future minimum lease payments related to this lease will amount to approximately
$73,000 each fiscal year.
(13) SUBSEQUENT EVENTS
Subsequent to year end the Company acquired the assets and substantially
all of the business of Geomine Personnel, Inc. for $485,000 plus potential
future earnouts not to exceed $300,000. The Company intends to account for this
acquisition as a purchase. Geomine Personnel, Inc. provides temporary and
contract geologists and related personnel to the mining, energy and
environmental industries.
In February 1996, a former employee of the Company filed a wrongful
termination lawsuit against the Company in Third District Court, Salt Lake
County, State of Utah. The Complaint seeks compensatory damages of $4.5 million
and punitive damages of $4.0 million. Discovery is in the early stages; however,
the Company believes that the claim is without merit, and that the Company has
valid defenses to all of the allegations raised in the complaint.
(14) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of quarterly financial information for fiscal years 1994 and 1995
is as follows (dollars in thousand except per share data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1994
Service Revenues.................................. $12,951 $14,285 $18,105 $18,399
Gross Profit...................................... 2,345 2,719 3,634 3,720
Net Income........................................ $ 473 $ 433 $ 979 $ 542
1995
Service Revenues.................................. $19,573 $20,510 $23,251 $24,199
Gross Profit...................................... 4,023 4,264 4,908 4,985
Net Income........................................ 1,080 359 917 584
Pro Forma Net Income.............................. 664 512 917 584
Pro Forma Net Income Per Common Share............. $ 0.12 $ 0.09 $ 0.14 $ 0.09
</TABLE>
F-17
<PAGE> 68
SOS STAFFING SERVICES, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 29,
1996
-------------
<S> <C>
CURRENT ASSETS:
Cash.......................................................................... $ 492,526
Accounts receivable, net...................................................... 17,270,450
Current portion of workers' compensation deposit.............................. 622,743
Prepaid expenses and other.................................................... 388,102
Deferred tax asset............................................................ 184,640
Amounts due from related parties.............................................. 408,897
-----------
Total current assets....................................................... 19,367,358
-----------
PROPERTY AND EQUIPMENT, at cost:
Computer equipment............................................................ 1,299,422
Office equipment.............................................................. 1,294,244
Leasehold improvements and other.............................................. 862,775
-----------
3,456,441
Less accumulated depreciation and amortization................................ (1,582,204)
-----------
Total property and equipment, net.......................................... 1,874,237
-----------
OTHER ASSETS:
Workers' compensation deposit, less current portion........................... 136,549
Intangible assets, net........................................................ 10,306,696
Deposits and other assets..................................................... 346,434
-----------
Total other assets......................................................... 10,789,679
-----------
Total assets............................................................... $ 32,031,274
===========
</TABLE>
The accompanying notes to unaudited condensed consolidated financial statements
are an integral part of these unaudited condensed consolidated balance sheets.
F-18
<PAGE> 69
SOS STAFFING SERVICES, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 29,
1996
-------------
<S> <C>
CURRENT LIABILITIES:
Line of credit................................................................ $ 1,325,373
Accounts payable.............................................................. 130,895
Accrued payroll costs......................................................... 2,457,272
Current portion of workers' compensation reserve.............................. 1,101,903
Accrued liabilities........................................................... 1,999,051
Income taxes payable.......................................................... 536,368
-----------
Total current liabilities.................................................. 7,550,862
-----------
LONG-TERM BANK NOTE............................................................. 6,500,000
-----------
WORKERS' COMPENSATION RESERVE, less current portion............................. 267,528
-----------
DEFERRED INCOME TAX LIABILITY................................................... 66,735
-----------
SHAREHOLDERS' EQUITY:
Common stock.................................................................. 67,048
Additional paid-in capital.................................................... 13,130,388
Retained earnings............................................................. 4,448,713
-----------
Total shareholders' equity................................................. 17,646,149
-----------
Total liabilities and shareholders' equity................................. $ 32,031,274
===========
</TABLE>
The accompanying notes to unaudited condensed consolidated financial statements
are an integral part of these unaudited condensed consolidated balance sheets.
F-19
<PAGE> 70
SOS STAFFING SERVICES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
39 WEEKS ENDED
-----------------------------
OCTOBER 1, SEPTEMBER 29,
1995 1996
----------- -------------
<S> <C> <C>
SERVICE REVENUES................................................. $63,334,207 $92,834,049
DIRECT COSTS OF SERVICES......................................... 50,138,844 73,734,640
----------- -----------
Gross profit................................................... 13,195,363 19,099,409
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES..................... 9,824,486 14,283,940
----------- -----------
INCOME FROM OPERATIONS........................................... 3,370,877 4,815,469
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense............................................... (122,414) (176,781)
Interest income................................................ 64,770 10,729
Other, net..................................................... 88,083 104,887
----------- -----------
Total, net.................................................. 30,439 (61,165)
----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES......................... 3,401,316 4,754,304
PROVISION FOR INCOME TAXES (Including pro forma adjustment in
1995).......................................................... (1,308,896) (1,806,635)
----------- -----------
NET INCOME (Pro forma for 1995).................................. $ 2,092,420 $ 2,947,669
=========== ===========
NET INCOME PER COMMON SHARE (Pro forma for 1995)................. $ 0.35 $ 0.44
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Pro forma for
1995).......................................................... 6,061,061 6,760,392
=========== ===========
</TABLE>
The accompanying notes to unaudited condensed consolidated financial statements
are an integral part of these unaudited condensed consolidated statements.
F-20
<PAGE> 71
SOS STAFFING SERVICES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
39 WEEKS ENDED
------------------------------
OCTOBER 1, SEPTEMBER 29,
1995 1996
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................... $ 2,355,282 $ 2,947,669
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization.............................. 250,426 533,177
Deferred income taxes...................................... 451,340 (392,257)
Loss on disposition of assets.............................. -- 51,647
Other...................................................... -- (56,409)
Changes in operating assets and liabilities:
Accounts receivable, net................................. (11,097,899) (7,486,427)
Workers' compensation deposit............................ 12,562 (48,470)
Prepaid expenses and other............................... (112,680) (210,895)
Amounts due from related parties......................... (276,961) 52,000
Deposits and other assets................................ 53,006 (80,584)
Accounts payable......................................... 150,551 4,546
Accrued payroll costs.................................... 1,118,978 1,181,654
Workers' compensation reserve............................ (32,018) 449,682
Accrued liabilities...................................... 21,662 231,791
Income taxes payable..................................... 595,080 461,792
----------- -----------
Net cash used in operating activities................. (6,510,671) (2,361,084)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment........................... (541,088) (457,897)
Cash paid in acquisition of certain assets.................... (940,507) (5,812,195)
Deposits related to acquisition of certain assets............. 206,278 --
Principal payment on note related to acquisition.............. -- (1,450,000)
----------- -----------
Net cash used in investing activities................. $ (1,275,317) $(7,720,092)
----------- -----------
</TABLE>
The accompanying notes to unaudited condensed consolidated financial statements
are an integral part of these unaudited condensed consolidated statements.
F-21
<PAGE> 72
SOS STAFFING SERVICES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
39 WEEKS ENDED
-----------------------------
OCTOBER 1, SEPTEMBER 29,
1995 1996
----------- -------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net.................... $12,710,217 $ 30,940
Net (repayments) borrowings on line of credit.................. (1,478,530) 1,325,373
Borrowings on long term bank note.............................. -- 6,500,000
Principal payments on long-term debt........................... (550,000) --
Capital contribution from shareholders......................... 750,000 --
Distributions to shareholders.................................. (750,000) --
----------- -----------
Net cash provided by financing activities................... 10,681,687 7,856,313
----------- -----------
NET INCREASE (DECREASE) IN CASH.................................. 2,895,699 (2,224,863)
CASH AT BEGINNING OF PERIOD...................................... 613,049 2,717,389
----------- -----------
CASH AT END OF PERIOD............................................ $ 3,508,748 $ 492,526
=========== ===========
</TABLE>
The accompanying notes to unaudited condensed consolidated financial statements
are an integral part of these unaudited condensed consolidated statements.
F-22
<PAGE> 73
SOS STAFFING SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. These consolidated condensed financial statements reflect
all adjustments (consisting only of normal recurring adjustments), which in the
opinion of management, are necessary to present fairly the results of operations
of the Company for the period presented. It is suggested that these consolidated
financial statements be read in conjunction with the consolidated financial
statements and the notes thereto included elsewhere in this Prospectus.
The results of operations for the 39 week period ended September 29, 1996
are not necessarily indicative of the results to be expected for the full year.
(2) ASSET ACQUISITIONS
Geomine Personnel, Inc.
In February, 1996, the Company purchased certain assets and substantially
all of the business of Geomine Personnel, Inc. for approximately $485,000 plus
contingent future earnout payments up to a maximum of $300,000. As of September
29, 1996, approximately $111,000 of contingent earnouts were accrued and/or
paid. This acquisition has been accounted for as a purchase. The excess of the
purchase price over the estimated fair market value of the acquired tangible
assets was approximately $576,000, of which approximately $451,000 has been
allocated to goodwill and $125,000 has been allocated to other intangible
assets.
VIP Limited LLC
In April, 1996, the Company purchased certain assets and substantially all
of the business of VIP Limited LLC for approximately $15,000 plus contingent
future earnout payments up to a maximum of $185,000. As of September 29, 1996,
approximately $50,000 of contingent earnouts were accrued. The acquisition has
been accounted for as a purchase. The excess of the purchase price over the fair
market value of the acquired tangible assets was approximately $60,000, of which
approximately $50,000 has been allocated to goodwill and $10,000 has been
allocated to other intangible assets.
Snake River T.E.M.P.S., Inc.
In April, 1996, the Company purchased certain assets and substantially all
the business of Snake River T.E.M.P.S., Inc. for approximately $65,000 plus
contingent future earnouts up to a maximum of $135,000. As of September 29,
1996, approximately $50,000 of contingent earnouts had been accrued and/or paid.
The acquisition has been accounted for as a purchase. The excess of the purchase
price over the fair market value of the acquired tangible assets was
approximately $114,000 of which approximately $84,000 has been allocated to
goodwill and $30,000 has been allocated to other intangible assets.
Abacus Consulting Group, Inc., Abacus Consultants, Inc., The Performance
Professionals, Inc.
In July, 1996, the Company purchased certain assets and substantially all
the business of Abacus Consulting Group, Inc., Abacus Consultants, Inc., and The
Performance Professionals, Inc. for approximately $3.6 million and contingent
future earnouts up to a maximum of $1.8 million. As of September 29, 1996,
F-23
<PAGE> 74
SOS STAFFING SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
approximately $500,000 of contingent earnouts had been accrued and/or paid. The
acquisition has been accounted for as a purchase. The excess of the purchase
price over the fair market value of the acquired tangible assets was
approximately $4.1 million, of which approximately $3.8 million has been
allocated to goodwill and approximately $0.3 million has been allocated to other
intangible assets.
Allyn Colorado Enterprises, Inc.
In June, 1996, the Company purchased certain assets and substantially all
the business of Allyn Colorado Enterprises, Inc. for approximately $750,000 and
future contingent earnouts not to exceed $1.25 million. The acquisition has been
accounted for as a purchase. As of September 29, 1996, approximately $650,000 of
contingent earnouts had been accrued and/or paid. The excess of purchase price
over the fair market value of the acquired tangible assets was approximately
$1,380,000 of which approximately $1,200,000 has been allocated to goodwill and
approximately $180,000 has been allocated to other intangible assets.
Excell Employment, LLC
In July, 1996, the Company purchased certain assets and substantially all
the business of Excell Employment, LLC. for approximately $25,000 plus other
costs and contingent future earnouts up to a maximum of $75,000. The acquisition
has been accounted for as a purchase. The excess of the purchase price over the
fair market value of the acquired tangible assets was approximately $23,000, of
which approximately $4,000 has been allocated to goodwill and approximately
$19,000 has been allocated to other intangible assets.
Performance Plus, Inc.
In August, 1996, the Company purchased certain assets and substantially all
the business of Performance Plus, Inc. for approximately $35,000. The
acquisition has been accounted for as a purchase. The excess of the purchase
price over the fair market value of the acquired tangible assets was
approximately $30,000, of which approximately $15,000 has been allocated to
goodwill and approximately $15,000 has been allocated to other intangible
assets.
Impact Staffing, a division of Pacific Design Engineering
In August, 1996, the Company purchased certain assets and substantially all
the business of Impact Staffing, a division of Pacific Design Engineering, Inc.
for approximately $525,000 and contingent future earnouts up to a maximum of
$350,000. As of September 29, 1996 approximately $150,000 of contingent earnouts
had been accrued and/or paid. The acquisition has been accounted for as a
purchase. The excess of the purchase price over the fair market value of the
acquired tangible assets was approximately $645,000, of which approximately
$625,000 has been allocated to goodwill and approximately $20,000 has been
allocated to other intangible assets.
Key Personnel Service, Inc.
In September, 1996, the Company purchased certain assets and substantially
all the business of Key Personnel Service, Inc. for approximately $250,000 plus
other costs and contingent future earnouts up to a maximum of $150,000. At
September 29, 1996 approximately $50,000 of contingent earnouts had been accrual
and/or paid. The acquisition has been accounted for as a purchase. The excess of
the purchase price over the fair market value of the acquired tangible assets
was approximately $280,000, of which approximately $230,000 has been allocated
to goodwill and approximately $50,000 has been allocated to other intangible
assets.
F-24
<PAGE> 75
SOS STAFFING SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Pro Forma Acquisition Information
The unaudited pro forma acquisition information for the 39 weeks ended
October 1, 1995 and September 29, 1996 presents the results of operations of
material acquisitions as if the acquisitions had occurred at the beginning of
each 39 week period. The results of operations give effect to certain
adjustments including amortization of intangible assets and interest expense on
debt borrowings utilized to fund certain acquisitions. The pro forma results
have been prepared for comparative purposes only and do not purport to be
indicative of what would have occurred had the acquisitions been made at the
beginning of the applicable period as described above or of the results which
may occur in the future.
<TABLE>
<CAPTION>
UNAUDITED RESULTS OF
OPERATIONS
-----------------------------
39 WEEKS ENDED
-----------------------------
OCTOBER 1, SEPTEMBER 29,
1995 1996
----------- -------------
<S> <C> <C>
Service revenues.................. $71,137,332 $ 99,136,061
Income from operations............ $ 3,704,577 $ 5,097,432
Net income........................ $ 2,151,120 $ 2,977,650
</TABLE>
(3) LEGAL MATTERS
In February, 1996, a former employee of the Company filed a wrongful
termination lawsuit against the Company in Third District Court, Salt Lake
County, State of Utah. The complaint seeks compensatory damages of $4.5 million
and punitive damages of $4.0 million. Discovery is in the early stages; however,
the Company believes that the claim is without merit, and that the Company has
valid defenses to all the allegations raised in the complaint.
(4) 1995 PRO FORMA STATEMENTS OF INCOME INFORMATION
Effective June 26, 1995, the Company's S Corporation election was
terminated, accordingly, the income taxes for the 39 weeks ended October 1, 1995
have been reflected as if the election was terminated at the beginning of 1995.
Prior to the Company's initial public offering, the Company distributed
approximately $8.0 million of its accounts receivable to its S Corporation
shareholders. The pro forma weighted average common shares outstanding for the
39 weeks ended October 1, 1995 reflects the effect of the issuance of 1,230,769
shares at an offering price of $6.50 per share, as if the accounts receivable
distribution of $8.0 million had occurred at the beginning of 1995.
(5) REVOLVING CREDIT LINE
The Company entered into a secured revolving credit agreement (the
"Agreement") dated as of July 11, 1996 with certain banks. The Agreement
provides for a maximum commitment of $20,000,000 to be used for working capital
needs and to fund acquisitions. The commitment expires in July 1999 at which
time outstanding borrowings are due and payable. As of September 29, 1996 the
Company had total outstanding borrowings of $7.8 million, consisting of
short-term borrowings of $1.3 million, which bore interest at the prime rate
charged by the Company's lender which is periodically adjusted (8.25 percent at
September 29, 1996), and long-term borrowings of $6.5 million, which bore
interest at the LIBOR rate plus 1.75% (7.75 percent at September 29, 1996). The
Company has commitments for letters of credit of $3.7 million at September 29,
1996, for purposes of securing its workers' compensation premium obligation. The
aggregate amount of such letters of credit reduce the borrowing availability on
the line of credit. At September 29, 1996, $8.5 million was still available for
borrowings or letters of credit under the line of credit.
F-25
<PAGE> 76
SOS STAFFING SERVICES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In connection with the Agreement, the Company can borrow up to 85 percent
of certain eligible receivables. Borrowings are secured by substantially all of
the Company's assets. Interest is paid in arrears and is required to be paid
monthly. The Agreement contains certain restrictive covenants including
maintenance of certain minimums related to the Company's tangible net worth,
capital funds, total indebtedness to EBITDA, interest coverage and current
ratio. In addition, acquisitions with a total projected cost in excess of
certain individual and aggregate amounts in any 12 month period requires prior
consent of the banks. The Company is also required to pay a quarterly commitment
fee of .375 percent to .50 percent on the daily average unused commitment
amount.
F-26
<PAGE> 77
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO PAMS TEMPORARY EMPLOYMENT SERVICE, INC. AND AFFILIATES:
We have audited the accompanying combined balance sheets of PAMS Temporary
Employment Service, Inc. (an Arizona Corporation) and Patient Account Management
Services, Inc. (an Arizona Corporation) and National Collex Corporation (an
Arizona Corporation) as of December 31, 1994 and September 30, 1995, and the
related combined statements of operations and retained earnings and cash flows
for the year ended December 31, 1994 and the nine months ended September 30,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of PAMS Temporary
Employment Service, Inc., Patient Account Management Services, Inc. and National
Collex Corporation as of December 31, 1994 and September 30, 1995, and the
results of their operations and cash flows for the year ended December 31, 1994
and the nine months ended September 30, 1995 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
January 10, 1996
F-27
<PAGE> 78
PAMS TEMPORARY EMPLOYMENT SERVICE, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND SEPTEMBER 30, 1995
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
CURRENT ASSETS:
Cash............................................................. $ 131,323 $ 105,252
Restricted cash.................................................. 10,714 4,924
Accounts receivable, less allowance for doubtful accounts of
$57,300 and $57,300........................................... 378,222 660,843
Amounts due from related parties................................. 139,128 113,969
Other current assets............................................. -- 30,045
--------- ----------
Total current assets.......................................... 659,387 915,033
--------- ----------
PROPERTY AND EQUIPMENT, at cost:
Office equipment................................................. 188,200 202,344
Leasehold improvements and other................................. 15,565 15,565
--------- ----------
203,765 217,909
Less -- accumulated depreciation and amortization................ (122,284) (144,358)
--------- ----------
Total property and equipment, net............................. 81,481 73,551
--------- ----------
OTHER ASSETS....................................................... 13,386 12,975
--------- ----------
Total assets.................................................. $ 754,254 $ 1,001,559
========= ==========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES:
Line of credit................................................... $ 305,336 $ 325,202
Accounts payable................................................. 33,171 13,562
Accrued payroll costs............................................ 63,240 112,320
Accrued liabilities.............................................. 61,389 43,150
Current portion of long-term debt................................ 28,571 103,758
Cash held in trust............................................... 10,714 4,924
--------- ----------
Total current liabilities..................................... 502,421 602,916
--------- ----------
LONG-TERM DEBT, less current portion............................... 148,776 130,385
--------- ----------
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY:
Common stock of combined entities................................ 25,000 25,000
Retained earnings................................................ 78,057 243,258
--------- ----------
Total shareholders' equity.................................... 103,057 268,258
--------- ----------
Total liabilities and shareholders' equity.................... $ 754,254 $ 1,001,559
========= ==========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined balance sheets.
F-28
<PAGE> 79
PAMS TEMPORARY EMPLOYMENT SERVICE, INC. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1994 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1995
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
SERVICE REVENUES................................................. $5,002,406 $ 4,349,730
DIRECT COSTS OF SERVICES......................................... 3,605,903 3,080,557
---------- ----------
Gross margin................................................... 1,396,503 1,269,173
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES..................... 1,499,638 1,057,691
---------- ----------
INCOME (LOSS) FROM OPERATIONS.................................... (103,135) 211,482
---------- ----------
OTHER INCOME (EXPENSE):
Interest expense............................................... (48,341) (58,221)
Other, net..................................................... 38,500 11,940
---------- ----------
Total other income, net..................................... (9,841) (46,281)
---------- ----------
NET INCOME (LOSS)................................................ (112,976) 165,201
RETAINED EARNINGS, beginning of period........................... 191,033 78,057
---------- ----------
RETAINED EARNINGS, end of period................................. $ 78,057 $ 243,258
========== ==========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined statements.
F-29
<PAGE> 80
PAMS TEMPORARY EMPLOYMENT SERVICE, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1994 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1995
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................................. $ (112,976) $ 165,201
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization............................... 30,269 22,073
Changes in operating assets and liabilities:
Restricted cash........................................... (10,042) 5,790
Accounts receivable, net.................................. 391,854 (282,621)
Other current assets...................................... 35,626 (30,045)
Amounts due from related parties.......................... (47,487) 25,159
Other assets.............................................. (1,516) 411
Accounts payable.......................................... 33,171 (19,609)
Accrued payroll costs..................................... (11,565) 49,080
Accrued liabilities....................................... 23,388 (18,239)
Deferred revenues......................................... (131,985) --
Cash held in trust........................................ 10,042 (5,790)
--------- ---------
Net cash provided by (used in) operating activities.... 208,779 (88,590)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment............................. (30,620) (14,143)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on line of credit.................. (56,311) 19,866
Proceeds from borrowings....................................... -- 75,000
Principal payments on long-term debt........................... (20,703) (18,204)
--------- ---------
Net cash used in financing activities.................. (77,014) 76,662
--------- ---------
NET INCREASE (DECREASE) IN CASH.................................. 101,145 (26,071)
CASH AT BEGINNING OF PERIOD...................................... 30,178 131,323
--------- ---------
CASH AT END OF PERIOD............................................ $ 131,323 $ 105,252
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest....................... $ 48,341 $ 58,221
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined statements.
F-30
<PAGE> 81
PAMS TEMPORARY EMPLOYMENT SERVICE, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESSES
PAMS Temporary Employment Service, Inc. and Patient Account Management
Services, Inc., (collectively "PAMS") both incorporated under the laws of the
State of Arizona, operate a temporary staffing business with offices located in
Phoenix and Tucson, Arizona. PAMS provides temporary staffing services including
medical billing support for commercial and government billing, medical record
coding, medical data entry, and clerical support to medical facilities. In
addition, PAMS provides general healthcare consulting services.
National Collex Corporation ("NCC"), incorporated under the laws of the
State of Arizona, provides collection services and support for a variety of
businesses throughout Arizona including retail, commercial, utility, and medical
facilities.
For purposes of the combined financial statements, Patient Account
Management Services, Inc. and National Collex Corporation are considered the
Affiliates.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
The combined financial statements include the financial position and
operating results of PAMS Temporary Employment Service, Inc. and the Affiliates
(collectively, the "Company"). Combined financial statements are more meaningful
than separate statements as the companies operate under common ownership and
management. All significant intercompany accounts and transactions have been
eliminated in combination.
Revenue Recognition
Service revenues are recognized as income at the time services are
provided.
Property and Equipment
Property and equipment are stated at cost and depreciated using the
straight-line method over their estimated useful lives. Leasehold improvements
are amortized over the terms of the respective leases or the estimated economic
lives of the assets, whichever is shorter. The depreciation and amortization
periods range from four to seven years.
Upon retirement or other disposition of property and equipment, the cost
and related accumulated depreciation or amortization are removed from the
accounts. The resulting gain or loss is reflected in income. Major renewals and
betterments are capitalized while minor expenditures for maintenance and repairs
are charged to expense as incurred.
Income Taxes
The Company has elected, for federal and state income tax purposes, to
include its taxable income with that of its shareholders (an S Corporation
election). Accordingly, the Company makes no provision for income taxes in its
combined financial statements.
(3) RESTRICTED CASH
In connection with NCC's collection services, certain restricted cash
accounts are maintained. Collections for customers are deposited and remitted
based on contract provisions. The restricted cash accounts cannot be used for
operations.
F-31
<PAGE> 82
PAMS TEMPORARY EMPLOYMENT SERVICE, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(4) CONCENTRATION RISKS AND SIGNIFICANT CUSTOMERS
Industry
At September 30, 1995, approximately $580,000 of the Company's total
accounts receivable were from customers in the healthcare industry.
Significant Customers
During the year ended December 31, 1994 a customer accounted for
approximately 21 percent of services revenues and another customer accounted for
approximately 11 percent of service revenues. During the nine months ended
September 30, 1995, these same two customers accounted for 20 percent and 10
percent of service revenues. No other customer accounted for more than 10
percent of revenues during these periods.
(5) LINE OF CREDIT AND LONG-TERM DEBT
Line of Credit
During 1995 the Company entered into a revolving line of credit arrangement
for working capital needs with a bank which provides for maximum borrowings of
$350,000. Under the terms of the agreement, the Company may borrow up to an
amount equal to 80 percent of certain receivables. The line of credit is secured
by substantially all assets of the Company, and is personally guaranteed by the
shareholders. The arrangement also requires the maintenance of certain financial
ratios and working capital levels. The agreement expired on October 31, 1995 and
was subsequently renewed through March 1, 1996. Interest on borrowings is at the
bank's prime lending rate (9.25 percent at September 30, 1995) plus 2 percent.
As of September 30, 1995, there were $325,202 of outstanding borrowings under
this arrangement.
Long-term Debt
Long-term debt consists of the following as of December 31, 1994 and
September 30, 1995:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
Note payable to a bank, interest at bank's prime rate (9.25 percent
at September 30, 1995) plus 2 percent, payable in monthly
installments of $3,705 through October 1999, balloon payment due
October 1999, secured by substantially all assets and guaranteed
by the shareholders.............................................. $177,347 $ 159,143
Note payable to a bank, interest at bank's prime rate (9.25 percent
at September 30, 1995) plus 2 percent, principal due on March 1,
1996 secured by substantially all assets and guaranteed by the
shareholders..................................................... -- 75,000
-------- ---------
177,347 234,143
Less current portion............................................... (28,571) (103,758)
-------- ---------
$148,776 $ 130,385
======== =========
</TABLE>
F-32
<PAGE> 83
PAMS TEMPORARY EMPLOYMENT SERVICE, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
As of September 30, 1995 scheduled principal payments of long-term debt are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30, AMOUNT
------------------------------------------ --------
<S> <C>
1996................................... $103,758
1997................................... 32,088
1998................................... 32,666
1999................................... 39,580
2000................................... 26,051
--------
$234,143
========
</TABLE>
(6) COMMITMENTS AND CONTINGENCIES
Noncancelable Operating Leases
The Company leases office facilities and certain automobiles under
noncancelable operating leases. Total operating lease expense for the year ended
December 31, 1994 and the nine months ended September 30, 1995 totaled
approximately $146,000 and $110,000, respectively.
Future minimum lease payments under noncancelable operating leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------------------------------------ --------
<S> <C>
1995................................... $146,437
1996................................... 126,652
1997................................... 63,204
1998................................... 4,475
1999................................... 3,495
Thereafter............................. 2,122
--------
$346,385
========
</TABLE>
(7) RELATED PARTY TRANSACTIONS
As of December 31, 1994 and September 30, 1995, the Company had amounts due
from officers and shareholders of $139,128 and $113,969, respectively, as result
of advances made to these individuals. These advances are noninterest bearing,
unsecured and due on demand.
(8) SUBSEQUENT EVENT
In December 1995, the Company sold certain fixed assets and substantially
all of its operations to SOS Staffing Services, Inc. The purchase price was
$1,850,000 plus contingent earnouts of approximately $1,650,000.
F-33
<PAGE> 84
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO PERFORMANCE PROFESSIONALS, INC. AND AFFILIATES:
We have audited the accompanying combined balance sheets of Performance
Professionals, Inc. (a Colorado corporation), Abacus Consulting Group, Inc. (a
Colorado corporation), and Abacus Consultants, Inc. (a Colorado corporation) as
of December 31, 1994 and 1995, and the related combined statements of income and
retained earnings, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of the Performance
Professionals, Inc., Abacus Consulting Group, Inc. and Abacus Consultants, Inc.
as of December 31, 1994 and 1995, and the results of their operations and cash
flows for the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
July 19, 1996
F-34
<PAGE> 85
PERFORMANCE PROFESSIONALS, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1994 1995 1996
---------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash................................................... $ 492,673 $435,662 $ 302,927
Accounts receivable.................................... 517,724 238,131 245,176
Prepaids and other..................................... 23,352 49,151 32,675
---------- -------- --------
Total current assets................................ 1,033,749 722,944 580,778
---------- -------- --------
PROPERTY AND EQUIPMENT, at cost:
Office equipment....................................... 49,927 57,551 63,064
Leasehold improvements and other....................... 3,468 6,057 6,057
---------- -------- --------
53,395 63,608 69,121
Less -- accumulated depreciation and amortization...... (46,991) (55,662) (61,507)
---------- -------- --------
Net property and equipment.......................... 6,404 7,946 7,614
---------- -------- --------
OTHER ASSETS............................................. 79,143 108,983 106,118
---------- -------- --------
Total assets........................................ $1,119,296 $839,873 $ 694,510
========== ======== ========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable....................................... $ 6,397 $ 8,761 $ 13,950
Accrued payroll costs.................................. 18,818 22,490 28,514
Income taxes payable................................... 4,618 3,932 44,489
---------- -------- --------
Total current liabilities........................... 29,833 35,183 86,953
---------- -------- --------
DEFERRED INCOME TAX LIABILITY............................ 56,405 19,222 7,716
---------- -------- --------
COMMITMENTS (Note 3)
SHAREHOLDERS' EQUITY:
Common stock of combined entities...................... 210 210 210
Retained earnings...................................... 1,032,848 785,258 599,631
---------- -------- --------
Total shareholders' equity.......................... 1,033,058 785,468 599,841
---------- -------- --------
Total liabilities and shareholders' equity.......... $1,119,296 $839,873 $ 694,510
========== ======== ========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined balance sheets.
F-35
<PAGE> 86
PERFORMANCE PROFESSIONALS, INC. AND AFFILIATES
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------- -------------------------
1994 1995 1995 1996
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
SERVICE REVENUES.......................... $3,773,813 $2,735,298 $1,272,421 $1,424,871
DIRECT COSTS OF SERVICES.................. 2,327,788 1,661,212 811,825 899,372
---------- ---------- ---------- ----------
Gross margin............................ 1,446,025 1,074,086 460,596 525,499
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................ 760,360 986,886 222,305 320,759
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS.................... 685,665 87,200 238,291 204,740
---------- ---------- ---------- ----------
OTHER INCOME:
Interest income......................... 16,041 38,520 18,552 11,655
Other, net.............................. 3,322 3,660 1,233 520
---------- ---------- ---------- ----------
Total other income, net.............. 19,363 42,180 19,785 12,175
---------- ---------- ---------- ----------
INCOME BEFORE PROVISION (BENEFIT) FOR
INCOME TAXES............................ 705,028 129,380 258,076 216,915
PROVISION (BENEFIT) FOR INCOME TAXES...... 57,918 (33,030) 26,928 29,051
---------- ---------- ---------- ----------
NET INCOME................................ 647,110 162,410 231,148 187,864
RETAINED EARNINGS, beginning
of period............................... 385,738 1,032,848 1,032,848 785,258
DISTRIBUTIONS TO SHAREHOLDERS............. -- (410,000) -- (373,491)
---------- ---------- ---------- ----------
RETAINED EARNINGS, end of period.......... $1,032,848 $ 785,258 $1,263,996 $ 599,631
========== ========== ========== ==========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined statements.
F-36
<PAGE> 87
PERFORMANCE PROFESSIONALS, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------- ----------------------
1994 1995 1995 1996
--------- --------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................. $ 647,110 $ 162,410 $231,148 $ 187,864
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............. 4,748 8,670 524 5,845
Changes in operating assets and
liabilities:
Accounts receivable..................... (175,703) 279,593 152,774 (7,045)
Prepaid expenses and other.............. (11,057) (25,799) 16,992 16,476
Other assets............................ (3,320) (29,840) (5,922) 2,865
Accounts payable........................ (15,484) 2,364 30,131 5,189
Accrued liabilities..................... 1,610 2,987 64,846 46,581
Deferred income tax liability........... 53,301 (37,183) (35,048) (11,506)
---------- ----------- ---------- -----------
Net cash provided by operating
activities............................ 501,205 363,202 455,445 246,269
---------- ----------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment......... (6,658) (10,213) (2,589) (5,513)
---------- ----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholders.............. -- (410,000) -- (373,491)
---------- ----------- ---------- -----------
NET INCREASE (DECREASE) IN CASH.............. 494,547 (57,011) 452,856 (132,735)
CASH AT BEGINNING OF PERIOD.................. (1,874) 492,673 492,673 435,662
---------- ----------- ---------- -----------
CASH AT END OF PERIOD........................ $ 492,673 $ 435,662 $945,529 $ 302,927
========== =========== =========== ===========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined statements.
F-37
<PAGE> 88
PERFORMANCE PROFESSIONALS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Organization of Business
Performance Professionals, Inc. ("Performance"), Abacus Consultants, Inc.,
("AC") and Abacus Consulting Group, Inc. ("ACG") (collectively the "Company")
were incorporated under the laws of the State of Colorado. Performance and ACG
operate a temporary staffing business in Denver, Colorado which provides
professional and technical temporary staffing employees, primarily information
systems related, to various businesses. AC provides permanent placement services
to various businesses.
On June 26, 1996, the Company signed an agreement to sell certain assets
and substantially all of the operations of the Company to SOS Staffing Services,
Inc. who assumed control of the operations of the Company on July 1, 1996. The
accompanying financial statements presented are pre-acquisition financial
statements of the combined entities and do not reflect any purchase accounting
adjustments.
Principles of Combination
The combined financial statements include the financial position and
operating results of Performance and its affiliates, AC and ACG. Combined
financial statements are more meaningful than separate statements as the
companies operate under common ownership and management. All significant
intercompany accounts and transactions have been eliminated in combination.
Revenue Recognition
Temporary services revenues are recognized when the services are rendered
by the Company's temporary employees. Permanent placement revenues are
recognized when employment candidates accept offers of permanent employment.
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 of 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.
Property and Equipment
Property and equipment are stated at cost and depreciated using the
straight-line method over their estimated useful lives. Leasehold improvements
are amortized over the terms of the respective leases or the estimated economic
lives of the assets, whichever is shorter. The depreciation and amortization
periods range from four to seven years.
Upon retirement or other disposition of property and equipment, the cost
and related accumulated depreciation or amortization are removed from the
accounts. The resulting gain or loss is reflected in income. Major renewals and
betterments are capitalized while minor expenditures for maintenance and repairs
are charged to expense as incurred.
Other Assets
Other assets consist primarily of the cash surrender value of life
insurance policies and investments in marketable securities.
F-38
<PAGE> 89
PERFORMANCE PROFESSIONALS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Income Taxes
Performance and AC have elected, for federal and state income tax purposes,
to include their taxable income with that of its shareholders (an S Corporation
election). Accordingly, these companies make no provision for income taxes.
These companies distribute amounts as needed for the payment of the
shareholders' federal and state income taxes. Distributions are recorded in the
accompanying financial statements when paid.
ACG is a taxable entity for state and federal income tax purposes.
Accordingly, ACG has recorded a provision for income taxes in the accompanying
financial statements. Also, ACG recognizes a liability or asset for the deferred
tax consequences of all temporary differences between the tax bases of assets or
liabilities and their reported amounts in the financial statements. As of
December 31, 1994 and 1995, the Company had a net deferred income tax liability
of $56,405 and $19,222, respectively, which resulted primarily from using the
cash basis of accounting for income tax reporting purposes.
Unaudited Interim Financial Data
The accompanying unaudited financial statements as of June 30, 1996 and for
the six months ended June 30, 1995 and 1996 have been prepared in accordance
with generally accepted accounting principles for interim financial information.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the six months ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the full year.
(2) SIGNIFICANT CUSTOMERS
During the year ended December 31, 1995, one customer accounted for
approximately 44 percent of service revenues. During the year ended December 31,
1994, two customers accounted for approximately 23 and 17 percent, respectively,
of service revenues.
(3) COMMITMENTS
The Company leases its office facilities under a noncancelable operating
lease. Operating lease payments totalled $20,515 for each of the years ended
December 31, 1994 and 1995. Operating lease payments totalled $10,257 and
$10,724, respectively, for the six months ended June 30, 1995 and 1996. Future
minimum lease payments under noncancelable operating leases total $10,724, which
are payable during fiscal 1996.
F-39
<PAGE> 90
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO WOLFE & ASSOCIATES, INC.:
We have audited the accompanying balance sheets of Wolfe & Associates, Inc. (a
New Mexico corporation) as of February 28, 1995 and February 29, 1996, and the
related statements of income and retained earnings, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wolfe & Associates, Inc. as of
February 28, 1995 and February 29, 1996, and the results of its operations and
cash flows for the years then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
October 17, 1996
F-40
<PAGE> 91
WOLFE & ASSOCIATES, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29, SEPTEMBER 30,
1995 1996 1996
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash................................................ $ -- $ -- $ 35,379
Marketable securities............................... 79,979 -- --
Accounts receivable................................. 441,172 475,874 465,577
Unbilled receivables................................ 37,571 20,006 69,714
Prepaid expenses and other.......................... 10,151 11,711 3,275
------------ ------------ -------------
Total current assets............................. 568,873 507,591 573,945
------------ ------------ -------------
PROPERTY AND EQUIPMENT, at cost:
Furniture and fixtures.............................. 334,711 423,561 444,534
Leasehold improvements.............................. 60,188 75,410 77,881
Vehicles............................................ 53,322 48,141 46,641
Real property....................................... -- 286,383 286,383
------------ ------------ -------------
448,221 833,495 855,439
Less -- accumulated depreciation and amortization... (366,195) (357,314) (386,814)
------------ ------------ -------------
Net property and equipment....................... 82,026 476,181 468,625
------------ ------------ -------------
AMOUNTS DUE FROM RELATED PARTY........................ 137,005 73,977 88,349
------------ ------------ -------------
Total assets..................................... $787,904 $ 1,057,749 $ 1,130,919
========= ========= ==========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C>
CURRENT LIABILITIES:
Bank overdraft...................................... $131,314 $ 223,582 $ --
Current portion of long-term debt................... 106,710 113,776 111,666
Accrued payroll costs............................... 165,056 148,902 366,546
Accrued liabilities................................. 29,567 45,471 32,092
Unearned revenue.................................... 62,865 79,214 94,779
Income taxes payable................................ -- 53,003 162,293
------------ ------------ -------------
Total current liabilities........................ 495,512 663,948 767,376
------------ ------------ -------------
DEFERRED INCOME TAX LIABILITY......................... 127,546 109,526 57,970
------------ ------------ -------------
LONG-TERM DEBT, less current portion.................. 232,238 308,462 246,565
------------ ------------ -------------
COMMITMENTS (Note 3)
SHAREHOLDERS' EQUITY:
Common stock, $1.00 par value, 50,000 shares
authorized, 1,000 shares issued and
outstanding...................................... 1,000 1,000 1,000
Additional paid in capital.......................... 20,000 20,000 20,000
Retained (deficit) earnings......................... (88,392) (45,187) 38,008
------------ ------------ -------------
Total shareholders' (deficit) equity............. (67,392) (24,187) 59,008
------------ ------------ -------------
Total liabilities and shareholders' equity....... $787,904 $ 1,057,749 $ 1,130,919
========= ========= ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-41
<PAGE> 92
WOLFE & ASSOCIATES, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED SEVEN MONTHS ENDED
--------------------------- SEPTEMBER 30,
FEBRUARY 28, FEBRUARY 29, -------------------------
1995 1996 1995 1996
------------ ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
SERVICE REVENUES.......................... $ 2,734,697 $ 3,252,306 $1,919,806 $2,260,491
DIRECT COSTS OF SERVICES.................. 1,508,252 1,915,980 1,124,777 1,265,526
---------- ---------- ---------- ----------
Gross margin............................ 1,226,445 1,336,326 795,029 994,965
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................ 1,047,253 1,257,044 659,297 840,650
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS.................... 179,192 79,282 135,732 154,315
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest income......................... 19,567 18,182 10,708 4,224
Interest expense........................ (39,004) (34,656) (18,492) (19,137)
Other................................... (1,606) 15,380 9,365 1,527
---------- ---------- ---------- ----------
Total other, net..................... (21,043) (1,094) 1,581 (13,386)
---------- ---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME
TAXES................................... 158,149 78,188 137,313 140,929
PROVISION FOR INCOME TAXES................ 62,156 34,983 53,009 57,734
---------- ---------- ---------- ----------
NET INCOME................................ 95,993 43,205 84,304 83,195
RETAINED EARNINGS, beginning
of period............................... (184,385) (88,392) (88,392) (45,187)
---------- ---------- ---------- ----------
RETAINED EARNINGS, end of period.......... $ (88,392) $ (45,187) $ (4,088) $ 38,008
========== ========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-42
<PAGE> 93
WOLFE & ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
YEAR ENDED SEVEN MONTHS ENDED
----------------------------- SEPTEMBER 30,
FEBRUARY 28, FEBRUARY 29, -----------------------
1995 1996 1995 1996
------------ ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................... $ 95,993 $ 43,205 $ 84,304 $ 83,195
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization............ 22,790 9,333 16,142 31,056
Gain (loss) on sale of assets............ 1,606 (15,380) 9,365 --
Changes in operating assets and
liabilities:
Accounts receivable................... (210,136) (34,702) 55,916 10,297
Unbilled receivables.................. 28,633 17,565 (4,464) (49,708)
Prepaid expenses and other............ 489 (1,560) 9,659 8,436
Amounts due from related party........ 6,283 63,028 13,530 (14,372)
Bank overdraft........................ 58,929 92,268 (97,248) (223,582)
Accrued payroll costs................. 62,282 (16,154) 144,536 217,644
Accrued liabilities................... (7,945) 15,904 (25,254) (13,379)
Unearned revenue...................... 29,706 16,349 20,576 15,565
Income taxes payable.................. -- 53,003 152,863 109,290
Deferred income taxes................. 62,156 (18,020) (99,854) (51,556)
--------- --------- --------- ---------
Net cash provided by operating
activities....................... 150,786 224,839 280,071 122,886
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment...... (27,100) (213,488) (171,741) (23,500)
Purchase of marketable securities........ (81,713) (90,588) 20,614 --
Proceeds from sale of marketable
securities............................ 51,544 185,947 -- --
--------- --------- --------- ---------
Net cash (used in) investing
activities.......................... (57,269) (118,129) (151,127) (23,500)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt..... (93,517) (106,710) (64,430) (64,007)
--------- --------- --------- ---------
NET INCREASE IN CASH....................... -- -- 64,514 35,379
CASH AT BEGINNING OF PERIOD................ -- -- -- --
--------- --------- --------- ---------
CASH AT END OF PERIOD...................... $ -- $ -- $ 64,514 $ 35,379
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for
interest:................................ $ 38,068 $ 35,927 $ 18,359 $ 19,357
SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING ACTIVITIES:
In August 1995 the Company purchased real property for $286,383 and financed a portion of this amount
with a note payable of $190,000.
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-43
<PAGE> 94
WOLFE & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Organization of Business
Wolfe & Associates, Inc. (the "Company"), was incorporated under the laws
of the State of New Mexico on December 16, 1980. The Company is an information
technology consulting firm that also provides temporary staffing services to the
information technology industry, including telecommunications consulting
services. The Company has offices or sales representatives in New Mexico,
California, Alaska, Illinois and Minnesota.
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 of 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.
Property and Equipment
Property and equipment are stated at cost and depreciated using the
straight-line method over their estimated useful lives. Leasehold improvements
are amortized over the terms of the respective leases or the estimated economic
lives of the assets, whichever is shorter. The depreciation and amortization
periods range from five to seven years. Real property consists of a condominium
owned by the Company and is being depreciated over 39 years.
Upon retirement or other disposition of property and equipment, the cost
and related accumulated depreciation or amortization are removed from the
accounts. The resulting gain or loss is reflected in income. Major renewals and
betterments are capitalized while minor expenditures for maintenance and repairs
are charged to expense as incurred.
Revenue Recognition
The Company reports revenues from fixed fee consulting contract
arrangements using the percentage-of-completion method. Under this method, the
Company recognizes total contract revenue in the proportion that costs incurred
to date relate to estimated total contract costs. The Company records amounts
received before work is performed as unearned revenue. When earned revenue
exceeds amounts billed, the Company records the difference as unbilled
receivables. At the time a loss on a contract becomes known, the entire amount
of the estimated ultimate loss is accrued. The Company recognizes revenues
related to other arrangements when the services are provided.
Income Taxes
The Company recognizes deferred tax assets or liabilities for expected
future tax consequences of events that have been recognized in the financial
statements or tax returns. Under this method, deferred tax assets or liabilities
are determined based upon the difference between the financial statements and
income tax bases of assets and liabilities using enacted tax rates expected to
apply when differences are expected to be settled or realized.
Unaudited Interim Financial Data
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. In the opinion of management, all adjust-
F-44
<PAGE> 95
WOLFE & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ments (consisting of normal recurring adjustments) considered necessary for a
fair presentation have been included. Operating results for the seven months
ended September 30, 1996 are not necessarily indicative of the results that may
be expected for the full fiscal year.
(2) LONG-TERM DEBT
Long-term debt at February 28, 1995 and February 29, 1996 consists of the
following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Note payable to a bank, interest at 10 percent due in monthly
installments of $8,550 through December 1997, secured by
substantially all assets............................................. $ 246,249 $ 164,135
Notes payable to tax authorities, interest at 9 percent, due in
quarterly or yearly installments ranging from $230 to $3,523 through
October 1998, secured by substantially all assets.................... 89,593 68,103
Note payable to a bank, interest at 7.5 percent, monthly interest only
payments of $1,188 with principal due in August 1998, secured by real
property............................................................. -- 190,000
Other.................................................................. 3,106 --
-------- --------
338,948 422,238
Less current portion................................................... (106,710) (113,776)
-------- --------
$ 232,238 $ 308,462
======== ========
</TABLE>
Scheduled principal payments required are as follows:
<TABLE>
<CAPTION>
YEAR ENDING FEBRUARY 28,
-------------------------------------------------
<S> <C>
1997..................................... $ 113,776
1998..................................... 99,595
1999..................................... 208,867
--------
$ 422,238
========
</TABLE>
(3) COMMITMENTS
The Company leases its office facilities and certain vehicles under
noncancelable operating leases. Rental expense totalled approximately $88,400
and $104,600 for the years ended February 28, 1995 and February 29, 1996,
respectively. Rental expense totalled $55,000 and $70,000, for the seven months
ended September 30, 1995 and 1996, respectively. Future minimum lease payments
under noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING FEBRUARY 28,
-------------------------------------------------
<S> <C>
1997..................................... $ 170,751
1998..................................... 177,316
1999..................................... 166,598
2000..................................... 143,636
2001..................................... 89,041
--------
$ 747,342
========
</TABLE>
F-45
<PAGE> 96
WOLFE & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) INCOME TAXES
The components of the provision for income taxes for the fiscal years ended
February 28, 1995 and February 29, 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
------- --------
<S> <C> <C>
Current provision:
Federal....................................................... $ -- $ 46,158
State......................................................... -- 6,845
-------- --------
-- 53,003
Deferred........................................................ 62,156 (18,020)
-------- --------
Total......................................................... $62,156 $ 34,983
======== ========
</TABLE>
The following is a reconciliation between the statutory federal income tax
rate and the effective income tax rate for the years ended February 28, 1995 and
February 29, 1996:
<TABLE>
<CAPTION>
1995 1996
----- -----
<S> <C> <C>
Statutory federal income tax rate.................................... 34.0% 34.0%
State income taxes, net of federal benefit........................... 3.2 3.2
Meals and entertainment.............................................. 4.1 10.7
Other................................................................ (2.0) (3.2)
------ ------
-- --
39.3% 44.7%
======== ========
</TABLE>
The net deferred tax liabilities were $127,546 and $109,526 at February 28,
1995 and February 29, 1996, respectively and consisted primarily of differences
resulting from the Company utilizing the cash basis method of accounting for
income tax reporting purposes.
(5) EMPLOYEE BENEFIT PLAN
The Company has an employee savings and retirement plan which is a salary
deferral plan based on Section 401(k) of the Internal Revenue Code. Participants
may contribute up to 15% of their qualified salaries to the plan. Under the
plan, the Company is required to make a matching contribution equal to three
percent of the eligible participant's salary. In addition, the Company may make
discretionary contributions to the plan. For the years ended February 28, 1995
and February 29, 1996, the Company's total contributions to the plan were
approximately $82,600 and $50,400, respectively.
(6) SIGNIFICANT CUSTOMERS
During the years ended February 28, 1995 and February 29, 1996, one
customer accounted for approximately 25 percent and 18 percent of service
revenues, respectively.
(7) RELATED PARTY TRANSACTIONS
The Company has advanced amounts to a shareholder. The balances of the
amounts due from this related party are $137,005, $73,977 and $88,349 as of
February 28, 1995, February 29, 1996 and September 30, 1996, respectively. These
advances are not interest bearing and are due on demand.
F-46
<PAGE> 97
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, ANY SELLING SHAREHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, COMMON
STOCK IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
The Company........................... 10
Disclosure Regarding Forward-Looking
Statements.......................... 10
Use of Proceeds....................... 11
Dividend Policy....................... 11
Capitalization........................ 12
Price Range of Common Stock........... 12
Unaudited Pro Forma Condensed
Consolidated Financial Data......... 13
Selected Financial and Operating
Data................................ 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 25
Management............................ 35
Certain Relationships and Related
Party Transactions.................. 41
Principal and Selling Shareholders.... 42
Description of Capital Stock.......... 44
Shares Eligible for Future Sale....... 46
Underwriting.......................... 47
Legal Matters......................... 48
Experts............................... 48
Additional Information................ 48
Index to Financial Statements......... F-1
------------------------
UNTIL , 1997 (25 DAYS AFTER
THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK
OFFERED HEREBY, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- --------------------------------------------
- --------------------------------------------
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
2,200,000 SHARES
LOGO
COMMON STOCK
------------------------
PROSPECTUS
------------------------
UNTERBERG HARRIS
PAINEWEBBER INCORPORATED
GEORGE K. BAUM & COMPANY
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 98
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth expenses in connection with the issuance and
distribution of the Common Stock being registered, other than underwriting
discounts and commissions. All of the expenses listed below will be borne by the
Company. All of the amounts shown are estimates, except the SEC registration
fees, the Nasdaq Stock Market filing fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
SEC registration fees..................................................... $ 15,634
Nasdaq Stock Market filing fee............................................ $ 17,500
NASD filing fee........................................................... $ 5,660
Accounting fees and expenses.............................................. $ 75,000
Legal fees and expenses................................................... $ 85,000
Blue sky fees and expenses................................................ $ 10,000
Printing expenses......................................................... $100,000
Transfer agent and custodian fees and expenses............................ $ 2,000
Miscellaneous expenses.................................................... $ 89,206
--------
Total........................................................... $400,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 16-10a-902 ("Section 902") of the Utah Revised Business Corporation
Act (the "Revised Act") provides that a corporation may indemnify any individual
who was, is, or is threatened to be made a named defendant or respondent (a
"Party") in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative and whether formal or
informal (a "Proceeding"), because he is or was a director of the corporation
or, while a director of the corporation, is or was serving at its request as a
director, officer, partner, trustee, employee, fiduciary or agent of another
corporation or other person or of an employee benefit plan (an "Indemnifiable
Director"), against any obligation incurred with respect to a Proceeding,
including any judgment, settlement, penalty, fine or reasonable expenses
(including attorneys' fees), incurred in the Proceeding if his conduct was in
good faith, he reasonably believed that his conduct was in, or not opposed to,
the best interests of the corporation, and, in the case of any criminal
Proceeding, he had no reasonable cause to believe his conduct was unlawful;
provided however, that, pursuant to Subsection 902(4), (i) indemnification under
Section 902 in connection with a Proceeding by or in the right of the
corporation is limited to payment of reasonable expenses (including attorneys'
fees) incurred in connection with the Proceeding and (ii) the corporation may
not indemnify an Indemnifiable Director in connection with a Proceeding by or in
the right of the corporation in which the Indemnifiable Director was adjudged
liable to the corporation, or in connection with any other Proceeding charging
that the Indemnifiable Director derived an improper personal benefit, whether or
not involving action in his official capacity, in which Proceeding he was
adjudged liable on the basis that he derived an improper personal benefit.
Section 16-10a-903 ("Section 903") of the Revised Act provides that, unless
limited by its articles of incorporation, a corporation shall indemnify an
Indemnifiable Director who was successful, on the merits or otherwise, in the
defense of any Proceeding, or in the defense of any claim, issue or matter in
the Proceeding, to which he was a Party because he is or was an Indemnifiable
Director of the corporation, against reasonable expenses (including attorneys'
fees) incurred by him in connection with the Proceeding or claim with respect to
which he has been successful.
II-1
<PAGE> 99
In addition to the indemnification provided by Sections 902 and 903,
Section 16-10a-905 ("Section 905") of the Revised Act provides that, unless
otherwise limited by a corporation's articles of incorporation, an Indemnifiable
Director may apply for indemnification to the court conducting the Proceeding or
to another court of competent jurisdiction. On receipt of an application and
after giving any notice the court considers necessary, (i) the court may order
mandatory indemnification under Section 903, in which case the court shall also
order the corporation to pay the director's reasonable expenses to obtain
court-ordered indemnification, or (ii) upon the court's determination that the
director is fairly and reasonably entitled to indemnification in view of all the
relevant circumstances and regardless of whether the director met the applicable
standard of conduct set forth in Section 902 or was adjudged liable as described
in Subsection 902(4), the court may order indemnification as the court
determines to be proper, except that indemnification with respect to certain
Proceedings resulting in a director being found liable as described in
Subsection 902(4) is limited to reasonable expenses (including attorneys' fees)
incurred by the director.
Section 16-10a-904 ("Section 904") of the Revised Act provides that a
corporation may pay for or reimburse the reasonable expenses (including
attorneys' fees) incurred by an Indemnifiable Director who is a Party to a
Proceeding in advance of the final disposition of the Proceeding if (i) the
director furnishes the corporation a written affirmation of his good faith
belief that he has met the applicable standard of conduct described in Section
902, (ii) the director furnishes to the corporation a written undertaking,
executed personally or in his behalf, to repay the advance if it is ultimately
determined that he did not meet the required standard of conduct, and (iii) a
determination is made that the facts then known to those making the
determination would not preclude indemnification.
Section 16-10a-907 of the Revised Act provides that, unless a corporation's
articles of incorporation provide otherwise, (i) an officer of the corporation
is entitled to mandatory indemnification under Section 903 and is entitled to
apply for court ordered indemnification under Section 905, in each case to the
same extent as an Indemnifiable Director, (ii) the corporation may indemnify and
advance expenses to an officer, employee, fiduciary or agent of the corporation
to the same extent as an Indemnifiable Director, and (iii) a corporation may
also indemnify and advance expenses to an officer, employee, fiduciary or agent
who is not an Indemnifiable Director to a greater extent than the right of
indemnification granted to Indemnifiable Directors, if not inconsistent with
public policy, and if provided for by its articles of incorporation, bylaws,
general or specific action of its board of directors or contract.
The Company's Amended and Restated Bylaws provide that the Company may, to
the maximum extent and in the manner permitted by the Revised Act, indemnify an
individual made party to a proceeding because he is or was a director, against
liability incurred in the proceeding if his conduct was in good faith, he
reasonably believed that his conduct was in, or not opposed to, the Company's
best interest, and in the case of any criminal proceeding, he had no reasonable
cause to believe his conduct was unlawful. The Amended and Restated Bylaws
further provide that the Company shall indemnify a director who was successful,
on the merits or otherwise, in the defense of any proceeding, or the defense of
any claim, issue, or matter in the proceeding, to which he was a party because
he is or was a director of the Company, against reasonable expenses incurred by
him in connection with the proceeding or claim with respect to which he has been
successful. The Company's Amended and Restated Bylaws also provide that the
indemnification and advancement of expenses authorized thereunder is intended to
permit the Company to indemnify to the fullest extent permitted by Utah law any
and all persons whom it shall have the power to indemnify under Utah law.
Reference is made to Article 9 of the Amended and Restated Bylaws of the Company
which provide for the indemnification of officers and directors of the Company.
The Company's Amended and Restated Articles of Incorporation provide that
the personal liability of any director of the Company to the Company or its
shareholders, for monetary damages for any action taken or any failure to take
any action as a director is eliminated to the fullest extent permitted by the
Revised Act. The extent to which the Revised Act permits director liability to
be eliminated is governed by Section 16-10a-841 of the Revised Act, which
provides that the liability of a director may not be eliminated or limited for
(i) the amount of financial benefit received by a director to which he is not
entitled; (ii) an intentional infliction of harm on the corporation or its
shareholders; (iii) a violation of Section 16-10a-842 of the Revised
II-2
<PAGE> 100
Act which prohibits unlawful distributions by a corporation to its shareholders;
or (iv) an intentional violation of criminal law.
Reference is also made to the Underwriting Agreement filed herewith
pursuant to which the Underwriters have agreed to indemnify the Company and its
officers and directors against certain liabilities, including liabilities under
the Securities Act.
Indemnification may be granted pursuant to any other agreement, bylaw, or
vote of shareholders or directors. In addition to the foregoing, the Company
maintains insurance from commercial carriers against certain liabilities which
may be incurred by its directors and officers. The foregoing description is
necessarily general and does not describe all details regarding the
indemnification of officers, directors or controlling persons of the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
ITEM 16. EXHIBITS
(A) EXHIBITS TO THE REGISTRATION STATEMENT.
The following exhibits required by Item 601 of Regulation S-K have been
included herewith.
<TABLE>
<CAPTION>
REGULATION S-K
EXHIBIT NO. DESCRIPTION
- -------------- -------------------------------------------------------------------------------
<C> <S>
1 Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of the Company.(1)
3.2 Amended and Restated Bylaws of the Company.(1)
4.1 Amended and Restated Articles of Incorporation of the Company.(1)
4.2 Amended and Restated Bylaws of the Company.(1)
4.3 Specimen Certificate.(1)
5 Legal Opinion of Kimball, Parr, Waddoups, Brown & Gee, counsel to the Company,
as to the legality of the securities offered.
10.1 SOS Staffing Services, Inc. Stock Incentive Plan dated May 4, 1995 as
amended.(3)
10.2 Form of Employment Agreement entered into by the Company and each of Messrs.
Richard D. Reinhold, Howard W. Scott, Jr. and Richard J. Tripp.(1)
10.3 Form of Consulting Agreement between the Company and Ms. JoAnn W. Wagner,
effective as of July 1, 1995.(2)
10.4 Lease Agreement between the Company and Reed F. Reinhold, Rand F. Reinhold,
Rena R. Qualls and Robb F. Reinhold, dated April 1, 1995, covering the
Company's corporate office building.(1)
10.5 Assignments of Accounts Receivable from the Company to Richard D. Reinhold and
Sandra E. Reinhold, dated April 25 and May 12, 1995, and related Accounts
Receivable Servicing Agreement.(2)
10.6 Asset Purchase Agreement between the Company and Skill Staff of Colorado, Inc.,
dated January 1, 1995.(1)
10.7 Asset Purchase Agreement between the Company and Temporary Service, Inc., dated
July 3, 1994.(1)
10.8 Franchise Agreement between the Company and TSI of Utah, Inc., dated January 1,
1995.(1)
10.9 Asset Purchase Agreement between the Company and Add-A-Temp, Inc., dated August
15, 1995. (3)
10.10 Asset Purchase Agreement between the Company, Patient Accounting Management
Services and National Collex Corporation, dated November 9, 1995.(3)
10.11 Asset Purchase Agreement between the Company and Geomine Personnel, Inc., dated
December 19, 1995.(3)
</TABLE>
II-3
<PAGE> 101
<TABLE>
<CAPTION>
REGULATION S-K
EXHIBIT NO. DESCRIPTION
- -------------- -------------------------------------------------------------------------------
<C> <S>
10.12 Credit Agreement dated as of July 11, 1996 by and among the Company, First
Security Bank, N.A. and NBD Bank, together with Security Agreement and
Revolving Credit Notes.(4)
10.13 Stock Purchase Agreement between the Company, Wolfe & Associates, Inc. and
certain shareholders of Wolfe and Associates, Inc. dated November 5, 1996.(5)
21 Subsidiaries of the Company
23.1 Consent of Kimball, Parr, Waddoups, Brown & Gee (included in their legal
opinion filed as Exhibit 5 to this Registration Statement).
23.2 Consent of Arthur Andersen LLP, independent public accountants.
24 Power of Attorney (included on signature page of this Registration Statement).+
</TABLE>
- ---------------
+ Previously filed
(1) Incorporated by reference to the exhibits to a Registration Statement on
Form S-1 filed by the Company on May 17, 1995, Registration No. 33-92268.
(2) Incorporated by reference to the exhibits to Amendment No. 1 to the
Registration Statement on Form S-1 filed by the Company on June 22, 1995,
Registration No. 33-92268.
(3) Incorporated by reference to the exhibits to an Annual Report on Form 10-K
for the fiscal year ending December 31, 1995 filed by the Company on March
29, 1996.
(4) Incorporated by reference to the exhibits to a Quarterly Report on Form 10-Q
for the quarter ending September 29, 1996 filed by the Company on November
14, 1996.
(5) Incorporated by reference to the exhibits to a Current Report on Form 8-K
filed by the Company on November 14, 1996.
(b) Financial Statement Schedules. -- Not applicable.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
II-4
<PAGE> 102
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer, or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The Company hereby undertakes:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 103
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Company has duly caused this Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Salt Lake City, State of Utah, on December 11, 1996.
SOS STAFFING SERVICES, INC.
By: /s/ RICHARD D. REINHOLD
Richard D. Reinhold, Chairman of the
Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- ------------------
<S> <C> <C>
/s/ RICHARD D. REINHOLD Chairman of the Board and December 11, 1996
- --------------------------------------------- Chief Executive Officer
Richard D. Reinhold (principal executive
officer)
/s/ HOWARD W. SCOTT, JR.* President, Chief Operating December 11, 1996
- --------------------------------------------- Officer and Director
Howard W. Scott, Jr.
/s/ RICHARD J. TRIPP* Senior Vice President of December 11, 1996
- --------------------------------------------- Administration and Director
Richard J. Tripp
/s/ GARY B. CROOK* Vice President, Chief December 11, 1996
- --------------------------------------------- Financial Officer and
Gary B. Crook Treasurer (principal
accounting and financial
officer)
/s/ STANLEY R. deWAAL* Director December 11, 1996
- ---------------------------------------------
Stanley R. deWaal
/s/ JOANN W. WAGNER* Director December 11, 1996
- ---------------------------------------------
JoAnn W. Wagner
/s/ R. THAYNE ROBSON* Director December 11, 1996
- ---------------------------------------------
R. Thayne Robson
/s/ RANDOLPH K. ROLF* Director December 11, 1996
- ---------------------------------------------
Randolph K. Rolf
*By: /s/ RICHARD D. REINHOLD
----------------------------------------
Richard D. Reinhold, Attorney-in-fact
</TABLE>
II-6
<PAGE> 104
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
REGULATION S-K NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- -------------- ------------------------------------------------------------------- ------------
<C> <S> <C>
1 Form of Underwriting Agreement.....................................
3.1 Amended and Restated Articles of Incorporation of the Company(1)...
3.2 Amended and Restated Bylaws of the Company(1)......................
4.1 Amended and Restated Articles of Incorporation of the Company(1)...
4.2 Amended and Restated Bylaws of the Company(1)......................
4.3 Specimen Certificate(1)............................................
5 Legal Opinion of Kimball, Parr, Waddoups, Brown & Gee, counsel to
the Company, as to the legality of the securities offered..........
10.1 SOS Staffing Services, Inc. Stock Incentive Plan dated May 4, 1995
as amended(3)......................................................
10.2 Form of Employment Agreement entered into by the Company and each
of Messrs. Richard D. Reinhold, Howard W. Scott, Jr. and Richard J.
Tripp(1)...........................................................
10.3 Form of Consulting Agreement between the Company and Ms. JoAnn W.
Wagner, effective as of July 1, 1995(2)............................
10.4 Lease Agreement between the Company and Reed F. Reinhold, Rand F.
Reinhold, Rena R. Qualls and Robb F. Reinhold, dated April 1, 1995,
covering the Company's corporate office building(1)................
10.5 Assignments of Accounts Receivable from the Company to Richard D.
Reinhold and Sandra E. Reinhold, dated April 25 and May 12, 1995,
and related Accounts Receivable Servicing Agreement(2).............
10.6 Asset Purchase Agreement between the Company and Skill Staff of
Colorado, Inc., dated January 1, 1995(1)...........................
10.7 Asset Purchase Agreement between the Company and Temporary Service,
Inc., dated July 3, 1994(1)........................................
10.8 Franchise Agreement between the Company and TSI of Utah, Inc.,
dated January 1, 1995(1)...........................................
10.9 Asset Purchase Agreement between the Company and Add-A-Temp, Inc.,
dated August 15, 1995(3)...........................................
10.10 Asset Purchase Agreement between the Company, Patient Accounting
Management Services and National Collex Corporation, dated November
9, 1995(3).........................................................
10.11 Asset Purchase Agreement between the Company and Geomine Personnel,
Inc., dated December 19, 1995(3)...................................
10.12 Credit Agreement dated as of July 11, 1996 by and among the
Company, First Security Bank, N.A. and NBD Bank, together with
Security Agreement and Revolving Credit Notes(4)...................
10.13 Stock Purchase Agreement between the Company, Wolfe & Associates,
Inc. and certain shareholders of Wolfe and Associates, Inc. dated
November 5, 1996(5)................................................
23.1 Consent of Kimball, Parr, Waddoups, Brown & Gee (included in their
legal opinion filed as Exhibit 5 to this Registration Statement)...
23.2 Consent of Arthur Andersen LLP, independent public accountants.....
24 Power of Attorney+.................................................
</TABLE>
- ---------------
+ Previously filed.
(1) Incorporated by reference to the exhibits to a Registration Statement on
Form S-1 filed by the Company on May 17, 1995, Registration No. 33-92268.
(2) Incorporated by reference to the exhibits to Amendment No. 1 to the
Registration Statement on Form S-1 filed by the Company on June 22, 1995,
Registration No. 33-92268.
(3) Incorporated by reference to the exhibits to an Annual Report on Form 10-K
for the fiscal year ending December 31, 1995 filed by the Company on March
29, 1996.
(4) Incorporated by reference to the exhibits to a Quarterly Report on Form 10-Q
for the quarter ending September 29, 1996 filed by the Company on November
14, 1996.
(5) Incorporated by reference to the exhibits to a Current Report on Form 8-K
filed by the Company on November 14, 1996.
<PAGE> 1
SOS STAFFING SERVICES, INC.
2,200,000 Shares
Common Stock
($0.01 par value)
UNDERWRITING AGREEMENT
December ___, 1996
UNTERBERG HARRIS
PAINEWEBBER INCORPORATED
GEORGE K. BAUM & COMPANY
As Representatives of the
several underwriters,
c/o Unterberg Harris
10 East 50th Street, 22nd Floor
New York, New York 10022
Dear Sirs:
SOS Staffing Services, Inc., a Utah corporation (the
"Company"), and the persons named in Schedule II hereto (the "Selling
Shareholders") propose to sell an aggregate of 2,200,000 shares of the Company's
Common Stock, par value $0.01 per share (the "Common Stock"), to the
underwriters named in Schedule I hereto (the "Underwriters"), for whom you (the
"Representatives") are acting as representatives, of which 2,000,000 shares are
to be issued and sold by the Company, and 200,000 shares are to be sold by the
Selling Shareholders. The 2,000,000 shares of Common Stock to be issued and sold
by the Company are hereinafter called the "Company Shares". The 200,000 shares
of Common Stock to be sold by the Selling Shareholders are hereinafter called
the "Shareholder Shares." The Company Shares and Shareholder Shares are
hereinafter called the "Firm Shares." The Company also proposes to grant to the
Underwriters an option to purchase up to 330,000 additional shares of Common
Stock (the "Option Shares"; the Option Shares, together with the Firm Shares,
being hereinafter called the "Shares").
1. Registration Statement and Prospectus. The Company has
filed with the Securities and Exchange Commission (the "Commission") a
registration statement on Form S-1 (Registration No. 333-16187) and a related
preliminary prospectus for the registration of the Shares under the Securities
Act of 1933, as amended (the "Act"), has filed such amendments thereto, if any,
and such amended preliminary prospectuses as may have been required to the date
of this Agreement, and will file such additional amendments thereto and such
amended prospectuses as
<PAGE> 2
may hereafter be required. The term "preliminary prospectus" as used herein
means a preliminary prospectus as contemplated by Rule 430 or Rule 430A of the
rules and regulations of the Commission under the Act (the "Rules and
Regulations") included at any time as part of the registration statement. Copies
of such registration statement and amendments and of each related preliminary
prospectus have been delivered to the Representatives. If such registration
statement has not become effective, a further amendment to such registration
statement, including a form of final prospectus, necessary to permit such
registration statement to become effective will be filed promptly by the Company
with the Commission. If such registration statement has become effective, a
final prospectus containing information permitted to be omitted at the time of
effectiveness by Rule 430A of the Rules and Regulations will be filed promptly
by the Company with the Commission in accordance with Rule 424(b) of the Rules
and Regulations. The term "Registration Statement" means the registration
statement as amended at the time it becomes or became effective (the "Effective
Date"), including financial statements and all exhibits and any information
deemed to be included by Rule 430A. The term "Prospectus" means the prospectus
as first filed with the Commission pursuant to Rule 424(b) of the Rules and
Regulations or, if no such filing is required, the form of final prospectus
included in the Registration Statement.
2. Agreements to Sell and Purchase. The Company hereby agrees
to issue and sell the Company Shares to the Underwriters, and each Selling
Shareholder, severally and not jointly, hereby agrees to sell to the
Underwriters the number of Shareholder Shares set forth opposite such Selling
Shareholder's name in Schedule II hereto. Each of the Underwriters, upon the
basis of the representations and warranties contained in this Agreement, and
subject to its terms and conditions, agrees, severally and not jointly, to
purchase from the Company and such Selling Shareholders at a price per share of
$_____ (the "Purchase Price"), the respective number of Shares (subject to such
adjustments to eliminate fractional shares as the Representatives may determine)
that bears the same proportion to the number of Firm Shares to be sold by the
Company or by such Selling Shareholders as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I bears to the total number of
Firm Shares.
On the basis of the representations and warranties contained
in this Agreement, and subject to its terms and conditions, the Company agrees
to sell to the Underwriters the Option Shares and the Underwriters shall have
the right to purchase, severally and not jointly, up to 330,000 Option Shares
from the Company at the Purchase Price. Option Shares may be purchased solely
for the purpose of covering over-allotments made in connection with the offering
of the Firm Shares. The Underwriters may exercise their right to purchase Option
Shares in whole or in part from time to time by giving written notice thereof to
the Company within 30 days after the date of the Prospectus. The Representatives
shall give any such notice on behalf of the Underwriters and such notice shall
specify the aggregate number of Option Shares to be purchased pursuant to such
exercise and the date for payment and delivery thereof. The date specified in
any such notice shall be a business day (i) no earlier than the Closing Date (as
hereinafter defined), (ii) no later than 10 business days after such notice has
been given and (iii) no earlier than two business days after such notice has
been given. If any Option Shares are to be purchased, each Underwriter,
severally and not jointly, agrees to purchase from the Company
2
<PAGE> 3
the number of Option Shares (subject to such adjustments to eliminate fractional
shares as the Representatives may determine) which bears the same proportion to
the total number of Option Shares to be purchased from the Company as the number
of Firm Shares set forth opposite the name of such Underwriter in Schedule I
bears to the total number of Firm Shares.
The Company and the Selling Shareholders hereby agree,
severally and not jointly, and the Company shall, prior to or concurrently with
the execution of this Agreement, deliver an agreement executed by each of the
directors, executive officers and shareholders of the Company listed on Annex I
hereto, pursuant to which each such person agrees, not to offer, sell, contract
to sell, grant any option to purchase, or otherwise dispose of any Common Stock
of the Company or any shares convertible into or exercisable or exchangeable for
such Common Stock or in any other manner transfer all or a portion of the
economic consequences associated with the ownership of any such Common Stock,
except (i) to the Underwriters pursuant to this Agreement, (ii) to any member of
such person's immediate family or to a revocable trust for the benefit of such
person or any member of such person's immediate family, provided that any such
transferee shall agree to be bound by such conditions, (iii) the surrender of
any Common Stock or any option exercisable for Common Stock as complete or
partial payment by such person for shares of Common Stock to be acquired upon
exercise of such option granted to such person, or (iv) as otherwise provided in
such agreement, for a period of 180 days following the effective date of the
Registration Statement without the prior written consent of Unterberg Harris.
Notwithstanding the foregoing, during such period the Company may issue and sell
Common Stock pursuant to the Company's existing stock option plan.
3. Terms of Public Offering. The Company and the Selling
Shareholders are advised by you that the Underwriters propose (i) to make a
public offering of their respective portions of the Shares as soon after the
effective date of the Registration Statement as in your judgment is advisable
and (ii) initially to offer the Shares upon the terms set forth in the
Prospectus.
4. Delivery and Payment. Delivery to the Underwriters of and
payment for the Firm Shares shall be made at 10:00 a.m., New York City time, on
the third business day, unless otherwise permitted or required by the Commission
pursuant to Rule 15c6-1 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), following the date of the public offering (the "Closing Date"),
at such place as you shall designate. The Closing Date and the location of
delivery of and the form of payment for the Firm Shares may be varied by
agreement between you, the Company and the Selling Shareholders.
Delivery to the Underwriters of and payment for any Option
Shares to be purchased by the Underwriters shall be made at such place as the
Representatives shall designate at 10:00 a.m., New York City time, on the date
specified in the applicable exercise notice given by the Representatives
pursuant to Section 2 (the "Option Closing Date"). The Option Closing Date and
the location of delivery of and the form of payment for such Option Shares may
be varied by agreement between the Representatives and the Company.
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<PAGE> 4
Certificates for the Shares shall be registered in such names
and issued in such denominations as you shall request in writing not later than
two full business days prior to the Closing Date or the Option Closing Date, as
the case may be. Such certificates shall be made available to you for inspection
not later than 1:00 p.m., New York City time, on the business day next preceding
the Closing Date or the Option Closing Date, as the case may be. Certificates in
definitive form evidencing the Shares shall be delivered to you on the Closing
Date or the Option Closing Date, as the case may be, with any transfer taxes
thereon duly paid by the respective Selling Shareholders, for the respective
accounts of the several Underwriters, against payment of the Purchase Price
therefor by certified or official bank checks payable in New York Clearing House
next day funds to the order of the Company and the applicable Selling
Shareholders.
5. Agreements of the Company. The Company agrees with you that:
(a) The Company will use its best efforts to cause the
Registration Statement, if not effective at the date and time that this
Agreement is executed (the "Execution Time"), and any amendment
thereof, to become effective. Prior to the termination of the offering
of the Shares, the Company will not file any amendment of the
Registration Statement or supplement to the Prospectus without the
prior consent of the Representatives. Subject to the foregoing
sentence, if the Registration Statement has become or becomes effective
pursuant to Rule 430A, or filing of the Prospectus is otherwise
required under Rule 424(b), the Company will cause the Prospectus,
properly completed, and any supplement thereto to be filed with the
Commission pursuant to the applicable paragraph of Rule 424(b) within
the time period prescribed and will provide evidence satisfactory to
the Representatives of such timely filing. The Company will promptly
advise the Representatives (A) when the Registration Statement, if not
effective at the Execution Time, and any amendment thereto, shall have
become effective, (B) when the Prospectus, and any supplement thereto,
shall have been filed (if required) with the Commission pursuant to
Rule 424(b), (C) when, prior to termination of the offering of the
Shares, any amendment to the Registration Statement shall have been
filed or become effective, (D) of any request by the Commission for any
amendment of the Registration Statement or supplement to the Prospectus
or for any additional information, (E) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or the institution or threatening of any
proceeding for that purpose and (F) of the receipt by the Company of
any notification with respect to the suspension of the qualification of
the Shares for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose. The Company will use
its best efforts to prevent the issuance of any such stop order and, if
issued, to obtain as soon as possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the Shares is
required to be delivered under the Act, any event occurs as a result of
which the Prospectus as then supplemented would include any untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein in the light of the
circumstances
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<PAGE> 5
under which they were made not misleading, or if it shall be necessary
to amend the Registration Statement or supplement the Prospectus to
comply with the Act or the rules thereunder, the Company promptly will
prepare and file with the Commission, subject to the second sentence of
paragraph (a) of this Section 5, an amendment or supplement which will
correct such statement or omission or effect such compliance.
(c) As soon as practicable, the Company will make generally
available to its security holders and to the Representatives an
earnings statement or statements of the Company which will satisfy the
provisions of Section 11(a) of the Act and Rule 158 under the Act.
(d) The Company will furnish to the Representatives and
counsel for the Underwriters, without charge, (A) signed copies of the
Registration Statement (including exhibits thereto) and to each other
Underwriter a copy of the Registration Statement (without exhibits
thereto) and, (B) prior to 10:00 a.m., New York City time, on the
Business Day next succeeding the date of this Agreement and from time
to time so long as delivery of a prospectus by an Underwriter or dealer
may be required by the Act as many copies of each Preliminary
Prospectus and the Prospectus and any supplement thereto as the
Representatives may reasonably request. The Company will furnish or
cause to be furnished to the Representatives copies of all reports on
Form SR required by Rule 463 under the Act. The Company will pay the
expenses of printing or other production of all documents relating to
the offering.
(e) The Company will arrange for the qualification of the
Shares for sale under the laws of such jurisdictions as the
Representatives may designate, will maintain such qualifications in
effect so long as required for the distribution of the Shares and will
pay the fee of the National Association of Securities Dealers, Inc.
("NASD"), in connection with its review of the offering.
(f) The Company will use the net proceeds
received by it from the sale of the Shares in the manner
specified in the Prospectus under "Use of Proceeds."
(g) For the lesser of five years after the date of this
Agreement and the period during which the Company is required by the
Exchange Act to file reports with the Commission, the Company will (i)
mail as soon as reasonably practicable after the end of each fiscal
year to the record holders of its Common Stock a financial report of
the Company and its subsidiaries on a consolidated basis (and a similar
financial report of all unconsolidated subsidiaries, if any), all such
financial reports to include a consolidated balance sheet, a
consolidated statement of operations, a consolidated statement of cash
flows and a consolidated statement of shareholders' equity as of the
end of and for such fiscal year, together with comparable information
as of the end of and for the preceding year, certified by independent
certified public accountants, and (ii) mail and make generally
available as soon as practicable after the end of each quarterly period
(except for the last
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<PAGE> 6
quarterly period of each fiscal year) to such holders a consolidated
balance sheet, a consolidated statement of operations and a
consolidated statement of cash flows (and similar financial reports of
all unconsolidated subsidiaries, if any) as of the end of and for such
period, and for the period from the beginning of such year to the close
of such quarterly period, together with comparable information for the
corresponding periods of the preceding year.
(h) During the period referred to in paragraph (g), the
Company will furnish to you upon request a copy of each report or other
publicly available information of the Company mailed to the holders of
Common Stock or filed with the Commission and such other publicly
available information concerning the Company and its subsidiaries as
you may reasonably request.
(i) The Company will use its best reasonable efforts to
maintain the inclusion of the Common Stock on the Nasdaq National
Market (or on a national securities exchange) for the lesser of five
years after the date of this Agreement and the period ending on the
date on which the Company is no longer required by the Exchange Act to
file reports with the Commission as a result of a merger,
consolidation, sale of assets or other corporate reorganization
consummated in compliance with the Exchange Act.
(j) The Company will use its best reasonable efforts to do and
perform all things required or necessary to be done and performed under
this Agreement by the Company prior to the Closing Date or the Option
Closing Date, as the case may be, and to satisfy all conditions
precedent to the delivery of the Shares.
6. Representations and Warranties of the
Company. The Company represents and warrants to each Underwriter that:
(a) Neither the Commission nor any state regulatory authority
has issued any order preventing or suspending the use of any
preliminary prospectus, the Registration Statement or the Prospectus or
any part thereof and no proceedings for a stop order suspending the
effectiveness of the Registration Statement or any of the Company's
shares have been instituted or are pending or, to the Company's
knowledge, threatened. The phrase "to the Company's knowledge" and
similar references to the knowledge of the Company when used herein
shall mean, with respect to the matter covered thereby, the actual
knowledge of the Company and any director or officer of the Company. On
the Effective Date, on the date the Prospectus is first filed with the
Commission pursuant to Rule 424(b) (if required), on the Closing Date
and when any post-effective amendment to the Registration Statement
becomes effective or any amendment or supplement to the Prospectus is
filed with the Commission, the Registration Statement and the
Prospectus (as amended or as supplemented if the Company shall have
filed with the Commission any amendment or supplement thereto),
including the financial statements included or incorporated by
reference in the Prospectus, did or will comply with all applicable
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<PAGE> 7
provisions of the Act and the Rules and Regulations and will contain
all statements required to be stated therein in accordance with the Act
and the Rules and Regulations. On the Effective Date, the Closing Date
and when any post-effective amendment to the Registration Statement
becomes effective, no part of the Registration Statement, the
Prospectus or any such amendment or supplement, and the Preliminary
Prospectus, at the time thereof, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein not
misleading. The representations and warranties in this Section 1(a)(ii)
do not apply to any statements or omissions made in reliance on and in
conformity with information relating to any Underwriter furnished in
writing to the Company by the Representatives specifically for
inclusion in the Registration Statement or Prospectus or any amendment
or supplement thereto. The Company acknowledges that the statements set
forth under the heading "Underwriting" in the Prospectus constitute the
only information relating to any Underwriter furnished in writing to
the Company by the Representatives specifically for inclusion in the
Registration Statement.
(b) The Company is, and Wolfe & Associates, Inc., a New Mexico
corporation, and SOS Collection Services, Inc., an Arizona corporation,
comprising all of the Company's subsidiaries (collectively,
"Subsidiaries") are each, and at the Closing Date will be, duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. The Company and its Subsidiaries each
has, and at the Closing Date will have, full power and authority to
conduct all the activities conducted by it, to own or lease all the
assets owned or leased by it and to conduct its business as described
in the Registration Statement and the Prospectus. The Company and its
Subsidiaries each is, and at the Closing Date will be, duly licensed or
qualified to do business and in good standing in all jurisdictions in
which the nature of the activities conducted by it or the character of
the assets owned or leased by it makes such licensing or qualification
necessary, except where the failure to be so licensed or qualified will
not have a material adverse effect on the Company or the Subsidiary or
the Company's or Subsidiary's business, properties, business prospects,
condition (financial or otherwise) or results of operations. The
Company or its Subsidiaries do not own, and at the Closing Date will
not own, directly or indirectly, any shares of stock or any other
equity or long-term debt shares of any corporation or have any equity
interest in any firm, partnership, joint venture, association or other
entity. Complete and correct copies of the charter and bylaws of the
Company and its Subsidiaries and all amendments thereto, have been
delivered to the Representatives, and no changes therein will be made
subsequent to the date hereof and prior to the Closing Date.
(c) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, under "Capitalization"
and "Description of Capital Stock" and will have the adjusted
capitalization set forth therein on the Closing Date, based upon the
assumptions set forth therein, and the Company is not a party to or
bound by any instrument, agreement or other arrangement providing for
it to issue any capital stock, rights, warrants, options or other
shares, except for this Agreement and as described in the
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<PAGE> 8
Prospectus. The Shares and all other shares issued or issuable by the
Company conform or, when issued and paid for, will conform, in all
material respects to all statements with respect thereto contained in
the Registration Statement and the Prospectus. All issued and
outstanding shares of the Company have been duly authorized and validly
issued and are fully paid and non-assessable and, the holders thereof
have no rights of rescission with respect thereto, and are not subject
to personal liability by reason of being such holders; and none of such
shares were issued in violation of the preemptive rights of any holders
of any security of the Company or similar contractual rights granted by
the Company. The Shares are not and will not be subject to any
preemptive or other similar rights of any shareholders, have been duly
authorized and, when issued, paid for and delivered in accordance with
the terms hereof, will be validly issued, fully paid and non-assessable
and will conform to the description thereof contained in the
Prospectus; the holders thereof will not be subject to any liability
solely as such holders; all corporate action required to be taken for
the authorization, issue and sale of the Shares has been duly and
validly taken; and the certificates representing the Shares will be in
due and proper form. Upon the issuance, delivery and payment pursuant
to the terms hereof of the Shares to be sold by the Company hereunder,
each of the Underwriters will acquire good and indefeasible title to
such Shares free and clear of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction of any kind
whatsoever. The outstanding shares of Common Stock, including the
Shares to be purchased by the Underwriters from the Selling
Shareholders, have been, and the Shares to be issued and sold by the
Company when issued, delivered and paid for on the Closing Date will
be, duly authorized, validly issued, fully paid and nonassessable and
will not be subject to any preemptive or similar right. Except as
described in the Prospectus, the Company does not have outstanding, and
at the Closing Date will not have outstanding, any options to purchase,
or any rights or warrants to subscribe for, or any shares or
obligations convertible into, or any contracts or commitments to issue
or sell, any shares of Common Stock, or any such rights, warrants,
convertible shares or obligations.
(d) All of the outstanding shares of capital stock of, or
other ownership interests in, each of the Subsidiaries have been duly
authorized and validly issued and are fully paid and non-assessable and
are owned directly by the Company free and clear of any lien, charge,
claim, encumbrance, security interest, defect or other restriction of
any kind whatsoever.
(e) The financial statements, including the notes thereto, and
supporting schedules included in the Registration Statement and the
Prospectus present fairly the consolidated financial condition of the
Company and its Subsidiaries as of the dates indicated and the results
of operations and cash flows of the Company and its Subsidiaries for
the periods specified, all in conformity with generally accepted
accounting principles applied on a consistent basis throughout the
entire period involved, except as otherwise disclosed in the
Prospectus. No other financial statements or schedules of the Company
or its Subsidiaries are required by the Act or the Rules and
Regulations to be included in the
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<PAGE> 9
Registration Statement or the Prospectus. Arthur Andersen LLP, who
certified the financial statements and supporting schedules, are
independent public accountants as required by the Act and the Rules and
Regulations.
(f) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus and prior to the
Closing Date, except as otherwise stated therein, (i) there has not
been and will not have been any change in the capitalization of the
Company or its Subsidiaries, or in the business, properties, business
prospects, condition (financial or otherwise) or results of operations
of the Company or its Subsidiaries, arising for any reason whatsoever,
(ii) the Company and its Subsidiaries each has not incurred and will
not incur any material liabilities or obligations, direct or
contingent, nor has it entered into nor will it enter into any material
transactions other than pursuant to this Agreement and the transactions
referred to herein and (iii) except as contemplated in the Registration
Statement and the Prospectus, the Company has not and will not have
paid or declared any dividends or other distributions of any kind on
any class of its capital stock.
(g) The Company and its Subsidiaries each (i) has paid, when
due, all federal, state, and local taxes for which it is liable,
including, but not limited to, withholding taxes and amounts payable
under Chapter 21 through 24 of the Internal Revenue Code of 1986 (the
"Code"), and has furnished all information returns it is required to
furnish pursuant to the Code, (ii) to the Company's knowledge, has
established adequate reserves for such taxes which are not due and
payable, and (iii) does not have any tax deficiency or claims
outstanding, assessed, to its knowledge, or proposed against it.
(h) No transfer tax, stamp duty or other similar tax is
payable by or on behalf of the Underwriters in connection with (i) the
issuance by the Company of the Shares, (ii) the purchase by the
Underwriters of the Shares, (iii) the consummation by the Company of
any of its obligations under this Agreement, or (iv) resale of the
Shares in connection with the distribution contemplated hereby.
(i) The Company and its Subsidiaries each maintains insurance
of the types and in the amounts which the Company reasonably believes
are adequate for its business and consistent with insurance coverage
maintained by similar companies in similar businesses, including but
not limited to, workers' compensation insurance, insurance covering
real and personal property owned or leased by the Company or the
Subsidiary against theft, damage, destruction, acts of vandalism and
all other risks customarily insured against, all of which insurance is
in full force and effect.
(j) The Company is not (i) an "investment company" or a
company "controlled" by an "investment company," as such terms are
defined in the Investment Company Act of 1940, as amended, or (ii) a
"holding company" or a "subsidiary company" of a holding company, or an
"affiliate" thereof, within the meaning of the Public Utility
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<PAGE> 10
Holding Company Act of 1935, as amended.
(k) Except as set forth in the Prospectus, there is no action,
suit or proceeding pending or threatened against or affecting the
Company or its Subsidiaries, or any of their respective officers in
their capacities as such, before or by any federal or state court,
commission, regulatory body, administrative agency or other
governmental body, domestic or foreign, which is required to be
disclosed in the Registration Statement or which might materially and
adversely affect the Company or its Subsidiaries, or their respective
business, properties, business prospects, condition (financial or
otherwise) or results of operations.
(l) No consent, approval, authorization or order of, or filing
or declaration with, any court or governmental agency or body is
required for or in connection with the sale of the Shares hereunder
except such as have been obtained prior to the date hereof under the
Act or the Rules and Regulations or as may be required under state
securities or Blue Sky laws, Canadian securities laws or the bylaws and
rules of the NASD in connection with the purchase and distribution by
the Underwriters of the Shares to be sold by the Company.
(m) The Company has full corporate power and authority to
enter into this Agreement. This Agreement has been duly authorized,
executed and delivered by the Company and constitutes a valid and
binding agreement of the Company and is enforceable against the Company
in accordance with the terms hereof. The performance of this Agreement
and the consummation of the transactions contemplated hereby will not
result in the creation or imposition of any lien, charge or encumbrance
upon any of the assets of the Company or its Subsidiaries pursuant to
the terms or provisions of, or result in a breach or violation of any
of the terms or provisions of, or constitute a default under, or give
any other party a right to terminate any of its obligations under, or
result in the acceleration of any obligation under, the charter or
bylaws of the Company or its Subsidiaries (as amended to date) or any
indenture, mortgage, deed of trust, voting trust agreement, loan
agreement, bond, debenture, note agreement or other evidence of
indebtedness, lease, contract or other agreement or instrument to which
the Company or a Subsidiary is a party or by which the Company or a
Subsidiary or any of their respective properties is bound or affected,
or violate or conflict with any judgment, ruling, decree, franchise,
license or permit of any court or other governmental agency or body or
any order, statute, rule or regulation applicable to the business or
properties of the Company.
(n) The Company and its Subsidiaries each has good and
indefeasible title to all properties and assets described in the
Prospectus as owned by them, free and clear of all liens, charges,
encumbrances or restrictions, except such as are described in the
Prospectus or are not material to the business of the Company or the
Subsidiary. The Company and its Subsidiaries each has valid, subsisting
and enforceable leases for the properties described in the Prospectus
as leased by it, with such exceptions as are not material and do not
materially interfere with the use made and proposed to be made of such
properties by the Company or
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the Subsidiary.
(o) There is no document or contract required to be described
in the Prospectus or Registration Statement or to be filed as an
exhibit to the Registration Statement which is not so described or
filed. Each such contract to which the Company or one of its
Subsidiaries is a party has been duly and validly authorized, executed
and delivered, is in full force and effect, constitutes a valid and
binding agreement of each of the parties thereto, and is enforceable
against each such party in accordance with its terms. No such contract
has been assigned by the Company or one of its Subsidiaries, and the
Company knows of no present condition or fact which would prevent
compliance by the Company or its Subsidiaries or any other party
thereto with the terms of any such contract in accordance with its
terms. The Company or any of its Subsidiaries does not have any present
intention to exercise any right that it may have to cancel any such
contract or otherwise to terminate its rights and obligations
thereunder, and does not have any knowledge that any other party
thereto has any intention not to render full performance as
contemplated by the terms thereof.
(p) The Company and its Subsidiaries each has generally
enjoyed a satisfactory employer-employee relationship with its
employees and is in compliance in all material respects with all
applicable federal, state, local laws and regulations respecting
employment and employment practices, terms and conditions of employment
and wages and hours. There are no pending investigations of which the
Company is aware involving the Company or any of its Subsidiaries, by
the U.S. Department of Labor, or any other governmental agency
responsible for the enforcement of such federal, state or local laws
and regulations. There is no significant unfair labor practice charge
or complaint against the Company or any of its Subsidiaries pending
before the National Labor Relations Board or any strike, picketing,
boycott, dispute, slowdown or stoppage pending or, to the Company's
knowledge, threatened against or involving the Company or any of its
Subsidiaries, or any predecessor entity, and none has ever occurred. No
representation question exists respecting the employees of the Company
or any of its Subsidiaries, and no collective bargaining agreement or
modification thereof is currently being negotiated by the Company or
any of its Subsidiaries. No labor dispute with the employees of the
Company or any of its Subsidiaries exists, or, to the Company's
knowledge, is imminent.
(q) The Company and its Subsidiaries each owns or possesses
the patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names presently employed by them in
connection with the business now operated by them, and no proceeding
involving any claim of infringement of or conflict with asserted rights
of others with respect to any of the foregoing has been instituted or
is threatened, pending or contemplated which, if the subject of an
unfavorable ruling, decision or finding, might materially and adversely
affect the Company or the Subsidiary or their respective business,
properties, business prospects, condition (financial
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<PAGE> 12
or otherwise) or results of operation taken as a whole.
(r) The Company and its Subsidiaries each possesses such
licenses, permits, consents, orders, approvals, certificates or
authorizations issued by the appropriate Federal, state or local
regulatory agencies or bodies necessary to conduct the business now
operated by each of them, and no proceeding relating to the revocation
or modification of any such licenses, permits, consents, orders,
certificates or authorizations has been instituted or is threatened,
pending or contemplated which, if the subject of an unfavorable ruling,
decision or finding, might materially and adversely affect the Company
or the Subsidiary or their respective business, properties, business
prospects, condition (financial or otherwise) or results of operation
taken as a whole.
(s) Neither the Company nor any of its Subsidiaries is in
violation of its charter or bylaws or in default (nor has an event
occurred which with notice or lapse of time or both would constitute a
default or acceleration) in the performance of any obligation,
agreement or condition contained in any contract, indenture, mortgage,
note, lease, or other agreement or instrument to which the Company or
the Subsidiary is a party or by which it or its properties is bound or
affected, and neither the Company nor any of its Subsidiaries is in
violation of any judgment, ruling, decree, order, franchise, license or
permit of any court or other governmental agency or body or any
statute, rule or regulation applicable to the business or properties of
the Company or the Subsidiary, where such violation or default might
materially and adversely affect the Company or the Subsidiary or their
respective business, properties, business prospects, condition
(financial or otherwise) or results of operations taken as a whole.
(t) No statement, representation, warranty or covenant made by
the Company in this Agreement or made in any certificate or document
required by this Agreement to be delivered to the Representatives was
or will be, when made, inaccurate, untrue or incorrect in any material
respect.
(u) Neither the Company nor any of its directors, officers or
controlling persons has taken, directly or indirectly, any action
designed, or which might reasonably be expected, to cause or result,
under the Act or otherwise, in, or which has constituted, stabilization
or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares.
(v) Except as set forth herein or in the Master Agreement
among Underwriters dated the date hereof, there are no claims,
payments, issuances, arrangements or understandings, whether oral or
written, for services in the nature of a finder's or origination fee
with respect to the sale of the Shares hereunder or any other
arrangements, agreements, understandings, payments or issuance with
respect to the Company, or any of its officers, directors,
shareholders, partners, employees or affiliates that may affect the
Underwriters' compensation, as determined by the NASD.
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(w) The Company and its Subsidiaries each has not since its
inception (i) made any unlawful contribution to any candidate for
foreign office, or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any federal or state
governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or
permitted by the laws of the United States of any jurisdiction thereof.
(x) There are no existing agreements, arrangements,
understandings or transactions, or proposed agreements, arrangements,
understandings or transactions, between the Company, and any officer,
director, shareholder of the Company, or any affiliate or associate of
any of the foregoing persons or entities required to be disclosed by
Item 404 of Regulation S-K of the Rules and Regulations other than
those which are described in the Prospectus.
(y) There are no persons with registration or other similar
rights to have any shares registered pursuant to the Registration
Statement or otherwise registered by the Company pursuant to the Act
which are required to be disclosed in the Registration Statement, other
than as disclosed therein.
(z) The Company has made available to each Representative a
true and complete copy of each report, schedule, registration statement
and definitive proxy statement filed by the Company with the Commission
since July 3, 1995 (the "Company Filings"), which are all the documents
(other than preliminary material) that the Company was required to file
with the Commission since such date. As of their respective dates, the
Company Filings complied in all material respects with the requirements
of the Act or the Exchange Act, as the case may be, and the rules and
regulations of the Commission thereunder applicable to such Company
Filings, and none of the Company Filings contained any untrue statement
of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(aa) The Company's Common Stock is listed for trading on the
Nasdaq National Market under the symbol "SOSS", and the Company is not
aware of any threatened or pending proceedings or action by the NASD to
revoke or suspend such listing.
(bb) The Company has complied with all provisions of Section
517.075, Florida Statutes (Chapter 92-198, Laws of Florida).
7. Representations and Warranties of the
Selling Shareholders. Each Selling Shareholder, severally and not
jointly, represents and warrants to each Underwriter that:
(a) Such Selling Shareholder has and will have on the Closing
Date and the
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Option Closing Date, as the case may be, good and valid title to the
Shares to be sold by such Selling Shareholder hereunder, free and clear
of any liens, encumbrances, equities and claims whatsoever. Such
Selling Shareholder has full power, right and authority to sell,
transfer and deliver the Shares to be sold by such Selling Shareholder,
and upon sale and delivery of, and payment for, such Shares, as
provided herein, such Selling Shareholder will convey good and
indefeasible title to such Shares, free and clear of any liens,
encumbrances, equities and claims whatsoever.
(b) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to, or which has
constituted or which might reasonably be expected to, cause or result,
under the Exchange Act or otherwise, in stabilization or manipulation
of the price of any security of the Company to facilitate the sale or
resale of the Shares and has not effected any sales of shares of Common
Stock which, if effected by the issuer, would be required to be
disclosed in response to Item 701 of Regulation S-K.
(c) The Corporation of the President of the Church of Jesus
Christ of Latter-day Saints (the "CLDS") has executed a Letter of
Transmittal and Escrow Agreement (the "Escrow Agreement") with First
Security Bank of Utah, N.A. as Escrow Agent (the "Escrow Agent") with
respect to the Shares. The Escrow Agent is authorized to execute and
deliver this Agreement on behalf of the CLDS, to determine the purchase
price to be paid by the Underwriters to the CLDS, as provided in
Section 2 hereof, to authorize the delivery of the Shares to be sold by
the CLDS hereunder, to accept payment therefor, and otherwise to act on
behalf of the CLDS in connection with this Agreement.
(d) Such Selling Stockholder (other than the CLDS) has, and on
the Closing Date and the Option Closing Date, as the case may be, will
have, full legal right, power and authority to enter into this
Agreement and the Custody Agreement with First Security Bank of Utah,
N.A., as Custodian (the "Custody Agreement"), and to sell, assign,
transfer and deliver such Shares in the manner provided herein and
therein, and this Agreement and the Custody Agreement have been duly
authorized, executed and delivered by such Selling Stockholder and each
of this Agreement and the Custody Agreement is a valid and binding
agreement of such Selling Stockholder enforceable in accordance with
its terms, except as rights to indemnity and contribution hereunder may
be limited by applicable law other than those imposed by the Act or the
Blue Sky Laws.
(e) The power of attorney signed by such Selling Stockholder
(other than the CLDS) appointing Richard D. Reinhold and Gary B. Crook,
or either one of them, as his, her or its attorney-in-fact to the
extent set forth therein with regard to the transactions contemplated
hereby and by the Registration Statement and the Custody Agreement has
been duly authorized, executed and delivered by or on behalf of such
Selling Stockholder and is a valid and binding instrument of such
Selling Stockholder enforceable in accordance with its terms, and,
pursuant to such power of attorney, such Selling Stockholder has
authorized Richard D. Reinhold and Gary B. Crook, or either one of
them, to execute and
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<PAGE> 15
deliver on his, her or its behalf this Agreement and any other document
necessary or desirable in connection with transactions contemplated
hereby and to deliver the Shares to be sold by such Selling Stockholder
pursuant to this Agreement.
(f) Certificates in negotiable form for the Shares have been
placed in escrow or custody, for delivery pursuant to the terms of this
Agreement; the Shares represented by the certificates so held in escrow
or custody are subject to the interests hereunder of the Underwriters
and the Company; the arrangements for such escrow or custody and
delivery of such certificates are to that extent irrevocable, and that
the obligations of such Selling Shareholder hereunder are not subject
to termination by any acts of the Selling Shareholder, or by operation
of law, or the occurrence of any other event; and if any event shall
occur before the delivery of such Shares hereunder, certificates for
the Shares will be delivered by the Escrow Agent or the Custodian, as
the case may be, in accordance with the terms and conditions of this
Agreement as if such event had not occurred, regardless of whether or
not the Escrow Agent or the Custodian, as the case may be, shall have
received notice of such event.
(g) Except as otherwise set forth in the Prospectus, the
execution, delivery and performance of this Agreement by such Selling
Stockholder, compliance by such Selling Stockholder with all the
provisions hereof and the consummation of the transactions contemplated
hereby will not require any consent, approval, authorization or other
order of any court, regulatory body, administrative agency or other
governmental body (except as such may be required under the Act or Blue
Sky Laws) and will not conflict with or constitute a breach of any of
the terms or provisions of, or a default under, organizational
documents of such Selling Stockholder, if not an individual, or any
agreement, indenture or other instrument to which such Selling
Stockholder is a party or by which such Selling Stockholder or property
of such Selling Stockholder is bound, or violate or conflict with any
laws, administrative regulation or ruling or court decree applicable to
such Selling Stockholder or property of such Selling Stockholder.
(h) Such Selling Shareholder (other than the CLDS) has
reviewed and is familiar with the Registration Statement, and the
preliminary prospectus contained therein, insofar as it relates to such
Selling Shareholder, and to the knowledge of such Selling Shareholder
without independent investigation, the preliminary prospectus contained
therein does not, and will not on the Closing Date or the Option
Closing Date, as the case may be, include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
8. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares and the Option
Shares, as the case may be, under this Agreement are subject to the accuracy of
the representations and warranties on the part of the Company and the Selling
Shareholders contained herein as of the date of this Agreement, the
15
<PAGE> 16
Closing Date and the Option Closing Date, to the accuracy of the statements of
the Company and the Selling Shareholders made in any certificates pursuant to
the provisions hereof, to the performance by the Company and the Selling
Shareholders of their respective obligations hereunder and to the satisfaction
of each of the following conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 p.m. (and in the case of a registration statement, if
any, filed under Rule 462(b) of the Act, not later than 10:00 p.m.) New
York City time on the date of this Agreement; if filing of the
Prospectus, or any supplement thereto, is required pursuant to Rule
424(b), the Prospectus, and any such supplement, will be filed in the
manner and within the time period required by Rule 424(b); and no stop
order suspending the effectiveness of the Registration Statement shall
have been issued and no proceedings for that purpose shall have been
instituted or threatened.
(b) The Representatives shall have received an opinion dated
the Closing Date, and with respect to any Option Shares the Option
Closing Date, satisfactory in form and substance to the
Representatives, from Kimball, Parr, Waddoups, Brown & Gee, counsel for
the Company and the Selling Shareholders, to the effect set forth in
Exhibit A.
(c) The Representatives shall have received an opinion dated
the Closing Date, and with respect to any Option Shares the Option
Closing Date, from Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel
for the Underwriters, with respect to the Registration Statement, the
Prospectus (together with any supplement thereto) and this Agreement,
which opinion shall be satisfactory in all respects to the
Representatives, and the Company and each Selling Shareholder shall
have furnished to such counsel such documents as they request for the
purpose of enabling them to pass upon such matters.
(d) The Company shall have furnished to the Representatives a
certificate of the Company, signed by the Chairman of the Board or the
President and the principal financial or accounting officer of the
Company, dated the Closing Date, to the effect that the signers of such
certificate have carefully examined the Registration Statement, the
Prospectus, any supplement to the Prospectus and this Agreement and
that:
(i) the representations and warranties of the Company
in this Agreement are true and correct in all material
respects on and as of the Closing Date with the same effect as
if made on the Closing Date and the Company has complied with
all the agreements and satisfied all the conditions on its
part to be performed or satisfied at or prior to the Closing
Date;
(ii) no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings
for that purpose have been instituted or, to the Company's
knowledge, threatened; and
16
<PAGE> 17
(iii) since the date of the most recent financial
statements included in the Prospectus (exclusive of any
supplement thereto), there has been no material adverse change
in the condition (financial or other), earnings, business or
properties of the Company, whether or not arising from
transactions in the ordinary course of business, except as set
forth in or contemplated in the Prospectus (exclusive of any
supplement thereto).
(e) The Representatives shall have received a certificate from
each of the Selling Shareholders, dated as of the Closing Date, to the
effect that (i) the representations and warranties of such Selling
Shareholder contained in this Agreement are true and correct with the
same force and effect as though expressly made at and as of the Closing
Date, (ii) such Selling Shareholder has reviewed the Prospectus, and
the information contained therein relating to such Selling Shareholder
and the Selling Shareholder's Shares and it does not contain any untrue
statement or omit to state any material fact necessary in order to make
the statements made therein, in light of the circumstances under which
they were made, not misleading and (iii) such Selling Shareholder has
complied with all agreements and satisfied all conditions on its part
to be performed or satisfied at or prior to the Closing Date.
(f) At the Execution Time and at the Closing Date, Arthur
Andersen LLP shall have furnished to the Representatives a letter or
letters, dated respectively as of the Execution Time and as of the
Closing Date, with respect to the financial statements and certain
financial information contained in the Registration Statement and
Prospectus in form and substance satisfactory to the Representatives.
(g) Subsequent to the Execution Time or, if earlier, the dates
as of which information is given in the Registration Statement
(exclusive of any amendment thereof) and the Prospectus (exclusive of
any supplement thereto), there shall not have been (i) any change in
the capital stock (other than pursuant to the exercise of stock options
outstanding as of the respective dates of the Registration Statement
and Prospectus) or any material change in the indebtedness of the
Company or (ii) any change, or any development involving a prospective
change, in or affecting the business or properties of the Company the
effect of which, in any case referred to in clause (i) or (ii) above,
is, in the judgment of the Representatives, so material and adverse as
to make it impractical or inadvisable to proceed with the offering or
delivery of the Shares as contemplated by the Registration Statement
(exclusive of any amendment thereof) and the Prospectus (exclusive of
any supplement thereto).
(h) On or prior to the Execution Time, the Nasdaq National
Market System shall have approved the Underwriters' participation in
the distribution of the Shares to be sold by the Selling Shareholders.
(i) At the Execution Time, the Company shall have furnished to
the Representatives a letter substantially in the form of Exhibit B
hereto from each officer and
17
<PAGE> 18
director of the Company and major shareholder, addressed to the
Representatives, in which each such person agrees not to offer, sell or
contract to sell, or otherwise dispose of, directly or indirectly, or
announce an offering of, any shares of Common Stock beneficially owned
by such person or any shares convertible into, or exchangeable for,
shares of Common Stock for a period of 180 days following the effective
date of the Prospectus without the prior written consent of the
Representatives, other than shares of Common Stock disposed of as bona
fide gifts.
(j) Prior to the Closing Date, the Company shall have
furnished to the Representatives such further information, certificates
and documents as the Representatives may reasonably request.
If any of the conditions specified in this Section 8 shall not
have been fulfilled in all material respects when and as provided in this
Agreement, or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement shall not be in all material respects reasonably
satisfactory in form and substance to the Representatives and counsel for the
Underwriters, this Agreement and all obligations of the Underwriters hereunder
may be canceled at, or at any time prior to, the Closing Date by the
Representatives. Notice of such cancellation shall be given to the Company and
each Selling Shareholder in writing or by telephone or telegraph confirmed in
writing.
9. Reimbursement of Underwriters' Expenses. If the sale of the
Shares provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 8 is not satisfied, because
of any termination pursuant to Section 12 or because of any refusal, inability
or failure on the part of the Company or any Selling Shareholder to perform any
agreement herein or comply with any provision hereof other than by reason of a
default by any of the Underwriters, the Company will reimburse the Underwriters
severally upon demand for all out-of-pocket expenses (including reasonable fees
and disbursements of counsel) that shall have been incurred by them in
connection with the proposed purchase and sale of the Shares. If the Company is
required to make any payments to the Underwriters under this Section 9 because
of any Selling Shareholder's refusal, inability or failure to satisfy any
condition to the obligations of the Underwriters set forth in Section 8, the
Selling Shareholders pro rata in proportion to the percentage of Shares to be
sold by each shall reimburse the Company on demand for all amounts so paid;
provided, however, the CLDS shall only be required to reimburse the Company in
any such case to the extent such payments are made because of the CLDS's
refusal, inability or failure to satisfy such condition.
18
<PAGE> 19
10. Indemnification and Contribution.
(a) The Company and the Selling Shareholders, jointly and
severally, agree to indemnify and hold harmless each Underwriter, the
directors, officers, employees and agents of each Underwriter and each
person who controls any Underwriter within the meaning of either the
Act or the Exchange Act against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become
subject under the Act, the Exchange Act or other Federal or state
statutory law or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the registration
statement for the registration of the Shares as originally filed or in
any amendment thereof, or in any Preliminary Prospectus or the
Prospectus, or in any amendment thereof or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and agrees to reimburse
each such indemnified party, as incurred, for any legal or other
expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or action;
provided, however, that (i) the Company and the Selling Shareholders
will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Underwriter
through the Representatives specifically for inclusion therein, (ii)
the Selling Shareholders will only be liable in any such case to the
extent that such loss, claim, damage or liability arises out of or is
based on written information provided by the Selling Shareholders for
inclusion therein and (iii) such indemnity with respect to any
Preliminary Prospectus shall not inure to the benefit of any
Underwriter (or any director, officer, employee or agent of such
Underwriter or any person controlling such Underwriter) from whom the
person asserting any such loss, claim, damage or liability purchased
the Shares that are the subject thereof if such person did not receive
a copy of the Prospectus (or the Prospectus as supplemented) excluding
documents incorporated therein by reference at or prior to the
confirmation of the sale of such Shares to such person in any case
where such delivery is required by the Act and such untrue statement or
omission of a material fact contained in any Preliminary Prospectus was
corrected in the Prospectus (or the Prospectus (as supplemented);
provided, further, that notwithstanding the foregoing, the liability of
the Selling Shareholders under this paragraph 10(a) shall be limited,
with respect to each of them, to the proceeds received by each of them
hereunder. This indemnity agreement will be in addition to any
liability which the Company or the Selling Shareholders may otherwise
have.
(b) Each Underwriter severally agrees to indemnify and hold
harmless the Company, each Selling Shareholder, each of the Company's
directors, and each of the Company's officers who signs the
Registration Statement, and each person who controls the
19
<PAGE> 20
Company or the Selling Shareholders within the meaning of either the
Act or the Exchange Act, to the same extent as the foregoing indemnity
to each Underwriter, but only with reference to written information
relating to such Underwriter furnished to the Company by or on behalf
of such Underwriter through the Representatives specifically for
inclusion in the documents referred to in the foregoing indemnity. This
indemnity agreement will be in addition to any liability which any
Underwriter may otherwise have. The Company and each Selling
Shareholder acknowledge that the statements set forth under the heading
"Underwriting" in any Preliminary Prospectus and the Prospectus
constitute the only information furnished in writing by or on behalf of
the several Underwriters for inclusion in any Preliminary Prospectus or
the Prospectus, and you, as the Representatives, confirm that such
statements are correct.
(c) Promptly after receipt by an indemnified party under this
Section 10 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party under this Section 10, notify the
indemnifying party in writing of the commencement thereof; but the
failure so to notify the indemnifying party (i) will not relieve it
from liability under paragraph (a) or (b) above unless and to the
extent it did not otherwise learn of such action and such failure
results in the forfeiture by the indemnifying party of substantial
rights and defenses and (ii) will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other
than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to appoint counsel of
the indemnifying party's choice at the indemnifying party's expense to
represent the indemnified party in any action for which indemnification
is sought (in which case the indemnifying party shall not thereafter be
responsible for the fees and expenses of any separate counsel retained
by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be satisfactory to the
indemnified party. Notwithstanding the indemnifying party's election to
appoint counsel to represent the indemnified party in an action, the
indemnified party shall have the right to employ separate counsel
(including local counsel), and the indemnifying party shall bear the
reasonable fees, costs and expenses of such separate counsel if (i) the
use of counsel chosen by the indemnifying party to represent the
indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of,
any such action include both the indemnified party and the indemnifying
party and the indemnified party shall have reasonably concluded that
there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to
the indemnifying party, (iii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of the
institution of such action or (iv) the indemnifying party shall
authorize the indemnified party to employ separate counsel at the
expense of the indemnifying party. An indemnifying party will not,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of
which indemnification or contribution may be sought hereunder (whether
or not
20
<PAGE> 21
the indemnified parties are actual or potential parties to such claim
or action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a)
or (b) of this Section 10 is unavailable to or insufficient to hold
harmless an indemnified party for any reason, the Company and the
Selling Shareholders, jointly and severally, and the Underwriters agree
to contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection
with investigating or defending same) (collectively "Losses") to which
the Company, one or more of the Selling Shareholders and one or more of
the Underwriters may be subject in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Selling
Shareholders on the one hand and by the Underwriters on the other from
the offering of the Shares; provided, however, that in no case shall
any Underwriter (except as may be provided in any agreement among
underwriters relating to the offering of the Shares) be responsible for
any amount in excess of the underwriting discount or commission
applicable to the Shares purchased by such Underwriter hereunder. If
the allocation provided by the immediately preceding sentence is
unavailable for any reason, the Company and the Selling Shareholders,
jointly and severally, and the Underwriters shall contribute in such
proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company and the Selling Shareholders
on the one hand and of the Underwriters on the other in connection with
the statements or omissions which resulted in such Losses as well as
any other relevant equitable considerations. Benefits received by the
Company and the Selling Shareholders shall be deemed to be equal to the
total net proceeds from the offering (before deducting expenses), and
benefits received by the Underwriters shall be deemed to be equal to
the total underwriting discounts and commissions, in each case as set
forth on the cover page of the Prospectus. Relative fault shall be
determined by reference to whether any alleged untrue statement or
omission relates to information provided by the Company, the Selling
Shareholders or the Underwriters. The Company, the Selling Shareholders
and the Underwriters agree that it would not be just and equitable if
contribution were determined by pro rata allocation or any other method
of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of
this paragraph (d), no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 10, each person who
controls an Underwriter within the meaning of either the Act or the
Exchange Act and each director, officer, employee and agent of an
Underwriter shall have the same rights to contribution as such
Underwriter, and each person who controls the Company within the
meaning of either the Act or the Exchange Act, each officer of the
Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as
the Company, subject in each case to the applicable terms and
conditions of this paragraph (d).
21
<PAGE> 22
11. Default by an Underwriter. If any one or more Underwriters
shall fail to purchase and pay for any of the Shares agreed to be purchased by
such Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the amount of Shares set forth
opposite their names in Schedule I hereto bears to the aggregate amount of
Shares set forth opposite the names of all the remaining Underwriters) the
Shares which the defaulting Underwriter or Underwriters agreed but failed to
purchase; provided, however, that in the event that the aggregate amount of
Shares which the defaulting Underwriter or Underwriters agreed but failed to
purchase shall exceed 10% of the aggregate amount of Shares set forth in
Schedule I hereto, the remaining Underwriters shall have the right to purchase
all, but shall not be under any obligation to purchase any, of the Shares, and
if such nondefaulting Underwriters do not purchase all the Shares, this
Agreement will terminate without liability to any nondefaulting Underwriter, the
Selling Shareholders or the Company. In the event of a default by any
Underwriter as set forth in this Section 11, the Closing Date shall be postponed
for such period, not exceeding seven days, as the Representatives shall
determine in order that the required changes in the Registration Statement and
the Prospectus or in any other documents or arrangements may be effected.
Nothing contained in this Agreement shall relieve any defaulting Underwriter of
its liability, if any, to the Company, the Selling Shareholders and any
nondefaulting Underwriter for damages occasioned by its default hereunder.
12. Termination. This Agreement shall be subject to
termination in the absolute discretion of the Representatives, by notice given
to the Company prior to delivery of and payment for the Shares, if prior to such
time (a) trading in the Company's Common Stock shall have been suspended by the
Commission or the National Association of Securities Dealers Automated Quotation
National Market System or trading in securities generally on the New York Stock
Exchange or the National Association of Securities Dealers Automated Quotation
National Market System shall have been suspended or limited or minimum prices
shall have been established on such Exchange or Market System, (b) a banking
moratorium shall have been declared either by Federal or New York State
authorities; or (c) there shall have occurred any outbreak or escalation of
hostilities, declaration by the United States of a national emergency or war or
other calamity or crisis the effect of which on financial markets is such as to
make it, in the judgment of the Representatives, impracticable or inadvisable to
proceed with the offering or delivery of the Shares as contemplated by the
Prospectus (exclusive of any supplement thereto).
13. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its officers, of each Selling Shareholder and of the Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter,
any Selling Shareholder or the Company or any of the officers, directors or
controlling persons referred to in Section 10 hereof, and will survive delivery
of and payment for the Shares. The provisions of Sections 9 and 10 hereof shall
survive the termination or cancellation of this Agreement.
22
<PAGE> 23
14. Notices. All communications hereunder will be in writing
and effective only on receipt, and, if sent to the Representatives, will be
mailed, delivered or telegraphed and confirmed to them, care of Unterberg
Harris, 10 East 50th Street, 22nd Floor, New York, New York, 10022; or, if sent
to the Company, will be mailed, delivered or telegraphed and confirmed to it at
SOS Staffing Services, Inc., 1415 South Main Street, Salt Lake City, Utah 84115;
or if sent to the Selling Shareholders, will be mailed, delivered or telegraphed
and confirmed to them at the addresses set forth in Schedule II and Schedule III
hereto.
15. Successors. This Agreement will inure to
the benefit of and be binding upon the parties hereto and their
respective successors and the officers and directors and controlling
persons referred to in Section 10 hereof, and no other person will have
any right or obligation hereunder.
16. Applicable Law. This Agreement will be
governed by and construed in accordance with the laws of the State of
New York.
This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument.
[The remainder of this page is intentionally left blank.]
23
<PAGE> 24
Please confirm that the foregoing correctly sets forth the
agreement between the Company, the Selling Shareholders and the several
Underwriters.
Very truly yours,
SOS STAFFING SERVICES, INC.
By:_______________________
Name:_____________________
Title:____________________
THE SELLING SHAREHOLDERS
By:_______________________
Attorney-in-fact
CORPORATION OF THE PRESIDENT OF THE
CHURCH OF LATTER-DAY SAINTS
By:_______________________
Name:_____________________
Title:____________________
UNTERBERG HARRIS
PAINEWEBBER INCORPORATED
GEORGE K. BAUM & COMPANY
Acting severally on behalf of themselves
and the several Underwriters
named in Schedule I hereto
By: UNTERBERG HARRIS
By:_______________________
Name:_____________________
Title:____________________
S-1
<PAGE> 25
SCHEDULE I
Number of Firm Shares
Underwriters to be Purchased
Unterberg Harris...........................
PaineWebber Incorporated...................
George K. Baum & Company ..................
Total 2,200,000
---------
<PAGE> 26
SCHEDULE II
Firm Selling Shareholders
<TABLE>
<CAPTION>
Number of Firm Shares
to be Purchased
Name and Address by the Underwriters
- ---------------- ---------------------
<S> <C>
The Corporation of the President of the Church
of Jesus Christ of Latter-day Saints ................ 110,000
50 East North Temple
Salt Lake City, Utah 84150
The Richard D. and Sandra E. Reinhold
Charitable Foundation ............................... 90,000
c/o SOS Staffing Services, Inc.
1415 South Main Street
Salt Lake City, Utah 84115
Total 200,000
</TABLE>
<PAGE> 27
ANNEX I
Required Lock-ups
Richard D. Reinhold
Sandra E. Reinhold
The Richard D. and Sandra E. Reinhold Charitable Foundation
Reinhold Limited
Howard W. Scott, Jr.
Richard J. Tripp
Gary B. Crook
W. B. Collings
John K. Morrison
Stanley R. deWaal
JoAnn W. Wagner
R. Thayne Robson
Randolph K. Rolf
<PAGE> 1
EXHIBIT 5
December 11, 1996
The Board of Directors of
SOS Staffing Services, Inc.
1415 South Main Street
Salt Lake City, Utah 84115
Re: SOS Staffing Services, Inc. -- Registration Statement on Form S-1
Ladies and Gentlemen:
As counsel to SOS Staffing Services, Inc., a Utah corporation (the
"Company"), in connection with the sale of the Company of up to 2,530,000
shares (including 330,000 shares subject to an over-allotment option granted by
the Company to the underwriters) of the Company's Common Stock (the "Shares")
pursuant to a Registration Statement on Form S-1, SEC File No. 333-16187 (the
"Registration Statement"), we have examined the originals or certified,
conformed or reproduction copies of all such records, agreements, instruments
and documents as we have deemed necessary as the basis for the opinions
expressed herein. In all such examinations we have assumed the genuineness of
all signatures on original or certified copies and the conformity to original
or certified copies of all copies submitted to us as conformed or reproduction
copies. As to various questions of fact relevant to the opinion hereinafter
expressed, we have relied upon certificates of public officials and statements
or certificates of officers or representatives of the Company and others.
Based on the foregoing, we are of the opinion that the Shares to be
sold by the Company will, upon payment therefor, be validly issued, fully paid
and nonassessable.
We hereby consent to the reference to our firm under "Legal Matters" in
the prospectus which constitutes a part of the Registration Statement and the
filing of this opinion as an exhibit to the Registration Statement.
KIMBALL, PARR, WADDOUPS, BROWN & GEE
/s/ Kimball, Parr, Waddoups, Brown & Gee
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Name State of Incorporation Business Name
- ----------------------------- ---------------------- ---------------
SOS Collection Services, Inc. Arizona National Collex
Wolfe & Associates, Inc. New Mexico
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made part of this
registration statement on Form S-1.
/s/ ARTHUR ANDERSEN LLP
- ---------------------------------
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
December 11, 1996
