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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 19, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------
SOS STAFFING SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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UTAH 87-0295503
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</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)
GARY B. CROOK
VICE PRESIDENT AND CHIEF FINANCIAL 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.
BRIAN G. LLOYD, ESQ. J. KENNETH MENGES, JR., P.C.
KIMBALL, PARR, WADDOUPS, BROWN & GEE AKIN, GUMP, STRAUSS, 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 the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend interest
reinvestment plans, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier 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
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF OFFERING PRICE
SECURITIES AMOUNT TO BE PER PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED REGISTERED(1) SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------
Common Stock, $0.01 par
value....................... 4,600,000 $18.125 $83,375,000 $25,265
======================================================================================================
</TABLE>
(1) Includes 600,000 shares which the Underwriters have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457 solely for the purpose of calculating the
amount of the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS 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 September , 1997
PROSPECTUS
4,000,000 SHARES
[LOGO]
COMMON STOCK
------------------------
Of the 4,000,000 shares of Common Stock (the "Common Stock") of SOS
Staffing Services, Inc. ("SOS" or the "Company") offered hereby, 3,000,000
shares are being sold by the Company and 1,000,000 shares are being sold by
certain shareholders of the Company (the "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" and "Principal and Selling
Shareholders."
The Common Stock is traded on the Nasdaq National Market under the symbol
"SOSS." On September 17, 1997, the last sale price of the Common Stock, as
reported by the Nasdaq National Market, was $18.125 per share. See "Price Range
of Common Stock."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF FACTORS THAT SHOULD
BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Underwriting Proceeds to
Price to Discount and Proceeds to Selling
Public Commissions(1) Company(2) Shareholders
- ------------------------------------------------------------------------------------------------------
Per Share..................... $ $ $ $
- ------------------------------------------------------------------------------------------------------
Total(3)...................... $ $ $ $
======================================================================================================
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting estimated expenses of $500,000 payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
600,000 additional shares of Common Stock on the same terms and conditions
as set forth above solely to cover over-allotments, if any. If such option
is exercised in full, the Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
------------------------
The shares of Common Stock offered by this Prospectus are offered severally
by the Underwriters subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that the
delivery of certificates for the shares will be made at the offices of Lehman
Brothers Inc., New York, New York, on or about , 1997.
------------------------
LEHMAN BROTHERS
GEORGE K. BAUM & COMPANY
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
UNTERBERG HARRIS
September , 1997
<PAGE> 3
[MAP]
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY. SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON
STOCK PRIOR TO THE PRICING OF THIS OFFERING FOR THE PURPOSE OF MAINTAINING THE
PRICE OF THE COMMON STOCK, THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING THE
PRICING OF THIS OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON STOCK
OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK, AND THE
IMPOSITION OF PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
------------------------
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes included elsewhere in this
Prospectus or incorporated by reference herein. 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 provider
of staffing services in the western United States. SOS currently operates a
network of 113 offices in 16 states. The Company provides a broad range of
commercial staffing and information technology ("IT") services. Commercial
staffing services include light industrial, clerical, industrial, technical and
other professional services. IT services consist of staffing, consulting and
outsourcing services such as systems design, programming, network and systems
management and business consulting. During the 26 weeks ended June 29, 1997, the
Company provided approximately 41,000 staffing employees to more than 6,400
businesses, professional and service organizations and government agencies.
The staffing industry, which, according to the National Association of
Temporary and Staffing Services ("NATSS"), reported a compound annual payroll
growth rate of approximately 15% between 1991 and 1996, continues to benefit
from increased competitive pressures on businesses to reduce costs. In recent
years, businesses have increasingly used staffing service personnel as a
strategy for converting fixed labor costs to flexible, manageable costs and for
meeting specialized or fluctuating employment requirements. According to NATSS,
in 1996, the average number of daily staffing employees as a percentage of total
U.S. employment reached approximately 1.9%, up from 0.9% in 1989.
The Company has benefitted significantly from strong economic and
population growth in the Mountain States (Utah, Colorado, Idaho, Wyoming,
Arizona, Nevada, New Mexico and Montana) and improving economic conditions in
certain other western states. The Regional Financial Review projects that, in
1998, non-farm employment in the Mountain States will increase by 3.0%, compared
to a national average of 1.2%. 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 believes the
economic strength and projected job growth in the western states will support
the Company's anticipated growth and enable the Company to pursue additional
growth opportunities.
The Company's growth strategy for commercial staffing services is to
further penetrate existing markets and expand into new markets in the western
states by opening new offices and expanding the range of staffing services
offered to its customers. A key element of this strategy is the establishment of
hub offices in key population areas followed by the clustering of additional
offices in existing and surrounding markets. During the last five years, the
Company has maintained an average annual internal revenue growth rate in excess
of 20%.
The Company's growth strategy also includes continued acquisition of
commercial staffing and IT staffing and consulting offices in the western
states. Since completing its initial public offering ("IPO") in July 1995, the
Company has acquired 28 staffing companies with 39 offices, consisting of 27
commercial staffing offices and 12 IT staffing and consulting offices. Eight of
the acquisitions completed since July 1996 were of IT staffing and consulting
companies, which have allowed the Company to diversify the mix of staffing
services provided to include higher margin services. On a pro forma basis,
revenues from IT staffing services represented 25% of total revenues for the 26
weeks ended June 29, 1997. Additional acquisitions have added other specialty
services, including medical administrative support, professional mining,
geology, hydrology and environmental services. See "Unaudited Pro Forma
Condensed Consolidated Financial Data" and "Business -- Recent and Pending
Acquisitions."
The Company's business strategy is designed to enhance its overall
profitability. The Company targets small to medium-sized customers in order to
reduce its exposure to margin pressure often associated with large national
accounts. The Company also focuses on delivering higher margin services, such as
IT staffing and consulting and other specialty staffing services. The Company
currently offers a broad range of staffing and consulting services and
continually looks for opportunities to enhance its service offerings. The
Company also encourages entrepreneurial spirit and customer service orientation
in its field management, largely through operating flexibility coupled with
performance incentives. Furthermore, the Company emphasizes service and value in
order to establish and maintain long-term relationships with its clients.
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THE OFFERING
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Common Stock offered
By the Company...................................... 3,000,000 shares
By the Selling Shareholders......................... 1,000,000 shares
-----------
Total Common Stock offered....................... 4,000,000 shares
Common Stock to be outstanding after this offering.... 12,048,252 shares(1)
Use of proceeds....................................... To repay debt, to pay earnout
obligations associated with prior
acquisitions, to finance additional
acquisitions, to support continued
growth of operations, including
opening additional offices, and for
working capital and general corporate
purposes. See "Use of Proceeds."
Nasdaq National Market symbol......................... SOSS
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CONSOLIDATED SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
26 WEEKS ENDED
FISCAL YEAR (52/53 WEEKS) ENDED ---------------------------------
----------------------------------------- JUNE 30,
1994(2) 1995(2) 1996 1996 JUNE 29, 1997
------- ------- ------------------- -------- ----------------------
PRO PRO
ACTUAL FORMA(3) ACTUAL ACTUAL FORMA(3)
-------- -------- -------- -------- -----------
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STATEMENT OF INCOME DATA:
Service revenues........... $63,740 $87,533 $136,164 $170,561 $ 54,988 $87,364 $ 102,191
Gross profit............... 12,418 18,180 27,575 37,432 11,345 18,917 23,324
Operating income........... 2,372 4,321 6,707 7,946 2,632 4,765 6,142
Net income................. $ 2,427 $ 2,677 $ 4,029 $ 4,106 $ 1,620 $ 2,957 $ 3,383
Net income per common
share.................... $ 0.43 $ 0.59 $ 0.45 $ 0.24 $ 0.33 $ 0.37
Weighted average common
shares outstanding....... 6,229(4) 6,838 9,092 6,769 9,096 9,096
OPERATING DATA:
Staffing offices at period
end...................... 34 48 87 61 103
Staffing personnel
utilized................. 32,479 41,854 56,620 28,155 40,941
Staffing hours billed (in
thousands)............... 6,326 7,828 11,317 4,674 6,612
</TABLE>
<TABLE>
<CAPTION>
JUNE 29, 1997
---------------------------------
PRO FORMA
PRO AS
ACTUAL FORMA(5) ADJUSTED(6)
-------- -------- -----------
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BALANCE SHEET DATA:
Cash and cash equivalents............................................... $ 5,042 $ 1,445 $ 40,054
Working capital....................................................... 18,889 15,622 54,778
Total assets.......................................................... 53,590 66,238 104,847
Total debt (includes current portion)................................. 507 12,547 --
Shareholders' equity.................................................. 42,825 42,825 93,981
</TABLE>
- ---------------
(1) Does not include 461,908 shares of Common Stock reserved for issuance upon
the exercise of options outstanding at September 16, 1997 at an average
exercise price of $11.70 and 319,840 shares of Common Stock reserved for the
future grant of options under the Company's 1995 Stock Incentive Plan.
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(2) The Company completed its IPO in July 1995 and in connection therewith
terminated its S corporation election. Data for fiscal 1995 has been
adjusted to reflect a pro forma provision for income taxes. In addition,
prior to the IPO, the Company compensated Richard D. Reinhold, its former
CEO, at levels sufficient to pay income taxes associated with its S
corporation status. For fiscal 1995, the Company entered into an employment
contract with Mr. Reinhold which provided for compensation of $195,000.
Total compensation for Mr. Reinhold in fiscal 1994 was $982,000.
(3) Gives effect to the Company's acquisition of certain staffing and consulting
businesses identified in the Unaudited Pro Forma Condensed Consolidated
Financial Data included elsewhere in this Prospectus, as if such
acquisitions were consummated as of the beginning of fiscal 1996. See
"Unaudited Pro Forma Condensed Consolidated Financial Data" and "Business."
(4) Prior to the completion of its 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 IPO 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 Company's acquisition of certain staffing and
consulting businesses identified in Unaudited Pro Forma Condensed
Consolidated Financial Data included elsewhere in this Prospectus, as if
such acquisitions were consummated as of June 29, 1997. See "Unaudited Pro
Forma Condensed Consolidated Financial Data" and "Business."
(6) Adjusted to reflect the sale by the Company of 3,000,000 shares of Common
Stock offered hereby at an offering price of $18.125 per share and the
application of the estimated net proceeds therefrom. See "Use of Proceeds."
5
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RISK FACTORS
The Common Stock being offered hereby involves a high degree of risk.
Prospective purchasers of the Common Stock offered hereby should carefully
consider the following risk factors, as well as the other information contained
in this Prospectus or incorporated by reference herein.
RISKS OF GROWTH STRATEGY
The Company has experienced significant growth in the past, primarily
through acquisitions, growth of existing offices and the opening of new offices.
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 successfully develop and maintain customer and employee
relationships; and the successful hiring, training and retention of qualified
field management. Expansion beyond the geographic areas where offices are
presently located will increase demands on the Company's management. As the
Company continues to grow, there is no assurance that historical rates of
internal growth can be sustained. The Company could also experience unexpected
delays or other problems with respect to the opening of 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 includes expansion through the acquisition of
staffing service companies. The Company must, however, compete for acquisitions
with numerous other staffing companies that have significantly greater financial
resources than the Company. Competition for acquisitions has become increasingly
intense since other staffing companies have begun seeking to increase their
market share. As the Company attempts to expand into new geographic areas and
targets acquisitions of larger companies offering higher margin specialized
services, the Company will likely encounter increased competition for
acquisition opportunities. If the Company is successful in locating and
acquiring businesses in larger metropolitan areas, of which there can be no
assurance, the Company may be required to pay higher purchase prices.
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 the Company's
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 maintain profitability. In addition,
acquisitions by the Company could involve the incurrence of additional debt,
future amortization or impairment of goodwill and other intangible assets or the
issuance of equity securities having a dilutive effect, all of which could
adversely affect the Company's operating or financial results. See
"Business -- Growth Strategy."
DEPENDENCE ON KEY MANAGEMENT
The Company recently announced changes in its senior management, including
the appointment of Howard W. Scott as Chief Executive Officer, Peter R. Sollenne
as President and Chief Operating Officer and JoAnn W. Wagner as Vice Chairman of
the Board and Executive Vice President of Corporate Development. The changes
reflect the decision of Richard D. Reinhold, founder, Chairman of the Board and
former Chief Executive Officer of the Company, to substantially decrease his
day-to-day involvement in the Company's operations, which may have an adverse
effect on the Company's operations. The Company has been and continues to be
highly dependent on its senior managers and on its ability to hire, develop and
retain qualified field managers, as well as on the 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
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would not incur significant expense attempting to enforce such agreements. The
loss of senior management or other key employees or the inability of the Company
to attract and retain qualified field management could have a material adverse
effect on the Company's operations. See "Management."
IT BUSINESS RISKS
Businesses have increasingly utilized IT services to support their IT
operations in order to keep pace with the rapid technological advances in
business information systems. The Company's efforts to expand its staffing
services to include IT staffing and consulting may be adversely affected by the
Company's limited prior experience in providing such services and is dependent
on its ability to effectively identify, acquire and integrate IT staffing and
consulting operations, to recruit and retain qualified IT personnel and to
successfully market IT staffing and consulting services. The Company's lack of
prior IT experience or failure to operate its IT business profitably could have
a material adverse effect on the Company's business, financial condition or
results of operations.
COMPETITION
The staffing industry is highly competitive and fragmented, and there are
limited barriers to entry. The Company competes with national, regional and
local full-service and specialized staffing services companies, some of which
have significantly greater marketing and financial resources than the Company.
The Company competes with these 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 internal growth and growth through acquisitions,
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 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. See "Business -- Competition."
RISK OF ECONOMIC FLUCTUATIONS
The staffing services industry is affected, to a large extent, by trends in
national, regional or local economic conditions. During periods of slowing
economic activity or high unemployment, many companies reduce their usage of
staffing employees before laying off regular employees. In addition, the Company
may face increased pricing pressure during economic downturns. A substantial
majority of the Company's revenues are presently derived from its operations in
the Mountain States. A deterioration in economic conditions in the markets where
the Company operates could materially adversely affect the Company's business,
financial condition and results of operations. There can be no assurance that
future economic downturns will not have a material adverse effect on the
Company's performance. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Seasonality."
EMPLOYEE-RELATED COSTS
The Company is responsible for employee-related expenses for its 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 per incident, 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
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insurance or changes in workers' compensation laws. Unemployment insurance
premiums are set by the states in which the Company's 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 operating results. See "Business -- Operations -- Risk Management
Program."
AVAILABILITY OF QUALIFIED STAFFING PERSONNEL
The Company competes with other staffing companies, as well as Company
customers and other employers, for qualified personnel. In addition, a
substantial number of the Company's staffing employees during any given year
will terminate employment with the Company to accept employment with Company
customers. The Company may in the future encounter difficulty in recruiting
sufficient staffing employees of the caliber the Company is committed to provide
to its customers. In particular, the Company may have difficulty recruiting and
retaining qualified personnel in the specialized staffing and consulting areas,
such as the IT sector. In addition, during periods of higher employment, the
Company may incur increased expenses associated with recruiting qualified
staffing employees. The Company believes there is a shortage of, and significant
competition for, IT professionals who possess the technical skills and expertise
necessary to deliver the Company's IT services and that such IT professionals
are likely to remain a limited resource for the foreseeable future. An inability
to attract and retain a sufficient number of additional qualified staffing
employees to support the Company's planned growth, or the loss of a significant
number of qualified staffing employees, could adversely affect the Company's
operating results and business strategy. See "Business --
Operations -- Recruiting."
STAFFING EMPLOYMENT RISKS
The Company's staffing employees are typically employed in the workplace of
the Company's customers. Accordingly, the Company is exposed to potential
liability in respect to any claims arising out of the services performed by the
Company's staffing employees, such as misuse of client information or theft of
client property. In addition, the Company has exposure to potential claims by
its staffing employees of discrimination and 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 more than 70,000 staffing employees during 1997,
as well as more than 600 staff employees, the Company's exposure to employment-
related claims may be significantly greater than comparably-sized employers in
other industries or claims arising under employment-related laws or regulations
the failure of Company employees to follow Company policies and guidelines or
may result in negative publicity, injunctive relief or the payment by the
Company of monetary damages or fines, which could have a material adverse effect
on the Company's operating results and financial condition.
QUARTERLY VARIATIONS IN RESULTS
The Company believes that comparisons of its quarterly financial results
are not necessarily meaningful and should not be relied upon as an indication of
future performance trends. The Company's business follows the seasonal trends of
its customers' businesses which are, in turn, affected by, among other things,
the climates in the states in which the customers operate. Historically, the
Company has experienced higher revenues in the third quarter and lower revenues
in the first quarter due to unfavorable weather conditions and lower overall
economic activity. The timing of acquisitions may also result in variations in
quarterly results. 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 of the
Board, and Sandra E. Reinhold, his wife, will control the vote of approximately
23.5% of the outstanding shares of the Common Stock. 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. Future sales by Mr.
and Mrs. Reinhold of
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substantial amounts of Common Stock, or the potential for such sales, could
adversely affect the prevailing market price for the Common Stock. See
"Principal and Selling Shareholders."
LEGAL PROCEEDINGS
The Company is always subject to the risk that it may be a party to legal
proceedings. The staffing industry is subject in particular to potential
liability to customers arising in connection with the services performed by the
Company's staffing employees, and claims of staffing employees relating to the
customers' workplaces. The defense of 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. See "-- Staffing
Employment Risks" and "Business -- Legal and Administrative Proceedings."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of shares in the public market following this
offering could adversely affect the market price of the Common Stock. Upon
completion of this offering, the Company will have 12,048,252 shares of Common
Stock outstanding. Of these shares, 9,212,752 shares, including the 4,000,000
shares sold in this offering, will generally be freely tradable without
restriction. In addition, 2,835,500 shares of Common Stock are tradeable
pursuant to provisions of Rule 144 under the Securities Act. Under lock-up
agreements with the Underwriters, certain shareholders, owning 2,835,500 shares
in the aggregate after the offering, have agreed that they will not, without the
prior written consent of Lehman Brothers Inc., offer, sell, contract to sell, or
otherwise dispose of any shares of Common Stock beneficially owned by them for a
period of 180 days after the effective date of the Registration Statement of
which this Prospectus forms a part. See "Underwriting."
POSSIBLE VOLATILITY OF STOCK PRICE
The Common Stock has been quoted on the Nasdaq National Market since June
1995 and its trading price has fluctuated over a broad range. Prior to that
time, there was no public market for the Common Stock. The trading price of the
Common Stock could continue to fluctuate widely in response to variations in
quarterly operating and financial results, announcements by the Company or its
competitors, industry trends, legislative or regulatory changes, general
economic conditions or other events or factors. See "Price Range of Common
Stock."
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. In addition, the ownership of 23.5% of the Common Stock by
the Company's Chairman of the Board and his wife could prevent or delay changes
in control or management of the Company. See "-- Concentration of Ownership."
FORWARD-LOOKING INFORMATION
This Prospectus contains various forward-looking statements and information
that are based on management's belief, as well as assumptions made by and
information currently available to management. When used
9
<PAGE> 11
in this document, the words "anticipate," "estimate," "project," "expect," and
similar expressions are intended to identify 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. Such statements are subject to
certain risks, uncertainties and assumptions. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated, projected
or expected. Among the key factors that may have a direct bearing on the
Company's operating results are fluctuations in the economy, the degree and
nature of competition, demand for the Company's services, and the Company's
ability to integrate the operations of acquired businesses, to recruit and place
staffing employees, to expand into new markets, and to maintain profit margins
in the face of pricing pressures.
10
<PAGE> 12
THE COMPANY
SOS was organized in Utah in 1973, initially doing business as SOS
Employment Services and subsequently as SOS Temporary Services. The Company's
corporate name was changed in fiscal 1995 to SOS Staffing Services, Inc.,
reflecting the diversity of staffing services the Company offers.
The Company is a leading provider of staffing services in the western
states. SOS currently operates a network of 113 offices located in 16 states.
The Company provides a broad range of commercial staffing and IT services.
Commercial staffing services include light industrial, clerical, industrial,
technical and other professional services. IT services consist of staffing,
consulting and outsourcing services, such as systems design, programming,
network and systems management and business consulting.
The Company offers commercial and specialty staffing services primarily
through the Company's SOS Staffing Services offices. The Company also offers
commercial and specialty staffing services under 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), AccountStaff (accounting and financial
services), SOS Technical Services (engineering, programming, design and other
technical services), ServCom Management Services (professional employer
services), PAMS (medical administrative support services) and CGS Personnel,
Inc. (mining, mineral exploration and environmental professional services). The
Company offers IT staffing, consulting and outsourcing services under the names
Wolfe & Associates, Inc., The Performance Group, Impact Staffing, Computer
Group, Inc., The Solution Team, Inc., Telecom Project Assistance, Inc., Bedford
Consultants, Inc. and Execusoft, Inc.; however, as the Company integrates
acquired IT companies into its consolidated IT operation, the Company plans to
adopt common business names for use throughout the Company's IT network.
Since completing its IPO in July 1995, the Company has acquired 28 staffing
companies, 20 of which were commercial and specialty staffing businesses and
eight of which were IT staffing and consulting businesses. These acquisitions
have enabled the Company to expand its geographic base, as well as the breadth
of services it offers to its customers. The Company has also announced execution
of agreements to acquire two additional staffing companies. See
"Business -- General," "-- Recent and Pending Acquisitions" and "-- Growth
Strategy."
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.
USE OF PROCEEDS
The proceeds to the Company from the sale of the 3,000,000 shares of Common
Stock offered by the Company hereby are estimated to be $51.2 million, net of
estimated commissions and expenses. If the Underwriters' over-allotment option
is exercised in full, the proceeds to the Company from the sale of 3,600,000
shares, net of underwriting discounts, commissions and estimated expenses, are
estimated to be $61.5 million. The Company will not receive any proceeds from
the sale of shares of Common Stock by the Selling Shareholders.
Approximately $17.0 million of the net proceeds will be used to repay
long-term debt estimated to be outstanding upon the completion of this offering,
which was incurred by the Company primarily to finance its growth strategy. The
Company's long-term debt bears interest at a rate equal to LIBOR plus 1.75%
(currently approximately 7.5%). Approximately $1.0 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 the lender's prime rate (currently 8.5% 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 $5.0 million over the next twelve months.
11
<PAGE> 13
The Company intends to use a substantial portion of the balance of the net
proceeds for the acquisition of staffing and consulting businesses, principally
in the western states. The Company continually reviews and evaluates acquisition
candidates to complement and expand its existing business, and is at various
stages of evaluation and discussion with a number of such candidates. 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.
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the Nasdaq National Market under the symbol
"SOSS." Public trading of the Common Stock commenced on June 28, 1995. The
following table sets forth, for the periods indicated, the high and low sales
prices for the Common Stock, as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL 1995:
Quarter ended July 2, 1995 (beginning June 28,
1995)......................................... $ 7.125 $ 6.500
Quarter ended October 1, 1995.................... 8.500 6.625
Quarter ended December 31, 1995.................. 9.750 7.625
FISCAL 1996:
Quarter ended March 30, 1996..................... 13.125 8.375
Quarter ended June 30, 1996...................... 15.000 10.875
Quarter ended September 29, 1996................. 12.875 8.750
Quarter ended December 29, 1996.................. 12.875 9.250
FISCAL 1997:
Quarter ended March 30, 1997..................... 13.375 10.000
Quarter ended June 29, 1997...................... 15.750 10.875
Quarter ending September 28, 1997 (through
September 17, 1997)........................... 19.500 14.625
</TABLE>
The last sale price of the Common Stock, as reported on the Nasdaq National
Market, on September 17, 1997 was $18.125 per share. As of September 17, 1997,
the number of shares of Common Stock outstanding was 9,048,252 shares, held by
approximately 65 stockholders of record, which does not include shares held in
securities position listings.
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 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.
12
<PAGE> 14
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
29, 1997, pro forma to give effect to the acquisition of certain staffing and
consulting businesses as if they were consummated on June 29, 1997, and as
adjusted to give effect to the sale of the shares of Common Stock offered by the
Company hereby and the application of the estimated net proceeds therefrom as
described under "Use of Proceeds." 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 or
incorporated by reference herein. See "Unaudited Pro Forma Condensed
Consolidated Financial Data."
<TABLE>
<CAPTION>
JUNE 29, 1997
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents.................................... $ 5,042 $ 1,445 $40,054
======= ======= =======
Short-term debt (including current portion of long-term
debt)...................................................... $ 507 $ 547 $ --
------- ------- -------
Long-term debt............................................... -- 12,000 --
------- ------- -------
Shareholders' equity:
Common stock, par value $.01 per share, 20,000,000 shares
authorized; 9,040,280 shares issued and outstanding
(Actual and Pro Forma); 12,040,280 shares issued and
outstanding (Pro Forma As Adjusted)..................... 90 90 120
Additional paid-in capital................................. 34,248 34,248 85,374
Retained earnings............................................ 8,487 8,487 8,487
------- ------- -------
Total shareholders' equity.............................. 42,825 42,825 93,981
------- ------- -------
Total capitalization.................................. $43,332 $ 55,372 $93,981
======= ======= =======
</TABLE>
13
<PAGE> 15
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 or incorporated by reference herein, adjusted to give effect
to certain material acquisitions that were completed by the Company in 1996 and
1997 or are currently pending.
The unaudited pro forma condensed consolidated balance sheet data as of
June 29, 1997 reflects the effect of the Company's acquisition of certain
staffing and consulting businesses which occurred subsequent to June 29, 1997 as
if they had occurred on such date.
The unaudited pro forma condensed consolidated income statements for the
fiscal year ended December 29, 1996 and for the 26 weeks ended June 29, 1997
reflect the effect of certain acquisitions as if they had occurred at the
beginning of fiscal year 1996.
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 1996.
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 or
incorporated by reference herein.
14
<PAGE> 16
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 29, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------------------- PRO FORMA
SOS BEDFORD TPA EXECUSOFT JESCO ADJUSTMENTS PRO FORMA
------- ------- ---- --------- ------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.... $ 5,042 $ 225 $ 8 $ 117 $ 923 $(3,822)(a) $ 1,445
(1,048)(b)
Accounts receivable, net..... 21,840 890 512 1,282 1,785 (3,579)(b) 22,730
Current portion of workers'
compensation deposit...... 710 -- -- -- -- 710
Prepaid expenses and other... 319 31 -- 3 53 (11)(b) 395
Deferred tax asset........... 809 -- -- -- -- 809
Amounts due from related
parties................... 392 -- -- -- -- 392
------- ------ ---- ------ ------ ------- -------
Total current assets...... 29,112 1,146 520 1,402 2,761 (8,460) 26,481
------- ------ ---- ------ ------ ------- -------
Property and equipment, net.... 2,615 111 89 58 159 3,032
------- ------ ---- ------ ------ -------
Other assets, net.............. 21,863 10 4 9 54 14,852(a) 36,725
------- ------ ---- ------ ------ -------
(67)(b)
Total assets.............. $53,590 $ 1,267 $613 $ 1,469 $2,974 $ 6,325 $66,238
======= ====== ==== ====== ====== ======= =======
Current liabilities:
Line of credit............... $ 507 $ -- $ -- $ 369 $ -- $ (369)(b) $ 507
Current portion of long-term
debt...................... -- 40 -- 38 -- (38)(b) 40
Accrued acquisition
earnouts.................. 4,460 -- -- -- -- 4,460
Accounts payable............. 401 252 9 206 150 (365)(b) 653
Accrued payroll costs........ 2,367 178 13 260 581 (854)(b) 2,545
Current portion of workers'
compensation reserve...... 1,789 -- -- -- -- 1,789
Accrued liabilities.......... 501 166 -- 71 341 (412)(b) 667
Income taxes payable......... 198 -- -- -- -- 198
------- ------ ---- ------ ------ ------- -------
Total current
liabilities............. 10,223 636 22 944 1,072 (2,038) 10,859
------- ------ ---- ------ ------ ------- -------
Long-term liabilities.......... 542 12 -- -- -- 12,000(a) 12,554
------- ------ ---- ------ ------ ------- -------
Shareholders' equity........... 42,825 619 591 525 1,902 (3,637)(b) 42,825
------- ------ ---- ------ ------ ------- -------
Total liabilities and
equity.................. $53,590 $ 1,267 $613 $ 1,469 $2,974 $ 6,325 $66,238
======= ====== ==== ====== ====== ======= =======
</TABLE>
15
<PAGE> 17
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 29, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------------------------------------------
PERFORMANCE COMPUTER PRO FORMA
SOS GROUP WOLFE GROUP BEDFORD TPA EXECUSOFT JESCO ADJUSTMENTS PRO FORMA
-------- ----------- ------ -------- ------- ------ --------- ------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Service
revenues....... $136,164 $ 1,425 $3,093 $3,841 $8,810 $2,417 $ 9,663 $5,148 $170,561
Direct costs of
services....... 108,589 899 1,732 1,999 6,730 1,578 7,637 3,965 133,129
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit..... 27,575 526 1,361 1,842 2,080 839 2,026 1,183 37,432
Operating
expenses....... 20,868 321 1,151 2,027 2,007 639 1,517 632 $ (914)(c) 29,486
------- ------- ------- ------- ------- ------- ------- ------- -------
827(d)
411(e)
Operating
income......... 6,707 205 210 (185) 73 200 509 551 (324) 7,946
Other income
(expense),
net............ (196) 12 (12) -- (1) 2 (21) (16) (761)(f) (993)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income before
provision for
income taxes... 6,511 217 198 (185) 72 202 488 535 (1,085) 6,953
Provision for
income taxes... 2,482 29 81 (11) 29 3 5 -- 229(g) 2,847
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income....... $ 4,029 $ 188 $ 117 ($ 174) $ 43 $ 199 $ 483 $ 535 ($1,314) $ 4,106
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Net income per
common share... $ 0.59 $ 0.45
======= =======
Weighted average
common shares
outstanding.... 6,838 2,254(h) 9,092
======= ======= =======
</TABLE>
FOR THE TWENTY-SIX WEEKS ENDED JUNE 29, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------------------
COMPUTER PRO FORMA
SOS GROUP BEDFORD TPA EXECUSOFT JESCO ADJUSTMENTS PRO FORMA
------- -------- ------- ------ --------- ------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Service revenues.......................... $87,364 $263 $4,121 $1,407 $ 4,645 $4,391 $102,191
Direct costs of services.................. 68,447 136 3,131 860 3,696 2,597 78,867
------- ---- ------ ------ ------ ------ --------
Gross profit.............................. 18,917 127 990 547 949 1,794 23,324
Operating expenses........................ 14,152 109 869 436 668 594 $ 244(d) 17,182
------- ---- ------ ------ ------ ------ --------
110(e)
Operating income.......................... 4,765 18 121 111 281 1,200 (354) 6,142
Other income (expense), net............... 197 -- 14 7 (15) -- (650)(f) (447)
------- ---- ------ ------ ------ ------ ------- --------
Income before provision for income
taxes................................... 4,962 18 135 118 266 1,200 (1,004) 5,695
Provision for income taxes................ 2,005 -- 45 1 3 -- 258(g) 2,312
------- ---- ------ ------ ------ ------ ------- --------
Net income................................ $ 2,957 $ 18 $ 90 $ 117 $ 263 $1,200 ($1,262) $ 3,383
======= ==== ====== ====== ====== ====== ======= ========
Net income per common share............... $ 0.33 $ 0.37
======= ========
Weighted average common shares
outstanding............................. 9,096 9,096
======= ========
</TABLE>
16
<PAGE> 18
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(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 acquisitions
described in Note 2 which were consummated after June 29, 1997 were consummated
on that date. The unaudited pro forma condensed consolidated statements of
income assume all the acquisitions described in Note 2 were consummated as of
the beginning of the periods presented. 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 or incorporated by reference in this Prospectus.
(2) ACQUISITIONS
All acquisitions have been accounted for as purchases and, accordingly, the
results of operations of the acquired companies have been included in the
consolidated results of operations of SOS from the date of acquisition. The pro
forma information presented includes the effect of earnout payments which have
been paid or estimated to be earned. The Company records contingent earnout
payments as additional goodwill when earned or paid. In addition to the selected
1996 and 1997 acquisitions described below, the Company has consummated other
acquisitions which were not included in the unaudited pro forma condensed
consolidated financial statements based upon their relative size.
SELECTED 1996 ACQUISITIONS
Performance Group -- In July 1996, the Company purchased certain assets and
substantially all of the business operations of The Performance Group
("Performance Group") for approximately $5.1 million which includes earnouts
paid in 1997 of approximately $1.5 million.
Wolfe -- In November 1996, the Company purchased the stock of Wolfe &
Associates, Inc. ("Wolfe") for approximately $7.1 million which includes accrued
future contingent earnouts of approximately $3.0 million with total earnouts
(including the $3.0 million already accrued) not to exceed $6.0 million.
SELECTED 1997 ACQUISITIONS
Computer Group -- In February 1997, the Company purchased the stock of
Computer Group, Inc. ("Computer Group") for approximately $2.7 million and
future contingent earnouts not to exceed $1.3 million.
Bedford -- In July 1997, the Company purchased the stock of Bedford
Consultants, Inc. ("Bedford") for approximately $3.5 million and future
contingent earnouts.
TPA -- In July 1997, the Company purchased certain assets and substantially
all of the business operations of Telecom Project Assistance, Inc. ("TPA") for
approximately $2.0 million and future contingent earnouts not to exceed $4.0
million.
Execusoft -- In August 1997, the Company purchased certain assets and
substantially all of the business operations of Execusoft, Inc. ("Execusoft")
for approximately $5.0 million and future contingent earnouts not to exceed $3.5
million.
17
<PAGE> 19
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JesCo -- The Company has agreed to purchase certain assets and
substantially all of the business operations of JesCo Technical Services, Inc.
("JesCo") for approximately $5.0 million and future contingent earnouts not to
exceed $7.0 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 acquisitons of
Bedford, TPA, Execusoft and the pending acquisition of JesCo described in Note 2
as if the acquisitions had occurred as of June 29, 1997 and to the historical
statements of income as if all acquisitions described in Note 2 were consummated
as of the beginning of the periods presented:
(a) To reflect the acquisitions and the related long-term borrowings
under the Company's credit agreement or the reduction of cash used to fund
the acquisitions.
(b) To eliminate assets not acquired and liabilities not assumed by
SOS in connection with the acquisitions.
(c) To reduce expenses for the difference between compensation of
certain key sellers prior to consummation of the acquisitions and their
compensation following the acquisitions as stipulated in the respective
employment agreements with SOS.
(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 (employee and
customer lists, non-compete agreements and customer contracts) which are
being amortized on a straight-line basis over 3 years.
(f) To reflect the net (i) interest expense on the borrowings used to
fund certain acquisitions, (ii) the elimination of historical interest
expense related to debt not assumed by SOS, (iii) the elimination of
historical interest expense related to acquisitions initially funded with
debt and assumed to be funded with proceeds from the sale of common stock
which closed in December 1996 (see (h) below), and (iv) the elimination of
historical interest income for public offering proceeds utilized to fund
certain acquisitions.
(g) To reflect (i) the change in income taxes related to pro forma
adjustments, and (ii) 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 public offering which closed
in December 1996, the proceeds from which were utilized to fund certain
acquisitions.
18
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth selected financial and operating data of the
Company. The selected financial data as of and for the fiscal years ended 1992,
1993, 1994, 1995 and 1996 is 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 26 weeks ended June
30, 1996 and June 29, 1997 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 in this Prospectus or incorporated by reference herein.
<TABLE>
<CAPTION>
26 WEEKS ENDED
FISCAL YEAR (52/53 WEEKS) ENDED -----------------------------
------------------------------------------------------------- JUNE 30,
1992(1) 1993(1) 1994(1) 1995(1) 1996 1996 JUNE 29, 1997
------- ------- ------- ------- ------------------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT FOR SHARE AND OPERATING DATA)
<CAPTION>
PRO PRO
ACTUAL FORMA(2) ACTUAL ACTUAL FORMA(2)
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Service revenues............ $42,034 $49,433 $63,740 $87,533 $136,164 $170,561 $54,988 $87,364 $102,191
Direct costs of services.... 35,578 41,084 51,322 69,353 108,589 133,129 43,643 68,447 78,867
------- ------- ------- ------- -------- -------- ------- ------- --------
Gross profit................ 6,456 8,349 12,418 18,180 27,575 37,432 11,345 18,917 23,324
------- ------- ------- ------- -------- -------- ------- ------- --------
Operating expenses:
Selling, general and
administrative.......... 5,637 7,316 10,041 13,826 20,459 27,839 8,630 13,586 16,262
Intangibles
amortization............ -- -- 5 33 409 1,647 83 566 920
------- ------- ------- ------- -------- -------- ------- ------- --------
Total operating expenses.... 5,637 7,316 10,046 13,859 20,868 29,486 8,713 14,152 17,182
------- ------- ------- ------- -------- -------- ------- ------- --------
Operating income............ 819 1,033 2,372 4,321 6,707 7,946 2,632 4,765 6,142
Other income (expense),
net....................... 48 80 55 85 (196) (993) (19) 197 (447)
------- ------- ------- ------- -------- -------- ------- ------- --------
Income before provision for
income taxes.............. 867 1,113 2,427 4,406 6,511 6,953 2,613 4,962 5,695
Provision for income
taxes..................... -- -- -- 1,729 2,482 2,847 993 2,005 2,312
------- ------- ------- ------- -------- -------- ------- ------- --------
Net income.................. $ 867 $1,113 $2,427 $2,677 $ 4,029 $ 4,106 $ 1,620 $ 2,957 $ 3,383
======= ======= ======= ======= ======== ======== ======= ======= ========
Net income per common
share..................... $ 0.43 $ 0.59 $ 0.45 $ 0.24 $ 0.33 $ 0.37
======= ======== ======== ======= ======= ========
Weighted average common
shares outstanding........ 6,229 (3) 6,838 9,092 6,769 9,096 9,096
======= ======== ======== ======= ======= ========
OPERATING DATA:
Staffing offices at period
end....................... 17 22 34 48 87 61 103
Staffing personnel
utilized.................. 22,689 27,234 32,479 41,854 56,620 28,155 40,941
Staffing hours billed (in
thousands)................ 4,182 5,021 6,326 7,828 11,317 4,674 6,612
</TABLE>
<TABLE>
<CAPTION>
JUNE 29, 1997
--------------------------------
FISCAL PRO
--------------------------------------------- PRO FORMA AS
1992 1993 1994 1995 1996 ACTUAL FORMA(4) ADJUSTED(5)
------ ------ ------- ------- ------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 665 $ 285 $ 613 $ 2,717 $ 5,785 $ 5,042 $ 1,445 $ 40,054
Working capital........................... 3,400 4,330 5,057 9,645 17,012 18,889 15,622 54,778
Total assets.............................. 6,991 7,458 11,597 19,327 47,293 53,590 66,238 104,847
Total debt (includes current portion)..... 1,892 806 2,780 1,450 -- 507 12,547 --
Shareholders' equity...................... 4,058 5,171 7,098 14,668 36,834 42,825 42,825 93,981
</TABLE>
- ---------------
(1) The Company completed its IPO in July 1995 and in connection therewith
terminated its S corporation election. Data for fiscal 1995 has been
adjusted to reflect a pro forma provision for income taxes. In addition,
prior to the IPO, the Company compensated Richard D. Reinhold, its former
CEO, at levels sufficient to pay income taxes associated with its S
corporation status. For fiscal 1995, the Company entered into an employment
contract with Mr. Reinhold which provided for compensation of $195,000.
Total compensation for Mr. Reinhold in fiscal years 1992, 1993 and 1994 was
approximately $340,000, $466,000 and $982,000, respectively.
19
<PAGE> 21
(2) Gives effect to the Company's acquisition of certain staffing and consulting
businesses identified in the Unaudited Pro Forma Condensed Consolidated
Financial Data included elsewhere in this Prospectus, as if such
acquisitions were consummated as of the beginning of fiscal 1996. See
"Unaudited Pro Forma Condensed Consolidated Financial Data" and
"Business -- Recent and Pending Acquisitions."
(3) Prior to the completion of its 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 IPO 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 certain staffing and
consulting businesses identified in the Unaudited Pro Forma Condensed
Consolidated Financial Data included elsewhere in this Prospectus, as if
they were consummated as of June 29, 1997. See "Unaudited Pro Forma
Condensed Consolidated Financial Data" and "Business -- Recent and Pending
Acquisitions."
(5) Adjusted to reflect the sale by the Company of 3,000,000 shares of Common
Stock offered hereby at an offering price of $18.125 per share and the
application of the estimated net proceeds therefrom. See "Use of Proceeds."
20
<PAGE> 22
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 or
incorporated by reference herein. 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
113 offices in 16 states. Since the completion of the IPO in July 1995, the
network has grown from 42 to 113 offices. The Company has expanded its office
network by acquiring existing staffing service companies and opening new
offices, principally in the western states. Historically, the Company has
entered key metropolitan areas by initially acquiring or opening a central or
"hub" office, and subsequently developing additional offices in the surrounding
metropolitan area or smaller surrounding markets. As offices reach certain
thresholds, the Company often divides them into one or more additional offices
resulting in greater efficiency, profitability and market penetration.
Since the IPO, the Company has acquired 28 staffing companies, representing
39 offices, and has executed agreements to acquire two additional companies. The
purchase prices of these acquisitions have ranged from $25,000 to $5,000,000,
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 32 new offices through internal
expansion. Capital costs of new office openings, excluding working capital
requirements, have typically ranged from $10,000 to $30,000. 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.
Substantially all of the Company's service revenues are based on the time
worked by its staffing and consulting employees on customer assignments. Service
revenues are recognized as income at the time services are provided. The Company
defines gross profit as service revenues less the cost of providing services,
which includes wages of staffing and consulting employees, employer payroll
taxes (FICA, unemployment and other general payroll costs) and workers'
compensation costs. Operating expenses include compensation of staffing
employees, rent, recruitment of staffing employees, costs associated with
opening new offices, depreciation, amortization and advertising. Gross profit
and operating margins vary depending on the mix of the Company's business.
21
<PAGE> 23
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>
26 WEEKS ENDED
FISCAL YEAR (52/53 WEEKS) ENDED -----------------------------
------------------------------------ JUNE 30,
1994 1995 1996 1996 JUNE 29, 1997
----- ----- ---------------- -------- ----------------
PRO PRO
ACTUAL FORMA ACTUAL ACTUAL 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 costs of services......... 80.5 79.3 79.7 78.0 79.4 78.3 77.2
----- ----- ----- ----- ----- ----- -----
Gross profit..................... 19.5 20.7 20.3 22.0 20.6 21.7 22.8
----- ----- ----- ----- ----- ----- -----
Operating expenses:
Selling, general and
administrative.............. 14.5(1) 15.8 15.1 16.3 15.6 15.6 15.9
Intangibles amortization....... -- -- 0.3 1.0 0.2 0.6 0.9
----- ----- ----- ----- ----- ----- -----
Total operating expenses.... 14.5 15.8 15.4 17.3 15.8 16.2 16.8
----- ----- ----- ----- ----- ----- -----
Operating income................. 5.0% 4.9% 4.9% 4.7% 4.8% 5.5% 6.0%
===== ===== ===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) Prior to 1995, the Company compensated its former 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
provided for annual compensation of $195,000 in 1995. Fiscal 1994 selling,
general and administrative expenses have been adjusted to reflect CEO
compensation in such amount, resulting in a reduction of $787,000.
TWENTY-SIX WEEKS ENDED JUNE 29, 1997 COMPARED TO TWENTY-SIX WEEKS ENDED JUNE 30,
1996
Service Revenues. Service revenues for the 26 weeks ended June 29, 1997
were $87.4 million, an increase of $32.4 million, or 59%, from $55.0 million for
the same period of 1996. Approximately $16.7 million of the increase was
attributable to offices acquired in 1996 and 1997. Service revenues (excluding
acquisitions) grew by $15.7 million during the period, consisting of
approximately $11.2 million attributable to growth from comparable offices and
approximately $4.5 million attributable to opening new offices.
Gross Profit. Gross profit for the 26 weeks ended June 29, 1997 was $18.9
million, an increase of $7.6 million, or 67%, from $11.3 million for the same
period of 1996. Gross profit margin for the 26 weeks ended June 29, 1997 was
21.7%, compared to 20.6% for the same period of 1996, reflecting, in part, a
shift in business mix towards the IT segment, which typically generates higher
gross margins.
Operating Expenses. Operating expenses for the 26 weeks ended June 29, 1997
amounted to $14.2 million, or 16.2% of service revenues, compared to $8.7
million, or 15.8% of service revenues, for the same period of 1996. The increase
in operating expenses as a percentage of service revenues was attributable to an
increase in amortization of intangible assets.
Operating Income. Operating income for the 26 weeks ended June 29, 1997 was
$4.8 million, an increase of $2.2 million, or 81%, from $2.6 million for the
same period of 1996. Operating margin for the 26 weeks ended June 29, 1997 was
5.5%, compared to 4.8% for the same period of 1996.
Income Taxes. The effective combined federal and state income tax rate for
the twenty-six weeks ended June 29, 1997 and June 30, 1996 was 40.4% and 38.0%,
respectively. The increased combined tax rate was due to an increase in
non-deductible amortization of intangible assets relating to certain
acquisitions and increasing operations in states which assess higher state tax
rates.
22
<PAGE> 24
FISCAL 1996 COMPARED TO FISCAL 1995
Service Revenues. Service revenues for fiscal 1996 were $136.2 million, an
increase of $48.7 million, or 56%, from $87.5 million in fiscal 1995. Of the
$48.7 million increase, $24.1 million was attributable to acquisitions, $20.1
million was attributable to comparable offices and $4.5 million was attributable
to new offices.
Gross Profit. Gross profit for fiscal 1996 was $27.6 million, an increase
of $9.4 million or 52%, compared to $18.2 million in 1995. Gross profit margin
for fiscal 1996 was 20.3%, compared to 20.7% in fiscal 1995, reflecting, in
part, upward pressure on wages due to lower unemployment rates in the Company's
service areas.
Operating Expenses. Operating expenses amounted to $20.9 million, or 15.4%
of service revenues, in fiscal 1996 compared to $13.9 million, or 15.8% of
service revenues, in fiscal 1995. The decrease in operating expenses as a
percentage of service revenues resulted from improved operating leverage
attributable to revenue growth partially offset by an increase in amortization
of intangible assets.
Operating Income. Operating income for fiscal 1996 was $6.7 million, an
increase of $2.4 million, or 55%, from $4.3 million in fiscal 1995. Operating
margin for both fiscal 1996 and fiscal 1995 was 4.9%.
Income Taxes. The effective combined federal and state income tax rate for
fiscal 1996 and fiscal 1995 was 38.1% and 39.2%, respectively.
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%, 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.
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 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.
Operating Expenses. Operating expenses for fiscal 1995 amounted to $13.9
million, or 15.8% of service revenues, compared to $9.3 million (adjusted for
CEO compensation), or 14.5% of service revenues, for fiscal 1994. The increase
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 were
attributable to opening new offices, integrating newly-acquired offices and
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.
23
<PAGE> 25
PRO FORMA RESULTS OF OPERATIONS
The following pro forma financial information is presented to provide a
comparison of pro forma operating results to actual operating results due to
certain of the Company's material acquisitions completed or entered into after
the beginning of the periods presented. See "Unaudited Pro Forma Condensed
Consolidated Financial Data."
PRO FORMA RESULTS OF OPERATIONS COMPARED TO ACTUAL RESULTS FOR THE 26 WEEKS
ENDED JUNE 29, 1997
Service Revenues. Pro forma service revenues from acquisitions added $14.8
million to actual service revenues. If these acquisitions had occurred at the
beginning of 1997, service revenues would have amounted to $102.2 million.
Gross Profit. Pro forma gross profit was $23.3 million, an increase of $4.4
million over the actual results reported of $18.9 million. Pro forma gross
profit margin was 22.8%, compared to 21.7% from actual results for the same
period. The increase in gross profit margin was attributable to a higher mix of
IT business in the pro forma results which typically generate a higher margin.
Operating Expenses. Pro forma operating expenses were $17.2 million, an
increase of $3.0 million over actual results. As a percentage of service
revenues, pro forma operating expenses were 16.8% or an increase of 0.6%,
compared to the actual percentage of 16.2%. Part of the increase resulted from
an increase in the mix of IT business, which typically generates higher
operating expenses. The balance of the increase resulted from additional
amortization of intangible assets related to the acquisitions.
Operating Income. Pro forma operating income was $6.1 million, an increase
of $1.4 million. Pro forma operating income as a percentage of service revenues
was 6.0%, compared to the actual percentage of 5.5%.
Income Taxes. The pro forma provision for income taxes represented an
effective rate of 40.6%, compared to 40.4% for actual results.
PRO FORMA RESULTS OF OPERATIONS COMPARED TO ACTUAL RESULTS FOR FISCAL 1996
Service Revenues. Pro forma service revenues from acquisitions added $34.4
million to actual service revenues. If these acquisitions had occurred at the
beginning of 1996, service revenues for fiscal 1996 would have amounted to
$170.6 million.
Gross Profit. Pro forma gross profit was $37.4 million, an increase of $9.9
million over the actual results reported. Gross profit margin was 22.0%,
compared to the actual percentage of 20.3%. The increase in gross profit margin
was attributable principally to the increase in the IT business.
Operating Expenses. Pro forma operating expenses were $29.5 million,
reflecting the addition of $8.6 million in operating expenses, compared to the
actual results. As a percentage of service revenues, pro forma operating
expenses were 17.3%, or an increase of 2.0%, compared to the actual percentage
operating expenses of 15.3%. Part of the increase resulted from an increase in
the mix of IT business. The balance of the increase resulted from additional
amortization of intangible assets related to the acquisitions.
Operating Income. Pro forma operating income was $7.9 million, an increase
of $1.2 million over the actual operating results of $6.7 million. Pro forma
operating income as a percentage of service revenues was 4.7% compared to the
actual percentage of 4.9%.
Income Taxes. The pro forma provision for income taxes represented an
effective rate of 40.9%, compared to 38.1% for actual results. The increase in
the effective tax rate was due to the acquisition of businesses in states with
higher income tax rates, as well as an increase in non-deductible amortization
of intangible assets relating to certain acquisitions.
24
<PAGE> 26
QUARTERLY RESULTS OF OPERATIONS
The following table presents certain unaudited quarterly financial and
other operating data for each of the four quarters in fiscal 1996 and the first
two quarters of fiscal 1997. This information was 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 or incorporated
by reference herein.
<TABLE>
<CAPTION>
FISCAL YEAR 1996 FISCAL YEAR 1997
------------------------------------- -----------------
Q1 Q2 Q3 Q4 Q1 Q2
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Service revenues......................... $25,034 $29,954 $37,846 $43,330 $40,846 $46,518
Direct cost of services.................. 19,793 23,850 30,092 34,854 32,139 36,308
------- ------- ------- ------- ------- -------
Gross profit............................. 5,241 6,104 7,754 8,476 8,707 10,210
------- ------- ------- ------- ------- -------
Operating expenses:
Selling, general and administrative.... 4,062 4,568 5,447 6,382 6,359 7,227
Intangibles amortization............... 35 48 124 202 273 293
------- ------- ------- ------- ------- -------
Total operating expenses....... 4,097 4,616 5,571 6,584 6,632 7,520
------- ------- ------- ------- ------- -------
Operating income......................... $ 1,144 $ 1,488 $ 2,183 $ 1,892 $ 2,075 $ 2,690
======= ======= ======= ======= ======= =======
</TABLE>
The following table sets forth for the periods indicated the percentage of
revenues represented by the indicated items:
<TABLE>
<CAPTION>
FISCAL YEAR
FISCAL YEAR 1996 1997
-------------------------------- --------------
Q1 Q2 Q3 Q4 Q1 Q2
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Service revenues............................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Direct cost of services........................ 79.1 79.6 79.5 80.4 78.7 78.1
----- ----- ----- ----- ----- -----
Gross profit................................... 20.9 20.4 20.5 19.6 21.3 21.9
----- ----- ----- ----- ----- -----
Operating expenses:
Selling, general and administrative.......... 16.2 15.2 14.4 14.7 15.5 15.5
Intangibles amortization..................... 0.1 0.2 0.3 0.5 0.7 0.6
----- ----- ----- ----- ----- -----
Total operating expenses.................. 16.3 15.4 14.7 15.2 16.2 16.1
----- ----- ----- ----- ----- -----
Operating income............................... 4.6% 5.0% 5.8% 4.4% 5.1% 5.8%
===== ===== ===== ===== ===== =====
</TABLE>
Results of operations for the quarters shown above include the results of
operations of services businesses acquired during such periods. The quarterly
results set forth above may not be indicative of the future operating results of
the Company. The Company's quarterly results are also affected by seasonal
trends in the Company's business. See "Risk Factors -- Quarterly Variations in
Results" and "-- Seasonality."
LIQUIDITY AND CAPITAL RESOURCES
For the 26 weeks ended June 29, 1997, net cash provided by operating
activities was $0.6 million compared to net cash used in operating activities of
$1.5 million for the 26 weeks ended June 30, 1996. The increase in operating
cash flow was a result of higher net income and increased depreciation and
amortization.
The Company's investing activities used $0.7 million to purchase property
and equipment, $3.8 million to purchase assets of acquired businesses and $0.4
million to pay earnouts on acquisitions. See "Business -- Recent and Pending
Acquisitions" and the Notes to the Company's Consolidated Financial Statements
incorporated by reference herein for a description of the material terms of
these acquisitions.
The Company's primary sources of short-term liquidity and capital resources
at June 29, 1997 were cash flows from operating activities and a secured line of
credit with a bank. The Company's line of credit allowed for maximum borrowings
of $20 million at June 29, 1997 and was increased to $35 million in September
1997. At June 29, 1997, the Company had outstanding borrowings of $0.5 million
on the line of credit, consisting solely of short-term borrowings. Short-term
borrowings bear interest at the prime rate charged from time to
25
<PAGE> 27
time by the Company's lender (at June 29, 1997, 8.5%). Long-term borrowings bear
interest at LIBOR plus 1.75% (at June 29, 1997, approximately 7.5%). The rate
related to the amount over LIBOR may increase based upon certain financial
ratios. The Company also had letters of credit of $3.7 million outstanding at
June 29, 1997, for purposes of securing its workers' compensation premium
obligation. The aggregate amount of such letters of credit reduces the borrowing
availability on the line of credit. At June 29, 1997, $15.8 million was
available for borrowings or additional letters of credit under the line of
credit. Management believes that the new credit facility, together with cash
reserves and cash flow from operations, will be sufficient to fund the Company's
operations, capital expenditures, and pending acquisitions for at least the next
12 months. The Company will utilize proceeds of this offering to repay debt, to
pay earnout obligations associated with prior acquisitions, to support continued
growth of operations, including opening additional offices, and for working
capital and general corporate purposes.
SEASONALITY
The Company's business follows the seasonal trends of its customers'
businesses. Historically, the Company has experienced lower revenues in the
first quarter due to the seasonal trends of its customers and lower overall
economic activity.
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.
26
<PAGE> 28
BUSINESS
GENERAL
The Company is a leading provider of staffing services in the western
states. SOS currently operates a network of 113 offices in 16 states. The
Company provides a broad range of commercial staffing and IT services.
Commercial staffing services include light industrial, clerical, industrial,
technical, specialty and other professional services. IT services consist of
staffing, consulting and outsourcing services such as systems design,
programming, network and systems management and business consulting. During the
26 weeks ended June 29, 1997, the Company provided approximately 41,000 staffing
employees to more than 6,400 businesses, professional and service organizations
and government agencies.
Since completing its IPO in July 1995, the Company has aggressively pursued
an acquisition program, having acquired 28 staffing companies with 39 offices,
consisting of 27 commercial staffing offices and 12 IT staffing and consulting
offices. Eight of the acquisitions completed since July 1996 were of IT staffing
and consulting companies, which have allowed the Company to diversify the mix of
staffing services provided to include higher margin services. On a pro forma
basis, revenues from IT staffing services represented 24% of total revenues for
the 1996 fiscal year and 25% of total revenues for the 26 weeks ended June 29,
1997. Additional acquisitions have added other specialty services, including
medical administrative support, professional mining, geology, hydrology and
environmental services.
STAFFING INDUSTRY
The staffing industry in the United States has grown rapidly and 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, domestic
staffing receipts for 1996 were approximately $43.6 billion, an increase of
approximately 11.2% from 1995. NATSS has also reported that temporary employees
represented approximately 1.9% of the non-farm workforce during 1996, up from
0.9% in 1989.
The professional and technical segments of the industry, which include IT
professionals, have experienced higher rates of growth than the office/clerical
segment. According to NATSS, from 1991 to 1996, the percentage of temporary
staffing payroll represented by the professional and technical segments
increased from 15.8% to 20.3%, compared with a decrease in the office/clerical
segment from 47.6% to 38.7% during the same period.
Historically, the demand for 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 staffing employees has become widely
accepted as a valuable tool for managing personnel costs and for meeting
specialized or fluctuating employment requirements.
The range of staffing services has expanded substantially since the early
days of the staffing industry. Technological advances, as well as changing
attitudes towards workforce management, have resulted in a proliferation of new
staffing positions in such areas as IT and other specialized industry segments.
Furthermore, businesses have begun using 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 help desk,
data processing, mailroom or maintenance operations. Staffing companies also
offer on-site services, which involve locating one of the staffing company's
regular employees on-site at the customer's place of business to manage all of
the customer's employee staffing requirements. As business information systems
have become more complex and sophisticated, businesses have increasingly sought
assistance from IT staffing and consulting personnel to develop and support
their operations.
27
<PAGE> 29
REGIONAL GROWTH
The Company has benefitted significantly from strong economic and
population growth in the Mountain States and improving economic conditions in
certain western states. Management believes the attraction of the Mountain
States, resulting in part from the region's economic growth, diverse economic
base, productive work force and high quality of life, will result in further
economic expansion. Of the ten states forecast by Regional Financial Review to
experience the highest rates of growth in gross output of goods and services
during 1997, five are located in the Mountain States and the Company has offices
in four others. Job growth in the Company's markets is projected to be strong.
According to the Regional Financial Review, in 1998, non-farm employment in the
Mountain States is projected to increase by 3.0%, compared to the national
average of 1.2%.
Management believes the economic strength and projected job growth in the
western states will support the Company's anticipated growth and enable the
Company to pursue additional growth opportunities.
RECENT AND PENDING ACQUISITIONS
Since January 1997, the Company has acquired 9 staffing businesses,
representing six IT staffing and consulting offices and five commercial staffing
offices, and has announced agreements to acquire two additional companies which,
if completed, would add one additional commercial staffing office and two
additional IT offices. The Company's recent and pending acquisitions are
summarized in the following table. See "Unaudited Pro Forma Condensed
Consolidated Financial Data" for additional information concerning certain of
these acquisitions.
<TABLE>
<CAPTION>
ESTIMATED
ACQUISITION REVENUES(1) PRIMARY
ACQUIRED COMPANY DATE (MILLIONS) OFFICES HEADQUARTERS SERVICES
- --------------------------- --------------- ---------- ------- ------------------- -----------
<S> <C> <C> <C> <C> <C>
TempWorks, Inc.(2)......... Pending $ 2.0 1 Denver, CO Commercial
JesCo Technical Services,
Inc.(2).................. Pending 8.2 2 Bellevue, WA IT
VIP Plus, Ltd.............. September 1997 3.5 3 Lubbock, TX Commercial
Execusoft, Inc............. August 1997 10.0 2 Orange, CA IT
Bedford Consultants, Inc... July 1997 8.4 1 San Francisco, CA IT
Telecom Project Assistance,
Inc...................... July 1997 2.8 1 Mountain View, CA IT
Toma Employment Service.... March 1997 0.4 1 Las Vegas, NV Commercial
The Solution Team, Inc..... March 1997 0.1 1 Oklahoma City, OK IT
The Agency................. March 1997 0.1 1 Albuquerque, NM Commercial
Computer Group, Inc........ February 1997 2.4 1 Bellevue, WA IT
Human Resources, Inc....... January 1997 1.3 -- St. George, UT Commercial
--
----------
Total............ $ 39.2 14
======== =====
</TABLE>
- ---------------
(1) Represents estimated annualized revenues at the time of each acquisition
(or, in the case of pending acquisitions, at the time of entering into the
applicable acquisition agreement), 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 acquisitions of TempWorks, Inc. and JesCo are subject
to the satisfaction of certain conditions. Although the acquisitions are
presently scheduled to be completed in October 1997, there can be no
assurance of such completion.
28
<PAGE> 30
GROWTH STRATEGY
Management believes the Company has substantial opportunities to expand its
office network and the range of services it offers to its customers. The
Company's growth strategy is comprised of two elements: continued focus on
internal growth and pursuit of additional acquisitions. Since completing its IPO
in July 1995, the Company has added a total of 32 offices through internal
growth and 39 offices through acquisitions.
Focus on Internal Growth. A principal element of the Company's growth
strategy has been its focus on internal growth. During the last five years, the
Company has maintained an average annual internal revenue growth rate in excess
of 20%. The Company's internal growth strategy consists of the following:
- Increase Penetration of Existing Markets. The Company continually seeks
to add new customers and offices in the geographic markets it currently
serves. In many instances, the Company pursues such penetration by
establishing a "hub" office from which it can develop additional offices
within a metropolitan area. SOS also intends to introduce complementary
or specialty services in existing markets and incentivizes field and
local managers to focus on business development within existing offices.
- Enter New Markets. The Company plans to open new branches in markets not
currently served by existing offices. Frequently, the Company enters new
markets by establishing a "hub" office located in a central location. The
Company then opens new offices in surrounding markets which benefit from
the administrative support and resources of the hub office. This strategy
has enabled the Company to enter many smaller markets cost effectively.
- Expand Service Offerings. The Company is actively seeking to expand the
range of IT services it offers to its customers to include expanded
outsourcing capabilities and network oversight and management. The
Company intends to expand its vendor on-premise business, pursuant to
which SOS manages all of the customer's staffing requirements on-site.
The Company also intends to further develop partnering relationships
under which SOS works with other staffing providers to meet the
customer's staffing requirements.
- Cross-sell Services. The Company actively seeks to cross-sell commercial
staffing and IT staffing and consulting services to existing customers.
Through incentive compensation arrangements, the Company actively
encourages referrals and cross-selling among and within its commercial,
specialty and IT operations.
Pursue Acquisitions. The Company intends to continue to pursue acquisitions
as a key element of its growth strategy. In targeting acquisitions, SOS focuses
on businesses with (i) a history of profitable operations, (ii) a strong
management team, (iii) a strong local market position, (iv) services that
complement the Company's operations, and (v) compatible corporate philosophies
and culture. The estimated total annualized revenues of the 11 staffing
businesses acquired by the Company since January 1997 (including two pending
acquisitions) are approximately $39.2 million. The Company's acquisition growth
strategy consists of the following:
- Enter New Markets. The Company intends to target strategic acquisitions
in new markets where the Company seeks to establish staffing operations,
particularly in the western states.
- Acquire Complementary Businesses in Existing Markets. The Company intends
to acquire complementary businesses or specialty lines of business that
enhance the services provided by existing offices. The Company also
targets businesses in its existing markets as a means of increasing market
share.
- Acquire New Services. The Company intends to pursue acquisitions of
staffing businesses that will expand its service offerings. The Company's
acquisition of eight IT companies since July 1996 has significantly
strengthened the Company's IT staffing and consulting offerings. As the
Company identifies staffing businesses in attractive niches, the Company
intends to pursue strategic acquisitions to facilitate its entry into such
niches.
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<PAGE> 31
BUSINESS STRATEGY
The Company's goal is to enhance its profitability through a focused
business strategy. The Company has identified the following key elements of its
strategy, which management believes are critical to the Company's success:
Focus on Small to Mid-Size Customers. Historically, the Company's customers
have consisted primarily of small to mid-size companies. Sales to these
businesses tend to generate higher margins than larger national accounts. The
Company believes that focusing on small to mid-sized customers limits its
exposure to margin pressure associated with large national contracts and volume
discounts. The Company believes that it has developed competitive advantages in
serving small and mid-sized businesses by tailoring its operations to meet local
customer needs, including the establishment of strong customer relationships
through local marketing efforts, quality service and community involvement.
Deliver Higher Margin Services. The Company's operating results since 1991
have been significantly enhanced by its strategy to deliver higher margin
services. Over the past several years, the Company has focused its efforts on
expanding its range of services to include higher margin specialty services such
as IT staffing and consulting, administrative staffing support services for
medical facilities and other professional services. The Company has
de-emphasized marketing to accounts where competitive pricing makes margins
unacceptable or to accounts where workers' compensation costs adversely affect
profitability.
Offer a Broad Range of Services. The Company's strategy includes offering
its customers a broad range of staffing services, including light industrial,
clerical, IT, industrial, technical and other professional services, as well as
a range of consulting services. The Company also provides related services to
its customers, including payrolling, skill and drug testing, risk management
consulting and other professional staffing services. In larger markets, the
Company offers these services through several separate offices operating under
established names. 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, in which SOS locates an on-site
manager at the customer's facility to manage all of the customer's employee
staffing requirements.
Provide Centralized Support and Encourage Entrepreneurial Management. The
Company's commercial staffing offices are supported by centralized functions at
corporate headquarters that include marketing, recruiting, training and
retention programs, as well as workers' compensation and other insurance
services, accounts payable, purchasing, credit, collection, legal review and
other administrative support services. Generally, each staffing office has
access to the Company's computer system and its proprietary software that
provides information on customer requirements, available applicants, staffing
employees on assignment and other information which facilitates efficient
response to customer job orders. As the Company expands its IT staffing,
consulting and outsourcing operations, it intends to develop a centralized
support system tailored to the specific needs of IT customers.
To encourage an entrepreneurial approach to field management, the Company
has established financial targets and quality performance standards which are
utilized at all offices. A substantial portion of the Company's field management
compensation is incentive-driven and based upon meeting financial targets and
quality standards. Managers are also given considerable discretion to price
services and to respond to specific customer requirements.
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 its customers by developing knowledge of
customers' businesses, responding promptly to customer orders and monitoring job
performance and customer satisfaction. The Company targets customer accounts
where service and quality are perceived to be as important as pricing of
services. This allows the Company to be more selective and to provide higher
quality services while maintaining desired margins.
Pursue Opportunities in Smaller Markets. In the commercial staffing
segment, 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 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 and to cross-sell IT and other specialty
staffing services. In these markets, which are often too small to attract
competition from national staffing companies, the Company has quickly achieved
significant penetration and has often become the dominant provider of staffing
services.
OPERATIONS
Services Offered. The Company offers a broad range of commercial staffing
and IT staffing and consulting services. Generally, the Company provides light
industrial, clerical and industrial services through SOS Staffing Services,
Skill Staff and Industrial Specialists offices, while technical and other
specialty services are provided by specialty offices such as SOS Technical
Services (engineers, chemists, geologists, designers, drafters, illustrators,
artists, writers and other technical personnel), AccountStaff (accountants,
bookkeeping, auditors, data entry personnel and financial analysts), PAMS
(medical administrative services), National Collex (collection services and
project billing for medical facilities) and CGS Personnel (mining, mineral
exploration and environmental staffing).
The Company's commercial staffing services also include professional
employer services such as payrolling, outsourcing, on-site and administrative
professional services provided through SOS Staffing Services and ServCom
offices. 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. Administrative professional services
offer 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. As of September 1, 1997, the Company also provided
professional employer organization services on a limited basis to approximately
60 customers, representing approximately 340 employees, which offers to SOS
customers the benefits of employee leasing.
The Company's IT services consist of IT staffing, consulting and
outsourcing services. The Company's IT staffing services include computer
programming, system design, analysis and administration, network and systems
management, software and documentation development. IT staffing services are
similar in many respects to commercial staffing services; however, IT services
generally, require increased specialization and technical skill, carry
significantly higher hourly rates and involve substantially longer job
assignments. The Company's IT consulting services are focused on solving the
customer's organizational problems and typically include general business
consulting, organizational analysis, technology consulting, strategic planning
and telephony services. Company consultants provide innovative ideas, insight
and experience to address the customer's organizational problems, then work with
the customer to implement strategic solutions. IT consulting engagements
typically last six months to one year and may require the services of several
specialized consultants. The Company also delivers IT outsourcing services to
customers who turn over to SOS personnel the management and staffing of specific
business operations. Historically, the Company has provided IT staffing,
consulting and outsourcing services under the business names of acquired IT
business units; however, as the Company integrates acquired IT companies into
its consolidated IT operations, the Company intends to adopt common business
names for use throughout the Company's IT branch network.
Branch Offices. The Company provides commercial staffing and IT staffing
and consulting services through a network of 113 offices located in 16 states.
The Company currently operates at least one office in every market in the
Mountain States with a population base in excess of 100,000 people. In larger
markets, the Company generally provides light industrial and clerical personnel
through SOS Staffing Services offices, while specialty services are provided by
service-specific specialty offices. In smaller markets, SOS offices offer a
broader variety of commercial staffing services, including specialty services.
The Company currently provides
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<PAGE> 33
commercial staffing services through a network of SOS Staffing Services, Skill
Staff, SOS Technical Services, AccountStaff, Industrial Specialists, PAMS,
ServCom and CGS offices.
The Company estimates the capital cost of establishing a new commercial
staffing office ranges from $10,000 to $30,000, 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 provides IT staffing and consulting services from 14 IT
offices. The Company's IT staffing and consulting offices generally serve larger
geographic areas than SOS commercial staffing offices, principally due to the
increased specialization associated with IT services. The Company's strategy of
integrating and expanding its existing IT staffing and consulting office network
will include efforts to position IT offices in strategic locations throughout
the western states, rather than the "hub and spoke" approach used by the Company
to expand its network of commercial staffing offices.
Sales and Marketing. SOS generally markets its commercial staffing services
through its network of offices whose managers, supported by the Company's
marketing staff, make regular personal sales visits to larger accounts and
prospects. The Company emphasizes long-term personal relationships with its
customers and develops these relationships through regular contact, periodic
assessment of customer requirements and regular monitoring of employee
performance. New customers are 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.
The Company's IT sales and marketing efforts may include the activities
described above, but are generally more focused to address IT staffing and
consulting needs which are typical of specific customers. Many of the Company's
existing and prospective IT customers routinely outsource IT functions, such as
programming, data entry and network administration. The Company's IT staffing
and consulting personnel seek to identify IT requirements of its customers and
promote IT services designed to meet those requirements. In addition to personal
sales visits, targeted mailings and telephone solicitations, the Company's IT
personnel actively promote the Company's services through cross-selling
complementary IT services to existing customers and participate in industry
trade associations.
Recruiting. The Company believes a key element of its growth and
profitability has been its ability to recruit and retain qualified staffing
personnel. In an effort to attract commercial staffing personnel, 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 staffing employees and from
advertising on radio, television, in the Yellow Pages and through other print
media. The Company has recently begun to utilize the internet to recruit
professional, IT and technical staffing employees. Each applicant for a
commercial staffing position 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 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.
The Company's efforts to recruit IT staffing and consulting personnel
frequently include some or all of the recruiting activities employed by the
Company's commercial staffing offices, but typically rely more heavily on
identifying potential employees who possess specialized education, training or
work experience. Frequently, the Company will screen prospective IT personnel
based solely upon resume submissions, then refer qualified candidates to
customers for on-site interviews. The Company's IT recruiting efforts also rely
heavily upon industry contacts, personal networks and referrals from existing
and former IT personnel.
To promote loyalty and retention among its staffing employees, the Company
provides its 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. In addition, the Company generally
issues paychecks to commercial staffing employees during the same week worked.
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<PAGE> 34
Customers. During the 26 weeks ended June 29, 1997, the Company provided
approximately 41,000 staffing employees to more than 6,400 businesses,
professional and service organizations and government agencies. No customer
accounted for more than 3% of the Company's service revenues during the period
and the Company's top ten customers accounted for less than 15% of service
revenues during the same period. Historically, the Company's customers have
consisted primarily of small to mid-size commercial staffing customers.
Management believes there remain significant opportunities to deliver profitable
commercial staffing services to small and mid-size customers, who are less
likely to require substantial volume discounts than larger, nationwide
companies. As the Company expands its network into larger cities in the western
states, the Company anticipates that it will provide commercial staffing
services to larger customers who focus on value rather than cost, but will
continue to focus its efforts on attracting and providing quality services to
small and mid-size companies located in such larger cities.
The Company's IT customer base, which consists primarily of IT customers
served by companies acquired by SOS since July 1996, includes customers who are
generally larger than many of the Company's commercial staffing customers. Many
of the Company's IT customers are Fortune 1000 companies, government agencies
and educational institutions. The Company anticipates that its increased focus
on IT staffing and consulting, as well as its expansion into larger metropolitan
areas, will lead to additional opportunities to provide IT services to mid-size
and larger customers.
Information Systems. The Company's central management information system is
linked to all of the Company's larger staffing offices. Smaller offices utilize
stand-alone computers and software for routine office functions. The centralized
system is designed to support Company-wide operations such as payroll, billing,
accounting and sales and management reports.
Six of the 14 IT offices are linked to the Company's central management
information system, while substantially all of the remaining offices continue to
utilize systems in place at the time of their acquisition by SOS. The Company
intends to develop a central management information system for use by the
Company's IT offices. The Company anticipates that its IT system will be
connected to the Company's existing system for certain common functions;
however, the IT system will be designed to accommodate the different business
cycles associated with the IT industry.
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 basis. The present system has capacity to service the Company's
anticipated growth without significant capital expenditures for the foreseeable
future.
Risk Management Program. SOS is responsible for all employee-related
expenses for its staff employees including workers' compensation, unemployment
insurance, social security taxes, state and local taxes and other general
payroll expenses. The Company has implemented a deductible workers' compensation
program through CIGNA Property and Casualty ("CIGNA") with a loss cap of
$200,000 per incident. Staffing employees in Nevada, Washington and Wyoming 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 staffing employees are required
to agree in advance to drug testing following any work-related accident and all
major accidents are investigated. The Company, in cooperation with its insurer,
monitors all claims and regularly reviews the claims with an emphasis on early
closure.
COMPETITION
The staffing industry is comprised of national, regional and local
companies operating offices throughout the nation, making the industry highly
competitive and highly fragmented, with limited barriers to entry. The
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<PAGE> 35
Company faces intense competition from large national and international
companies with substantially greater financial and marketing resources than
those of the Company, as well as strong local and regional staffing companies.
The Company competes for qualified staffing employees and for customers who
require the services of such employees. The principal competitive factors in
attracting and retaining qualified 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 staffing employees.
The principal competitive factors in obtaining customers are a strong sales
and marketing program, having qualified staffing employees to assign in a timely
manner, matching of customer requirements with available staffing employees,
competitive pricing and satisfactory work production. The Company believes its
strong emphasis on providing service and value to its customers and staffing
employees are important competitive advantages.
PROPERTIES
Presently, the Company provides staffing services through 113 offices in 16
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.
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, fidelity losses and general liability.
In June 1996, a former customer of the Company commenced litigation against
the Company in Second District Court, Salt Lake County, State of Utah, alleging
breach of contract, negligence, fraud and misrepresentation. The allegations are
based upon the alleged theft of surplus military goods from the former
customer's warehouse by a former temporary employee of the Company. The
plaintiff is seeking special, general, consequential, punitive and other damages
in an amount in excess of $7.0 million. 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.
There is no other pending litigation that the Company currently anticipates
will have a material adverse effect on the Company's financial condition or
results of operations.
STAFF EMPLOYEES
At August 25, 1997, the Company had approximately 627 staff employees
including 11 senior managers, 124 field managers, 68 consultants and 424 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
NEW MANAGEMENT APPOINTMENTS
In August 1997, the Company announced certain new management appointments,
including the appointment of Howard W. Scott as Chief Executive Officer, JoAnn
W. Wagner as Vice Chairman of the Board and Executive Vice President of
Corporate Development and Peter R. Sollenne as President and Chief Operating
Officer. The appointments reflect the decision of Richard D. Reinhold, founder
and former Chief Executive Officer of the Company, to substantially decrease his
day-to-day involvement in the Company's operations. Mr. Reinhold will continue
to serve as Chairman of the Company's Board of Directors but is considering the
possibility of stepping down as Chairman some time in 1998.
EXECUTIVE OFFICERS AND DIRECTORS
The Company's executive officers and directors are as follows:
<TABLE>
<CAPTION>
TERM AS
DIRECTOR
NAME AGE POSITION EXPIRES
------------------------ --- -------------------------------------------- -------
<S> <C> <C> <C>
Richard D. Reinhold..... 58 Chairman of the Board 1998
Howard W. Scott, Jr..... 62 Chief Executive Officer and Director 2000
JoAnn W. Wagner......... 58 Vice Chairman of the Board and Executive 1998
Vice President of Corporate Development
Peter R. Sollenne....... 49 President and Chief Operating Officer --
Richard J. Tripp........ 48 Senior Vice President of Administration and 2000
Director
Gary B. Crook........... 44 Vice President, Chief Financial Officer and --
Treasurer
W. B. Collings.......... 58 Controller and Assistant Secretary --
John K. Morrison........ 35 Secretary and General Counsel --
Stanley R. deWaal....... 62 Director 1999
R. Thayne Robson........ 68 Director 2000
Randolph K. Rolf........ 55 Director 1999
</TABLE>
Richard D. Reinhold has been Chairman of the Board since founding the
Company in 1973. He also served as Chief Executive Officer from 1973 to August
1997 and as President from 1973 to April 1995. Prior to founding the Company,
Mr. Reinhold worked for several national temporary staffing 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 in April 1995 and Chief Executive Officer in
August 1997. Mr. Scott, who also served as Chief Operating Officer of the
Company from April 1995 to August 1997, has over 30 years of experience in the
temporary staffing 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.
JoAnn W. Wagner has served as Vice Chairman of the Board since August 1997
and Executive Vice President of Corporate Development since September 1997. Ms.
Wagner has been a director of the Company since July 1995 and was retained by
the Company as a consultant from July 1, 1995 until August 4, 1997. From July
1995 until August 1997, Ms. Wagner was also an independent consultant to the
temporary staffing industry. From January 1994 until July 1995, Ms. Wagner was
not employed in the temporary staffing industry
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pursuant to the terms of a noncompetition agreement between Ms. Wagner and
Interim Services Inc. From January 1991 until January 1994, Ms. Wagner served as
the Vice President of Market Development for Interim Services, where she was
responsible for identifying and completing acquisitions of staffing service
companies ("Interim Services"). From November 1987 until 1991, Ms. Wagner served
as the President and a director of 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.
Peter R. Sollenne has been President and Chief Operating Officer since
August 1997. Prior to joining the Company, Mr. Sollenne was employed from July
1995 until August 1997 by Personnel Group of America, Inc., initially as
President of ABAR Staffing Services and then as President of the Commercial
Staffing Division. From January 1995 until June 1995, Mr. Sollenne was self
employed as a management and business consultant. From April 1989 to December
1994, he was employed by USL Capital, a division of Ford Financial Services, as
Senior Vice President of Sales, Marketing and Customer Service. Mr. Sollenne is
a certified public accountant.
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 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.
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<PAGE> 38
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.
KEY EMPLOYEES
Certain information relating to certain key employees of the Company is as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
----------------------------- --- ---------------------------------------------------
<S> <C> <C>
Curtis L. Wolfe.............. 55 President, Information Technology
Robert J. Otoupalik.......... 50 Vice President, Information Technology Consulting
Robert Liner................. 43 Vice President, Information Technology Staffing
</TABLE>
Curtis L. Wolfe has served as President of Wolfe, an IT consulting company,
since 1973. Mr. Wolfe was an owner of Wolfe until it was acquired by SOS in
November 1996. Mr. Wolfe's responsibilities include integrating the Company's
various IT acquisitions and coordinating the delivery of IT staffing, consulting
and outsourcing services.
Robert J. Otoupalik has served as Vice President of the Business
Communications Division of Wolfe since 1985. Mr. Otoupalik now coordinates the
consulting services offered by the Company's IT acquisitions. Mr. Otoupalik
received a Bachelor of Science degree in Industrial Management from Purdue
University.
Richard Liner has served as Vice President-Staffing of Wolfe since August
1997. He was vice president of the western region of Ajilon Services, Inc.
("Ajilon"), a comprehensive IT services company, from 1990 until 1997. He was
Vice President of U.S. Business Development for Ajilon before joining Wolfe. Mr.
Liner's responsibilities include the direct supervision of the Company's IT
staffing companies. Mr. Liner received a Bachelor of Science degree in
Math/Computer Science from Purdue University.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Ms. Wagner and
Messrs. Reinhold, Scott, Tripp and Sollenne. The terms of Messrs. Reinhold's and
Tripp's employment agreements commenced on January 1, 1995 and expire on January
1, 1998. The terms of Ms. Wagner's and Messrs. Scott's and Sollenne's current
employment agreements commenced on August 4, 1997 and will continue on a year to
year basis unless they are terminated or resign. Pursuant to such agreements,
the Company has agreed to employ such employees 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 base compensation,
which is subject to increases as determined by the Compensation Committee of the
Board, for Messrs. Reinhold, Scott, Sollenne, Tripp and Ms. Wagner is $232,000,
$220,000, $200,000, $150,000 and $140,000, respectively. In addition, Mr.
Sollenne and Ms. Wagner are guaranteed bonuses equal to 50% of base compensation
for the initial year
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of employment for Mr. Sollenne and 50% of base compensation from August to
December 1997 for Ms. Wagner. The agreements also terminate upon the death or
disability of the employee or termination of the employee's employment for
cause. The agreements contain covenants of the employee that, during the term of
their employment and continuing for six months (in the case of Ms. Wagner) and
two years (in the case of Messrs. Reinhold, Scott, Sollenne and Tripp) 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. Such employees are also subject to the
confidentiality and limited non-solicitation agreements executed by the
Company's regular employees.
38
<PAGE> 40
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 (iv) 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
BENEFICIAL OWNERSHIP OWNERSHIP
BEFORE OFFERING AFTER OFFERING
----------------------- SHARES -------------------
NAME SHARES PERCENT OFFERED SHARES PERCENT
- ------------------------------------------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Richard D. Reinhold........................ 3,795,500(1) 41.9% 960,000(2) 2,835,500 23.5%
c/o SOS Services, Inc.
1415 South Main Street
Salt Lake City, Utah 84115
Sandra E. Reinhold......................... 3,795,500(1) 41.9 960,000(2) 2,835,500 23.5
c/o SOS Services, Inc.
1415 South Main Street
Salt Lake City, Utah 84115
The Richard D. and Sandra E. Reinhold...... 50,000 * 50,000 -- --
Charitable Foundation
c/o SOS Staffing Services, Inc.
1415 South Main Street
Salt Lake City, Utah 84115
Corporation of the President of............ 40,000 * 40,000 -- --
The Church of Jesus Christ
of Latter-day Saints
50 East North Temple
Salt Lake City, Utah 84150
Reinhold Limited........................... 80,000 * -- 80,000 *
c/o SOS Staffing Services, Inc.
1415 South Main Street
Salt Lake City, Utah 84115
Howard W. Scott............................ 21,250(3) * -- 21,250 *
Richard J. Tripp........................... 18,181(3) * -- 18,181 *
Randolph K. Rolf........................... 12,000(3)(4) * -- 12,000 *
JoAnn W. Wagner............................ 11,100(3) * -- 11,100 *
Stanley R. deWaal.......................... 8,000(3)(5) * -- 8,000 *
R. Thayne Robson........................... 7,000(3) * -- 7,000 *
All directors and executive officers as a
group (eleven persons)................... 3,896,344 42.7% 960,000 2,936,344 24.4%
</TABLE>
- ---------------
* Represents less than 1% of outstanding shares.
(1) Of the shares reflected as beneficially owned by Richard D. Reinhold and
Sandra E. Reinhold, 1,835,250 shares are held of record by Sandra E.
Reinhold, 1,830,250 shares are held of record by Richard D. Reinhold, 50,000
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.
(2) Of the 960,000 shares reflected as being offered by Richard D. Reinhold and
Sandra E. Reinhold in this offering 455,000 shares are held of record by
each of Richard D. Reinhold and Sandra E. Reinhold and 50,000 shares 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, 14,000 exercisable;
Howard W. Scott, 50,000 options, 20,400 exercisable; Randolph K. Rolf,
12,000 options, 7,000 exercisable; Stanley R. deWaal, 12,000 options, 7,000
exercisable; JoAnn W. Wagner, 30,000 options, 10,600 exercisable; R. Thayne
Robson, 11,000 options, 6,000 exercisable; and all directors and executive
officers as a group, 220,800 options, 85,920 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.
39
<PAGE> 41
UNDERWRITING
Under the terms of, and subject to the conditions in, the Underwriting
Agreement, the form of which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part, the Underwriters named below,
for whom Lehman Brothers Inc., George K. Baum & Company, PaineWebber
Incorporated, Prudential Securities Incorporated and Unterberg Harris are acting
as representatives (the "Representatives"), have severally agreed to purchase
from the Company and the Selling Shareholders, and the Company and the Selling
Shareholders have agreed to sell to each Underwriter, the aggregate number of
shares of Common Stock set forth opposite their respective names below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
---------------------------------------------------------- ---------
<S> <C>
Lehman Brothers Inc.......................................
George K. Baum & Company..................................
PaineWebber Incorporated..................................
Prudential Securities Incorporated........................
Unterberg Harris..........................................
---------
Total........................................... 4,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase shares of Common Stock are subject to certain
conditions, and that if any of the foregoing shares of Common Stock are
purchased by the Underwriters pursuant to the Underwriting Agreement, all the
shares of Common Stock agreed to be purchased by the Underwriters must be so
purchased.
The Company and the Selling Shareholders have been advised that the
Underwriters propose to offer the shares of Common Stock directly to the public
at the public offering price set forth on the cover page of this Prospectus, and
to certain selected dealers (who may include the Underwriters) at such public
offering price less a selling concession not in excess of $ per share.
The selected dealers may reallow a concession not in excess of $ per
share to certain brokers and dealers. After the public offering, the public
offering price, the concession to selected dealers and the reallowance may be
changed by the Underwriters.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act and to contribute to payments that the Underwriters may be
required to make in respect thereof.
The Company has granted to the Underwriters an option to purchase up to an
aggregate of 600,000 shares of Common Stock, exercisable solely to cover
over-allotments, at the offering price to the public less the underwriting
discounts and commissions shown on the cover page of this Prospectus. Such
option may be exercised at any time until 30 days after the date of the
Underwriting Agreement. To the extent that the option is exercised, each
Underwriter will be committed, subject to certain conditions, to purchase a
number of the additional shares of Common Stock proportionate to such
Underwriter's initial commitment as indicated in the preceding table.
40
<PAGE> 42
Certain shareholders of the Company, owning an aggregate of 2,835,000
shares after the offering, have agreed that they will not, subject to certain
limited exceptions, directly or indirectly, offer, sell or otherwise dispose of
any shares of Common Stock or any securities convertible into or exchangeable or
exercisable for any such shares for a period of 180 days after the effective
date of the offering without the prior written consent of Lehman Brothers Inc.
In addition, the Company has agreed that it will not, subject to certain limited
exceptions, directly or indirectly, offer, sell or otherwise dispose of any
shares of Common Stock or any securities convertible into or exchangeable for
such shares without the prior written consent of Lehman Brothers Inc. for 180
days after the effective date of the offering.
Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase shares of Common Stock. As an exception to these
rules, the Representatives are permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions may consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.
In addition, if the Representatives over-allot (i.e., if they sell more
shares of Common Stock than are set forth on the cover page of this Prospectus),
and thereby create a short position in the Common Stock in connection with the
offering, the Representatives may reduce that short position by purchasing
Common Stock in the open market. The Representatives also may elect to reduce
any short position by exercising all or part of the over-allotment option
described herein.
The Representatives also may impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
the offering.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
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.
41
<PAGE> 43
EXPERTS
The Financial Statements included or incorporated by reference 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.
AVAILABLE INFORMATION
The Company is subject to the periodic reporting and other informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). As long as the Company is subject to such periodic reporting and
information requirements, it will file with the Securities and Exchange
Commission (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 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.
The Company has filed a Registration Statement on Form S-3 under the
Securities Act of 1933, as amended (the "Securities Act") with 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 any amendments,
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.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to the Exchange Act (File No. 0-26094) are incorporated herein by reference as
of their respective dates:
(a) Annual Report on Form 10-K for the fiscal year ended December 29,
1996.
(b) Quarterly Report on Form 10-Q for the quarter ended March 30, 1997.
(c) Current Report on Form 8-K dated June 26, 1997.
(d) Quarterly Report on Form 10-Q for the quarter ended June 29, 1997,
as amended
(e) Current Report on Form 8-K dated August 19, 1997.
(f) Description of Registrant's Securities to be Registered contained in
a Registration Statement on Form 8-A dated May 16, 1995.
42
<PAGE> 44
All reports and other documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the Common Stock
shall be deemed to be incorporated by reference herein. Any statement contained
in a document incorporated or deemed to be incorporated by reference shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which is also incorporated or deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a Prospectus
is delivered, upon the written or oral request of such person, a copy of any or
all of the information incorporated by reference in this Prospectus, other than
exhibits to such information (unless such exhibits are specifically incorporated
by reference into the information that this Prospectus incorporates). Requests
for such copies should be directed to Gary B. Crook, Vice President and Chief
Financial Officer, SOS Staffing Services, Inc., 1415 South Main Street, Salt
Lake City, Utah 84115, telephone (801) 484-4400.
43
<PAGE> 45
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
BEDFORD CONSULTANTS, INC.
Report of Independent Public Accountants.............................................. F-2
Balance Sheets as of January 31, 1997 and June 30, 1997 (unaudited)................... F-3
Statements of Income and Retained Earnings for the year ended January 31, 1997 and the
five months ended June 30, 1996 and 1997 (unaudited)................................ F-4
Statements of Cash Flows for the year ended January 31, 1997 and the five months ended
June 30, 1996 and 1997 (unaudited).................................................. F-5
Notes to Financial Statements......................................................... F-6
EXECUSOFT, INC.
Report of Independent Public Accountants.............................................. F-9
Balance Sheets as of December 31, 1996 and June 15, 1997 (unaudited).................. F-10
Statements of Income and Retained Earnings for the year ended December 31, 1996 and
the twenty-four weeks ended June 16, 1996 and June 15, 1997 (unaudited)............. F-11
Statements of Cash Flows for the year ended December 31, 1996 and the twenty-four
weeks ended June 16, 1996 and June 15, 1997 (unaudited)............................. F-12
Notes to Financial Statements......................................................... F-13
JESCO TECHNICAL SERVICES, INC.
Report of Independent Public Accountants.............................................. F-16
Balance Sheets as of December 31, 1996 and June 30, 1997 (unaudited).................. F-17
Statements of Income and Retained Earnings for the year ended December 31, 1996 and
the six months ended June 30, 1996 and 1997 (unaudited)............................. F-18
Statements of Cash Flows for the year ended December 31, 1996 and the six months ended
June 30, 1996 and 1997 (unaudited).................................................. F-19
Notes to Financial Statements......................................................... F-20
</TABLE>
F-1
<PAGE> 46
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Bedford Consultants, Inc.:
We have audited the accompanying balance sheet of Bedford Consultants, Inc.
(a California corporation), as of January 31, 1997, and the related statements
of income and retained earnings, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bedford Consultants, Inc. as
of January 31, 1997, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
September 10, 1997
F-2
<PAGE> 47
BEDFORD CONSULTANTS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
1997
JANUARY 31, -----------
1997
----------- (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................................... $ 158,542 $ 224,698
Accounts receivable................................................ 901,580 890,653
Prepaid expenses and other......................................... 41,955 30,986
---------- ----------
Total current assets....................................... 1,102,077 1,146,337
---------- ----------
PROPERTY AND EQUIPMENT, at cost:
Computer equipment................................................. 499,105 504,698
Furniture and fixtures............................................. 25,782 26,912
---------- ----------
524,887 531,610
Less -- accumulated depreciation and amortization.................. (413,555) (421,046)
---------- ----------
Net property and equipment................................. 111,332 110,564
---------- ----------
OTHER ASSETS......................................................... 9,679 9,679
---------- ----------
Total assets............................................... $ 1,223,088 $ 1,266,580
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.................................. $ 45,696 $ 40,375
Accounts payable................................................... 220,266 252,040
Accrued payroll costs.............................................. 206,451 177,408
Accrued liabilities and other...................................... 175,520 166,120
---------- ----------
Total current liabilities.................................. 647,933 635,943
---------- ----------
LONG-TERM DEBT, less current portion................................. 25,474 12,178
---------- ----------
COMMITMENTS (Notes 2 and 3)
SHAREHOLDERS' EQUITY:
Common stock, $1 par value, 50,000 shares authorized, 900 shares
issued and outstanding.......................................... 900 900
Retained earnings.................................................. 548,781 617,559
---------- ----------
Total shareholders' equity................................. 549,681 618,459
---------- ----------
Total liabilities and shareholders' equity................. $ 1,223,088 $ 1,266,580
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-3
<PAGE> 48
BEDFORD CONSULTANTS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
YEAR ENDED JUNE 30,
JANUARY 31, -------------------------
1997 1996 1997
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
SERVICE REVENUES....................................... $ 8,809,619 $3,880,362 $3,500,152
DIRECT COSTS OF SERVICES............................... 6,729,804 2,936,535 2,670,917
---------- ---------- ----------
Gross margin......................................... 2,079,815 943,827 829,235
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........... 2,007,314 772,102 728,549
---------- ---------- ----------
INCOME FROM OPERATIONS................................. 72,501 171,725 100,686
OTHER (EXPENSE) INCOME, net............................ (704) (1,377) 12,852
---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES............... 71,797 170,348 113,538
PROVISION FOR INCOME TAXES............................. 28,710 76,215 44,760
---------- ---------- ----------
NET INCOME............................................. 43,087 94,133 68,778
RETAINED EARNINGS, beginning of period................. 505,694 505,694 548,781
---------- ---------- ----------
RETAINED EARNINGS, end of period....................... $ 548,781 $ 599,827 $ 617,559
========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-4
<PAGE> 49
BEDFORD CONSULTANTS, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
FIVE MONTHS ENDED JUNE
YEAR ENDED 30,
JANUARY 31, -------------------------
1997 1996 1997
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 43,087 $ 94,133 $ 68,778
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization....................... 42,487 12,499 7,491
Changes in operating assets and liabilities:
Accounts receivable.............................. (85,500) (65,491) 10,927
Prepaid expenses and other....................... (8,345) (21,735) 10,969
Accounts payable................................. 111,303 126,926 31,774
Accrued payroll costs............................ (46,103) (60,510) (29,043)
Accrued liabilities and other.................... (21,212) 77,047 (9,400)
-------- -------- --------
Net cash provided by operating activities............. 35,717 162,869 91,496
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investments................... 53,267 -- --
Purchase of property and equipment.................. (33,532) (18,979) (6,723)
-------- -------- --------
Net cash provided by (used in) investing activities... 19,735 (18,979) (6,723)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt.......................... (40,049) (14,963) (18,617)
-------- -------- --------
NET INCREASE IN CASH AND CASH
EQUIVALENTS......................................... 15,403 128,927 66,156
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD...... 143,139 143,139 158,542
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............ $ 158,542 $272,066 $224,698
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest.............................. $ 7,218 $ 3,440 $ 2,242
Cash paid for income taxes.......................... 87,083 42,500 19,961
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-5
<PAGE> 50
BEDFORD CONSULTANTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Organization of Business
Bedford Consultants, Inc. (the "Company") was incorporated under the laws
of the state of California. The Company provides professional services to
companies in need of temporary professionals with experience in information
technology, software engineering and technical writing. The Company's primary
service area is Northern California.
In April 1997, the Company signed an agreement to sell its outstanding
common stock 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, 1997. The accompanying financial statements presented are
pre-acquisition financial statements of the Company and do not reflect any
purchase accounting adjustments.
Revenue Recognition
Service revenues are recognized at the time the professional services are
provided.
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.
Cash and Cash Equivalents
The Company considers highly liquid investments with an original maturity
of three months or less to be cash and cash equivalents. As of June 30, 1997,
included in cash and cash equivalents was a money market account of
approximately $211,992 with an investment company.
Property and Equipment
Property and equipment are stated at cost and depreciated using declining
balance methods over their estimated useful lives. The depreciation and
amortization periods range from five to seven years.
Upon retirement or other disposition of property and equipment, the cost
and related accumulated depreciation or amortization is 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 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 financial 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 as of June 30, 1997 and for
the five months ended June 30, 1996 and 1997 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
F-6
<PAGE> 51
BEDFORD CONSULTANTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
adjustments) considered necessary for a fair presentation have been included.
Operating results for the five months ended June 30, 1997 are not necessarily
indicative of the results that may be expected for the full year.
Concentration of Credit Risk and Significant Customers
Financial instruments that potentially subject the Company to credit risk
consist principally of trade receivables. In the normal course of business, the
Company provides credit terms to its customers. The Company performs ongoing
credit evaluations of its customers but does not require collateral.
For the year ended January 31, 1997, two customers accounted for
approximately 22 and 13 percent of total revenues. For the five months ended
June 30, 1997, three customers accounted for approximately 16, 12 and 11 percent
of total revenues, and for the five months ended June 30, 1996 three customers
accounted for approximately 27, 13 and 10 percent of total revenues.
NOTE 2. OPERATING LEASE COMMITMENTS
The Company leases office facilities and equipment under noncancellable
operating leases. For the year ended January 31, 1997 lease expense totalled
approximately $158,000. For the five months ended June 30, 1996 and June 30,
1997 lease expense totalled approximately $60,000 and $72,000, respectively.
Future minimum lease payments under noncancellable operating leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31,
--------------------------------------------------
<S> <C>
1998......................................... $161,514
1999......................................... 55,670
2000......................................... 2,026
2000......................................... 1,013
--------
$220,223
========
</TABLE>
NOTE 3. LONG-TERM DEBT AND LINE OF CREDIT
The Company's long-term debt is as follows:
<TABLE>
<CAPTION>
JANUARY 31, JUNE 30,
1997 1997
----------- --------
<S> <C> <C>
Unsecured note payable to a company, interest at 8 percent, due in
monthly installments of $2,731 through April 1998................... $ 38,855 $ 26,331
Note payable to a finance company, interest at 7 percent, due in
monthly installments of $1,393 through February 1999, secured by a
vehicle............................................................. 32,315 26,222
-------- --------
71,170 52,553
Current portion....................................................... (45,696) (40,375)
-------- --------
Long-term portion..................................................... $ 25,474 $ 12,178
======== ========
</TABLE>
As of January 31, 1997, principal payments of $45,696, $24,089 and $1,385
are due in fiscal years 1998, 1999 and 2000, respectively.
Line of Credit
The Company has a line of credit with a bank which allows for maximum
borrowings of $250,000. Borrowings under the agreement bear interest at the
bank's prime rate plus 1.5 percent. As of January 31, 1997 and June 30, 1997 no
amounts were outstanding under the agreement. The agreement expires on November
30, 1997.
F-7
<PAGE> 52
BEDFORD CONSULTANTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. INCOME TAXES
The components of the provision for income taxes for the fiscal year ended
January 31, 1997 and for the five months ended June 30, 1996 and 1997 are as
follows:
<TABLE>
<CAPTION>
JUNE 30,
JANUARY 31, ---------------------
1997 1996 1997
----------- -------- --------
<S> <C> <C> <C>
Current provision
Federal.................................................. $ 36,372 $107,227 $ 78,589
State.................................................... 14,370 31,295 24,075
Deferred benefit........................................... (22,032) (62,307) (57,904)
-------- -------- --------
Total provision............................................ $ 28,710 $ 76,215 $ 44,760
======== ======== ========
</TABLE>
The net deferred tax liability was $51,120 as of January 31, 1997. As of
June 30, 1997, the deferred tax asset was $6,784 which resulted from differences
between accrued liabilities for income tax and financial reporting purposes.
The following is a reconciliation between the statutory federal income tax
rate and the Company's effective income tax rate:
<TABLE>
<CAPTION>
JUNE 30,
JANUARY 31, -------------
1997 1996 1997
----------- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate.................................. 34.0% 34.0% 34.0%
State income taxes, net of federal benefit......................... 6.0 6.2 6.2
Other.............................................................. -- 4.5 (0.8)
---- ---- ----
Total.................................................... 40.0% 44.7% 39.4%
==== ==== ====
</TABLE>
NOTE 5. EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) profit sharing plan for all employees who
have completed one year and 1,000 hours of service. The plan provides for
discretionary employer contributions. No employer contributions have been made
to the plan.
F-8
<PAGE> 53
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Execusoft, Inc.:
We have audited the accompanying balance sheet of Execusoft, Inc. (a
California corporation), as of December 31, 1996, and the related statements of
income and retained earnings, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Execusoft, Inc. as of
December 31, 1996 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
September 3, 1997
F-9
<PAGE> 54
EXECUSOFT, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 15,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash............................................................. $ 51,016 $ 117,194
Accounts receivable.............................................. 1,152,330 1,282,697
Prepaid expenses................................................. 3,044 2,617
---------- ----------
Total current assets..................................... 1,206,390 1,402,508
---------- ----------
PROPERTY AND EQUIPMENT, at cost:
Computer equipment............................................... 163,690 180,849
Furniture and fixtures........................................... 91,452 91,452
Leasehold improvements and other................................. 24,481 24,481
---------- ----------
279,623 296,782
Less -- accumulated depreciation and amortization................ (221,444) (238,964)
---------- ----------
Net property and equipment.................................... 58,179 57,818
---------- ----------
OTHER ASSETS....................................................... 4,330 8,830
---------- ----------
Total assets............................................. $1,268,899 $ 1,469,156
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit................................................... $ 239,000 $ 369,000
Current portion of long-term debt................................ 37,500 37,500
Accounts payable................................................. 98,384 205,631
Accrued payroll costs............................................ 314,944 260,425
Unearned revenue................................................. 42,000 21,060
Accrued liabilities.............................................. 42,691 50,092
---------- ----------
Total current liabilities................................ 774,519 943,708
---------- ----------
LONG-TERM DEBT, less current portion............................... 18,750 --
---------- ----------
COMMITMENTS (Notes 2 and 3)
SHAREHOLDERS' EQUITY:
Common stock, no par value, 100,000 shares authorized, 25,384
shares issued and outstanding................................. 25,384 25,384
Contributed capital.............................................. 176,042 176,042
Retained earnings................................................ 274,204 324,022
---------- ----------
Total shareholders' equity............................... 475,630 525,448
---------- ----------
Total liabilities and shareholders' equity............... $1,268,899 $ 1,469,156
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-10
<PAGE> 55
EXECUSOFT, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
TWENTY-FOUR WEEKS ENDED
YEAR ENDED -------------------------
DECEMBER 31, JUNE 16, JUNE 15,
1996 1996 1997
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
SERVICE REVENUES...................................... $9,662,726 $4,042,973 $4,644,817
DIRECT COSTS OF SERVICES.............................. 7,637,121 3,225,279 3,695,953
---------- ---------- ----------
Gross margin................................ 2,025,605 817,694 948,864
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.......... 1,516,611 584,259 668,409
---------- ---------- ----------
INCOME FROM OPERATIONS................................ 508,994 233,435 280,455
INTEREST EXPENSE...................................... 20,606 9,105 14,974
---------- ---------- ----------
INCOME BEFORE PROVISION FOR STATE FRANCHISE TAXES..... 488,388 224,330 265,481
PROVISION FOR STATE FRANCHISE TAXES................... 4,791 2,286 2,675
---------- ---------- ----------
NET INCOME............................................ 483,597 222,044 262,806
RETAINED EARNINGS, beginning of period................ 101,147 101,147 274,204
DISTRIBUTIONS TO SHAREHOLDERS......................... (310,540) (191,808) (212,988)
---------- ---------- ----------
RETAINED EARNINGS, end of period...................... $ 274,204 $ 131,383 $ 324,022
========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-11
<PAGE> 56
EXECUSOFT, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
YEAR ENDED TWENTY-FOUR WEEKS ENDED
DECEMBER 31, -------------------------------
1996 JUNE 16, 1996 JUNE 15, 1997
------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................... $ 483,597 $ 222,044 $ 262,806
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 31,252 15,000 17,520
Changes in operating assets and liabilities:
Accounts receivable............................. (318,622) (46,996) (130,367)
Prepaid expenses and other...................... 1,381 1,027 (4,073)
Accounts payable................................ 4,945 103,812 107,247
Accrued payroll costs........................... 30,619 (28,075) (54,519)
Unearned revenue................................ 35,880 (3,583) (20,940)
Accrued liabilities............................. 22,831 22,805 7,401
--------- --------- ---------
Net cash provided by operating activities............ 291,883 286,034 185,075
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment................. (46,624) (14,249) (17,159)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit....................... 798,758 176,000 380,000
Payments on line of credit and long-term debt...... (689,883) (231,133) (268,750)
Distributions to shareholders...................... (310,540) (191,808) (212,988)
--------- --------- ---------
Net cash used in financing activities................ (201,665) (246,941) (101,738)
--------- --------- ---------
NET INCREASE IN CASH................................. 43,594 24,844 66,178
CASH AT BEGINNING OF PERIOD.......................... 7,422 7,422 51,016
--------- --------- ---------
CASH AT END OF PERIOD................................ $ 51,016 $ 32,266 $ 117,194
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest............................. $ 20,040 $ 9,692 $ 14,935
Cash paid for state franchise taxes................ 5,779 779 1,172
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-12
<PAGE> 57
EXECUSOFT, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Organization of Business
Execusoft, Inc. (the "Company") was incorporated under the laws of the
state of California. The Company provides professional contract software
consulting services to many industries in the public and private sectors located
throughout the western United States. In addition, the Company provides
permanent placement services.
In August 1997, 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 August 25, 1997.
The accompanying financial statements presented are pre-acquisition financial
statements of the Company and do not reflect any purchase accounting
adjustments.
Accounting Period
The Company's fiscal year ends on December 31 each year. For interim
reporting purposes the Company utilizes a weekly closing period. The twenty-four
weeks ended June 15, 1997 represents the period from January 1, 1997 through
June 15, 1997.
Revenue Recognition
Service revenues consist primarily of consulting service revenues and fees
earned on permanent placement services. Consulting service revenues are
recognized when the services are performed. Permanent placement service revenues
are initially deferred when employment candidates accept offers of permanent
employment and are recognized as revenues after the Company's guarantee period
expires which is typically 90 days.
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
declining balance 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 three to ten years.
Upon retirement or other disposition of property and equipment, the cost
and related accumulated depreciation or amortization is 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 does not make a provision for federal income
taxes; however the Company was taxed at the rate of 1.5 percent for California
state franchise tax purposes. The Company distributes amounts as needed for the
payment of the shareholders' federal and
F-13
<PAGE> 58
EXECUSOFT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
state income taxes. The Company anticipates making future distributions as
needed for the payment of the shareholders' income taxes.
Unaudited Interim Financial Data
The accompanying unaudited financial statements as of June 15, 1997 and for
the twenty-four weeks ended June 16, 1996 and June 15, 1997 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 twenty-four weeks ended June 15,
1997 are not necessarily indicative of the results that may be expected for the
full year.
Concentration of Credit Risk and Significant Customers
Financial instruments that potentially subject the Company to credit risk
consist principally of trade receivables. In the normal course of business, the
Company provides credit terms to its customers. The Company performs ongoing
credit evaluations of its customers but does not require collateral.
For the year ended December 31, 1996, one customer accounted for
approximately 12 percent of total revenues. For the twenty-four weeks ended June
15, 1997, three customers accounted for 18, 12 and 10 percent of total revenues.
NOTE 2. OPERATING LEASE COMMITMENTS
The Company leases certain office facilities and equipment under
noncancellable operating leases. For the year ended December 31, 1996 lease
expense totalled approximately $89,900. For the twenty-four weeks ended June 16,
1996 and June 15, 1997 lease expense totalled approximately $42,200 and $35,800,
respectively.
Future minimum lease payments under noncancellable operating leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING, DECEMBER 31,
-------------------------
<S> <C>
1997 $ 67,678
1998 59,523
1999 54,921
2000 54,000
2001 54,000
Thereafter 279,000
--------
$569,122
========
</TABLE>
The Company's major office lease is with its shareholders. This lease
currently requires annual lease payments of $54,000 subject to annual increases
not to exceed the increase in the Consumer Price Index and expires in February
2007. For the year ended December 31, 1996 and the 24 weeks ended June 16, 1996
and June 15, 1997 lease expense for this related-party lease was approximately
$72,000, $33,200 and $27,900, respectively.
NOTE 3. LINES OF CREDIT AND LONG-TERM DEBT
Lines of Credit
The Company has a line of credit with a bank which allows for maximum
borrowing of $1,000,000. Borrowings under the line of credit accrue interest at
the bank's prime rate plus 1.0 percent (9.5 percent as of June 15, 1997). The
agreement expires on June 1, 1998 at which time all unpaid amounts are due.
Borrowings
F-14
<PAGE> 59
EXECUSOFT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
are secured by substantially all assets of the Company and are guaranteed by a
stockholder. The agreement contains certain restrictive financial covenants. The
Company was in compliance with all covenants as of June 15, 1997.
The Company has an equipment line of credit with a bank which allows for
maximum borrowings of $50,000 and accrues interest at the bank's prime rate plus
1.25 percent (9.75 percent as of June 15, 1997). The agreement expires on June
1, 1999. As of June 15, 1997, no amounts were outstanding under this agreement.
Long-term Debt
The Company also has a note payable with a bank which is due in monthly
principal installments of $3,125 through June 1, 1998, plus interest at the
bank's prime rate plus 1.75 percent (10.25 percent as of June 15, 1997). As of
December 31, 1996 principal payments of $37,500 and $18,750 are due in 1997 and
1998, respectively.
NOTE 4. EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) profit sharing plan for all employees who
have completed one year of service. The plan provides for discretionary employer
contributions. No employer contributions have been made to the plan.
F-15
<PAGE> 60
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To JesCo Technical Services, Inc.:
We have audited the accompanying balance sheet of JesCo Technical Services,
Inc. (a Washington corporation), as of December 31, 1996, and the related
statements of income and retained earnings, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of JesCo Technical Services,
Inc. as of December 31, 1996, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
September 11, 1997
F-16
<PAGE> 61
JESCO TECHNICAL SERVICES, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash............................................................. $ 517,723 $ 923,421
Accounts receivable, net of allowance for doubtful accounts of
approximately $35,700 and $63,800, respectively............... 818,573 1,784,981
Prepaids and other............................................... 27,746 53,057
---------- ----------
Total current assets..................................... 1,364,042 2,761,459
---------- ----------
PROPERTY AND EQUIPMENT, at cost:
Equipment........................................................ 113,259 199,379
Leasehold improvements........................................... -- 5,282
Less -- accumulated depreciation and amortization................ (25,936) (45,811)
---------- ----------
Net property and equipment............................... 87,323 158,850
---------- ----------
OTHER ASSETS....................................................... 4,555 53,532
---------- ----------
Total assets............................................. $1,455,920 $ 2,973,841
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable................................................. $ 207,010 $ 149,941
Customer deposits................................................ -- 275,000
Accrued payroll costs............................................ 306,349 581,124
Accrued liabilities.............................................. 103,919 65,832
---------- ----------
Total current liabilities................................ 617,278 1,071,897
---------- ----------
COMMITMENTS (Note 2)
SHAREHOLDER'S EQUITY:
Common stock, no par value, 50,000 shares authorized, 100 shares
issued and outstanding........................................ 100 100
Retained earnings................................................ 838,542 1,901,844
---------- ----------
Total shareholder's equity............................... 838,642 1,901,944
---------- ----------
Total liabilities and shareholder's equity............... $1,455,920 $ 2,973,841
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-17
<PAGE> 62
JESCO TECHNICAL SERVICES, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED JUNE 30,
DECEMBER 31, -------------------------
1996 1996 1997
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
SERVICE REVENUES...................................... $5,148,358 $2,043,279 $4,391,011
DIRECT COSTS OF SERVICES.............................. 3,965,010 1,634,022 2,597,299
---------- ---------- ----------
Gross margin........................................ 1,183,348 409,257 1,793,712
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.......... 632,189 324,279 594,060
---------- ---------- ----------
INCOME FROM OPERATIONS................................ 551,159 84,978 1,199,652
OTHER, NET............................................ (15,571) (375) 294
---------- ---------- ----------
NET INCOME............................................ 535,588 84,603 1,199,946
RETAINED EARNINGS, beginning of period................ 695,527 695,527 838,542
DISTRIBUTIONS TO SHAREHOLDER.......................... (392,573) (363,682) (136,644)
---------- ---------- ----------
RETAINED EARNINGS, end of period...................... $ 838,542 $ 416,448 $1,901,844
========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-18
<PAGE> 63
JESCO TECHNICAL SERVICES, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, -------------------------------
1996 1996 1997
------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................... $ 535,588 $ 84,603 $ 1,199,946
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 22,300 11,150 19,875
Changes in operating assets and liabilities:
Accounts receivable........................... 538,227 755,484 (966,408)
Prepaids and other............................ (27,746) (3,555) (25,311)
Other assets.................................. 31,235 1,541 (48,977)
Accounts payable.............................. (364,587) (385,749) (57,069)
Customer deposits............................. -- -- 275,000
Accrued payroll costs......................... 182,177 142,897 274,775
Accrued liabilities........................... (27,466) (10,211) (38,087)
--------- --------- ----------
Net cash provided by operating activities.......... 889,728 596,160 633,744
--------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment............... (95,080) (34,471) (91,402)
--------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to shareholder..................... (392,573) (363,682) (136,644)
--------- --------- ----------
NET INCREASE IN CASH............................... 402,075 198,007 405,698
CASH AT BEGINNING OF PERIOD........................ 115,648 115,648 517,723
--------- --------- ----------
CASH AT END OF PERIOD.............................. $ 517,723 $ 313,655 $ 923,421
========= ========= ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-19
<PAGE> 64
JESCO TECHNICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Organization of Business
JesCo Technical Services, Inc. (the "Company") was incorporated under the
laws of the state of Washington. The Company provides professional information
technology outsourcing and consulting services primarily to cellular
communication companies in Washington and California on a broad range of
technical and business matters.
In September 1997, the Company signed an agreement to sell certain assets
and substantially all of the operations of the Company to SOS Staffing Services,
Inc., who, assuming all conditions to closing are met, will assume control of
the operations of the Company on October 1, 1997. The accompanying financial
statements presented are pre-acquisition financial statements of the Company and
do not reflect any purchase accounting adjustments.
Revenue Recognition
Revenues consist of outsourcing and consulting service revenues, which are
negotiated on a fixed-fee basis or an actual-time-incurred basis. Revenues are
recognized when the services are performed.
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 of five years.
Upon retirement or other disposition of property and equipment, the cost
and related accumulated depreciation or amortization is 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 shareholder (an S Corporation
election). Accordingly, the Company does not make a provision for income taxes.
The Company distributes amounts as needed for the payment of the shareholder's
income taxes. The Company anticipates making future distributions as needed for
the payment of the shareholder's income taxes.
Unaudited Interim Financial Data
The accompanying unaudited financial statements as of June 30, 1997 and for
the six months ended June 30, 1996 and 1997 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, 1997 are not necessarily
indicative of the results that may be expected for the full year.
F-20
<PAGE> 65
JESCO TECHNICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Concentration of Credit Risk and Significant Customers
Financial instruments that potentially subject the Company to credit risk
consist principally of trade receivables. In the normal course of business, the
Company provides credit terms to its customers. The Company performs ongoing
credit evaluations of its customers but does not require collateral.
For the year ended December 31, 1996, two customers accounted for
approximately 71 and 15 percent of total revenues. For the six months ended June
30, 1997, three customers accounted for approximately 34, 24, and 23 percent of
total revenues.
On April 1, 1997, the Company entered into a master service outsourcing
agreement with a cellular communications service provider (the "Provider").
Under the terms of the agreement, the Company agrees to support the Provider's
computer operations and sustain the Provider's business applications from June
1, 1997 through December 31, 1998 with potential renewals thereafter. The
Provider has the option to terminate the agreement at its convenience by giving
a minimum of 90 days notice and by paying early termination fees as set forth in
the agreement. The Provider can also terminate the agreement early if service
level objectives specified in the agreement are not met. The agreement provides
for fixed monthly fees to be paid to the Company along with increases or
reductions in the amounts under certain circumstances as described in the
agreement.
NOTE 2. OPERATING LEASE COMMITMENTS
The Company has entered into several noncancellable operating lease
agreements for the use of certain office facilities and equipment.
Future minimum lease payments under noncancellable operating leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
-------------------------
<S> <C>
1997 $ 44,953
1998 70,403
1999 75,814
2000 32,210
--------
$223,380
========
</TABLE>
For the year ended December 31, 1996 lease expense totalled approximately
$15,500. For the six months ended June 30, 1996 and 1997 lease expense totalled
approximately $7,200 and $19,600, respectively.
NOTE 3. EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) plan for all employees who have completed six
months of service and are at least 21 years of age. The plan provides for
discretionary employer contributions. No employer contributions have been made
to the plan.
NOTE 4. LINE OF CREDIT
In July 1997 the Company obtained a line of credit with a bank which allows
for maximum borrowing of $750,000. Borrowings under the line of credit accrue
interest at the bank's prime rate plus .5 percent (9 percent as of June 30,
1997). Borrowings are secured by substantially all accounts receivables and are
guaranteed by the shareholder. The agreement contains certain restrictive
financial covenants, including minimum levels of tangible net worth and cash
flow coverage.
F-21
<PAGE> 66
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................... 3
Risk Factors................................ 6
The Company................................. 11
Use of Proceeds............................. 11
Price Range of Common Stock................. 12
Dividend Policy............................. 12
Capitalization.............................. 13
Unaudited Pro Forma Condensed Consolidated
Financial Data............................ 14
Unaudited Pro Forma Condensed Consolidated
Statement of Income for the year ended
December 29, 1996......................... 16
Unaudited Pro Forma Condensed Consolidated
Statement of Income for the twenty-six
weeks ended June 29, 1997................. 16
Unaudited Pro Forma Condensed Consolidated
Balance Sheet as of June 29, 1997......... 15
Notes to Unaudited Pro Forma Condensed
Consolidated Financial Statements......... 17
Selected Consolidated Financial and
Operating Data............................ 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 21
Business.................................... 27
Management.................................. 35
Principal and Selling Shareholders.......... 39
Underwriting................................ 40
Legal Matters............................... 41
Experts..................................... 42
Available Information....................... 42
Incorporation of Certain Information by
Reference................................. 42
Index to Financial Statements............... F-1
</TABLE>
======================================================
======================================================
4,000,000 SHARES
[LOGO]
COMMON STOCK
---------------------------
PROSPECTUS
, 1997
---------------------------
LEHMAN BROTHERS
GEORGE K. BAUM & COMPANY
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
UNTERBERG HARRIS
======================================================
<PAGE> 67
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. 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..................................................... $ 25,265
Nasdaq Stock Market filing fee............................................ 17,500
NASD filing fee........................................................... 8,838
Accounting fees and expenses.............................................. 175,000
Legal fees and expenses................................................... 100,000
Blue sky fees and expenses................................................ 15,000
Printing expenses......................................................... 120,000
Transfer agent and custodian fees and expenses............................ 2,500
Miscellaneous expenses.................................................... 35,897
--------
Total........................................................... $500,000
========
</TABLE>
- ---------------
ITEM 15. 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> 68
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> 69
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 16. EXHIBITS
(a) EXHIBITS TO THE REGISTRATION STATEMENT.
The following exhibits required by Item 601 of Regulation S-K have been
included herewith unless otherwise indicated.
<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.
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>
- ---------------
(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.
(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 included in or incorporated by reference in this
Registration Statement.
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
II-3
<PAGE> 70
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) That, for the purposes of determining any liability under the
Securities Act, each filing of the Company's annual report pursuant to
Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(2) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to
each purchaser.
(3) 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.
(4) For the purposes 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-4
<PAGE> 71
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Company certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-3 and has duly caused this 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 September 19th,
1997.
SOS STAFFING SERVICES, INC.
By: /s/ HOWARD W. SCOTT, JR.
------------------------------------
Howard W. Scott, Jr., Chief
Executive Officer
POWER OF ATTORNEY
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. Each person whose signature to this
Registration Statement appears below hereby constitutes and appoints Howard W.
Scott, Jr. and Gary B. Crook, and each of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution, to sign on his of
her behalf individually and in the capacity stated below and to perform any acts
necessary to be done in order to file all amendments and post-effective
amendments to this Registration Statement, and any and all instruments or
documents filed as part of or in connection with this Registration Statement or
the amendments thereto and each of the undersigned does hereby ratify and
confirm all that said attorney-in-fact and agent, or his substitutes, shall do
or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- -------------------------- --------------------
<S> <C> <C>
/s/ RICHARD D. REINHOLD Chairman of the Board September 19, 1997
- ---------------------------------------------
Richard D. Reinhold
/s/ HOWARD W. SCOTT, JR. Chief Executive Officer September 19, 1997
- --------------------------------------------- and Director (principal
Howard W. Scott, Jr. executive officer)
/s/ JOANN W. WAGNER Vice Chairman of the Board September 19, 1997
- --------------------------------------------- and Executive Vice
JoAnn W. Wagner President of Corporate
Development
/s/ PETER R. SOLLENNE President and Chief September 19, 1997
- --------------------------------------------- Operating Officer
Peter R. Sollenne
/s/ RICHARD J. TRIPP Senior Vice President of September 19, 1997
- --------------------------------------------- Administration and
Richard J. Tripp Director
/s/ GARY B. CROOK Vice President, Chief September 19, 1997
- --------------------------------------------- Financial Officer and
Gary B. Crook Treasurer (principal
accounting and financial
officer)
/s/ STANLEY R. DEWAAL Director September 19, 1997
- ---------------------------------------------
Stanley R. deWaal
/s/ R. THAYNE ROBSON Director September 19, 1997
- ---------------------------------------------
R. Thayne Robson
/s/ RANDOLPH K. ROLF Director September 19, 1997
- ---------------------------------------------
Randolph K. Rolf
</TABLE>
II-5
<PAGE> 72
EXHIBIT INDEX
<TABLE>
<CAPTION>
REGULATION
S-K
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------------------------------------------------------------- --------
<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........
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>
- ---------------
(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.
<PAGE> 1
4,000,000 SHARES
SOS STAFFING SERVICES, INC.
COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
UNDERWRITING AGREEMENT
____________, 1997
LEHMAN BROTHERS INC.
GEORGE K. BAUM & COMPANY
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
UNTERBERG HARRIS,
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
SOS Staffing Services, Inc., a Utah corporation (the
"Company"), and certain shareholders of the Company named in Schedule 2 hereto
(the "Selling Stockholders"), propose to sell an aggregate of 4,000,000 shares
(the "Firm Stock") of the Company's Common Stock, par value $0.01 per share (the
"Common Stock"). Of the 4,000,000 shares of the Firm Stock, 3,000,000 are being
sold by the Company and 1,000,000 by the Selling Stockholders. In addition, the
Company proposes to grant to the Underwriters named in Schedule 1 hereto (the
"Underwriters") an option to purchase up to an additional 600,000 shares of the
Common Stock on the terms and for the purposes set forth in Section 3 (the
"Option Stock"). The Firm Stock and the Option Stock, if purchased, are
hereinafter collectively called the "Stock." This is to confirm the agreement
concerning the purchase of the Stock from the Company and the Selling
Stockholders by the Underwriters named in Schedule 1 hereto (the
"Underwriters").
1. Representations, Warranties and Agreements of the Company.
The Company represents, warrants and agrees that:
(a) A registration statement on Form S-3 (No.
333-_____) with respect to the Stock has (i) been prepared by
the Company in conformity with the requirements of the United
States Securities Act of 1933 (the "Securities Act") and the
rules and regulations (the "Rule and Regulations") of the
United States Securities and Exchange Commission (the
"Commission") thereunder, (ii) been filed with the Commission
under the Securities Act and (iii) become effective under the
Securities Act. Copies of such registration statement have
been delivered by the Company to you as the representatives
(the "Representatives") of the Underwriters. As used in this
Agreement, "Effective Time" means the date and the time as of
which such registration statement, or the most recent
post-effective amendment thereto, if any, was declared
effective by the Commission; "Effective Date" means the date
of the Effective Time;
<PAGE> 2
"Preliminary Prospectus" means each prospectus included in
such registration statement, or amendments thereof, before it
became effective under the Securities Act and any prospectus
filed with the Commission by the Company with the consent of
the Representatives pursuant to Rule 424(a) of the Rules and
Regulations; "Registration Statement" means such registration
statement, as amended at the Effective Time, including any
documents incorporated by reference therein at such time and
all information contained in the final prospectus filed with
the Commission pursuant to Rule 424(b) of the Rules and
Regulations in accordance with Section 6(a) hereof and deemed
to be a part of the registration statement as of the Effective
Time pursuant to paragraph (b) of Rule 430A of the Rules and
Regulations; and "Prospectus" means such final prospectus, as
first filed with the Commission pursuant to paragraph (1) or
(4) of Rule 424(b) of the Rules and Regulations. Reference
made herein to any Preliminary Prospectus or to the Prospectus
shall be deemed to refer to and include any documents
incorporated by reference therein pursuant to Item 12 of Form
S-3 under the Securities Act, as of the date of such
Preliminary Prospectus or the Prospectus, as the case may be,
and any reference to any amendment or supplement to any
Preliminary Prospectus or the Prospectus shall be deemed to
refer to and include any document filed under the United
States Securities Exchange Act of 1934 (the "Exchange Act")
after the date of such Preliminary Prospectus or the
Prospectus, as the case may be, and incorporated by reference
in such Preliminary Prospectus or the Prospectus, as the case
may be; and any reference to any amendment to the Registration
Statement shall be deemed to include any annual report of the
Company filed with the Commission pursuant to Section 13(a) or
15(d) of the Exchange Act after the Effective Time that is
incorporated by reference in the Registration Statement. The
Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus.
(b) The Registration Statement conforms, and the
Prospectus and any further amendments or supplements to the
Registration Statement or the Prospectus will, when they
become effective or are filed with the Commission, as the case
may be, conform in all respects to the requirements of the
Securities Act and the Rules and Regulations and do not and
will not, as of the applicable effective date (as to the
Registration Statement and any amendment thereto) and as of
the applicable filing date (as to the Prospectus and any
amendment or supplement thereto) contain an untrue statement
of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements
therein not misleading; provided that no representation or
warranty is made as to information contained in or omitted
from the Registration Statement or the Prospectus in reliance
upon and in conformity with written information furnished to
the Company through the Representatives by or on behalf of any
Underwriter specifically for inclusion therein.
(c) The documents incorporated by reference in the
Prospectus, when they became effective or were filed with the
Commission, as the case may be, conformed in all material
respects to the requirements of the Securities Act or the
Exchange Act, as
2
<PAGE> 3
applicable, and the rules and regulations of the Commission
thereunder, and none of such documents contained an 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 not misleading; and any further documents
so filed and incorporated by reference in the Prospectus, when
such documents become effective or are filed with Commission,
as the case may be, will conform in all material respects to
the requirements of the Securities Act or the Exchange Act, as
applicable, and the rules and regulations of the Commission
thereunder and will not contain an untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading.
(d) The Company and each of its subsidiaries (as
defined in Section 17) have been duly incorporated and are
validly existing as corporations in good standing under the
laws of their respective jurisdictions of incorporation, are
duly qualified to do business and are in good standing as
foreign corporations in each jurisdiction in which their
respective ownership or lease of property or the conduct of
their respective businesses requires such qualification, and
have all power and authority necessary to own or hold their
respective properties and to conduct the businesses in which
they are engaged; and none of the subsidiaries of the Company
(other than _______________ ) is a "significant subsidiary",
as such term is defined in Rule 405 of the Rules and
Regulations.
(e) The Company has an authorized capitalization as
set forth in the Prospectus, and all of the issued shares of
capital stock of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and
conform to the description thereof contained in the
Prospectus; and all of the issued shares of capital stock of
each subsidiary of the Company have been duly and validly
authorized and issued and are fully paid and non-assessable
and are owned directly or indirectly by the Company, free and
clear of all liens, encumbrances, equities or claims.
(f) The unissued shares of the Stock to be issued and
sold by the Company to the Underwriters hereunder have been
duly and validly authorized and, when issued and delivered
against payment therefor as provided herein, will be duly and
validly issued, fully paid and non-assessable; and the Stock
will conform to the description thereof contained in the
Prospectus.
(g) This Agreement has been duly authorized, executed
and delivered by the Company.
(h) The execution, delivery and performance of this
Agreement by the Company and the consummation of the
transactions contemplated hereby will not conflict with or
result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any of its subsidiaries is
a
3
<PAGE> 4
party or by which the Company or any of its subsidiaries is
bound or to which any of the property or assets of the Company
or any of its subsidiaries is subject, nor will such actions
result in any violation of the provisions of the charter or
by-laws of the Company or any of its subsidiaries or any
statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties
or assets; and except for the registration of the Stock under
the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be
required under the Exchange Act and applicable state
securities laws in connection with the purchase and
distribution of the Stock by the Underwriters, no consent,
approval, authorization or order of, or filing or registration
with, any such court or governmental agency or body is
required for the execution, delivery and performance of this
Agreement by the Company and the consummation of the
transactions contemplated hereby.
(i) There are no contracts, agreements or
understandings between the Company and any person granting
such person the right (other than rights which have been
waived or satisfied) to require the Company to file a
registration statement under the Securities Act with respect
to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in
the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to
any other registration statement filed by the Company under
the Securities Act.
(j) Except as described in the Prospectus, the
Company has not sold or issued any shares of Common Stock
during the six-month period preceding the date of the
Prospectus, including any sales pursuant to Rule 144A under,
or Regulations D or S of, the Securities Act, other than
shares issued pursuant to employee benefit plans, qualified
stock options plans or other employee compensation plans
referred to in the Prospectus.
(k) The financial statements (including the related
notes and supporting schedules) filed as part of the
Registration Statement or included in the Prospectus present
fairly the financial condition and results of operations of
the entities purported to be shown thereby, at the dates and
for the periods indicated, and have been prepared in
conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved,
except as otherwise stated therein.
(l) Arthur Andersen LLP, who have certified certain
financial statements of the Company, whose report appears in
the Prospectus and who have delivered the initial letter
referred to in Section 9(g) hereof, are independent public
accountants as required by the Securities Act and the Rules
and Regulations.
(m) The Company and each of its subsidiaries have
good and indefeasible title to all property and assets
described in the Prospectus as owned by them, free and clear
4
<PAGE> 5
of all liens, charges, encumbrances or restrictions, except
such as are described in the Prospectus or such as do not
materially affect the value of such property and do not
materially interfere with the use made and proposed to be made
of such property by the Company and its subsidiaries; and all
real property and buildings held under lease by the Company
and its subsidiaries are held by them under valid, subsisting
and enforceable leases, with such exceptions as are not
material and do not interfere with the use made and proposed
to be made of such property and buildings by the Company and
its subsidiaries.
(n) The Company and each of its subsidiaries carry,
or are covered by, insurance in such amounts and covering such
risks as is adequate for the conduct of their respective
businesses and the value of their respective properties and as
is customary for companies engaged in similar businesses in
similar industries.
(o) The Company and each of its subsidiaries own or
possess adequate rights to use all material patents, patent
applications, trademarks, service marks, trade names,
trademark registrations, service mark registrations,
copyrights and licenses necessary for the conduct of their
respective businesses and have no reason to believe that the
conduct of their respective businesses will conflict with, and
have not received any notice of any claim of conflict with,
any such rights of others.
(p) Except as described in the Prospectus, there are
no legal or governmental proceedings pending to which the
Company or any of its subsidiaries is a party or of which any
property or assets of the Company or any of its subsidiaries
is the subject which, if determined adversely to the Company
or any of its subsidiaries, might have a material adverse
effect on the consolidated financial position, stockholders'
equity, results of operations, business or prospects of the
Company and its subsidiaries; and to the best of the Company's
knowledge, no such proceedings are threatened or contemplated
by governmental authorities or threatened by others.
(q) The conditions for use of Form S-3, as set forth
in the General Instructions thereto, have been satisfied.
(r) There are no contracts or other documents which
are required to be described in the Prospectus or filed as
exhibits to the Registration Statement by the Securities Act
or by the Rules and Regulations which have not been described
in the Prospectus or filed as exhibits to the Registration
Statement or incorporated therein by reference as permitted by
the Rules and Regulations.
(s) No relationship, direct or indirect, exists
between or among the Company on the one hand, and the
directors, officers, shareholders, or customers of the Company
on the other hand, which is required to be described in the
Prospectus which is not so described.
5
<PAGE> 6
(t) No labor disturbance by the employees of the
Company or any of its subsidiaries exists or, to the knowledge
of the Company, is imminent which might be expected to have a
material adverse effect on the consolidated financial
position, stockholders' equity, results of operations,
business or prospects of the Company and its subsidiaries.
(u) The Company has paid, when due, all taxes due
through the date hereof, and no tax deficiency has been
determined adversely to the Company or any of its subsidiaries
which has had (nor does the Company have any knowledge of any
tax deficiency which, if determined adversely to the Company
or any of its subsidiaries, might have) a material adverse
effect on the consolidated financial position, stockholders'
equity, results of operations, business or prospects of the
Company and its subsidiaries.
(v) Since the respective date as of which information
is given in the Registration Statement and the Prospectus
through the date hereof, and except as may otherwise be
disclosed therein, (i) there has been no material adverse
change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise,
arising for any reason whatsoever, (ii) the Company and its
subsidiaries each has not (A) incurred any liability or
obligation, direct or contingent, other than liabilities and
obligations which were incurred in the ordinary course of
business, or (B) entered into any transaction not in the
ordinary course of business or (iii) the Company has not
declared or paid any dividend or distribution of any kind on
its capital stock.
(w) Neither the Company nor any of its subsidiaries
(i) is in violation of its charter or bylaws, (ii) is in
default in any material respect, and no event has occurred
which, with notice or lapse of time or both, would constitute
such a default, in the due performance or observance of any
term, covenant or condition contained in any material
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which it is a party or by which it
is bound or to which any of its properties or assets is
subject or (iii) is in violation in any material respect of
any law, ordinance, governmental rule, regulation or court
decree to which it or its property or assets may be subject or
has failed to obtain any material license, permit,
certificate, franchise or other governmental authorization or
permit necessary to the ownership of its property or to the
conduct of its business.
(x) Neither the Company nor any of its subsidiaries,
has used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expense relating to
political activity; made any direct or indirect unlawful
payment to any foreign or domestic government official or
employee from corporate funds; violated or is in violation of
any provision of the Foreign Corrupt Practices Act of 1977; or
made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment
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<PAGE> 7
(y) Neither the Company nor any subsidiary is an
"investment company" or is "controlled" by an "investment
company" as such terms are defined under the Investment
Company Act of 1940.
(z) 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 proceeding
action by the National Association of Securities Dealers, Inc.
to revoke or suspend such listing.
(aa) The Company has complied with all provisions of
Section 517.075, Florida Statutes (Chapter 92-198, Laws of
Florida).
2. Representations, Warranties and Agreements of the Selling
Stockholders. Each Selling Stockholder severally represents, warrants and agrees
that:
(a) The Selling Stockholder has, and immediately
prior to the First Delivery Date (as defined in Section 5
hereof) the Selling Stockholder will have good and valid title
to the shares of Stock to be sold by the Selling Stockholder
hereunder on such date, free and clear of all liens,
encumbrances, equities or claims; and upon delivery of such
shares and payment therefor pursuant hereto, good and valid
title to such shares, free and clear of all liens,
encumbrances, equities or claims, will pass to the several
Underwriters.
(b) The Selling Stockholder has placed in custody
under a custody agreement (the "Custody Agreement" and,
together with all other similar agreements executed by the
other Selling Stockholders, the "Custody Agreements") with
First Security Bank of Utah, N.A., as custodian (the
"Custodian"), for delivery under this Agreement, certificates
in negotiable form (with signature guaranteed by a commercial
bank or trust company having an office or correspondent in the
United States or a member firm of the New York or American
Stock Exchanges) representing the shares of Stock to be sold
by the Selling Stockholder hereunder.
(c) The Selling Stockholder has duly and irrevocably
executed and delivered a power of attorney (the "Power of
Attorney" and, together with all other similar agreements
executed by the other Selling Stockholders, the "Powers of
Attorney") appointing Richard D. Reinhold or Gary B. Crook, or
either of them, as attorneys-in-fact, with full power of
substitution, and with full authority (exercisable by any one
or more of them) to execute and deliver this Agreement and to
take such other action as may be necessary or desirable to
carry out the provisions hereof on behalf of the Selling
Stockholder.
(d) The Selling Stockholder has full right, power and
authority to enter into this Agreement, the Power of Attorney
and the Custody Agreement; the execution, delivery and
performance of this Agreement, the Power of Attorney and the
Custody
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<PAGE> 8
Agreement by the Selling Stockholder and the consummation by
the Selling Stockholder of the transactions contemplated
hereby and thereby will not conflict with or result in a
breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to
which the Selling Stockholder is a party or by which the
Selling Stockholder is bound or to which any of the property
or assets of the Selling Stockholder is subject, nor will such
actions result in any violation of the provisions of the
charter or by-laws of the Selling Stockholder or any statute
or any order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Selling
Stockholder or the property or assets of the Selling
Stockholder; and, except for the registration of the Stock
under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be
required under the Exchange Act and applicable state
securities laws in connection with the purchase and
distribution of the Stock by the Underwriters, no consent,
approval, authorization or order of, or filing or registration
with, any such court or governmental agency or body is
required for the execution, delivery and performance of this
Agreement, the Power of Attorney or the Custody Agreement by
the Selling Stockholder and the consummation by the Selling
Stockholder of the transactions contemplated hereby and
thereby.
(e) The Registration Statement and the Prospectus and
any further amendments or supplements to the Registration
Statement or the Prospectus will, when they become effective
or are filed with the Commission, as the case may be, do not
and will not, as of the applicable effective date (as to the
Registration Statement and any amendment thereto) and as of
the applicable filing date (as to the Prospectus and any
amendment or supplement thereto) contain an untrue statement
of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements
therein not misleading; provided that no representation or
warranty is made as to information contained in or omitted
from the Registration Statement or the Prospectus in reliance
upon and in conformity with written information furnished to
the Company through the Representatives by or on behalf of any
Underwriter specifically for inclusion therein.
(f) The Selling Stockholder has no reason to believe
that the representations and warranties of the Company
contained in Section 1 hereof are not materially true and
correct, is familiar with the Registration Statement and the
Prospectus (as amended or supplemented) and has no knowledge
of any material fact, condition or information not disclosed
in the Registration Statement, as of the effective date, or
the Prospectus (or any amendment or supplement thereto), as of
the applicable filing date, which has adversely affected or
may adversely affect the business of the Company and is not
prompted to sell shares of Common Stock by any information
concerning the Company which is not set forth in the
Registration Statement and the Prospectus.
(g) The Selling Stockholder has not taken and will
not take, directly or indirectly, any action which is designed
to or which has constituted or which might
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<PAGE> 9
reasonably be expected to cause or result in the stabilization
or manipulation of the price of any security of the Company to
facilitate the sale or resale of the shares of the Stock.
3. Purchase of the Stock by the Underwriters. On the basis of
the representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell 3,000,000 shares of
the Firm Stock and each Selling Stockholder hereby agrees to sell the number of
shares of the Firm Stock set opposite such Selling Stockholder's name in
Schedule 2 hereto, severally and not jointly, to the several Underwriters and
each of the Underwriters, severally and not jointly, agrees to purchase the
number of shares of the Firm Stock set opposite that Underwriter's name in
Schedule 1 hereto. Each Underwriter shall be obligated to purchase from the
Company, and from each Selling Stockholder, that number of shares of the Firm
Stock which represents the same proportion of the number of shares of the Firm
Stock to be sold by the Company, and by each Selling Stockholder, as the number
of shares of the Firm Stock set forth opposite the name of such Underwriter in
Schedule 1 represents of the total number of shares of the Firm Stock to be
purchased by all of the Underwriters pursuant to this Agreement. The respective
purchase obligations of the Underwriters with respect to the Firm Stock shall be
rounded among the Underwriters to avoid fractional shares, as the
Representatives may determine.
In addition, the Company grants to the Underwriters an option
to purchase up to 600,000 shares of Option Stock. Such option is granted solely
for the purpose of covering over-allotments in the sale of Firm Stock and is
exercisable as provided in Section 5 hereof. Shares of Option Stock shall be
purchased severally for the account of the Underwriters in proportion to the
number of shares of Firm Stock set opposite the name of such Underwriters in
Schedule 1 hereto. The respective purchase obligations of each Underwriter with
respect to the Option Stock shall be adjusted by the Representatives so that no
Underwriter shall be obligated to purchase Option Stock other than in 100 share
amounts. The price of both the Firm Stock and any Option Stock shall be $_____
per share.
The Company and the Selling Stockholders shall not be
obligated to deliver any of the Stock to be delivered on the First Delivery Date
or the Second Delivery Date (as hereinafter defined), as the case may be, except
upon payment for all the Stock to be purchased on such Delivery Date as provided
herein.
4. Offering of Stock by the Underwriters.
Upon authorization by the Representatives of the release of
the Firm Stock, the several Underwriters propose to offer the Firm Stock for
sale upon the terms and conditions set forth in the Prospectus.
5. Delivery of and Payment for the Stock. Delivery of and
payment for the Firm Stock shall be made at the office of Lehman Brothers Inc.,
333 West 34th Street, 3rd Floor, New York, New York 10001, at 10:00 A.M., New
York City time, on the third full business day (unless otherwise permitted or
required by the Commission pursuant to Rule 15c6-1 of the Exchange Act)
following the
9
<PAGE> 10
date of this Agreement or at such other date or place as shall be determined by
agreement between the Representatives and the Company. This date and time are
sometimes referred to as the "First Delivery Date." On the First Delivery Date,
the Company and the Selling Stockholders shall deliver or cause to be delivered
certificates representing the Firm Stock to the Representatives for the account
of each Underwriter against payment to or upon the order of the Company and the
Selling Stockholders of the purchase price by wire transfer in immediately
available funds. Time shall be of the essence, and delivery at the time and
place specified pursuant to this Agreement is a further condition of the
obligation of each Underwriter hereunder. Upon delivery, the Firm Stock shall be
registered in such names and in such denominations as the Representatives shall
request in writing not less than two full business days prior to the First
Delivery Date. For the purpose of expediting the checking and packaging of the
certificates for the Firm Stock, the Company and the Selling Stockholders shall
make the certificates representing the Firm Stock available for inspection by
the Representatives in New York, New York, not later than 2:00 P.M., New York
City time, on the business day prior to the First Delivery Date.
At any time on or before the thirtieth day after the date of
this Agreement the option granted in Section 3 may be exercised by written
notice being given to the Company by the Representatives. Such notice shall set
forth the aggregate number of shares of Option Stock as to which the option is
being exercised, the names in which the shares of Option Stock are to be
registered, the denominations in which the shares of Option Stock are to be
issued and the date and time, as determined by the Representatives, when the
shares of Option Stock are to be delivered; provided, however, that this date
and time shall not be earlier than the First Delivery Date nor earlier than the
second business day after the date on which the option shall have been exercised
nor later than the fifth business day after the date on which the option shall
have been exercised. The date and time the shares of Option Stock are delivered
are sometimes referred to as the "Second Delivery Date" and the First Delivery
Date and the Second Delivery Date are sometimes each referred to as a "Delivery
Date".
Delivery of and payment for the Option Stock shall be made at
the place specified in the first sentence of the first paragraph of this Section
5 (or at such other place as shall be determined by agreement between the
Representatives and the Company) at 10:00 A.M., New York City time, on the
Second Delivery Date. On the Second Delivery Date, the Company shall deliver or
cause to be delivered the certificates representing the Option Stock to the
Representatives for the account of each Underwriter against payment to or upon
the order of the Company of the purchase price by wire transfer in immediately
available funds. Time shall be of the essence, and delivery at the time and
place specified pursuant to this Agreement is a further condition of the
obligation of each Underwriter hereunder. Upon delivery, the Option Stock shall
be registered in such names and in such denominations as the Representatives
shall request in the aforesaid written notice. For the purpose of expediting the
checking and packaging of the certificates for the Option Stock, the Company
shall make the certificates representing the Option Stock available for
inspection by the Representatives in New York, New York, not later than 2:00
P.M., New York City time, on the business day prior to the Second Delivery Date.
6. Further Agreements of the Company. The Company agrees:
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<PAGE> 11
(a) To prepare the Prospectus in a form approved by
the Representatives and to file such Prospectus pursuant to
Rule 424(b) under the Securities Act not later than
Commission's close of business on the second business day
following the execution and delivery of this Agreement or, if
applicable, such earlier time as may be required by Rule
430A(a)(3) under the Securities Act; to make no further
amendment or any supplement to the Registration Statement or
to the Prospectus prior to the last Delivery Date except as
permitted herein; to advise the Representatives, promptly
after it receives notice thereof, of the time when any
amendment to the Registration Statement has been filed or
becomes effective or any supplement to the Prospectus or any
amended Prospectus has been filed and to furnish the
Representatives with copies thereof; to file promptly all
reports and any definitive proxy or information statements
required to be filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange
Act subsequent to the date of the Prospectus and for so long
as the delivery of a prospectus is required in connection with
the offering or sale of the Stock; to advise the
Representatives, promptly after it receives notice thereof, of
the issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus, of the suspension of the
qualification of the Stock for offering or sale in any
jurisdiction, of the initiation or threatening of any
proceeding for any such purpose, or of any request by the
Commission for the amending or supplementing of the
Registration Statement or the Prospectus or for additional
information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or suspending any
such qualification, to use promptly its best efforts to obtain
its withdrawal;
(b) To furnish promptly to each of the
Representatives and to counsel for the Underwriters a signed
copy of the Registration Statement as originally filed with
the Commission, and each amendment thereto filed with the
Commission, including all consents and exhibits filed
therewith;
(c) To deliver promptly to the Representatives such
number of the following documents as the Representatives shall
reasonably request: (i) conformed copies of the Registration
Statement as originally filed with the Commission and each
amendment thereto (in each case excluding exhibits other than
this Agreement), (ii) each Preliminary Prospectus, the
Prospectus and any amended or supplemented Prospectus and
(iii) any document incorporated by reference in the Prospectus
(excluding exhibits thereto); and, if the delivery of a
prospectus is required at any time after the Effective Time in
connection with the offering or sale of the Stock or any other
securities relating thereto and if at such time any events
shall have occurred as a result of which the Prospectus as
then amended or supplemented would include an untrue statement
of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the
light of the circumstances under which they were made when
such Prospectus is delivered, not misleading, or, if for any
other reason it shall be necessary to amend or supplement the
Prospectus or to file under the Exchange Act
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<PAGE> 12
any document incorporated by reference in the Prospectus in
order to comply with the Securities Act or the Exchange Act,
to notify the Representatives and, upon their request, to file
such document and to prepare and furnish without charge to
each Underwriter and to any dealer in securities as many
copies as the Representatives may from time to time reasonably
request of an amended or supplemented Prospectus which will
correct such statement or omission or effect such compliance;
(d) To file promptly with the Commission any
amendment to the Registration Statement or the Prospectus or
any supplement to the Prospectus that may, in the judgment of
the Company or the Representatives, be required by the
Securities Act or requested by the Commission;
(e) Prior to filing with the Commission any amendment
to the Registration Statement or supplement to the Prospectus,
any document incorporated by reference in the Prospectus or
any Prospectus pursuant to Rule 424 of the Rules and
Regulations, to furnish a copy thereof to the Representatives
and counsel for the Underwriters and obtain the consent of the
Representatives to the filing;
(f) As soon as practicable after the Effective Date,
to make generally available to the Company's security holders
and to deliver to the Representatives an earnings statement of
the Company and its subsidiaries (which need not be audited)
complying with Section 11(a) of the Securities Act and the
Rules and Regulations (including, at the option of the
Company, Rule 158);
(g) For a period of five years following the
Effective Date, to furnish to the Representatives copies of
all materials furnished by the Company to its shareholders and
all public reports and all reports and financial statements
furnished by the Company to the principal national securities
exchange upon which the Common Stock may be listed pursuant to
requirements of or agreements with such exchange or to the
Commission pursuant to the Exchange Act or any rule or
regulation of the Commission thereunder;
(h) Promptly from time to time to take such action as
the Representatives may reasonably request to qualify the
Stock for offering and sale under the securities laws of such
jurisdictions as the Representatives may request and to comply
with such laws so as to permit the continuance of sales and
dealings therein in such jurisdictions for as long as may be
necessary to complete the distribution of the Stock; provided
that in connection therewith the Company shall not be required
to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction;
(i) For a period of 180 days from the date of the
Prospectus, not to, directly or indirectly, (1) offer for
sale, sell, pledge or otherwise dispose of (or enter into any
transaction or device which is designed to, or could be
expected to, result in the disposition by any person at any
time in the future of) any shares of Common Stock or
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<PAGE> 13
securities convertible into or exchangeable for Common Stock
(other than the Stock and shares issued pursuant to employee
benefit plans, qualified stock option plans or other employee
compensation plans existing on the date hereof), or sell or
grant options, rights or warrants with respect to any shares
of Common Stock or securities convertible into or exchangeable
for Common Stock (other than the grant of options pursuant to
option plans existing on the date hereof), or (2) enter into
any swap or other derivatives transaction that transfers to
another, in whole or in part, any of the economic benefits or
risks of ownership of such shares of Common Stock, whether any
such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or other securities, in
cash or otherwise, in each case without the prior written
consent of Lehman Brothers Inc.; and to cause each officer and
director of the Company to furnish to the Representatives,
prior to the First Delivery Date, a letter or letters, in form
and substance satisfactory to counsel for the Underwriters,
pursuant to which each such person shall agree not to,
directly or indirectly, (1) offer for sale, sell, pledge or
otherwise dispose of (or enter into any transaction or device
which is designed to, or could be expected to, result in the
disposition by any person at any time in the future of) any
shares of Common Stock or securities convertible into or
exchangeable for Common Stock or (2) enter into any swap or
other derivatives transaction that transfers to another, in
whole or in part, any of the economic benefits or risks of
ownership of such shares of Common Stock, whether any such
transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or other securities, in
cash or otherwise, in each case for a period of 180 days from
the date of the Prospectus, without the prior written consent
of Lehman Brothers Inc.;
(j) Prior to the Effective Date, to apply for the
inclusion of the Stock on the National Market System and to
use its best efforts to complete that listing, subject only to
official notice of issuance, prior to the First Delivery Date;
(k) To apply the net proceeds from the sale of the
Stock being sold by the Company as set forth in the
Prospectus; and
(l) To take such steps as shall be necessary to
ensure that neither the Company nor any subsidiary shall
become an "investment company" within the meaning of such term
under the Investment Company Act of 1940 and the rules and
regulations of the Commission thereunder.
7. Further Agreements of the Selling Stockholders. Each
Selling Stockholder agrees:
(a) For a period of 180 days from the date of the
Prospectus, not to, directly or indirectly, (1) offer for
sale, sell, pledge or otherwise dispose of (or enter into any
transaction or device which is designed to, or could be
expected to, result in the disposition by any person at any
time in the future of) any shares of Common Stock or
securities convertible into or exchangeable for Common Stock
(other than the Stock) or (2) enter into any swap or other
derivatives transaction that transfers to another, in
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<PAGE> 14
whole or in part, any of the economic benefits or risks of
ownership of such shares of Common Stock, whether any such
transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or other securities, in
cash or otherwise, in each case without the prior written
consent of Lehman Brothers Inc.
(b) That the Stock to be sold by the Selling
Stockholder hereunder, which is represented by the
certificates held in custody for the Selling Stockholder, is
subject to the interest of the Underwriters, that the
arrangements made by the Selling Stockholder for such custody
are to that extent irrevocable, and that the obligations of
the Selling Stockholder hereunder shall not be terminated by
any act of the Selling Stockholder, by operation of law, by
the death or incapacity of any individual Selling Stockholder
or, in the case of a trust, by the death or incapacity of any
executor or trustee or the termination of such trust, or the
occurrence of any other event.
(c) To deliver to the Representatives prior to the
First Delivery Date a properly completed and executed United
States Treasury Department Form W-9.
8. Expenses. The Company agrees to pay (a) the costs incident
to the authorization, issuance, sale and delivery of the Stock and any taxes
payable in that connection; (b) the costs incident to the preparation, printing
and filing under the Securities Act of the Registration Statement and any
amendments and exhibits thereto; (c) the costs of distributing the Registration
Statement as originally filed and each amendment thereto and any post-effective
amendments thereof (including, in each case, exhibits), any Preliminary
Prospectus, the Prospectus and any amendment or supplement to the Prospectus or
any document incorporated by reference therein, all as provided in this
Agreement; (d) the costs of producing and distributing this Agreement and any
other related documents in connection with the offering, purchase, sale and
delivery of the stock; (e) the costs of delivering and distributing the Custody
Agreements and the Powers of Attorney; (f) the filing fees incident to securing
any required review by the National Association of Securities Dealers, Inc. of
the terms of sale of the Stock; (g) any applicable listing or other fees; (h)
the fees and expenses of qualifying the Stock under the securities laws of the
several jurisdictions as provided in Section 6(h) and of preparing, printing and
distributing a Blue Sky Memorandum (including related fees and expenses of
counsel to the Underwriters); and (i) all other costs and expenses incident to
the performance of the obligations of the Company and the Selling Stockholders
under this Agreement; provided that, except as provided in this Section 8 and in
Section 13 the Underwriters shall pay their own costs and expenses, including
the costs and expenses of their counsel, any transfer taxes on the Stock which
they may sell and the expenses of advertising any offering of the Stock made by
the Underwriters.
9. Conditions of Underwriters' Obligations. The respective
obligations of the Underwriters hereunder are subject to the accuracy, when made
and on each Delivery Date, of the representations and warranties of the Company
and the Selling Stockholders contained herein, to the performance by the Company
and the Selling Stockholders of their respective obligations hereunder, and to
each of the following additional terms and conditions:
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<PAGE> 15
(a) The Prospectus shall have been timely filed with
the Commission in accordance with Section 6(a); no stop order
suspending the effectiveness of the Registration Statement or
any part thereof shall have been issued and no proceeding for
that purpose shall have been initiated or threatened by the
Commission; and any request of the Commission for inclusion of
additional information in the Registration Statement or the
Prospectus or otherwise shall have been complied with.
(b) No Underwriter shall have discovered and
disclosed to the Company on or prior to such Delivery Date
that the Registration Statement or the Prospectus or any
amendment or supplement thereto contains an untrue statement
of a fact which, in the opinion of Akin, Gump, Strauss, Hauer
& Feld, L.L.P., counsel for the Underwriters, is material or
omits to state a fact which, in the opinion of such counsel,
is material and is required to be stated therein or is
necessary to make the statements therein not misleading.
(c) All corporate proceedings and other legal matters
incident to the authorization, form and validity of this
Agreement, the Custody Agreements, the Powers of Attorney, the
Stock, the Registration Statement and the Prospectus, and all
other legal matters relating to this Agreement and the
transactions contemplated hereby shall be reasonably
satisfactory in all material respects to counsel for the
Underwriters, and the Company and the Selling Stockholders
shall have furnished to such counsel all documents and
information that they may reasonably request to enable them to
pass upon such matters.
(d) Kimball, Parr, Waddoups, Brown & Gee shall have
furnished to the Representatives its written opinion, as
counsel to the Company and the Selling Stockholders, addressed
to the Underwriters and dated such Delivery Date, in form and
substance reasonably satisfactory to the Representatives, to
the effect that:
(i) The Company and each of its subsidiaries
have been duly organized and are validly existing as
corporations in good standing under the laws of their
respective jurisdictions of incorporation, are duly
qualified to do business and are in good standing as
foreign corporations in each jurisdiction in which
their respective ownership or lease of property or
the conduct of their respective businesses requires
such qualification (except for such failures to be so
qualified or in good standing which will not in the
aggregate have a material adverse effect on the
Company), and have all power and authority necessary
to own or hold their respective properties and
conduct the businesses in which they are engaged;
(ii) The Company has the authorized, issued
and outstanding capital stock as set forth in the
Prospectus, and all of the issued shares of capital
stock of the Company (including the shares of Stock
being delivered on such Delivery Date) have been duly
and validly authorized and issued, are fully paid
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<PAGE> 16
and non-assessable and conform in all material
respects to the description thereof contained in the
Prospectus; and all of the issued shares of capital
stock of each subsidiary of the Company have been
duly and validly authorized and issued and are fully
paid, non-assessable and are owned directly or
indirectly by the Company, free and clear of all
liens, encumbrances, equities or claims;
(iii) There are no preemptive or other rights
to subscribe for or to purchase, nor any restriction
upon the voting or transfer of, any shares of the
Stock pursuant to the Company's charter or bylaws or
any agreement or other instrument known to such
counsel;
(iv) To the best of such counsel's knowledge
and other than as set forth in the Prospectus, there
are no legal or governmental proceedings pending to
which the Company or any of its subsidiaries is a
party or of which any property or assets of the
Company or any of its subsidiaries is the subject
which, if determined adversely to the Company or any
of its subsidiaries, might have a material adverse
effect on the consolidated financial position,
stockholders' equity, results of operations, business
or prospects of the Company and its subsidiaries;
and, to the best of such counsel's knowledge, no such
proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(v) The Registration Statement was declared
effective under the Securities Act as of the date and
time specified in such opinion, the Prospectus was
filed with the Commission pursuant to the
subparagraph of Rule 424(b) of the Rules and
Regulations specified in such opinion on the date
specified therein and no stop order suspending the
effectiveness of the Registration Statement has been
issued and, to the knowledge of such counsel, no
proceeding for that purpose is pending or threatened
by the Commission;
(vi) The Registration Statement and the
Prospectus and any further amendments or supplements
thereto made by the Company prior to such Delivery
Date (other than the financial statements and related
notes and schedules therein, as to which such counsel
need express no opinion) comply as to form in all
material respects with the requirements of the
Securities Act and the Rules and Regulations, and the
documents incorporated by reference in the Prospectus
and any further amendment or supplement to any such
incorporated document made by the Company prior to
such Delivery Date (other than the financial
statements and related notes and schedules therein,
as to which such counsel need express no opinion),
when they became effective or were filed with the
Commission, as the case may be, complied as to form
in all material respects with the requirements of the
Securities Act or the Exchange Act, as applicable,
and the rules and regulations of the Commission
thereunder
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<PAGE> 17
(vii) To the best of such counsel's knowledge,
there are no contracts or other documents which are
required to be described in the Prospectus or filed
as exhibits to the Registration Statement by the
Securities Act or by the Rules and Regulations which
have not been described or filed as exhibits to the
Registration Statement or incorporated therein by
reference as permitted by the Rules and Regulations;
(viii) The Company has the corporate power and
authority to enter into this Agreement and to issue,
sell and deliver the Stock being sold by it as
contemplated hereby. This Agreement has been duly
authorized, executed and delivered by the Company;
(ix) The issue and sale of the shares of
Stock being delivered on such Delivery Date by the
Company and the compliance by the Company with all of
the provisions of this Agreement and the consummation
of the transactions contemplated hereby will not
conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or
instrument known to such counsel to which the Company
or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries is bound or to
which any of the property or assets of the Company or
any of its subsidiaries is subject, nor will such
actions result in any violation of the provisions of
the charter or by-laws of the Company or any of its
subsidiaries or any statute or any order, rule or
regulation known to such counsel of any court or
governmental agency or body having jurisdiction over
the Company or any of its subsidiaries or any of
their properties or assets; and, except for the
registration of the Stock under the Securities Act
and such consents, approvals, authorizations,
registrations or qualifications as may be required
under the Exchange Act and applicable state
securities laws in connection with the purchase and
distribution of the Stock by the Underwriters, no
consent, approval, authorization or order of, or
filing or registration with, any such court or
governmental agency or body is required for the
execution, delivery and performance of this Agreement
by the Company and the consummation of the
transactions contemplated hereby;
(x) To the best of such counsel's knowledge,
there are no contracts, agreements or understandings
between the Company and any person granting such
person the right (other than rights which have been
waived or satisfied) to require the Company to file a
registration statement under the Securities Act with
respect to any securities of the Company owned or to
be owned by such person or to require the Company to
include such securities in the securities registered
pursuant to the Registration Statement or in any
securities being registered pursuant to any other
registration statement filed by the Company under the
Securities Act;
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<PAGE> 18
(xi) Each of the Selling Stockholders has full
right, power and authority to enter into this
Agreement, the Power of Attorney and the Custody
Agreement; the execution, delivery and performance of
this Agreement, the Power of Attorney and the Custody
Agreement by the Selling Stockholders and the
consummation by the Selling Stockholders of the
transactions contemplated hereby and thereby will not
conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a
default under, any statute, any indenture, mortgage,
deed of trust, loan agreement or other agreement or
instrument known to such counsel to which the Selling
Stockholder is a party or by which the Selling
Stockholder is bound or to which any of the property
or assets of the Selling Stockholder is subject, nor
will such actions result in any violation of the
provisions of the charter or by-laws of such Selling
Stockholder, any statute or any order, rule or
regulation known to such counsel of any court or
governmental agency or body having jurisdiction over
such Selling Stockholder or the property or assets of
such Selling Stockholder; and, except for the
registration of the Stock under the Securities Act
and such consents, approvals, authorizations,
registrations or qualifications as may be required
under the Exchange Act and applicable state
securities laws in connection with the purchase and
distribution of the Stock by the Underwriters, no
consent, approval, authorization or order of, or
filing or registration with, any such court or
governmental agency or body is required for the
execution, delivery and performance of this
Agreement, the Power of Attorney or the Custody
Agreement by such Selling Stockholder and the
consummation by such Selling Stockholder of the
transactions contemplated hereby and thereby;
(xii) This Agreement has been duly authorized,
executed and delivered by or on behalf of each
Selling Stockholder;
(xiii) A Power-of-Attorney and a Custody
Agreement have been duly authorized, executed and
delivered by each Selling Stockholder and constitute
valid and binding agreements of each Selling
Stockholder, enforceable in accordance with their
respective terms;
(xiv) Immediately prior to the First Delivery
Date, each Selling Stockholder had good and valid
title to the shares of Stock to be sold by such
Selling Stockholder under this Agreement, free and
clear of all liens, encumbrances, equities or claims,
and full right, power and authority to sell, assign,
transfer and deliver such shares to be sold by such
Selling Stockholder hereunder; and
(xv) Good and valid title to the shares of
Stock to be sold by each Selling Stockholder under
this Agreement, free and clear of all liens,
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<PAGE> 19
encumbrances, equities or claims,
has been transferred to each of the several
Underwriters.
In rendering such opinion, such counsel may (i) state that
their opinion is limited to matters governed by the Federal
laws of the United States of America, the laws of the State of
Utah and the Utah Revised Business Corporation Act; (ii) rely
(to the extent such counsel deems proper and specifies in its
opinion), as to matters involving the application of the laws
of jurisdictions other than the United Sates of America and
the State of Utah, upon the opinion of other counsel of good
standing, provided that such other counsel is satisfactory to
counsel for the underwriters and furnishes a copy of its
opinion to the Representatives; and (iii) rely as to matters
of fact (but not legal conclusions), to the extent they deem
proper, on certificates of responsible officers of the
Company, the Selling Stockholders and public officials. Such
counsel shall also have furnished to the Representatives a
written statement, addressed to the Underwriters and dated
such Delivery Date, in form and substance satisfactory to the
Representatives, to the effect that (x) such counsel has acted
as counsel to the Company on a regular basis (although the
Company is also represented by its General Counsel and, with
respect to certain other matters, by other outside counsel),
has acted as counsel to the Company in connection with
previous financing transactions and has acted as counsel to
the Company in connection with the preparation of the
Registration Statement, and (y) based on the foregoing, no
facts have come to the attention of such counsel which lead
them to believe that (I) the Registration Statement, as of the
Effective Date, contained any 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, or that the Prospectus contains any untrue
statement of a material fact or omits to state such a material
fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances
under which they were made, not misleading or (II) any
document incorporated by reference in the Prospectus or any
further amendment or supplement to any such incorporated
document made by the Company prior to such Delivery Date, when
they became effective or were filed with the Commission, as
the case may be, contained, in the case of a registration
statement which became effect under the Securities Act, any
untrue statement of 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, or, in
the case of other documents which were filed under the
Exchange Act with the Commission, an untrue statement of a
material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
except that such counsel need express no opinion with respect
to financial statements and related notes and schedules
thereto and other financial data included or incorporated by
reference in the Registration Statement or Prospectus.
(e) The Representatives shall have received from
Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel for the
Underwriters, such opinion or opinions, dated such
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<PAGE> 20
Delivery Date, with respect to the issuance and sale of the
Stock, the Registration Statement, the Prospectus and other
related matters as the Representatives may reasonably require,
and the Company shall have furnished to such counsel such
documents as they reasonably request for the purpose of
enabling them to pass upon such matters.
(f) At the time of execution of this Agreement, the
Representatives shall have received from Arthur Andersen LLP a
letter, in form and substance satisfactory to the
Representatives, addressed to the Underwriters and dated the
date hereof (i) confirming that they are independent public
accountants within the meaning of the Securities Act and are
in compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X
of the Commission, (ii) stating, as of the date hereof (or,
with respect to matters involving changes or developments
since the respective dates as of which specified financial
information is given in the Prospectus, as of a date not more
than five days prior to the date hereof), the conclusions and
findings of such firm with respect to the financial
information and other matters ordinarily covered by
accountants' "comfort letters" to underwriters in connection
with registered public offerings.
(g) With respect to the letter of Arthur Andersen LLP
referred to in the preceding paragraph and delivered to the
Representatives concurrently with the execution of this
Agreement (the "initial letter"), the Company shall have
furnished to the Representatives a letter (the "bring-down
letter") of such accountants, addressed to the Underwriters
and dated such Delivery Date (i) confirming that they are
independent public accountants within the meaning of the
Securities Act and are in compliance with the applicable
requirements relating to the qualification of accountants
under Rule 2-01 of Regulation S-X of the Commission, (ii)
stating, as of the date of the bring-down letter (or, with
respect to matters involving changes or developments since the
respective dates as of which specified financial information
is given in the Prospectus, as of a date not more than five
days prior to the date of the bring-down letter), the
conclusions and findings of such firm with respect to the
financial information and other matters covered by the initial
letter and (iii) confirming in all material respects the
conclusions and findings set forth in the initial letter.
(h) The Company shall have furnished to the
Representatives a certificate, dated such Delivery Date, of
its Chairman of the Board, its President and its chief
financial officer stating that:
(i) The representations, warranties and
agreements of the Company in Section 1 are true and
correct as of such Delivery Date; the Company has
complied with all its agreements contained herein;
and the conditions set forth in Sections 9(a) and
9(j) have been fulfilled; and
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<PAGE> 21
(ii) They have carefully examined the
Registration Statement and the Prospectus and, in
their opinion (A) as of the Effective Date, the
Registration Statement and Prospectus did not include
any untrue statement of a material fact and did not
omit to state a material fact required to be stated
therein or necessary to make the statements therein
not misleading, and (B) since the Effective Date no
event has occurred which should have been set forth
in a supplement or amendment to the Registration
Statement or the Prospectus.
(i) Each Selling Stockholder (or one or more
attorneys-in-fact on behalf of the Selling Stockholders) shall
have furnished to the Representatives on the First Delivery
Date a certificate, dated the First Delivery Date, signed by,
or on behalf of, the Selling Stockholder (or one or more
attorneys-in-fact) stating that the representations,
warranties and agreements of the Selling Stockholder contained
herein are true and correct as of the First Delivery Date and
that the Selling Stockholder has complied with all agreements
contained herein to be performed by the Selling Stockholder at
or prior to the First Delivery Date.
(j) (i) Neither the Company nor any of its
subsidiaries shall have sustained since the date of the latest
audited financial statements included or incorporated by
reference in the Prospectus any loss or interference with its
business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus or (ii)
since such date there shall not have been any change in the
capital stock or long-term debt of the Company or any of its
subsidiaries or any change, or any development involving a
prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity or
results of operations of the Company and its subsidiaries,
otherwise than as set forth or contemplated in the Prospectus,
the effect of which, in any such case described in clause (i)
or (ii), is, in the judgment of the Representatives, so
material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the
delivery of the Stock being delivered on such Delivery Date on
the terms and in the manner contemplated in the Prospectus.
(k) Subsequent to the execution and delivery of this
Agreement there shall not have occurred any of the following:
(i) trading in securities generally on the New York Stock
Exchange or the American Stock Exchange or in the over-the-
counter market, or trading in any securities of the Company on
any exchange or in the over-the-counter market, shall have
been suspended or minimum prices shall have been established
on any such exchange or such market by the Commission, by such
exchange or by any other regulatory body or governmental
authority having jurisdiction, (ii) a banking moratorium shall
have been declared by Federal or state authorities, (iii) the
United States shall have become engaged in hostilities, there
shall have been an escalation in hostilities involving the
United States or there shall have been a declaration of a
national emergency or war by the United States or (iv) there
shall have occurred such a
21
<PAGE> 22
material adverse change in general economic, political or
financial conditions (or the effect of international
conditions on the financial markets in the United States shall
be such) as to make it, in the judgment of a majority in
interest of the several Underwriters, impracticable or
inadvisable to proceed with the public offering or delivery of
the Stock being delivered on such Delivery Date on the terms
and in the manner contemplated in the Prospectus.
(l) On or before the First Delivery Date, the Company
shall have furnished to the Representatives letters from each
director and officer of the Company and from each person or
entity named under the caption "Principal and Selling
Shareholders" in the Prospectus, in form and substance
satisfactory to the Representatives, confirming that for a
period of 180 days following the effective date of the
Prospectus such person or entity will not directly or
indirectly sell or offer to sell or otherwise dispose of any
shares of Common Stock beneficially owned by such person or
entity or any shares convertible into, or exchangeable for,
shares of Common Stock, without the prior written consent of
the Representatives.
(m) The National Market System shall have approved
the Stock for inclusion, subject only to official notice of
issuance.
All opinions, letters, evidence and certificates mentioned
above or elsewhere in this Agreement shall be deemed to be in compliance with
the provisions hereof only if they are in form and substance reasonably
satisfactory to counsel for the Underwriters.
10. Indemnification and Contribution.
(a) The Company and the Selling Stockholders, jointly and
severally, shall indemnify and hold harmless each Underwriter, its officers and
employees and each person, if any, who controls any Underwriter within the
meaning of the Securities Act, from and against any loss, claim, damage or
liability, joint or several, or any action in respect thereof (including, but
not limited to, any loss, claim, damage, liability or action relating to
purchases and sales of Stock), to which that Underwriter, officer, employee or
controlling person may become subject, under the Securities Act or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained (A) in any Preliminary Prospectus, the Registration Statement or
the Prospectus or in any amendment or supplement thereto or (B) in any blue sky
application or other document prepared or executed by the Company (or based upon
any written information furnished by the Company) specifically for the purpose
of qualifying any or all of the Stock under the securities laws of any state or
other jurisdiction (any such application, document or information being
hereinafter called a "Blue Sky Application"), or (ii) the omission or alleged
omission to state in any Preliminary Prospectus, the Registration Statement or
the Prospectus, or in any amendment or supplement thereto, or in any Blue Sky
Application any material fact required to be stated therein or necessary to make
the statements therein not misleading, and shall reimburse each Underwriter and
each such officer, employee or controlling person promptly upon demand for any
legal or other expenses reasonably incurred by that Underwriter, officer,
employee or controlling
22
<PAGE> 23
person in connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such expenses are
incurred; provided, however, that the Company and the Selling Stockholders shall
not be liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of, or is based upon, any untrue statement or
alleged untrue statement or omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in any such
amendment or supplement, or in any Blue Sky Application, in reliance upon and in
conformity with written information concerning such Underwriter furnished to the
Company through the Representatives by or on behalf of any Underwriter
specifically for inclusion therein; provided further that the liability of the
Selling Stockholders under this Section 10(a) shall be limited, with respect to
each of them, to the net proceeds received by them hereunder. The foregoing
indemnity agreement is in addition to any liability which the Company and the
Selling Stockholders may otherwise have to any Underwriter or to any officer,
employee or controlling person of that Underwriter.
(b) Each Underwriter, severally and not jointly, shall
indemnify and hold harmless the Company, its officers and employees, each of its
directors, and each person, if any, who controls the Company within the meaning
of the Securities Act, from and against any loss, claim, damage or liability,
joint or several, or any action in respect thereof, to which the Company or any
such director, officer or controlling person may become subject, under the
Securities Act or otherwise, insofar as such loss, claim, damage, liability or
action arises out of, or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained (A) in any Preliminary Prospectus,
the Registration Statement or the Prospectus or in any amendment or supplement
thereto, or (B) in any Blue Sky Application or (ii) the omission or alleged
omission to state in any Preliminary Prospectus, the Registration Statement or
the Prospectus, or in any amendment or supplement thereto, or in any Blue Sky
Application any material fact required to be stated therein or necessary to make
the statements therein not misleading, but in each case only to the extent that
the untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information concerning
such Underwriter furnished to the Company through the Representatives by or on
behalf of that Underwriter specifically for inclusion therein, and shall
reimburse the Company and any such director, officer or controlling person for
any legal or other expenses reasonably incurred by the Company or any such
director, officer or controlling person in connection with investigating or
defending or preparing to defend against any such loss, claim, damage, liability
or action as such expenses are incurred. The foregoing indemnity agreement is in
addition to any liability which any Underwriter may otherwise have to the
Company or any such director, officer, employee or controlling person.
(c) Promptly after receipt by an indemnified party under this
Section 10 of notice of any claim or the commencement of any action, the
indemnified party shall, 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 claim or the commencement of that action; provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 10 except to the extent it has
been materially prejudiced by such failure and, provided further, that the
failure to notify the indemnifying party shall not relieve it from any
liability which it may have to an indemnified party otherwise than under this
Section 10. If any such claim or action shall be brought
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<PAGE> 24
against an indemnified party, and it shall notify the indemnifying party
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent that it wishes, jointly with any other similarly notified
indemnifying party, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party. After notice from the indemnifying party
to the indemnified party of its election to assume the defense of such claim or
action, the indemnifying party shall not be liable to the indemnified party
under this Section 10 for any legal or other expenses subsequently incurred by
the indemnified party in connection with the defense thereof other than
reasonable costs of investigation; provided, however, that the Representatives
shall have the right to employ counsel to represent jointly the Representatives
and those other Underwriters and their respective officers, employees and
controlling persons who may be subject to liability arising out of any claim in
respect of which indemnity may be sought by the Underwriters against the Company
or any Selling Stockholder under this Section 10 if, in the reasonable judgment
of the Representatives, it is advisable for the Representatives and those
Underwriters, officers, employees and controlling persons to be jointly
represented by separate counsel, and in that event the fees and expenses of such
separate counsel shall be paid by the Company or Selling Stockholders. No
indemnifying party shall (i) without the prior written consent of the
indemnified parties (which consent shall not be unreasonably withheld), 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 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, or (ii) be liable for any settlement of any such action
effected without its written consent (which consent shall not be unreasonably
withheld), but if settled with the consent of the indemnifying party or if there
be a final judgment of the plaintiff in any such action, the indemnifying party
agrees to indemnify and hold harmless any indemnified party from and against any
loss or liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 10
shall for any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 10(a) or 10(b) in respect of any loss, claim,
damage or liability, or any action in respect thereof, referred to therein, then
each indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company and the Selling Stockholders on the one hand and the
Underwriters on the other from the offering of the Stock or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Selling Stockholders on the one hand and the Underwriters on the other with
respect to the statements or omissions which resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other with
respect to such offering shall be deemed to be in the same proportion as the
total net proceeds from the offering of the Stock purchased under this Agreement
(before deducting expenses) received by the Company and the Selling
Stockholders, on the one hand, and the total underwriting discounts and
commissions received by the Underwriters with respect to the shares of the Stock
purchased under this Agreement, on the other hand, bear to the total gross
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<PAGE> 25
proceeds from the offering of the shares of the Stock under this Agreement, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company, the Selling
Stockholders or the Underwriters, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company, the Selling Stockholders and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section were to be determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, damage or liability, or action in respect
thereof, referred to above in this Section shall be deemed to include, for
purposes of this Section 10(d), any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 10(d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Stock underwritten by it and distributed
to the public was offered to the public exceeds the amount of any damages which
such Underwriter has otherwise paid or become liable to pay by reason of any
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The Underwriters' obligations
to contribute as provided in this Section 10(d) are several in proportion to
their respective underwriting obligations and not joint.
(e) The Underwriters severally confirm and the Company
acknowledges that the statements with respect to the public offering of the
Stock by the Underwriters set forth on the cover page of, the legend concerning
over-allotments on the inside front cover page of and the concession and
reallowance figures appearing under the caption "Underwriting" in, the
Prospectus are correct and constitute the only information concerning such
Underwriters furnished in writing to the Company by or on behalf of the
Underwriters specifically for inclusion in the Registration Statement and the
Prospectus.
11. Defaulting Underwriters.
If, on either Delivery Date, any Underwriter defaults in the
performance of its obligations under this Agreement, the remaining
non-defaulting Underwriters shall be obligated to purchase the Stock which the
defaulting Underwriter agreed but failed to purchase on such Delivery Date in
the respective proportions which the number of shares of the Firm Stock set
opposite the name of each remaining non-defaulting Underwriter in Schedule 1
hereto bears to the total number of shares of the Firm Stock set opposite the
names of all the remaining non-defaulting Underwriters in Schedule 1 hereto;
provided, however, that the remaining non-defaulting Underwriters shall not be
obligated to purchase any of the Stock on such Delivery Date if the total number
of shares of the Stock which the defaulting Underwriter or Underwriters agreed
but failed to purchase on such date exceeds 9.09% of the total number of shares
of the Stock to be purchased on such Delivery Date, and any remaining
non-defaulting Underwriter shall not be obligated to purchase more than 110% of
the number of shares of
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<PAGE> 26
the Stock which it agreed to purchase on such Delivery Date pursuant to the
terms of Section 3. If the foregoing maximums are exceeded, the remaining
non-defaulting Underwriters, or those other underwriters satisfactory to the
Representatives who so agree, shall have the right, but shall not be obligated,
to purchase, in such proportion as may be agreed upon among them, all the Stock
to be purchased on such Delivery Date. If the remaining Underwriters or other
underwriters satisfactory to the Representatives do not elect to purchase the
shares which the defaulting Underwriter or Underwriters agreed but failed to
purchase on such Delivery Date, this Agreement (or, with respect to the Second
Delivery Date, the obligation of the Underwriters to purchase, and of the
Company to sell, the Option Stock) shall terminate without liability on the part
of any non-defaulting Underwriter or the Company or the Selling Stockholders,
except that the Company will continue to be liable for the payment of expenses
to the extent set forth in Sections 8 and 13. As used in this Agreement, the
term "Underwriter" includes, for all purposes of this Agreement unless the
context requires otherwise, any party not listed in Schedule 1 hereto who,
pursuant to this Section 11, purchases Firm Stock which a defaulting Underwriter
agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting
Underwriter of any liability it may have to the Company and the Selling
Stockholders for damages caused by its default. If other underwriters are
obligated or agree to purchase the Stock of a defaulting or withdrawing
Underwriter, either the Representatives or the Company may postpone the Delivery
Date for up to seven full business days in order to effect any changes that in
the opinion of counsel for the Company or counsel for the Underwriters may be
necessary in the Registration Statement, the Prospectus or in any other document
or arrangement.
12. Termination. The obligations of the Underwriters hereunder
may be terminated by the Representatives by notice given to and received by the
Company prior to delivery of and payment for the Firm Stock if, prior to that
time, any of the events described in Sections 9(j) or 9(k), shall have occurred
or if the Underwriters shall decline to purchase the Stock for any reason
permitted under this Agreement.
13. Reimbursement of Underwriters' Expenses. If (a) the
Company or any Selling Stockholder shall fail to tender the Stock for delivery
to the Underwriters by reason of any failure, refusal or inability on the part
of the Company or the Selling Stockholders to perform any agreement on its part
to be performed, or because any other condition of the Underwriters' obligations
hereunder required to be fulfilled by the Company or the Selling Stockholders is
not fulfilled, the Company and the Selling Stockholders will reimburse the
Underwriters for all reasonable out-of-pocket expenses (including fees and
disbursements of counsel) incurred by the Underwriters in connection with this
Agreement and the proposed purchase of the Stock, and upon demand the Company
and the Selling Stockholders shall pay the full amount thereof to the
Representatives. If this Agreement is terminated pursuant to Section 11 by
reason of the default of one or more Underwriters, neither the Company nor any
Selling Stockholder shall be obligated to reimburse any defaulting Underwriter
on account of those expenses.
14. Notices, etc. All statements, requests, notices and
agreements hereunder shall be in writing, and:
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<PAGE> 27
(a) if to the Underwriters, shall be delivered or
sent by mail, telex or facsimile transmission to Lehman
Brothers Inc., Three World Financial Center, New York, New
York 10285, Attention: Syndicate Department (Fax: 212-526-
6588), with a copy, in the case of any notice pursuant to
Section 10(c), to the Director of Litigation, Office of the
General Counsel, Lehman Brothers Inc., 3 World Financial
Center, 10th Floor, New York, NY 10285;
(b) if to the Company, shall be delivered or sent by
mail, telex or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention:
President (Fax: 801-486-3131);
(c) if to any Selling Stockholders, shall be
delivered or sent by mail, telex or facsimile transmission to
such Selling Stockholder at the address set forth on Schedule
2 hereto;
provided, however, that any notice to an Underwriter pursuant to Section 10(c)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by the
Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company and the
Selling Stockholders shall be entitled to act and rely upon any request,
consent, notice or agreement given or made on behalf of the Underwriters by
Lehman Brothers Inc. on behalf of the Representatives and the Company and the
Underwriters shall be entitled to act and rely upon any request, consent, notice
or agreement given or made on behalf of the Selling Stockholders by their
attorney-in-fact.
15. Persons Entitled to Benefit of Agreement. This Agreement
shall inure to the benefit of and be binding upon the Underwriters, the Company,
the Selling Stockholders and their respective personal representatives and
successors. This Agreement and the terms and provisions hereof are for the sole
benefit of only those persons, except that (A) the representations, warranties,
indemnities and agreements of the Company and the Selling Stockholders contained
in this Agreement shall also be deemed to be for the benefit of the person or
persons, if any, who control any Underwriter within the meaning of Section 15 of
the Securities Act and (B) the indemnity agreement of the Underwriters contained
in Section 10(b) of this Agreement shall be deemed to be for the benefit of
directors of the Company, officers of the Company who have signed the
Registration Statement and any person controlling the Company within the meaning
of Section 15 of the Securities Act. Nothing in this Agreement is intended or
shall be construed to give any person, other than the persons referred to in
this Section 15, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
16. Survival. The respective indemnities, representations,
warranties and agreements of the Company, the Selling Stockholders and the
Underwriters contained in this Agreement or made by or on behalf on them,
respectively, pursuant to this Agreement, shall survive the delivery of and
27
<PAGE> 28
payment for the Stock and shall remain in full force and effect, regardless of
any investigation made by or on behalf of any of them or any person controlling
any of them.
17. Definition of the Terms "Business Day" and "Subsidiary".
For purposes of this Agreement, (a) "business day" means any day on which the
New York Stock Exchange, Inc. is open for trading and (b) "subsidiary" has the
meaning set forth in Rule 405 of the Rules and Regulations.
18. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF NEW YORK.
19. Counterparts. This Agreement may be executed in one or
more counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
20. Headings. The headings herein are inserted for convenience
of reference only and are not intended to be part of, or to affect the meaning
or interpretation of, this Agreement.
28
<PAGE> 29
If the foregoing correctly sets forth the agreement among the
Company, the Selling Stockholders and the Underwriters, please indicate your
acceptance in the space provided for that purpose below.
Very truly yours,
SOS STAFFING SERVICES, INC.
By ____________________________________
Name:
Title:
The Selling Stockholders named in Schedule 2 to
this Agreement
By ____________________________________
Attorney-in-Fact
Accepted:
LEHMAN BROTHERS INC.
GEORGE K. BAUM & COMPANY
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
UNTERBERG HARRIS
For themselves and as Representatives
of the several Underwriters named
in Schedule 1 hereto
By LEHMAN BROTHERS INC.
By ____________________________________
Authorized Representative
29
<PAGE> 30
SCHEDULE 1
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <S>
Lehman Brothers Inc. . . . . . . . . . . . . . . . . . . . . . . . .
George K. Baum & Company . . . . . . . . . . . . . . . . . . . . . .
PaineWebber Incorporated . . . . . . . . . . . . . . . . . . . . . .
Prudential Securities Incorporated . . . . . . . . . . . . . . . . .
Unterberg Harris . . . . . . . . . . . . . . . . . . . . . . . . . .
---------
Total
---------
</TABLE>
30
<PAGE> 31
SCHEDULE 2
<TABLE>
<CAPTION>
Number of Shares
Name and address of Selling Stockholder of Firm Stock
- --------------------------------------- ----------------
<S> <C>
Total.................................................................
=========
</TABLE>
<PAGE> 1
EXHIBIT 5
[KIMBALL, PARR, WADDOUPS, BROWN & GEE LETTERHEAD]
September 19, 1997
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-3
Gentlemen:
As counsel to SOS Staffing Services, Inc., a Utah corporation (the
"Company"), in connection with the sale by the Company of up to 3,600,000
shares (including 600,000 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-3 (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 opinion 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 upon 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 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 a part of this
registration statement. In addition, we hereby consent to the incorporation by
reference in this registration statement of our report dated January 28, 1997
incorporated by reference in SOS Staffing Services, Inc. Form 10-K for the year
ended December 29, 1996 and to all references to our Firm included in this
registration statement.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
September 19, 1997
