<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 24, 1996
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PERSONNEL GROUP OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7363 56-1930691
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
6302 FAIRVIEW ROAD, SUITE 201
CHARLOTTE, NORTH CAROLINA 28210
(704) 442-5100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------
EDWARD P. DRUDGE, JR.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
6302 FAIRVIEW ROAD, SUITE 201
CHARLOTTE, NORTH CAROLINA 28210
(704) 442-5100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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WITH COPIES TO:
<TABLE>
<S> <C>
KEN R. BRAMLETT, JR. LAURA B. HUNTER
ROBINSON, BRADSHAW & HINSON, P.A. BROBECK, PHLEGER & HARRISON LLP
1900 INDEPENDENCE CENTER 4675 MACARTHUR COURT, SUITE 1000
101 NORTH TRYON STREET NEWPORT BEACH, CALIFORNIA 92660
CHARLOTTE, NORTH CAROLINA 28246 (714) 752-7535
(704) 377-2536
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
promptly as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, $.01 par
value...................... 4,025,000 shares $22.00 $88,550,000 $30,535
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</TABLE>
(1) Includes 525,000 shares subject to the Underwriters' over-allotment option.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c), based on the high and low sales prices for the Common Stock
on the New York Stock Exchange on May 20, 1996.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
PERSONNEL GROUP OF AMERICA, INC.
PART I
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING
LOCATION OF ITEMS IN THE PROSPECTUS
<TABLE>
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus..... Forepart of Registration Statement; Cross-
Reference Sheet; Outside Front Cover Page
of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Inside Front Cover Page of Prospectus;
Outside Back Cover Page of Prospectus;
Available Information
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............... Prospectus Summary; The Company; Risk
Factors; Selected Combined Financial Data
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Outside Front Cover Page of Prospectus;
Underwriting
6. Dilution................................... Not Applicable
7. Selling Security Holders................... Not Applicable
8. Plan of Distribution....................... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be
Registered................................. Description of Capital Stock
10. Interests of Named Experts and Counsel..... Legal Matters; Experts
11. Information with Respect to the
Registrant................................. Outside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors; The
Company; Dividend Policy; Price Range of
Common Stock; Capitalization; Selected
Consolidated Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Certain
Transactions; Principal Stockholders;
Description of Capital Stock; Available
Information; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not Applicable
</TABLE>
<PAGE> 3
EXPLANATORY NOTE
This Registration Statement contains a prospectus relating to a public
offering in the United States and Canada (the "U.S. Offering") of an aggregate
of 2,800,000 shares of common stock, par value $0.01 per share (the "Common
Stock"), of Personnel Group of America, Inc. (the "Company"), together with
separate prospectus pages relating to a concurrent offering outside the United
States and Canada (the "International Offering") of an aggregate of 700,000
shares of Common Stock. The complete prospectus for the U.S. Offering follows
immediately after this Explanatory Note. After such prospectus are the alternate
pages for the International Offering: a front cover page, pages which comprise
the "Certain U.S. Tax Consequences to Non-U.S. Stockholders," "Underwriting,"
"Legal Matters," "Experts" and "Available Information" sections and a back cover
page. All other pages of the prospectus for the U.S. Offering are to be used for
both the U.S. Offering and the International Offering.
<PAGE> 4
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
PRELIMINARY PROSPECTUS DATED MAY 24, 1996
3,500,000 SHARES
[PGA LOGO]
PERSONNEL GROUP OF AMERICA, INC.
COMMON STOCK
------------------------
All of the shares of Common Stock offered hereby are being offered by the
Company. Of the 3,500,000 shares of Common Stock offered, 2,800,000 shares are
being offered hereby in the United States and Canada (the "U.S. Shares") and
700,000 shares are being offered in a concurrent international offering outside
the United States and Canada. The price to the public and aggregate
underwriting discounts and commissions per share will be identical for both
offerings. See "Underwriting."
The Common Stock is listed on the New York Stock Exchange under the symbol
"PGA." On May 22, 1996, the last reported sale price of the Common Stock on the
New York Stock Exchange was $22.50 per share. See "Price Range of Common Stock"
appearing on page 14.
SEE "RISK FACTORS" ON PAGE 7 OF THIS PROSPECTUS FOR INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
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<S> <C> <C> <C>
Per Share......................... $ $ $
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Total............................. $ $ $
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Total Assuming Full Exercise of
Over-Allotment Option(3)........ $ $ $
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</TABLE>
(1) See "Underwriting."
(2) Before deducting expenses estimated at $600,000, which are payable by the
Company.
(3) Assuming exercise in full of the 30-day option granted by the Company to the
Underwriters to purchase up to 525,000 additional shares on the same terms,
solely to cover over-allotments. See "Underwriting."
------------------------
The U.S. Shares are offered by the U.S. Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the U.S. Underwriters, and
subject to their right to reject orders in whole or in part. It is expected that
delivery of the Common Stock will be made in New York City on or about
, 1996.
------------------------
PAINEWEBBER INCORPORATED
SMITH BARNEY INC.
J.C. BRADFORD & CO.
THE ROBINSON-HUMPHREY
COMPANY, INC.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE> 5
A MAP OF THE UNITED STATES SHOWING THE COMPANY'S STAFFING SERVICES LOCATIONS AND
HEALTH CARE SERVICES LOCATIONS APPEARS BELOW.
The Company endeavors to protect its intellectual property rights and has
obtained registrations in the United States of certain trademarks and tradenames
that appear in this Prospectus.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. All references to the Company refer to
Personnel Group of America, Inc. and its subsidiaries and their respective
operations, and include the Company's predecessors. Unless otherwise indicated,
the information in this Prospectus assumes that the Underwriters' over-allotment
option will not be exercised. This Prospectus contains forward-looking
statements and information which involve risks and uncertainties. The Company's
actual results could differ materially from the results anticipated in these
forward-looking statements as a result of certain factors set forth under the
heading "Risk Factors" and elsewhere in this Prospectus.
THE COMPANY
Personnel Group of America, Inc. provides personnel staffing services in
selected markets throughout the U.S. to businesses, professional and
governmental organizations, health care facilities, and individuals who require
home health care and related services. The Company's staffing services include
temporary staffing, placement of full-time employees and, depending on client
needs, training and testing of temporary and permanent workers. At May 20, 1996,
the Company operated through a network of 118 Company-operated, 36 franchised
and 14 licensed offices in 32 states and the District of Columbia. Each of these
offices operates under established brand names, most of which have been
continuously in use for more than 16 years.
The Company's business is organized into two divisions: the Staffing
Services Division and the Health Care Services Division. The Staffing Services
Division offers a wide variety of temporary office, clerical, light technical
and light industrial services to more than 10,000 organizations nationwide.
These services include general office and administrative services, software
staffing, office automation, records management,
production/assembly/distribution, telemarketing and other staffing services. The
Health Care Services Division, through Company-operated, franchised and licensed
offices, provides health care personnel to supplement the staffing needs of
hospitals, nursing homes and other health care facilities. The Health Care
Services Division also provides home health care services and related products
to individuals. The Staffing Services and Health Care Services Divisions
represented approximately 57% and 43% of the Company's total revenues,
respectively, for the year ended December 31, 1995 and the three-month period
ended March 31, 1996.
The staffing services industry has grown rapidly over the past decade as a
result of cyclical economic trends and changing approaches to staffing.
According to the National Association of Temporary Staffing Services, the U.S.
market for temporary staffing services grew at a compound annual rate of
approximately 17.6% from approximately $20.5 billion in revenues in 1991 to
approximately $39.2 billion in 1995, with revenues increasing at an annual rate
of approximately 22%, 14%, 23% and 13% in 1992, 1993, 1994 and 1995,
respectively. Studies show that more than 90% of all businesses use temporary
staffing services. The use of temporary personnel has become widely accepted as
a valuable tool for managing personnel costs, supplementing permanent workforces
and meeting specialized or fluctuating employment requirements. Vacations,
illnesses, resignations, seasonal increases in work volume, marketing promotions
and month-end requirements have historically created a demand for temporary
staffing. More recently, the growing cost and difficulty of hiring, laying off
and terminating full-time workers have also encouraged a greater use of
temporary workers. In addition, entrants into the labor force increasingly look
to temporary assignments as a way to build experience, make contacts, and get
valuable exposure to a variety of work settings, and as a vehicle to gain
full-time employment.
Home health care has become one of the fastest growing sectors of the
health care industry primarily as a result of the shift away from providing care
in institutional settings. Studies indicate that the cost of home health care is
30% to 60% lower than the cost of comparable care in hospitals and other
institutional settings. Industry growth is also being driven by an aging U.S.
population that requires additional health care services, changes in family
structures that formerly supported the care of the sick and the elderly, and by
technological advances enabling the treatment of higher acuity patients and
chronic diseases in the home. Based on industry reports, the home health care
industry has grown at a compound annual rate of approximately 19.4% from
approximately $11.6 billion in revenues in 1991 to approximately $23.6 billion
in 1995, with revenues
3
<PAGE> 7
increasing at an annual rate of approximately 25%, 23%, 17% and 13% in 1992,
1993, 1994 and 1995, respectively.
The Company's objective is to be a premier provider of quality personnel
staffing services to clients, employees and applicants in selected markets
throughout the U.S. in which the Company expects growth in the demand for
personnel staffing services. The Company seeks to accomplish this objective by:
(i) capitalizing on strong reputation and client familiarity with the Company's
brand names; (ii) focusing on local and regional markets; (iii) attracting and
retaining qualified management and personnel; (iv) focusing on customer service;
(v) continuing to diversify the mix of personnel services offered; and (vi)
leveraging existing infrastructure by adding offices and employees without
proportionately increasing overhead expenses. The Company's growth strategy
includes plans to: (i) increase the sales of existing branch offices; (ii) open
new offices in markets already served by the Company; (iii) acquire businesses
in growth markets not already served by the Company; (iv) acquire businesses
that offer specialty services; (v) expand the license network through sales of
additional licenses and conversion of qualified independent home health care
companies to Company-operated facilities and licensees; and (vi) selectively
acquire home health care operators. See "Business -- Business Strategy" and "--
Growth Strategy."
RECENT DEVELOPMENTS
Since January 1, 1996, the Company has acquired three staffing services
companies and has entered into a definitive agreement to acquire an information
technology services company. The Company acquired Allegheny Personnel Services
("Allegheny") in Pittsburgh, Pennsylvania, and Profile Temporary Services
("Profile") in Chicago, Illinois, in March 1996, and Judith Fox Staffing
Companies ("Fox") in Richmond, Virginia, in May 1996. The combined revenues of
these three companies for fiscal 1995 were approximately $39.3 million and the
aggregate purchase price for the three acquisitions was approximately $28.2
million (including direct acquisition costs and excluding certain contingent
earnout payments).
On May 23, 1996, the Company entered into a definitive agreement to acquire
The Computer Resources Group, Inc. ("CRG"), an information technology services
company based in San Francisco, California, with revenues for its fiscal year
ended May 31, 1995 and the nine-month period ended February 29, 1996 of
approximately $21.2 million and $21.0 million, respectively. The consummation of
this acquisition is subject to customary conditions set forth in the agreement,
such as the Company's satisfaction with its due diligence review of CRG, and no
assurance can be given that the proposed acquisition will be consummated. If
consummated, the CRG acquisition will enable the Company to enter the
information technology services market and provide a platform for further
information technology services acquisitions. The information technology
services market is one of the fastest growing sectors of the staffing services
industry, with estimated industry revenues of approximately $8.9 billion in
1995. The CRG acquisition also furthers the Company's strategies of diversifying
the mix of its personnel services offerings and expanding into growth markets
that it does not currently serve. See "Business -- Growth
Strategy -- Acquisitions" and the Company's Unaudited Pro Forma Financial
Statements for information related to these acquisitions.
THE OFFERING
Common Stock offered by the
Company............................. 3,500,000 shares(1)
Common Stock to be Outstanding after
the Offering........................ 11,500,300 shares(2)
Use of Proceeds..................... To repay indebtedness, to fund the CRG
acquisition and for general corporate
purposes, including other possible
acquisitions
New York Stock Exchange Symbol...... PGA
- ---------------
(1) Of which 2,800,000 shares are being offered in the United States and Canada
and 700,000 shares are being offered outside the United States and Canada.
(2) Does not include an aggregate of (i) 437,403 shares of Common Stock subject
to outstanding options as of May 20, 1996 and (ii) 762,297 additional shares
of Common Stock reserved for issuance under the Company's 1995 Equity
Participation Plan. See "Management -- Compensation Plans and Arrangements."
4
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues
Staffing services.............. $ 96,989 $ 93,433 $107,386 $125,822 $143,243 $33,553 $38,252
Health care services........... 62,100 54,291 61,765 82,700 104,110 25,071 27,794
Franchise fees................. 3,674 3,664 3,327 3,345 3,702 888 827
-------- -------- -------- -------- -------- ------- -------
Total revenues.......... 162,763 151,388 172,478 211,867 251,055 59,512 66,873
-------- -------- -------- -------- -------- ------- -------
Direct cost of services.......... 118,280 109,707 126,286 155,987 178,966 42,804 48,851
Selling, general and
administrative................. 42,255 36,692 37,329 44,529 56,010 13,925 14,551
Depreciation and amortization.... 4,346 4,437 4,247 4,391 3,665 946 880
-------- -------- -------- -------- -------- ------- -------
Total expenses.......... 164,881 150,836 167,862 204,907 238,641 57,675 64,282
-------- -------- -------- -------- -------- ------- -------
Operating income (loss).......... (2,118) 552 4,616 6,960 12,414 1,837 2,591
Income tax expense (benefit)..... (538) 462 2,080 3,061 5,305 772 1,101
-------- -------- -------- -------- -------- ------- -------
Net income (loss)................ $ (1,580) $ 90 $ 2,536 $ 3,899 $ 7,109 $ 1,065 $ 1,490
========= ========= ========= ========= ========= ======== ========
Net income per share............. -- -- -- -- -- -- $ 0.19
========= ========= ======== ========
Pro forma net income per
share(1)....................... -- -- -- $ 0.49 $ 0.89 $ 0.13 --
========= ========= ======== ========
Weighted average common shares
outstanding(1)................. -- -- -- 8,000,000 8,000,000 8,000,000 8,000,000
SELECTED OPERATING DATA:
Number of branches(2)............ 127 106 105 108 116 110 126(3)
Revenues per branch(4)........... $ 1,282 $ 1,428 $ 1,643 $ 1,962 $ 2,164 $ 541 $ 531(3)
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(5) AS ADJUSTED(6)
-------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................................... $ 26,647 $ 29,084 $ 53,700
Total assets...................................................... 111,924 156,641 181,257
Long-term debt.................................................... 7,600 49,400 --
Shareholders' equity.............................................. 77,476 77,476 151,492
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH
1995 31, 1996
------------ --------------
<S> <C> <C>
PRO FORMA UNAUDITED STATEMENT OF INCOME DATA(7):
Revenues
Staffing services...................................................... $207,055 $ 54,519
Health care services................................................... 114,783 29,400
Franchise fees......................................................... 3,702 827
------------ --------------
Total revenues.................................................. 325,540 84,746
------------ --------------
Direct cost of services.................................................. 233,709 62,228
Selling, general and administrative...................................... 69,929 17,494
Depreciation and amortization............................................ 5,520 1,281
------------ --------------
Total expenses.................................................. 309,158 81,003
------------ --------------
Operating income......................................................... 16,382 3,743
Interest expense......................................................... 3,359 800
Income tax expense....................................................... 5,595 1,251
------------ --------------
Net income............................................................... $ 7,428 $ 1,692
============ ==============
Net income per share(1).................................................. $ 0.93 $ 0.21
============ ==============
Weighted average common shares
outstanding(1)......................................................... 8,000,000 8,000,000
SELECTED PRO FORMA OPERATING DATA(8):
Number of Branches....................................................... 130 133
Revenues per branch...................................................... $ 2,504 $ 637
</TABLE>
See Notes to Summary Consolidated Financial Data
5
<PAGE> 9
NOTES TO SUMMARY CONSOLIDATED FINANCIAL DATA
- ---------------
(1) Based on 8,000,000 shares of Common Stock issued in connection with the
Company's initial public offering in September 1995. See "The Company."
(2) Branches include Company-operated and licensed offices and exclude
franchised offices and vendor-on-premises locations at customer sites at
the end of the period.
(3) Includes nine offices added during the first quarter of 1996, five of which
were added in March pursuant to the acquisitions of Allegheny and Profile,
two of which were converted in January and March, respectively, from
franchised offices to Company-operated offices and two of which were new
offices opened during the quarter. Total revenues as reflected in the
unaudited statement of income data for the three-month period ended March
31, 1996 reflect revenues generated by such offices subsequent to their
acquisition, conversion or commencement of operations, as applicable.
(4) Revenues per branch equal total revenues for the period divided by the
number of branches at the end of the period.
(5) The pro forma unaudited balance sheet data has been prepared as if the
acquisitions of Fox and CRG had occurred as of March 31, 1996. The other
acquisitions referenced in footnote 6 below occurred prior to March 31,
1996.
(6) As adjusted amounts reflect the net proceeds of the sale of 3,500,000 shares
of Common Stock offered hereby at an assumed offering price of $22.50 per
share and the application of the net proceeds therefrom. See "Use of
Proceeds."
(7) The pro forma unaudited statement of income data has been prepared to
reflect the Company's operations as if the initial public offering (the
"IPO"), the acquisitions of Allegheny, Profile, Fox and CRG and the
conversion of three former Nursefinder franchises to Company-operated
offices had occurred at January 1, 1995. The pro forma results of
operations are not necessarily indicative of the results that would have
occurred had the IPO, the acquisitions or the conversions been consummated
at January 1, 1995 and do not purport to indicate the results of operations
as of any future date or for any future period.
(8) The pro forma operating data includes revenues per branch equal to total pro
forma revenues for the period divided by the number of branches for
Company-operated and licensed offices at the end of each period as if the
acquisitions of Allegheny, Profile, Fox and CRG and the conversion of three
Nursefinders franchises to Company-operated offices had occurred on January
1, 1995.
6
<PAGE> 10
RISK FACTORS
In addition to the other information in this Prospectus, the following
should be considered carefully in evaluating an investment in the Common Stock.
POSSIBLE ADVERSE EFFECT OF FLUCTUATIONS IN THE GENERAL ECONOMY
Demand for staffing services is significantly affected by the general level
of economic activity in the country. Companies use temporary staffing services
to manage personnel costs and staffing needs due to business fluctuations. When
economic activity increases, temporary employees are often added before full-
time employees are hired. As economic activity slows, many companies reduce
their usage of temporary employees before undertaking layoffs of their regular
employees. During expansions, there is intense competition among temporary
services firms for qualified temporary personnel. In addition, the Company may
experience increased competitive pricing pressures during such periods. There
can be no assurance that during periods of increased economic activity and
higher general employment levels the Company will be able to recruit and retain
sufficient temporary personnel to meet the needs of its clients, or that pricing
pressures will not adversely affect the Company's results of operations.
Similarly, a slowdown in the economy may result in decreased demand for
temporary personnel, which may have an adverse effect on the Company's financial
condition and results of operations. During the most recent recession, the
Company's operations were adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Demand for the Company's health care services is influenced by trends in
public and private funding of health care, but is less directly affected by the
general level of economic activity. Changes in these funding arrangements and in
the health care industry could have an adverse effect on the Company's financial
condition and results of operations. See "-- Possible Adverse Effect of Health
Care Regulatory and Reimbursement Changes" and "Business -- The Staffing
Services Industry."
HIGHLY COMPETITIVE MARKET; LIMITED BARRIERS TO ENTRY
The U.S. staffing services market is highly competitive and highly
fragmented, with limited barriers to entry and more than 15,000 offices
competing in the industry. Management believes that no one firm has more than
11% of the national market, as measured by revenue, although the staffing and
health care staffing services industries have been undergoing significant
consolidation. The Company competes in national, regional and local markets with
full-service and specialized temporary service agencies and health care
providers. While the majority of the Company's competitors are significantly
smaller than the Company, a number of competitors have greater marketing and
financial resources than those of the Company. The Company expects that the
level of competition will remain high in the future, which could limit the
Company's ability to maintain or increase its market share or maintain or
increase gross margins, either of which could have a material adverse effect on
the Company's financial condition and results of operations. See
"Business -- Competition."
IMPACT OF PRICING PRESSURE ON MARGINS
Price competition in the staffing services industry is intense in both the
Company's Staffing Services and Health Care Services Divisions. Pricing
pressures from competitors, payors and customers are increasing. There can be no
assurance that the Company will be able to maintain or increase its current
margins, the reduction of which could have a material adverse effect on the
Company's financial condition and results of operations. See "-- Possible
Adverse Effect of Health Care Regulatory and Reimbursement Changes,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General" and "Business -- The Staffing Services Industry."
ABILITY TO CONTROL GROWTH; ACQUISITION RISKS
The ability of the Company to execute its growth strategy will depend on a
number of factors, including the availability of working capital, existing and
emerging competition and the availability of attractive
7
<PAGE> 11
acquisition opportunities. The Company recently has consummated several
acquisitions and is actively seeking acquisition opportunities. Management
believes that the Company will complete several additional acquisitions during
1996 (including the proposed CRG acquisition), as attractive opportunities
become available. Once integrated, acquisitions may not achieve levels of
revenue, profitability or productivity comparable to those of the Company's
existing locations or may not otherwise perform as expected. Acquisitions also
involve special risks, including risks associated with unanticipated liabilities
and contingencies, diversion of management attention and possible adverse
effects on earnings resulting from increased goodwill amortization, increased
interest costs, the issuance of additional securities and difficulties related
to the integration of the acquired business. There can be no assurance that the
Company will be able to successfully identify additional suitable acquisition
candidates, complete additional acquisitions or integrate acquired businesses
into its operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
"Business -- Growth Strategy -- Acquisitions."
INCREASED EMPLOYEE COSTS; WORKERS' COMPENSATION
Businesses use temporary staffing in part to shift certain employment costs
and risks (e.g., workers' compensation and unemployment insurance) to temporary
personnel services companies. Accordingly, the Company is responsible for and
pays unemployment insurance premiums, workers' compensation and medical and
other employer costs for job-related injuries for its temporary employees. The
Company's workers' compensation and medical costs are based on the loss and loss
adjustment expenses as estimated by an outside administrator. Workers'
compensation costs have increased as various states have raised benefit levels
and liberalized allowable claims. Unemployment insurance premiums are set
annually by the states in which employees perform services and have increased as
a result of increased unemployment and the extension of periods for which
benefits are available. The Company currently pays health insurance premiums for
all of its permanent employees but none of its temporary employees. Certain
health care reform proposals have included as a component a mandate that
employers pay such health insurance premiums for all temporary employees.
Historically, the Company has increased fees charged to its clients to absorb
increases in unemployment, workers' compensation, medical and other direct costs
of services. There can be no assurance that the Company will be able to increase
the fees charged to its clients if expenses related to workers' compensation or
unemployment insurance increase or if employer-paid health insurance is extended
to temporary employees. Any such inability could have a material adverse effect
on the Company's financial condition and results of operations. See Notes 6, 7,
and 13 of Notes to Consolidated Financial Statements.
INDUSTRY RISK OF LITIGATION AND CLAIMS
The Company is subject to litigation and claims by its employees,
customers, franchisees and other third parties. The Company is in the business
of employing people and placing them in the work place of other businesses or
the homes of persons requiring health care. Attendant risks of such activities
include possible claims by customers or patients of employee misconduct or
negligence, including malpractice, claims by employees of discrimination or
harassment (including claims relating to actions of the Company's clients),
claims related to the inadvertent employment of illegal aliens or unlicensed
personnel, payment of workers' compensation claims and other similar claims. The
Company has policies and guidelines in place to reduce its exposure to these
risks, and has insurance against certain risks in amounts which it believes to
be adequate. There can be no assurance that the Company will not experience
litigation and claims in the future which are not covered by or which exceed its
insurance, or that the Company will not incur damages, fines or other losses or
negative publicity with respect to such matters, any of which could have a
material adverse effect on the Company's business. See "Business -- Properties
and Insurance" and "-- Legal Proceedings."
DEPENDENCE ON KEY PERSONNEL
The Company's operations are dependent on the continued efforts of its
executive officers and senior management. In addition, the Company is dependent
on the performance and productivity of its local branch managers and field
personnel. The loss of some of the Company's key managers could have an adverse
effect on the Company's operations, including the Company's ability to establish
and maintain customer relation-
8
<PAGE> 12
ships. The Company's ability to attract and retain business is significantly
affected by local relationships and the quality of service rendered by branch
managerial personnel. If the Company is unable to attract and retain key
employees to perform these services, the Company's business could be adversely
affected. See "Business -- Business Strategy" and "Management."
DEPENDENCE ON AVAILABILITY OF QUALIFIED TEMPORARY PERSONNEL
The Company depends upon its ability to attract qualified temporary
personnel who possess the skills and experience necessary to meet the staffing
requirements of its clients. The Company must continually evaluate and upgrade
its base of available qualified personnel to keep pace with changing client
needs and emerging technologies. Competition for individuals with proven
professional skills, particularly home health care providers and technologically
skilled administrative employees, is intense, and demand for such individuals is
expected to remain very strong for the foreseeable future. There can be no
assurance that qualified personnel will continue to be available to the Company
in sufficient numbers in the future. See "Business -- Competition."
INEXPERIENCE AS AN INDEPENDENT COMPANY; DEPENDENCE ON FORMER PARENT
The Company became an independent company in September 1995 following the
completion of its initial public offering. Operating and managing the Company as
a separate public company places significant demands on the Company's management
and operating systems. While the Company's executive officers as a group have
extensive experience in its operations, they do not have experience at
comparable levels of responsibility in operating an independent public company.
There can be no assurance that the Company will not incur unexpected incremental
costs as an independent public company or that the Company will successfully
develop the necessary infrastructure or operating systems. Further, since the
Company's initial public offering, it has been dependent upon its former parent
for certain accounting, finance, human resources and risk management services
pursuant to an agreement which expires in September 1996 and management
information systems and paybill services pursuant to agreements which expire in
September 1997. Although the Company recently has purchased systems to perform
such services from unrelated third parties and has commenced or completed
installation of certain of these systems, no assurance can be given that the
integration of such new systems will be successful, that the Company's former
parent will agree, if requested by the Company, to perform services beyond the
periods presently agreed, or that the services performed will adequately support
the Company's business. The Company also licenses certain proprietary rights
from its former parent on a perpetual basis. The loss of such rights could have
an adverse effect on the Company's business. See "Business" and "Certain
Transactions."
RISK OF GOVERNMENT REGULATION RELATING TO HEALTH CARE PROVIDERS
The Company's Health Care Services Division is subject to extensive
government regulation under federal, state and local law, including but not
limited to, licensing requirements, certificate of need requirements, periodic
examinations by government agencies, federal and state antifraud, anti-abuse and
anti-kickback statutes and regulations, and federal and state laws prohibiting
physician ownership or compensation arrangements in entities, including home
health agencies, to which they refer patients for health care services. In
particular, the U.S. Department of Health & Human Services has targeted for
investigation certain specific areas of the Medicare and Medicaid programs,
including fraud in home health care services. Health care providers are also
subject to extensive documentation requirements of government agencies and
industry participants, such as insurance companies and managed care companies.
These regulations can affect the Company's ability to obtain reimbursement for
services and products provided to patients. There can be no assurance that the
Company will be able to continue to obtain or maintain the required governmental
approvals or licenses, obtain reimbursement for its services or avoid compliance
or other problems under applicable laws and regulations. See "Business -- Health
Care Services Division" and "-- Regulation."
9
<PAGE> 13
DEPENDENCE ON CERTIFICATES OF NEED
Certificate of need laws restrict the types of care that may be provided
and can limit or eliminate a company's ability to provide certain services,
including home health care services, to establish or expand operations, and to
act as a Medicare or Medicaid provider in 22 jurisdictions. The Company
currently has no certificates of need. The process of obtaining a certificate of
need can be costly and time consuming, and some states in which the Company does
business are not currently granting additional certificates of need.
Accordingly, such laws may render it more difficult for the Company to, or
preclude the Company from, expanding the scope of its home health care services.
However, the Company offers certain services not restricted by certificate of
need laws in some states which require certificates of need. See
"Business -- Health Care Services Division -- Operations."
POSSIBLE ADVERSE EFFECT OF HEALTH CARE REGULATORY AND REIMBURSEMENT CHANGES
Congress and various state legislatures have periodically proposed
legislation affecting the regulation of the health care industry. Changes in
government support of health care services, the methods by which such services
are delivered, the prices for such services, the reimbursement for such
services, or the regulations governing such services, may all have a material
adverse effect on the Company's financial condition and results of operations.
Even if the ultimate impact on revenues of any such changes is positive, no
assurance can be given that the costs of complying with possible new
requirements would not have a negative impact on the Company's future earnings.
For the years ended December 31, 1994 and 1995 and for the three months
ended March 31, 1996, 12%, 15% and 15% of the Company's revenues, respectively,
were derived from the Medicare and Medicaid programs. The Medicare and Medicaid
programs are subject to statutory and regulatory changes, retroactive and
prospective rate adjustments and administrative rulings and funding
restrictions, all of which could have the effect of limiting or reducing
reimbursement levels for the Company's services. Among the changes under
consideration are proposals that would reduce Medicare and Medicaid expenditures
by lowering reimbursement rates, increasing case management review of services,
negotiating reduced contract pricing and expanding risk contracting. Any
significant decrease in Medicare or Medicaid reimbursement levels, or the
imposition of significant restrictions on participation in the Medicare and
Medicaid programs, could have a material adverse effect on the Company.
The Company also has contracts with private payors to provide certain
health care services to covered patients. There can be no assurance that the
rates paid to the Company by Medicare, Medicaid or other payors will be adequate
to reimburse the Company for the cost of providing services. In addition to the
risk of such third-party payors denying full reimbursement for staffing costs,
under the Company's SingleSource program, the Company assumes the risk of such
payors denying reimbursement for the use of products and services purchased by
the Company under subcontracts with third party vendors. Further, cost increases
due to inflation without corresponding increases in reimbursement would
adversely affect the Company's business. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- General,"
"Business -- Health Care Services Division."
FRANCHISING AND LICENSING RISKS
The Company derives a significant amount of its net income from franchised
and licensed operations. Franchisees and licensees may terminate their
agreements, resulting in a loss of revenues and corresponding profitability. The
ownership of the Company's franchises and licenses is relatively concentrated,
and the loss of one or more of those relationships could have an adverse effect
on the Company's results of operations. Further, while the Company's agreements
contain non-competition covenants, former franchisees and licensees may
nevertheless seek to compete with the Company. The Company must comply with
federal and state laws and regulations governing the sale of franchises and
licenses, and state laws concerning the ongoing relationship with franchisees
and licensees (including the termination and non-renewal of such relationships).
The Company is subject to the risk of franchisee and licensee litigation
pursuant to such laws or otherwise. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Introduc-
10
<PAGE> 14
tion," "-- General," "Business -- Organizational Structure -- Franchised
Offices" and "-- Licensed Offices."
STOCK PRICE VOLATILITY
From time to time, there may be significant volatility in the market price
of the Common Stock. Factors such as announcements of fluctuations in the
Company's or its competitors' operating results, market conditions for growth
stocks, staffing services stocks or health care stocks in general, changes in
general conditions in the economy or financial markets, natural disasters or
other developments could cause the market price of the Common Stock to fluctuate
substantially. In addition, the stock market in recent years has experienced
extreme price and volume fluctuations that often have been unrelated or
disproportionate to the operating performance of affected companies. These broad
fluctuations may adversely affect the market price of the Common Stock. See
"Price Range of Common Stock."
SUBSTANTIAL INTANGIBLE ASSETS
As of December 31, 1995, the Company had capitalized excess of cost over
fair value of net assets acquired and other intangibles of $51.1 million, net of
accumulated amortization relating to the purchase of certain of its subsidiaries
and divisions. This resulted in an annual charge to earnings for the year ended
December 31, 1995 of approximately $2.3 million. Such intangible assets
approximated 49.8% of the Company's total assets and 67.3% of its total
shareholders' equity as of December 31, 1995. Assuming completion of the Fox and
CRG acquisitions and the conversion of one of the Nursefinders franchises as of
March 31, 1996, $100.2 million, or 64.0%, of the Company's total assets would
have been intangible assets. Any impairment of such assets, with resultant write
offs, could have a material adverse effect on the Company's financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Other Matters" and Note 2 of
Notes to Consolidated Financial Statements.
CERTAIN PROVISIONS RELATING TO CHANGES IN CONTROL
The Company's Certificate of Incorporation and Bylaws, as well as a
stockholder rights plan recently adopted by the Board of Directors, contain
provisions which may have the effect of discouraging, delaying or preventing a
change in control of the Company, including transactions in which the
stockholders might otherwise receive a premium for their shares over then
current market prices, and may limit the ability of the stockholders to approve
transactions that they may deem to be in their best interests. Such provisions
in the Certificate of Incorporation and Bylaws include a classified Board of
Directors and a prohibition on stockholder action by written consent. In
addition, the Certificate of Incorporation permits the Company's Board of
Directors to issue up to 5,000,000 shares of Preferred Stock and to determine
the price, rights, preferences and privileges of those shares without any
further vote or action by the stockholders. The rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. The issuance of
Preferred Stock could have the effect of making it more difficult for a third
party to acquire a majority of the outstanding voting stock of the Company.
Although the Company has no present plans to issue shares of Preferred Stock,
the Board of Directors has preapproved the terms of a series of Preferred Stock
that may be issued pursuant to the stockholder rights plan upon the occurrence
of certain triggering events. In general, the stockholder rights plan provides a
mechanism by which the Board of Directors and stockholders may act to
substantially dilute the share position of any takeover bidder who acquires 15%
or more of the Common Stock. See "Description of Capital Stock."
NO CASH DIVIDENDS
The Company presently intends to retain future earnings to support the
growth of its business and does not anticipate paying cash dividends in the
foreseeable future. See "Dividend Policy."
11
<PAGE> 15
FORWARD-LOOKING INFORMATION
This Prospectus contains various forward-looking statements and information
that are based on management's belief and assumptions, as well as information
currently available to management. When used in this document, the words
"anticipate," "estimate," "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 be 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 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 complete acquisitions and integrate the operations of
acquired businesses, to recruit and place temporary professionals, to expand
into new markets, and to maintain profit margins in the face of pricing
pressures.
12
<PAGE> 16
THE COMPANY
The Company completed its initial public offering in September 1995. Prior
to the initial public offering, the Company was an indirect wholly-owned
subsidiary of Adia, S.A., a Swiss corporation (together with its subsidiaries
collectively, "Adia"). The Company was organized by Adia in July 1995 to
facilitate the initial public offering. As a result of the initial public
offering, in which Adia sold its entire ownership interest in the Company, the
Company became an independent public company. The Company did not receive any of
the proceeds from the sale of its shares by Adia in the initial public offering.
The Company's address is 6302 Fairview Road, Suite 201, Charlotte, North
Carolina 28210, and its phone number is (704) 442-5100.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,500,000 shares of
Common Stock offered by the Company are estimated to be approximately $74.0
million (or $85.2 million if the Underwriters' over-allotment option is
exercised in full), after deducting estimated underwriting discounts and
commissions and offering expenses, based upon an assumed offering price of
$22.50 per share. The Company intends to use such net proceeds for the repayment
of outstanding bank debt (which was $27.3 million as of May 20, 1996),
approximately $20.3 million to consummate the CRG acquisition and the balance
for general corporate purposes, including possible acquisitions. The Company's
bank debt was drawn under a $35.0 million revolving credit facility with a
commercial bank, secured by a pledge of the stock of the Company's subsidiaries
and a lien on receivables and certain other assets of the Company, currently
bearing interest at a rate equal to LIBOR plus 1.25% or the lender's base rate,
at the Company's option, and maturing on September 30, 1998 (provided, that
maximum availability under the revolving credit facility will reduce to $30.0
million as of June 30, 1996). The weighted average interest rate on the
Company's outstanding borrowings under the credit facility was approximately
6.2% at March 31, 1996. After repayment of the credit facility, the Company will
be able to redraw on the credit facility as needed, subject to certain
limitations, for future potential acquisitions, capital expenditures and working
capital. The indebtedness under the credit facility was used primarily to fund
acquisitions and for the issuance of undrawn letters of credit to secure the
Company's workers' compensation program. The Company has obtained a commitment
from its lender to use its best efforts to syndicate the credit facility and
increase the maximum availability thereunder to $60.0 million. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." Pending application of the net
proceeds as described above, the Company intends to invest the net proceeds in
short-term, interest-bearing investment grade securities.
DIVIDEND POLICY
The Company has paid no cash dividends on its Common Stock with respect to
earnings since its initial public offering and does not anticipate paying cash
dividends in the foreseeable future. The Company presently intends to retain
future earnings to support the growth of its business. Any determination
regarding the future payment of cash dividends, as well as the amount thereof,
is subject to the discretion of the Board of Directors of the Company and will
depend upon, among other things, the Company's financial condition, results of
operations, current and anticipated capital requirements, plans for expansion,
future prospects and other factors deemed relevant by the Board of Directors.
Further, the Company's credit facility imposes certain restrictions on the
ability of the Company to pay cash dividends on Common Stock.
13
<PAGE> 17
PRICE RANGE OF COMMON STOCK
Since the completion of the Company's initial public offering on September
25, 1995, the Common Stock has been listed on the New York Stock Exchange
("NYSE") under the symbol "PGA." The following table sets forth the range of
high and low sales prices of the Common Stock as reported on the NYSE for the
periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1995
Third Quarter (September 25 through September 30)........................ $14.00 $14.00
Fourth Quarter........................................................... 15.00 11.00
1996
First Quarter............................................................ 21.25 12.88
Second Quarter (through May 22, 1996).................................... 23.75 18.63
</TABLE>
The last reported sale price of the Common Stock on the NYSE on May 22,
1996 was $22.50. As of May 22, 1996, there were 77 holders of record of the
Common Stock.
CAPITALIZATION
The following table sets forth the actual total capitalization of the
Company at March 31, 1996, and the total capitalization on a pro forma basis
giving effect to (i) the acquisitions of Fox and CRG and the conversion of one
of the former Nursefinders franchises as if acquired or converted prior to March
31, 1996 and (ii) adjustments which reflect the sale of the shares of Common
Stock offered hereby (at an assumed offering price of $22.50 per share) and the
application of the estimated net proceeds therefrom as described under "Use of
Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------------------
PRO FORMA
ACTUAL(1) PRO FORMA AS ADJUSTED
--------- --------- -----------
<S> <C> <C> <C>
Current portion of long-term debt.............................. $ -- $ -- $ --
======= ======== =========
Long-term debt(2).............................................. $ 7,600 $ 49,400 $ --
Shareholders' equity:..........................................
Preferred stock, $0.01 par value; 5,000,000 shares
authorized, no shares issued and outstanding.............. -- -- --
Common stock, $0.01 par value; 20,000,000 shares authorized,
8,000,300 shares issued and outstanding (8,000,300 shares,
pro forma, and 11,500,300 shares, pro forma as
adjusted)(3).............................................. 80 80 115
Additional paid-in capital................................... 73,559 73,559 147,540
Retained earnings............................................ 3,837 3,837 3,837
--------- --------- -----------
Total shareholders' equity........................... 77,476 77,476 151,492
--------- --------- -----------
Total capitalization................................. $85,076 $ 126,876 $ 151,492
======= ======== =========
</TABLE>
- ---------------
(1) Includes all acquisitions completed prior to March 31, 1996.
(2) As of May 20, 1996, the Company's outstanding borrowings under its bank
credit facility amounted to approximately $27.3 million. The Company
intends to repay such borrowings with the net proceeds of this offering.
See "Use of Proceeds."
(3) Excludes an aggregate of (i) 437,403 shares of Common Stock subject to
outstanding options as of May 20, 1996 and (ii) 762,297 additional shares
of Common Stock reserved for issuance under the Company's 1995 Equity
Participation Plan. See "Management -- Compensation Plans and
Arrangements."
14
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the
Company as of and for each of the years ended December 31, 1991, 1992, 1993,
1994 and 1995 and the three-month periods ended March 31, 1995 and 1996. The
consolidated financial data as of and for the years ended December 31, 1991 and
the three months ended March 31, 1995 and 1996 are derived from the unaudited
condensed consolidated financial statements of the Company. In management's
opinion, this unaudited information is prepared on a basis consistent with the
audited consolidated financial statements of the Company and includes all
adjustments necessary for a fair presentation. The consolidated financial data
as of and for each of the years ended December 31, 1992, 1993, 1994 and 1995 are
derived from the consolidated financial statements of the Company, which have
been audited by Arthur Andersen LLP, independent public accountants. The
consolidated financial statements include assets and liabilities at historical
amounts from the consolidated financial statements of the Company's former
parent, and other adjustments intended to reflect the revenues and expenses the
Company would have reported had the enterprise been combined prior to the
beginning of the earliest period presented. The results of operations for the
three months ended March 31, 1996 are not necessarily indicative of the results
which may be expected for the entire year, and the results of operations for all
periods are not necessarily indicative of the results which would have been
obtained had the Company been independent in such periods. The data set forth
below should be read in conjunction with the financial statements and
information, including Management's Discussion and Analysis of Financial
Condition and Results of Operations, included elsewhere herein.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues
Staffing services............... $ 96,989 $ 93,433 $107,386 $125,822 $ 143,243 $ 33,553 $ 38,252
Health care services............ 62,100 54,291 61,765 82,700 104,110 25,071 27,794
Franchise fees.................. 3,674 3,664 3,327 3,345 3,702 888 827
-------- -------- -------- -------- --------- --------- ---------
Total revenues........... 162,763 151,388 172,478 211,867 251,055 59,512 66,873
-------- -------- -------- -------- --------- --------- ---------
Direct cost of services........... 118,280 109,707 126,286 155,987 178,966 42,804 48,851
Selling, general and
administrative.................. 42,255 36,692 37,329 44,529 56,010 13,925 14,551
Depreciation and amortization..... 4,346 4,437 4,247 4,391 3,665 946 880
-------- -------- -------- -------- --------- --------- ---------
Total expenses........... 164,881 150,836 167,862 204,907 238,641 57,675 64,282
-------- -------- -------- -------- --------- --------- ---------
Operating income (loss)........... (2,118) 552 4,616 6,960 12,414 1,837 2,591
Income tax expense (benefit)...... (538) 462 2,080 3,061 5,305 772 1,101
-------- -------- -------- -------- --------- --------- ---------
Net income (loss)................. $ (1,580) $ 90 $ 2,536 $ 3,899 $ 7,109 $ 1,065 $ 1,490
========= ========= ========= ========= ========= ========= =========
Net income per share.............. -- -- -- -- -- -- $ 0.19
========= ========= ========= =========
Pro forma net income per
share(1)........................ -- -- -- $ 0.49 $ 0.89 $ 0.13 --
========= ========= ========= =========
Weighted average common shares
outstanding(1).................. -- -- -- 8,000,000 8,000,000 8,000,000 8,000,000
SELECTED OPERATING DATA:
Number of branches(2)............. 127 106 105 108 116 110 126(3)
Revenues per branch(4)............ $ 1,282 $ 1,428 $ 1,643 $ 1,962 $ 2,164 $ 541 $ 531(3)
BALANCE SHEET DATA -- AT END OF
PERIOD:
Working capital................... $ 8,261 $ 14,190 $ 21,331 $ 26,440 $ 28,969 $ 22,856 $ 26,647
Total assets...................... 81,927 79,395 84,333 90,984 102,623 75,319 111,924
Long-term debt.................... -- -- -- -- -- -- 7,600
Shareholders' equity.............. 57,173 58,987 64,257 68,438 75,986 71,185 77,476
</TABLE>
15
<PAGE> 19
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
YEAR ENDED 1996
DECEMBER 31, ---------------
1995
------------ (UNAUDITED)
<S> <C> <C>
PRO FORMA UNAUDITED STATEMENT OF INCOME DATA(5):
Revenues
Staffing services..................................... $ 207,055 $ 54,519
Health care services.................................. 114,783 29,400
Franchise fees........................................ 3,702 827
------------ ---------------
Total revenues................................ 325,540 84,746
------------ ---------------
Direct cost of services................................. 233,709 62,228
Selling, general and administrative..................... 69,929 17,494
Depreciation and amortization........................... 5,520 1,281
------------ ---------------
Total expenses................................ 309,158 81,003
Operating income........................................ 16,382 3,743
Interest expense........................................ 3,359 800
Income tax expense...................................... 5,595 1,251
------------ ---------------
Net income.............................................. $ 7,428 $ 1,692
========== ============
Net income per share(1)................................. $ 0.93 $ 0.21
========== ============
Weighted average common shares outstanding(1)........... 8,000,000 8,000,000
SELECTED PRO FORMA OPERATING DATA(6):
Number of branches...................................... 130 133
Revenues per branch..................................... $ 2,504 $ 637
</TABLE>
- ---------------
(1) Based on 8,000,000 shares of Common Stock issued in connection with the
Company's initial public offering in September 1995. See "The Company."
(2) Branches include Company-operated and licensed offices and exclude
franchised offices and vendor-on-premises locations at customer sites at the
end of the period.
(3) Includes nine offices added during the first quarter of 1996, five of which
were added in March pursuant to the acquisitions of Allegheny and Profile,
two of which were converted in January and March, respectively, from
franchised offices to Company-operated offices and two of which were new
offices opened during the quarter. Total revenues as reflected in the
unaudited statement of income data for the three-month period ended March
31, 1996 reflect revenues generated by such offices subsequent to their
acquisition, conversion or commencement of operations, as applicable.
(4) Revenues per branch equal total revenues for the period divided by the
number of branches at the end of the period.
(5) The pro forma unaudited statement of income data has been prepared to
reflect the Company's operations as if the IPO, the acquisitions of
Allegheny, Profile, Fox and CRG and the conversion of three former
Nursefinders franchises to Company-operated offices had occurred at January
1, 1995. The pro forma results of operations are not necessarily indicative
of the results that would have occurred had the IPO, the acquisitions or the
conversions been consummated at January 1, 1995 and do not purport to
indicate the results of operations as of any future date or for any future
period.
(6) The pro forma operating data includes revenues per branch equal to total pro
forma revenues for the period divided by the number of branches for
Company-operated and licensed offices at the end of each period as if the
acquisitions of Allegheny, Profile, Fox and CRG and the conversion of three
Nursefinders franchises to Company-operated offices had occurred on January
1, 1995.
16
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and notes thereto included
elsewhere in this Prospectus. The Company's fiscal year ends on the Sunday
nearest to December 31 and the fiscal quarters end on the Sunday nearest to the
end of the respective calendar quarters. For presentation purposes, fiscal
periods are shown as ending on December 31 and March 31 herein.
The Company operates within one industry segment and is organized into two
divisions: the Staffing Services Division, which provides a wide variety of
staffing services, and the Health Care Services Division, which, through
Company-operated, franchised and licensed offices, provides home health care
services and supplemental staffing for health care facilities. At May 20, 1996,
the Staffing Services Division included 70 Company-operated offices doing
business under ten proprietary brands, and the Health Care Services Division
included 48 Company-operated, 36 franchised, and 14 licensed offices doing
business under the Nursefinders brand.
In 1991 and 1992, the Company underwent a consolidation and shift in
strategy to respond to changing market conditions, including a recession in the
U.S. and a decrease in the demand for certain staffing services. The
consolidation included reducing the number of staffing and health care services
branches through combinations, closings and conversion to the brand of the
Company's former parent. See "-- Office Census." The shift in strategy included
a new emphasis on home health care, strengthened management, new automated
systems and other productivity enhancements.
INTRODUCTION
The Company recognizes as revenues the amounts billed to clients of
Company-operated and licensed offices. In these cases, the temporary worker is
the Company's employee and all costs of employing the temporary worker are the
responsibility of the Company and are included in direct cost of services. The
Company remits monthly to licensees the gross profits of the licensed office
less 7% of gross revenues, uncollectible receivables and certain other expenses
of the licensed office. The Company also records a 5% royalty on gross revenues
of franchised offices.
The Company has not aggressively marketed licenses in recent periods and
has not offered new franchises, and franchise and license fees have not been
material. However, the Company views its franchises and licenses as an important
adjunct to its health care services business, particularly insofar as the
program allows operations under the Nursefinders brand in areas which might not
otherwise meet the Company's criteria for a Company-operated branch, allows a
further spreading of fixed costs over additional revenues, and is believed to
yield a fair profit for Company services provided. See
"Business -- Organizational Structure."
For the years ended December 31, 1993, 1994, 1995 and the three months
ended March 31, 1996, the Staffing Services Division's five largest clients
accounted for approximately 16.4%, 17.1%, 16.6% and 14.3% respectively, of the
Division's total revenues. In such periods, the largest single client accounted
for approximately 5.7%, 6.9%, 6.1% and 4.9%, respectively, of the Staffing
Services Division's total revenues. The Health Care Services Division's
customers are health care institutions and individual patients, none of which
accounted for more than 1% of the Division's revenues in any of such periods. No
single client accounted for more than 4% of the total combined revenues of the
Company for 1995.
RECENT ACQUISITIONS
Since January 1, 1996, the Company has acquired three staffing services
companies and has entered into a definitive agreement to acquire an information
technology services company. The Allegheny and Profile acquisitions were
completed in March 1996 and the Fox acquisition in May 1996. The combined
revenues of these three companies were approximately $39.3 million in fiscal
1995, and the aggregate purchase price for these acquisitions was approximately
$28.2 million (including direct acquisition costs and excluding certain
contingent earnout payments). On May 23, 1996, the Company entered into an
agreement to acquire CRG,
17
<PAGE> 21
an information technology services company based in San Francisco, California
with revenues for its fiscal year ended May 31, 1995 and the nine-month period
ended February 29, 1996 of approximately $21.2 million and $21.0 million,
respectively. The consummation of this acquisition is subject to customary
conditions set forth in the agreement, such as the Company's satisfaction with
its due diligence review of CRG, and no assurance can be given that the proposed
acquisition will be consummated. If consummated, the CRG acquisition will enable
the Company to enter the information technology services market, one of the
fastest growing sectors of the staffing services industry, and will provide a
platform for further acquisitions in the information technology services sector.
See "Business -- Growth Strategy -- Acquisitions" and the Company's Unaudited
Pro Forma Financial Statements for further information related to these
acquisitions.
Each of these acquisitions has been or will be accounted for using the
purchase method of accounting. The results of the operations of Allegheny and
Profile, which were acquired prior to March 31, 1996, have been included in the
following discussion since the date of acquisition. In the future, the Company's
revenues and expenses may be significantly affected by the number and timing of
the opening or acquisition of additional offices. The timing of such expansion
activities also can affect period-to-period comparisons.
FRANCHISE CONVERSIONS
Since January 1, 1996, the Company has converted three former Nursefinders
franchise offices to Company-operated offices by acquiring the franchise. The
combined revenues of these three offices for the year ended December 31, 1995
were approximately $11.2 million. The Company recorded approximately $0.5
million in franchise fee revenue in 1995 relating to these franchises, which are
located in Hawaii, California and Missouri.
18
<PAGE> 22
GENERAL
The following table summarizes by Division the Company's revenue mix as a
percentage of total revenues and the related growth rates:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------- -------------------
1993 1994 1995 1995 1996
-------- -------- -------- ------- -------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues by Division:
Staffing services:
Clerical.................. $ 77,281 $ 82,860 $ 91,146 $21,510 $25,451
Light technical, light
industrial and other.... 30,105 42,962 52,097 12,043 12,801
-------- -------- -------- ------- -------
Total staffing
services........... 107,386 125,822 143,243 33,553 38,252
-------- -------- -------- ------- -------
As a percentage of
total................... 62.3% 59.4% 57.1% 56.4% 57.2%
Health care services:
Home health care.......... $ 34,440 $ 53,292 $ 70,403 $16,663 $19,172
Staffing.................. 27,325 29,408 33,707 8,408 8,622
Franchise................. 3,327 3,345 3,702 888 827
-------- -------- -------- ------- -------
Total health care
services........... 65,092 86,045 107,812 25,959 28,621
-------- -------- -------- ------- -------
As a percentage of
total................... 37.7% 40.6% 42.9% 43.6% 42.8%
Total revenues....... $172,478 $211,867 $251,055 $59,512 $66,873
======== ======== ======== ======= =======
Growth Rates by Division:
Staffing services:
Clerical.................. 8.7% 7.2% 10.0% 11.1% 18.3%
Light technical, light
industrial and other.... 34.6 42.7 21.3 32.2 6.3
Total staffing
services........... 14.9 17.2 13.8 17.9 14.0
Health care services:
Home health care.......... 61.8 54.7 32.1 48.4 15.1
Staffing.................. (17.2) 7.6 14.6 17.2 2.5
Franchise................. (9.2) 0.5 10.7 6.0 (6.9)
Total health care
services........... 12.3 32.2 25.3 34.9 10.3
Total revenues....... 13.9% 22.8% 18.5% 27.4% 12.4%
</TABLE>
For the period January 1, 1993 through March 31, 1996, staffing and health
care services revenues generally were increasing, due in part to cyclical
effects of a recovering economy on staffing services, in part to Company efforts
and actions to increase sales, and in part to rapid growth in the demand for
home health care services. A correlative of the increase in home health care
services was an increase in Medicare and Medicaid revenues, which comprised 16%,
30%, 36% and 36%, respectively, of health care services revenues (excluding
franchise fees) for 1993, 1994, 1995 and the three months ended March 31, 1996.
Also during the period January 1, 1993 through March 31, 1996, the Company was
able to increase its revenues from the declining supplemental health care
staffing market, and hold franchise fees approximately level with fewer
franchised locations. During all periods, revenues per branch increased. See
"Selected Consolidated Financial Data."
19
<PAGE> 23
The following table presents certain operating expenses, operating income
and net income as a percentage of revenues:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Total revenues............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Direct cost of services.................. 73.2 73.6 71.3 71.9 73.1
Gross margin............................... 26.8 26.4 28.7 28.1 26.9
Selling, general and administrative...... 21.6 21.0 22.3 23.4 21.8
Depreciation and amortization............ 2.5 2.1 1.5 1.6 1.3
----- ----- ----- ----- -----
Operating income (loss).................... 2.7 3.3 4.9 3.1 3.8
Income tax expense (benefit)............. 1.2 1.5 2.1 1.3 1.6
----- ----- ----- ----- -----
Net income (loss).......................... 1.5% 1.8% 2.8% 1.8% 2.2%
===== ===== ===== ===== =====
</TABLE>
While expenses generally follow revenue trends, the variance of expense as
a percentage of revenues from period to period can be material. Direct cost of
services as a percentage of revenues during all periods fluctuated from a low of
71.3% in 1995 to a high of 73.6% in 1994. Direct cost of services as a
percentage of revenues generally rose from 1993 through 1994, primarily as a
result of pricing pressure from clients. In 1995 the direct cost of services as
a percentage of revenues decreased primarily as a result of changes in the mix
of services. Selling, general and administrative expense before license fees was
less than 21% of revenues from 1994 through 1995, despite the increases in
health care services revenues, which typically have higher associated
administrative costs than staffing services revenues. License fees as a
percentage of revenues have increased since 1993 primarily because licensee
revenues have increased. Income tax expense as a percentage of revenues
fluctuated throughout the periods, with various effective rates from year to
year based on federal and state income tax requirements and the effect of assets
deductible for financial statement purposes but not for income tax purposes, as
more fully described in the period to period comparisons herein. Operating
income and income as a percentage of revenues in each of the periods was a
function of revenues and the interaction of the above items.
OFFICE CENSUS
The following table sets forth the number and nature of the Company's
offices, and changes therein, at the end of, and during, the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, THREE MONTHS
------------------ ENDED MARCH 31,
1993 1994 1995 1996
---- ---- ---- ---------------
<S> <C> <C> <C> <C>
Staffing offices...................................... 56 57 58 65
Company-operated health care offices.................. 46 47 48 49
Licensed Nursefinders offices......................... 3 4 10 12
Franchised Nursefinders offices....................... 50 48 40 37
---- ---- ---- ---
Total offices............................... 155 156 156 163
==== ==== ==== ============
Offices opened........................................ 2 6 8 3
Offices acquired...................................... -- -- -- 5
Offices sold.......................................... -- -- (1 ) --
Offices closed........................................ (8 ) (5 ) (7 ) (1)
---- ---- ---- ---
Net change............................................ (6 ) 1 -- 7
==== ==== ==== ============
</TABLE>
20
<PAGE> 24
RESULTS OF OPERATIONS
The staffing services business is subject to the seasonal impact of summer
and holiday employment trends. Typically the second six months of the calendar
year is more heavily affected, as companies tend to increase their use of
temporary personnel during this period. The results for interim periods are not
necessarily indicative of the results which may be expected for the entire year.
The following table sets forth certain information for the quarterly periods
indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1994 1995 1995 1995 1995 1996
------------ --------- -------- ------------- ------------ ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Total revenues................. $ 57,918 $59,512 $ 61,260 $63,885 $ 66,428 $66,873
Operating income............... 2,597 1,837 3,066 3,393 4,118 2,591
Net income..................... 1,446 1,065 1,700 1,997 2,347 1,490
Net income per share........... -- -- -- -- $ 0.29 $ 0.19
========== =======
Pro forma net income
per share(1)................. $ 0.18 $ 0.13 $ 0.21 $ 0.25 -- --
========== ======= ======= ========== ========== =======
</TABLE>
- ---------------
(1) Based on 8,000,000 shares of Common Stock issued in connection with the
Company's initial public offering in September 1995. See "The Company."
Three Months Ended March 31, 1996 versus Three Months Ended March 31, 1995
Revenues
Total revenues for the three months ended March 31, 1996 increased 12.4% to
$66.9 million from $59.5 million for the three months ended March 31, 1995.
Staffing Services Division revenue grew 14.0% primarily due to increases in
billable hours and the average billable hour rate as compared to the same period
of the prior year. These changes were primarily attributable to the improvement
in economic conditions experienced during 1995 that continued into 1996, which
led to a higher demand for the Company's services relative to the same period of
the prior year. Also, in March 1996 the Staffing Services Division completed the
Allegheny and Profile acquisitions, which provided $1.4 million of revenues
after their respective acquisition dates in the three-month period ended March
31, 1996. These acquisitions also accounted for five of the seven offices added
to the Company's Staffing Services Division network during this period.
For the three-month period ended March 31, 1996, the Health Care Services
Division experienced a 10.3% increase in revenue (including franchise fees),
which was attributable to increases in home health care visits and billing
rates. During this period, the Health Care Services Division converted two
franchised offices to Company-operated offices, closed one Company-operated
office, converted two franchised offices to licensed offices and entered into a
new franchise agreement covering one office. This led to a net increase of one
Company-operated office and two licensed offices and a decrease of three
franchised offices over the same period of the prior year.
Direct Cost of Services
Direct costs, consisting of payroll and related expenses of temporary
workers, increased 14.1% to $48.9 million for the three months ended March 31,
1996 from $42.8 million for the three months ended March 31, 1995, primarily due
to increases in revenues during the period. Direct costs of services as a
percentage of revenues increased to 73.1% during the three months ended March
31, 1996 from 71.9% during the same period of the prior year. This increase
reflects the reclassification of certain non-billable administrative costs
related to the Medicare program as direct costs of patient services in 1996. On
a combined basis, direct cost of services and selling, general and
administrative expenses before license fees as a percentage of revenues
decreased to 92.6% for the three months ended March 31, 1996 from 93.9% for the
same period of the prior year.
21
<PAGE> 25
Other Operating Expenses
Other operating expenses, consisting of selling, general and administrative
expenses, depreciation and amortization expenses and license fees, increased
3.8% to $15.4 million for the three months ended March 31, 1996, from $14.9
million for the three months ended March 31, 1995. As a percentage of revenues,
selling, general and administrative expenses before license fees decreased to
19.5% for the three months ended March 31, 1996 from 22.0% for the same period
of the prior year due primarily to the treatment of the non-billable
administrative cost related to the Medicare program as direct cost as discussed
above. Depreciation and amortization expense recognized during the three months
ended March 31, 1996 decreased to 1.3% of revenues from 1.6% for the same period
of the prior year due to the completion of the amortization of certain
intangible assets early in 1995 and increased revenues. License fees increased
$0.7 million due both to increased fees from existing offices and from fees
relating to four converted or added licensed offices since March 31, 1995.
Income Tax Expense
For the three months ended March 31, 1996, the effective tax rate increased
to 42.5% from 42.0% for the comparable period of the prior year. The current
effective tax rate reflects the Company's estimate of its annual tax provision
relative to pre-tax income generated for the current quarter. Due to the
acquisitions consummated in the first quarter of 1996, nondeductible
amortization expense is expected to increase.
Net Income
Net income increased 40.0% to $1.5 million, or 2.2% of revenue, for the
three months ended March 31, 1996 from $1.1 million, or 1.8% of revenue, for the
three months ended March 31, 1995 due to the factors discussed above.
Year Ended December 31, 1995 versus Year Ended December 31, 1994
Revenues
Total revenues increased 18.5% to $251.1 million in 1995 from $211.9
million in 1994. Staffing Services Division revenue grew 13.8%, of which 11.6%
was due to an increase in billable hours and the remainder was attributable to
increases in billing rates and an improved service mix. During this period, the
Health Care Services Division experienced a 25.3% increase in revenues
(including franchise fees), of which 17.2% was attributable to an increase in
home health care visits and billable hours and 8.1% was primarily attributable
to increased billing rates and franchise fees.
Direct Cost of Services
Direct costs, consisting of payroll and related expenses of temporary
workers, increased 14.7% to $179.0 million in 1995 from $156.0 million in 1994.
Direct cost of services as a percentage of revenue decreased to 71.3% during
1995 from 73.6% during 1994. This decline reflected faster growth in the Health
Care Services Division, which typically has higher gross margins, as well as
increases in billing rates and an improved service mix.
Other Operating Expenses
Other operating expenses, consisting of selling, general, and
administrative expenses, depreciation and amortization expenses and license
fees, increased 22.1% to $59.7 million in 1995 from $48.9 million in 1994.
Selling, general and administrative expenses for 1995 as a percentage of total
revenues did not significantly change compared with 1994. Depreciation and
amortization expense recognized during 1995 decreased to 1.5% of revenues from
2.1% of revenues for 1994 primarily due to the completion of the amortization of
certain intangibles as of December 31, 1994 and increased revenues. License fees
increased by $2.7 million due to increased revenues from the licensed offices
and an increased number of licensed offices. This increase in license fees
included $0.8 million related to converted offices, $0.8 million related to new
licensed offices and $1.1 million related to existing licensed locations.
Income Tax Expense
The effective tax rate decreased to 42.7% for 1995 from 44.0% for 1994. The
decrease was due to a reduction in the estimated annual effective tax rate
primarily attributable to a reduction in nondeductible
22
<PAGE> 26
intangible amortization expense relative to pretax income for the period. The
Company's effective tax rate is higher than the U.S. federal statutory rate of
35.0% primarily due to the amortization of intangibles that is not deductible
for tax purposes and state income taxes.
Net Income
Net income increased 82.3% to $7.1 million (2.8% of revenue) for 1995 from
$3.9 million (1.8% of revenue) for 1994 due to the factors discussed above.
Year Ended December 31, 1994 versus Year Ended December 31, 1993
Revenues
Total revenues increased 22.8% to $211.9 million in 1994 from $172.5
million in 1993. Staffing Services Division revenue grew 17.2%, of which 16% was
attributable to an increase in billable rates. During this period, the Health
Care Services Division experienced a 32.2% increase in revenues (including
franchise fees), of which 29% was attributable to an increase in home health
care visits and billable hours and 3% was attributable to increased billing
rates and franchise fees.
Direct Cost of Services
Direct costs, consisting of payroll and related expenses of temporary
workers, increased 23.5% to $156.0 million in 1994 from $126.3 million in 1993.
Direct cost of services as a percentage of revenues was relatively unchanged at
73.6% in 1994 compared with 73.2% in 1993.
Other Operating Expenses
Other operating expenses, consisting of selling, general, and
administrative expenses, depreciation and amortization expense and license fees,
increased 17.5% to $48.9 million in 1994 from $41.6 million in 1993. Selling,
general and administrative expenses before license fees declined to 20.2% of
total revenues in 1994 from 21.0% in 1993, reflecting spreading of fixed costs
over a larger revenue base. Depreciation and amortization expense recognized
during the years was comparable, resulting from amortization of goodwill and
intangibles on a straight-line basis. The 53% increase in license fees during
this period primarily resulted from growth in sales at existing licensed
offices.
Income Tax Expense
The Company's effective tax rate of 44.0% for 1994 was comparable to its
effective tax rate of 45.0% for 1993. The effective tax rate was higher than the
U.S. federal statutory rate of 35.0% primarily due to the amortization of
intangibles that is not deductible for income tax purposes and state income
taxes.
Net Income
Due to the above factors, net income increased 53.7% to $3.9 million (1.8%
of revenue) for 1994 from $2.5 million (1.5% of revenue) for 1993.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The Company's principal uses of cash are to finance receivables and fund
capital expenditures and acquisitions. The Company pays wages to its employees
on a weekly basis and, in the Health Care Services Division, makes payments to
vendors under its SingleSource program on a monthly basis. However, receivables
for the Staffing Services Division and the Health Care Services Division remain
outstanding an average of 38 and 56 days, respectively, after billing. Health
care receivables are generally paid by insurance companies and governmental
agencies and therefore tend to be outstanding longer than commercial
receivables. In the aggregate, days sales outstanding as of December 31, 1995
and March 31, 1996 were 49 and 46, respectively, compared with 52 and 50,
respectively, as of December 31, 1994 and March 31, 1995. This reduction was due
primarily to improvements in the collection time for commercial receivables.
For 1995, cash flows from operating activities increased to $10.5 million,
up from $3.0 million for 1994. The increase in cash flows from operating
activities resulted from an increase in earnings before depreciation and
amortization offset by changes in working capital. Cash used for investing
activities decreased to
23
<PAGE> 27
$0.8 million for 1995 from $3.3 million for 1994, reflecting the Company's
investment in additional property and equipment in 1994 to support growing
operations. These additions to property and equipment were primarily related to
replacement and upgrades of office furniture and fixtures at field locations,
general additions related to renovations and improvements at service center
branch locations, and a major field office automation project which was
initiated and completed in 1994 by the Health Care Services Division. This
project included the purchase and installation of personal computers and local
area networks. The Company made distributions to its former parent amounting to
$7.4 million during 1995 in accordance with its normal policies as a wholly
owned subsidiary of that company. No such distributions have been made
subsequent to the Company's initial public offering.
For the three-month period ended March 31, 1996, cash flows from operating
activities were $2.2 million, down from $3.9 million for the same period in
1995. The decrease in cash flows from operating activities resulted from a
decrease in working capital that offset an increase in earnings before
depreciation and amortization. Cash used for investing activities totalled $11.6
million for the three months ended March 31, 1996, substantially all of which
related to the Allegheny and Profile acquisitions completed in March 1996. Cash
flows from financing activities during the same period totaled $7.0 million,
representing the net increase in outstandings under the Company's Credit
Facility (as defined below), which were used to fund a portion of the
acquisition costs for the Allegheny and Profile acquisitions.
Indebtedness
The Company has a three-year $35.0 million revolving bank line of credit
(the "Credit Facility"), secured by a pledge of the stock of the Company's
subsidiaries and a lien on receivables and certain other assets of the Company,
currently bearing interest at a rate equal to LIBOR plus 1.25% or the lender's
base rate, at the Company's option, and maturing on September 30, 1998
(provided, that maximum availability under the Credit Facility will reduce to
$30.0 million as of June 30, 1996). As of May 20, 1996, the Company had
outstanding borrowings under the Credit Facility of $27.3 million, $2.5 million
used for the issuance of undrawn letters of credit to secure the Company's
workers' compensation program and remaining availability of $5.2 million. The
Company intends to repay outstanding borrowings under the Credit Facility with
the net proceeds of the offering of Common Stock. The Credit Facility contains
customary covenants such as the maintenance of certain financial ratios and
minimum net worth and working capital requirements, and a restriction on the
payment of cash dividends on common stock. The Credit Facility also limits the
availability for acquisition related purposes and further limits the aggregate
purchase price for permitted acquisitions in a single year. The Company has
obtained a commitment from its lender to use its best efforts to syndicate the
Credit Facility and increase the maximum availability thereunder to $60.0
million. There can be no assurance, however, that the syndicated Credit Facility
will close, and until such time, there can be no assurance that the amount
available to the Company under the Credit Facility will be increased.
Capital Expenditures
The Company's primary capital expenditure requirements relate to the
acquisition of staffing services businesses. Since January 1, 1996, the Company
has made cash payments of approximately $28.3 million for acquisitions of
staffing services businesses. The Company is obligated to pay an additional $1.0
million under the Fox acquisition agreement on or about August 18, 1996. The
agreed cash portion of the purchase price for the prospective CRG acquisition is
approximately $20.3 million (including direct acquisition costs and excluding
certain contingent earnout payments). The Company is also obligated under
various other acquisition agreements to make earnout payments to former
stockholders of acquired companies over the next four years. The Company cannot
currently estimate the total amount of these payments, but anticipates that the
cash generated by the operations of the acquired companies will provide a
substantial part of the capital required to fund the earnout payments. The
Company is actively seeking acquisition opportunities and management believes
that the Company will complete several acquisitions during the balance of 1996
(including the proposed CRG acquisition) as attractive opportunities become
available. The Company intends to use a portion of the net proceeds of the
offering of Common Stock to fund the CRG acquisition and to seek additional
capital as necessary to fund other possible acquisitions through one or more
funding sources that may include borrowings under the Credit Facility or
offerings of debt or equity securities of the Company. Cash flow from
operations, to the extent available, may also be used to fund a portion of these
expenditures.
24
<PAGE> 28
Although management believes that the Company will be able to obtain sufficient
capital to fund acquisitions, there can be no assurance that capital will be
available to the Company at the time it is required or on terms acceptable to
the Company.
The Company opened two new branches during the first quarter of 1996 and
expects to open six additional branches during the remainder of the year.
Start-up costs related to the opening of the new branches vary, but are expected
to approximate $100,000 per branch. Costs for furniture, fixtures, and equipment
are capitalized and depreciated, and other start-up costs are expensed as
incurred. New Company-operated and licensed offices also impose additional
working capital requirements on the Company. In addition to opening new
branches, the Company is in the process of purchasing and installing an
accounting and financial information system and branch operating and paybill
systems. The Company expects that its capital expenditures related to these
projects will aggregate approximately $2.5 million during 1996 and 1997.
The Company believes that the net proceeds from the offering of Common
Stock, cash flow from operations, the current borrowing capacity under the
Credit Facility and other available financing alternatives, including the
possible syndication and enlargement of the Credit Facility, will be adequate to
meet its presently anticipated needs for working capital and capital
expenditures, but no assurance can be given that the Credit Facility will be
syndicated and enlarged or that alternative sources of capital will be available
on acceptable terms to permit the Company to finance future acquisitions.
INFLATION
The effects of inflation on the Company's operations were not significant
during the three months ended March 31, 1996, or the years ended December 31,
1995, 1994 or 1993.
OTHER MATTERS
Amortization of Intangible Assets
As of December 31, 1995, the Company had capitalized goodwill and other
intangibles of $51.1 million, net of accumulated amortization relating to the
purchase of certain of its subsidiaries and divisions. This resulted in an
annual charge to earnings for the year ended December 31, 1995 of approximately
$2.3 million. Such intangible assets approximated 49.8% of the Company's total
assets and 67.3% of its total shareholders' equity as of December 31, 1995.
Assuming completion of Fox and CRG acquisitions as of March 31, 1996, $100.2
million, or 64.0%, of the Company's total assets would have been intangible
assets. These intangible assets would include $98.2 million related to goodwill,
with the balance attributable to client and employee lists, franchise
agreements, covenants not to compete and other intangible assets. Goodwill is
the excess of the purchase price of net assets acquired in business combinations
over their fair value at the date of acquisition. Although management believes
goodwill has an unlimited life, the Company amortizes its goodwill over 40
years. Management believes that its strategy of maintaining the brand name,
management and culture of its acquisitions preserves the goodwill for an
indeterminate period. However, any impairment of such assets, with resultant
write-offs, could have a material adverse effect on the Company's financial
condition and results of operations.
Impact of Economic Conditions
The staffing services industry is seasonal and cyclical. However, the
Company believes that the diversity and broad geographic coverage of its
operations generally mitigates the adverse impact of an economic cycle in any
single industry or geographic region within the United States. Additionally, the
demand for health care services is less sensitive to economic cycles.
Interest Expense
Prior to the Company's initial public offering in September 1995, the
Company incurred interest income and expense on intercompany balances. The
average balance of intercompany accounts was not material for the years ended
December 31, 1993, 1994 and 1995. Accordingly, interest expense was not material
in those periods. Under the Credit Facility, the Company has incurred interest
charges for borrowed funds not incurred in prior years, and may continue to
incur interest charges in the future.
25
<PAGE> 29
BUSINESS
Personnel Group of America, Inc. provides personnel staffing services in
selected markets throughout the U.S. to businesses, professional and
governmental organizations, health care facilities, and individuals who require
home health care and related services. The Company's staffing services include
temporary staffing, placement of full-time employees, and, depending on client
needs, training and testing of temporary and permanent workers. At May 20, 1996,
the Company operated through a network of 118 Company-operated, 36 franchised
and 14 licensed offices in 32 states and the District of Columbia. Each of the
Company's offices does business under established brand names, most of which
have been continuously in use for more than 16 years.
The Company's business is currently organized into two divisions. The
Staffing Services Division operates under the Abar Staffing, Allegheny
Personnel, FirstWord Staffing Services, Judith Fox Temporaries, Rosemary Scott
Temporaries, Fox Technical, Profile Temporaries, Staffinders Personnel, Temp
Connection, TempWorld, Thomas Staffing, West Personnel and Word Processors
Personnel Service brand names. The Health Care Services Division operates as
Nursefinders. The Staffing Services Division offers a wide variety of temporary
office, clerical, light technical and light industrial services to more than
10,000 organizations nationwide. These services include general office and
administrative services, software staffing, office automation, records
management, production/assembly/distribution, telemarketing and other staffing
services. The Health Care Services Division, through Company-operated,
franchised and licensed offices, provides health care personnel to supplement
the staffing needs of hospitals, nursing homes and other health care facilities.
The Health Care Services Division also provides home health care services and
related products to individuals. For the year ended December 31, 1995 and the
three months ended March 31, 1996, respectively, the Staffing Services and
Health Care Services Divisions represented approximately 57% and 43% of the
Company's total revenues. If the Company consummates the proposed acquisition of
CRG, it intends to establish a separate information technology services
division.
THE STAFFING SERVICES INDUSTRY
The demand for staffing services, information technology services and
health care services has grown rapidly, and the Company believes that, subject
to normal cyclical fluctuations, this trend is likely to continue.
Staffing Services
The staffing services industry has grown rapidly over the past decade as a
result of cyclical economic trends as well as changing approaches to staffing.
According to The National Association of Temporary Staffing Services ("NATSS"),
the U.S. market for temporary services grew at a compound annual rate of
approximately 17.6% from approximately $20.5 billion in revenues in 1991 to
approximately $39.2 billion in 1995, with revenues increasing at an annual rate
of approximately 22%, 14%, 23% and 13% in 1992, 1993, 1994 and 1995,
respectively. Studies show that more than 90% of all businesses use temporary
staffing services. The use of temporary personnel has become widely accepted as
a valuable tool for managing personnel costs, supplementing permanent workforces
and meeting specialized or fluctuating employment requirements. Vacations,
illness, resignations, seasonal increases in work volume, marketing promotions
and month-end requirements have historically created demand for temporary
staffing. More recently, the growing cost and difficulty of hiring, laying off
and terminating full-time workers has also encouraged a greater use of temporary
workers. In addition, entrants into the labor force increasingly look to
temporary assignments as a way to build experience, make contacts, and get
valuable exposure to a variety of work settings, and as a vehicle to gain
full-time employment.
Organizations have also begun using flexible staffing to reduce
administrative overhead by strategically outsourcing operations that are not
part of their core business functions, such as recruiting, training and benefit
administration. By utilizing temporary employees, businesses are able to avoid
the management and administrative costs incurred if full-time personnel are
employed. An ancillary benefit, particularly for smaller businesses, is that
such use shifts certain employment costs and risks (e.g., workers' compensation
and unemployment insurance) to the temporary personnel provider, which can
spread the costs and risks over a larger pool of employees. Businesses are also
utilizing staffing services to selectively hire and add to their full-time
staff. This concept, typically referred to as "temp-to-perm," provides the
customer with the opportunity
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to evaluate skills and proficiency prior to making full-time employment offers.
NATSS estimates that approximately 40% of temporary employees are offered
full-time employment by clients.
The range of clerical, light technical and light industrial staffing
services provided by temporary personnel has expanded substantially in recent
years. Technological advances, as well as changing attitudes toward managing
work forces, have resulted in a proliferation of new temporary staffing needs,
including word processing, computer graphics, and database management. In
addition, as businesses use temporary staffing companies to supplement permanent
work forces, demand for temporary employees possessing strong technical and
administrative skills is increasing.
Information Technology Services
Information technology services is one of the fastest growing sectors of
the staffing services industry as a result of substantially increased demand for
personnel in a range of computer-related disciplines, including, among other
things, technical project support, software development and documentation,
systems and database management and desktop publishing. According to industry
sources, revenues from the information technology services sector in 1995 are
estimated to have been $8.9 billion, representing a 25% increase over 1994. This
growth has been driven by a number of factors. Computer-related activities are
by nature project oriented and, as a result, conducive to the use of contract
personnel. In addition, the rapid emergence of new technologies requires that
staff be trained in the latest computer languages and tools. In these
circumstances, temporary personnel can be used both to facilitate timely
completion of projects and to retrain existing staff in new technologies.
Health Care Services
Health care institutions have historically used supplemental staffing to
handle peak periods, illnesses and vacations and to help these facilities manage
operating expenses. In response to national pressure to reduce health care
expenditures, patients are being transferred to lower cost settings, resulting
in fewer hospital admissions and shorter lengths of stay. Consequently, reliance
on temporary nursing personnel for routine hospital staffing has decreased.
Home health care has become one of the fastest growing sectors of the
health care industry primarily as a result of the shift away from providing care
in institutional settings. Studies indicate that the cost of home health care is
30% to 60% lower than the cost of comparable care in hospital or other
institutional settings. Industry growth is also being driven by the aging U.S.
population, which requires additional health care services, changes in family
structure which formerly supported the care of the sick and the elderly, and
technological advances, which now make it possible to treat higher acuity
patients and chronic diseases in the home. Based on industry reports, the home
health care industry has grown at a compound annual rate of 19.4% from
approximately $11.6 billion in revenues in 1991 to approximately $23.6 billion
in 1995, with revenues increasing at an annual rate of approximately 25%, 23%,
17% and 13% in 1992, 1993, 1994 and 1995, respectively.
BUSINESS STRATEGY
The Company's objective is to be a premier provider of quality personnel
staffing services to clients, employees and applicants in selected markets
throughout the U.S. in which the Company expects growth in the demand for
personnel staffing services. The Company's business strategy includes the
following key elements:
Capitalize on Strong Reputation and Brand Name Recognition. The
Company intends to continue to build on its strong reputation and client
familiarity with the Company's brand names. The Company believes its local
presence, accessible management and sophisticated support services position
it as a provider of choice of staffing services. The Company also believes
that its ability to be a cost effective, full service provider of quality
health care services positions it to be a provider of choice to health care
payors. The Company estimates that it is one of the top five providers of
services based on the number of offices in most of the markets it serves.
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Focus on Local and Regional Markets. The Company believes that the
buyers and users of its services are primarily local or regional and that
well established local providers in many cases have a competitive marketing
advantage over national providers because they have developed a strong
presence in their markets and have tailored their operations to meet local
client needs. The Company's strategy combines its ability to capitalize on
the recognition of its brands, all of which are established local or
regional brands, with the sophisticated support services of a national
provider. Decentralization of staff selection, pricing and decisions
regarding business mix and advertising allows for significant local
autonomy. This permits each local and regional operator to be extremely
flexible and responsive to the specific needs of its local clientele,
including the ability to offer favorable pricing for high volume accounts.
The Company's organizational structure allows the Company to spread the
costs associated with workers' compensation liability, centralized billing
and payroll functions, technology development and malpractice risks as well
as the costs of analyzing and complying with state and federal regulations
over a large number of temporary employees and clients.
Attract and Retain Qualified Management and Personnel. The Company
believes that high quality management and branch office personnel with
strong ties to the local community are key competitive factors given the
importance of long-term relationships in determining local staffing
decisions. As a result of its established community presence,
quality-oriented culture, positive work environment and its management and
personnel selection and recruiting processes, the Company has experienced
long-term senior staff tenure and continuity in client relationships, with
the average tenure of the Company's senior staff being more than seven
years. In addition, the Company's decentralized structure gives regional
and local management significant autonomy and attracts high quality,
entrepreneurial managers.
Focus on Customer Service. The Company is dedicated to providing the
highest quality customer service by establishing long-term relationships
with local staffing decision makers. Its quality assurance programs include
confirmation calls, employee performance appraisals, job opinion
questionnaires, reference requests and service evaluations. The Company
uses the automated systems, ProficiencyPLUS and QuestPLUS, to match a
candidate's work history, skills and personal attributes with customer
requirements. Through SourcePLUS, the Company provides a high level of
service to major staffing clients through comprehensive on-site management
programs. Through the Company's SingleSource program, the Health Care
Services Division contracts with other providers of health care products
and services to promote continuity and coordination throughout the
continuum of care. This allows for a single point of contact for payors,
eliminating burdensome and duplicative accounting, administration and
documentation. The Company believes that the SingleSource program provides
the Company with a marketing advantage, but the SingleSource program does
not currently account for a material portion of the Company's revenues.
Maintain Diversification. A key element of the Company's
diversification strategy is to offer a broad selection of personnel
services. The Company will attempt to supplement its existing services with
the addition of new staffing specialities, such as the introduction of
information technology staffing services following the proposed CRG
acquisition. Through licensing and franchising of offices, the Company is
able to broaden its geographic coverage and leverage its existing business
with a minimum capital investment. The Company's current mix of staffing
and health care business reduces its exposure to economic cycles and
earnings volatility because the health care industry is generally less
sensitive to changes in economic conditions than the staffing services
industry. Further, no customer represented more than 4% of the Company's
revenues, and the top five customers represented less than 10% of the
Company's revenues for the year ended December 31, 1995.
Leverage Existing Infrastructure. The Company seeks to increase
profitability by adding offices and employees without proportionately
increasing overhead expenses. The clustering of offices in key markets
results in economies of scale through common regional management and the
spreading of recruiting, training, advertising, administrative and branch
office costs over a larger revenue base. The key markets in which the
Company clusters offices are large enough that each Company office is able
to target a particular area of the market without directly competing with
other Company offices.
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GROWTH STRATEGY
The Company's growth strategy is to build on its successful operating
results by concentrating resources in strategic growth markets. Specifically,
management plans to grow the Company by: (i) increasing sales in existing branch
offices; (ii) opening new offices in markets already served by the Company;
(iii) acquiring businesses in growth markets not already served by the Company;
(iv) acquiring businesses that offer specialty services; (v) expanding the
license network through sales of additional licenses and converting qualified
independent home health care companies to Company-operated licensees; and (vi)
selectively acquiring home health care operators.
Internal Growth
The Company's internal growth strategy includes expanding and enhancing
services at existing offices and increasing its presence in its existing markets
by opening new offices. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- General" and "-- Liquidity and Capital
Resources." The Company has consistently increased its average revenues per
branch. Average revenues per branch were approximately $1.3 million, $1.4
million, $1.6 million, $2.0 million, $2.2 million, $0.5 million and $0.5 million
for the years ended December 31, 1991, 1992, 1993, 1994, and 1995 and for the
three months ended March 31, 1995 and 1996, respectively. With the ongoing
implementation of its business development plan, and subject to normal cyclical
fluctuations, the Company expects to continue to grow its revenues per branch.
In certain markets, the Company intends to offer specialized professional and
niche services through existing offices. In addition, the Company intends to
expand the range of health care personnel that it offers to include nurses who
provide specialized services for pediatric, diabetic, psychiatric and asthma
patients. Management believes that new offices can be integrated into the
Company at low incremental cost and that the Company will compete more
effectively as it expands by spreading its fixed administrative and data
processing costs over a larger revenue base.
Acquisitions
A key component of the Company's growth strategy is to acquire existing
staffing operations. The Company seeks acquisitions that will expand the
geographic scope of its Staffing and Health Care Services Divisions, strengthen
its professional services and introduce new specialty services, such as
information technology and legal staffing, to its business mix. Management
believes that the Company's strong reputation and decentralized management
style, as well as its emphasis on preserving local brand identity, facilitate
its efforts to acquire independent staffing businesses seeking an alliance with
a national company. In determining whether to proceed with an acquisition, the
Company evaluates a number of factors, including: local demographics and
economic conditions; the available local workforce; the historical and projected
financial results of the candidate; the purchase price and expected impact on
the Company's earnings per share; the expansion of the Company's geographic
market share; the enhancement to the Company's breadth of services; the
experience, reputation and personality of management; and any expected synergies
with the Company's existing operations. Management believes that acquired
businesses can be integrated into the Company at low incremental cost and will
enable the Company to continue to spread fixed costs over a larger revenue base.
The Company generally retains the former names and marketing identities of
acquired companies to the extent that such identities have value in the markets
in which such companies compete.
Since January 1, 1996, the Company has acquired three staffing services
companies and has entered a definitive agreement to acquire an information
technology services company. Each of these companies is described briefly below.
Allegheny Personnel Services ("Allegheny"). The Company acquired Allegheny
in March 1996. Allegheny offers staffing services through four offices in the
Pittsburgh, Pennsylvania area. For the year ended December 31, 1995, Allegheny
had revenues of approximately $16.5 million.
Profile Temporary Services ("Profile"). The Company acquired Profile in
March 1996. Profile operates one office in the loop district of downtown
Chicago, Illinois. For the year ended December 31, 1995, Profile had revenues of
approximately $6.8 million.
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Judith Fox Staffing Companies ("Fox"). Acquired on May 20, 1996, Fox
provides staffing services through three offices in Richmond and
Charlottesville, Virginia and New York, New York. For the year ended December
31, 1995, Fox had combined revenues of approximately $15.9 million.
The Computer Resources Group ("CRG"). On May 23, 1996, the Company entered
into an agreement to acquire CRG, an information technology services company
with three offices in San Francisco, Sacramento and Santa Clara California. CRG
had revenues for its fiscal year ended May 31, 1995 and the nine-month period
ended February 29, 1996 of approximately $21.2 million and $21.0 million,
respectively. The consummation of this acquisition is subject to customary
conditions set forth in the agreement, such as the Company's satisfaction with
its due diligence review of CRG, and no assurance can be given that the proposed
acquisition will be consummated. If consummated, the CRG acquisition will enable
the Company to enter the information technology services market and provide a
platform for further information technology acquisitions.
STAFFING SERVICES DIVISION
The Company supplies staffing services to over 10,000 business,
professional, and government organizations in the United States. At May 20, 1996
the Company operated its Staffing Services Division (the "Division") through 70
offices.
Services
The Division provides temporary personnel who perform general office and
administrative services, software staffing, office automation, records
management, production/assembly/distribution, telemarketing and other staffing
services. Certain of the Division's offices also provide full-time placement and
payrolling services. Payrolling services entail employment by the Division of
individuals recruited by and assigned to a customer for an ongoing fee. For the
year ended December 31, 1995, 64% of the Company's staffing services revenues
were derived from clerical services, and 36% of such revenue were derived from
light technical, light industrial and other services. The corresponding
percentages for the three months ended March 31, 1996 were 67% and 33%,
respectively.
Operations
The objective of the Division is to consistently deliver the appropriate
number and quality of personnel to its customers in a timely fashion at a
competitive price. The Division seeks to accomplish its objective through:
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Local and Regional Focus and Brand Name Recognition. The Company markets
its staffing services to local and regional clients through its network of
offices across the U.S. The marketing efforts of the Division capitalize on long
standing business relationships with its clients and its established brand
names, most of which have been in use for more than 16 years. The following
table sets forth information at May 20, 1996 on the names, markets, number of
offices, and dates founded of the Division's brands:
<TABLE>
<CAPTION>
NUMBER OF DATE
NAME MARKETS OFFICES(1) FOUNDED
-------------------------------- -------------------------------- --------- -------
<S> <C> <C> <C>
Abar Staffing................... San Francisco Bay Area, CA 6 1954
Allegheny Personnel 4 1972
Services(2)................... Pittsburgh, PA
FirstWord Staffing Services..... Dallas, TX 7 1978
Judith Fox Staffing(3).......... Richmond, VA, Charlottesville, 3 1978
VA, New York, NY
Profile Temporary Services(2)... Chicago, IL 1 1979
Staffinders Personnel........... Houston, TX 3 1983
Temp Connection................. New York/Long Island, NY 2 1982
TempWorld....................... Atlanta, GA 16 1980
Birmingham, AL
Charlotte, NC
Washington DC Metropolitan Area
Thomas Staffing................. Los Angeles/Orange County, CA 20 1969
Riverside/San Bernardino, CA
San Diego, CA
West Personnel Service.......... North and West Suburban Chicago, 6 1954
IL
Word Processors Personnel 2 1978
Service....................... Atlanta, GA
--
Total................. 70
========
</TABLE>
- ---------------
(1) Does not include vendor-on-premises locations at customer sites.
(2) Acquired in March 1996.
(3) Acquired in May 1996 and includes Judith Fox Temporaries, Rosemary Scott
Temporaries and Fox Technical.
Customized Client Services. Management believes that one of the Company's
major strengths is its ability to satisfy the needs of its customers by
providing customized services such as on-site management and full-time placement
services. The flexibility of the Company's decentralized organization allows it
to tailor its operations to meet local client requirements. For example, certain
clients are provided with customized billings, utilization reports, and safety
awareness and training programs.
An important trend in the staffing services business is on-site management.
The Division offers SourcePLUS, its customized on-site temporary personnel
management system, which places an experienced project manager at the client
facility to provide complete staffing support. This program facilitates client
use of temporary personnel and allows the client to "outsource" a portion of its
personnel responsibility to the Division representative, who gathers and records
requests for temporary jobs from client department heads and then fulfills
client requirements. Company representatives on client premises can access the
Division systems through on-site personal computers.
The Division's full-time placement services provide traditional staff
selection and recruiting services to its clients. In addition to recruiting
employees through referrals, the Division places advertisements in local
newspapers to recruit employees for specific positions at client companies. The
Division utilizes its expertise
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and selection methods to evaluate the applicant's credentials. If the applicant
receives and accepts a full-time position at the client, the Company receives a
one-time fee, based on the annual salary of the employee.
Automated Service Systems. In order to maintain a consistent quality
standard for all its temporary employees, the Division uses a comprehensive
automated system to screen and evaluate potential temporary personnel, make
proper assignments and review a temporary employee's performance. The Division
uses the QuestPLUS System to integrate the results of the Division's skills
testing with personal attributes and work history and automatically matches
available candidates with customer requirements.
Sales and Marketing
The Division has implemented a business development program to target
potential customers with temporary staffing needs and to maintain and expand
existing customer relationships. The Company obtains new clients primarily
through personal sales presentations and supports its sales efforts with
telemarketing, direct mail solicitation, and advertising in a variety of local
and national media, including the Yellow Pages, newspapers, magazines and trade
publications.
The Division devotes the majority of its selling efforts to smaller,
regional accounts and potential customers which the Division has identified as
consistent users of temporary staffing services. Smaller, regional accounts are
characterized by shorter sales cycles and higher gross margins. The Division
generally does not seek any national account agreements, but does provide
services to a wide variety of customers with national and international
businesses. Bids for large user accounts and the provision of services to
clients with multiple location requirements are coordinated at the Company's
headquarters.
Seasonality
The staffing business is subject to the seasonal impact of summer and
holiday employment trends. Typically, the second half of the calendar year is
more heavily affected, as companies tend to increase their use of temporary
personnel during this period. While the staffing industry is cyclical, the
Company believes that the broad geographic coverage of its operations and the
diversity of the services it provides generally mitigates the adverse effects of
economic cycles in a single industry or geographic region.
HEALTH CARE SERVICES DIVISION
The Company's Health Care Services Division, operating under the name
Nursefinders ("Nursefinders"), provides health care staffing services through 48
Company-operated, 36 franchised and 14 licensed locations at May 20, 1996. The
Company provides home care services to individuals as well as health care
personnel for supplemental staffing to hospitals, nursing homes, and other
health care institutions. The Company believes that it is the fourth largest
national provider of home nursing care services in terms of revenue and the
number of locations. The Company also believes it is the largest provider of
supplemental staffing services to health care institutions.
Services
Nursefinders provides a wide range of licensed and trained personnel. These
include licensed professionals such as registered nurses and licensed
practical/vocational nurses, nursing assistants and technicians, certified
aides, and companions. Registered nurses and licensed practical/vocational
nurses perform skilled procedures for patients in the home or institutional
setting, including nursing assessment and evaluation, medication administration,
infusion therapy, complex therapeutic treatments and case management. Nursing
assistants and technicians perform personal care and simple procedures for
patients in institutional settings. Home health and personal care aides provide
basic personal care, feeding, dressing and assisting with activities of daily
living to the homebound patient. Companions assist home care patients with meal
preparation, shopping and other light housekeeping tasks. Institutional staffing
and home care services are also provided by physical, occupational, speech and
respiratory therapists and medical social workers.
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For the year ended December 31, 1995, approximately 65% (66% for the three
months ended March 31, 1996) of Nursefinders' sales were derived from providing
home health care services, with the balance being derived from health care
staffing services provided to hospitals and other institutions.
Since 1990, in response to the declining demand for temporary nursing
services in hospital settings, Nursefinders has diversified its health care
staffing customer base to include sub-acute and long-term care facilities.
Nursefinders will continue to emphasize the development of home health care
services by introducing new specialty programs and attempting to capture
increased market share through the services it now provides.
Operations
The objective of Nursefinders is to consistently provide cost effective,
high quality, home health care to individuals and supplemental staffing
personnel to health care institutions. Nursefinders seeks to accomplish its
objective through:
Brand Name Recognition and Local and Regional Focus. The Nursefinders
brand name has been in use for more than 17 years, and Nursefinders is
widely recognized as a leading provider of home health care staffing and
related services. Nursefinders' local managers have the flexibility of
determining staff selection, compensation, business mix, marketing and
pricing, which allows each Nursefinders office to respond to local
competitive conditions. Most health care staffing services are purchased at
the local level, and Nursefinders' established reputation has resulted in
ongoing referrals in the communities which it serves.
Quality Assurance. Nursefinders has established and monitors precise
quality assurance standards for Company-operated, franchised and licensed
offices. The Company believes these policies and procedures comply with all
local, state and federal regulations for hiring criteria, training programs
and patient care delivery systems. Nursefinders has applied for, and has
received for certain locations, accreditation for Company-operated,
franchised and licensed offices by the Joint Commission on Accreditation of
Healthcare Organizations ("JCAHO"). JCAHO is the recognized national
accrediting authority for health care services, and by participating in the
voluntary accreditation program, Nursefinders is able to better compete in
the health care staffing market. JCAHO has determined that Nursefinders'
policies meet JCAHO standards and began the compliance survey stage of the
accreditation review during 1995.
Nursefinders believes that in the provision of home health care, the
caregiver is the critical factor in (i) providing and assuring the quality
of care, (ii) coordinating the effective utilization of all home health
care services and products, and (iii) determining the frequency and level
of patient health care intervention. Nursefinders monitors home care
services through close supervision and evaluation of patient care outcomes.
Specific criteria are used in accepting and discharging patients so that
Nursefinders can assure that patient needs are met in the home setting.
Clinical documentation used in home care patient records meet professional
standards of practice, and quarterly record reviews are performed by health
care professionals to validate the quality and appropriateness of care.
SingleSource Program. With managed care organizations focusing on
cost containment, an increasing number of patients are being transferred
from hospitals to lower cost care settings. Consequently, patients with
increasingly complex needs are receiving care in their homes, and the
number of patients requiring multiple services in the home is also
increasing significantly. In order to meet this need, Nursefinders
developed the SingleSource program, in which Nursefinders contracts with
other providers of health care products and services to provide the full
continuum of home health care needs. These services include skilled and
non-skilled nursing care, IV therapy, respiratory, physical, occupational
and speech therapies, home medical equipment and medical supplies.
Nursefinders pays its personnel and subcontractors while billing third
party payors at pre-negotiated rates. Nursefinders' ability to manage all
aspects of home health care as a single source or full service provider
with access to and supervision of home health care personnel positions
Nursefinders as a provider of choice with managed care organizations.
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Development of Disease State Management Programs. Managed care and
insurance companies are increasingly focusing their attention on disease
states that are expensive to treat because of long hospital stays.
Nursefinders is developing disease-specific early intervention programs to
monitor, and reduce the need for hospitalization of, patients with
diabetes, cancer, cardiovascular conditions and asthma. Nursefinders also
is developing specialty programs to further address the needs of managed
care organizations to reduce costs for psychiatric and pediatric care.
Responsiveness to Changing Payor Mix; Medicare and Medicaid
Certification. In the midst of the changing health care legislative and
regulatory environment, Nursefinders believes that participation in the
Medicare program remains important. The trend towards home health care
services has resulted in an increase in the portion of health care revenues
being remitted through Medicare and Medicaid. Additionally, Nursefinders
believes Medicare certification serves as a widely recognized indicator of
quality and standing in local communities and is, therefore, important in
obtaining desirable business from physicians, managed care organizations
and certain other referral sources. As of May 20, 1996, Nursefinders
provides Medicare and Medicaid services through its Company-operated
network of 29 Medicare or Medicaid certified locations. Additionally, seven
Nursefinders licensed locations and 15 Nursefinders franchises are Medicare
and, in some cases Medicaid, certified. For the year ended December 31,
1994, approximately 39%, 30% and 31% of Nursefinders' revenues were derived
from private pay and other sources, the Medicare and Medicaid programs, and
supplemental staffing services, respectively. For the year ended December
31, 1995, approximately 31%, 36% and 33% of Nursefinders' revenues were
derived from such sources, respectively, and for the three months ended
March 31, 1996, approximately 33%, 36% and 31% of Nursefinders' revenues
were derived from such sources, respectively. For the three months ended
March 31, 1996, less than 15% of the combined Medicare and Medicaid
revenues of Nursefinders were derived from the Medicaid program. The
Company-operated, franchised and licensed locations that are not Medicare
or Medicaid certified are unable to participate in such programs and
instead derive all of their revenues from supplemental staffing, private
pay and other sources. Nursefinders does not presently intend to seek
Medicare or Medicaid certification for its Company-operated locations which
are not presently certified.
Marketing
Home health care staffing services are generally purchased at the local
level, either by case managers on behalf of private insurers or by private
individuals through referrals from physicians, health maintenance organizations
or hospital discharge planners. Nursefinders' marketing efforts for health care
services principally involve presentations to contract administrators,
utilization review nurses, medical directors and case managers for managed
health care programs, government agencies, social service agencies, physicians
and their staffs, hospital discharge planners, nursing home supervisors,
insurance company representatives and employers with self-funded employee health
benefit programs. Nursefinders also advertises in local and national media,
including the Yellow Pages, newspapers, magazines and trade publications.
Nursefinders has longstanding relationships with clients from whom it receives
referrals and with governmental social service agencies with which Nursefinders
conducts business under non-exclusive contracts that generally are renewable
automatically from year to year.
ORGANIZATIONAL STRUCTURE
The Company utilizes a combination of Company-operated and, in the case of
health care services, franchised and licensed offices, based on the
characteristics of the particular market and the nature of services that the
Company intends to provide. In general, the Company focuses its licensing and
franchising activities in smaller and mid-sized markets. In larger markets, the
Company employs a Company-operated branch strategy to permit existing
supervisory, advertising, and administration expenses to be spread over a larger
number of offices in close proximity. The Company believes that its franchise
and license network is a benefit to the Company because its owners provide the
Company with a substantial local market presence. The franchise and license
network also provides the Company with royalty and license fee income.
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Company-Operated Offices
At May 20, 1996, there were 118 Company-operated offices. Each
Company-operated office reports to a manager who is responsible for day-to-day
operations and the profitability of the office. Depending on, among other
things, the number of Company-operated offices in a region, branch managers may
report to regional managers, division vice presidents or division presidents.
Branch and regional managers are given a high level of autonomy in making
decisions about the operation of their principal region. The compensation of
branch and regional managers includes bonuses generally based on the incremental
year-to-year increase in profitability and is designed to motivate them to
maximize the growth and profitability of the offices.
Franchised Offices
Prior to 1990, Nursefinders offered franchises for Nursefinders offices.
Nursefinders has experienced a low turnover rate in its franchise operations,
with an average tenure of franchise ownership of 7.3 years and 77% of
franchisees operating more than one franchise. At May 20, 1996, Nursefinders' 13
franchisees operated 36 franchised offices. Nursefinders encourages and assists
franchisees to expand by establishing additional offices in existing and
adjacent territories.
Nursefinders grants the franchisee the exclusive right to establish an
office and to provide Nursefinders' products and services within a designated
geographic area using the Nursefinders' trade names, service marks, advertising
materials, sales programs, manuals and forms. Franchisees receive training from
Nursefinders, attend seminars, participate in marketing programs and utilize
Nursefinders' sales literature. Nursefinders requires its franchisees to follow
the basic procedures and standards established for its branch and licensed
offices. Nursefinders assists its franchisees in obtaining business from its
national and regional accounts. Nursefinders also makes available to each
franchised office software used by its branch offices to assist in maintaining
availability listings on temporary employees, scheduling employees, maintaining
licensure and other information required by health care providers, and
facilitating the payroll and billing functions.
Franchisees operate their businesses autonomously within the framework of
the Nursefinders' policies and standards, and recruit, employ and pay their own
employees. The franchisee is responsible for screening and recruiting qualified
temporary personnel, as well as obtaining clients. Nursefinders receives a
royalty equal to 5% of the franchisee's sales. Franchisees paid Nursefinders an
initial non-recurring franchise fee of $19,600 partially to cover screening,
training, and other start-up costs incurred by Nursefinders in establishing a
franchised office. Franchise agreements are generally for a term of five years,
but are cancelable by the franchisee upon specified prior notice and renew at
the option of the franchisee for successive five year periods thereafter.
Nursefinders may terminate a franchise if the franchisee fails to meet
Nursefinders' standards or otherwise breaches the franchise agreement. In recent
periods, termination of franchise agreements has not had a material impact on
the Company, but there can no assurance that such terminations in future periods
will not have a material adverse impact on Nursefinders' and the Company's
results of operations, financial condition and business prospects.
Licensed Offices
In 1990, Nursefinders began granting licenses instead of franchises because
it believed that the reduced capital requirements of a licensed office would be
more attractive to a larger number of potential licensees and because it
believed that the license arrangement afforded it better control over the
quality of patient care. At May 20, 1996, the Company had eight licensees
operating 14 licensed offices. Nursefinders encourages and assists licensees to
expand by establishing additional offices in existing and adjacent territories,
and intends to issue additional licenses in the future.
Licensees operate their businesses autonomously within the framework of the
Nursefinders' policies and standards, and recruit, employ, and pay their own
permanent employees. Licensees must maintain their own insurance coverage for
the licensed office and its permanent employees, including workers'
compensation, general liability and automobile liability insurance coverage.
Licensees enjoy all the benefits afforded to franchisees. In addition, under the
license agreements, Nursefinders employs all temporary employees, pays all
payroll costs of employing the temporary employees, including workers'
compensation and liability insurance
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<PAGE> 39
and fidelity bonds, bills the customers, and owns the receivables (with recourse
to the licensee). The customer lists of the licensed operation belong to
Nursefinders.
Nursefinders records as revenues the amounts billed to clients of
licensees, and the costs of wages and related benefits are recorded by
Nursefinders as costs of services (the difference between revenues and cost of
services being gross profit). Nursefinders remits monthly to licensees the gross
profit of the licensed office less 7% of gross revenues, uncollectible
receivables and certain other expenses of the licensed office.
Licensees pay Nursefinders an initial non-recurring license fee of $19,600
partially to cover screening, training and other start-up costs incurred by
Nursefinders in establishing a licensed office. License agreements are generally
for a term of ten years and renew at the option of the licensee for successive
five year periods thereafter. Nursefinders may terminate a license if the
licensee fails to meet Nursefinders' standards or otherwise breaches the
agreement. To date, termination of license agreements has not had a material
impact on the Company, but there can be no assurance that such termination in
future periods will not have a material adverse impact on Nursefinders' and the
Company's result of operations, financial condition and business prospects.
AUTOMATED OPERATING SYSTEMS
An important factor in providing the services sought by users of staffing
and health care services is the ability to quickly and effectively measure the
skills of the candidates that make themselves available and to match skills with
the client request. The Company's Staffing Services Division uses a number of
automated systems to allow it to accomplish this task efficiently. The
ProficiencyPLUS program is designed to test specific computer related skills by
allowing the candidate to operate in the actual software program environment.
The QuestPLUS system integrates the results of the Company's skills testing with
personal attributes and work history and automatically matches available
candidates with customer requirements. This system also can allow the Company to
track the performance of its temporary employees and provide quality reports to
customers that document the level of the Company's performance. The Company's
Health Care Services Division utilizes a similar automated operating system.
The software used in the QuestPLUS system is owned by the Company's former
parent. The Company has entered into an agreement with its former parent to use
the software for a monthly fee of approximately $13,600 through September 1997,
with an option to extend for an additional year. See "Certain Transactions." In
December 1995, the Company entered into an agreement with a software company to
purchase an accounting and financial information system, the installation of
which is substantially complete. In addition, the Company also has entered into
an agreement with a separate software company for branch operating and paybill
systems. The branch operating system integrates the results of the Company's
skills testing with personal attributes and work history and automatically
matches available candidates with customer requirements. The paybill processing
system provides payroll processing and customer invoicing. This system will
enhance the QuestPLUS system that is now utilized. Installation of these systems
began in the second quarter of 1996 and is expected to be completed by the end
of 1997.
COMPETITION
The U.S. staffing services market is highly competitive and highly
fragmented, with more than 15,000 offices competing in the industry, and has
limited barriers to entry. No one firm has more than 11% of the market, as
measured by revenue. However, both the staffing and health care services
industries have been undergoing significant consolidation. The largest publicly
owned companies specializing in personnel staffing services in the U.S. are
Manpower, Inc., Kelly Services, Inc., The Olsten Corporation, CDI Corporation,
Norrell Corporation, Interim Services Inc., AccuStaff Incorporated and Robert
Half International, Inc.
In the temporary staffing services industry, competition generally is
limited to firms with offices located within a customer's particular local
market. In most major markets, competitors generally include many of the
publicly traded companies and, in addition, numerous regional and local
full-service and specialized temporary service agencies and health care
providers, some of which may operate only in a single market.
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<PAGE> 40
Since many clients of both the Health Care Services and Staffing Services
Divisions contract for their staffing services locally, competition varies from
market to market. In most areas, no single company has a dominant share of the
market. Many client companies use more than one staffing services company, and
it is common for a major client company to use several staffing services
companies at the same time. However, in recent years, there has been a
significant increase in the number of large customers consolidating their
temporary staffing purchases with a single supplier or with a small number of
firms. The trend to consolidate temporary staffing purchases has in some cases
made it more difficult for the Company to gain business from potential customers
who have already contracted to fill their staffing needs with competitors of the
Company. In other cases, the Company has been able to increase the volume of
business with certain customers who choose to purchase staffing primarily from
the Company.
The competitive factors in obtaining and retaining clients include an
understanding of clients' specific job requirements, the ability to provide
temporary personnel in a timely manner, the monitoring of quality of job
performance and the price of services. The primary competitive factors in
obtaining qualified candidates for temporary employment assignments are wages
and responsiveness to work schedules. Management believes that it is highly
competitive in these areas.
REGULATION
Temporary employment service firms are generally subject to one or more of
the following types of government regulation: (i) regulation of the
employer/employee relationship between a firm and its employees; (ii)
registration, licensing, record keeping and reporting requirements; and (iii)
substantive limitations on its operations. Staffing services firms are the legal
employers of their temporary workers. Therefore, the firm is governed by laws
regulating the employer/employee relationship, such as tax withholding or
reporting, social security or retirement, antidiscrimination and workers'
compensation.
The Company's Health Care Services Division is subject to extensive
government regulation under federal, state and local law, including but not
limited to, licensing requirements, certificate of need requirements, Medicare
and Medicaid certification requirements, reimbursement requirements, periodic
examinations by government agencies, federal and state anti-fraud, anti-abuse
and anti-kickback statutes and regulations, and federal and state laws
prohibiting physician ownership or compensation arrangements with entities,
including home health care agencies, to which they refer patients for home
health care services. Health care providers are also subject to extensive
documentation requirements of government agencies and industry participants,
such as insurance companies and managed care companies. These regulations can
affect the ability of the Company to collect its fees for services provided.
There can be no assurance that the Company will be able to continue to obtain or
maintain the required governmental approvals or licenses, obtain reimbursement
for its services or avoid compliance or other problems under applicable laws and
regulations.
Home health care providers are subject to certificate of need laws in 22
jurisdictions. Some jurisdictions require home health care service providers to
have a certificate of need in order to be licensed to provide home health care
services, including Medicare and Medicaid services, and other jurisdictions
require a certificate of need only to provide Medicare home health care
services. Certificate of need laws restrict the types of care that may be
provided and can limit or eliminate a company's ability to provide certain
services, including home health care services, to establish or expand operations
and to act as a Medicare or Medicaid provider. The process of obtaining a
certificate of need can be costly and time consuming. The Company currently has
no certificates of need, but offers certain services not restricted by
certificate of need laws in some states which require certificates of need. Some
states in which the Company does business and does not have a certificate are
not currently granting additional certificates of need. Accordingly, such laws
may render it more difficult for the Company to, or preclude the Company from,
expanding the geographic scope of its home health care services.
The federal and state governments have enacted in the past, and are
expected to enact in the future, laws and regulations that affect the provision
of, and reimbursement for, Medicare and Medicaid services by the
37
<PAGE> 41
Company's Health Care Services Division. See "Risk Factors -- Possible Adverse
Effect of Health Care Regulatory and Reimbursement Changes."
New York State requires the approval by the Public Health Council of the
New York State Department of Health ("NYPHC") of any change in "the controlling
person" of an operator of a licensed health care services agency (an "LHCSA") or
any transfer, assignment or other disposition of the stock or voting rights
thereunder which results in the change of ownership or control of more than 10%
of the stock or voting rights thereunder of the LHCSA. "Controlling person"
includes a person who either directly or indirectly possesses the ability to
direct or cause the direction of the actions, management or policies of a
person, whether through the ownership of voting securities or voting rights by
contract or otherwise, and includes a parent corporation which possesses or will
possess the ability to direct or cause the direction of the actions, management
or policies of the LHCSA corporation which is the licensed home health care
agency. Control of an entity is presumed to exist if any person directly or
indirectly owns, controls or holds the power to vote 10% or more of the voting
securities of such entity. A person seeking to become a controlling person of an
operator of an LHCSA must file an application for prior approval from NYPHC. The
Company has two offices in New York State which are LHCSAs and which are
Medicaid certified. Such offices accounted for less than 2% of the Company's
revenues for the year ended December 31, 1995. If any person should become the
owner or holder, or acquire control, of the right to vote 10% or more of the
Common Stock, such person could not exercise control of the Company's LHCSAs
until such ownership, control or holding has been approved by the NYPHC. The
transactions culminating in the Company's initial public offering and this
offering have not yet been obtained from the NYPHC, and the Company is currently
engaged in settlement discussions with the NYPHC regarding non-compliance with
the approval requirement in connection with the transactions culminating in the
initial public offering. The Company similarly intends to seek approval of, and
resolve any non-compliance issues related to, this offering. The Company
believes that such approvals will be obtained and that any penalties resulting
from such non-compliance will not have a material adverse effect on the
Company's business, financial condition or results of operations.
The Company is subject to various federal and state laws relating to
franchising, principally the Federal Trade Commission's franchise rules and
state franchise registration, disclosure, and relationship laws and state
business opportunity laws.
TRADEMARKS
The Company maintains a number of trademarks, tradenames, service marks and
other intangible rights, and licenses certain other proprietary rights in
connection with its business. Certain proprietary rights relating to the
Company's two divisions, including the trademarks Nursefinders and TempWorld,
are licensed from the Company's former parent. See "Certain Transactions." The
Company plans to file affidavits of use and incontestability at the proper time
and will effect timely renewals, as appropriate, for the intangible rights it
maintains. The Company is not currently aware of any infringing uses which would
be likely to materially and adversely affect its use of these rights.
PROPERTIES AND INSURANCE
All of the Company's offices are leased under leases of relatively moderate
duration (typically three to five years, with options to extend) containing
customary terms and conditions. The Staffing Services Division offices are
typically in higher quality office or industrial buildings, and occasionally in
retail buildings. Health care services offices are typically in medical office
buildings or parks. The Company's headquarters facilities and regional offices
are in similar facilities. The Company's leases for Company-operated offices
expire through 1999. Aggregate rent expense under these leases was $3.2 million
for the year ending December 31, 1995, and the leases call for aggregate rents
for the year ending December 31, 1996 of $2.9 million. See Note 13 of Notes to
Consolidated Financial Statements.
The Company maintains property, liability and other insurance against
customary risks in amounts which it believes to be prudent, and self-insures for
workers' compensation and certain medical benefits (subject, in each case, to
excess insurance coverage for benefits above a specified limit). The Company
offers health care insurance to permanent employees and to temporary employees
who meet certain criteria. Prior to the Company's initial public offering, it
operated under its former parent's program of insurance, including self-
38
<PAGE> 42
insurance. The Company anticipates that the cost of maintaining comparable
insurance coverage as an independent company will be substantially similar to
the proportionate cost of insurance to its former parent. There can be no
assurance that such costs will not exceed the costs of insuring the Company
borne by its former parent that the Company's insurance coverage and
self-insurance reserves will be sufficient to protect it from loss, damage or
liability it may incur or that insurance coverage will continue to be available.
LEGAL PROCEEDINGS
The Company is a party to certain disputes and litigation relating to
claims arising out of its operations in the ordinary course of business.
Further, the Company periodically is subject to government audits and
inspections. Management believes that matters presently pending will not in the
aggregate have a material adverse effect on the Company.
EMPLOYEES
Temporary personnel are recruited through advertising in local and, to a
lesser extent, national media, the Yellow Pages, and classified advertising. In
addition, a substantial portion of new employees are obtained through referrals
from other employees of the Company, clients, organizations and associations.
The Company interviews, tests, checks references and evaluates the skills of
applicants for temporary employment, utilizing systems and procedures developed
and enhanced over the years by the Company and its predecessors. Additionally,
Nursefinders verifies that all of its health care providers maintain current
licenses. Temporary employees are employed by the Company on an as needed basis
dependent upon client demand. Temporary employees are paid only for time they
actually work.
At March 31, 1996, the Company had approximately 800 permanent employees,
of whom 89 were Nursefinders billable staff who render temporary services to
patients. During 1995, the Company and its licensees placed approximately 50,000
temporary employees with clients, of which approximately 10,000 were placed, on
average, with clients at any given time. None of the Company's employees are
covered by collective bargaining agreements. The Company believes that its
relationships with its employees are good.
For its permanent employees, the Company offers a package of benefits which
it believes to be competitive, including vacation and holiday pay, health and
dental insurance, life insurance, disability insurance, and a 401(k) plan to
which it makes certain contributions. All employees of the Company are covered
by workers' compensation and general liability insurance and by a fidelity bond.
In addition, employees performing health care services are covered by
professional medical liability insurance. The Company is responsible for and
pays the employer's share of Social Security taxes, federal and state
unemployment taxes, workers' compensation insurance and other similar costs
relating to its temporary employees. The Company has a 401(k) plan in which
temporary employees may participate, and temporary employees may receive
vacation and holiday benefits scaled to services. As part of health care reform,
federal and certain state legislative proposals have included provisions which
would extend health insurance benefits to temporary employees who are not
currently provided with such benefits.
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<PAGE> 43
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information as to the Company's
executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
--------------------------------------- --- ---------------------------------------
<S> <C> <C>
Edward P. Drudge, Jr................... 57 Chairman of the Board and Chief
Executive Officer
Michael P. Bernard..................... 41 Chief Financial Officer, Treasurer and
Director
Rosemary Payne-Harris.................. 44 Senior Vice President and Secretary
Richard L. Peranton.................... 47 Senior Vice President
Gene C. Wilson......................... 51 Senior Vice President
Kevin P. Egan(1)....................... 52 Director
J. Roger King(1)....................... 55 Director
James V. Napier(1)(2).................. 59 Director
William J. Simione, Jr.(2)............. 54 Director
</TABLE>
- ---------------
(1) Member of the Compensation and Bonus Committee.
(2) Member of the Audit Committee.
Edward P. Drudge, Jr.: Mr. Drudge is the Chairman of the Board and Chief
Executive Officer of the Company and has served as such since the formation of
the Company in July 1995. Prior to that time, Mr. Drudge was President of the
Personnel Group of America Division of Adia, the Company's former parent, and
Senior Vice President of Adia Services, Inc., having joined Adia in April 1989.
Prior to joining Adia, Mr. Drudge held senior management positions with
Manpower, Inc., a provider of personnel services, for 16 years, and prior to
that, sales and marketing positions with Procter & Gamble.
Michael P. Bernard: Mr. Bernard has been employed as the Chief Financial
Officer and Treasurer of the Company since August 1995 and has served as a
director of the Company since September 1995. From March 1993 until immediately
prior to joining the Company, Mr. Bernard was with Coastal Physician Group, Inc.
a physician practice management company, where he had served as Vice President,
Controller and Chief Accounting Officer. From September 1992 through March 1993,
Mr. Bernard served as Chief Financial Officer of American Threshold Industries,
Inc., a manufacturer of non-woven disposable products, and for 14 years
preceding that was employed by Ernst & Young LLP, a certified public accounting
firm, most recently as a Senior Manager.
Rosemary Payne-Harris: Ms. Payne-Harris is a Senior Vice President and the
Secretary of the Company and has served as such since the formation of the
Company in July 1995. Prior to that time, Ms. Payne-Harris was Vice President of
Field Operations for the Personnel Group of America Division of Adia, having
joined Adia in July 1990. Prior to joining Adia, Ms. Payne-Harris was with
Manpower, Inc. for a total of eight years, with her most recent position being
Area Manager overseeing 12 branch operations.
Richard L. Peranton: Mr. Peranton is a Senior Vice President of the
Company and has served as such since the formation of the Company in July 1995.
He has been President of Nursefinders, Inc. (formerly a wholly-owned subsidiary
of Adia and since 1995, a subsidiary of the Company) since April 1994 and has 15
years experience in the home health care industry. From 1982 until April 1994,
he held several executive positions with Kimberly Quality Care, a provider of
home health care services, including President of the Southeastern Division.
Gene C. Wilson: Mr. Wilson is a Senior Vice President of the Company and
has served as such since the formation of the Company in July 1995. Mr. Wilson
also has been President of Thomas Staffing Services, Inc. (formerly a
wholly-owned subsidiary of Adia and since 1995, a subsidiary of the Company)
since
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<PAGE> 44
April 1991. Prior to joining Thomas Staffing Services, Inc., Mr. Wilson served
from 1988 until 1991 as Executive Vice President and Chief Operating Officer at
ChemLawn Services Corporation, a lawn care service company and from 1980 until
1988 as Vice President of the Pizza Hut Division of PepsiCo, Inc.
Kevin P. Egan: Mr. Egan has served as a director of the Company since
September 1995. Since October 1995, Mr. Egan has been the President of Tamarack
Holdings, an investment company. From 1983 to September 1995, Mr. Egan served as
President and Chief Operating Officer of PrimeNet DataSystems, St. Paul,
Minnesota, a provider of database and integrated marketing services. Prior to
forming PrimeNet in 1983, Mr. Egan was senior vice president of Manpower, Inc.
from 1975 to 1983. Mr. Egan also previously held marketing and management
positions with the Graphic Services Division, 3M Company and Transamerica
Computer Co., London, England.
J. Roger King: Mr. King has served as a director of the Company since
September 1995. Since June 1995, Mr. King has served as Senior Vice President of
Human Resources of the Frito-Lay Division of PepsiCo, Inc., and from February
1984 to June 1995 served as Senior Vice President of Personnel of PepsiCo, Inc.
Mr. King joined PepsiCo's Frito-Lay Division in 1969 and has served in various
personnel and employee relations positions for PepsiCo.
James V. Napier: Mr. Napier has served as a director of the Company since
September 1995. Since November 1992, Mr. Napier has been the Chairman of
Scientific-Atlanta, Inc., a telecommunications company. Prior to that, Mr.
Napier served as Chairman and Chief Executive Officer of The Commercial
Telephone Group, a telecommunications engineering and design company, between
1988 and 1992, and as Chief Executive Officer and President of HBO & Company,
Inc., a health care information services company, between 1985 and 1986. In
addition to serving on the Board of Directors of Scientific-Atlanta, Mr. Napier
is a director of Engelhard Corporation, Vulcan Materials Company, HBO & Company,
Inc., Rhodes, Inc., Intelligent Systems Corporation and Westinghouse Air Brake
Company.
William J. Simione, Jr.: Mr. Simione has served as a director of the
Company since September 1995. Mr. Simione is President of the Certified Public
Accounting firm of Simione & Simione, which provides consulting and information
services to the home health care industry. He is a member of the Fraud & Abuse
Task Force, a Regulatory Affairs Subcommittee for the National Association for
Home Care, and is one of their National Reimbursement Consultants. Mr. Simione
is also a member of many state and federal committees involving home care
issues.
The Board of Directors is ultimately responsible for the management and
policies of the Company. The Board of Directors establishes the principles of
strategy, accounting, organization and financing to be used by the Company. The
Board of Directors appoints the executive officers of the Company.
The Company's Certificate of Incorporation and Bylaws provide for seven
directors who are divided into three classes. The terms of the directors in the
initial classes are being phased in over a three-year period, and after the
expiration of the terms of these directors, newly elected directors will serve
for a three-year term or until their successors are elected and qualified.
Directors may be re-elected to successive terms. Messrs. Drudge, Napier and
Simione have been appointed to Class III to serve until annual the meeting of
stockholders in 1998. Messrs. Egan and King have been appointed to Class II to
serve until the annual meeting of stockholders in 1997. Mr. Bernard, who
initially was appointed to Class I to serve until the annual meeting of
stockholders in 1996, was re-elected at the meeting to a term expiring at the
1999 annual meeting of stockholders or until his successor has been duly elected
and qualified. The Board of Directors is actively seeking a director candidate
to fill a vacancy on the Board created by the April 1, 1996 resignation of Ms.
Joyce Mazero, a former Class I Director. Any director appointed to fill the
vacancy on the Board will be designated a Class I director and will serve a term
expiring at the 1999 annual meeting of stockholders, expected to be held in May
1999, or until a successor has been duly elected and qualified.
The Board of Directors maintains an Audit Committee (the "Audit Committee")
and a Compensation and Bonus Committee (the "Compensation Committee"), each of
which consists entirely of non-employee directors.
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<PAGE> 45
The principal functions of the Audit Committee are to meet with appropriate
financial and legal personnel and the independent public accountants of the
Company and review the internal controls of the Company and the objectivity of
its financial reporting. The Audit Committee recommends to the Board of
Directors the appointment of the independent public accountants to serve as
auditors in examining the corporate accounts of the Company. The independent
public accountants periodically meet privately with the Audit Committee and have
access to the Audit Committee at any time.
The principal functions of the Compensation Committee are to review
proposals regarding the establishment or change of benefit plans, salaries and
compensation of the executive officers and other employees of the Company and
advise management and make recommendations to the Board of Directors with
respect thereto and administer the Company's incentive compensation plans.
DIRECTOR COMPENSATION
Each non-employee director receives an annual retainer of $7,500, and any
such director who chairs a committee also receives an annual retainer of $1,000.
In addition, non-employee directors receive meeting fees of $1,000 per board
meeting attended and $500 per committee meeting attended, plus reimbursement of
expenses. Each non-employee director receives, upon joining the Board of
Directors, an initial option grant to purchase 6,250 shares of Common Stock at
the then fair market value, an additional option grant to purchase 3,125 shares
of Common Stock at the then fair market value in each of the next two years, and
an annual option grant to purchase 1,500 shares of Common Stock at the then fair
market value in each year thereafter that such director remains on the Board of
Directors. All of such options will be granted under the Company's 1995 Equity
Participation Plan. Officers of the Company who are also directors are not paid
any director fees. See "Management -- Compensation Plans and Arrangements -- The
1995 Equity Participation Plan."
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation for
the fiscal years ended December 31, 1994 and 1995 for those persons who were, at
December 31, 1995, the Chief Executive Officer and the Company's four other most
highly compensated executive officers (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
ANNUAL ------------
COMPENSATION(1) SECURITIES
------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS(#)(2) COMPENSATION(3)
- --------------------------------- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Edward P. Drudge, Jr. ........... 1995 $269,994 $296,535 178,572 $ 500(4)
Chairman and Chief Executive 1994 243,750 230,750 -- 30,575(5)
Officer
Richard L. Peranton.............. 1995 205,691 133,333 26,786 --
Senior Vice President 1994 133,333 133,333 -- --
Gene C. Wilson................... 1995 162,500 149,894 26,786 --
Senior Vice President 1994 155,173 70,873 -- 14,605(5)
Rosemary Payne-Harris............ 1995 106,750 75,174 26,786 483(4)
Senior Vice President and 1994 92,175 61,331 -- 8,219(5)
Secretary
Michael P. Bernard............... 1995(6) 47,828 11,902 35,715 27,000(7)
Chief Financial Officer and 1994 -- -- -- --
Treasurer
</TABLE>
- ---------------
(1) In accordance with the rules of the Securities and Exchange Commission,
other annual compensation in the form of perquisites and other personal
benefits have been omitted where the aggregate amount of such perquisites
and other personal benefits constituted the lesser of $50,000 or 10% of the
total annual salary and bonus for the Named Executive Officer for the
fiscal year.
42
<PAGE> 46
(2) Amounts represent shares of Common Stock issuable upon the exercise of
options granted under the Company's 1995 Equity Participation Plan (the
"1995 Plan"). Options with respect to 20% of such shares vested and became
immediately exercisable on September 25, 1995, and an additional 20% will
vest on each succeeding June 30 through 1999. See "-- Option Grants During
Last Fiscal Year."
(3) Non-qualified profit-sharing allocations for 1995 are not currently
available.
(4) Amounts represent employer matching contributions to individual retirement
accounts.
(5) Amounts represent non-qualified profit-sharing allocations for 1994.
(6) Mr. Bernard did not join the Company until August 1995.
(7) Amount represents reimbursement of moving expenses incurred by Mr. Bernard
in connection with his employment as Chief Financial Officer and Treasurer
of the Company.
OPTION GRANTS DURING LAST FISCAL YEAR
The following table sets forth certain information concerning grants of
stock options to the Named Executive Officers during the year ended December 31,
1995. No stock appreciation rights were granted to those individuals during such
year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------ POTENTIAL REALIZABLE
PERCENT OF VALUE
NUMBER OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION
OPTIONS EMPLOYEES OR BASE FOR OPTION TERM(1)
GRANTED IN FISCAL PRICE EXPIRATION -----------------------
NAME (#)(2) YEAR ($/SH)(3) DATE 5% 10%
- -------------------------------- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Edward P. Drudge, Jr............ 178,572 44.5% $ 14.00 9/25/05 $1,571,434 $3,983,941
Richard L. Peranton............. 26,786 6.7 14.00 9/25/05 253,717 597,596
Gene C. Wilson.................. 26,786 6.7 14.00 9/25/05 253,717 597,596
Rosemary Payne-Harris........... 26,786 6.7 14.00 9/25/05 253,717 597,596
Michael P. Bernard.............. 35,715 8.9 14.00 9/25/05 314,292 796,802
</TABLE>
- ---------------
(1) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the rules of the Securities and Exchange Commission. There
can be no assurance provided to the option holder or any other holder of
the Company's securities that the actual stock price appreciation over the
ten-year option term will be at the assumed 5% and 10% levels or any other
defined level.
(2) Amounts represent shares of Common Stock issuable upon the exercise of
options granted to the Named Executive Officers on September 25, 1995 under
the Company's 1995 Plan. Each option has a maximum term of ten years
measured from the grant date. Such options vested as to 20% of the option
shares on September 25, 1995, and will vest as to the balance of such
option shares in a series of four equal installments on each of June 30,
1996, 1997, 1998 and 1999. Notwithstanding the vesting schedule, these
options become immediately and fully exercisable upon the termination of
the employee by the Company for reasons other than "cause" or upon the
employee's leaving the Company for "good reason" (as defined in the
employee's employment agreement). Moreover, the committee administering the
1995 Plan has the right, in its discretion, to accelerate the vesting
schedule of these options, and may provide that such options become
automatically vested in connection with certain significant events,
including the merger, consolidation, liquidation or dissolution of the
Company or the acquisition by another party of 80% of the Company's then
outstanding voting stock.
(3) The exercise price may be paid in cash or, in the discretion of the
Compensation Committee and subject to certain conditions, in shares of the
Company's Common Stock (including shares issuable upon exercise of the
option) or other property valued at fair market value on the exercise date.
The Company may also finance the option exercise price for the purchased
shares.
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<PAGE> 47
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
The following table sets forth certain information concerning option
holdings for the year ended December 31, 1995 with respect to each of the Named
Executive Officers. No stock options were exercised by the Named Executive
Officers during such fiscal year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR END AT FISCAL YEAR END($)(1)
------------------------------ ---------------------------
NAME EXERCISABLE UNEXERCISABLE(2) EXERCISABLE UNEXERCISABLE
- ---------------------------------------------- ----------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Edward P. Drudge, Jr.......................... 35,714 142,858 $22,321 $89,286
Richard L. Peranton........................... 5,357 21,429 3,348 13,393
Gene C. Wilson................................ 5,357 21,429 3,348 13,393
Rosemary Payne-Harris......................... 5,357 21,429 3,348 13,393
Michael P. Bernard............................ 7,143 28,572 4,464 17,858
</TABLE>
- ---------------
(1) Represents the difference between the option exercise price and the closing
price of the Company's Common Stock as reported on the NYSE on December 29,
1995.
(2) Options with respect to approximately 25% of these options shares (or 20% of
the aggregate number of option shares shown for the Named Executive Officer
in the Exercisable and Unexercisable columns) will vest on June 30, 1996,
and will vest as to the balance of such option shares in a series of three
additional equal installments on each of June 30, 1997, 1998 and 1999.
COMPENSATION PLANS AND ARRANGEMENTS
Employment Agreements
The Company has entered into an employment agreement with Mr. Drudge, dated
as of September 29, 1995, which provides for his employment as Chief Executive
Officer of the Company until September 30, 1998, subject to automatic renewal
for successive one-year periods unless either the Company or Mr. Drudge has
given notice of non-renewal six months prior to expiration. The employment
agreement provides for (i) an annual base salary of $300,000 (subject to annual
adjustment as determined by the Board of Directors), (ii) the right to earn
bonuses under the Company's Management Incentive Compensation Plan, and (iii)
the right under the Company's 1995 Plan to purchase $2,500,000 in shares of
Common Stock at a price per share equal to $14.00, the initial public offering
price, 20% of which options vested upon the consummation of the initial public
offering, with an additional 20% vesting on each successive June 30 on which Mr.
Drudge is employed by the Company. If the employment agreement is terminated by
the Company other than for cause or by Mr. Drudge upon a change in terms and
conditions of employment or following a change in control of the Company, the
Company must pay Mr. Drudge severance equal to 24 months salary and accrued but
unpaid bonus, and all unvested options to purchase Common Stock then held by Mr.
Drudge become immediately exercisable. The employment agreement contains a
provision prohibiting Mr. Drudge from competing with the Company or soliciting
employees and customers of the Company for a period of two years from the date
Mr. Drudge is no longer an employee of the Company.
The Company has entered into an employment agreement with Mr. Bernard dated
as of September 29, 1995, which provides for his employment as Chief Financial
Officer and Treasurer of the Company until September 30, 1996, subject to
automatic renewal for successive one-year periods unless either the Company or
Mr. Bernard has given notice of non-renewal six months prior to expiration. The
employment agreement provides for (i) an annual base salary of $125,000 (subject
to annual adjustment as determined by the Board of Directors), (ii) the right to
earn bonuses under the Company's Management Incentive Compensation Plan, and
(iii) the right under the Company's 1995 Plan to purchase $500,000 in shares of
the Company's Common Stock at a price per share equal to $14.00, the public
offering price, 20% of which options vested upon the consummation of the initial
public offering, with an additional 20% vesting on each successive June 30 on
which Mr. Bernard is employed by the Company. If the employment agreement is
terminated by the Company other than for cause or by Mr. Bernard upon a change
in terms and conditions of employment or following a change in control of the
Company, the Company must pay Mr. Bernard severance equal to six
44
<PAGE> 48
months salary and accrued but unpaid bonus, and all unvested options to purchase
Common Stock then held by Mr. Bernard become immediately exercisable. The
employment agreement contains a provision prohibiting Mr. Bernard from competing
with the Company or soliciting employees and customers of the Company for a
period of two years from the date Mr. Bernard is no longer an employee of the
Company.
The Company has assumed the obligations of Nursefinders, Inc. under an
employment agreement with Mr. Peranton, dated April 1, 1994, which provides for
his employment as President of Nursefinders, Inc. The employment agreement
provides for (i) an annual base salary of $205,800 (subject to annual
adjustment), and (ii) the right to earn bonuses of up to 100% of this base
salary based on the performance of Nursefinders. Under the employment agreement,
Mr. Peranton must be given six months' notice of termination. In addition, if
Nursefinders is sold during the first three years of Mr. Peranton's employment
and Mr. Peranton elects not to be an employee of the acquiring company, the
Company must pay Mr. Peranton severance equal to 12 months salary (not including
bonus or benefits). The employment agreement contains a provision prohibiting
Mr. Peranton from competing with the Company or soliciting employees and
customers of the Company for a period of one year from the date Mr. Peranton is
no longer an employee of the Company.
The Company has assumed the obligations of Thomas Staffing Services, Inc.
under an employment agreement with Mr. Wilson, dated April 22, 1991, which
provides for his employment as President of Thomas Staffing Services, Inc. The
employment agreement provides for (i) an annual base salary of $165,000 (subject
to annual adjustment), and (ii) the right to earn bonuses of up to 100% of this
base salary based on the performance of Thomas Staffing Services. If the
employment agreement is terminated by the Company other than for cause, the
Company must give Mr. Wilson ten week's prior notice or, alternatively, pay Mr.
Wilson severance equal to ten week's salary (not including bonus or benefits).
The employment agreement contains a provision prohibiting Mr. Wilson from
competing with the Company or soliciting employees and customers of the Company
for a period of one year from the date Mr. Wilson is no longer an employee of
the Company.
The Company has entered into an employment agreement with Ms. Payne-Harris,
dated October 19, 1995, which provides for her employment as Senior Vice
President and Secretary of the Company until October 31, 1996, subject to
automatic renewal for successive one-year periods unless the Company or Ms.
Payne-Harris has given notice of non-renewal six months prior to expiration. The
employment agreement provides for (i) an annual base salary of $112,000 (subject
to annual adjustment), (ii) the right to earn bonuses under the Company's
Management Incentive Compensation Plan, and (iii) the right under the Company's
1995 Plan to purchase $375,000 in shares of the Company's Common Stock at a
price per share equal to $14.00, the public offering price, 20% of which options
vested upon the consummation of the initial public offering, with an additional
20% vesting on each successive June 30 on which Ms. Payne-Harris is employed by
the Company. If the employment agreement is terminated by the Company other than
for cause or by Ms. Payne-Harris upon a change in terms and conditions of
employment or following a change in control of the Company, the Company must pay
Ms. Payne-Harris severance equal to 12 months salary and accrued but unpaid
bonus, and all unvested options to purchase Common Stock then held by Ms.
Payne-Harris become immediately exercisable. The employment agreement contains a
provision prohibiting Ms. Payne-Harris from competing with the Company or
soliciting employees and customers of the Company for a period of two years from
the date Ms. Payne-Harris is no longer an employee of the Company.
Compensation Committee Interlocks and Insider Participation
During the year ended December 31, 1995, no member of the Compensation
Committee was an employee or officer, or former employee or officer, of the
Company. Prior to the Company's initial public offering in September 1995, the
Company did not have a compensation committee, and decisions concerning the
compensation of executive officers were made by members of the executive
management of the Company's former parent.
Management Incentive Compensation Plan
Under the Company's annual bonus plan (the "Management Incentive
Compensation Plan"), selected key employees, including executive officers, are
eligible to receive bonus payments. The Management
45
<PAGE> 49
Incentive Compensation Plan is intended to provide an incentive for superior
work and to motivate eligible employees toward even higher achievement and
business results, to tie their goals and interests to those of the Company and
its stockholders and to enable the Company to attract and retain highly
qualified employees. An eligible employee may receive a bonus payment based upon
the attainment of performance objectives established by the Compensation
Committee and related to one or more of the following corporate business
criteria: pre-tax income, operating income, cash flow, earnings per share,
return on equity, return on invested capital or assets, cost reductions and
savings, return on revenues, collection of accounts receivable or productivity.
The Management Incentive Compensation Plan provides that the maximum bonus for
an eligible employee is equal to the lesser of 100% of the eligible employee's
annual base salary for the performance period or $500,000 with respect to any
fiscal year of the Company.
The Management Incentive Compensation Plan is designed to ensure that the
annual bonus paid thereunder to eligible employees of the Company is deductible
by the Company without limit under Section 162(m) of the Internal Revenue Code.
Section 162(m), which was added to the Code in 1993, places a limit of $1
million, subject to certain exceptions, on the amount of compensation that may
be deducted by the Company in any tax year with respect to the chief executive
officer and each of the Company's four most highly paid executives.
1995 Equity Participation Plan
The 1995 Plan was adopted to attract and retain officers, key employees,
consultants and directors. An aggregate of 1,200,000 shares of the Common Stock
(or their equivalent in other equity securities), subject to adjustment for
stock splits, stock dividends and certain other types of recapitalizations, has
been authorized for issuance upon exercise of options, stock appreciation rights
("SARs"), and other awards, or as restricted or deferred stock awards under the
1995 Plan. The maximum number of shares which may be subject to options or SARs
granted under the 1995 Plan to any individual in any calendar year cannot exceed
200,000. The Compensation Committee generally administers the 1995 Plan and
determines the persons to whom options, SARs, restricted stock and other awards
are to be granted and the terms and conditions, including the number of shares
and the period of exercisability, thereof; provided, however, that the Board,
acting by a majority, administers the 1995 Plan with respect to formula-based
option grants to non-employee directors. Options, SARs, restricted stock and
other awards under the 1995 Plan may be granted to individuals who are then
officers or other employees of the Company or any of its present or future
subsidiaries and who are determined by the Committee to be key employees. Such
awards also may be granted to consultants of the Company selected by the
Committee for participation in the 1995 Plan. Approximately 100 officers and
other employees are eligible to participate in the 1995 Plan.
The 1995 Plan authorizes the grant or issuance of various options and other
awards to employees and consultants, and the terms of each such option or award
will be set forth in separate agreements. In addition, non-employee directors
(including the directors who administer the plan) are eligible to receive non-
discretionary grants of nonqualified stock options ("NQSOs") under the Incentive
Plan pursuant to a formula. Pursuant to such formula, each of the Company's
nonemployee directors receive, upon being elected to the Board of Directors, a
grant of NQSOs to purchase 6,250 shares of the Common Stock at the then fair
market value of the Common Stock; thereafter, each non-employee director
receives annual grants of options to purchase 3,125 shares of Common Stock in
each of the two succeeding years and thereafter an annual grant of options to
purchase 1,500 shares, in each case on the date of the Company's stockholders'
meeting at which such non-employee director is reelected and with an exercise
price equal to the fair market value of the Common Stock on the date of the
grant. NQSOs may be granted to an employee or consultant for any term specified
by the Compensation Committee and will provide for the right to purchase Common
Stock at a specified price which, except with respect to NQSOs intended to
qualify as performance-based compensation under Section 162(m) of the Code, may
be less than fair market value on the date of grant (but not less than par
value), and may become exercisable (in the discretion of the Compensation
Committee) in one or more installments after the grant date. Of the NQSOs
granted to non-employee directors, 100% shall be fully vested and exercisable
upon grant and the term of each such option shall be ten years. Subject to
expiration 90 days after the director ceases to serve as a director, except upon
the director's retirement in accordance with the
46
<PAGE> 50
Company's retirement policy applicable to directors. Incentive stock options may
be granted only to employees, and if granted, will be designed to comply with
the provisions of the Code and will be subject to restrictions contained in the
Code, including having an exercise price equal to at least 100% of fair market
value of Common Stock on the grant date and a ten year restriction on their
term, but may be subsequently modified to disqualify them from treatment as an
incentive stock option. SARs may be granted to employees and consultants and may
be granted in connection and simultaneously with the grant of an option, with
respect to a previously granted option or independent of an option. Participants
may receive dividend equivalents representing the value of the dividends per
share paid by the Company, calculated with reference to the number of shares
covered by the stock options, SARs or performance awards held by the
participant. Performance awards may be granted by the Compensation Committee to
employees and consultants and may include bonus or "phantom" stock awards that
provide for payments based upon increases in the price of the Common Stock over
a predetermined period. Restricted stock may be sold to employees and
consultants at various prices (but not below par value) and made subject to such
restrictions as may be determined by the Compensation Committee. Deferred stock
may be awarded to employees and consultants, typically without payment of
consideration, but subject to vesting conditions based on continued employment
or on performance criteria established by the Compensation Committee. Whereas
purchasers of restricted stock will have voting rights and will receive
dividends prior to the time when the restrictions lapse, recipients of deferred
stock generally will have no voting or dividend rights prior to the time when
vesting conditions are satisfied. Stock awards may be made to employees and
consultants and the number of shares shall be determined by the Compensation
Committee and may be based upon the fair market value, book value, net profits
or other measure of the value of Common Stock or other specific performance
criteria.
The exercise or purchase price for all options, SARs, restricted stock and
other rights to acquire Common Stock, together with any applicable tax required
to be withheld, may be in cash or at the discretion of the Compensation
Committee (or the Board, in the case of NQSOs granted to non-employee
directors), with shares of Common Stock owned by the optionee (or issuable upon
exercise of the option) or with other lawful consideration, including services
rendered.
The dates on which options or other awards under the 1995 Plan first become
exercisable and on which they expire will be set forth in individual stock
options or other agreements setting forth the terms of the awards. Such
agreements generally will provide that options and other awards expire upon
termination of the optionee's status as an employee or consultant, although the
Committee may provide that such options continue to be exercisable following a
termination without cause, or following a change in control of the Company, or
because of the grantee's retirement, death, disability or otherwise. Similarly,
restricted stock granted under the 1995 Plan which has not vested generally will
be subject to repurchase by the Company in the event of the grantee's
termination of employment or consultancy, although the Committee may make
exceptions, based on the reason for termination or on other factors, in the
terms of an individual restricted stock agreement.
No restricted stock, deferred stock, option, SAR or other right to acquire
Common Stock granted under the 1995 Plan may be assigned or transferred by the
grantee, except by will or the laws of intestate succession, although such
shares or the shares underlying such rights may be transferred if all applicable
restrictions have lapsed. During the lifetime of the holder of any option or
right, the option or right may be exercised only by the holder.
The shares subject to stock options, SARs or other awards which have
terminated or lapsed unexercised or which have been cancelled upon grant of a
new option, SAR or other award, and shares which are withheld by the Company
upon the exercise of stock options or other awards in payment of the exercise
price thereof, will continue to be available for issuance under the 1995 Plan.
The Compensation Committee has the right to accelerate, in whole or in
part, from time to time, conditionally or unconditionally, the right to exercise
any option or other award granted under the 1995 Plan; provided, however, such
acceleration shall not be permitted with respect to NQSOs granted to
non-employee directors.
47
<PAGE> 51
Amendments of the 1995 Plan to increase the number of shares as to which
options, SARs, restricted stock and other awards may be granted (except for
adjustments resulting from stock splits and the like) require the approval of
the Company's stockholders. The provisions of the 1995 Plan relating to options
granted to non-employee directors shall not be amended more than once in any
six-month period other than to comport with changes in the Code, the Employee
Retirement Income Security Act, or the respective rules thereunder. In all other
respects the 1995 Plan can be amended, modified, suspended or terminated by the
Compensation Committee, unless such action would otherwise require stockholder
approval as a matter of applicable law, regulation or rule. Amendments of the
1995 Plan will not, without the consent of the participant, affect such person's
rights under an award previously granted, unless the award itself otherwise
expressly so provides. The 1995 Plan terminates 10 years from the date it is
adopted by the Company's Board of Directors.
During the year ended December 31, 1995, the Company granted options under
the 1995 Plan to purchase an aggregate of 432,703 shares of Common Stock, of
which options with respect to 123,326 shares are currently exercisable, and
options with respect to an additional 58,929 shares will vest on June 30, 1996.
The Company intends for the compensation awarded under the 1995 Plan to comply
with the requirements of the "performance-based" compensation exception to the
$1 million deductibility limit under Section 162(m), including option pricing
requirements and requirements governing the administration of the 1995 Plan, so
that the deductibility of compensation paid to top executives thereunder is not
expected to be disallowed.
401(k) Plan
All employees of the Company who are not "highly compensated employees" as
defined in Section 414(q) of the Code may elect to participate in the Company's
401(k) Plan (the "401(k) Plan") after satisfying the 401(k) Plan's eligibility
requirements. Each employee who is employed by the Company for one year and
completes 1,000 hours of service is eligible to participate. Participating
employees may make contributions by electing to reduce their cash compensation
up to a maximum of $9,240 in 1995, and have the amount of that reduction
contributed to an account for them under the 401(k) Plan. The Company will make
matching contributions equal to $0.25 per each $1.00 of employee contribution up
to a maximum matching contribution of $500 per year per employee. The Company
also may make additional profit sharing contributions determined in its
discretion taking financial results into consideration. Employees are always
fully vested as to employee contributions and Company matching contributions and
become fully vested as to Company profit sharing contributions, if any, based on
their number of years of service with the Company and the Company's former
parent.
The purpose of the 401(k) Plan is to enable participating employees to save
for their retirement through a program of employer and employee contributions.
The 401(k) Plan is a qualified plan under Section 401 of the Code. Employee
contributions are before-tax contributions.
Nonqualified Profit Sharing Plan
Certain employees who are excluded from participating in the 401(k) Plan
because of being classified as "highly compensated employees" under the Code and
who complete one year and 1,000 hours of service are eligible to participate in
the Company's Nonqualified Profit Sharing Plan. At the discretion of the Board
of Directors, the Company may, but is not required to, make contributions under
the plan, generally based on the profitability of the Company. The amount of any
such contribution allocated to each participant's account is based on a formula
specified by the Board of Directors, or if no formula is specified by the Board
of Directors, a formula which allocates the contribution approximately
proportionate to the participant's compensation compared to the total
compensation of all participants. Participants generally become fully vested in
their accounts based on their number of years of service with the Company and
the Company's former parent.
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<PAGE> 52
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation provides that, to the extent
permitted by Delaware law, each director shall not be liable for monetary
damages for breach of such director's fiduciary duty as a director to the
Company and its stockholders. In addition, the Company's Bylaws provide that the
Company will indemnify its directors and officers, and may indemnify its
employees and agents, against losses incurred by any such person by reason of
the fact that such person was acting in such capacity. The Company maintains
insurance for the benefit of its directors and officers insuring against all
liabilities that may be incurred by such director or officer in or arising out
of his capacity as a director, officer, employee or agent of the Company. The
Company has entered into indemnification agreements with its officers and
directors. See "Description of Capital Stock -- Limitation of Liability and
Indemnification Agreements."
CERTAIN TRANSACTIONS
The Company was organized in 1995 in a series of transactions culminating
in an initial public offering (the "IPO") of 100% of the Common Stock by Adia,
the Company's former parent. Adia organized the Company in July 1995 and
transferred to the Company the subsidiaries and divisions comprising the
Staffing Services and Health Care Services Divisions of the Company, which Adia
had owned and operated for many years. The net assets transferred to the Company
by Adia had a book value at June 30, 1995 of $73,888,000. In exchange for the
transfer of these assets, Adia received 8,000,000 shares, or 100%, of the Common
Stock. Adia subsequently sold all 8,000,000 shares of the Common Stock in the
IPO at $14.00 per share, which offering was consummated in September 1995. Net
proceeds of the IPO to Adia were approximately $103,280,000. The Company
received no proceeds from the IPO.
The Company licenses certain proprietary rights, including the Nursefinders
and TempWorld trademarks and certain related customer lists, employee lists,
covenants not to compete and other rights and obligations, from Adia. Aggregate
annual fees under the licenses are $10,000. The licenses are perpetual, subject
to the right of Adia to cause the Company to purchase, at any time after
September 25, 1995, the intangible assets for an aggregate price of $100,000,
which price decreases annually over five years to a minimum aggregate price of
$65,000.
In addition, the Company has entered into (i) certain service agreements
with Adia, effective as of the consummation of the IPO, pursuant to which Adia
will provide certain accounting, finance, human resources and risk management
services to the Company for up to one year following the consummation of the IPO
for a monthly fee of $21,167, and certain paybill services for two years
following the consummation of the IPO, with an option for an additional year,
for a monthly fee equal to the greater of $1.86 per timecard processed or
$10,000 and (ii) a license agreement pursuant to which Adia has licensed to the
Company the software used in the QuestPLUS system for two years following the
consummation of the IPO, with an option for an additional year, for an initial
monthly fee of $13,583, increasing 5% annually. The Company may terminate any of
these agreements at any time upon 30 days' prior notice. The Company has
recently engaged third party vendors to develop an accounting and financial
information system and a branch operating and paybill system, including software
to replace the software currently licensed from Adia for use in the QuestPLUS
system. The Company believes that the term of these agreements with Adia are no
less favorable to the Company than terms available from a third party, but
intends to continue to sever its dependence on Adia.
For purposes of enabling Nursefinders to sell franchises and licenses
without obtaining separately audited financial statements for Nursefinders, Adia
guaranteed the performance of Nursefinders' obligations as franchisor/licensor
under its franchise/license agreements. The Company has obtained novations
pursuant to which it has assumed, and Adia has been released from, the
obligations under such guaranty with respect to certain of such agreements
effective as of the consummation of the IPO. Since the consummation of the IPO,
Adia no longer guarantees Nursefinders' obligations to new franchisees or
licensees. Adia's obligations under its guaranty with respect to certain of the
Nursefinders' franchise agreements, however, remain in effect. Pursuant to an
indemnification agreement between the Company and Adia, the Company has agreed
to indemnify Adia against certain expenses or losses which may be incurred by
Adia or its respective affiliates arising from the conduct of the Company's
business, including any losses it may incur in connection with such
49
<PAGE> 53
guaranty. Adia received no specific consideration from the Company or
Nursefinders or its franchisees for its guaranty.
In addition, the Company and Adia are parties to an income tax sharing
agreement pursuant to which, with respect to any taxable period of the Company
that ended on the date of the consummation of the IPO, and with respect to any
taxable period of the Company that began before and ended after the consummation
of the IPO (such period, a "Straddle Period"), the Company will generally be
obligated to reimburse Adia for the Company's share of federal, state, local and
foreign income taxes incurred by Adia with respect to such period (or, in the
case of a Straddle Period, the portion of such Straddle Period beginning on the
first day of such taxable period and ending on the date of consummation of the
IPO). Except as provided above, Adia will generally be liable for income taxes
of the Company for any taxable period that ended on or before the date of the
consummation of the IPO, and the Company will be liable for income taxes for any
period that ended after the consummation of the IPO.
During fiscal 1995, certain executive officers of the Company, Edward P.
Drudge, Jr., Gene C. Wilson and Rosemary Payne-Harris, received certain income
attributable to the exercise of options to purchase Adia common stock and the
subsequent sale of such stock. Such options, which consisted of both options
intended to qualify as incentive stock options under Section 422 of the Internal
Revenue Code and options not intended to qualify as incentive stock options,
were granted to these persons in their capacity as employees of Adia as
incentive compensation for periods of service prior to the formation of the
Company. The income recognized from the exercise of such options was as follows:
Mr. Drudge -- $637,935; Mr. Wilson -- $211,937; Ms. Payne-Harris -- $88,061.
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<PAGE> 54
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of May 20, 1996, and as adjusted to give effect
to the sale of 3,500,000 shares of Common Stock offered by the Company in this
offering, by (i) each person who owns beneficially more than five percent of the
Common Stock, (ii) each of the Company's directors and director nominees, (iii)
each of the Company's Named Executive Officers and (iv) all executive officers
and directors as a group. Except as otherwise indicated, the persons named in
the table have sole voting and investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE OFFERING THE OFFERING
-------------------- --------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT(1) NUMBER PERCENT(1)
- ---------------------------------------------------------------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
RCM Capital Management
RCM Limited L.P.
RCM General Corporation(2)(3)................................... 792,000 9.9% 792,000 6.9%
Four Embarcadero Center, Suite 3000
San Francisco, California 94111-4189
Metropolitan Life Insurance Company(2)(4)....................... 663,500 8.3 663,500 5.8
One Madison Avenue
New York, New York 10010-3690
State Street Research & Management Company(2)(5)................ 663,500 8.3 663,500 5.8
One Financial Center, 30th Floor
Boston, Massachusetts 02111-2690
Edward P. Drudge, Jr.(6)........................................ 88,828 1.1 88,828 *
Kevin P. Egan(7)................................................ 13,375 * 13,375 *
James V. Napier(7).............................................. 11,875 * 11,875 *
Michael P. Bernard(8)........................................... 14,486 * 14,486 *
J. Roger King(7)................................................ 9,975 * 9,975 *
William J. Simione, Jr.(9)...................................... 9,375 * 9,375 *
Rosemary Payne-Harris(10)....................................... 11,816 * 11,816 *
Richard L. Peranton(9).......................................... 10,716 * 10,716 *
Gene C. Wilson(9)............................................... 10,716 * 10,716 *
All directors and executive officers as a group (10 executive
persons)(11).................................................. 181,162 2.2 181,162 1.6
</TABLE>
- ---------------
* Less than 1%.
(1) Assumes no exercise of the Underwriters' over-allotment option. Shares of
Common Stock that are not outstanding but that may be acquired by a person
upon exercise of options within 60 days of May 20, 1996 are deemed
outstanding for the purpose of computing the percentage of outstanding
shares beneficially owned by such person, but are not deemed outstanding
for the purpose of computing the percentage of outstanding shares
beneficially owned by any other person.
(2) The amount and nature of the shares beneficially owned are as of December
31, 1995 and are based on the most recent Schedule 13G on file with the
Company.
(3) Includes 682,000 shares with respect to which sole voting power is
reported.
(4) These shares are also reported as beneficially owned by State Street
Research & Management Company, a subsidiary of Metropolitan Life Insurance
Company. Includes 649,600 shares with respect to which sole voting power is
reported.
(5) These shares are also reported as beneficially owned by Metropolitan Life
Insurance Company. Includes 649,600 shares with respect to which sole
voting power is reported. State Street Research & Management Company
disclaims beneficial ownership of all shares reported.
(6) Includes 71,428 shares issuable upon the exercise of options exercisable
within 60 days of May 20, 1996 and 1,000 shares owned by Mr. Drudge's sons
over which he disclaims beneficial ownership.
(7) Includes 9,375 shares issuable upon the exercise of options exercisable
within 60 days of May 20, 1996.
(8) Includes 14,286 shares issuable upon the exercise of options exercisable
within 60 days of May 20, 1996.
(9) Represents shares issuable upon the exercise of options exercisable within
60 days of May 20, 1996.
(10) Includes 10,716 shares issuable upon the exercise of options exercisable
within 60 days of May 20, 1996 and 1,100 shares over which Ms. Payne-Harris
shares voting and investment power with her husband.
(11) Includes 155,362 shares issuable upon the exercise of options exercisable
within 60 days of May 20, 1996.
51
<PAGE> 55
DESCRIPTION OF CAPITAL STOCK
The following description of the Company's capital stock does not purport
to be complete and is subject in all respects to applicable Delaware law and to
the provisions of the Company's Certificate of Incorporation, Bylaws and Rights
Agreement (as defined below), copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part.
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred
Stock, par value $.01 per share. Immediately following the completion of this
offering an aggregate of 11,500,300 shares of Common Stock will be issued and
outstanding, and no shares of Preferred Stock will be issued or outstanding. The
Company has reserved an aggregate of 1,200,000 shares of Common Stock for
issuance under the 1995 Plan, and options with respect to 437,403 such shares
were issued and outstanding at May 20, 1996.
COMMON STOCK
Holders of the Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Holders of Common Stock do not
have cumulative voting rights, and therefore holders of a majority of the shares
voting for the election of directors can elect all of the directors. In such
event, the holders of the remaining shares will not be able to elect any
directors.
Holders of the Common Stock are entitled to receive such dividends as may
be declared from time to time by the Board of Directors out of funds legally
available therefor. The Company does not anticipate paying cash dividends in the
foreseeable future. See "Dividend Policy." In the event of the liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities.
Holders of Common Stock have no preemptive, conversion or redemption rights
and are not subject to further calls or assessments by the Company. All of the
outstanding shares of Common Stock are, and the shares offered by the Company
hereby will be, if issued, validly issued, fully paid and nonassessable.
The Transfer Agent and Registrar for the Common Stock is The First National
Bank of Boston.
PREFERRED STOCK
The Company's Board of Directors is authorized to issue from time to time,
without stockholder authorization, in one or more designated series, any or all
of the authorized but unissued shares of Preferred Stock with such dividend,
redemption, conversion and exchange provisions as may be provided in the
particular series. Any series of Preferred Stock may possess voting, dividend,
liquidation and redemption rights superior to that of the Common Stock. The
rights of the holders of Common Stock will be subject to and may be adversely
affected by the rights of the holders of any Preferred Stock that may be issued
in the future. Issuance of a new series of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of entrenching the Company's Board of
Directors and making it more difficult for a third party to acquire, or
discouraging a third party from acquiring, a majority of the outstanding voting
stock of the Company. Although the Company has no present plans to issue any
series of Preferred Stock, the Company's Board of Directors, in connection with
the adoption of the stockholder rights plan described below, has pre-approved
the terms of a series of Preferred Stock which may be issued upon the occurrence
of certain triggering events.
STOCKHOLDER RIGHTS PLAN
On February 6, 1996, the Company's Board of Directors declared a dividend
(the "Rights Dividend"), payable February 27, 1996, of one right (a "Right") for
each outstanding share of the Company's Common Stock held of record at the close
of business on February 27, 1996. The Rights were issued pursuant to a Rights
Agreement, dated as of February 6, 1996 (the "Rights Agreement"), between the
Company and The First National Bank of Boston, as Rights Agent. Each Right
entitles the holder to purchase from the Company one one-hundredth of a share of
Series A Junior Participating Preferred Stock (the "Junior Participating
52
<PAGE> 56
Preferred") for an exercise price of $95.00, subject to adjustment. Each one
one-hundredth of a share of Junior Participating Preferred, which will be
created upon the occurrence of certain triggering events, is designed to have
economic and voting terms similar to those of one share of Common Stock. The
Rights will expire on the earliest of (i) the declaration by the Board of
Directors of an exchange of Rights for Common Stock, as described below, (ii)
the close of business on February 6, 2006 or (iii) the date on which the Rights
are redeemed or terminated, as described below.
The Rights will be evidenced by the Company's Common Stock certificates,
and no separate certificates representing the Rights will be distributed until
such time as the Rights separate from the Common Stock. In general, the Rights
will separate from the Common Stock and become exercisable upon the date (the
"Distribution Date") that is the earlier of (i) the tenth day (the "Flip-in
Date") following a public announcement that any person or group of affiliated or
associated persons other than the Company and certain Company-related entities
(an "Acquiring Person"), with certain exceptions, has acquired beneficial
ownership of 15% or more of the outstanding Common Stock or (ii) the tenth
business day (or such later date as may be determined by the Board of Directors
prior to the Distribution Date that otherwise would have occurred) following the
date on which an Acquiring Person commences a tender or exchange offer that, if
consummated, would result in such Acquiring Person becoming the beneficial owner
of 15% or more of the Company's outstanding Common Stock.
After the Distribution Date, each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which thereupon become void), will
have the right to receive upon exercise of a Right, at the then current exercise
price of the Right, that number of shares of Common Stock having a market value
of two times the exercise price of the Right.
In addition, the Board of Directors has certain rights to redeem, terminate
or exchange the Rights for Common Stock. At any time prior to the close of
business on a Flip-in Date, the Board of Directors may, at its option, redeem
all of the then outstanding Rights at a price of $.01 per Right. The Board may
generally amend the Rights in any respect prior to a Flip-in Date, and may
thereafter amend Rights in any respect not materially adverse to the Rights
holders generally. At any time after a Flip-in Date and prior to the time an
Acquiring Person becomes the beneficial owner of more than 50% of the
outstanding Common Stock, the Board may elect to exchange all Rights for Common
Stock at the rate of one share of Common Stock (or one one-hundredth of a share
of the Junior Participating Preferred, or shares of a class or series of the
Company's Preferred Stock having equivalent rights, preferences and privileges)
per Right.
Until a Right is exercised, the holder of the Right, as such, will have no
rights as a stockholder of the Company, including without limitation the right
to vote or receive dividends. The issuance of the Rights could have the effect
of making it more difficult for a third party to acquire, or discourage a third
party from acquiring, a majority or substantial minority interest in the Common
Stock of the Company.
CERTAIN PROVISIONS OF DELAWARE LAW
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law (the "Delaware Law"). In general, Section 203
prevents an "interested stockholder" (defined generally as a person owning 15%
or more of a corporation's outstanding voting stock) from engaging in a
"business combination" (as defined) with a Delaware corporation for three years
following the date such person became an interested stockholder unless (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination, (ii) upon
consummation of the transaction that resulted in the interested stockholder
becoming an interested stockholder, the interested stockholder owns at least 85%
of the voting stock of the corporation outstanding at the time the transaction
commenced (excluding shares owned by persons who are both officers and directors
of the corporation and shares held by certain employee stock ownership plans),
or (iii) following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of directors of
the corporation and authorized at a meeting of stockholders by the affirmative
vote of the holders of at least two-thirds of the outstanding voting stock of
the corporation not owned by the interested stockholder.
53
<PAGE> 57
CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION AND BYLAWS AFFECTING
STOCKHOLDERS
The Company's Certificate of Incorporation provides for a classified Board
of Directors consisting of three classes as nearly equal in size as practicable.
Each class will hold office until the third annual meeting for election of
directors following the election of such class; provided, however, that the
current terms of the directors in the second and third classes of the Board will
expire in 1997 and 1998, respectively. A majority vote of the stockholders is
required to alter, amend or repeal the foregoing provisions. The classification
of the Board of Directors may discourage a third party from making a tender
offer or otherwise attempting to gain control of the Company and may maintain
the incumbency of the Board of Directors.
The Company's Certificate of Incorporation also requires that any action
required or permitted by stockholders must be effected at a duly called annual
or special meeting of stockholders and may not be effected by written consent.
The Company's Bylaws set forth an advance notice procedure with regard to
stockholder nominations and business to be brought before a meeting of
stockholders.
LIMITATION OF LIABILITY AND INDEMNIFICATION AGREEMENTS
The Company's Certificate of Incorporation provides that to the fullest
extent permitted by Delaware law, a director of the Company shall not be liable
to the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director. Under current Delaware law, liability of a director may not
be limited (i) for any breach of the director's duty of loyalty to the Company
or its stockholders, (ii) for acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law, (iii) in respect
of certain unlawful dividend payments or stock redemptions or repurchases, and
(iv) for any transaction from which the director derives an improper personal
benefit. The effect of this provision of the Company's Certificate of
Incorporation is to eliminate the rights of the Company and its stockholders
(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of the fiduciary duty of care as
a director (including breaches resulting from negligent or grossly negligent
behavior), except in the situations described in clauses (i) through (iv) above.
This provision does not limit or eliminate the rights of the Company or any
stockholder to seek nonmonetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. In addition, the Company's
Bylaws provide that the Company shall indemnify its directors and officers, and
may indemnify employees and agents, against losses incurred by any such person
by reason of the fact that such person was acting in such capacity.
The Company has entered into agreements (the "Indemnification Agreements")
with each of the directors and officers of the Company pursuant to which the
Company has agreed to indemnify such director or officer for any damages,
judgments, fines, expenses, costs, penalties or amounts paid in settlement in
connection with any claim, action, suit or proceeding in which such director or
officer is involved as a party or otherwise by reason of the fact that he is or
was a director or officer of the Company or any other corporation or other
entity of which served as a director or officer at the request of the Company to
the maximum extent permitted by applicable law. In addition, such director or
officer is entitled to an advance of expenses to the maximum extent authorized
or permitted by law.
To the extent that the Board of Directors or the stockholders of the
Company may in the future wish to limit or repeal the ability of the Company to
provide indemnification as set forth in the Company's Bylaws, such repeal or
limitation may not be effective as to directors and officers who are parties to
the Indemnification Agreements, because their rights to full protection would be
contractually assured by the Indemnification Agreements. It is anticipated that
similar contracts may be entered into, from time to time, with future directors
and officers of the Company.
54
<PAGE> 58
UNDERWRITING
The U.S. Underwriters named below, acting through PaineWebber Incorporated,
Smith Barney Inc., J.C. Bradford & Co., and The Robinson-Humphrey Company, Inc.,
as Representatives (the "Representatives"), have severally agreed, subject to
the terms and conditions set forth in the U.S. Underwriting Agreement by and
between the Company and the Representatives (the "U.S. Underwriting Agreement"),
to purchase from the Company, and the Company has agreed to sell to the
Underwriters, the number of shares of Common Stock set forth opposite their
respective names below:
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITERS OF SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
PaineWebber Incorporated..................................................
Smith Barney Inc..........................................................
J.C. Bradford & Co........................................................
The Robinson-Humphrey Company, Inc........................................
---------
Total........................................................... 2,800,000
========
</TABLE>
In addition, the International Underwriters (together with the U.S.
Underwriters, the "Underwriters"), in a concurrent offering of the Common Stock
to persons other than U.S. or Canadian Persons (as defined below), acting
through PaineWebber International (U.K.) Ltd., Smith Barney Inc., J.C. Bradford
& Co. and The Robinson-Humphrey Company, Inc., as International Representatives
(the "International Representatives"), have severally agreed, subject to the
terms and conditions set forth in the International Underwriting Agreement by
and between the Company and the International Representatives (the
"International Underwriting Agreement"), to purchase from the Company and the
Company has agreed to sell to the International Underwriters, 700,000 shares of
Common Stock.
The U.S. Underwriting Agreement provides that the obligation of the U.S.
Underwriters to purchase all of the shares of Common Stock is subject to certain
conditions. The U.S. Underwriters are committed to purchase, and the Company is
obligated to sell, all the shares of Common Stock offered by this Prospectus, if
any of the shares of Common Stock being sold pursuant to the U.S. Underwriting
Agreement are purchased. The offering price and underwriting discounts and
commissions under both underwriting agreements are identical. In general, the
closing with respect to the sale of the shares of Common Stock pursuant to the
U.S. Underwriting Agreement is a condition to the closing with respect to the
sale of the shares of Common Stock pursuant to the International Underwriting
Agreement and vice versa. PaineWebber International (U.K.) Ltd. is an affiliate
of PaineWebber Incorporated.
The Company has been advised by the Representatives that the U.S.
Underwriters propose to offer the Common Stock to the public initially at the
public offering price set forth on the cover page of this Prospectus, and to
certain dealers at such price less a concession not in excess of $ per
share. The U.S. Underwriters may allow, and such dealers may allow, a discount
not in excess of $ per share to other dealers. After the shares of
Common Stock are released for sale to the public, the public offering price and
the concession and discount to dealers may be changed by the Representatives.
Each U.S. Underwriter has agreed that, as part of the distribution of the
shares of Common Stock, (i) it is not purchasing any shares of Common Stock for
the account of anyone other than a U.S. or Canadian Person (as defined below),
and (ii) it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares of Common Stock or distribute this Prospectus to any
person outside the United States or Canada or to anyone other than a U.S. or
Canadian Person. Each International Underwriter has agreed that, as part of the
distribution of shares of Common Stock, (i) it is not purchasing any shares of
Common Stock for the account of any U.S. or Canadian Person, and (ii) it has not
offered or sold, and will not offer or sell, directly or indirectly, any shares
of Common Stock or distribute the International Prospectus to any person within
the United States or Canada or to any U.S. or Canadian Person. The foregoing
limitations do not apply to stabilization transactions or to certain other
transactions specified in the Agreement Between U.S. and International
Underwriters described below. As used herein, "U.S. or Canadian Person" means
any individual who is resident in the United States or Canada, or any
corporation, pension, profit-sharing or other trust or
55
<PAGE> 59
other entity organized under or governed by the laws of the United States or
Canada or any political subdivision thereof (other than a foreign branch of any
U.S. or Canadian Person), and includes any U.S. or Canadian branch of a non-U.S.
or Canadian Person.
The Underwriters have entered into an Agreement Between U.S. and
International Underwriters that provides for the coordination of their
activities. Pursuant to the Agreement Between U.S. and International
Underwriters, sales may be made between the U.S. Underwriters and the
International Underwriters of such number of shares of Common Stock as may be
mutually agreed upon. The per share price of any shares so sold shall be the
public offering price set forth on the cover page of this Prospectus, less an
amount not greater than the per share amount of the concession to dealers set
forth above. To the extent there are sales between the U.S. Underwriters and the
International Underwriters, the number of shares of Common Stock initially
available for sale by the U.S. Underwriters or by the International Underwriters
may be more or less than the amount appearing on the cover page of this
Prospectus.
The Company has granted an option to the U.S. Underwriters exercisable
during the 30-day period after the date of this Prospectus, to purchase up to a
maximum of 525,000 additional shares of Common Stock at the public offering
price less the underwriting discounts and commissions shown on the cover page of
this Prospectus. The U.S. Underwriters may exercise such option only to cover
over-allotments, if any, in the sale of the shares that the U.S. Underwriters
have agreed to purchase. To the extent that the U.S. Underwriters exercise this
option, each of the U.S. Underwriters will be committed, subject to certain
conditions, to purchase approximately the same percentage of additional shares
as the percentage it is required to purchase of the total number of shares of
Common Stock under the U.S. Underwriting Agreement.
The Company and its officers and directors have agreed that, except with
the prior written consent of PaineWebber Incorporated, during the 90 days
following the date of this Prospectus they will not offer for sale, sell, grant
any options, right or warrants with respect to any shares of Common Stock or any
other Company capital stock, securities or instruments convertible into or
exchangeable for Common Stock or other Company capital stock or otherwise
dispose of, directly or indirectly, of any shares of Common Stock, such other
capital stock or any other securities, instruments, options or rights
convertible into or exchangeable for, or otherwise exercisable for, Common Stock
or other Company capital stock, except for the Common Stock offered hereby.
Notwithstanding the foregoing, the Company may (i) grant options pursuant to the
Company's stock option plans in the ordinary course consistent with past
practice and issue shares of Common Stock upon the exercise of any such options
or under options currently outstanding and (ii) issue shares of Common Stock or
other securities convertible into Common Stock or any other capital stock of any
company solely to owners of capital stock of any company acquired by the Company
subsequent to the date 45 days from the date of this Prospectus. Any permitted
shortening of such periods and any related sales of Common Stock would not
necessarily be preceded by a public announcement of the Company or the
Representatives that such consent has been given.
The Company has agreed to indemnify the Underwriters and their controlling
persons against certain liabilities, including liabilities under the Securities
Act, or to contribute to payments the Underwriters may be required to make in
respect thereof.
PaineWebber Incorporated and Smith Barney Inc. acted as managers and
received customary discounts and commissions in connection with the Company's
initial public offering.
The Common Stock is listed on the New York Stock Exchange under the symbol
PGA.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Robinson, Bradshaw & Hinson, P.A., Charlotte, North
Carolina. Certain legal matters relating to the offering will be passed upon for
the Underwriters by Brobeck, Phleger & Harrison LLP, Newport Beach, California.
56
<PAGE> 60
EXPERTS
The consolidated financial statements of the Company as of December 31,
1994 and 1995 and for each of the three years in the period ended December 31,
1995, and the combined financial statements of Judith Fox Staffing Companies as
of December 31, 1995, and for the year then ended, included in this Prospectus
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
The financial statements of The Computer Resources Group, Inc. as of May
31, 1994 and 1995 and for the years then ended included in this Prospectus have
been audited by Phillip Goodman Accountancy Corporation, independent auditors,
as stated in their report thereon, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC" or the "Commission") a Registration Statement on Form S-1 (the
"Registration Statement") under the Securities Act with respect to the Common
Stock being offered by this Prospectus. As permitted by the rules and
regulations of the Commission, this Prospectus omits certain information,
exhibits and undertakings contained (or to be contained) in the Registration
Statement. Statements made in this Prospectus as to the contents of any
contract, agreement or other document are not necessarily complete. With respect
to each such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to such exhibit for a more complete
description of the matter involved, and each such statement is qualified in its
entirety by such reference.
The Company is subject to the informational and reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports and other information with the Commission.
The Registration Statement and the exhibits and schedules thereto, and the
reports, proxy and information statements filed by the Company with the
Commission pursuant to the informational requirements of the Exchange Act, may
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
should be available at the Commission's Regional Offices at 7 World Trade
Center, 13th Floor, New York, New York 10048, and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can also be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
In addition, reports, proxy statements and other information concerning the
Company (Symbol: PGA) can be inspected and copied at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005, on which the Common
Stock is listed.
In June 1995, the Company's former parent retained Arthur Andersen LLP as
the Company's independent public accountants. The former parent had previously
retained another independent public accountant to audit certain subsidiaries of
the Company for one or more of the years ended December 31, 1992, 1993 and 1994.
The former auditors' reports on such subsidiaries' financial statements for each
of the three years ended December 31, 1994 does not cover the consolidated
financial statements of the Company included in this Prospectus. Such reports
did not contain adverse opinions or disclaimers of opinion and were not modified
as to uncertainty, audit scope or accounting principles. There were no
disagreements with the former auditors on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure at the
time of the change or with respect to such subsidiaries' financial statements
for each of the three years ended December 31, 1994, which, if not resolved to
the former auditors' satisfaction, would have caused them to make reference to
the subject matter of the disagreement in connection with their reports. Prior
to retaining Arthur Andersen LLP, such subsidiaries had not consulted with
Arthur Andersen LLP regarding accounting principles.
57
<PAGE> 61
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PERSONNEL GROUP OF AMERICA, INC.
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996
(unaudited)......................................................................... F-3
Consolidated Statements of Income for the years ended December 31, 1993, 1994 and 1995
and the three months ended March 31, 1995 and 1996 (unaudited)...................... F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1993,
1994 and 1995 and the three months ended March 31, 1996 (unaudited)................. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and the three months ended March 31, 1995 and 1996 (unaudited)................. F-6
Notes to Consolidated Financial Statements for the years ended December 31, 1993, 1994
and 1995 and the three months ended March 31, 1996 (unaudited)...................... F-7
JUDITH FOX STAFFING COMPANIES
Report of Independent Public Accountants.............................................. F-16
Combined Balance Sheets as of December 31, 1995 and March 31, 1996 (unaudited)........ F-17
Combined Statements of Income for the year ended December 31, 1995 and for the three
months ended March 31, 1995 and March 31, 1996 (unaudited).......................... F-18
Combined Statements of Changes in Shareholders' Equity for the year ended December 31,
1995 and the three months ended March 31, 1996 (unaudited).......................... F-18
Combined Statements of Cash Flows for the year ended December 31, 1995 and for the
three months ended March 31, 1995 and March 31, 1996 (unaudited).................... F-19
Notes to Combined Financial Statements -- December 31, 1995 and March 31, 1996
(unaudited)......................................................................... F-20
COMPUTER RESOURCES GROUP
Independent Auditor's Report.......................................................... F-24
Balance Sheets as of May 31, 1994 and 1995 and February 29, 1996 (unaudited).......... F-25
Statements of Operations for the years ended May 31, 1994 and 1995 and for the nine
months ended February 28, 1995 and February 29, 1996................................ F-26
Statements of Stockholders' Equity for the years ended May 31, 1994 and 1995 and the
nine months ended February 29, 1996 (unaudited)..................................... F-26
Statements of Cash Flows for the years ended May 31, 1994 and 1995 and for the nine
months ended February 28, 1995 and February 29, 1996................................ F-27
Notes to Combined Financial Statements for the years ended May 31, 1994 and 1995 and
the nine months ended February 29, 1996............................................. F-28
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Unaudited Pro Forma Balance Sheet as of March 31, 1996................................ F-35
Notes to Unaudited Pro Forma Balance Sheet............................................ F-36
Unaudited Pro Forma Statement of Income for the year ended December 31, 1995.......... F-37
Unaudited Pro Forma Statement of Income for the three month period ended March 31,
1996................................................................................ F-38
Notes to Unaudited Pro Forma Statements of Income..................................... F-39
</TABLE>
F-1
<PAGE> 62
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Personnel Group of America, Inc.:
We have audited the accompanying consolidated balance sheets of Personnel
Group of America, Inc. and subsidiaries (a Delaware Corporation) as of December
31, 1994 and 1995, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Personnel Group of America, Inc. and subsidiaries as of December 31, 1994 and
1995, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
February 29, 1996,
except for the matters
discussed in Note 15,
as to which the date is
May 23, 1996.
F-2
<PAGE> 63
PERSONNEL GROUP OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1994 1995 1996
------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents................................. $ 2,931 $ 5,273 $ 2,900
Accounts receivable, net of allowance for doubtful
accounts of $547 and $514 in 1994 and 1995 and $453 at
March 31, 1996, respectively........................... 33,180 36,727 35,599
Prepaid expenses and other current assets................. 1,358 1,889 3,256
Deferred income taxes..................................... 2,877 3,347 3,437
------- -------- ---------
Total current assets.............................. 40,346 47,236 45,192
Property and equipment, net................................. 4,333 3,602 4,206
Excess of cost over fair value of net assets acquired,
net....................................................... 44,530 50,091 60,315
Other intangibles, net...................................... 1,521 1,056 1,540
Other assets................................................ 254 638 671
------- -------- ---------
Total assets...................................... $90,984 $102,623 $ 111,924
======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 337 $ 222 $ 741
Accrued liabilities....................................... 13,569 16,269 17,037
Income taxes payable...................................... -- 1,776 767
------- -------- ---------
Total current liabilities......................... 13,906 18,267 18,545
Notes payable to bank....................................... -- -- 7,025
Other notes payable......................................... -- -- 575
Deferred income taxes....................................... 8,640 8,370 8,303
------- -------- ---------
Total liabilities................................. 22,546 26,637 34,448
------- -------- ---------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value; shares authorized 5,000;
no shares issued and outstanding....................... -- -- --
Common stock, $.01 par value; shares authorized 20,000;
8,000 shares issued and outstanding.................... -- 80 80
Additional paid-in capital................................ -- 73,559 73,559
Retained earnings......................................... -- 2,347 3,837
Net assets................................................ 68,438 -- --
------- -------- ---------
Total shareholders' equity........................ 68,438 75,986 77,476
------- -------- ---------
Total liabilities and shareholders' equity........ $90,984 $102,623 $ 111,924
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 64
PERSONNEL GROUP OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31 MARCH 31,
------------------------------ -------------------------
1993 1994 1995 1995 1996
-------- -------- -------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................................... $172,478 $211,867 $251,055 $ 59,512 $ 66,873
-------- -------- -------- ----------- -----------
Operating expenses:
Direct cost of services.................. 126,286 155,987 178,966 42,804 48,851
Selling, general and administrative...... 36,227 42,842 51,592 13,097 13,071
Depreciation and amortization............ 4,247 4,391 3,665 946 880
License fees............................. 1,102 1,687 4,418 828 1,480
-------- -------- -------- ----------- -----------
Total operating expenses......... 167,862 204,907 238,641 57,675 64,282
-------- -------- -------- ----------- -----------
Income before income taxes................. 4,616 6,960 12,414 1,837 2,591
Provisions for income taxes................ 2,080 3,061 5,305 772 1,101
-------- -------- -------- ----------- -----------
Net income................................. $ 2,536 $ 3,899 $ 7,109 $ 1,065 $ 1,490
======== ======== ======== ========= =========
Net income per share....................... -- $ -- $ -- $ -- $ 0.19
Pro forma net income per share............. -- $ 0.49 $ 0.89 $ 0.13 $ --
Weighted average shares outstanding........ -- 8,000 8,000 8,000 8,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 65
PERSONNEL GROUP OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS NET ASSETS EQUITY
------ ------ ---------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992.............. -- $ -- $ -- $ -- $ 58,987 $58,987
Capital contributions, net............ -- -- -- -- 2,734 2,734
Net income............................ -- -- -- -- 2,536 2,536
------ ------ ---------- -------- ---------- -------------
Balance, December 31, 1993.............. -- -- -- -- 64,257 64,257
Capital contributions, net............ -- -- -- -- 282 282
Net income............................ -- -- -- -- 3,899 3,899
------ ------ ---------- -------- ---------- -------------
Balance, December 31, 1994.............. -- -- -- -- 68,438 68,438
Cash distributions.................... -- -- -- -- (7,351) (7,351)
Contributions of assets............... -- -- -- -- 7,790 7,790
Net income............................ -- -- -- 2,347 4,762 7,109
Reclassification of net assets as of
September 30, 1995................. 8,000 80 73,559 -- (73,639) --
------ ------ ---------- -------- ---------- -------------
Balance, December 31, 1995.............. 8,000 $ 80 $ 73,559 $2,347 $ -- $75,986
Net income for the three months ended
March 31, 1996 (unaudited)............ -- -- -- 1,490 -- 1,490
------ ------ ---------- -------- ---------- -------------
Balance March 31, 1996 (unaudited)...... 8,000 $ 80 $ 73,559 $3,837 -- $77,476
===== ====== ======= ====== ======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 66
PERSONNEL GROUP OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
-------------------------- -----------------
1993 1994 1995 1995 1996
------ ------- ------- ------ --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $2,536 $ 3,899 $ 7,109 $1,064 $ 1,490
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization................ 4,247 4,391 3,665 946 880
Deferred income taxes, net................... (97) (470) (140) (67) (157)
Changes in assets and liabilities:
Accounts receivable........................ (6,839) (7,322) (3,547) 398 1,075
Prepaid expenses and other current
assets.................................. 840 (272) (531) (570) (1,349)
Accounts payable and accrued liabilities... (62) 2,740 2,585 2,154 1,287
Income taxes payable....................... -- -- 1,776 -- (1,009)
Other...................................... (68) 58 (384) 48 (33)
------ ------- ------- ------ --------
Net cash provided by operating
activities............................ 557 3,024 10,533 3,973 2,184
------ ------- ------- ------ --------
Cash flows from investing activities:
Purchases of property and equipment, net........ (2,037) (3,251) (840) -- (919)
Acquisitions, net of cash acquired.............. -- -- -- -- (10,663)
------ ------- ------- ------ --------
Net cash used in investing activities... (2,037) (3,251) (840) -- (11,582)
------ ------- ------- ------ --------
Cash flows from financing activities:
Contributions from (distributions to) Adia,
net.......................................... 2,734 282 (7,351) (5,575) --
Repayments of notes payable to bank............. -- -- -- -- (1,475)
Borrowings of notes payable to bank............. -- -- -- -- 8,500
------ ------- ------- ------ --------
Net cash provided by (used in) financing
activities............................ 2,734 282 (7,351) (5,575) 7,025
------ ------- ------- ------ --------
Net increase (decrease) in cash and cash
equivalents..................................... 1,254 55 2,342 (1,602) (2,373)
Cash and cash equivalents at beginning of year.... 1,622 2,876 2,931 2,931 5,273
------ ------- ------- ------ --------
Cash and cash equivalents at end of year.......... $2,876 $ 2,931 $ 5,273 $1,329 $ 2,900
====== ======= ======= ====== ========
Supplemental cash flow information:
Income taxes paid............................... $2,177 $ 3,530 $ 3,737 -- $ 2,184
====== ======= ======= ====== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 67
PERSONNEL GROUP OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995 AND MARCH 31, 1996 (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
1. ORGANIZATION:
BASIS OF PRESENTATION
Personnel Group of America, Inc. and subsidiaries (the Company) completed
an underwritten initial public offering (the Offering) in September 1995. Prior
to the Offering, the Company was an indirect wholly owned subsidiary of Adia,
S.A., a Swiss corporation (Adia). The Company was organized by Adia to
facilitate the Offering. In the Company's formation and organization, Adia
transferred to the Company the subsidiaries and divisions that it had previously
owned and that now comprise the Company's Staffing Services and Health Care
Staffing Services divisions in exchange for common stock. The financial
statements of the Company are presented on the historical cost basis, and all
significant intercompany transactions have been eliminated.
As a result of the Offering, in which Adia sold its entire ownership
interest in the Company, the Company became an independent public company. The
Company did not receive any of the proceeds of the sale of its shares by Adia in
the Offering.
Although for presentation purposes the Company has indicated its year-end
as December 31, 1995, its fiscal year actually ends on the Sunday nearest to
December 31. Each fiscal year presented contained 52 weeks.
BUSINESS
The Company is a provider of staffing services to businesses, professional
and governmental organizations, health care facilities, and individuals who
require home health care and related services. The Company's staffing services
include temporary staffing, placement of full-time employees and, depending on
client needs, training and testing of temporary and permanent workers. The
Company operates through a network of Company-operated, franchised and licensed
offices. The Company's business is organized into two divisions: the Staffing
Services Division, which provides temporary office, clerical and light
industrial and light technical services, and the Health Care Services Division,
which provides health care personnel. The Staffing Services Division consists of
the following companies and divisions: Abar, FirstWord Staffing Services, Thomas
Staffing, Staffinders Personnel, Temp Connection, TempWorld, West Personnel
Service and Word Processors Personnel Service (WPPS). The Health Care Services
Division, which consists of Nursefinders, Inc. (Nursefinders), provides health
care personnel to supplement the staffing needs of hospitals, nursing homes and
other health care facilities, as well as home health services and related
products to individuals. The Company's Health Care Services Division is subject
to extensive federal, state and local laws and government regulations, including
licensing requirements, certificate of need requirements to be a Medicare
provider in some states, periodic examinations by government agencies, and
federal and state anti-fraud, anti-abuse and anti-kickback statutes and
regulations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
RECOGNITION OF REVENUE
Other than for the items described below, revenues are recognized upon the
performance of services.
Franchise-related revenues are recognized pursuant to the specific terms of
two different types of agreements (herein referred to as Franchise Agreements
and License Agreements).
For Franchise Agreements, the Company provides general training, operating,
site selection and marketing programs, administration of insurance and payroll
tax obligations and assistance in tax planning and legal matters. In exchange
for these services, the Company recognizes franchise royalty revenue generally
based on 5% of the franchisees' patient and staffing services revenue. Revenue
is recognized upon performance
F-7
<PAGE> 68
PERSONNEL GROUP OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of patient or staffing service by the franchisee. Existing Franchise Agreements
have a five-year term. Under Franchise Agreements, the Company recognized
revenue of $3,327, $3,345 and $3,702 in 1993, 1994 and 1995, respectively. In
addition, included in the 1995 revenues is a $405 gain on the cancellation of
the Cleveland franchise agreement.
For License Agreements, in addition to the services described above, the
Company employs and pays individuals to perform services for the licensees'
customers, invoices customers, maintains professional liability insurance and
supports the training, office administration, systems and marketing needs of the
licensee. All revenues and expenses generated by the licensee, therefore, belong
to the Company and are included in the Company's revenues and expenses. The
Company is primarily liable for operating expenses. The Company pays the
licensee a license fee, based on gross margin for temporary services less 7% of
revenues, adjusted for uncollectible receivables and certain other expenses.
Gross margin is the difference between the amounts billed to clients less direct
cost of services consisting of direct labor, payroll taxes, insurance and
benefits for temporary employees. License fees are included in other operating
expenses. License Agreements generally have a 10-year term.
Initial agreement fees, under both Franchise and License agreements, are
recognized currently as income. These fees are not material.
Medicare revenues, are recognized at an amount equivalent to allowable
costs as defined by the Medicare program. Medicare reimbursable costs are
limited by aggregate cost limits or "caps" and by disallowance of certain costs
not directly resulting from patient care services such as promotion and
advertising. The Company believes it has not exceeded the aggregate cost limits
and believes adequate provisions have been made for any potential disallowances
as a result of future audits.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and highly liquid money
market instruments with original maturities of three months or less.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost and depreciated on a
straight-line basis over their estimated useful lives (generally three to five
years). Leasehold improvements are stated at cost and amortized over the shorter
of the lease term or the useful life of the improvements.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED AND OTHER INTANGIBLES
The Company's businesses were initially acquired by Adia or its affiliates
from unrelated third parties in exchange for cash. Excess of cost over fair
value of net assets acquired and other intangible assets resulting from such
acquisitions have been recorded on the books of the Company at historical cost.
For material acquisitions, the Company had independent appraisals performed to
allocate the purchase price. Excess of cost over fair value of net assets
acquired is amortized on a straight-line basis over 40 years. In January 1995,
Adia acquired all of the remaining outstanding shares of a majority-owned
subsidiary. This acquisition resulted in additional excess of cost over fair
value of net assets acquired being recorded by Adia. The Company recorded its
pro rata share ($7,191) of this excess. Accumulated amortization of excess of
cost over fair value of net assets acquired amounted to $11,398 and $12,941 at
December 31, 1994 and 1995, respectively.
Other intangibles consist primarily of client and employee lists and
covenants not to compete that were specifically valued by the Company's
independent appraisers at the time of the acquisition. Other intangibles are
being amortized over the stated lives of the agreements, ranging from 5 to 10
years.
F-8
<PAGE> 69
PERSONNEL GROUP OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company evaluates the recoverability of its investment in excess of
cost over fair value of net assets acquired and other intangibles in relation to
anticipated future cash flows on an undiscounted basis. Based on this
assessment, the Company expects its investment in excess of cost over fair value
of net assets acquired and other intangibles to be fully recovered.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences arising between the tax bases of assets
and liabilities and their reported amounts in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes."
The Company's operating results through September 29, 1995, are included in
Adia's consolidated federal income tax return and combined state tax returns
filed in various states. The Company will file its own consolidated federal
income tax return and state returns in various states for periods ending after
September 29, 1995. The income tax provision is calculated on a separate company
basis for all years presented.
NET INCOME PER SHARE
Net income per share has been provided only for quarters subsequent to the
Offering (see Note 14). Pro forma net income per share for all other periods
provided is presented assuming that the weighted average number of shares
outstanding equals the 8,000,000 shares issued in connection with the Offering.
The effect of stock options on net income per share and pro forma net income per
share is not material.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions. These affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts included in the consolidated financial statements for 1993
and 1994 have been reclassified from their original presentation to conform with
the current year's presentation.
INTERIM FINANCIAL STATEMENTS
The financial data as of March 31, 1996, and for the three months ended
March 31, 1995 and 1996, are unaudited. In the opinion of management, the
unaudited financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
position and results of operations for the periods covered by these financial
statements. The results of operations for the three months ended March 31, 1996,
are not necessarily indicative of the results to be expected for the full 1996
fiscal year.
F-9
<PAGE> 70
PERSONNEL GROUP OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. ACCOUNTS RECEIVABLE:
Accounts receivable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Trade accounts receivable........................................ $26,271 $28,190
Medicare/Medicaid, net of contractual allowances................. 7,250 6,725
Due from Adia and other (see Note 9)............................. 206 2,326
------- -------
33,727 37,241
Allowance for doubtful accounts.................................. (547) (514)
------- -------
$33,180 $36,727
======= =======
</TABLE>
A summary of activity in the allowance for doubtful accounts was as
follows:
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
YEAR ENDED DECEMBER 31, OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- ----------------------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1993.............................. $1,397,000 $414,000 $(1,114,000) $ 697,000
1994.............................. $ 697,000 $599,000 $ (749,000) $ 547,000
1995.............................. $ 547,000 $906,000 $ (939,000) $ 514,000
</TABLE>
4. PROPERTY AND EQUIPMENT, NET:
Property and equipment, net, consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Furniture and equipment.......................................... $ 7,960 $ 7,786
Purchased software............................................... 1,185 1,065
Leasehold improvements........................................... 816 659
------- -------
9,961 9,510
Less -- Accumulated depreciation................................. (5,628) (5,908)
------- -------
$ 4,333 $ 3,602
======= =======
</TABLE>
5. OTHER INTANGIBLE ASSETS:
Other intangible assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL ---------------------
LIVES 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Client and employee lists........................... 5 years $ 8,053 $ 5,641
Franchise agreements................................ 10 years 1,665 1,665
Covenants not-to-compete............................ 5 years 4,686 4,686
Other............................................... 5 years 881 881
-------- --------
15,285 12,873
(13,764) (11,817)
-------- --------
Less -- Accumulated amortization.................... $ 1,521 $ 1,056
======== ========
</TABLE>
F-10
<PAGE> 71
PERSONNEL GROUP OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------- -------
<S> <C> <C>
Accrued wages and benefits......................................... $ 5,917 $ 8,062
Accrued workers' compensation benefits............................. 5,871 5,381
Other.............................................................. 1,781 2,826
------- -------
$13,569 $16,269
======= =======
</TABLE>
7. EMPLOYEE BENEFIT PLANS:
The Company has 401(k) profit sharing and nonqualified profit sharing
plans, which cover substantially all of its employees. Company contributions are
made on a discretionary basis. Contributions charged to operating expenses were
$316, $470 and $706 for the years ended December 31, 1993, 1994 and 1995,
respectively.
The Company does not provide postretirement health care and life insurance
benefits to retired employees or postemployment benefits to terminated
employees.
8. CAPITAL STOCK:
In connection with the Offering, the Company's Board of Directors adopted
its 1995 Equity Participation Plan (the Incentive Plan) to attract and retain
officers, key employees, consultants and directors. An aggregate of 1,200,000
shares of the common stock was authorized for issuance upon exercise of options,
stock appreciation rights (SARs), and other awards, or as restricted or deferred
stock awards under the Incentive Plan. Incentive stock options may be granted
only to employees, and when granted have an exercise price equal to at least
100% of fair market value of common stock on the grant date and a term not
longer than 10 years.
In addition, nonemployee directors (including the directors who administer
the plan) are eligible to receive nondiscretionary grants of nonqualified stock
options (NQSOs) under the Incentive Plan pursuant to a formula. NQSOs may be
granted to an employee or consultant for any term specified by the compensation
committee of the Board and will provide for the right to purchase common stock
at a specified price which, except with respect to NQSOs intended to qualify as
performance-based compensation, may be less than fair market value on the date
of grant (but not less than par value), and may become exercisable (at the
discretion of the compensation committee) in one or more installments after the
grant date. Of the NQSOs granted to nonemployee directors, 100% shall be fully
vested and exercisable upon grant, and the term of each such option shall be ten
years.
In 1995, 432,705 options were granted at prices ranging from $13.38 to
$14.00. At December 31, 1995, none of the options had been exercised or expired
and 111,541 were exercisable.
On February 6, 1996, the Board of Directors of the Company declared a
dividend of one nonvoting preferred share purchase right (Right) for each
outstanding share of common stock. The dividend was payable on February 27,
1996, to the stockholders of record on that date. In the event of an acquisition
by a party of a beneficial interest of at least 15% of the Company's common
stock, each right would become exercisable (the Distribution Date). Each Right
entitles the registered holder to purchase from the Company one one-hundredth of
a share of Series A Junior Participating Preferred Stock, par value $0.01 per
share, of the Company (Preferred Stock) at a price of $95.00 per one
one-hundredth of a share of Preferred Stock (the Purchase Price) subject to
adjustment. In addition, each Right entitles the right holder to certain other
rights
F-11
<PAGE> 72
PERSONNEL GROUP OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
as specified in the Company's rights agreement. The Rights are not exercisable
until Distribution Date. The Rights will expire on February 6, 2006 (the Final
Expiration Date), unless the Final Expiration Date is extended or unless the
Rights are earlier redeemed or exchanged by the Company.
9. MANAGEMENT FEES:
Historically, Adia and its affiliates have provided certain services and
paid certain expenses for the Company in exchange for a management fee. These
services include accounting, billing and collections, legal, and other selling,
general and administrative expenses. Management of the Company negotiated with
management of Adia to determine the appropriate fee charged based on the
approximate cost of the services provided and the expenses paid by Adia on
behalf of the Company. All transactions between the Company and Adia have been
reflected in the consolidated financial statements. Management fees paid to Adia
were $302, $582, and $603 for the years ended December 1993, 1994, and 1995,
respectively. In addition, the Company has cash clearing transactions with Adia
primarily for dividends, estimated tax payments, management fees and workers'
compensation expenses that are recorded in an intercompany account. Following
the Offering, Adia agreed to provide certain services to the Company pursuant to
various written agreements on terms and at prices as set forth in such
agreements. Included in accounts receivable in the accompanying consolidated
balance sheet was $1,659 due from Adia at December 1995 ($0 at December 31,
1994), related to these transactions.
10. CREDIT FACILITY:
In September 1995, the Company entered into a three-year unsecured $30,000
revolving line of credit (the Credit Facility) with a bank, extendible for up to
two additional years. There were no borrowings during 1995. Approximately $2,800
of the Credit Facility has been used for the issuance of undrawn letters of
credit to secure the Company's workers' compensation program. Borrowings under
the Credit Facility will bear interest, payable quarterly, at a rate equal to
LIBOR plus 0.75% or the lender's base rate, as defined, at the Company's option.
The Credit Facility contains customary covenants such as the maintenance of
certain financial ratios, and minimum net worth and working capital
requirements, and a restriction on the payment of cash dividends on common
stock. The Company was in compliance with such covenants as of December 31,
1995.
11. INCOME TAXES:
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Current provision........................................ $2,177 $3,530 $5,445
Deferred benefit......................................... (97) (469) (140)
------ ------ ------
Total.......................................... $2,080 $3,061 $5,305
====== ====== ======
</TABLE>
The reconciliation of the effective tax rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Amount of federal income tax based upon the statutory
rate..................................................... 35.0% 35.0% 35.0%
Effect of goodwill amortization and other.................. 5.0 4.7 2.7
State taxes, net of federal benefit........................ 5.0 4.3 5.0
---- ---- ----
Total............................................ 45.0% 44.0% 42.7%
==== ==== ====
</TABLE>
F-12
<PAGE> 73
PERSONNEL GROUP OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the Company's net deferred tax assets and liabilities
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1994 1995
------ ------
<S> <C> <C>
Deferred tax assets --
Accrued workers' compensation...................................... $2,253 $2,614
Allowance for doubtful accounts and other.......................... 624 733
------ ------
$2,877 $3,347
====== ======
Deferred tax liability -- Excess of cost over fair value of net
assets acquired.................................................... $8,640 $8,370
====== ======
</TABLE>
In certain of the Company's acquisitions, the Company was able to deduct
currently, for tax purposes, certain amounts representing purchase price paid in
excess of book value of recorded assets and liabilities. For financial reporting
purposes, this was recorded as excess of cost over fair value of net assets
acquired with a corresponding deferred tax liability related to this timing
difference. For certain of the Company's other acquisitions, no deductions are
permitted on the Company's tax return.
TAX SHARING AGREEMENT
Generally, Adia is liable for income taxes of the Company for any taxable
period that ends on or before September 29, 1995, and the Company is liable for
income taxes for any period ending after September 29, 1995.
12. FINANCIAL INSTRUMENTS:
CONCENTRATION OF CREDIT RISK
The Company maintains cash and cash equivalents with various financial
institutions.
Credit risk with respect to accounts receivable is dispersed due to the
nature of the business, the large number of customers and the diversity of
industries serviced. The Company performs credit evaluations of its customers.
13. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases facilities under operating leases, certain of which
require it to pay property taxes, insurance and maintenance costs. Operating
leases for facilities are usually renewable at the Company's option and include
escalation clauses linked to inflation.
Future minimum annual rentals for the next five years are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------------------------------------------------------
<S> <C>
1996.......................................................... $2,858
1997.......................................................... 1,977
1998.......................................................... 1,174
1999.......................................................... 675
2000 and thereafter........................................... 268
------
$6,952
======
</TABLE>
Total rent expense under operating leases amounted to $2,878, $2,991 and
$3,151 for the years ended December 31, 1993, 1994, and 1995, respectively.
F-13
<PAGE> 74
PERSONNEL GROUP OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INSURANCE
The Company maintains a self-insurance program for workers' compensation
and medical and dental claims. The Company accrues liabilities under this
program based on the loss and loss adjustment expenses as estimated by an
outside administrator. At December 31, 1995, the Company had a standby letter of
credit with a bank in connection with the workers' compensation program.
The Company is subject to claims and legal actions by patients and
customers in the ordinary course of business. The Company maintains professional
liability insurance for losses.
MEDICARE COST-REIMBURSEMENT PROGRAM
Final determination of amounts earned under the Medicare cost-reimbursement
program are subject to review and audit by appropriate governmental authorities
or their agents. In the opinion of management, adequate provision has been made
for any adjustments that could result from future Medicare audits.
For the years ended December 31, 1993, 1994, and 1995, 6%, 12% and 13% of
the Company's revenues, respectively, were derived from the Medicare program.
The Medicare program is subject to statutory and regulatory changes, retroactive
and prospective rate adjustments and administrative rulings and funding
restrictions, all of which could have the effect of limiting or reducing
reimbursement levels for the Company's services.
EMPLOYMENT AGREEMENTS
The Company has agreements with several executive officers which provide
for cash compensation and other benefits in the event that a change in control
of the Company occurs.
LEGAL PROCEEDINGS
The Company is also involved in various legal actions and claims. In the
opinion of management, after considering appropriate legal advice, the future
resolutions of all actions and claims will not have a material adverse effect on
the Company's consolidated financial position or results of operations.
INDEMNIFICATION
The Company and Adia entered into an Indemnification Agreement, whereby the
Company agreed to indemnify Adia against certain expenses or losses which may be
incurred by Adia arising from the conduct of the Company's business.
14. SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
<TABLE>
<CAPTION>
1995
-------------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues.................................... $59,512 $61,260 $63,855 $66,428
Operating expenses.......................... 57,675 58,194 60,462 62,310
Net income.................................. 1,065 1,700 1,997 2,347
Net income per share........................ -- -- -- 0.29
Pro forma net income per share.............. $ 0.13 $ 0.21 $ 0.25 --
======= ======= ======= =======
</TABLE>
F-14
<PAGE> 75
PERSONNEL GROUP OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1994
-------------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues.................................... $47,993 $50,294 $55,662 $57,918
Operating expenses.......................... 47,491 48,602 53,493 55,321
Net income.................................. 273 942 1,238 1,446
Pro forma net income per share.............. $ 0.03 $ 0.12 $ 0.15 $ 0.18
======= ======= ======= =======
</TABLE>
15. ACQUISITIONS AND FINANCINGS
Subsequent to year-end, the Company acquired Profile Temporary Services in
Chicago, Illinois (Profile), Allegheny Personnel Services in Pittsburgh,
Pennsylvania (Allegheny), Judith Fox Staffing Companies in Richmond, Virginia
(Fox), and converted three previously franchised Nursefinders offices
(collectively the Transactions or the Acquired Companies). The Profile and
Allegheny acquisitions were completed in March 1996 while Fox was completed in
May 1996. The former Nursefinders franchisees were converted in January, March
and April 1996. The Acquired Companies have combined annual revenues of
approximately $50,000. The purchase price for the Transactions totaled $33,000,
including direct acquisition costs but excluding certain contingent earnout
payments. The acquisition of Profile provides for additional purchase price
consideration upon attainment of certain earnings targets over the next three
calendar years. Any additional consideration will be recorded as additional
purchase price when paid and will increase the amount of excess of cost over
fair value of net assets acquired. The Transactions were primarily funded
through borrowings under the Credit Facility and have been accounted for using
the purchase method of accounting. Accordingly, the results of operations of the
Acquired Companies will be included in the Company's consolidated results of
operations from the date of acquisition.
In addition, the Company has signed an Asset Purchase Agreement in May,
1996, to acquire The Computer Resources Group, Inc. (CRG), an information
technology services company based in San Francisco, California. CRG had revenues
for its fiscal year ended May 31, 1995, and for the nine-month period ended
February 29, 1996, of approximately $21,200 and $21,000, respectively. The
Company will purchase CRG for $19,500, payable at closing. The seller may also
receive additional consideration upon attainment of certain earnings targets
over the next two years.
In addition, in May 1996, the Company amended the Credit Facility to
increase the available line up to $35,000 for acquisition related purposes and
to increase the limits for the aggregate purchase price for permitted
acquisitions in 1996. The Credit Facility as amended is secured by a lien on the
Company's receivables and certain other personal property and a pledge of the
stock of the Company's subsidiaries. On June 30, 1996, aggregate availability
under the Credit Facility will be reduced from $35,000 to $30,000. As of May 20,
1996, the Company had outstanding borrowings under the Credit Facility of
$27,300; in addition $2,500 has been used for the issuance for the overdrawn
letters of credit to secure the Company's workers' compensation program.
The Company has also obtained a commitment from its lender to use its best
efforts to syndicate the Credit Facility and increase the maximum availability
thereunder to $60,000.
F-15
<PAGE> 76
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Judith Fox Staffing Companies:
We have audited the accompanying combined balance sheet of Judith Fox
Staffing Companies (see Note 1) (Virginia Corporations), as of December 31,
1995, and the related combined statements of income, changes in shareholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Companies' 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Judith Fox Staffing
Companies as of December 31, 1995, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
May 10, 1996.
F-16
<PAGE> 77
JUDITH FOX STAFFING COMPANIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 601,715 $ 405,772
Accounts receivable, net........................................... 1,410,587 1,678,171
Prepaid expenses................................................... 34,256 69,707
------------ ----------
Total current assets....................................... 2,046,558 2,153,650
Property and equipment, net.......................................... 203,079 221,018
Other assets......................................................... 12,832 13,242
------------ ----------
Total assets............................................... $2,262,469 $2,387,910
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 40,991 $ 37,500
Accrued liabilities................................................ 384,860 385,948
Accumulated payroll withholdings................................... 58,941 54,469
Income taxes payable............................................... 6,652 7,422
------------ ----------
Total current liabilities.................................. 491,444 485,339
Deferred income taxes................................................ 25,716 25,716
------------ ----------
Total liabilities.......................................... 517,160 511,055
------------ ----------
Commitments and contingencies
Shareholders' equity:
Common stock....................................................... 1,500 1,500
Additional paid-in capital......................................... 62,724 62,724
Retained earnings.................................................. 1,681,085 1,812,631
------------ ----------
Total shareholders' equity................................. 1,745,309 1,876,855
------------ ----------
Total liabilities and shareholders' equity................. $2,262,469 $2,387,910
========== =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-17
<PAGE> 78
JUDITH FOX STAFFING COMPANIES
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -------------------------
1995 1995 1996
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Revenues.................................................. $ 15,919,196 $ 3,728,944 $ 4,165,589
------------ ----------- -----------
Operating expenses:
Direct cost of services................................. 11,697,535 2,835,914 3,022,389
Selling, general and administrative..................... 2,544,333 614,135 771,731
Depreciation and amortization........................... 77,888 16,450 17,762
------------ ----------- -----------
Total operating expenses........................ 14,319,756 3,466,499 3,811,882
------------ ----------- -----------
Income before income taxes................................ 1,599,440 262,445 353,707
Provision for income taxes................................ 26,978 9,600 7,500
------------ ----------- -----------
Net income................................................ $ 1,572,462 $ 252,845 $ 346,207
========== ========= =========
</TABLE>
JUDITH FOX STAFFING COMPANIES
COMBINED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------- PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994............ 1,050 $1,500 $ 62,624 $ 919,508 $ 983,632
Issuance of membership interest in
Training......................... -- -- 100 -- 100
Distributions to JFC shareholder.... -- -- -- (810,885) (810,885)
Net income for the year ended
December 31, 1995................ -- -- -- 1,572,462 1,572,462
------ ------ ---------- ---------- -------------
Balance, December 31, 1995............ 1,050 1,500 62,724 1,681,085 1,745,309
Distributions to JFC shareholder
(unaudited)...................... -- -- -- (214,661) (214,661)
Net income for three-months ended
March 31, 1996 (unaudited)....... -- -- -- 346,207 346,207
------ ------ ---------- ---------- -------------
Balance, March 31, 1996 (unaudited)... 1,050 $1,500 $ 62,724 $1,812,631 $ 1,876,855
===== ====== ======= ========= ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-18
<PAGE> 79
JUDITH FOX STAFFING COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR THREE MONTHS ENDED MARCH
ENDED 31,
DECEMBER 31, -------------------------
1995 1995 1996
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 1,572,462 $ 252,845 $ 346,207
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 77,888 16,450 17,762
Loss on disposition of property and equipment......... 800 100 --
Deferred income taxes, net............................ (3,347) -- --
Changes in assets and liabilities:
Accounts receivable................................. 8,946 134,782 (267,584)
Prepaid expenses and other current assets........... 46,564 5,115 (35,451)
Other assets........................................ (1,874) (920) (598)
Accounts payable and accrued liabilities............ (99,932) (51,895) (6,875)
Income taxes payable................................ (1,241) (9,741) 770
------------ ----------- -----------
Net cash provided by operating activities........ 1,600,266 346,736 54,231
------------ ----------- -----------
Cash flows used in investing activities:
Purchases of property and equipment, net................. (52,838) (3,210) (35,513)
------------ ----------- -----------
Cash flows from financing activities:
Proceeds from line of credit............................. 2,145,000 793,000 --
Payments on line of credit............................... (2,314,000) (962,000) --
Proceeds from issuance of membership interest in
Training.............................................. 100 -- --
Distributions to JFC shareholder......................... (810,885) (8,187) (214,661)
------------ ----------- -----------
Net cash used in financing activities............ (979,785) (177,187) (214,661)
------------ ----------- -----------
Net increase (decrease) in cash and cash
equivalents.................................... 567,643 166,339 (195,943)
Cash and cash equivalents, beginning of period............. 34,072 34,072 601,715
------------ ----------- -----------
Cash and cash equivalents, end of period................... $ 601,715 200,411 $ 405,772
========== ========= =========
Supplemental cash flow information:
Income taxes paid........................................ $ 31,566 19,341 $ 6,730
Interest paid............................................ 6,868 2,666 --
========== ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-19
<PAGE> 80
JUDITH FOX STAFFING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995, AND MARCH 31, 1996 (UNAUDITED)
1. ORGANIZATION:
BASIS OF PRESENTATION
The accompanying combined financial statements present the financial
information of Judith Fox Companies, Inc., (JFC) Fox Technical, Inc. (Technical)
and Judith Fox Training for Growth L.C. (Training) (collectively, Judith Fox
Staffing Companies or the Companies). JFC and Technical are Virginia
corporations wholly owned by Judith S. Fox (the Shareholder), which have elected
to be treated as S Corporations for income tax purposes (see Note 2). Training
is a Virginia limited liability corporation owned by the Shareholder and members
of her immediate family. The financial statements are presented on the
historical cost basis, and all significant intercompany transactions have been
eliminated.
In the opinion of management, the accompanying unaudited combined balance
sheet as of March 31, 1996, and the unaudited combined statements of income and
cash flows for the three-month periods ended March 31, 1996 and 1995, contain
all adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the combined financial position of the Companies as of March 31,
1996, and the results of their operations and their cash flows for the
three-month periods ended March 31, 1996 and 1995. The interim financial
information is not necessarily indicative of the results that will occur for a
full year and is not intended to be a projection of future results or trends.
DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
The Companies are providers of personnel staffing services to businesses,
professional and governmental organizations. The Companies' staffing services
include temporary staffing, placement of full-time employees and, depending on
client needs, training and testing of temporary workers. JFC operates two
temporary personnel divisions, Judith Fox Temporaries in Richmond and
Charlottesville, Virginia, and Rosemary Scott Temporaries in New York, New York.
Technical, operating from Richmond, Virginia, provides specialized personnel
services in the areas of engineering, information systems, accounting management
and scientific expertise. Training, operating from Richmond, Virginia, was
started in 1995 to provide training services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
RECOGNITION OF REVENUE
Revenues are recognized upon the performance of services.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and highly liquid money
instruments with original maturities of three months or less.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost and depreciated on a
straight-line and accelerated basis over their estimated useful lives (generally
five to seven years). Leasehold improvements are stated at cost and amortized
over the shorter of the lease term or the useful life of the improvements.
INCOME TAXES
JFC and Technical have elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code and, as such, do not generally pay
federal income taxes. Training is a limited liability corporation and, as such,
is treated as a partnership for tax reporting purposes and does not generally
pay federal income taxes. Instead, except as noted hereafter, the Shareholder is
individually responsible for federal
F-20
<PAGE> 81
JUDITH FOX STAFFING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
and state income taxes on the Companies' taxable income. Corporate income taxes
are provided for New York State and City which do not recognize S corporation
status. It is the Companies' policy to provide dividends for Shareholder's taxes
arising from the pass-through of corporate tax attributes.
VOLUME DISCOUNTS
JFC has volume discount agreements with selected customers. These discounts
are issued in the form of credits which may be applied against future billings
to the customer. JFC accrues the estimated expense of these discounts as they
are earned by each customer. Total estimated discounts earned as of December 31,
1995, were approximately $207,000, and are netted against accounts receivable in
the accompanying combined balance sheet at December 31, 1995.
UNCOLLECTIBLE ACCOUNTS
Uncollectible account expense is both infrequent and immaterial. The
Companies expense such amounts in the period accounts are deemed uncollectible
and has not established a reserve against accounts receivable.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions. These affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. PROPERTY AND EQUIPMENT, NET:
PROPERTY AND EQUIPMENT, NET, CONSISTED OF THE FOLLOWING AT DECEMBER 31, 1995:
<TABLE>
<S> <C>
Furniture and equipment.................................................. $ 516,331
Computer software........................................................ 48,533
Leasehold improvements................................................... 23,934
---------
588,798
Less -- Accumulated depreciation and amortization........................ (385,719)
---------
$ 203,079
=========
</TABLE>
4. LINE OF CREDIT:
JFC has a working capital line-of-credit agreement with a bank. The line of
credit has a maximum permitted outstanding balance of the lesser of $1,000,000
or 80% of trade receivables, as defined. The unpaid principal balance is due
upon demand and is secured by all of the accounts receivable and intangibles of
JFC. Interest on the line of credit is based upon the 30-day LIBOR rate plus
2.25% at December 31, 1995. The interest rate on the line-of-credit was 7.969%
at December 31, 1995.
5. SHAREHOLDERS' EQUITY:
JFC has 1,500 shares of common stock authorized, with a par value of $10.00
per share. At December 31, 1995, 50 shares were issued and outstanding.
Technical has 5,000 shares of common stock authorized, with a par value of $1.00
per share. At December 31, 1995, 1,000 shares were issued and outstanding.
Training is a limited liability corporation formed on April 20, 1995. The
Shareholder and members of her family purchased all of the membership interest
in Training for $100, which has been reflected as additional paid-in capital in
F-21
<PAGE> 82
JUDITH FOX STAFFING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
the accompanying combined balance sheet at December 31, 1995, and in the
accompanying combined statements of changes in shareholders' equity for the year
ended December 31, 1995.
6. FINANCIAL INSTRUMENTS:
CONCENTRATION OF CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The Companies maintain cash and cash equivalents with various financial
institutions. The fair value of cash and cash equivalents approximates carrying
value because of the short-term nature of the cash equivalents.
Credit risk with respect to accounts receivable is dispersed due to the
nature of the business, the large number of customers and the diversity of
industries serviced (see Note 9). The Companies perform credit evaluations of
its customers.
7. EMPLOYEE BENEFITS:
JFC sponsors a profit-sharing plan covering substantially all full-time,
permanent employees and certain temporary employees. Contributions are
determined annually not to exceed the maximum amount deductible for federal
income tax purposes. The accrued contributions were $76,285 at December 31,
1995, and are included in accrued liabilities on the accompanying combined
balance sheet.
The Companies maintain retroactive premium-based workers' compensation
coverage for all full-time permanent employees and substantially all temporary
employees. The final premium adjustments for the year ended December 31, 1995,
are included in accrued liabilities in the accompanying combined balance sheet
at December 31, 1995.
The Companies also provide group health insurance to those employees
electing coverage and Section 125 Cafeteria Plan to eligible full-time permanent
employees and temporary employees. The Companies do not provide postretirement
health care and life insurance benefits to retired employees or postemployment
benefits to terminated employees.
8. INCOME TAXES:
The provision for income taxes for 1995 consisted of the following:
<TABLE>
<S> <C>
Current provision.......................................................... $30,325
Deferred benefit........................................................... (3,347)
-------
Total............................................................ $26,978
=======
</TABLE>
The Companies generally do not pay federal income taxes (see Note 2). JFC
is required to pay state income taxes in a state in which it operates. The
income tax provision represents this state income tax, which has a statutory
rate of approximately 11%.
The components of the Companies' net deferred tax assets and liabilities as
of December 31, 1995, were as follows:
<TABLE>
<S> <C>
Deferred tax assets -- Accrual to cash adjustments, net................... $ 7,323
Deferred tax liability -- Accrual to cash adjustments, net................ (33,039)
--------
Net deferred tax liability................................................ $(25,716)
========
</TABLE>
F-22
<PAGE> 83
JUDITH FOX STAFFING COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
Rental expense reflected in the accompanying financial statements total
$205,244 for the year ended December 31, 1995. Future minimum lease payments
under noncancellable operating leases are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
1996...................................................................... $ 211,528
1997...................................................................... 209,754
1998...................................................................... 214,473
1999...................................................................... 123,776
Later years............................................................... 0
---------
Total future minimum lease payments....................................... $ 759,531
========
</TABLE>
In February 1996, the lease for JFC's headquarters was renewed for an
additional 42 months. Management expects that in the normal course of business
other leases that expire will be renewed or replaced by similar leases.
SIGNIFICANT CUSTOMERS
One of JFC's customers accounted for approximately 15% of revenues in 1995
and approximately 9% of trade accounts receivable as of December 31, 1995. JFC's
ten largest customers, including the one customer previously disclosed,
accounted for approximately 45% of revenues in 1995 and approximately 27% of
trade accounts receivable as of December 31, 1995. These customers are all large
national or regional firms operating in either Richmond or New York City, and
most have had a long-standing relationship with JFC.
10. SUBSEQUENT EVENT:
On May 10, 1996, each of the Companies and the Shareholder entered into an
Asset Purchase Agreement (the Agreement) with Personnel Group of America, Inc.
and its subsidiary, StaffPlus, Inc. (PGA). The Agreement provides for the
acquisition by PGA of substantially all the assets of the Companies and the
Companies' right and interest to certain contracts as stipulated in the
Agreement as well as the assumption by PGA of trade payables and certain other
liabilities up to a combined total of $330,000. The accompanying financial
statements do not reflect any adjustments which may be required as a result of
this transaction. Subsequent to the acquisition, PGA will own and operate each
of the Companies.
F-23
<PAGE> 84
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
The Computer Resources Group, Inc.
We have audited the accompanying balance sheets of The Computer Resources
Group, Inc., as of May 31, 1994 and 1995, and the related statements of
operations, stockholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 The Computer Resources
Group, Inc. as of May 31, 1994 and 1995, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
Phillip Goodman Accountancy
Corporation
Santa Clara, California,
September 13, 1995
Except for the matters discussed in Note 10,
as to which the date is May 20, 1996.
F-24
<PAGE> 85
THE COMPUTER RESOURCES GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31, FEBRUARY
------------------------ 29,
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................... $ 3,689 $ 54,705 $ 30,043
Accounts receivable, less allowance for doubtful
accounts ($30,000 in 1995, $20,000 in 1994 and
$30,000 at February 29, 1996)........................ 1,950,147 2,948,977 3,466,916
Employee advances....................................... 2,000 1,696 4,440
Notes receivable from stockholder (Note 8).............. 7,759 17,348 11,218
Prepaid expenses........................................ 140,831 196,713 165,422
Income tax refund....................................... -- 1,200 1,200
---------- ---------- -----------
Total current assets............................ 2,104,426 3,220,639 3,679,239
---------- ---------- -----------
Long term assets:
Notes receivable from stockholder (Note 8).............. 342,241 333,871 324,043
Property and equipment (Note 3)......................... 261,661 284,184 315,138
Other assets............................................ 111,444 117,035 135,354
---------- ---------- -----------
Total long term assets.......................... 715,346 735,090 774,535
---------- ---------- -----------
Total assets.................................... $2,819,772 $3,955,729 $ 4,453,774
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable (Note 4)............................... $1,145,262 $1,659,283 $ 2,284,514
Deferred income taxes (Note 2).......................... 24,000 17,000 17,000
Line of credit (Note 6)................................. 675,000 1,235,000 200,000
Notes payable to stockholders (Note 6).................. 75,000 -- 50,260
Short term lease obligations............................ -- 18,979 18,996
Other liabilities....................................... 13,713 -- --
---------- ---------- -----------
Total current liabilities....................... 1,932,975 2,930,262 2,570,770
Long term liabilities:
Long term lease obligations............................. -- 46,888 33,197
Deferred rent (Note 6).................................. 202,883 230,560 249,942
---------- ---------- -----------
Total long term liabilities..................... 202,883 277,448 283,139
---------- ---------- -----------
Total liabilities (Note 6)...................... 2,135,858 3,207,710 2,853,909
---------- ---------- -----------
Stockholders' equity: (Notes 7 and 8)
Common stock, no par value; 10,000,000 shares
authorized; shares issued and outstanding: 244,899
shares (1995),
246,337 shares (1994)................................ 677,764 668,564 632,164
Retained earnings....................................... 6,150 79,455 967,701
---------- ---------- -----------
Total stockholders' equity...................... 683,914 748,019 1,599,865
---------- ---------- -----------
Total liabilities and stockholders' equity...... $2,819,772 $3,955,729 $ 4,453,774
========= ========= =========
</TABLE>
See accompanying notes to financial statements and auditors' report.
F-25
<PAGE> 86
THE COMPUTER RESOURCES GROUP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FEBRUARY FEBRUARY
YEARS ENDED MAY 31, 28, 29,
-------------------------- ----------- -----------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Contract fees billed.................. $17,136,222 $21,229,686 $15,415,602 $21,021,086
Operating Expenses:
Contract programmer fees and
salaries........................... 12,326,375 15,228,441 11,051,992 15,161,375
Other salaries........................ 3,141,294 4,142,789 2,926,686 3,419,020
Rent (Note 6)......................... 351,624 332,820 296,621 265,007
Advertising and promotion............. 144,438 137,337 105,572 116,037
Other operating expenses.............. 767,219 1,170,073 828,207 1,016,527
----------- ----------- ----------- -----------
16,730,950 21,011,460 15,209,078 19,977,966
----------- ----------- ----------- -----------
Income from operations............. 405,272 218,226 206,524 1,043,120
Other Income (Expenses):
Other income.......................... 12,670 31,244 33,444 24,343
Interest expense...................... (96,976) (120,140) (69,810) (95,817)
Gain/(Loss) from partnership interest
(Note 8)........................... 1,730 (1,704) -- --
Loss on disposal of assets............ -- (56,057) -- --
----------- ----------- ----------- -----------
(82,576) (146,657) (36,366) (71,474)
----------- ----------- ----------- -----------
Income before Income Tax Provision...... 322,696 71,569 170,158 971,646
Income Tax Expense (Note 2)............. 7,000 (6,200) 2,500 14,575
----------- ----------- ----------- -----------
Net Income............................ $ 315,696 $ 77,769 $ 167,658 $ 957,071
========== ========== ========== ==========
</TABLE>
THE COMPUTER RESOURCES GROUP, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
-------------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------- -------- --------- -------------
<S> <C> <C> <C> <C>
Balance at May 31, 1993....................... 226,754 $615,689 $(309,546) $ 306,143
Shares issued under Employee Stock Bonus
Plan..................................... 19,583 62,075 -- 62,075
Net Income.................................. -- -- 315,696 315,696
------- -------- --------- -------------
Balance at May 31, 1994....................... 246,337 $677,764 $ 6,150 $ 683,914
Shares issued under Employee Stock Bonus
Plan..................................... 3,482 -- -- --
Shares redeemed............................. (4,920) (9,200) (4,464) (13,664)
Net Income.................................. -- -- 77,769 77,769
------- -------- --------- -------------
Balance at May 31, 1995....................... 244,899 $668,564 $ 79,455 $ 748,019
Shares redeemed, unaudited.................. (10,065) (36,400) (68,825) (105,225)
Net Income, unaudited....................... -- -- 957,071 957,071
------- -------- --------- -------------
Balance at February 29, 1996, unaudited....... 234,834 $632,164 $ 967,701 $ 1,599,865
======= ======== ========= ==========
</TABLE>
See accompanying notes to financial statements and auditors' report.
F-26
<PAGE> 87
THE COMPUTER RESOURCES GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED
MAY 31, FEBRUARY 28, FEBRUARY 29,
---------------------- ------------- ------------
1994 1995 1995 1996
--------- --------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net Income.................................. $ 315,696 $ 77,769 $ 167,658 $ 957,071
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization............. 134,068 155,338 101,696 59,331
Loss on write-off of fixed assets......... 1,345 56,057 -- --
Deferred taxes (credit)................... (4,000) (7,000) (1,224) --
Income tax refund......................... -- (1,200) (2,484) --
(Increase)/Decrease in accounts
receivable............................. 174,309 (998,830) (758,976) (517,939)
(Increase)/Decrease in employee
advances............................... 5,236 304 (16,655) (2,744)
(Increase)/Decrease in note
receivable............................. -- (1,219) (1,423) 15,958
(Increase)/Decrease in prepaid expenses... 19,535 (55,882) 88,468 31,291
(Increase)/Decrease in other assets....... 39,742 (5,591) (2,831) (18,319)
Increase/(Decrease) in accounts payable... (197,160) 427,218 144,011 346,867
Increase/(Decrease) in deferred rent...... 103,678 27,677 20,911 19,382
--------- --------- ------------- ------------
Total adjustments................. 276,753 (403,128) (428,507) (66,173)
--------- --------- ------------- ------------
Net Cash provided by (used in)
operating activities............ 592,449 (325,359) (260,849) 890,898
Cash flow from investing activities:
Additions to fixed assets................. (59,787) (233,918) (148,183) (90,285)
Cash flow from financing activities:
Increase/(Decrease) in bank
overdraft.............................. 14,552 86,803 246,392 278,364
Principal borrowing (repayment) on line of
credit................................. (381,639) 560,000 219,987 (1,035,000)
Increase/(Decrease) in other
liabilities............................ (15,426) 52,154 (13,713) (13,674)
Principal borrowing on notes payable...... 424,000 -- -- 93,826
Principal repayment on notes
payable................................ (635,950) (75,000) -- (43,566)
Proceeds from issuance of common stock.... 62,075 -- -- --
Repurchase of common stock................ -- (13,664) -- (105,225)
--------- --------- ------------- ------------
Net cash provided by (used in)
financing activities............ (532,388) 610,293 452,666 (825,275)
--------- --------- ------------- ------------
Net increase (decrease) in cash............. 274 51,016 43,634 (24,662)
Cash, beginning of year..................... 3,415 3,689 3,689 54,705
--------- --------- ------------- ------------
Cash, end of year........................... $ 3,689 $ 54,705 $ 47,323 $ 30,043
========= ========= ========== ==========
Supplemental disclosure of cash flow
information:
Income taxes paid......................... $ 800 $ 2,000 $ 14,250 $ 1,200
Interest paid............................. 96,976 120,140 69,810 95,817
========= ========= ========== ==========
</TABLE>
See accompanying notes to financial statements and auditors' report.
F-27
<PAGE> 88
THE COMPUTER RESOURCES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(SEE AUDITORS' REPORT)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Computer Resources Group, Inc. (CRG) (the Company) provides a full
range of computer consulting services primarily in the Northern California area.
The computer professionals performing these services (which include project
management, applications development, systems programming, analysis, design,
coding, testing, networking, telecommunication and technical writing) are placed
in client companies on a temporary basis. The length of the consulting
projects/contracts varies, but is typically less than one year.
REVENUE AND COST RECOGNITION
Fees earned by the Company for rendering professional services are
recognized as revenue when services have been rendered by the consultant. The
cost of the fees earned includes all consultant costs related to contract
performance.
PROPERTY, EQUIPMENT AND RELATED DEPRECIATION
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over estimated useful lives of five years for all
assets except for computer software. Depreciation of computer software is
computed using the straight-line method over an estimated useful life of three
years. In fiscal years prior to 1994, the Company had taken a full year of
depreciation in the year of acquisition for any asset additions. After fiscal
year 1993, only a half-year of depreciation is taken in the year of acquisition.
This change in accounting estimate resulted in a decrease in depreciation of
$8,235 for assets placed in service during the 1994 fiscal year.
CONCENTRATION OF CREDIT RISK
The Company's services are primarily provided to customers in Northern
California. The Company performs on-going credit evaluations of its customers
and generally does not require collateral. Historically, credit losses have been
insignificant.
INTERIM FINANCIAL STATEMENTS
The financial data as of February 29, 1996 and for the nine months ended
February 28, 1995 and February 29, 1996 are unaudited. In the opinion of the
Company, the unaudited financial statements include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
financial position and results of operations for the periods covered by these
financial statements. The results of operations for the nine months ended
February 29, 1996 are not necessarily indicative of the results to be expected
for the full 1996 fiscal year.
2. INCOME TAXES
The stockholders of CRG have elected to be taxed under the S-Corporation
provision of the Internal Revenue Code and respective California tax code. For
Federal taxation purposes, the net income of the Company is taxable to the
individual stockholders and is not taxed at the corporate level. For California
taxation purposes, S-Corporation income is taxed at the corporate level and a
provision for California income taxes (using the California S-Corporation tax
rates of 1.5% for 1995 and 2.5% for 1994) is included in the accompanying 1995
and 1994 statements of operations.
Deferred income taxes for the years ended May 31, 1995 and 1994 have been
provided using the California S-Corporation general tax rates of 1.5% and 2.5%,
respectively, applied to timing differences between income for financial
statement purposes and taxable income. The differences result primarily from
F-28
<PAGE> 89
THE COMPUTER RESOURCES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the use of cash basis for income tax reporting and financial statement
depreciation in excess of income tax depreciation.
The Income Tax Provision consists of:
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Current:
State............................................................ $11,000 $ 800
Deferred taxes, net.............................................. (4,000) (7,000)
------- -------
Total Income Tax Provision............................... $ 7,000 $(6,200)
======= =======
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Leasehold improvements......................................... $ 28,379 $ 28,379
Office and computer equipment.................................. 502,809 344,886
Furniture and fixtures......................................... 147,003 39,050
-------- --------
678,191 412,315
Less Accumulated depreciation............................... (416,530) (128,131)
-------- --------
Total Property and equipment........................... $261,661 $284,184
======== ========
</TABLE>
Depreciation expense for 1995 and 1994 was $155,338 and $134,068,
respectively.
4. ACCOUNTS PAYABLE
Accounts payable consists of:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Accounts payable.............................................. $ 892,057 $1,319,275
Bank overdraft................................................ 253,205 340,008
---------- ----------
Total Accounts payable.............................. $1,145,262 $1,659,283
========= =========
</TABLE>
5. RETIREMENT PLANS
The Company has a defined contribution pension (Money Purchase) plan for
the benefit of all eligible employees. Contributions are determined at 5% of
eligible compensation. There were no pension plan contributions for both 1995
and 1994. The Company has filed an Application for Determination with the
Internal Revenue Service relating to termination of the pension plan, effective
for the year ended May 31, 1994, and no further contributions were made in 1994
or subsequent years pending approval from the Internal Revenue Service.
The Company also has defined contribution profit sharing (Cash Option and
401(k)) plans for the benefit of all eligible employees. Contributions are
determined annually by vote of the Board of Directors, not to exceed 15% of
eligible compensation. There were no cash option profit sharing contributions
for 1995 and 1994. In January 1995, the Company instituted an employer matching
contribution for the 401(k) plan for a portion of participant contributions. At
May 31, 1995, the Company contributed $42,741.
The vesting periods for both plans begin at 2 full years of service and
become fully vested after 6 full years of service. Employees become eligible
under both plans upon completion of 500 hours of service.
F-29
<PAGE> 90
THE COMPUTER RESOURCES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS
LINE OF CREDIT
The Company has a $1,750,000 line of credit secured by accounts receivable
and property and equipment. The line of credit bears interest at the rate of
prime plus 1.5% and may be cancelled with 120 days written notice. Richard
Green, Chairman and Chief Executive Officer, is the personal guarantor of the
line of credit up to $500,000. This line of credit was used to pay off principal
and interest of $855,013 on the original line of credit at October 21, 1994, and
is also used for working capital purposes. The outstanding balance at May 31,
1995 was $1,235,000. The line of credit is due in full, unless it is extended,
on November 2, 1995. As part of the line of credit requirements, the Company is
required to maintain the following loan covenants:
Tangible net worth of $800,000.
Trading capital greater than $300,000.
Leverage Ratio -- the ratio of total liabilities to tangible net worth
should be less than 3.00 to 1.00.
Trading Ratio -- the ratio of trading assets to trading liabilities
should be greater than 1.15 to 1.00.
The Company must maintain profitable operations.
The Company is not in compliance with these ratios as of May 31, 1995. The
bank waived compliance with the above covenants in a letter dated September 7,
1995.
NOTES PAYABLE
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Unsecured note payable to stockholder at an interest rate of
prime plus 2.0%, principal and interest due May 31, 1995...... $75,000 $ --
------- -------
Total................................................. 75,000 --
Less Current portion of Notes Payable........................... 75,000 --
------- -------
Long term portion of Notes Payable.............................. $ -- $ --
======= =======
</TABLE>
CAPITALIZED LEASES
Future minimum lease payments for capitalized lease obligations at May 31,
1995 are as follows:
<TABLE>
<S> <C>
1996....................................................................... $28,492
1997....................................................................... 28,492
1998....................................................................... 16,805
1999....................................................................... 9,842
2000....................................................................... 743
2001 and beyond............................................................ --
-------
Total minimum lease payments............................................. 84,374
Less: amount representing interest....................................... 18,507
-------
Present value of minimum lease payments.................................. 65,867
Current portion.......................................................... 18,979
-------
Total non-current portion........................................ $46,888
=======
</TABLE>
F-30
<PAGE> 91
THE COMPUTER RESOURCES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
OPERATING LEASES
The Company is obligated under various operating leases for its office
space and for office and computer equipment. Minimum annual rentals are as
follows:
<TABLE>
<CAPTION>
OFFICE & COMPUTER
OFFICE LEASE EQUIPMENT
------------ -----------------
<S> <C> <C>
1996...................................................... $ 276,689 $41,356
1997...................................................... 300,544 20,336
1998...................................................... 329,445 1,813
1999...................................................... 291,409 --
2000...................................................... 264,240 --
2001 and beyond........................................... 1,255,140 --
------------ -----------------
$ 2,717,467 $63,505
========= =============
</TABLE>
Office rental expense for 1995 and 1994 was $332,820 and $351,624,
respectively; equipment rental expense under operating leases was $48,584 for
1995.
Richard Green, Chairman and Chief Executive Officer, has provided a
personal guarantee in the amount of $100,000 for the lease of the Company's San
Francisco office on Battery Street.
The Battery Street lease provides for a 12 year term with free rent for the
first six months and a 50% abatement on rent for the next six months. It has
fixed rent increases over the lease term.
Rent expense on such a lease must be expensed on a straight-line basis over
the life of the lease. This results in an increase of rent expense over rent
actually paid for the first few years of the lease. This difference is placed in
an accrued rent account which is expensed in the latter part of the lease when
rent expense is lower than actual rent paid. For 1995 and 1994, the increase in
rent expense over rent actually paid is $126,841 and $103,677, respectively. Net
income is decreased by those amounts.
7. EMPLOYEE STOCK BONUS PLAN
The Company previously had an employee stock bonus plan for key employees
which terminated during fiscal year 1994. The plan provides for the sale
(repurchase) of shares to (from) key employees at the book value of the shares
of stock issued and outstanding at the end of the previous fiscal year. At May
31, 1995, there were 18,145 issued and outstanding shares subject to possible
redemption should the respective stockholder's employment with the Company be
terminated.
ADDITIONAL SHARES ISSUED
As a result of restatements to the 1992 and 1993 financial statements, the
Company issued additional stock in 1995. An adjusted number of shares was issued
to each employee participating in the plan during those years. The Company
re-calculated the shares which would have been issued at the correct prices in
1992 and 1993, and corrected the number of shares held by each participant.
Although additional shares were issued, the shares' basis was decreased, and
therefore the total dollar value of shares outstanding has not changed.
8. RELATED PARTY TRANSACTIONS
FACILITY LEASE
The Company leases office space in Santa Clara, California, from a limited
partnership in which it owns a 25.33% partnership interest. The Company's share
of the partnership's gain (loss) amounted to $(1,704) and $1,730 for the years
ended May 31, 1995 and May 31, 1994, respectively. Rental expense of $66,258 and
F-31
<PAGE> 92
THE COMPUTER RESOURCES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
$68,810 for the years ended May 31, 1995 and May 31, 1994, respectively, is
included in operating expenses. The Company uses the equity method of accounting
to report this partnership investment.
NOTE RECEIVABLE
The Company has a $350,000 unsecured note receivable from the majority
stockholder at an interest rate of 7.87%. An interest only payment of $42,523.50
was paid as scheduled on January 21, 1994. Principal and interest are due in
annual installments of $35,304.11; the first payment was made on January 21,
1995. The last installment will be paid January 21, 2014.
COMMON STOCK TRANSACTIONS
During the 1993 fiscal year, the Company entered into an agreement with
Allen Prestegard, President and Chief Operating Officer, and Catherine
Valentine, Trustees of the Prestegard Trust (a living trust), regarding the sale
of common stock. The Company agreed to sell a number of shares equal to 20% of
shares issued and outstanding to the Prestegard Trust. The total number of
shares comprising the 20% was to be determined after the shares from the
employee stock bonus plan for 1993 were issued in the 1994 fiscal year.
Therefore, the transaction closed in March 1994.
Allen Prestegard paid $200,000 for 46,536 shares; 45,351 of which were
issued in 1993 and the remaining 1,185 were issued in 1994. The agreement also
provides for the repurchase of these shares in installments over a period of
time in the event of Allen Prestegard's death, permanent disability, bankruptcy
or termination. The amount of the redemption purchase price to be paid by the
Company shall be an amount equal to three times the book value of the Company
computed on a per share basis as of the last day of the month preceding the date
that the agreement is reached on the number of shares to be redeemed at that
time.
In addition, the Company gave Allen Prestegard the option, to be exercised
within one year, to purchase another 5% of shares issued and outstanding for
$50,000. This was exercised in 1994, with the purchase of 12,471 shares,
bringing the Prestegard Trust's holdings in the Company up to 59,007 shares.
Allen Prestegard has terminated employment with the Company.
9. TOP HEAVY STATUS OF PENSION PLAN
During the fiscal year 1994, it was determined that the defined
contribution plans sponsored by the Company acquired top heavy status (under
Internal Revenue code Section 416) during the 1993 fiscal year, thus requiring a
minimum contribution or that equivalent benefits be allocated to all
participants in all defined contribution plans sponsored by the Company.
The Company retained ERISA counsel and submitted a proposal to the Internal
Revenue Service under the Voluntary Compliance Resolution Program. Per the
proposal submitted to the Internal Revenue Service, the Company would have two
alternatives: 1) Contributions made by key employees to the plans would be
withdrawn; or 2) The Company would make an additional minimum contribution
allocated to all participants. Under the first alternative, there would be no
effect on the Company. Under the second alternative, the Company would incur an
additional $128,000 of retirement plan expense and this would decrease net
income by the same amount. Thus, pending the resolution of this issue with the
Internal Revenue Service, the Company has an exposure range of no effect on net
income to a decrease of $128,000 in net income. As the outcome is uncertain, no
accrual has been made as of the date of this report.
F-32
<PAGE> 93
THE COMPUTER RESOURCES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. SUBSEQUENT EVENTS
On January 20, 1996, the Company entered into an agreement to repurchase
certain shares of outstanding common stock per the terms of its Stock Redemption
Agreement dated March 29, 1993. The Company will repurchase 5,901 shares of
stock for a total of $93,826, making monthly payments of $10,000 or a percentage
of revenue as determined by the Stock Redemption Agreement, whichever is
greater.
On April 25, 1996, the Company signed a letter of intent to sell the
business and substantially all of its assets and related liabilities. The
purchase price is not to exceed $23,400,000 and is to be paid over a three-year
period. The four key employees would remain with the business under three-year
employment and noncompete agreements.
F-33
<PAGE> 94
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements (the Unaudited Pro
Forma Financial Statements) have been derived by the application of pro forma
adjustments to historical consolidated financial statements, included elsewhere
in this Prospectus. The unaudited pro forma statements of income for the year
ended December 31, 1995, and the three-month period ended March 31, 1996, give
effect to the initial public offering (the IPO) in September 1995, the
acquisitions of Allegheny, Profile, Fox and CRG and the conversion of three
previously franchised Nursefinders offices to Company-owned offices
(collectively the Transactions or the Acquired Companies) and this offering as
if such transactions were consummated as of January 1, 1995. The unaudited pro
forma balance sheet gives effect to the acquisitions of Fox and CRG, the
conversion of one of the Nursefinder franchises, and this offering as if such
transactions had occurred on March 31, 1996. The Company's historical balance
sheet as of March 31, 1996, includes the assets of Allegheny and Profile and the
conversion of two of the Nursefinders franchises as those acquisitions were
completed prior to such date. The Unaudited Pro Forma Financial Statements
should not be considered indicative of actual results that would have been
achieved had the IPO, the Transactions and this offering been consummated on the
date or for the periods indicated and do not purport to indicate balance sheet
data or results of operations as of any future date or for any future period.
The Unaudited Pro Forma Financial Statements should be read in conjunction with
the historical financial statements and the notes thereto included elsewhere in
the Prospectus.
The pro forma adjustments were applied to the historical financial
statements to reflect and account for the Transactions as purchases.
Accordingly, the pro forma data reflect the preliminary allocation of the
purchase price paid for the Acquired Companies based on the estimated fair value
of the tangible and intangible assets and liabilities. Management believes that
the final allocation will not vary significantly from such preliminary
allocation.
F-34
<PAGE> 95
PERSONNEL GROUP OF AMERICA, INC.
UNAUDITED PRO FORMA BALANCE SHEET
MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
IMPACT OF TRANSACTIONS
------------------------------------------------------------------------------------
OTHER 1996 PRO FORMA PRO FORMA
PGA FOX TRANSACTIONS ADJUSTMENTS PRO FORMA CRG ADJUSTMENTS
-------- ------ ----------- ----------- --------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.................................... $ 2,900 $ 406 $ 12 $ (418)(a) $ 2,900 $ 30 $ (30)(a)
Accounts receivable..................... 35,599 1,678 966 (966)(a) 37,277 3,467 --
Prepaid expenses........................ 3,256 70 27 (54)(a) 3,299 166 --
Deferred income taxes................... 3,437 -- -- -- 3,437 -- --
-------- ------ ----------- ----------- --------- ------ -----------
Total current assets.............. 45,192 2,154 1,005 (1,438) 46,913 3,663 (30)
Property and equipment, net............... 4,206 221 21 (42)(a) 4,406 315 --
Excess of cost over fair value of net
assets acquired, net.................... 60,315 -- -- 19,258(b) 79,573 -- 18,653(b)
Other intangibles, net.................... 1,540 -- -- 400(b) 1,940 -- 50(b)
Other assets.............................. 671 13 72 (74)(a) 682 476 --
-------- ------ ----------- ----------- --------- ------ -----------
Total assets...................... $111,924 $2,388 $ 1,098 $18,104 $133,514 $4,454 $18,673
======== ====== ========== =========== ========== ====== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................ $ 741 $ 38 $ 46 $ (84)(a) $ 741 $2,285 $ --
Accrued liabilities..................... 17,037 440 93 (203)(a) 17,367 302 --
Income taxes payable.................... 767 7 -- (7)(a) 767 -- --
-------- ------ ----------- ----------- --------- ------ -----------
Total current liabilities......... 18,545 485 139 (294) 18,875 2,587 --
Notes payable............................. 7,600 -- 14 21,246(a),(b) 28,860 250 20,290(b)
Deferred income taxes payable............. 8,303 25 -- (25)(a) 8,303 17 (17)
-------- ------ ----------- ----------- --------- ------ -----------
Total liabilities................. 34,448 510 153 20,927 56,038 2,854 20,273
Shareholders' equity:
Preferred stock......................... -- -- -- -- -- -- --
Common Stock............................ 80 2 1 (3)(b) 80 632 (632)(b)
Additional paid-in capital.............. 73,559 63 210 (273)(b) 73,559 -- --
Retained earnings....................... 3,837 1,813 734 (2,547)(b) 3,837 968 (968)(b)
-------- ------ ----------- ----------- --------- ------ -----------
Total shareholders' equity........ 77,476 1,878 945 (2,823) 77,476 1,600 (1,600)
-------- ------ ----------- ----------- --------- ------ -----------
Total liabilities and
shareholders' equity............ $111,924 $2,388 $ 1,098 $18,104 $133,514 $4,454 $18,673
======== ====== ========== =========== ========== ====== ===========
<CAPTION>
IMPACT OF
OFFERING
---------------------------
PRO FORMA PRO FORMA
PRO FORMA ADJUSTMENTS AS ADJUSTED
--------- ----------- -----------
<S> <C> <C> <C>
Current assets:
Cash.................................... $ 2,900 $24,616 $ 27,516
Accounts receivable..................... 40,744 -- 40,744
Prepaid expenses........................ 3,465 -- 3,465
Deferred income taxes................... 3,437 -- 3,437
--------- ----------- -----------
Total current assets.............. 50,546 24,616 75,162
Property and equipment, net............... 4,721 -- 4,721
Excess of cost over fair value of net
assets acquired, net.................... 98,226 -- 98,226
Other intangibles, net.................... 1,990 -- 1,990
Other assets.............................. 1,158 -- 1,158
--------- ----------- -----------
Total assets...................... $156,641 $24,616 $ 181,257
========== =========== ===========
Current Liabilities:
Accounts payable........................ $ 3,026 $ -- $ 3,026
Accrued liabilities..................... 17,669 -- 17,669
Income taxes payable.................... 767 -- 767
--------- ----------- -----------
Total current liabilities......... 21,462 -- 21,462
Notes payable............................. 49,400 (49,400)(c) --
Deferred income taxes payable............. 8,303 -- 8,303
--------- ----------- -----------
Total liabilities................. 79,165 (49,400) 29,765
Shareholders' equity:
Preferred stock......................... -- -- --
Common Stock............................ 80 35(c) 115
Additional paid-in capital.............. 73,559 73,981(c) 147,540
Retained earnings....................... 3,837 -- 3,837
--------- ----------- -----------
Total shareholders' equity........ 77,476 74,016 151,492
--------- ----------- -----------
Total liabilities and
shareholders' equity............ $156,641 $24,616 $ 181,257
========== =========== ===========
</TABLE>
F-35
<PAGE> 96
PERSONNEL GROUP OF AMERICA, INC.
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1996
The accompanying pro forma balance sheet as of March 31, 1996, was prepared
to reflect the financial position of the Company as if the acquisitions of Fox
and CRG, the conversion of one of the Nursefinders franchises, and this offering
had occurred on March 31, 1996. These acquisitions and the conversion have been
accounted for using the purchase method of accounting. CRG has a fiscal year-end
of May 31. The accompanying pro forma balance sheet as of March 31, 1996,
includes historical information of CRG as of February 29, 1996. The Company's
historical balance sheet as of March 31, 1996, includes the assets and
liabilities of Allegheny and Profile, and the conversion of two of the
Nursefinders franchises, as these acquisitions and conversions were completed
prior to such date.
a) These adjustments reflect the reduction of certain assets not acquired
and liabilities not assumed from the acquisitions of Fox and CRG and conversion
of one of the former Nursefinders franchises by the Company.
b) The pro forma adjustment to net assets represents management's
preliminary allocation of the purchase price as follows (dollars in thousands):
<TABLE>
<CAPTION>
OTHER 1996
FOX TRANSACTION CRG
------- ----------- -------
<S> <C> <C> <C>
Purchase Price....................................... $18,500 $ 2,275 $19,500
Fees and expenses.................................... 485 0 790
------- ----------- -------
Total purchase price....................... 18,985 2,275 20,290
Less:
Net assets acquired................................ (1,574) (28) (1,587)
Value assigned to noncompetition agreements........ (100) (300) (50)
------- ----------- -------
Excess of cost over fair value of net asset
acquired........................................... $17,311 $ 1,947 $18,653
======= ======== =======
</TABLE>
The acquisitions of Profile and CRG provide for additional purchase price
consideration upon attainment of certain earnings targets over the next three
and two calendar years, respectively. Any additional consideration paid will be
recorded as additional purchase price, allocated to excess of cost over fair
value of net assets acquired and amortized over the remaining life of the asset.
c) This adjustment reflects the application of the net proceeds of this
offering as follows (dollars in thousands, except per share amount):
<TABLE>
<S> <C>
Number of shares offered................................................. 3,500,000
Price to public.......................................................... $ 22.50
----------
Total proceeds to the Company.................................. 78,750
Underwriting discounts and commissions and offering expenses............. (4,734)
----------
Net proceeds to the Company.................................... 74,016
Repayment of notes payable............................................... (49,400)
----------
Increase in cash and cash equivalents.......................... $ 24,616
=========
</TABLE>
F-36
<PAGE> 97
PERSONNEL GROUP OF AMERICA, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
IMPACT OF TRANSACTIONS
---------------------------------------------------------------------------
OTHER 1996 PRO FORMA
PGA FOX TRANSACTIONS ADJUSTMENTS PRO FORMA CRG
-------- ------- ------------ ----------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenues..................................... $251,055 $15,919 $ 34,532 $ (520)(a) $300,986 $24,554
-------- ------- ------------ ----------- --------- -------
Operating expenses:
Direct cost of services.................... 178,966 11,698 25,422 -- 216,086 17,623
Selling, general, and administrative....... 56,010 2,544 7,084 (1,249)(b) 64,389 6,177
Depreciation and amortization.............. 3,665 78 46 1,109(c) 4,898 146
-------- ------- ------------ ----------- --------- -------
Total operating expenses............. 238,641 14,320 32,552 (140) 285,373 23,946
Interest expense............................. -- -- 27 1,837(d) 1,864 176
-------- ------- ------------ ----------- --------- -------
Income before income taxes................... 12,414 1,599 1,953 (2,217) 13,749 432
Provision for income taxes................... 5,305 27 77 477(e) 5,886 (2)
-------- ------- ------------ ----------- --------- -------
Net income................................... $ 7,109 $ 1,572 $ 1,876 $(2,694) $ 7,863 $ 434
======== ======= ========== ========== ======== =======
Weighted average shares outstanding(g)....... 8,000 8,000
Pro forma net income per share(g)............ $ 0.89 $ 0.98
======== ========
<CAPTION>
IMPACT OF OFFERING
---------------------------
PRO FORMA PRO FORMA PRO FORMA
ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues..................................... $ -- $325,540 $ -- $ 325,540
----------- --------- ----------- -----------
Operating expenses:
Direct cost of services.................... -- 233,709 -- 233,709
Selling, general, and administrative....... (637)(b) 69,929 -- 69,929
Depreciation and amortization.............. 476(c) 5,520 -- 5,520
----------- --------- ----------- -----------
Total operating expenses............. (161) 309,158 -- 309,158
Interest expense............................. 1,319(d) 3,359 (3,359)(f) --
----------- --------- ----------- -----------
Income before income taxes................... (1,158) 13,023 3,359 16,382
Provision for income taxes................... (289)(e) 5,595 1,344(e) 6,939
----------- --------- ----------- -----------
Net income................................... $ (869) $ 7,428 $ 2,015 $ 9,443
========== ======== ========== =========
Weighted average shares outstanding(g)....... 8,000 11,500
Pro forma net income per share(g)............ $ 0.93 $ 0.82
======== =========
</TABLE>
F-37
<PAGE> 98
PERSONNEL GROUP OF AMERICA, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
IMPACT OF TRANSACTIONS
----------------------------------------------------------------------------------------------
OTHER 1996 PRO FORMA PRO FORMA
PGA FOX TRANSACTIONS ADJUSTMENTS PRO FORMA CRG ADJUSTMENTS PRO FORMA
------- ------ ------------ ----------- --------- ------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues... $66,873 $4,166 $6,336 $ (73)(a) $77,302 $7,444 $ -- $84,746
------- ------ ------------ ----------- --------- ------ ----------- ---------
Operating
expenses:
Direct
cost
of
services... 48,851 3,022 4,920 -- 56,793 5,435 -- 2,228
Selling,
general,
and
administrative... 14,551 772 1,439 (658)(b) 16,104 1,549 (159)(b) 17,494
Depreciation
and
amortization... 880 18 11 233(c) 1,142 20 119(c) 1,281
------- ------ ------------ ----------- --------- ------ ----------- ---------
Total
operating
expenses... 64,282 3,812 6,370 (425) 74,039 7,004 (40) 81,003
Interest
expense... -- -- -- 459(d) 459 11 330(d) 800
------- ------ ------------ ----------- --------- ------ ----------- ---------
Income
(loss)
before
income
taxes... 2,591 354 (34) (107) 2,804 429 (290) 2,943
Provision
for
income
taxes... 1,101 8 -- 86(e) 1,195 6 50(e) 1,251
------- ------ ------------ ----------- --------- ------ ----------- ---------
Net
income
(loss)... $ 1,490 $ 346 $ (34) $(193) $ 1,609 $ 423 $(340) $ 1,692
======= ====== ============ =========== ========= ====== =========== =========
Weighted
average
shares
outstanding(g)... 8,000 8,000 8,000
Pro
forma
net
income
per
share(g).. $ 0.19 $ 0.20 $ 0.21
======= ========= =========
<CAPTION>
IMPACT OF OFFERING
-------------------------
PRO FORMA PRO FORMA,
ADJUSTMENTS AS ADJUSTED
----------- -----------
<S> <C> <C>
Revenues... $ -- $84,746
----------- -----------
Operating
expenses:
Direct
cost
of
services... -- 62,228
Selling,
general,
and
administrative... -- 17,494
Depreciation
and
amortization... -- 1,281
----------- -----------
Total
operating
expenses... -- 81,003
Interest
expense... (800)(f) --
----------- -----------
Income
(loss)
before
income
taxes... 800 3,743
Provision
for
income
taxes... 320(e) 1,571
----------- -----------
Net
income
(loss)... $ 480 $ 2,172
========= ========
Weighted
average
shares
outstanding(g)... 11,500
Pro
forma
net
income
per
share(g).. $ 0.19
========
</TABLE>
F-38
<PAGE> 99
PERSONNEL GROUP OF AMERICA, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995, AND
THE THREE-MONTH PERIOD ENDED MARCH 31, 1996
The accompanying pro forma statements of income for the year ended December
31, 1995, and the three-month period ended March 31, 1996, have been prepared to
reflect the operations of the Company as if the IPO, the Transactions and this
offering had occurred on January 1, 1995. CRG has a fiscal year-end of May 31.
The accompanying pro forma statements of income for the year ended December 31,
1995, and the three-month period ended March 31, 1996, reflect the historical
results of operations of CRG for the twelve-month period ended November 30,
1995, and the three-month period ended February 29, 1996, respectively.
a) This adjustment reflects the elimination of franchise fees received from
the converted Nursefinders offices.
b) The adjustments to selling, general and administrative expense include
the following (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1995
-------------------------
FOX AND OTHER
1996 TRANSACTIONS CRG
----------------- -----
<S> <C> <C>
Eliminate franchise fees paid.................................. $ (520) $ --
Adjust officer compensation.................................... (857) (637)
Other.......................................................... 128 --
----------------- -----
Total................................................ $(1,249) $(637)
============ =====
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, 1996
-------------------------
FOX AND OTHER
1996 TRANSACTIONS CRG
----------------- -----
<S> <C> <C>
Eliminate franchise fees paid.................................. $ (73) $ --
Adjust officer compensation.................................... (374) (159)
Other.......................................................... (211) --
----------------- -----
Total................................................ $ (658) $(159)
============ =====
</TABLE>
The adjustment to officer compensation reflects the reduction of certain
officers' compensation following the Transactions and the termination of
employment of certain owner/officers, a result of selected officers of the
Acquired Companies terminating their employment concurrent with the
acquisitions.
Other reflects the elimination of certain management fees and other
transactions with related entities of the Acquired Companies that will be
discontinued after the Transactions, offset by management's estimate of the net
incremental stand-alone costs expected to be incurred by the Company for the
period prior to the IPO.
c) This adjustment reflects the increase in amortization expense related to
the excess of cost over fair value of net assets acquired, and other intangible
assets added as a result of the Transactions. The excess of cost over fair value
of net assets acquired and other intangible assets will be amortized on a
straight-line basis over 40 years and four to five years, respectively.
d) This adjustment reflects the increase in interest expense for notes
payable at an interest rate of 6.5% related to the acquisitions of Fox and CRG
and the conversion of one of the Nursefinders franchises. The effect on pro
forma interest expense and pro forma net income of a 1/8 percent variance in
interest rates would not be material.
e) This adjustment reflects the impact on income tax expense of the pro
forma adjustments to income before provision for income taxes and to provide
income taxes on the Acquired Companies that were
F-39
<PAGE> 100
PERSONNEL GROUP OF AMERICA, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF INCOME -- (CONTINUED)
S corporations as if they were C corporations for federal income tax purposes
based on a combined federal and state tax rate of 40%.
f) This adjustment reflects the elimination of interest expense as certain
proceeds of this offering are assumed to have been applied to the repayment of
the notes payable. After repayment of the notes payable, the Company anticipates
an increase in cash and cash equivalents of $24,616,000; the pro forma
statements of income do not include any assumed return on this additional cash
and cash equivalents.
g) Pro forma net income per share was computed by dividing pro forma net
income, after giving effect to each of the Transactions, by the weighted average
number of shares outstanding during the year ended December 31, 1995, and the
three months ended March 31, 1996. Pro forma net income per share, as adjusted,
was computed by dividing pro forma net income, as adjusted for the impact of
this offering, by the weighted average number of shares that would have been
outstanding for the year ended December 31, 1995, and the three months ended
March 31, 1996, as if this offering had occurred on January 1, 1995. The effect
of stock options on pro forma net income per share is not material.
F-40
<PAGE> 101
------------------------------------------------------------
------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. 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.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 7
The Company............................... 13
Use of Proceeds........................... 13
Dividend Policy........................... 13
Price Range of Common Stock............... 14
Capitalization............................ 14
Selected Consolidated Financial Data...... 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 17
Business.................................. 26
Management................................ 40
Certain Transactions...................... 49
Principal Stockholders.................... 51
Description of Capital Stock.............. 52
Underwriting.............................. 55
Legal Matters............................. 56
Experts................................... 57
Available Information..................... 57
Index to Financial Statements............. F-1
</TABLE>
------------------------------------------------------------
------------------------------------------------------------
3,500,000 SHARES
[PGA LOGO]
PERSONNEL GROUP OF
AMERICA, INC.
COMMON STOCK
------------------------
P R O S P E C T U S
------------------------
PAINEWEBBER INCORPORATED
SMITH BARNEY INC.
J.C. BRADFORD & CO.
THE ROBINSON-HUMPHREY
COMPANY, INC.
------------------------
, 1996
------------------------------------------------------------
------------------------------------------------------------
<PAGE> 102
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
PRELIMINARY PROSPECTUS DATED MAY 24, 1996
3,500,000 SHARES
LOGO
PERSONNEL GROUP OF AMERICA, INC.
COMMON STOCK
------------------------
All the shares of Common Stock offered hereby are being offered by the
Company. Of the 3,500,000 shares of Common Stock offered, 700,000 shares are
being offered hereby in an international offering outside the United States and
Canada (the "International Shares") and 2,800,000 shares are being offered in a
concurrent offering in the United States and Canada. The price to the public and
aggregate underwriting discounts and commissions per share will be identical for
both offerings. See "Underwriting."
The Common Stock is listed on the New York Stock Exchange under the symbol
"PGA." On May 22, 1996, the last reported sale price of the Common Stock on the
New York Stock Exchange was $22.50 per share. See "Price Range of Common Stock"
appearing on page 14.
SEE "RISK FACTORS" ON PAGE 7 OF THIS PROSPECTUS FOR INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Per Share......................... $ $ $
- -------------------------------------------------------------------------------------------------
Total............................. $ $ $
- -------------------------------------------------------------------------------------------------
Total Assuming Full Exercise of
Over-Allotment Option(3)........ $ $ $
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting."
(2) Before deducting expenses estimated at $600,000, all of which are payable by
the Company.
(3) Assuming exercise in full of the 30-day option granted by the Company to the
Underwriters to purchase up to 525,000 additional shares on the same terms,
solely to cover over-allotments. See "Underwriting."
------------------------
The International Shares are offered by the International Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
International Underwriters, and subject to their right to reject orders in whole
or in part. It is expected that delivery of the Common Stock will be made in New
York City on or about , 1996.
------------------------
PAINEWEBBER INTERNATIONAL
SMITH BARNEY INC.
J.C. BRADFORD & CO.
THE ROBINSON-HUMPHREY
COMPANY, INC.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE> 103
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
CERTAIN U.S. TAX CONSEQUENCES TO NON-U.S. STOCKHOLDERS
The following is a general discussion of certain United States federal tax
consequences of the ownership and disposition of a share of Common Stock by a
non-U.S. holder. For purposes of this discussion, a non-U.S. holder is a person
or entity that, for U.S. federal income tax purposes, is a non-resident alien
individual, a foreign corporation, a foreign partnership, or a non-resident
fiduciary of a foreign estate or trust (that is, a trust or estate not subject
to United States federal income tax on income from sources without the United
States that is not effectively connected with the conduct of a trade or business
within the United States). An individual may, subject to certain exceptions, be
deemed to be a resident alien (as opposed to a non-resident alien) with respect
to a calendar year by virtue of being present in the United States on at least
31 days in that calendar year and for an aggregate of at least 183 days during
the three-year period ending in that calendar year (counting for such purposes
all of the days present in that year, one-third of the days present in the
immediately preceding year, and one-sixth of the days present in the second
preceding year). Resident aliens are subject to U.S. federal tax as if they were
United States citizens.
This discussion does not consider any specific facts or circumstances that
may apply to a particular non-U.S. holder and does not address any state, local
or non-U.S. tax considerations. Furthermore, the following discussion is based
on current provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), the regulations promulgated thereunder and public administrative and
judicial interpretations of the Code and regulations as of the date hereof, all
of which are subject to change, which changes could be applied retroactively.
Each prospective investor is urged to consult its own tax adviser with respect
to the specific United States federal, state and local tax consequences of
owning and disposing of a share of Common Stock, as well as any tax consequences
arising under the laws of any other taxing jurisdiction.
U.S. INCOME AND ESTATE TAX CONSEQUENCES
Dividends. It is not currently contemplated that the Company will pay
dividends on the Common Stock in the foreseeable future. A dividend that is not
effectively connected with the conduct of a trade or business in the United
States by a non-U.S. holder of the share of Common Stock (or, if a tax treaty
applies, not attributable to a United States permanent establishment maintained
by such non-U.S. holder) will be subject to U.S. withholding tax at a 30% rate
or such lower rate as may be specified by an applicable income tax treaty. A
dividend that is effectively connected with the conduct of a trade or business
in the United States by the non-U.S. holder of the share of Common Stock or, if
a tax treaty applies, is attributable to a U.S. permanent establishment
maintained by such non-U.S. holder, will be exempt from the withholding tax
described above (if certain certification and disclosure requirements are met)
and will be subject instead (i) to the U.S. federal income tax on net income
that applies to U.S. persons, and (ii) with respect to corporate holders under
certain circumstances, to the branch profits tax equal to 30% (or such lower
rate as may be specified by an applicable income tax treaty) of its "effectively
connected earnings and profits" within the meaning of the Code for the taxable
year, as adjusted for certain items. A substantial portion of dividends
otherwise subject to withholding may be exempt from withholding, however, under
the provisions of the Code relating to a U.S. corporation that derives 80% or
more of its gross income from a foreign active trade or business for the prior
three taxable years. The Company does not currently qualify for the reduced
withholding.
Under current U.S. Treasury regulations, dividends paid to an address
outside the United States are presumed to be paid to a resident of such country
for purposes of the withholding discussed above (unless the payor has knowledge
to the contrary), and, under the current interpretation of U.S. Treasury
regulations, for purposes of determining the applicability of a tax treaty rate.
However, under proposed U.S. Treasury regulations, which have not been, and may
not be, put into effect, to claim the benefits of a tax treaty, a non-U.S.
holder of Common Stock would be required to file certain forms accompanied by a
statement from the competent authority of the treaty country that the non-U.S.
holder is a resident thereof for purposes of its tax laws.
Gain on Disposition of Common Stock. A non-U.S. holder generally will not
be subject to U.S. federal income tax on any gain recognized on a disposition of
a share of Common Stock unless (i) the gain is
55
<PAGE> 104
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
effectively connected with the conduct of a trade or business within the United
States of the non-U.S. holder or, if a tax treaty applies, attributable to a
permanent establishment maintained by the non-U.S. holder, (ii) the non-U.S.
holder is an individual who holds the share as a capital asset and is present in
the United States for 183 days or more in the taxable year of the disposition,
(iii) the non-U.S. holder is subject to tax pursuant to the Code provisions
applicable to certain U.S. expatriates, or (iv) the Company is or has been a
"United States real property holding corporation" for federal income tax
purposes at any time within the shorter of the five-year period preceding such
disposition or such holder's holding period. The Company has determined that it
has not been, is not currently and does not believe that it will become a
"United States real property holding corporation" for federal income tax
purposes. If an individual non-U.S. holder falls under clauses (i) or (iii)
above, he or she will be taxed on his or her net gain derived from the sale
under regular U.S. federal income tax rates. If the individual non-U.S. holder
falls under clause (ii) above, he or she will be subject to a flat 30% tax on
the gain derived from the sale which may be offset by U.S. capital losses
recognized within the same taxable year of such sale (notwithstanding the fact
that he or she may not be considered a resident of the United States). If a
non-U.S. holder that is a foreign corporation falls under clause (i) above, it
will be taxed on its gain under regular graduated U.S. federal income tax rates
and, in addition, will under certain circumstances be subject to the branch
profits tax equal to 30% of its "effectively connected earnings and profits"
within the meaning of the Code for the taxable year, as adjusted for certain
items, unless it qualifies for a lower rate under an applicable income tax
treaty.
A partner in a partnership or a beneficiary of a trust or estate may be
subject to U.S. federal income tax on gain realized on the disposition of shares
of Common Stock by the partnership, trust or estate (even though that entity may
not be subject to tax) if (i) the partner or beneficiary is subject to U.S.
federal income tax because of its own status, such as a United States resident
or a foreign person engaged in a trade or business in the United States whose
gain is effectively connected with that trade or business, or (ii) the partner
or beneficiary is a nonresident alien individual or foreign corporation and the
gain of the partnership, estate or trust disposing of the shares of Common Stock
is effectively connected with the conduct of a trade or business within the
United States by such partnership, estate or trust.
Federal Estate Tax. Shares of Common Stock owned or treated as owned by an
individual non-U.S. holder at the time of his or her death will be includible in
his or her estate for U.S. estate tax purposes unless an applicable estate tax
treaty provides otherwise.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Dividends. The Company must report annually to the U.S. Internal Revenue
Service and to each non-U.S. holder the amount of dividends paid to and the tax
withheld, if any, with respect to such holder. These information reporting
requirements apply regardless of whether withholding was not required because
the dividends were effectively connected with a trade or business in the United
States or withholding was reduced by an applicable tax treaty. Copies of these
information returns may also be available under the provisions of a specific
treaty or agreement with the tax authorities in the country in which the
non-U.S. holder resides. Dividends that are subject to U.S. withholding tax at
the 30% statutory rate or at a reduced tax treaty rate and dividends that are
effectively connected with the conduct of a trade or business in the United
States of the non-U.S. holder (or, if a tax treaty applies, attributable to a
United States permanent establishment of the non-U.S. holder) are exempt from
backup withholding of U.S. federal income tax (if certain certification and
disclosure requirements are met). Backup withholding, which generally is a
withholding tax imposed at a rate of 31% on certain payments to persons that
fail to furnish the information required under the United States information
reporting requirements, will therefore generally not apply to dividends paid on
shares of Common Stock to a non-U.S. holder at an address outside the United
States, under temporary U.S. Treasury regulations, unless the payor has actual
knowledge that the payee is a U.S. person.
Disposition of Common Stock. Information reporting and backup withholding
imposed at a rate of 31% will apply to the proceeds of a disposition of Common
Stock paid to or through a U.S. office of a broker unless the disposing holder
certifies its non-U.S. status or otherwise establishes an exemption. Generally,
U.S. information reporting and backup withholding will not apply to a payment of
disposition proceeds if the payment is made outside the United States through a
non-U.S. office of a non-U.S. broker. However, U.S.
56
<PAGE> 105
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
information reporting requirements (but not backup withholding) will apply to a
payment of disposition proceeds outside the United States if (A) the payment is
made through an office outside the United States of a broker that is either (i)
a U.S. person, (ii) a foreign person which derives 50% or more of its gross
income for certain periods from the conduct of a trade or business in the United
States, or (iii) a "controlled foreign corporation" for U.S. federal income tax
purposes and (B) the broker fails to maintain documentary evidence that the
holder is a non-U.S. holder and that certain conditions are met or that the
holder otherwise is entitled to an exemption or the broker has actual knowledge
to the contrary. Temporary U.S. Treasury regulations provide that the U.S.
Treasury is considering whether backup withholding will apply with respect to
such payments that are not currently subject to backup withholding under the
current regulations. These temporary regulations provide that any change to the
regulations with respect to backup withholding or information reporting would
apply on a prospective basis only. Under proposed U.S. Treasury regulations not
currently in effect, backup withholding will not apply to such payments absent
actual knowledge that the payee is a U.S. person.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the U.S.
Internal Revenue Service.
57
<PAGE> 106
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
UNDERWRITING
The International Underwriters named below, acting through PaineWebber
International (U.K.) Ltd., Smith Barney, Inc., J.C. Bradford & Co. and The
Robinson-Humphrey Company, Inc., as Representatives (the "Representatives"),
have severally agreed, subject to the terms and conditions set forth in the
International Underwriting Agreement by and between the Company and the
Representatives (the "International Underwriting Agreement"), to purchase from
the Company, and the Company has agreed to sell to the International
Underwriters, the respective number of shares of Common Stock set forth opposite
their respective names below:
<TABLE>
<CAPTION>
NUMBER
INTERNATIONAL UNDERWRITERS OF SHARES
--------------------------------------------------------------------------- ---------
<S> <C>
PaineWebber International (U.K.) Ltd.......................................
Smith Barney Inc...........................................................
J.C. Bradford & Co. .......................................................
The Robinson-Humphrey Company, Inc. .......................................
---------
Total............................................................ 700,000
=======
</TABLE>
In addition, the U.S. Underwriters (together with the International
Underwriters, the "Underwriters"), in a concurrent offering of the Common Stock
to U.S. or Canadian Persons (as defined below), acting through PaineWebber
Incorporated, Smith Barney Inc., J.C. Bradford & Co. and The Robinson-Humphrey
Company, Inc., as U.S. Representatives (the "U.S. Representatives"), have
severally agreed, subject to the terms and conditions set forth in the U.S.
Underwriting Agreement by and between the Company and the U.S. Representatives
(the "U.S. Underwriting Agreement") to purchase from the Company, and Company
has agreed to sell to the U.S. Underwriters, 2,800,000 shares of Common Stock.
The International Underwriting Agreement provides that the obligation of
the International Underwriters to purchase all of the shares of Common Stock is
subject to certain conditions. The International Underwriters are committed to
purchase, and the Company is obligated to sell, all the shares of Common Stock
offered by this Prospectus, if any of the shares of Common Stock being sold
pursuant to the International Underwriting Agreement are purchased. The offering
price and underwriting discounts and commissions under both underwriting
agreements are identical. In general, the closing with respect to the sale of
the shares of Common Stock pursuant to the International Underwriting Agreement
is a condition to the closing with respect to the sale of the shares of Common
Stock pursuant to the U.S. Underwriting Agreement and vice versa. PaineWebber
International (U.K.) Ltd. is an affiliate of PaineWebber Incorporated.
The Company has been advised by the Representatives that the International
Underwriters propose to offer the Common Stock to the public initially at the
public offering price set forth on the cover page of this Prospectus, and to
certain dealers at such price less a concession not in excess of $ per
share. The International Underwriters may allow, and such dealers may reallow, a
discount not in excess of $ per share to other dealers. After the
shares of Common Stock are released for sale to the public, the public offering
price and the concession and discount to dealers may be changed by the
Representatives.
Each International Underwriter has agreed that, as part of the distribution
of the shares of Common Stock, (i) it is not purchasing any shares of Common
Stock for the account of any U.S. or Canadian Person, and (ii) it has not
offered or sold, and will not offer or sell, directly or indirectly, any shares
of Common Stock or distribute this Prospectus to any person within the United
States or Canada or to any U.S. or Canadian Person. Each U.S. Underwriter has
agreed that, as part of the distribution of the shares of Common Stock, (i) it
is not purchasing any shares of Common Stock for the account of anyone other
than a U.S. or Canadian Person, and (ii) it has not offered or sold, and will
not offer or sell, directly or indirectly, any shares of Common Stock or
distribute the U.S. Prospectus to any person outside the United States or Canada
or to anyone other than a U.S. or Canadian Person. The foregoing limitations do
not apply to stabilization transactions or to certain other transactions
specified in the Agreement Between U.S. and International Underwriters described
below. As used herein, "U.S. or Canadian Person" means any individual who is
resident in the United States or Canada, or any corporation, pension,
profit-sharing or other trust or other
58
<PAGE> 107
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
entity organized under or governed by the laws of the United States or Canada or
any political subdivision thereof (other than a foreign branch of any U.S. or
Canadian Person), and includes any U.S. or Canadian branch of a non-U.S. or
Canadian Person.
The Underwriters have entered into an Agreement Between U.S. and
International Underwriters that provides for the coordination of their
activities. Pursuant to the Agreement Between U.S. and International
Underwriters, sales may be made between the U.S. Underwriters and the
International Underwriters of such number of shares of Common Stock as may be
mutually agreed upon. The per share price of any shares so sold shall be the
public offering price set forth on the cover page of this Prospectus, less an
amount not greater than the per share amount of the concession to dealers set
forth above. To the extent there are sales between the U.S. Underwriters and the
International Underwriters, the number of shares of Common Stock initially
available for sale by the U.S. Underwriters or by the International Underwriters
may be more or less than the amount appearing on the cover page of this
Prospectus.
The Company has granted an option to the U.S. Underwriters exercisable
during the 30-day period after the date of this Prospectus, to purchase up to a
maximum of 525,000 additional shares of Common Stock at the public offering
price less the underwriting discounts and commissions shown on the cover page of
this Prospectus. The U.S. Underwriters may exercise such option only to cover
over-allotments, if any, in the sale of the shares that the U.S. Underwriters
have agreed to purchase. To the extent that the U.S. Underwriters exercise this
option, each of the U.S. Underwriters will be committed, subject to certain
conditions, to purchase approximately the same percentage of additional shares
as the percentage it is required to purchase of the total number of shares of
Common Stock under the U.S. Underwriting Agreement.
The Company and its officers and directors have agreed that, except with
the prior written consent of PaineWebber Incorporated, during the 90 days
following the date of this Prospectus they will not offer for sale, sell, grant
any options, right or warrants with respect to any shares of Common Stock or any
other Company capital stock, securities or instruments convertible into or
exchangeable for Common Stock or other Company capital stock or otherwise
dispose of, directly or indirectly, of any shares of Common Stock, such other
capital stock or any other securities, instruments, options or rights
convertible into or exchangeable for, or otherwise exercisable for, Common Stock
or other Company capital stock, except for the Common Stock offered hereby.
Notwithstanding the foregoing, the Company may (i) grant options pursuant to the
Company's stock option plans in the ordinary course consistent with past
practice and issue shares of Common Stock upon the exercise of any such options
or under options currently outstanding and (ii) issue shares of Common Stock or
other securities convertible into Common Stock or any other capital stock of any
company solely to owners of capital stock of any company acquired by the Company
subsequent to the date 45 days from the date of this Prospectus. Any permitted
shortening of such periods and any related sales of Common Stock would not
necessarily be preceded by a public announcement of the Company or the
Representatives that such consent has been given.
The Company has agreed to indemnify the Underwriters and their controlling
persons against certain liabilities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act"), or to contribute to payments the
Underwriters may be required to make in respect thereof.
PaineWebber Incorporated and Smith Barney Inc. acted as managers and
received customary discounts and commissions in connection with the Company's
initial public offering.
The Common Stock is listed on the New York Stock Exchange under the symbol
PGA.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Robinson, Bradshaw & Hinson, P.A., Charlotte, North
Carolina. Certain legal matters relating to the offering will be passed upon for
the Underwriters by Brobeck, Phleger & Harrison LLP, Newport Beach, California.
59
<PAGE> 108
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
EXPERTS
The consolidated financial statements of the Company as of December 31,
1994 and 1995 and for each of the three years in the period ended December 31,
1995, and the combined financial statements of Judith Fox Staffing Companies as
of December 31, 1995, and for the year then ended, included in this Prospectus
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
The financial statements of The Computer Resources Group, Inc. as of May
31, 1994 and 1995 and for the years then ended included in this Prospectus have
been audited by Phillip Goodman Accountancy Corporation, independent auditors,
as stated in their report thereon, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC" or the "Commission") a Registration Statement on Form S-1 (the
"Registration Statement") under the Securities Act with respect to the Common
Stock being offered by this Prospectus. As permitted by the rules and
regulations of the Commission, this Prospectus omits certain information,
exhibits and undertakings contained (or to be contained) in the Registration
Statement. Statements made in this Prospectus as to the contents of any
contract, agreement or other document are not necessarily complete. With respect
to each such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to such exhibit for a more complete
description of the matter involved, and each such statement is qualified in its
entirety by such reference.
The Company is subject to the informational and reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports and other information with the Commission.
The Registration Statement and the exhibits and schedules thereto, and the
reports, proxy and information statements filed by the Company with the
Commission pursuant to the informational requirements of the Exchange Act, may
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
should be available at the Commission's Regional Offices at 7 World Trade
Center, 13th Floor, New York, New York 10048, and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can also be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
In addition, reports, proxy statements and other information concerning the
Company (Symbol: PGA) can be inspected and copied at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005, on which the Common
Stock is listed.
In June 1995, The Company's former parent retained Arthur Andersen LLP as
the Company's independent public accountants. The former parent had previously
retained another independent public accountant to audit certain subsidiaries of
the Company for one or more of the years ended December 31, 1992, 1993 and 1994.
The former auditors' reports on such subsidiaries' financial statements for each
of the three years ended December 31, 1994 does not cover the consolidated
financial statements of the Company included in this Prospectus. Such reports
did not contain adverse opinions or disclaimers of opinion and were not modified
as to uncertainty, audit scope or accounting principles. There were no
disagreements with the former auditors on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure at the
time of the change or with respect to such subsidiaries' financial statements
for each of the three years ended December 31, 1994, which, if not resolved to
the former auditors' satisfaction, would have caused them to make reference to
the subject matter of the disagreement in connection with their reports. Prior
to retaining Arthur Andersen LLP, such subsidiaries had not consulted with
Arthur Andersen LLP regarding accounting principles.
60
<PAGE> 109
------------------------------------------------------------
------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. 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.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 7
The Company............................... 13
Use of Proceeds........................... 13
Dividend Policy........................... 13
Price Range of Common Stock............... 14
Capitalization............................ 14
Selected Consolidated Financial Data...... 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 17
Business.................................. 26
Management................................ 40
Certain Transactions...................... 49
Principal Stockholders.................... 51
Description of Capital Stock.............. 52
Certain U.S. Tax Consequences to Non-U.S.
Stockholders............................ 55
Underwriting.............................. 58
Legal Matters............................. 59
Experts................................... 60
Available Information..................... 60
Index to Financial Statements............. F-1
</TABLE>
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
3,500,000 SHARES
LOGO
PERSONNEL GROUP OF
AMERICA, INC.
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
PAINEWEBBER INTERNATIONAL
SMITH BARNEY INC.
J.C. BRADFORD & CO.
THE ROBINSON-HUMPHREY COMPANY, INC.
------------------------
, 1996
------------------------------------------------------------
------------------------------------------------------------
<PAGE> 110
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of the estimated expenses, other
than underwriting discounts and commissions, all of which were or will be borne
by the Company.
<TABLE>
<S> <C>
Registration fee.................................................................. $ 30,535
NASD filing fee................................................................... 9,355
New York Stock Exchange listing fee............................................... 40,230
Blue Sky fees and expenses........................................................ 8,000
Accounting fees and expenses...................................................... 250,000
Printing and engraving expenses................................................... 75,000
Legal fees and expenses........................................................... 175,000
Miscellaneous fees and expenses................................................... 11,880
--------
Total................................................................... $600,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the General Corporation Law of the State of Delaware
provides that a Delaware corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.
Section 145(b) provides that a Delaware corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted
under similar standards, except that no indemnification may be made in respect
of any claim, issue or matter as to which such person shall have been adjudged
to be liable to the corporation unless and only to the extent that the court in
which such action or suit was brought shall determine that despite the
adjudication of liability, such person is fairly and reasonably entitled to be
indemnified for such expenses which the court shall deem proper.
Section 145 further provides that to the extent a director, officer,
employee or agent of a corporation has been successful in the defense of any
action, suit or proceeding referred to in subsections (a) and (b) or in the
defense of any claim, issue, or matter therein, he shall be indemnified against
expenses actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 145 shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and that the
corporation may purchase and maintain insurance on behalf of a director,
officer, employee or agent of the corporation against any liability asserted
against him or incurred by him in any such capacity or arising out of his status
as such, whether or not the corporation would have the power to indemnify him
against such liabilities under Section 145.
Section 102(b)(7) of the General Corporation Law provides that a
corporation in its original certificate of incorporation or an amendment thereto
validly approved by stockholders may eliminate or limit personal liability of
members of its board of directors or governing body for breach of a director's
fiduciary duty.
II-1
<PAGE> 111
However, no such provision may eliminate or limit the liability of a director
for breaching his duty of loyalty, failing to act in good faith, engaging in
intentional misconduct or knowingly violating a law, paying a dividend or
approving a stock repurchase that was illegal, or obtaining an improper personal
benefit. A provision of this type has no effect on the availability of equitable
remedies, such as injunction or rescission, for breach of fiduciary duty.
The Company's Certificate of Incorporation provides that, to the extent
permitted by Delaware law, each director shall not be liable for monetary
damages for breach of such director's fiduciary duty as a director to the
Company and its stockholders. In addition, the Company bylaws provide that the
Company will indemnify, to the full extent permitted by law, its directors and
officers, and may indemnify, at the discretion of the Board of Directors,
employees and agents, against losses incurred by any such person by reason of
the fact that such person was acting in such capacity.
The Company maintains insurance for the benefit of its directors and
officers insuring against certain liabilities and expenses that may be incurred
by such director or officer in or arising out of his capacity as such, and
insuring the Company, under certain circumstances, in the event that
indemnification payments are made by the Company to such officers and directors.
The Company has also entered into individual indemnification agreements
with its officers and directors, pursuant to which the Company has agreed to
indemnify its officers and directors, and to advance expenses to such persons,
to the maximum extent permitted by applicable law.
The U.S. Underwriting Agreement and the International Underwriting
Agreement provide that the U.S. Underwriters or the Representatives, as
applicable, shall indemnify each director of the Company, each officer of the
Company who signed this Registration Statement and each person who controls the
Company for certain liabilities, including certain liabilities under the
Securities Act of 1933 (the "Securities Act").
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On July 29, 1995, the Company effected the initial issuance of its Common
Stock, pursuant to which (i) the Company issued 4,000,000 shares of Common Stock
to Adia Services, Inc., a California corporation and wholly owned subsidiary of
Adia, S.A. (the Company's former parent), in exchange for 1,000 shares of common
stock of StaffPLUS, Inc. and 32,604 shares of common stock of Thomas Staffing
Services, Inc. and (ii) the Company issued 4,000,000 shares of Common Stock to
Adia Services, Inc., a Delaware corporation and wholly owned subsidiary of Adia,
S.A., in exchange for 1,000 shares of common stock of PFI Corp. The shares of
Common Stock were issued in reliance upon the exemption from the registration
requirements of the Securities Act afforded by Section 4(2) to transactions not
involving a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following documents are filed as exhibits to this Registration
Statement:
<TABLE>
<CAPTION>
FILED HEREWITH (*), OR INCORPORATED BY REFERENCE FROM
EXHIBIT TO BE FILED BY COMPANY REG. NO. PREVIOUS
NUMBER DESCRIPTION AMENDMENT (**) OR REPORT EXHIBIT NO.
- ------ ----------------------------------------- ------------------- ---------------- -----------
<S> <C> <C> <C> <C>
1.1 -- Form of U.S. Underwriting Agreement **
1.2 -- Form of International Underwriting **
Agreement
3.1 -- Amended and Restated Certificate of
Incorporation of the Company 33-95228 3.1
3.2 -- Amended and Restated Bylaws of the
Company 33-95228 3.2
4.0 -- Specimen Stock Certificate
33-95228 4.0
4.1 -- Rights Agreement between the Company and
The First National Bank of Boston 8-K dated 1
2/20/96
</TABLE>
II-2
<PAGE> 112
<TABLE>
<CAPTION>
OR
FILED HEREWITH (*), INCORPORATED BY REFERENCE FROM
EXHIBIT TO BE FILED BY COMPANY REG. NO. PREVIOUS
NUMBER DESCRIPTION AMENDMENT (**) OR REPORT EXHIBIT NO.
- ------ ----------------------------------------- ------------------- ---------------- -----------
<C> <C> <S> <C> <C> <C> <C>
5.1 -- Opinion of Robinson, Bradshaw & Hinson, **
P.A.
10.1 -- 1995 Equity Participation Plan
10-Q for quarter 10.1
ended 9/30/95
10.2 -- Management Incentive Compensation Plan
10-Q for quarter 10.2
ended 9/30/95
10.3# -- Director and Officer Indemnification
Agreement of James W. Napier 10-K for year 10.3
ended 12/31/95
10.4 -- License Agreement between Adia Services,
Inc., a California corporation ("Adia 10-Q for quarter 10.4
California") and StaffPLUS, Inc. ended 9/30/95
10.5 -- License Agreement between Adia Services,
Inc., a Delaware corporation ("Adia 10-Q for quarter 10.5
Delaware") and Nursefinders, Inc. ended 9/30/95
10.6 -- Administrative Services Agreement between
the Company and Adia California 10-Q for quarter 10.6
ended 9/30/95
10.7 -- Paybill Services Agreement between the
Company and Adia California 10-Q for quarter 10.7
ended 9/30/95
10.8 -- Software License Agreement between the
Company and Adia California 10-Q for quarter 10.8
ended 9/30/95
10.9 -- Employment Agreement between the Company
and Edward P. Drudge, Jr. 10-Q quarter 10.9
ended 9/30/95
10.10 -- Employment Agreement between the Company
and Michael P. Bernard 10-Q for quarter 10.10
ended 9/30/95
10.11 -- Employment Agreement between Adia
Delaware, PFI Corp. and Richard L. 33-95228 10.13
Peranton
10.12 -- Employment Agreement between Adia
California and Gene C. Wilson 33-95228 10.14
10.13 -- Employment Agreement between the Company
and Rosemary Payne-Harris 10-K for year 10.13
ended 12/31/95
10.14 -- Indemnification Agreement between the
Company, Adia Delaware and Adia 10-Q for quarter 10.14
California ended 9/30/95
10.15 -- Tax-Sharing Agreement between the
Company, Adia Delaware and Adia 10-Q for quarter 10.15
California ended 9/30/95
10.16 -- Non-Qualified Profit-Sharing Plan
10-K for year 10.16
ended 12/31/95
10.17 -- Revolving Credit Facility Loan Agreement
between the Company and NationsBank of 10-Q for quarter 10.17
Texas, N.A. ended 9/30/95
10.18 -- Amendment No. 1 to Revolving Credit *
Facility Loan Agreement between the
Company and NationsBank, N.A.
10.19 -- Asset Purchase Agreement between the *
Company and Judith Fox Staffing
Companies
10.20 -- Asset Purchase Agreement between the **
Company and Computer Resources Group,
Inc.
</TABLE>
II-3
<PAGE> 113
<TABLE>
<CAPTION>
FILED HEREWITH (*), OR INCORPORATED BY REFERENCE FROM
EXHIBIT TO BE FILED BY COMPANY REG. NO. PREVIOUS
NUMBER DESCRIPTION AMENDMENT (**) OR REPORT EXHIBIT NO.
- ------ ----------------------------------------- ------------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
10.21 -- Commitment Letter of NationsBank, N.A. *
with respect to syndication of
Revolving Credit Facility Loan
Agreement
21.01 -- Subsidiaries of the Company *
23.01 -- Consent of Arthur Andersen LLP *
23.02 -- Consent of Phillip Goodman Accountancy *
Corporation
24.1 -- Power of Attorney (included on the
signature pages to this Registration
Statement)
</TABLE>
- ---------------
# This Exhibit is substantially identical to Director and Officer
Indemnification Agreements of the same date between the Company and the
following individuals: Edward P. Drudge, Jr., Richard L. Peranton, Gene C.
Wilson, Rosemary Payne-Harris, Michael P. Bernard, Kevin P. Egan, J. Roger
King, Joyce G. Mazero and William Simione, Jr. Accordingly, agreements for
such persons, other than Mr. Napier, have not be filed.
(b) Financial Statement Schedules
Not Applicable.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes 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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions in Item 14, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 114
SIGNATURES
Pursuant to the requirements of the Securities Act, Personnel Group of
America, Inc. has caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in Charlotte, North Carolina, on
May 24, 1996.
PERSONNEL GROUP OF AMERICA, INC.
By: /s/ EDWARD P. DRUDGE, JR.
------------------------------------
Edward P. Drudge, Jr.
Chief Executive Officer
POWER OF ATTORNEY
Each undersigned director and officer of Personnel Group of America, Inc.
hereby constitutes and appoints Edward P. Drudge, Jr. and Michael P. Bernard,
and each of them, with full power to act without the other and with full power
of substitution and resubstitution, his true and lawful attorneys-in-fact and
agents, for him and in his name, place, and stead, in any and all capacities, to
sign on his behalf any and all amendments (including post-effective amendments
and amendments thereto) to this Registration Statement and any related
registration statement (and any amendments thereto) filed pursuant to Rule
462(b) under the Securities Act, and to file the same, with all exhibits thereto
and other documents in connection therewith, with the Commission, and grants
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises as fully as to all intents and purposes as
he might or could do in person, and hereby ratifies and confirms all that such
attorneys-in-fact or agents, or any of them, or their substitutes shall lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------------------------- -------------------------------- -------------
<S> <C> <C>
/s/ EDWARD P. DRUDGE, JR. Chairman, Chief Executive May 24, 1996
- --------------------------------------------- Officer and Director
Edward P. Drudge, Jr. (Principal Executive Officer)
/s/ MICHAEL P. BERNARD Chief Financial Officer and May 24, 1996
- --------------------------------------------- Director (Principal Financial
Michael P. Bernard Officer and Accounting
Officer)
/s/ KEVIN P. EGAN Director May 24, 1996
- ---------------------------------------------
Kevin P. Egan
/s/ J. ROGER KING Director May 24, 1996
- ---------------------------------------------
J. Roger King
/s/ JAMES V. NAPIER Director May 24, 1996
- ---------------------------------------------
James V. Napier
/s/ WILLIAM J. SIMIONE, JR. Director May 24, 1996
- ---------------------------------------------
William J. Simione, Jr.
</TABLE>
II-5
<PAGE> 115
EXHIBIT INDEX
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE FROM
FILED HEREWITH(*), OR ---------------------------------
EXHIBIT TO BE FILED BY COMPANY REG. NO. PREVIOUS
NUMBER DESCRIPTION AMENDMENT(**) OR REPORT EXHIBIT NO.
- ------ ---------------------------------------------- ------------------ ----------------- ------------
<S> <C> <C> <C> <C> <C>
1.1 -- Form of U.S. Underwriting Agreement **
1.2 -- Form of International Underwriting Agreement **
3.1 -- Amended and Restated Certificate of 33-95228 3.1
Incorporation of the Company
3.2 -- Amended and Restated Bylaws of the Company 33-95228 3.2
4.0 -- Specimen Stock Certificate 33-95228 4.0
4.1 -- Rights Agreement between the Company and The 8-K dated 1
First National Bank of Boston
5.1 -- Opinion of Robinson, Bradshaw & Hinson, P.A. ** 2/20/96
10.1 -- 1995 Equity Participation Plan 10-Q for quarter 10.1
ended 9/30/95
10.2 -- Management Incentive Compensation Plan 10-Q for quarter 10.2
ended 9/30/95
10.3 -- Director and Officer Indemnification Agreement 10-K for year 10.3
of James W. Napier ended 12/31/95
10.4 -- License Agreement between Adia Services, Inc., 10-Q for quarter 10.4
a California corporation ("Adia California") ended 9/30/95
and StaffPLUS, Inc.
10.5 -- License Agreement between Adia Services, Inc., 10-Q for quarter 10.5
a Delaware corporation ("Adia Delaware") and ended 9/30/95
Nursefinders, Inc.
10.6 -- Administrative Services Agreement between the 10-Q for quarter 10.6
Company and Adia California ended 9/30/95
10.7 -- Paybill Services Agreement between the Company 10-Q for quarter 10.7
and Adia California ended 9/30/95
10.8 -- Software License Agreement between the Company 10-Q for quarter 10.8
and Adia California ended 9/30/95
10.9 -- Employment Agreement between the Company and 10-Q quarter 10.9
Edward P. Drudge, Jr. ended 9/30/95
10.10 -- Employment Agreement between the Company and 10-Q for quarter 10.10
Michael P. Bernard ended 9/30/95
10.11 -- Employment Agreement between Adia Delaware, 33-95228 10.13
PFI Corp. and Richard L. Peranton
10.12 -- Employment Agreement between Adia California 33-95228 10.14
and Gene C. Wilson
10.13 -- Employment Agreement between the Company and 10-K for year 10.13
Rosemary Payne-Harris ended 12/31/95
10.14 -- Indemnification Agreement between the Company, 10-Q for quarter 10.14
Adia Delaware and Adia California ended 9/30/95
10.15 -- Tax-Sharing Agreement between the Company, 10-Q for quarter 10.15
Adia Delaware and Adia California ended 9/30/95
10.16 -- Non-Qualified Profit-Sharing Plan 10-K for year 10.16
ended 12/31/95
10.17 -- Revolving Credit Facility Loan Agreement 10-Q for quarter 10.17
between the Company and Nations Bank of Texas, ended 9/30/95
N.A.
10.18 -- Amendment No. 1 Revolving Credit Facility Loan *
Agreement between the Company and NationsBank,
N.A.
</TABLE>
<PAGE> 116
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE FROM
FILED HEREWITH(*), OR ---------------------------------
EXHIBIT TO BE FILED BY COMPANY REG. NO. PREVIOUS
NUMBER DESCRIPTION AMENDMENT(**) OR REPORT EXHIBIT NO.
- ------ ---------------------------------------------- ------------------ ----------------- ------------
<S> <C> <C> <C> <C> <C>
10.19 -- Asset Purchase Agreement between the Company *
and Judith Fox Staffing Companies
10.20 -- Asset Purchase Agreement between the Company **
and Computer Resources Group, Inc.
10.21 -- Commitment Letter of NationsBank, N.A. with *
respect to syndication of Revolving Credit
Facility Loan Agreement
21.01 -- Subsidiaries of the Company *
23.01 -- Consent of Arthur Andersen LLP *
23.02 -- Consent of Phillip Goodman Accountancy *
Corporation
24.1 -- Power of Attorney (included on the signature
pages to this Registration Statement)
</TABLE>
<PAGE> 1
EXHIBIT 10.18
AMENDMENT NO. 1 TO CREDIT AGREEMENT
THIS AMENDMENT AGREEMENT (this "Agreement" or "Amendment No. 1"),
dated as of May 20, 1996, among PERSONNEL GROUP OF AMERICA, INC., a Delaware
corporation (the "BORROWER"), the financial institutions and other entities
listed on the signature pages hereof as Lenders (collectively, the "LENDERS"
and each a "LENDER"), and NATIONSBANK, N.A., a national banking association, as
agent for the Lenders (in such capacity, the "AGENT");
W I T N E S S E T H:
WHEREAS, pursuant to that certain Credit Agreement, dated as of
September 29, 1995 (the "EXISTING CREDIT AGREEMENT"), among the Borrower, the
Initial Lenders signatories thereto, and NationsBank of Texas, N.A. (the
"INITIAL AGENT"), the Initial Lenders made certain loans and advances to the
Borrower;
WHEREAS, the Initial Agent has resigned from its capacity as agent
under the Credit Agreement and the Lenders have appointed the Agent to serve in
such capacity for the benefit of the Lenders;
WHEREAS, the Borrower, the Lenders, and the Agent desire that certain
amendments be made to the Existing Credit Agreement;
NOW, THEREFORE, based upon the foregoing, and for good and valuable
consideration, the sufficiency and receipt of which is hereby acknowledged, the
parties hereby agree as follows:
PART I
DEFINITIONS
SUBPART 1.1. Certain Definitions. Unless otherwise defined herein or
the context otherwise requires, terms used in this Agreement, including its
preamble and recitals, have the following meanings (such meanings to be equally
applicable to the singular and plural forms thereof):
"Amended Credit Agreement" means the Existing Credit Agreement as
amended hereby.
"Amendment No. 1 Effective Date" is defined in Subpart 3.1.
SUBPART 1.2. Other Definitions. Unless otherwise defined herein or
the context otherwise requires, terms used in this Amendment, including its
preamble and recitals, have the meanings provided in the Amended Credit
Agreement.
<PAGE> 2
PART II
AMENDMENTS TO EXISTING CREDIT AGREEMENT
Effective on (and subject to the occurrence of) the Amendment No. 1
Effective Date, the Existing Credit Agreement is hereby amended in accordance
with this Part II. Except as so amended, the Existing Credit Agreement, the
Notes and the other Loan Documents shall continue in full force and effect.
SUBPART 2.1 AMENDMENTS TO THE INTRODUCTION. The first paragraph of
the Existing Credit Agreement is amended to read in its entirety as follows:
THIS CREDIT AGREEMENT, dated as of September 29, 1995, and
amended as of May 20, 1996, is by and among PERSONNEL GROUP OF
AMERICA, INC., a Delaware corporation (the "BORROWER"), NationsBank,
N.A. ("NATIONSBANK") and the other financial institutions becoming
lenders hereunder from time to time (the "LENDERS"), and NationsBank,
N.A. as L/C Bank (as hereinafter defined) and as agent (in such
capacity, together with any successor in such capacity appointed
pursuant to Article VII hereof, the "AGENT") for the Lenders and the
L/C Bank hereunder.
SUBPART 2.2 AMENDMENTS TO ARTICLE I. Article I of the Existing
Credit Agreement is hereby amended by inserting, in the alphabetically
appropriate place, the following definition:
"AMENDMENT NO. 1" means that Amendment No. 1 to the
Credit Agreement, dated as of May 20, 1996, among the
Borrower, the Agent and the Lenders, amending this Credit
Agreement as then in effect.
Article I of the Existing Credit Agreement is further amended
by deleting the existing definition of "Agent's Account" contained
therein and replacing it with the following definition:
"AGENT'S ACCOUNT" means the account of the Agent
maintained by the Agent with NationsBank, N.A. at its offices
at 100 North Tryon Street, Charlotte, North Carolina, Account
No. _____________, ABA No. 053000196, Attention: Corporate
Credit Services, Reference: Personnel Group of America, Inc.
Article I of the Existing Credit Agreement is further amended
by deleting the existing definition of "Applicable Margin" contained
therein and replacing it with the following definition:
- 2 -
<PAGE> 3
"APPLICABLE MARGIN" means 0.0% per annum for Base
Rate Advances and, for Eurodollar Rate Advances, the
applicable percentage per annum corresponding to the Debt
Coverage Ratio in effect as of the most recent Calculation
Date as shown below:
<TABLE>
<CAPTION>
Debt Coverage Applicable
Ratio Margin
------------------------------------------------------------------
<S> <C> <C>
Pricing Level I 0.0 - 0.5 0.625%
Pricing Level II 0.5 - 1.0 0.75 %
Pricing Level III 1.0 - 1.5 1.00 %
Pricing Level IV 1.5 - 2.0 1.25 %
Pricing Level V 2.0 - 2.5 1.50 %
Pricing Level VI 2.5 - 3.0 1.75 %
</TABLE>
The initial Applicable Margin for Eurodollar Rate Advances
shall be based on Pricing Level IV and shall either remain at
Pricing Level IV or, if applicable based on the then effective
Debt Coverage Ratio, be adjusted on the first Calculation Date
occurring after the Amendment No. 1 Effective Date.
Thereafter, the Applicable Margin for Eurodollar Rate Advances
shall be determined and adjusted quarterly on the date five
Business Days after the date by which the Borrower is required
to provide the officer's certificate in accordance with the
provisions of Section 6.03(b) and (c) hereof (each a
"CALCULATION DATE"). Such Applicable Margin for Eurodollar
Rate Advances shall be effective from such Calculation Date
until the next such Calculation Date. Any adjustment in the
Applicable Margin shall be applicable to all existing
Eurodollar Rate Advances as well as any new Eurodollar Rate
Advances made thereafter.
Article I of the Existing Credit Agreement is further amended
by deleting the existing definition of "Borrower's Account" contained
therein and replacing it with the following definition:
"BORROWER'S ACCOUNT" means the account of the
Borrower maintained by the Borrower with NationsBank at its
office at 100 North Tryon Street, Charlotte, North Carolina
28255, Account No. ______________.
Article I of the Existing Credit Agreement is further amended
by inserting, in the alphabetically appropriate place, the following
definition:
- 3 -
<PAGE> 4
"DEBT COVERAGE RATIO" means, with respect to the
Borrower and its Subsidiaries on a consolidated basis, the
ratio of (a) all Debt of the Borrower and its Subsidiaries to
(b) the Consolidated EBITDA of the Borrower and its
Subsidiaries for the period of four consecutive fiscal
quarters ending as of the last day of the then most recently
ended fiscal quarter.
Article I of the Existing Credit Agreement is further amended
by inserting, in the alphabetically appropriate place, the following
definition:
"FINANCING STATEMENTS" means the UCC-1 financing
statements to be executed by each of the Loan Parties in order
to perfect, upon filng, the security interests granted to the
Agent for the benefit of the Lenders under the Security
Agreement and the Pledge Agreement, and all amendments and
continuation statements relating thereto.
Article I of the Existing Credit Agreement is further amended
by deleting the existing definition of "Lenders" and replacing it
with the following definition:
"LENDERS" means NationsBank, N.A. and each Eligible
Assignee that shall become a party hereto pursuant to Section
9.07.
Article I of the Existing Credit Agreement is further amended
by deleting the existing definition of "L/C Bank" and replacing it
with the following definition:
"L/C BANK" means NationsBank, N.A. in its capacity as
the issuer of a Letter of Credit.
Article I of the Existing Credit Agreement is further amended
by deleting the existing definition of "Loan Documents" and replacing
it with the following definition:
"LOAN DOCUMENTS" means this Agreement, the Notes, the
Guaranty, each Letter of Credit Agreement and application
therefor, the Security Agreement, the Pledge Agreement, and
the Financing Statements.
Article I of the Existing Credit Agreement is further amended
by deleting the existing definition of "Permitted Liens" and replacing
it with the following definition:
"PERMITTED LIENS" means such of the following as to
which no enforcement, collection, execution, levy or
foreclosure proceeding shall have been commenced: (a)
- 4 -
<PAGE> 5
Liens for taxes, assessments, and governmental charges or
levies to the extent not required to be paid under Section
6.01(b) hereof; (b) Liens imposed by law, such as
materialmen's, mechanics', carriers', workmen's, and
repairmen's Liens and other similar Liens arising in the
ordinary course of business securing obligations that are not
overdue for a period of more than 30 days or, if overdue by
more than 30 days, are being diligently contested in good
faith and are bonded in a manner satisfactory to the Agent and
the Required Lenders in an amount equal to 100% of the Lien
claim; (c) pledges or deposits to secure obligations under
worker's compensation laws or similar legislation or to secure
public or statutory obligations; (d) easements, rights of way
and other encumbrances on title to real property that do not
render title to the property encumbered thereby unmarketable
or materially adversely affect the use of such property for
its intended purposes; and (e) Liens in favor of the Agent for
the benefit of the Lenders pursuant to the Security Agreement
or the Pledge Agreement.
Article I of the Existing Credit Agreement is further amended
by inserting in the alphabetically appropriate place the following
definition of "Pledge Agreement":
"PLEDGE AGREEMENT" means the pledge agreement to be
executed and delivered by each of the Loan Parties having
Subsidiaries, dated as of the Amendment No. 1 Effective Date,
in form and content satisfactory to the Agent, as the same may
be amended, supplemented or otherwise modified from time to
time.
Article I of the Existing Credit Agreement is further amended
by inserting in the alphabetically appropriate place the following
definition of "Security Agreement":
"SECURITY AGREEMENT" means the security agreement to
be executed and delivered by each of the Loan Parties as of
the Amendment No. 1 Effective Date, in form and content
satisfactory to the Agent, as the same may be amended,
supplemented or otherwise modified from time to time.
- 5 -
<PAGE> 6
SUBPART 2.3 AMENDMENTS TO SECTION 2.04. Section 2.04 of the Existing
Credit Agreement is amended in its entirety so that such Section now reads as
follows:
SECTION 2.04. REDUCTION OF THE REVOLVING
COMMITMENTS.
(a) Voluntary Reductions. The Borrower shall have
the right, upon at least three Business Days' notice to the
Agent, to terminate in whole or reduce ratably in part the
unused portions of the respective Revolving Commitments of the
Lenders; provided, however, that (i) each partial reduction
shall be in an aggregate amount of $5,000,000 or any multiple
of $1,000,000 in excess thereof, and (ii) the aggregate amount
of the Revolving Commitments shall not be reduced pursuant to
this Section 2.04 to an amount less than the sum of (A) the
aggregate principal amount of all Revolving Advances then
outstanding, and (B) the aggregate amount of all Letter of
Credit Obligations then outstanding.
(b) Mandatory Reduction. Notwithstanding any other
term, provision or condition of this Agreement or any other
Loan Document, the aggregate amount of the Revolving
Commitments shall reduce to $30,000,000.00 on June 30, 1996.
SUBPART 2.4 AMENDMENTS TO SECTION 2.05. Section 2.05 of the Existing
Credit Agreement is amended by re-numbering existing Section 2.05(c) as a new
Section 2.05(d), and inserting a new Section 2.05(c) which reads in its
entirety as follows:
(c) Mandatory Prepayments from the Proceeds of
Equity Contributions or the Issuance of Stock. Within five
Business Days (or such longer period of time agreed to by the
Required Lenders) of each date on which the Borrower or any of
its Subsidiaries receives proceeds from any equity
contributions or proceeds from the issuance of stock from and
after the Amendment No. 1 Effective Date (exclusive of the
issuance of any stock pursuant to the exercise by executives
of the Borrower or its Subsidiaries of any stock options
issued pursuant to the 1995 Equity Participation Plan), the
Borrower shall pay, or shall cause such Subsidiary to pay,
such proceeds to the Agent for the ratable account of the
Lenders; provided, however, that in the event of any such
prepayment of a Eurodollar Rate Advance other than on the last
day of the applicable Interest Period therefor, the Borrower
shall be obligated to reimburse the Lenders in respect thereof
pursuant to Section 9.04(c) hereof. All prepayments made
pursuant to this Section 2.05(c) shall be applied
- 6 -
<PAGE> 7
to the aggregate outstanding principal amount of Revolving
Advances, with any excess proceeds being retained by the
Borrower or such Subsidiary for general corporate purposes and
uses. The Borrower shall notify the Agent of any prepayment
pursuant to this Section 2.05(c) at least two Business Days
prior to the date on which such prepayment is required to be
made, but the failure of the Borrower to give such notice
shall not affect the obligation of the Borrower to make such
prepayment on a timely basis hereunder.
SUBPART 2.5 AMENDMENTS TO SECTION 2.06. Section 2.06 of the Existing
Credit Agreement is amended by adding a new subsection (g) to such Section,
immediately following existing subsection (f), providing as follows:
(g) MANDATORY BASE RATE. Notwithstanding any other
term, condition or provision hereof, if, at any time, the then
outstanding aggregate amount of all Advances shall be in
excess of $30,000,000.00, then the principal amount of
Advances in excess of $30,000,000.00 shall bear interest only
at the Base Rate (but subject to subsection (d) above), and
the Borrower shall pay such interest in accordance with the
requirements of subsection (a) above.
SUBPART 2.6 AMENDMENTS TO SECTION 2.07. Section 2.07(a) of the
Existing Credit Agreement is amended in its entirety so that such Section now
reads as follows:
(a) COMMITMENT FEES. The Borrower agrees to pay to
the Agent a commitment fee on the average daily Unused
Revolving Commitment of each Lender, for the account of such
Lender, from the Closing Date in the case of each Initial
Lender and from the effective date specified in the Assignment
and Acceptance pursuant to which it became a Lender in the
case of each other Lender until the Termination Date, at the
rate of 0.25% per annum, payable in arrears on the last day of
each March, June, September, and December, commencing on
December 31, 1995 and on the Termination Date; provided,
however, if the Debt Coverage Ratio of the Borrower and its
Subsidiaries shall be equal to or greater than 1.5 to 1.0 as
of any Calculation Date (as defined in the definition of
"Applicable Margin"), then such commitment fee shall be
determined at the rate of 0.375% per annum until the next
succeeding Calculation Date, whereupon such fee shall be
adjusted, if applicable.
- 7 -
<PAGE> 8
SUBPART 2.7 AMENDMENTS TO SECTION 3.05. Section 3.05(a)(ii) of the
Existing Credit Agreement is amended in its entirety so that such Section now
reads as follows:
(ii) for the account of each Lender, a letter of
credit fee with respect to each Letter of Credit, in each case
at a rate per annum equal to the Applicable Margin for
Eurodollar Rate Advances then in effect applied to such
Lender's Pro Rata Share of the average daily Available Amount
of such Letter of Credit outstanding from time to time.
SUBPART 2.8 AMENDMENTS TO SECTION 6.01. Section 6.01(j) of the
Existing Credit Agreement is amended in its entirety so that such Section now
reads as follows:
ADDITIONAL GUARANTORS. Within five Business Days
after the formation or acquisition by the Borrower or any of
its Subsidiaries of any new or additional Subsidiary, cause
such new or additional Subsidiary to guarantee the Obligations
hereunder by executing and delivering to the Agent an
Amendment to Guaranty in substantially the form of Exhibit G,
and to grant to the Agent for the benefit of the Lenders a
security interest by executing and delivering to the Agent (i)
an Amendment to Security Agreement in substantially the form
of Exhibit H and (ii) all Financing Statements reasonably
requested by the Agent in relation thereto.
SUBPART 2.9 AMENDMENTS TO SECTION 6.02. Section 6.02(d)(iii) of the
Existing Credit Agreement is amended in its entirety so that such Section now
reads as follows:
(iii) the Borrower and its Subsidiaries may make any
Permitted Acquisition so long as (A) no Default exists or
would result therefrom, (B) such Permitted Acquisition would
not constitute a violation or default under any Contractual
Obligation or Requirement of Law, (C) in any fiscal year other
than 1996, the aggregate consideration for all such Permitted
Acquisitions in such fiscal year shall not exceed $15,000,000,
and (D) in fiscal year 1996, such Permitted Acquisitions are
limited to the Borrower's acquisition of The Judith Fox
Staffing Companies, Profile Termporary Services, and Allegheny
Personnel Services; provided, however, in the event that the
Borrower receives after the Amendment No. 1 Effective Date, at
least $35 million in proceeds of additional equity
contributions or proceeds from the issuance of additional
capital stock, then the Borrower or its Subsidiaries may also
acquire in fiscal year 1996 all or substantially all of the
assets, or all of
- 8 -
<PAGE> 9
the capital stock or equity interests in Computer Resources
Group, Inc. for aggregate consideration for such acquisition
not to exceed $20,000,000, exclusive of assumed liabilities
and any "earn-out" or other contingent payment obligations
(not to exceed $5 million in the aggregate for all such
contingent payment obligations) incurred in connection
therewith.
SUBPART 2.10 GENERAL AMENDMENT TO TIME REFERENCES. All references in
the Existing Credit Agreement to "Dallas, Texas time"), or similar phrases,
shall be deleted and replaced with references to "Charlotte, North Carolina
time".
SUBPART 2.11 AMENDMENT TO SCHEDULE I. Schedule I of the Existing
Credit Agreement is hereby deleted and replaced with a new Schedule I as
attached to this Amendment No. 1.
SUBPART 2.12 ADDITION OF EXHIBIT H. A new Exhibit H is added to the
Existing Credit Agreement in the form of Appendix "B" attached to this Amendment
No. 1.
SUBPART 2.13 CONSENT TO ACQUISITION. NationsBank, in its capacities as
a Lender and as the Agent, hereby consents to the Borrower's acquisition of The
Judith Fox Staffing Companies on the terms and conditions set forth in that
certain Asset Purchase Agreement dated as of May 10, 1996.
PART III
CONDITIONS TO EFFECTIVENESS
SUBPART 3.1. AMENDMENT NO. 1 EFFECTIVE DATE. This Amendment shall be
and become effective on such date (the "Amendment No. 1 Effective Date") when
all of the conditions set forth in this Subpart 3.1 shall have been satisfied,
and thereafter, this Amendment shall be known, and may be referred to, as
"Amendment No. 1."
SUBPART 3.1.1. EXECUTION OF COUNTERPARTS. The Agent shall have
received counterparts of this Amendment, each of which shall have been duly
executed on behalf of the Borrower, the Agent and the Required Lenders.
SUBPART 3.1.2. CONSENT. The Agent shall have received, from each
person listed on the signature pages of the Consent attached hereto as Appendix
"A", an executed copy of such Consent.
SUBPART 3.1.3. CLOSING CERTIFICATE. The Agent shall have received a
certificate from the Borrower certifying that, after giving effect to this
Agreement, (i) no Default or Event of Default exists as of the Amendment No. 1
Effective Date, and (ii)
- 9 -
<PAGE> 10
the representations and warranties of the Borrower made in or pursuant to the
Loan Documents shall be true in all material respects on and as of the
Amendment No. 1 Effective Date.
SUBPART 3.1.4. DOCUMENTATION. All documents executed or submitted
pursuant hereto shall be satisfactory in form and substance to the Agent and
its counsel. The Agent and its counsel shall have received all information,
and such counterpart originals or such certified or other copies of such
originals, as the Agent may reasonably request, and all legal matters incident
to the transactions contemplated by this Amendment shall be satisfactory to the
Agent. In addition, the Agent shall have received such other agreements,
documents or instruments (including legal opinions) as it may from time to time
reasonably request.
SUBPART 3.1.5 DUE DILIGENCE. The Agent shall have completed to its
own satisfaction its due diligence investigations with respect to the Borrower
and its Subsidiaries.
SUBPART 3.1.6 COLLATERAL DOCUMENTS. The Agent shall have received
(i) the Security Agreement executed by each of the Loan Parties, (ii) the
Pledge Agreement executed by each of the Loan Parties having Subsidiaries,
(iii) executed Financing Statements from each of the Loan Parties in favor of
the Agent (in form and content satisfactory to the Agent) for each location
where such Loan Parties maintain their respective executive offices, and (iv)
the original stock certificates identified in the Pledge Agreement.
SUBPART 3.2 DUE AUTHORIZATION. The Borrower hereby represents and
warrants to the Agent and the Lenders that its execution, delivery and
performance of this Amendment No. 1 are within the Borrower's corporate powers
and have been duly authorized by all necessary corporate action.
PART IV
MISCELLANEOUS
SUBPART 4.1 CROSS-REFERENCES. References in this Amendment to any
Part or Subpart are, unless otherwise specified, to such Part or Subpart of
this Amendment.
SUBPART 4.2 INSTRUMENT PURSUANT TO EXISTING CREDIT AGREEMENT. This
Amendment is a document executed pursuant to the Existing Credit Agreement and
shall (unless otherwise expressly indicated therein) be construed, administered
and applied in accordance with the terms and provisions of the Existing Credit
Agreement.
SUBPART 4.3 NOTES AND LOAN DOCUMENTS. The Borrower hereby confirms
and agrees that the Notes and the other Loan Documents
- 10 -
<PAGE> 11
are, and shall continue to be, in full force and effect, and hereby ratifies
and confirms in all respects its obligations thereunder, except that, upon the
effectiveness of, and on and after the date of, this Amendment, all references
in each Note and each Loan Document to the "Credit Agreement", "thereunder",
"thereof" or words of like import referring to the Existing Credit Agreement
shall mean the Amended Credit Agreement.
SUBPART 4.4 COUNTERPARTS, EFFECTIVENESS, ETC. This Amendment may be
executed by the parties hereto in several counterparts, each of which shall be
deemed to be an original and all of which shall constitute together but one and
the same agreement.
SUBPART 4.5 GOVERNING LAW; ENTIRE AGREEMENT. THIS AMENDMENT SHALL BE
DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES
THEREOF.
SUBPART 4.6 SUCCESSORS AND ASSIGNS. This Amendment shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
[Remainder of this Page Intentionally Left Blank]
- 11 -
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective duly authorized officers as of the day and year
first above written.
PERSONNEL GROUP OF AMERICA, INC.
ATTEST:
By /s/ Rosemary Payne-Harris By /s/ Michael P. Bernard
------------------------- ---------------------------------------
Title Secretary Title Chief Financial Officer & Treasurer
----------------------- ------------------------------------
(Corporate Seal)
NATIONSBANK, N.A.,
in its individual
capacity as a Lender and as Agent
By /s/ Mark D. Halmrast
---------------------------------------
Title Vice President
------------------------------------
- 12 -
<PAGE> 13
SCHEDULE I
COMMITMENTS AND APPLICABLE LENDING OFFICES
<TABLE>
<CAPTION>
Name of Revolving Domestic Eurodollar
Lender Commitment Lending Office Lending Office
- ------ ---------- -------------- --------------
<S> <C> <C> <C>
NationsBank, N.A. $35,000,000 100 N. Tryon Street 100 N. Tryon Street
Charlotte, NC 28255 Charlotte, NC 28255
</TABLE>
- 13 -
<PAGE> 14
APPENDIX A
CONSENT
This Consent (this "Consent"), dated as of May 20, 1996, is delivered
in connection with the Amendment No. 1 to Credit Agreement, dated as of the
date hereof ("Amendment No. 1"), among PERSONNEL GROUP OF AMERICA, INC., the
various financial institutions parties thereto (the "Lenders") and NATIONSBANK,
N.A., as Agent (the "Agent"). Unless otherwise defined, terms used herein have
the meanings provided in the Existing Credit Agreement (as defined in the
Amendment No. 1) as amended by Amendment No. 1 (such Existing Credit
Agreement, as so amended, being the "Amended Credit Agreement").
The undersigned, as parties to the Guaranty, hereby acknowledge the
execution and delivery of Amendment No. 1, and hereby confirm and agree that
the Guaranty is, and shall continue to be, in full force and effect, and hereby
ratify and confirm in all respects their respective obligations thereunder,
except that, upon the effectiveness of, and on and after the date of, Amendment
No. 1, all references in the Guaranty to the "Credit Agreement," "thereunder,"
"thereof" or words of like import referring to the Existing Credit Agreement
shall mean the Amended Credit Agreement.
This Consent may be executed by the parties hereto in counterparts,
each of which shall be deed to be an original and all of which shall constitute
together but one and the same instrument.
STAFFPLUS, INC.,
a Delaware corporation
By /s/ Michael P. Bernard
-------------------------------
Title Chief Financial Officer
---------------------------
THOMAS STAFFING SERVICES, INC.,
a Delaware corporation
By /s/ Michael P. Bernard
-------------------------------
Title Chief Financial Officer &
Treasurer
---------------------------
<PAGE> 15
PFI, INC.
By /s/ Michael P. Bernard
-------------------------------
Title Treasurer
----------------------------
NURSEFINDERS, INC.
By /s/ Michael P. Bernard
-------------------------------
Title Treasurer
----------------------------
NF SERVICES, INC.
By /s/ Michael P. Bernard
-------------------------------
Title Treasurer
----------------------------
B.C.P., INC.
By /s/ Michael P. Bernard
-------------------------------
Title Treasurer
----------------------------
PROFILE TEMPORARY SERVICES, INC.
By: /s/ Michael P. Bernard
------------------------------
Title: Vice President & Treasurer
---------------------------
<PAGE> 16
APPENDIX B
EXHIBIT H
[FORM OF AMENDMENT TO SECURITY AGREEMENT]
AMENDMENT TO GUARANTY
This Amendment to Security Agreement (this "Amendment"), dated
as of ______________, 199__, relates to the Security Agreement dated as of May
20, 1996 (as amended, modified or supplemented to date, the "Security
Agreement"), executed by Personnel Group of America, Inc. (the "Borrower") and
each of its subsidiaries (collectively, the "Loan Parties") in favor of the
Lenders and the L/C Bank (as such terms are defined in the Credit Agreement (as
hereinafter defined)) and NationsBank, N.A., as Agent for the Lenders and the
L/C Bank (in such capacity, the "Agent").
In compliance with Section 6.01(j) of the Credit Agreement
dated as of September 29, 1995 (as amended, modified or supplemented from time
to time, the "CREDIT AGREEMENT") among the Borrower, the Agent, the Lenders and
the L/C Bank, [SUBSIDIARY] (the "ADDITIONAL LOAN PARTY") and the Loan Parties
hereby agree as follows (capitalized terms used but not otherwise defined
herein shall have the meanings ascribed to them in the Security Agreement):
1. Amendment. The Security Agreement is hereby amended
to add, as a Grantor thereunder, the Additional Loan Party.
2. Representations and Warranties. The Additional Loan
Party represents and warrants to the Agent, the Lenders and the L/C Bank, that
each of the representations and warranties of a Grantor contained in the
Security Agreement is hereby made by the Additional Loan Party as of the date
hereof and is true and correct as to the Additional Loan Party as of the date
hereof.
3. Additional Loan Party as Grantor. The Additional
Loan Party agrees to be bound by the Security Agreement as if the Additional
Loan Party were an original party to the Security Agreement and shall be a
Grantor for all purposes under the Security Agreement. The Additional Loan
Party hereby grants to the Agent, for the benefit of the Lenders, a security
interest in all of its collateral.
4. Effectiveness. This Amendment shall become effective
as of the date hereof upon the execution hereof by the Loan Parties, the
Additional Loan Party and the Agent and delivery hereof to the Agent.
<PAGE> 17
5. Governing Law. This Amendment shall be governed by,
and construed in accordance with, the laws of the State of New York, without
regard to the conflict of law rules thereof (other than Section 5-1401 of the
New York General Obligations law).
[ADDITIONAL LOAN PARTY]
By:_____________________________________
Title:
Notice Address:
________________________________________
________________________________________
Attention:______________________________
PERSONNEL GROUP OF AMERICA, INC.
By:_____________________________________
Title:
LOAN PARTIES
By:_____________________________________
Title:
NATIONSBANK, N.A., as Agent
By:_____________________________________
Title:
<PAGE> 1
EXHIBIT 10.19
ASSET PURCHASE AGREEMENT
================================
ASSET PURCHASE AGREEMENT
between
PERSONNEL GROUP OF AMERICA, INC.
and
STAFFPLUS, INC.
and
JUDITH FOX COMPANIES, INC.,
FOX TECHNICAL, INC.
and
JUDITH FOX TRAINING FOR GROWTH, L.C.
and
JUDITH FOX
Dated as of May 10, 1996
================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I
DEFINITIONS
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE II
SALE AND PURCHASE OF THE ASSETS
2.1 Sale and Purchase of the Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.3 Purchase Price and Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.4 Employment; Noncompetition Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.5 Apportionments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.6 Purchase Price Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.7 No Assumed Liabilities Except as Stated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.8 Procedures for Assets Not Transferable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.9 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.10 Post-Closing Payment and Setoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.1.1. Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.1.2. Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.1.3. No Violation; Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.1.4. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.1.5. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.1.6. Governmental Authorizations; Compliance with Laws . . . . . . . . . . . . . . . . . . . 11
3.1.7. Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.1.8. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.1.9. No Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.1.10. Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.1.11. Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.1.12. Fixed Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.1.13. Proprietary Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.1.14. Assumed Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.1.15. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
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<TABLE>
<S> <C> <C> <C>
3.1.16. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.1.17. Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.1.18. Assets Sufficient for Conduct of Business . . . . . . . . . . . . . . . . . . . . . 15
3.1.19. Accuracy of Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.1.20. Brokers; Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.2 Representations and Warranties of Buyer and PGA . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.2.1. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.2.2. Authorization; Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.2.3. No Violation; Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE IV
CERTAIN COVENANTS
4.1 Access and Information; Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.2 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.3 Change of Corporate Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.4 Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.5 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.6 Lien Search . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions to Obligation of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.1.1. Representations; Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.1.2. Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.1.3. Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.1.4. No Proceeding or Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.1.5. No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.1.6. Purchased Assets and Documents Delivered . . . . . . . . . . . . . . . . . . . . . 19
5.1.7. HSR Act Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.1.8. Closing Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.2 Conditions to Obligation of Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.2.1. Representations; Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.2.2. Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.2.3. No Proceeding or Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.2.4. Purchase Price and Documents Delivered . . . . . . . . . . . . . . . . . . . . . . 21
5.2.5. HSR Act Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE VI
INDEMNIFICATION
6.1 Indemnification by Sellers and Fox. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.2 Indemnification by Buyer and PGA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.3 Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.4 Procedure for Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.4.1. Third Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.4.2. Direct Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.4.3. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.5 Adjustment of Closing Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE VII
MISCELLANEOUS
7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.2 Default by Buyer or PGA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.3 Default by Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.4 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.5 Bulk Sales Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.7 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.8 Assignment; Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.9 Amendment and Modification; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.11 Further Assurances; Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.12 Tax and Financial Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.13 Submission to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.14 Entire Agreement; Counterparts; Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.15 Post-Closing Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
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<TABLE>
<CAPTION>
Exhibits
<S> <C>
A Form of Bill of Sale
B Form of Contract Assignment
C Form of Employment and Noncompetition Agreement
D Form of Noncompetition Agreement
E Form of Unsecured Promissory Note
F Form of LeClair Ryan Opinion
G Form of Robinson, Bradshaw & Hinson Opinion
Schedules
2.1 Assumed Contracts
2.2 Excluded Assets
2.7 Other Liabilities Assumed by Buyer
3.1.1 Charter Documents
3.1.3 Sellers' Consents
3.1.4 Insurance
3.1.5 Litigation
3.1.6 Licenses and Permits
3.1.12 Fixed Assets
3.1.13 Proprietary Rights
3.1.15 Benefit Plans
3.1.17 Customer Contracts
3.2.3 Buyer's Consents
</TABLE>
-iv-
<PAGE> 6
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT dated as of May 10, 1996, is by and
among the following:
PERSONNEL GROUP OF AMERICA, INC., a Delaware corporation ("PGA"), and
STAFFPLUS, INC., a Delaware corporation (the "BUYER");
JUDITH FOX COMPANIES, INC., a Virginia corporation, FOX TECHNICAL,
INC., a Virginia corporation, and JUDITH FOX TRAINING FOR GROWTH,
L.C., a Virginia limited liability company (each, a "SELLER" and
collectively, the "SELLERS"); and
JUDITH FOX, an individual resident of Keswick, Virginia and the sole
owner of each of the corporate Sellers and a principal owner of the
limited liability company Seller ("FOX").
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the covenants
made herein and of the mutual benefits to be derived herefrom, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The following terms as used in this Agreement
shall have the following meanings:
"Affiliate": with reference to a Person, any Person that directly or
indirectly through one or more intermediaries controls or is controlled by or
is under common control with the specified Person. For purposes of this
definition, "control" (including, with correlative meaning, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.
"Agreement": this Agreement, all Exhibits and Schedules hereto, and
all amendments made hereto and thereto by written agreement between the parties.
"Assumed Contracts": those Contracts set forth on Schedule 2.1
attached hereto.
<PAGE> 7
"Benefit Plans": the meaning specified in SECTION 3.1.15.
"Bill of Sale": the meaning specified in SECTION 2.1.
"Business": the staffing, training and related businesses conducted
by Sellers as of and prior to the Closing Date.
"Business Day": a day other than a Saturday, Sunday or day on which
commercial banks in Charlotte, North Carolina are generally closed for business.
"Buyer": the meaning specified in the introductory paragraph.
"Charter Documents": the meaning specified in SECTION 3.1.1.
"Closing" and "Closing Date": the meanings specified in SECTION 2.9.
"Closing Balance Sheet": the meaning specified in SECTION 5.1.8.
"Code": the Internal Revenue Code of 1986, as amended.
"Consent": the meaning specified in SECTION 3.1.3.
"Contract Assignment": the meaning specified in SECTION 2.1.
"Contracts": includes all contracts, licenses or agreements, whether
written or oral, to which any Seller is a party or shall become a party prior
to the Closing Date (other than this Agreement and the agreements executed
pursuant hereto or contemplated hereby), including without limitation all
supply and customer contracts; work and purchase orders; employment and
consultancy contracts; contracts with shareholders; Intercompany Contracts;
labor union contracts; contracts, plans and arrangements regarding any pension,
retirement, deferred compensation, profit-sharing, incentive compensation,
bonus, stock purchase, stock option, welfare, hospitalization or insurance plan
or arrangement or any vacation pay or severance pay or any other employee
benefit arrangement for its officers, employees, consultants or agents;
equipment, capital and real property leases; all commitments and arrangements
pursuant to which any Seller has made or will make loans or advances, or has or
will have incurred debts or become a guarantor or surety or pledged its assets
or its credit on or otherwise become responsible with respect to any
undertaking of another (except for the negotiation or collection of negotiable
instruments in transactions in the ordinary course of business); all
indentures, credit agreements, loan agreements, notes, mortgages, security
agreements and agreements for financing; all powers of attorney and agency
agreements with any Person pursuant to which such Person is granted the
authority to act for or on behalf of any Seller; and all property, casualty and
other forms of insurance, excluding, however, such oral contracts and
arrangements which may be terminated at will by any Seller without liability
arising from such termination and which termination would not have an adverse
effect on the Business.
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<PAGE> 8
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended.
"Employment Agreement": the meaning specified in SECTION 2.4.
"Environmental Claim": any claim, suit, proceeding or investigation
by any governmental authority or other Person alleging the violation, whether
alleged or actual, by any Seller of any Environmental Law or the liability,
whether fixed or contingent, actual or alleged, of any Seller pursuant to the
provisions of any Environmental Law with respect to any act or omission of such
Seller, or with respect to any condition existing, on or prior to the Closing
Date.
"Environmental Law": any and all federal, state and local laws or
regulations, codes, orders, decrees, judgments, injunctions, notices or demand
letters issued, promulgated, approved or entered under any of the foregoing, in
each case limited to those laws and other regulations that exist on the date
hereof, relating to pollution or protection of the environment, including
without limitation laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances or wastes into the environment (including without
limitation ambient air, surface water, ground water, land surface or subsurface
strata) or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of pollutants,
contaminates, chemicals or industrial, toxic or hazardous substances or wastes,
and specifically including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C.A. Section Section 9601 et
seq., and the Resource Conservation and Recovery Act, 42 U.S.C. Section Section
6901 et seq..
"Excluded Assets": the meaning specified in SECTION 2.2.
"Excluded Liabilities": the meaning specified in SECTION 2.7.
"Financial Statements": the reviewed income statements, balance sheets
and statements of cash flows of Judith Fox Companies, Inc. as of December 31,
1995 and 1994 and for each of the years then ended, the internally-prepared
income statements and balance sheets of Fox Technical, Inc. as of the same
dates and for the same periods, the internally-prepared income statements and
balance sheets of Judith Fox Training For Growth, L.C. as of December 31, 1995
and for the year then ended and the internally prepared income statements and
balance sheets of each of the Sellers as of March 31, 1996 and for the fiscal
quarter then ended.
"Fox": the meaning specified in the introductory paragraph.
"HSR Act": the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the regulations thereunder.
"Income Tax" or "Income Taxes": means all federal, state or local
income taxes (inclusive of any and all interest and penalties thereon) imposed
on Sellers or Fox with respect
-3-
<PAGE> 9
to the assets or operations of Sellers and which are based in whole or in part
upon income, but does not include any Taxes.
"Intellectual Property": means all trademarks, service marks, trade
dress, logos, trade names and corporate names of Sellers' and all goodwill
associated therewith (including without limitation the use of Sellers' current
corporate names and trade names and all translations, adaptations, derivations
and combinations of the foregoing); copyrights and copyrightable works; mask
works; and all registrations, applications and renewals for any of the
foregoing; trade secrets and confidential information (including without
limitation ideas, formulae, compositions, know-how, manufacturing and
production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data, financial,
business and marketing plans, and customer and supplier lists and related
information); computer software (including without limitation data, data bases,
systems and related documentation); patents, patent applications, patent
disclosures and inventions (whether or not patentable and whether or not
reduced to practice) and any reissues, continuations, continuations-in-part,
revisions, extensions or reexaminations thereof; other proprietary rights; and
all copies and tangible embodiments of the foregoing (in whatever form or
medium), in each case including without limitation the items set forth on
Schedule 3.1.13 attached hereto (but subject in any event to SECTION 7.16
hereof).
"Intercompany Contracts": means all agreements, contracts and
licenses between any Seller and any of its Affiliates (including any other
Seller or its Affiliates).
"Intercompany Receivables": the entire amount (including principal
and accrued interest) of indebtedness owed to any Seller by any of its
Affiliates (including any other Seller or its Affiliates).
"Lien:" with respect to any asset, any lien, security interest,
claim, encumbrance, option, lease (or sublease), conditional sales agreement,
title retention agreement, charge, easement or encroachment thereon.
"Limitation Date": the meaning specified in SECTION 7.4.
"Noncompetition Agreement": the meaning specified in SECTION 2.4.
"Person": an individual, firm, partnership, association,
unincorporated organization, trust, corporation, or any other entity.
"PGA": the meaning specified in the introductory paragraph.
"Proprietary Rights": means all of the Intellectual Property owned
by, issued to or licensed to any Seller which is used in the Business, along
with all income, royalties, damages and payments due or payable at Closing or
thereafter (including without limitation damages and payments for past or
future infringements or misappropriations thereof), the right to sue and
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<PAGE> 10
recover for past infringements or misappropriations thereof and any and all
corresponding rights that now or hereafter may be secured throughout the world.
"Purchased Assets": the meaning specified in SECTION 2.1.
"Purchase Price": the meaning specified in SECTION 2.3.
"Real Property": the four office locations leased by Sellers in
Richmond and Charlottesville, Virginia and New York, New York for the conduct
of the Business prior to the Closing and one storage facility leased by Sellers
in Richmond, Virginia, which constitute all of the real property owned, leased
or otherwise used by Sellers in the Business.
"Real Property Leases": all leases and lease arrangements regarding
the Sellers' leases of any of the Real Property.
"Seller" or "Sellers": the meaning specified in the introductory
paragraph.
"Tax" or "Taxes": federal, state, municipal, local or foreign taxes,
assessments, additions to tax, deficiencies, duties, fees and other
governmental charges or impositions of each and every kind, whether measured by
properties, assets, wages, payroll, withholding, purchases, value added,
payments, sales, use, business, capital stock or surplus income, and including
without limitation all business, occupation, franchise, excise, stamp, leasing,
lease, rent, transfer, severance and employment, income withholding and Social
Security taxes, real and personal property, sales, use and other taxes,
including interest, penalties and additions in connection therewith, arising
from or in connection with the Business prior to the Closing Date, but in all
cases excluding Income Taxes.
1.2 Interpretation. The following provisions shall govern the
interpretation of this Agreement:
(a) "Herein" and "hereunder" and other words of similar
import refer to this Agreement as a whole and not to any particular
Article, Section, subsection, Exhibit or Schedule.
(b) Headings or captions are for convenience of reference
only and shall not affect the construction or interpretation of this
Agreement.
(c) Words importing the singular number only shall
include the plural and vice versa and words importing the masculine
gender shall include the feminine and neuter genders and vice versa
and words importing individuals shall include Persons and vice versa.
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(d) The calculation of time within which or following
which any act is to be done or step is to be taken pursuant to this
Agreement excludes the date which is the reference day in calculating
such period.
(e) Performance on holidays is not required hereunder.
Whenever anything is required to be done or any action is required to
be taken hereunder on or by a day which is not a Business Day, then
such thing may be validly done and such action may be validly taken on
or by the next succeeding day that is a Business Day.
ARTICLE II
SALE AND PURCHASE OF THE ASSETS
2.1 Sale and Purchase of the Assets. Subject to the terms and
conditions of this Agreement, at the Closing, Sellers shall sell, transfer,
convey, assign and deliver to Buyer, and Buyer shall purchase from Sellers, all
of the assets, properties, goodwill and rights of Sellers used in the Business
as a going concern of every nature, kind and description, tangible and
intangible, wheresoever located and whether or not carried or reflected on the
books and records of Sellers (such purchased assets being hereinafter sometimes
collectively called the "PURCHASED ASSETS"), including without limitation:
(a) all of Sellers' cash and cash equivalents, but only
to the extent that (i) the book value of Sellers' total assets as
shown on the Closing Balance Sheet is less than $1,925,000 and then
only to the extent of such deficiency and (ii) Sellers elect to
include such cash in lieu of any reduction in the payment otherwise
due under SECTION 2.3(A);
(b) all of Sellers' right, title and interest in and to
all of the Assumed Contracts (but only to the extent consents to the
assignment thereof can be obtained);
(c) all inventories and supplies;
(d) all accounts receivable, checks, negotiable
instruments and chattel paper payable to or, with respect to bearer
instruments, in the Sellers' possession;
(e) all furniture, fixtures, equipment and machinery;
(f) all leasehold interests and Sellers' interest in all
improvements thereon;
(g) all books and records, files and operating data
relating to the Purchased Assets (but excluding the corporate, income
tax and accounting records and books of Sellers);
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(h) all of Sellers' right, title and interest in and to
their Proprietary Rights and Intellectual Property (subject to SECTION
7.16) and to all other licenses and governmental authorizations (but
only to the extent consents to the assignment thereof can be obtained);
(i) all of Sellers' telephone numbers and telephone
directory listings and advertisements;
(j) all claims, causes of actions, and suits which any
Seller has or may have against third parties in connection with the
Purchased Assets; and
(k) the Business of Sellers as a going concern;
and excluding only the Excluded Assets (as defined in SECTION 2.2 below).
Sellers shall convey to Buyer good and marketable title to the Purchased
Assets, free and clear of all Liens, which conveyance shall be made pursuant to
a bill of sale substantially in the form of Exhibit A attached hereto (the
"BILL OF SALE"), an assignment and assumption agreement substantially in the
form of Exhibit B attached hereto (the "CONTRACT ASSIGNMENT"), and the other
instruments of conveyance to be delivered pursuant to this Agreement.
2.2 Excluded Assets. Notwithstanding anything to the contrary
contained herein, the Purchased Assets shall not include any of the following
(collectively, the "EXCLUDED ASSETS"):
(a) cash and cash equivalents of Sellers as of the
Closing Date, except for cash and cash equivalents necessary to
satisfy any total assets deficiency as specified in SECTION 2.1(A) if
Sellers have elected to include such cash to cover any such
deficiency;
(b) all Contracts which are not Assumed Contracts;
(c) the corporate seals, certificates of incorporation,
minute books, stock books, tax returns, books of account or other
records having to do with the corporate organization of Sellers;
(d) any rights of Sellers under this Agreement or under
any other agreement between Sellers on the one hand and Buyer or PGA
on the other hand entered into on or after the date of this Agreement;
(e) the rights to any of Sellers' claims for any federal,
state, local or foreign Income Tax refunds or carry backs;
(f) any Intercompany Contracts or Intercompany
Receivables;
(g) the assets listed in Schedule 2.2 attached hereto; and
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(h) all rights relating to and interests in the "On the
Job" radio program (subject to the conditions set forth in SECTION
7.16).
2.3 Purchase Price and Payment. The purchase price to be paid by
Buyer for the Purchased Assets shall be Eighteen Million Five Hundred Thousand
Dollars ($18,500,000) (the "PURCHASE PRICE"), payable to Sellers as follows:
(a) the sum of $17,500,000 (subject to adjustment as provided
in SECTION 5.1.8) shall be payable at Closing in cash by wire transfer
in immediately available funds to an account or accounts designated by
Sellers; and
(b) the sum of $1,000,000 shall be payable 90 calendar days
after Closing (without interest) in cash by wire transfer in
immediately available funds to an account or accounts designated by
Sellers (such obligation to be evidenced by one or more unsecured
promissory notes to be executed by Buyer and PGA and delivered to
Sellers at Closing in the form of Exhibit E, and subject to the terms
and conditions of this Agreement).
2.4 Employment; Noncompetition Agreements.
(a) Sue Durnwirth shall simultaneously with the execution of
this Agreement enter into an Employment and Noncompetition Agreement
with Buyer or Buyer's designated Affiliate (the "EMPLOYMENT
AGREEMENT"), with a term to commence as of the Closing Date and
substantially in the form of Exhibit C attached hereto.
(b) Fox shall enter into a Noncompetition Agreement dated the
Closing Date in favor of Buyer, PGA and their Affiliates (the
"NONCOMPETITION AGREEMENT") substantially in the form of Exhibit D
attached hereto.
2.5 Apportionments.
(a) Sales, use and transfer taxes, if any, imposed by law in
connection with the sale of the Purchased Assets shall be borne and
paid by Sellers. Ad valorem property and business license taxes
pertaining to the Purchased Assets shall be apportioned between the
parties as of the date of Closing. In respect of any payments made by
or to either party, whether before or after Closing, appropriate
remittances shall be made promptly to assure that such items are
apportioned as of the date of Closing. Buyer shall not be obligated
to pay Seller's income and capital gain taxes allocable to the sale.
(b) At or immediately prior to Closing, Buyer and Sellers
shall notify all persons providing electric, gas, water, telephone or
other utility services to the Real Property or any part thereof to
transfer such services and billing therefor to Buyer, effective at
Closing, and to issue a final bill to Sellers for such utility
service. Buyer shall refund
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to Sellers any payments previously made by Sellers for utility
services furnished or to be furnished after Closing.
(c) Each party hereto shall be entitled to avail itself
of any exemption from the payment of any taxes or fees which it may
enjoy.
2.6 Purchase Price Allocation. The Purchase Price, as adjusted
pursuant hereto, shall be allocated among the Purchased Assets and the
Noncompetition Agreement in accordance with a schedule to be delivered by
Sellers on or before May 15, 1996 and subject to Buyer's reasonable approval
(which shall include allocations of $100,000 to the Noncompetition Agreement
and at least $1,200,000 to Judith Fox Training for Growth L.C.). The allocation
set forth in such schedule shall be intended to comply with the requirements of
Section 1060 of the Code. Fox, Sellers and Buyer agree to file all income tax
returns or reports, including without limitation IRS form 8594, for their
respective taxable years in which the Closing occurs to reflect the allocation
described in such schedule and agree not to take any position inconsistent
therewith before any governmental agency charged with the collection of any Tax
or Income Tax or in any judicial proceeding.
2.7 No Assumed Liabilities Except as Stated. Except for (a) the
performance and payment of Sellers' obligations under the Assumed Contracts
after the Closing (but only to the extent such obligations are not the result
of a breach or default by any Seller under any such Contract prior to Closing)
and (b) trade accounts payable, normal operating accruals (including accruals
for payroll and payroll tax withholding), and other liabilities specifically
set forth on Schedule 2.7 of the Sellers up to but not in excess of $330,000 in
the aggregate as of the Closing Date (such amount to be increased to reflect
any inclusion of cash in the Purchased Assets under SECTION 2.1(A), the excess,
if any, of Purchased Assets over $1,925,000 or a reduction in the payment
otherwise due under SECTION 2.3(A) to account for any liabilities in excess of
$330,000 assumed by Buyer and reflected on the Closing Balance Sheet), Buyer
(and PGA) shall not assume or otherwise be or become liable for any debts,
liabilities or obligations of Sellers or pertaining to the Sellers' ownership
or operation prior to the Closing Date of the Business or any of the Purchased
Assets, whether now asserted or unasserted, known or unknown, fixed or
contingent (except as aforesaid, collectively, the "EXCLUDED LIABILITIES").
Fox and Sellers agree to satisfy all Excluded Liabilities whether known at
Closing or thereafter determined, as and when due and Fox and Sellers shall
indemnify and hold Buyer and PGA harmless therefor as provided in ARTICLE VI
hereof.
2.8 Procedures for Assets Not Transferable. If any of the Assumed
Contracts or any other property or rights included in the Purchased Assets are
not assignable or transferable either by virtue of the provisions thereof or
under applicable law without the consent of some other party or parties,
Sellers shall use all reasonable efforts to obtain such consents prior to and
after the Closing Date and shall notify the Buyer on or prior to the Closing
Date of any consents not so obtained. If any such consent for one or more of
the Assumed Contracts (other than those identified with the notation "Consent
to assignment is required but such consent has been waived as a condition to
Buyer's and PGA's obligation to close" on Schedule 2.1) cannot be obtained
prior to Closing, Buyer either may (i) waive such requirement as a condition to
closing, and in
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such event, this Agreement, and the related instruments of transfer shall not
constitute an assignment or transfer thereof and the Buyer shall not assume the
Sellers' obligations with respect thereto or (ii), if one or more of such
contracts is, individually or in the aggregate, material to the Business,
terminate this Agreement pursuant to SECTION 7.1(B). Following the Closing,
Sellers shall use all reasonable efforts to obtain any consents not previously
obtained as soon as possible after the Closing Date or otherwise obtain for
Buyer the practical benefit of such property or rights.
2.9 Closing. The closing of the sale and purchase of the
Purchased Assets (the "CLOSING") will take place at the offices of LeClair
Ryan, A Professional Corporation, 707 E. Main Street, Richmond, Virginia 23219,
at or before 11:00 a.m. on May 20, 1996, or at such other place, time and date
as the parties may agree upon in writing (the "CLOSING DATE").
2.10 Post-Closing Payment and Setoffs. Part or all of the payment
described in SECTION 2.3(B) may be offset by Buyer against any claims for
indemnity by Buyer or PGA pursuant to ARTICLE VI hereof, provided that notice
of the nature and amount of such indemnity claim offsets shall be delivered in
writing to Sellers at the time such payment is due. Nothing herein shall limit
the rights of Sellers or Fox to contest the validity of such indemnity claims
or any rights under ARTICLE VI. The Buyer also may offset against such payment
the amount of any accounts receivable reflected on the Closing Balance Sheet
that have not been collected as of the date such payment is due, provided that
such uncollected accounts receivable shall be transferred to the Sellers.
Finally, Buyer may offset against such payment an amount equal to any
post-Closing adjustments to the Closing Balance Sheet in favor of the Buyer,
subject to the procedures of SECTION 6.5.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Sellers and Fox. Sellers
and Fox (jointly and severally as to each such Person) hereby represent and
warrant to Buyer and PGA as follows:
3.1.1. Existence. Each Seller is a corporation or limited
liability company duly incorporated or organized, validly existing and in good
standing under the laws of Virginia and has full corporate power and authority
to own or lease its properties and to carry on its business as now conducted.
Each Seller has delivered to Buyer or PGA true and complete copies of its
charter and bylaws or other organizational documents, each as amended to date
(collectively, the "CHARTER DOCUMENTS"). Fox is the sole shareholder or owner
of each corporate Seller and Fox and members of her family are the sole owners
of Judith Fox Training For Growth, L.C. Each Seller is duly qualified to do
business and in good standing as a foreign corporation or limited liability
company in the states set forth on Schedule 3.1.1 attached hereto. No Seller
presently owns, directly or indirectly, any shares of capital stock of or other
equity interest in any corporation, partnership or other entity.
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3.1.2. Authorization; Enforceability. Each Seller has full
corporate or other power and authority to enter into and perform its
obligations under this Agreement and to consummate the transactions
contemplated herein. The execution, delivery and performance of this Agreement
by Sellers have been duly authorized by all requisite corporate action. This
Agreement is the legal, valid and binding obligation of each Seller and Fox, as
the case may be, enforceable in accordance with its terms, except as
enforceability may be limited by equitable principles or by bankruptcy,
fraudulent conveyance or insolvency laws affecting creditors' rights generally.
3.1.3. No Violation; Consents. Neither the execution,
delivery and performance by each Seller and Fox of their obligations under this
Agreement, nor the consummation of the transactions contemplated hereby, will
conflict with, violate or result in a breach of any of the terms or provisions
of, or constitute a default (with the passage of time or giving of notice or
both) under, or result in the creation or imposition of any lien on the assets
of any Seller or Fox pursuant to, any indenture, mortgage, deed of trust,
lease, note, or other agreement or instrument to which any Seller or Fox is a
party, the Charter Documents, or, to the best knowledge of Sellers and Fox,
under any order, judgment, decree, rule or regulation of any court or
governmental agency or body having jurisdiction over any Seller, Fox or their
properties, or any provision of law. Except for any required filing under the
HSR Act and as otherwise set forth on Schedule 3.1.3 attached hereto, no
consent, approval, authorization, order, filing, registration or qualification
of or with any governmental authority or other Person (each, a "CONSENT") is
required to be obtained by any Seller or Fox in connection with the execution
and delivery of this Agreement by Sellers and Fox or the consummation of the
transactions contemplated herein other than those Consents, individually or in
the aggregate, that if not obtained would not be likely to have a material
adverse effect on the Purchased Assets or the Business.
3.1.4. Insurance. Schedule 3.1.4 attached hereto accurately
lists all policies of insurance covering the assets and operations of Sellers
as of the date hereof and as of the Closing Date, and a copy of each such
policy has been delivered to Buyer or PGA. No written notice of termination of
any such policy has been received by any Seller or its Affiliates. Each Seller
currently has paid up insurance, including without limitation employee health
and accident insurance, and environmental, property, general liability, product
liability and worker's compensation insurance as described on Schedule 3.1.4.
3.1.5. Litigation. Except as set forth on Schedule 3.1.5
attached hereto, there are no actions, suits, labor disputes or other
litigation, proceedings or governmental investigations pending or, to the
knowledge of any Seller and Fox, threatened against or affecting any Seller or
any of the properties or businesses thereof, or relating to the transactions
contemplated by this Agreement. No Seller is subject to any order, judgment,
decree, stipulation, or consent of or with any court, governmental body or
agency.
3.1.6. Governmental Authorizations; Compliance with Laws.
Each Seller holds the licenses and permits described on Schedule 3.1.6 attached
hereto, and no other
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licenses, certificates, permits, franchises and rights, federal, state, local
and foreign, are necessary for the lawful operation of the Business. To the
best knowledge of each of the Sellers and Fox, each Seller is in compliance
with all laws applicable to the operation of the Business and the ownership of
its assets. No Seller has received written notice that it is in violation of
or in default under (a) any governmental licenses, franchises, permits,
approvals and other governmental authorizations which are necessary to entitle
such Seller to own or lease, operate and use its assets and properties and to
conduct the Business as now conducted; (b) any judgment, order or decree of any
court or administrative agency applicable to it; or (c) any law, rule or
regulation applicable to it.
3.1.7. Tax Matters. Each Seller and Fox has timely filed or
will timely file all tax returns and reports required to be filed for any
period ending on or before the Closing Date, or if applicable, any period that
includes the Closing Date, and have properly calculated and have timely paid or
will timely pay or cause to be paid all Income Taxes and Taxes due to any
taxing authority with respect to all such periods. No Seller has received
written notice that the Internal Revenue Service or any other taxing authority
has asserted against such Seller any deficiency or claim for additional Taxes
or Income Taxes in connection therewith. No Seller has been granted or has
given any waiver of any statute of limitations with respect to, or any
extension of a period for the assessment or filing of, any Tax or Income Tax.
All deposits required by law to be made by any Seller with respect to
employees' withholding taxes have been made. There are no tax liens on any
assets of any Seller, except liens for Taxes not yet due. There are no claims
pending against any Seller for past due Taxes or Income Taxes, and neither
Sellers nor Fox know of any such threatened claim or the basis for any such
claim. There are not now any matters under discussion with any federal, state,
local or other authority with respect to any additional Taxes or Income Taxes
relating to any Seller.
3.1.8. Financial Statements. Sellers have delivered to
Buyer or PGA copies of the Financial Statements. The Financial Statements
present fairly the financial position of each Seller with respect to, and the
assets of, the Business and the results of the operation of the Business and
changes in financial position with respect to the Business as of and for the
periods indicated in conformity with consistently applied accounting practices
during the periods, and the Financial Statements make full and adequate
disclosure of and provision for all obligations and liabilities of Sellers
related to the Business as of the date thereof.
3.1.9. No Adverse Change. Since December 31, 1995, there
has not been (a) any material adverse change in the financial condition,
financial statements, business, properties, assets, or results of operations of
the Business, (b) any material loss or damage (whether or not covered by
insurance) to any of the Purchased Assets, which materially affects or impairs
the ability of any Seller to conduct the Business, or any other event or
condition of any character which has materially and adversely affected the
Business, (c) any mortgage or pledge of any of the Purchased Assets, (d) any
indebtedness incurred by any Seller relating to, or taking as security any
interest whatsoever in, the Purchased Assets, (e) any contract or other
transaction entered into by any Seller relating to, or otherwise affecting in
any way, the Business or the operation thereof, other than in the ordinary
course of business, (f) any sale or transfer
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of the Purchased Assets or any cancellation of any debts or claims of any
Seller, except in the ordinary course of business, (g) any waiver by any Seller
of any rights which have any material value, (h) (1) any increase in the rate
or terms of compensation payable to the Sellers' employees, except increases
occurring in accordance with Sellers's customary practices or (2) any
modifications in employee benefits to the Business' employees, or (i) any loss
or termination of any customer contracts representing billings in excess of
$500,000 during the 12-month period prior to loss or termination.
3.1.10. Title to Properties. Each Seller has good and
marketable title to, is the lawful owner of, and has the full right to sell,
convey, transfer, assign and deliver the Purchased Assets owned by it free and
clear of any Liens. At and as of the Closing, Sellers will convey the
Purchased Assets to Buyer and Buyer will have, good and valid record and
marketable title to all of the Purchased Assets, free and clear of all Liens.
3.1.11. Accounts Receivable. All of the Sellers' accounts,
notes and other receivables comprising a portion of the Purchased Assets
represent valid and bona fide claims and were acquired or arose in the ordinary
course of business.
3.1.12. Fixed Assets. Schedule 3.1.12 attached hereto sets
forth a complete and accurate list of all of the equipment and other fixed
assets constituting Purchased Assets, other than items acquired by Sellers in
the ordinary course of business from the date hereof through the Closing Date
(and Sellers will identify in writing to the Buyer, prior to the Closing, each
item so acquired which has a market value or book value of $1,000 or more).
All of such assets have been well maintained and are in normal operating
condition (with the exception of normal wear and tear), free from defects other
than such minor defects as do not interfere with the continued use thereof in
the conduct of normal operations.
3.1.13. Proprietary Rights. Schedule 3.1.13 attached hereto
is an accurate and complete list of all of Sellers' Proprietary Rights. All
Proprietary Rights for Intellectual Property are owned by Sellers free and
clear of all Liens or have been duly licensed for use by Sellers. None of the
Intellectual Property has been or is the subject of any pending adverse claim,
or to the knowledge of Sellers and Fox, any threatened litigation or claim of
infringement. To the best knowledge of Sellers and Fox, the Sellers' conduct
of the Business does not infringe any trademark, trade name, copyright or
patent of another, and no Seller has received any notice contesting its right
to use any trademark, trade name, product, process, design, computer program or
written work now used by it in connection with the Business or the operation
thereof. No Seller has granted any license in respect of any Intellectual
Property or made any commitment to pay any royalty or license in respect of any
Intellectual Property.
3.1.14. Assumed Contracts. Sellers have delivered to Buyer
true and correct copies of each Assumed Contract. Each Assumed Contract is
(a), to the best knowledge of each of the Sellers and Fox, valid, binding and
in full force and effect, (b) no Seller is in default under any Assumed
Contract nor does there exist any condition or event which after notice, lapse
of time or both would constitute a default by such Seller under any Assumed
Contract, (c)
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to the knowledge of Sellers and Fox, no other party to any Assumed Contract is
in default, or alleged to be in default, under any such Contract, (d) to the
knowledge of Sellers and Fox, there does not exist any condition or event
which, after notice, lapse of time or both, would constitute a default by any
other party to any Assumed Contract, (e) no Seller has received notice of the
election of any party to any Assumed Contract to cancel, terminate or not to
renew such contract whether in accordance with the terms of any Assumed
Contract or otherwise, (f) except as set forth on Schedule 3.1.3, none of the
Assumed Contracts requires the consent of the other party thereto for the
assignment of such Contract to Buyer, and (g) the Assumed Contracts include all
of the Contracts between the Sellers and their customers and all other
Contracts that are material to the operation of the Business.
3.1.15. Employee Benefit Plans. (a) Except as set forth on
Schedule 3.1.15 attached hereto, no Seller is a party to, maintains or is
required to make any payment or other contribution under, any employment
contract, noncompete agreement, or employee benefit plan or arrangement,
whether oral or written, qualified or non-qualified, including without
limitation any pension or welfare plan, withdrawal, termination, severance or
lay-off plan or arrangement, bonus plan, stock option plan, health or life
insurance plan, policy or benefit, vacation or sick leave policy or any other
agreement or arrangement providing for remuneration or benefits to employees or
former employees of such Seller (each a "BENEFIT PLAN"). All Benefit Plans
comply in form and in operation with all applicable requirements of law and
regulation. There have been no "prohibited transactions" (as described in
Section 406 of ERISA or Section 4975 of the Code) with respect to any Benefit
Plan governed by ERISA and maintained by any Seller or to which any Seller has
been a party. A true and correct copy of the annual report (as described in
Section 103 of ERISA) most recently filed for each Benefit Plan governed by
ERISA and listed in Schedule 3.1.15 has been supplied to Buyer or PGA by
Sellers, and there have been no material changes in the financial condition in
such plans from that stated in the annual reports supplied.
(b) No employee of any Seller currently participates in any
multiemployer plan, and no person reasonably expects to participate in such a
plan, in either case, on account of his or her employment with a Seller, nor
does any Seller have any liability or contingent liability to any multiemployer
plan.
3.1.16. Environmental Matters. (a) The operation of the
Business does not violate any applicable Environmental Law in effect as of the
date hereof or on the Closing Date and, to the knowledge of Sellers and Fox, no
condition or event has occurred which, with notice or the passage of time or
both, would constitute a violation of any Environmental Law; (b) no Seller has
stored or used any pollutants, contaminants or hazardous or toxic wastes,
substances or materials on or at the Real Property, except for inventories of
chemicals which are to be used in the ordinary course of business of a Seller
(which inventories have been stored or used in accordance with all applicable
environmental permits and all Environmental Laws); (c) neither any Seller nor
any of its Affiliates has received any notice from any governmental authority
or private entity advising it that the Real Property or the operation thereof
are in violation of any Environmental Law or any applicable environmental
permit or that it is responsible (or
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potentially responsible) for the cleanup of any pollutants, contaminants or
hazardous or toxic wastes, substances or materials at, on or beneath the Real
Property or at, on or beneath any other real property or in connection with any
waste or contamination site; (d) neither the Business nor the operation thereof
nor, to the best knowledge of each of the Sellers and Fox, the Real Property
are the subject of federal, state, local or private litigation or proceedings
involving a demand for damages or other potential liability with respect to
violations of Environmental Laws; and (e) no Seller has buried, dumped,
disposed, spilled or released any pollutants, contaminants or hazardous or
toxic wastes, substances or materials on, beneath or about the Real Property or
any other real property. Each Seller has timely filed all reports required to
be filed with respect to the Real Property and has generated and maintained all
required data, documentation and records under any applicable Environmental
Laws with respect thereto.
3.1.17. Customers. Schedule 3.1.17 attached hereto
summarizes each customer contract representing billings by any Seller in excess
of $500,000 in the 12 months ended March 31, 1996. No Seller has received any
notice from any of such customers to the effect that such customers' contract
is being terminated or is being considered for termination or nonrenewal.
3.1.18. Assets Sufficient for Conduct of Business. The
Purchased Assets constitute all of the assets and properties required for the
operation of the Business as it is presently operated by Sellers.
3.1.19. Accuracy of Statements. Neither this Agreement
(including the exhibits and schedules attached hereto) nor any statement, list,
certificate or other information furnished or to be furnished by or on behalf
of Sellers to Buyer or PGA in connection with this Agreement or any of the
transactions contemplated hereby contains or will contain any untrue statement
of a material fact regarding Sellers, the Purchased Assets or the operation of
the Business or omits or will omit to state a material fact necessary to make
the statements regarding Sellers, the Purchased Assets or the operation of the
Business contained herein or therein, in light of the circumstances in which
they are made, not misleading.
3.1.20. Brokers; Finders. Sellers have not retained any
broker or finder in connection with the transactions contemplated herein so as
to give rise to any valid claim against Buyer or PGA for any brokerage or
finder's commission, fee or similar compensation. Sellers and Fox shall be and
shall remain solely liable for all fees and expenses payable to any such broker
or finder and will indemnify Buyer and PGA regarding same.
3.2 Representations and Warranties of Buyer and PGA. Buyer and
PGA (jointly and severally as to each such Person) represents and warrants to
Sellers as follows:
3.2.1. Corporate Existence. Each of Buyer and PGA is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware.
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Each of Buyer and PGA has full corporate power and authority to enter into and
perform this Agreement and to consummate the transactions contemplated herein.
3.2.2. Authorization; Enforceability. The execution,
delivery and performance of this Agreement by each of Buyer and PGA and the
consummation of the transactions contemplated herein have been duly authorized
by all requisite corporate action. This Agreement has been duly executed and
delivered by each of Buyer and PGA and constitutes the valid, legal and binding
obligation of each of Buyer and PGA, as the case may be, enforceable in
accordance with its terms, except as enforceability may be limited by equitable
principles or by bankruptcy, fraudulent conveyance or insolvency laws affecting
creditors' rights generally.
3.2.3. No Violation; Consents. Neither the execution,
delivery and performance by each of Buyer and PGA of its obligations under this
Agreement, nor the consummation of the transactions contemplated hereby, will
conflict with, violate or result in a breach of any of the terms or provisions
of, or constitute a default (with the passage of time or giving of notice or
both) under, or result in the creation or imposition of any lien on the assets
of Buyer or PGA pursuant to, any indenture, mortgage, deed of trust, lease,
note, or other agreement or instrument to which Buyer or PGA is a party, the
certificate of incorporation or bylaws of Buyer or PGA, any order, judgment,
decree, rule or regulation of any court or governmental agency or body having
jurisdiction over Buyer, PGA or their properties, or under any provision of
law. Except for any required filing under the HSR Act and as otherwise set
forth on Schedule 3.2.3 attached hereto, no consent, approval, authorization,
order, filing, registration or qualification of or with any governmental
authority or other Person is required to be obtained by Buyer or PGA in
connection with the execution and delivery of this Agreement by Buyer or PGA or
the consummation of the transactions contemplated herein.
ARTICLE IV
CERTAIN COVENANTS
4.1 Access and Information; Confidentiality. (a) From the date
hereof until the Closing Date, each Seller will give to Buyer, PGA and their
representatives (upon reasonable advance notice and during normal business
hours) reasonable access to its properties, books, records, contracts and
commitments and will furnish all such information and documents relating to its
properties and business as Buyer or PGA may reasonably request, and Buyer and
PGA will furnish to each Seller and its representatives all such information
and documents relating to Buyer and PGA as each Seller may reasonably request;
provided, that no such access shall include or involve the presence on or any
contact with Sellers' business premises by Buyer, PGA or any of their
representatives or any meetings or any form of contact between Buyer, PGA or
their representatives and any employee of any Seller without the prior and
specific written consent of Fox (other than Rod Devlin, Sue Durnwirth and Karen
Wimbish as required to conduct due diligence and after notifying Fox in each
instance).
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(b) At all times prior to the Closing Date, Buyer and PGA agree to
treat as strictly confidential, and to cause their employees and agents to
protect the confidentiality of all proprietary and confidential information
received from each Seller or any other source pursuant to this SECTION 4.1,
this Agreement or otherwise, using the same care and procedures used to protect
Buyer's and PGA's own proprietary and confidential information, and agree not
to disclose, and to cause their employees and agents not to disclose, such
proprietary and confidential information to any other persons except as may be
reasonably necessary in connection with the transactions contemplated herein or
except to the extent (i) such information is or becomes publicly available or
obtainable from independent, nonconfidential sources and not in breach of
Buyer's or PGA's obligations hereunder or any other party's confidentiality
obligations owed to Sellers, (ii) such information is required to be disclosed
by law or by governmental authorities having jurisdiction over Buyer or PGA, or
(iii) disclosure is necessary for Buyer or PGA to enforce any or all of its
rights under this Agreement.
(c) At all times prior to the Closing Date, Buyer and PGA further
agree not to contact or attempt to contact any of Sellers' clients as disclosed
to Buyer or PGA pursuant to the Schedules to this Agreement without the prior
written consent of Fox.
4.2 Conduct of Business. Except as otherwise contemplated by the
terms of this Agreement, from the date hereof until the Closing, the Sellers
will: (a) not enter into any Contract relating to the Business unless such
Contract involves an aggregate financial obligation on the part of Sellers of
$50,000 or less or is terminable upon not more than 30 days' prior notice; (b)
conduct the Business only in the ordinary course and in substantially the same
manner as heretofore; (c) maintain and keep their properties and equipment in
good repair, working order and condition, except for ordinary wear and tear;
(d) keep in full force and effect insurance comparable in amount and scope of
coverage to that now maintained; (e) perform their obligations under all
Contracts; (f) use reasonable efforts consistent with their normal business
practices to maintain and preserve their business organizations, retain their
present employees and maintain their relationships with suppliers and
customers; (g) maintain their books of account and records in the usual and
regular manner; (h) comply with all laws and regulations applicable to them and
to the conduct of their Business; (i) except to the extent of any Excluded
Assets, not make any distribution, dividend or advance to any Affiliate without
the prior written consent of Buyer; (j) use reasonable efforts to maintain and
protect their Proprietary Rights; and (k) not make any change in any Benefit
Plan or compensation to any officers, directors or employees or adopt any new
Benefit Plan without the prior written consent of Buyer.
4.3 Change of Corporate Name. On the Closing Date or as soon as
practicable thereafter, Sellers shall either be dissolved or change their
corporate names to new names which do not include the term or the acronym or
abbreviation or any variations, translations or combinations thereof or similar
names and otherwise is not likely to be confused with their present names so as
to make Sellers' present names available to Buyer. From and after the Closing,
neither Sellers nor Fox shall use the term or the acronym or abbreviation or
any variations, translations or combinations thereof or similar names in
connection with any business.
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4.4 Filings. Buyer and Sellers will make or cause to be made all
such filings and submissions under applicable laws and regulations as may be
required for the consummation of the transactions contemplated hereunder,
including without limitation any filings required under the HSR Act. Buyer and
Sellers will cooperate and coordinate with one another in connection with any
such filings or submissions.
4.5 Employees. (a) Buyer and Sellers agree that on the Closing
Date the employees of Sellers shall cease to be employees of Sellers and,
except for those employees subject to written employment agreements expressly
assigned to and assumed by Buyer pursuant to this Agreement and except as
otherwise determined by Buyer in its sole discretion, shall be offered
employment by Buyer or an Affiliate of Buyer on an employment at will basis.
If Buyer does not offer employment to any of Sellers' employees as of the
Closing Date, or if any of the employees do not accept Buyer's offer of
employment, Sellers and Fox hereby agree to indemnify Buyer and PGA from and
against any claim by such employees for termination or severance payments,
benefits or other such actions and all other costs or liabilities associated
with the termination of such employees on the Closing Date (it being the intent
of the parties that Sellers and Fox shall not be liable for indemnification or
otherwise for actions taken by Buyer or PGA with respect to such employees
after the effective time of the Closing).
(b) The parties acknowledge and agree that it is the intention of the
parties that all contracts of noncompetition between Sellers and their
employees shall be transferred to or assumed by Buyer as a result of the
transactions described herein and that such contracts shall constitute Assumed
Contracts hereunder.
(c) Sellers shall, if requested by Buyer, assign to Buyer Sellers'
unemployment insurance and worker's compensation experience ratings and take
such steps as Buyer shall reasonably request to effect such assignment, if such
assignment is permitted and does not result in any cost, expense or penalty to
Sellers and is otherwise not prejudicial to Sellers.
(d) Unless prohibited by law, Sellers shall make available to Buyer
all personnel records, including without limitation names, Social Security
numbers, dates of hire by Sellers or any subsidiary of Sellers, dates of birth,
number of hours worked each calendar year, and salary histories, for all
Sellers' employees hired by Buyer or PGA. Sellers and Buyer shall also
cooperate, both before and after the Closing Date, in exchanging information
including pertinent employment records, benefit information, salary and
compensation records, financial statements and other data, and in taking other
action respecting the interests of Sellers' employees who become employees of
Buyer at or shortly following the Closing Date, and their respective
beneficiaries and dependents, in each of the employee benefit plans of Sellers
and any plans established by Buyer, so as to secure an orderly and effective
transition of the benefit arrangements for such employees of Sellers and their
respective beneficiaries and dependents.
(e) Employee Benefits. Buyer will provide to all of Sellers'
employees who are hired by Buyer those benefits generally offered to other
similarly situated employees of Buyer, and
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will give effect to such employees' tenure of service with Sellers for
determining eligibility and waiting period requirements under Buyer's benefit
plans.
4.6 Lien Search. Prior to Closing, the Sellers at their expense
shall obtain and deliver Uniform Commercial Code and tax lien search results
covering the Purchased Assets from each jurisdiction in which Purchased Assets
are located. The searches shall be accurate as of a date not earlier than 10
days prior to the Closing Date.
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions to Obligation of Buyer. The obligation of Buyer
under this Agreement to purchase the Purchased Assets and to consummate the
other transactions contemplated by this Agreement is subject to the
fulfillment, at or prior to the Closing, of each of the following conditions,
each of which may be waived in whole or in part by Buyer in its sole
discretion:
5.1.1. Representations; Performance. The representations
and warranties of Sellers and Fox contained herein shall be true in all
material respects on and as of the date hereof and on and as of the Closing
Date with the same effect as though made on and as of the Closing Date, except
as modified by transactions permitted by this Agreement. Sellers shall have
duly performed and complied in all material respects with all agreements and
conditions required by this Agreement to be performed or complied with by it
prior to or at the Closing. Sellers shall have delivered to Buyer and PGA a
certificate, dated the Closing Date and signed by the Chief Executive Officer
or President of each Seller, to the effect set forth above in this SECTION
5.1.1.
5.1.2. Opinion of Counsel. Buyer and PGA shall have
received a favorable opinion, addressed to Buyer and PGA and dated the Closing
Date, of LeClair Ryan, A Professional Corporation, counsel to each Seller, in
the form and substance of Exhibit F attached hereto.
5.1.3. Consents. All Consents required to be obtained by
Seller to consummate the transactions contemplated herein and all consents to
the assignment of the Assumed Contracts pursuant to and to the extent required
by SECTION 2.8 shall have been obtained, other than any Consents the
acquisition of which has been temporarily waived by Buyer.
5.1.4. No Proceeding or Litigation. No claim, action, suit,
arbitration, investigation or other formal proceeding shall be pending or
threatened on or before the Closing which (a) seeks to (i) enjoin, restrain or
prohibit the transactions contemplated herein, (ii) impose limitations on the
ability of Buyer to exercise full rights of ownership of the Purchased Assets
or (iii) require the divestiture by Buyer or its Affiliates of any of the
Purchased Assets
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or any other assets of Buyer or its Affiliates by reason of this Agreement, or
(b) could have a material adverse effect on the Purchased Assets or the use
thereof or the transactions contemplated herein.
5.1.5. No Material Adverse Change. There shall have
occurred no material adverse change in the financial condition or prospects of
the Business.
5.1.6. Purchased Assets and Documents Delivered. Buyer
shall have received at the Closing the following documents required to be
delivered to Buyer by the Sellers or Fox as provided herein:
(a) the Bill of Sale;
(b) the Contract Assignment;
(c) the Employment Agreement;
(d) the Noncompetition Agreement;
(e) corporate certificates of good standing for each
Seller issued by the Secretaries of State and Departments of Revenue (or
similar applicable offices) of each jurisdiction where each Seller is organized
and qualified to do business;
(f) a certificate of the secretary of each Seller,
certifying and attaching copies of the Charter Documents, the resolutions of
the directors and shareholders or other owners of each Seller approving the
execution and delivery by each Seller of this Agreement and the consummation of
the transactions contemplated hereby, and the incumbency of the officers of
each Seller executing this Agreement and all other agreements and instruments
to be executed and delivered by each Seller in connection herewith; and
(g) such other documents, certificates and items
reasonably requested by Buyer or PGA to consummate the transactions
contemplated hereby and effect the transfer of the Purchased Assets as provided
herein.
5.1.7. HSR Act Filings. All filings required by any Person
under the HSR Act with respect to the transfer of the Purchased Assets shall
have been made, all applicable waiting periods with respect thereto shall have
expired or been terminated and no action shall have been taken or threatened by
the United States Department of Justice or Federal Trade Commission challenging
or seeking to enjoin the transactions contemplated under this Agreement.
5.1.8. Closing Balance Sheet. Prior to Closing, the Sellers
shall have delivered a pro forma balance sheet (the "CLOSING BALANCE SHEET"),
dated as of the Business Day immediately preceding the Closing Date and in form
and detail comparable to the balance
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sheets included in the Financial Statements, showing Sellers best reasonable
estimates of all Purchased Assets (excluding any Excluded Assets) and all
liabilities (excluding any Excluded Liabilities) of the Sellers on a
consolidated basis as of such date. If the assets (including any cash in an
amount equal to any total asset deficiency as described in SECTION 2.1(A))
shown on the Closing Balance Sheet less the liabilities to be assumed by Buyer
pursuant to SECTION 2.7(B) shown thereon shall be less than $1,595,000, then
the payment described in SECTION 2.3(A) shall be decreased, on a
dollar-for-dollar basis, by the amount of such deficiency. If such net amount
exceeds $1,595,000, then Sellers shall be allowed to retain and not transfer to
Buyer accounts receivable in an amount equal to such excess. The parties shall
finalize the Closing Balance Sheet after Closing in the manner described in
SECTION 6.5.
5.2 Conditions to Obligation of Sellers. The obligations of
Sellers under this Agreement to sell the Purchased Assets and to consummate the
other transactions contemplated by this Agreement is subject to the
fulfillment, at or prior to the Closing, of each of the following conditions,
each of which may be waived in whole or in part by Sellers in their sole
discretion:
5.2.1. Representations; Performance. The representations
and warranties of Buyer and PGA contained herein hereof shall be true on and as
of the date hereof and on and as of the Closing Date with the same effect as
though made on and as of the Closing Date, except as modified by transactions
permitted by this Agreement. Buyer and PGA shall have duly performed and
complied with all agreements and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing. Each of Buyer and
PGA shall have delivered to Sellers a certificate, dated the Closing Date and
signed by the Chief Executive Officer or President of Buyer and PGA, to the
effect set forth above in this SECTION 5.2.1.
5.2.2. Opinion of Counsel. Sellers shall have received a
favorable opinion, addressed to Sellers and dated the Closing Date, of
Robinson, Bradshaw & Hinson, P.A., counsel to Buyer and PGA, in the form of
Exhibit G attached hereto.
5.2.3. No Proceeding or Litigation. No injunction or order
of any court or administrative agency of competent jurisdiction shall be in
effect and no actions by any public or governmental authority seeking any such
injunction or order shall be pending as of the Closing Date that restrains or
prohibits the purchase and sale of the Purchased Assets or any other action to
be taken in connection herewith.
5.2.4. Purchase Price and Documents Delivered. Sellers
shall have received at the Closing the payment required under SECTION 2.3(A),
and the following documents required to be delivered to Sellers at the Closing
as provided herein:
(a) the Employment Agreement;
(b) the Noncompetition Agreement;
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(c) the Bill of Sale;
(d) the Contract Assignment;
(e) the promissory note or notes;
(f) a corporate certificate of good standing for each of
Buyer and PGA issued by the Delaware Secretary of State; and
(g) a certificate of the secretary of each of Buyer and
PGA, certifying and attaching copies of its certificate of incorporation and
bylaws, the resolutions of the directors of Buyer and PGA approving the
execution and delivery by Buyer and PGA of this Agreement and the consummation
of the transactions contemplated hereby, and the incumbency of the officers of
Buyer and PGA executing this Agreement and all other agreements and instruments
to be executed and delivered by Buyer or PGA in connection herewith.
5.2.5. HSR Act Filings. All filings required by any Person
under the HSR Act with respect to the transfer of the Purchased Assets shall
have been made, all applicable waiting periods with respect thereto shall have
expired or been terminated and no action shall have been taken or threatened by
the United States Department of Justice or Federal Trade Commission challenging
or seeking to enjoin the transactions contemplated under this Agreement.
ARTICLE VI
INDEMNIFICATION
6.1 Indemnification by Sellers and Fox. Sellers and Fox (jointly
and severally as to each such Person) agree to indemnify and hold harmless
Buyer, PGA and their shareholders, officers and directors, Affiliates, agents
and employees from and against and in respect of any and all damages, losses or
expenses suffered or incurred by any such party (whether as a result of third
party claims (whether valid or not), demands, suits, causes of action,
proceedings, investigations, judgments or liabilities or otherwise), including
reasonable attorneys' fees assessed, incurred or sustained by or against any of
them, with respect to or arising out of (i) any breach of the representations,
warranties and covenants of Sellers and Fox set forth herein and in any other
agreement or instrument executed by Sellers or Fox in connection herewith, or
(ii) the Excluded Liabilities, in all cases subject to each of the terms,
conditions and limitations set forth in this ARTICLE VI hereof.
6.2 Indemnification by Buyer and PGA. Buyer and PGA (jointly and
severally as to each such Person)) agree to indemnify, defend and hold harmless
Sellers, Fox and the Sellers' officers, directors, employees, Affiliates and
agents from and against and in respect of any and all damages, losses or
expenses suffered or incurred by any such party (whether as a result of third
party claims, (whether valid or not), demand, suits, causes of action,
proceedings, investigations, judgments or liabilities or otherwise), including
reasonable attorneys' fees
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assessed or incurred or sustained by or against any of them, with respect to or
arising out of (i) any breach of the representations, warranties and covenants
of Buyer and PGA set forth herein and in any other agreement or instrument
executed by Buyer or PGA in connection herewith, (ii) any liability, claim,
action or loss arising from actions of Buyer or PGA or Buyer's operation of the
Business after the Closing, including without limitation any post-Closing
actions of Buyer or PGA pursuant to the Assumed Contracts and the other
liabilities expressly assumed by Buyer pursuant to SECTION 2.7(B) and (iii) any
liability, claim, action or loss arising from the Business or the Purchased
Assets after the Closing that does not relate to or arise from any act or
omission of the Sellers or Fox prior to the Closing.
6.3 Limitations. Notwithstanding anything contained herein to the
contrary, no person shall be entitled to indemnification under the provisions
of this ARTICLE VI (i) unless such party shall have given written notice to the
indemnifying party setting forth its claim for indemnification in reasonable
detail, on or prior to the close of business on the Limitation Date, and (ii)
unless and until the aggregate amount of all claims for indemnification under
SECTION 6.1 or SECTION 6.2, as applicable, shall have exceeded $50,000, in
which event the indemnified person shall be entitled to such indemnification
only for all claims in excess of that aggregate amount (except that any
indemnity obligation arising from a breach of SECTION 3.1.20 shall not be
subject to the limitation of this subsection (ii) nor shall such limitation
apply to adjustments relating to accounts receivable described in SECTION 2.10
or the Closing Balance Sheet adjustments described in SECTION 6.5); provided,
that none of the Sellers and Judith Fox or the Buyer and PGA shall be required
to make any indemnification payments hereunder after the total of all
indemnification payments made by either the Sellers and Judith Fox or the Buyer
and PGA, respectively, equals 65% of the Purchase Price.
6.4 Procedure for Indemnification.
6.4.1. Third Party Claims. If any Person shall
claim indemnification hereunder arising from any claim or demand of a third
party, the party seeking indemnification (the "indemnitee") shall promptly
notify the party from whom indemnification is sought (the "indemnitor") in
writing of the basis for such claim or demand setting forth the nature of the
claim or demand in reasonable detail. The failure of the indemnitee to so
notify the indemnitor shall not relieve the indemnitor of any indemnification
obligation hereunder unless the indemnitor shall have been materially
prejudiced thereby. If any claim of indemnification is brought hereunder, the
indemnitor shall assume the defense thereof, including the employment of
counsel and the payment of all expenses. The indemnitee shall, in its sole
discretion, have the right to employ separate counsel (who may be selected by
the indemnitee in its sole discretion) in any such action and to participate in
the defense thereof, and the fees and expenses of such counsel shall be paid by
such indemnitee, except that the indemnitor shall be required to pay such fees
and expenses if (1) the indemnitor agrees to pay such fees and expenses, (2)
the indemnitor shall fail to assume the defense of such action or proceeding or
shall fail, in the reasonable discretion of the indemnitee, to employ counsel
satisfactory to the indemnitee in any such action or proceeding, or (c) the
named parties to any such action or proceeding (including any impleaded
parties) include both the indemnitor and the indemnitee, and the indemnitee
shall
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have been advised by counsel that there may be one or more legal defenses
available to it which are different from or additional to those available to
the indemnitor. The indemnitee shall fully cooperate with the indemnitor and
its counsel in the defense or compromise of such claim or demand, provided that
all reasonable out-of-pocket expenses incurred by indemnitee shall be paid by
indemnitor. No settlement of a third party claim or demand defended by the
indemnitee shall be made without the written consent of the indemnitor. The
indemnitor shall not, except with the written consent of the indemnitee,
consent to the entry of a judgment or settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to the
indemnitee of an unconditional release from all liability in respect of such
third party claim or demand.
6.4.2. Direct Claims. If either party shall claim
indemnification hereunder for any claim other than third party claims, the
indemnitee shall promptly notify the indemnitor in writing of the basis for
such claim setting forth the nature and amount of the damages resulting from
such claim. The indemnitor shall give written notice of any disagreement with
such claim within fifteen (15) days following receipt of indemnitee's notice of
the claim, specifying in reasonable detail the nature and extent of such
disagreement. If the indemnitor and indemnitee are unable to resolve any
disagreement within thirty (30) days following receipt by the indemnitee of the
notice referred to in the preceding sentence, the disagreement shall be
submitted for resolution to an independent person (the "arbitrator") mutually
agreed by the indemnitor and indemnitee. If the indemnitor and indemnitee
cannot agree on a single arbitrator, then the disagreement shall be submitted
to a panel of three arbitrators, one selected by the indemnitor, one by the
indemnitee and one by the two arbitrators so selected. The arbitrator(s)'
determination shall be made within thirty (30) days of the submission of the
dispute, shall be in accordance with this Agreement, shall be set forth in a
written statement delivered to indemnitor and the indemnitee and shall be
final, binding and conclusive. Judgment upon the decision rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof and may
include the award of attorneys' fees and other costs to the extent provided by
this Article. The Person who prevails in the resolution of such disagreement
shall pay the fees and expenses of the arbitrator(s); and if one Person does
not prevail on all issues, the fees and expenses shall be apportioned in such
manner as the arbitrator(s) shall determine. Any amount owing by any Person as
a result of this SECTION 6.4.2 shall be paid within two (2) business days after
final determination of such amount.
6.4.3. Interest. Interest shall accrue on the
unpaid amount of all indemnification obligations hereunder at the per annum
prime rate of interest announced from time to time by NationsBank, N.A. (or, if
such bank discontinues its practice of announcing its prime rate, such other
institution approved by Fox and Buyer) as its prime rate of interest, as in
effect from time to time, such interest to be calculated based on the actual
number of days elapsed from the date each indemnification obligation becomes
due and owing until paid in full and based on a 365-day year.
6.5 Adjustment of Closing Balance Sheet. Within 30 days following
the Closing, the Buyer shall prepare a final Closing Balance Sheet reflecting
the actual Purchased Assets and
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assumed liabilities as of the Closing. If the final Closing Balance Sheet
differs from the initial Closing Balance Sheet, the parties shall make the same
purchase price adjustments described in SECTION 5.1.8 to the extent of such
differences. Such adjustments shall increase or decrease the amount of the
payment described in SECTION 2.3(B), provided that in no event shall total
payments by Buyer or PGA pursuant to SECTION 2.3 exceed $18,500,000. If there
is any dispute regarding the final Closing Balance Sheet, the disputing party
shall promptly notify the other parties in writing of the basis for such
dispute. If the parties are unable to resolve the dispute within fifteen (15)
days following receipt of the dispute notice referred to in the preceding
sentence, the dispute shall be submitted for resolution to an independent
arbitrator mutually agreed by the parties. If the parties cannot agree on a
single arbitrator, then the dispute shall be submitted to a panel of three
arbitrators, one selected by each party and one by the two arbitrators so
selected. The arbitrator(s)' determination shall be made within thirty (30)
days of the submission of the dispute, shall be in accordance with this
Agreement, shall be set forth in a written statement delivered to the parties
and shall be final, binding and conclusive. Judgment upon the decision
rendered by the arbitrator(s) may be entered in any court having jurisdiction
thereof and may include the award of attorneys' fees and other costs to the
extent provided by this Section. The Person who is prevailed against in the
resolution of such dispute shall pay the fees and expenses of the
arbitrator(s); and if one Person does not prevail on all issues, the fees and
expenses shall be apportioned in such manner as the arbitrator(s) shall
determine. If such a dispute is ongoing at the time the payment pursuant to
SECTION 2.3(B) becomes due, then any disputed amounts shall be paid into an
escrow account to be disbursed according to the decision of the arbitrator(s).
Any other amount owing by any Person as a result of this SECTION 6.5 shall be
paid within two (2) Business Days after final determination of such amount. To
the extent not inconsistent with the express terms of this section, any
arbitration proceeding shall be conducted pursuant to the rules of the American
Arbitration Association.
ARTICLE VII
MISCELLANEOUS
7.1 Termination. This Agreement may be terminated at any time
prior to the Closing:
(a) by mutual written consent of Buyer, PGA, Sellers and Fox; or
(b) by Buyer by written notice to Sellers and Fox if and as
permitted under SECTION 2.8 or if any of the conditions set forth in SECTION
5.1 hereof shall not have been fulfilled in all material aspects on or prior to
the Closing Date, or shall have become incapable of fulfillment in all material
respects, and shall not have been waived by Buyer; or
(c) by Sellers and Fox by written notice to Buyer and PGA if any
of the conditions set forth in SECTION 5.2 hereof shall not have been fulfilled
in all material aspects on or prior to the Closing Date, or shall have become
incapable of fulfillment in all material aspects, and shall not have been
waived by Sellers and Fox; or
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(d) by Sellers and Fox or Buyer and PGA if the Closing has not
occurred on or before June 15, 1996, provided that such terminating party shall
not be in material breach of its obligations under this Agreement.
If this Agreement is terminated in accordance with the foregoing
provisions, all further obligations of the parties hereunder shall terminate,
except that the obligations contained in SECTION 4.1(B) shall survive.
7.2 Default by Buyer or PGA. In the event that (a) this Agreement
is terminated by Sellers and Fox pursuant to SECTION 7.1(C) or (D) by reason of
the wilful failure of Buyer or PGA to satisfy one or more of the conditions set
forth in SECTION 5.2 and (b) all of the conditions set forth in SECTION 5.1
have been satisfied, then Buyer and PGA shall be liable to Sellers and Fox for
all loss, damage or expense incurred by Sellers and Fox as a result of Buyer's
or PGA's wilful default.
7.3 Default by Sellers. In the event that (a) this Agreement is
terminated by Buyer or PGA pursuant to SECTION 7.1(B) or (D) by reason of the
wilful failure of any Seller or Fox to satisfy one or more of the conditions
set forth in SECTION 5.1 and (b) all of the conditions set forth in SECTION 5.2
have been satisfied, then Sellers and Fox shall be liable to Buyer and PGA for
all loss, damage or expense incurred by Buyer and PGA as a result of such
Seller's or Fox's wilful default.
7.4 Survival of Representations and Warranties. The indemnities
contained in ARTICLE VI and all representations and warranties of the parties
as set forth in this Agreement shall survive the Closing until the second
anniversary of the Closing Date (the "LIMITATION DATE"), provided that the
representations and warranties of Sellers and Fox set forth in SECTIONS 3.1.7
(Tax Matters), SECTION 3.1.10 (Title to Properties) and 3.1.16 (Environmental
Matters) shall survive the Closing for a period of thirty (30) days following
the expiration of any applicable statute of limitations, and accordingly, as
used with respect to the representations and warranties of Sellers and Fox set
forth in SECTIONS 3.1.7, 3.1.10 and 3.1.16 hereof, the Limitation Date shall
mean the thirtieth (30th) day following the expiration of the applicable
statute of limitations.
7.5 Bulk Sales Law. Buyer hereby waives compliance by Sellers
with the provisions of any applicable bulk sales law, or other law for the
protection of creditors. Fox and Sellers shall indemnify, defend and hold
harmless Buyer in accordance with ARTICLE VI hereof from any liability, claim,
loss or expense (including reasonable attorney's fees) arising from any
noncompliance with such laws; provided, however that nothing in this section
shall relieve the Buyer and PGA for liabilities arising from the Assumed
Contracts or other liabilities expressly assumed hereunder.
7.6 Expenses. Except as otherwise provided herein, Sellers and
Fox shall assume and bear all expenses, costs and fees incurred or assumed by
Sellers and Fox in the preparation and execution of this Agreement and
compliance herewith, and Buyer and PGA shall assume and
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<PAGE> 32
bear all expenses, costs and fees incurred or assumed by Buyer and PGA in the
preparation and the execution of this Agreement and compliance herewith, in
each case whether or not the purchase and sale provided for herein shall be
consummated.
7.7 Public Announcements. Sellers and Fox shall not, directly or
indirectly, make or cause to be made any public announcement or issue any
notice in any form with respect to this Agreement or the transactions
contemplated herein without the prior written consent of Buyer, such consent
not to be unreasonably withheld or delayed. Notwithstanding the foregoing, (a)
Sellers and Fox may confidentially notify Sellers' employees of the
transactions contemplated by this Agreement upon the parties' execution hereof
and (b) Buyer and PGA, upon the parties' execution of this Agreement, may make
any disclosure required by law.
7.8 Assignment; Successors. This Agreement shall not be assigned
by any party without the prior written consent of the other party, which
consent shall not be unreasonably withheld. This Agreement is intended for the
exclusive benefit of the parties hereto and their respective heirs, successors
and permitted assigns, and shall not create any rights in or be enforceable by
any other Person whomsoever other than any Person entitled to indemnification
from Sellers and Fox on the one hand or Buyer and PGA on the other hand
pursuant to ARTICLE VI hereof, it being the intention of the parties that no
one shall be deemed to be a third party beneficiary of this Agreement. This
Agreement shall inure to the benefit of, and be binding on and enforceable
against, the successors and permitted assigns of the respective parties.
7.9 Amendment and Modification; Waivers. This Agreement or any
term hereof may be changed, waived, discharged or terminated only by an
agreement in writing signed by both parties. No waiver by a party of any
condition or of any breach of any term, covenant, representation or warranty
contained herein shall be effective unless in writing, and no waiver in any one
or more instances shall be deemed to be a further or continuing waiver of any
such condition or breach in any other instances or a waiver of any other
condition or breach of any other term, covenant, representation or warranty.
7.10 Notices. All notices, consents, requests, instructions,
approvals and other communications provided for herein and all legal process in
regard shall be validly given, made or served, if in writing and delivered
personally or sent by telecopier, telex, nationally recognized overnight
courier or registered or certified mail, postage prepaid, to the following
address:
If to Sellers or Fox: 4098 Wood Lane
Keswick, Virginia 22947
Facsimile Number: _______________
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<PAGE> 33
With a copy to: LeClair Ryan
707 E. Main Street, 11th Floor
Richmond, Virginia 23219
ATTENTION: Steven J. Keeler
Facsimile Number: (804) 783-2294
If to Buyer or PGA: 6302 Fairview Road, Suite 201
Charlotte, North Carolina 28210
ATTENTION: Edward P. Drudge, Jr.
Facsimile Number: (704) 442-5138
With a copy to: Robinson, Bradshaw & Hinson, P.A.
101 N. Tryon Street, Suite 1900
Charlotte, North Carolina 28246
ATTENTION: Ken R. Bramlett, Jr.
Facsimile Number: (704) 378-4000
or in each case at such other address as may be specified in writing, but no
such change shall be deemed to have been given until it is actually received by
the parties sought to be charged with its contents. All notices and other
communications given hereunder shall be effective (1) upon delivery if
delivered personally or sent by telecopier or telex, (2) if delivered by
overnight courier shall be effective one business day after delivery to such
courier, and (3) if delivered by mail shall be effective three business days
after deposit in the United States mail.
7.11 Further Assurances; Records. Each of Sellers and Fox and
Buyer and PGA shall cooperate and take such actions, and execute all such
further instruments and documents, at or subsequent to the Closing, as either
may reasonably request in order to convey title to the Purchased Assets to
Buyer and otherwise to effect the terms and purposes of this Agreement. Each
party shall provide the other party or parties with access to all relevant
documents and other information pertaining to the Purchased Assets which are
needed by such other party or parties for the purposes of preparing tax returns
or responding to an audit by any governmental agency or for any other
reasonable purpose. Such access will be during normal business hours and not
subject to time limitations, except as provided below.
7.12 Tax and Financial Cooperation. After the Closing, Sellers,
Fox, PGA and Buyer agree to cooperate with each other in connection with any
official tax inquiry, tax audit, tax determination or tax-related proceeding
affecting tax liability of Sellers or Buyer or in connection with a
determination of any tax liability or treatment to make available to each other
party within a reasonable amount of time, at no cost to such party, or its
employees and officers, together with documents, correspondence, reports, books
and records of Sellers and other materials bearing on such tax inquiry, audit,
examination, proceeding or determination of tax liability or treatment,
provided that each party shall be reimbursed for any out-of-pocket expenses it
incurs in assisting another party hereunder.
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<PAGE> 34
7.13 Submission to Jurisdiction. Each of the parties hereto hereby
consents to the jurisdiction of any State or federal court located within the
State of North Carolina or the State of Virginia and irrevocably agrees that
all actions and proceedings relating to this Agreement or the transactions
contemplated hereby may properly be litigated in such courts; provided however,
that any disagreement pursuant to SECTION 6.4.2 shall be resolved exclusively
by the dispute resolution process set forth in SECTION 6.4.2 and judgment upon
the decision reached by any arbitrator(s) pursuant to SECTION 6.4.2 may be
entered in any court of competent jurisdiction. Each of the parties hereto
waives any objection that it may have to the conduct of any action or
proceeding in any such court based on improper venue or forum non conveniens,
waives personal service of any and all process upon it, and consents that all
service of process may be made by mail or courier service directed to it at the
address set forth herein and that service so made shall be deemed to be
completed upon the earlier of actual receipt or ten (10) days after the same
shall have been posted. Nothing contained in this SECTION 7.13 shall affect
the right of any party hereto to serve legal process in any other matter
permitted by law or affect the right of any party hereto to bring any action or
proceeding against any other party hereto or any party's property in the courts
in any other jurisdiction.
7.14 Entire Agreement; Counterparts; Governing Law. This
Agreement, together with the Exhibits and Schedules attached hereto,
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, including without limitation that certain letter dated
March 27, 1996 between the parties. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, and all of
which, together, shall constitute one and the same instrument. This Agreement
shall be governed in all respects, including validity, interpretation and
effect, by the laws of the State of North Carolina (without reference to
conflict-of-law provisions).
7.15 Post-Closing Matters. From and after the Closing Date and up
to and including December 31, 1996, the Buyer will provide access to office
space and support staff to Fox, without charge, on a reasonable, as-needed
basis from time to time at Fox's request.
7.16 Personal Use of Name. Notwithstanding any of the foregoing
provisions of this Agreement, nothing herein shall prohibit or limit the use by
Judith Fox of her name in her individual capacity. Judith Fox agrees that she
shall not use her name in the name of a business or as a trademark or tradename
or for other business or commercial purposes or otherwise in any manner likely
to cause dilution of or confusion with the "Judith Fox" name as used in the
business of PGA or any of its Affiliates without the prior written approval of
PGA, which approval shall not be unreasonably withheld. Judith Fox may use her
name in connection with the "On the Job" radio program so long as such program
includes no reference either to PGA or its Affiliates (without their written
approval) or to any other business or commercial entity.
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<PAGE> 35
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
BUYER:
STAFFPLUS, INC.
By: /s/ Edward P. Drudge, Jr.
--------------------------------
Title: Chairman and CEO
PGA:
PERSONNEL GROUP OF AMERICA, INC.
By: /s/ Edward P. Drudge, Jr.
--------------------------------
Title: Chairman and CEO
SELLERS:
JUDITH FOX COMPANIES, INC.
By: /s/ Judith Fox
--------------------------------
Title: President
FOX TECHNICAL, INC.
By: /s/ Judith Fox
--------------------------------
Title: President
JUDITH FOX TRAINING FOR GROWTH, L.C.
By: /s/ Judith Fox
--------------------------------
Title: Manager
FOX:
/s/ Judith Fox (SEAL)
----------------------------------
Judith Fox
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<PAGE> 36
EXHIBIT A
BILL OF SALE
THIS BILL OF SALE dated May __, 1996, is made by JUDITH FOX COMPANIES,
INC., a Virginia corporation, FOX TECHNICAL, INC., a Virginia corporation, and
JUDITH FOX TRAINING FOR GROWTH, L.C., a Virginia limited liability company
(each, a "SELLER" and collectively, the "SELLERS"), to STAFFPLUS, INC., a
Delaware corporation ("BUYER").
The Sellers, pursuant to the terms of an Asset Purchase Agreement
dated as of May __, 1996, between Sellers, Buyer, Personnel Group of America,
Inc. ("PGA"), a Delaware corporation and the sole shareholder of the Buyer, and
Judith Fox (the "ASSET PURCHASE AGREEMENT"), for good and valuable
consideration, the receipt and sufficiency of which are0 hereby acknowledged,
do hereby bargain, sell, assign, transfer and convey to Buyer, its successors
and assigns, all of the Purchased Assets listed on Exhibit A attached hereto.
Each Seller, for itself and its successors and assigns, warrants and
covenants to Buyer and PGA and their successors and assigns that (a) such
Seller is the sole owner of the Purchased Assets conveyed by it and has the
right and power to sell and transfer the same to Buyer, (b) such Seller has
good and marketable title to the Purchased Assets conveyed by it, free and
clear of all claims, liens, security interests and other encumbrances (other
than any liabilities to be assumed by Buyer or PGA pursuant to the Asset
Purchase Agreement), and (c) such Seller will forever defend such title to such
Purchased Assets against the lawful claims of all persons whomsoever.
Each Seller, for itself and its successors and assigns, further
covenants and agrees with Buyer, its successors and assigns, that such Seller
will execute and deliver such other bills of sale, transfers, assignments and
other instruments of conveyance and will do such other acts as reasonably
requested by Buyer further to vest in Buyer good and marketable title to the
Purchased Assets and to fulfill and discharge such Seller's obligations of
conveyance hereunder and under the Asset Purchase Agreement.
This Bill of Sale shall be governed by and construed in accordance
with the internal laws of the State of North Carolina, and shall be binding
upon and shall inure to the benefit of the Sellers and Buyer and their
respective successors and assigns.
<PAGE> 37
IN WITNESS WHEREOF, the Sellers have executed and sealed this Bill of
Sale on the day and year first above written.
JUDITH FOX COMPANIES, INC.
By:___________________________________
Judith Fox, President
FOX TECHNICAL, INC.
By:___________________________________
Judith Fox, President
JUDITH FOX TRAINING FOR GROWTH, L.C.
By:___________________________________
Judith Fox, Manager
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<PAGE> 38
EXHIBIT B
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT dated May ___, 1996, is made
by JUDITH FOX COMPANIES, INC., a Virginia corporation, FOX TECHNICAL, INC., a
Virginia corporation, and JUDITH FOX TRAINING FOR GROWTH, L.C., a Virginia
limited liability company (each, an "ASSIGNOR" and collectively, the
"ASSIGNORS"), to STAFFPLUS, INC., a Delaware corporation ("ASSIGNEE").
The Assignors, pursuant to the terms of an Asset Purchase Agreement
dated as of May ___, 1996, between Assignors, Assignee, Personnel Group of
America, Inc., ("PGA") a Delaware corporation and the sole shareholder of the
Assignee, and Judith Fox (the "ASSET PURCHASE AGREEMENT"), for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, do hereby sell, convey, transfer and assign to Assignee, its
successors and assigns, all of the right, title and interest of Assignors in
and to any and all of the Assumed Contracts (as defined in the Asset Purchase
Agreement). Assignee and PGA do hereby jointly and severally assume and agree
to pay and perform all obligations of Assignors arising under all such Assumed
Contracts, and the trade accounts payable, normal operating accruals and other
liabilities listed on the attached EXHIBIT A, all in accordance with the terms
and subject to the limitations of the Asset Purchase Agreement (including,
without limitation, the indemnification obligations of ARTICLE VI thereof).
Assignors and Assignee further agree to execute and deliver, file and
take such other actions as may be necessary or desirable to effect the purposes
of this Agreement and the Asset Purchase Agreement.
This Assignment and Assumption Agreement shall be governed by and
construed in accordance with the internal laws of the State of North Carolina,
and shall be binding upon and shall inure to the benefit of the Assignors and
Assignee and their respective successors and assigns.
IN WITNESS WHEREOF, Assignors and Assignee have duly executed this
Agreement as of May ___, 1996.
ASSIGNORS:
JUDITH FOX COMPANIES, INC.
By:_________________________________
Judith Fox, President
[Signatures Continued]
<PAGE> 39
FOX TECHNICAL, INC.
By:_________________________________
Judith Fox, President
JUDITH FOX TRAINING FOR GROWTH, L.C.
By:_________________________________
Judith Fox, Manager
ASSIGNEE:
STAFFPLUS, INC.
By:_________________________________
Title:______________________________
PERSONNEL GROUP OF AMERICA, INC.
By:_________________________________
Title:______________________________
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<PAGE> 40
EXHIBIT C
EMPLOYMENT AND NONCOMPETITION AGREEMENT
This Employment and Noncompetition Agreement (this "Agreement), dated
May 10, 1996, is between PERSONNEL GROUP OF AMERICA, INC., a Delaware
corporation ("PGA"), STAFFPLUS, INC., a Delaware corporation and wholly owned
subsidiary of PGA ("STAFFPLUS"), and SUE DURNWIRTH (the "EMPLOYEE").
WHEREAS, as of the date hereof PGA and StaffPlus have entered into an
Asset Purchase Agreement (the "ASSET PURCHASE AGREEMENT") between PGA,
StaffPlus, the Sellers (as defined below) and Judith Fox pursuant to which
StaffPlus will purchase the businesses operated by Judith Fox Companies, Inc.,
a Virginia corporation, Fox Technical, Inc., a Virginia corporation and Judith
Fox Training For Growth, L.C., a Virginia limited liability company
(collectively, the "SELLERS"); and
WHEREAS, PGA and StaffPlus have offered Employee employment following
the consummation of the acquisition, and Employee desires to accept such offer
of employment upon the terms and conditions set forth below.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. EMPLOYMENT. Upon the Closing Date of the Asset Purchase
Agreement, StaffPlus shall employ Employee for the term of this Agreement as
President of StaffPlus' Judith Fox Staffing Companies Division, and Employee
hereby agrees to accept such employment upon the terms and conditions herein
set forth.
2. TERM OF AGREEMENT. This Agreement is effective as of
the date hereof and Employee's employment shall commence on the Closing Date of
the Asset Purchase Agreement and shall continue for three years (the "INITIAL
TERM") from such Closing Date unless terminated earlier as provided herein.
Upon expiration of the Initial Term, this Agreement shall automatically renew
for successive one-year terms unless either party gives notice to the other of
the intent not to renew at least ninety (90) days prior to the expiration of
any such renewal term.
3. DUTIES OF EMPLOYEE.
(a) Duties. Employee is employed by StaffPlus as President of
StaffPlus' Judith Fox Staffing Companies Division. Employee's duties shall be
such executive, managerial, administrative and professional duties as are
commensurate with the position of a division President and as shall be assigned
by the President or Chief Executive Officer of StaffPlus or PGA or any such
officer's designee. Such duties shall include, without limitation, managing
<PAGE> 41
the offices of the Sellers that were acquired by PGA and StaffPlus under the
Asset Purchase Agreement.
(b) Engaging in Other Employment. During the term of this
Agreement, Employee shall not directly or indirectly render any services of a
business, commercial or professional nature to any other person whether for
compensation or otherwise, without the prior written consent of StaffPlus or
PGA.
(c) Loyal and Conscientious Performance. Employee agrees that to
the best of her ability and experience she will at all times loyally and
conscientiously perform all the duties and obligations required of her by the
terms of this Agreement.
4. COMPENSATION AND BENEFITS.
(a) Salary. For all the services to be rendered by Employee in
any capacity hereunder, Employee shall be paid an annual salary (subject to
such social security, unemployment insurance, withholding taxes and other
payroll deductions as are required to be made by law) of $100,000 during the
first year of employment under this Agreement, payable in installments
consistent with StaffPlus' practices for its permanent employees. For the
remainder of the Initial Term and so long as this Agreement remains in effect
thereafter, Employee's salary will be established annually no later than
January of each year by StaffPlus' Board of Directors, provided that Employee's
annual salary shall not be less than $100,000 during the Initial Term.
(b) Bonus. Employee shall be paid a bonus in respect of calendar
year 1996 based on the financial performance of StaffPlus' Judith Fox Staffing
Companies Division (the "Division") as follows. Such bonus shall be equal to
ten percent (10%) of the amount by which EBIT (as defined below) for the
Division for the calendar period from the Closing Date through December 31,
1996 exceeds $1,520,000. Such bonus shall be paid in a manner consistent with
the payment of bonuses to other division presidents of StaffPlus. For
subsequent years, Employee's bonus arrangement shall be reviewed annually with
the bonuses of other division presidents and established at the discretion of
StaffPlus's Board of Directors. "EBIT" shall mean, for any period, the
aggregate net earnings before interest and taxes of the Division for such
period, determined in accordance with GAAP, consistently applied, and in
accordance with the following parameters (without limitation): (a) EBIT after
Closing shall be calculated with the Division being considered on a stand-alone
basis; and (b) there shall be no deduction for allocation by PGA or StaffPlus
of corporate overhead expenses to the Division during the calculation period.
(c) Fringe Benefits. So long as Employee remains in the employ of
StaffPlus, PGA or any company controlled by or under common control with PGA
(collectively, the "PGA AFFILIATES"), Employee shall:
(i) Insurance. Be provided with health, life and
disability insurance coverages in accordance with the standard
policies of the PGA Affiliates;
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<PAGE> 42
(ii) Vacation/Sick Days. Be provided with vacation/sick
time in accordance with the standard policies of the PGA Affiliates;
and
(iii) 401(k) Plan. Not be permitted to participate in the
PGA 401(k) Plan, which plan currently excludes highly compensated
employees but shall (x) be permitted to participate in the PGA Profit
Sharing Plan on a basis consistent with other highly compensated
employees of StaffPlus and (y) be recommended to the stock option plan
committee of the PGA Board of Directors for a grant of stock options
pursuant to the terms of the PGA employee stock option plan.
5. NONCOMPETITION BY EMPLOYEE.
(a) Employee agrees that for the term of her employment with any PGA
Affiliate and a period of two (2) years thereafter, without PGA's prior written
consent and except in performing her duties to the PGA Affiliates pursuant to
this Agreement, she will not, directly or indirectly, either as principal,
agent, manager, employee, partner, shareholder, director, officer, consultant
or otherwise, (A) become engaged or involved in any business (other than as a
less than 5% equity owner of any corporation traded on any national,
international or regional stock exchange or in the over-the-counter market),
that competes with the PGA Affiliates in the business of providing temporary
staffing services; or (B) induce or attempt to induce any customer, supplier or
employee of any PGA Affiliate to reduce, terminate, restrict or otherwise alter
its business relationship with such PGA Affiliate. If any provision or part of
this SECTION 5 is held to be unenforceable because of the duration of such
provision or the area covered thereby, the parties hereto agree to modify such
provision, or, alternatively, agree that the court making such determination
shall have the power to modify such provision, to reduce the duration or area
of such provision or both, or to delete specific words or phrases herefrom
("blue-penciling"), and, in its reduced or blue-penciled form, such provision
shall then be enforceable and shall be enforced. If Employee violates any of
the restrictive covenants set forth in this SECTION 5, then the time limitation
otherwise applicable shall be extended for a period of time equal to the period
of time during which such breach or breaches occurred. The parties intend the
above restrictions on competition to be completely severable and independent,
and any invalidity or unenforceability of any one or more of such restrictions
shall not render invalid or unenforceable any one or more of the other
restrictions.
(b) The provisions of SECTION 5(A) shall be limited in scope and
effective only within the following geographical areas:
(i) The Cities of Richmond and Charlottesville, Virginia
and New York, New York;
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<PAGE> 43
(ii) Henrico, Hanover, Chesterfield and Albermarle
Counties, Virginia and New York City and each county
immediately adjacent thereto; and
(iii) Henrico, Hanover, Chesterfield and Albermarle
Counties, Virginia and New York City and a 60- mile
radius outside the boundary limits of each such
territory.
The parties intend the above geographical areas to be completely severable and
independent, and any invalidity or unenforceability of this Agreement with
respect to any one area shall not render this Agreement unenforceable as
applied to any one or more of the other areas.
(c) Employee acknowledges that the PGA Affiliates may have no
adequate means to protect their rights under this SECTION 5 other than by
securing an injunction (a court order prohibiting Employee from violating this
Agreement). Employee agrees that any PGA Affiliate may enforce this Agreement
by obtaining a preliminary and permanent injunction and any other appropriate
equitable relief in any court of competent jurisdiction. Employee acknowledges
that the recovery of damages will not be an adequate means to redress a breach
of this Agreement, but nothing in this SECTION 5 shall prohibit any PGA
Affiliate from pursuing any remedies in addition to injunctive relief,
including recovery of damages.
(d) Employee acknowledges and agrees that PGA would not agree to
consummate the transactions under the Asset Purchase Agreement or enter into
this Agreement in the absence of the covenants made by Employee in this SECTION
5, and that such agreements by PGA and the other PGA Affiliates constitute
adequate and sufficient consideration for the covenants made by Employee in
this SECTION 5 and in the remainder of this Agreement.
(e) Employee's obligations under this SECTION 5 shall survive any
termination of this Agreement.
6. CONFIDENTIALITY. Employee shall not, at any time, use
(other than in the ordinary course of fulfilling her duties as an employee of
StaffPlus or PGA), divulge or otherwise disclose, directly or indirectly, any
confidential and proprietary information (including without limitation any
customer or prospect list, supplier list, data, records or financial
information which is not generally known to the public) concerning the
business, policies or operations of the PGA Affiliates which Employee may have
learned on or prior to the date hereof or during the term of Employee's
employment by StaffPlus or PGA (as an employee, consultant, shareholder,
officer, controlling person, agent or otherwise). Employee's obligations under
this SECTION 6 shall survive any termination of this Agreement.
7. TERMINATION.
(a) Notwithstanding anything to the contrary contained herein,
this Agreement, may be terminated by StaffPlus or PGA prior to the end of its
term, as follows:
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<PAGE> 44
(i) due to the death of Employee;
(ii) due to a disability which prevents Employee from
performing her full duties for a period of ninety (90) consecutive
days at anytime during the term of this Agreement; or
(iii) for cause, which is defined as the occurrence of: (A)
gross neglect, malfeasance or gross insubordination regarding the
duties, responsibilities and limitations of Employee under this
Agreement; (B) a substantiated act of theft; (C) conviction for a
felony; (D) any act of dishonesty or malicious action by Employee
which is detrimental to any PGA Affiliate; (E) a material violation of
the provisions of SECTION 5 or 6 hereof; or (F) poor performance
(provided that poor performance shall be deemed to constitute cause
only after (x) a finding by StaffPlus' Board of Directors of poor
performance on the part of Employee and (y) the failure to remedy such
performance to the Board's satisfaction for 30 days after delivery of
written notice (reasonably describing the poor performance) to
Employee of the Board's finding.
In the event of early termination of this Agreement as permitted
herein, Employee shall be entitled only to her base salary earned
through the date of termination.
(b) This Agreement shall terminate by its own terms if the
transactions described in the Asset Purchase Agreement do not close.
8. NOTICE. Any notice to be given hereunder by either party to
the other may be effectuated either by personal delivery in writing or by mail,
registered or certified, postage prepaid, with return receipt requested.
Mailed notices shall be addressed to the parties at the following addresses:
If to any PGA Affiliate: 6302 Fairview Road, Suite 201
Charlotte, North Carolina 28210 Attn:
Mr. Edward P. Drudge, Jr.,
Chief Executive Officer
If to Employee: 5821 Harbor Hill Place
Midlothian, Virginia 23112
or such other addresses as either a PGA Affiliate or Employee may designate by
written notice to each other. Notices delivered personally shall be deemed
duly given on the date of actual receipt; mailed notices shall be deemed duly
given as of the fourth day after the date so mailed.
9. ATTORNEY'S FEES. If any party shall bring an action to
enforce this Agreement, the prevailing party shall be entitled to recover
her/its reasonable attorneys' fees and costs from the unsuccessful party.
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<PAGE> 45
10. WAIVER OF BREACH. The waiver by any party to a breach of any
provision in this Agreement cannot operate or be construed as a waiver of any
subsequent breach by a party.
11. SEVERABILITY. The invalidity or unenforceability of any
particular provision in this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if the invalid
or unenforceable provision were omitted.
12. ENTIRE AGREEMENT. Except as otherwise provided herein, this
Agreement covers the entire understanding of the parties as to the employment
of Employee, superseding all prior understandings and agreements, and no
modifications or amendments of the terms and conditions herein shall be
effective unless in writing and signed by the parties or their respective duly
authorized agents.
13. GOVERNING LAW. This Agreement shall be interpreted,
construed and governed according to the laws of the State of North Carolina,
without reference to conflicts of law principles thereof.
14. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their permitted successors,
assigns, legal representatives and heirs, but neither this Agreement nor any
rights hereunder shall be assignable by Employee.
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<PAGE> 46
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
PERSONNEL GROUP OF AMERICA, INC.
By:________________________________
Title:
_____________________________
STAFFPLUS, INC.
By:________________________________
Title:
_____________________________
___________________________________
(SEAL) Sue Durnwirth
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<PAGE> 47
EXHIBIT D
NONCOMPETITION AGREEMENT
(Judith Fox)
This Noncompetition Agreement (this "Agreement), dated May ___, 1996,
is between PERSONNEL GROUP OF AMERICA, INC., a Delaware corporation ("PGA"),
STAFFPLUS, INC., a Delaware corporation and wholly owned subsidiary of PGA (the
"BUYER"), and JUDITH FOX ("FOX").
WHEREAS, as of the date hereof the Buyer has purchased substantially
all of the assets of Judith Fox Companies, Inc., Fox Technical, Inc., and
Judith Fox Training for Growth, L.C. (collectively, the "SELLERS") pursuant to
the terms of an Asset Purchase Agreement (the "ASSET PURCHASE AGREEMENT"),
dated as of May ___, 1996, between Sellers, Fox, Buyer and PGA;
WHEREAS, Fox is the sole owner of each of the corporate Sellers and a
principal owner of Judith Fox Training for Growth, L.C.; and
WHEREAS, as a condition to consummating the transactions contemplated
by the Asset Purchase Agreement, PGA has required that Fox enter into this
Agreement. To induce PGA to consummate such transactions, Fox has agreed to
enter into this Agreement.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. NONCOMPETITION BY FOX.
(a) Fox agrees that for a period of four (4) years after the date
hereof, without PGA's or the Buyer's prior written consent, she will not,
directly or indirectly, either as principal, agent, manager, employee, partner,
shareholder, director, officer, consultant or otherwise, (A) become engaged or
involved in any business (other than as a less than 5% equity owner of any
corporation traded on any national, international or regional stock exchange or
in the over-the-counter market), that competes with PGA, the Buyer or any
person or entity that controls, is controlled by or is under common control
with PGA and the Buyer (hereinafter, "PGA'S "AFFILIATES") in the business of
providing temporary or permanent staffing services or employee training
services; or (B) induce or attempt to induce any customer, supplier or employee
of the Buyer, PGA or any of PGA's Affiliates to reduce, terminate, restrict or
otherwise alter its business relationship with the Buyer, PGA or any of PGA's
Affiliates. If any provision or part of this SECTION 1 is held to be
unenforceable because of the duration of such provision or the area covered
thereby, the parties hereto agree to modify such provision, or that the court
making such determination shall have the power to modify such provision, to
reduce the duration or area of such provision or both, or
<PAGE> 48
to delete specific words or phrases herefrom ("blue-penciling") and, in its
reduced or blue-penciled form, such provision shall then be enforceable and
shall be enforced. If Fox violates any of the restrictive covenants set forth
in this SECTION 1, then the time limitation otherwise applicable shall be
extended for a period of time equal to the period of time during which such
breach or breaches occurred. The parties intend the above restrictions on
competition to be completely severable and independent, and any invalidity or
unenforceability of any one or more of such restrictions shall not render
invalid or unenforceable any one or more of the other restrictions.
(b) The provisions of SECTION 1(A) shall be limited in scope and
effective only within the following geographical areas:
(i) The Cities of Richmond and Charlottesville, Virginia,
and New York, New York; and
(ii) Henrico, Hanover, Chesterfield and Albemarle
Counties, Virginia, and New York City and each county
immediately adjacent thereto; and
(iii) Henrico, Hanover, Chesterfield and Albemarle
Counties, Virginia, and New York City and each county
immediately adjacent thereto, and a 20-mile radius
outside the boundary limits of each such territory.
The parties intend the above geographical areas to be completely severable and
independent, and any invalidity or unenforceability of this Agreement with
respect to any one area shall not render this Agreement unenforceable as
applied to any one or more of the other areas.
(c) Fox acknowledges that PGA and the Buyer may have no adequate
means to protect their rights under this SECTION 1 other than by securing an
injunction (a court order prohibiting Fox from violating this Agreement). Fox
agrees that PGA and the Buyer may enforce this Agreement by obtaining a
preliminary and permanent injunction and any other appropriate equitable relief
in any court of competent jurisdiction. Fox acknowledges that the recovery of
damages will not be an adequate means to redress a breach of this Agreement,
but nothing in this SECTION 1 shall prohibit PGA and the Buyer from pursuing
any remedies in addition to injunctive relief, including recovery of damages.
(d) Fox acknowledges and agrees that PGA would not agree to
consummate the transactions under the Asset Purchase Agreement or enter into
this Agreement in the absence of the covenants made by Fox in this SECTION 1,
and that such agreements by PGA constitute adequate and sufficient
consideration for the covenants made by Fox in this SECTION 1 and in the
remainder of this Agreement.
2. NOTICE. Any notice to be given hereunder by either party to
the other may be effectuated either by personal delivery in writing or by mail,
registered or certified, postage prepaid, with return receipt requested.
Mailed notices shall be addressed to the parties at the following addresses:
-2-
<PAGE> 49
If to PGA or Buyer: 6302 Fairview Road, Suite 201
Charlotte, North Carolina 28210
Mr. Edward P. Drudge, Jr.,
Chief Executive Officer
With a copy to: Robinson, Bradshaw & Hinson, P.A.
101 N. Tryon Street, Suite 1900
Charlotte, North Carolina 28246
ATTENTION: Kenneth R. Bramlett
If to Fox: 4098 Wood Lane
Keswick, Virginia 22947
With a copy to: LeClair Ryan
707 E. Main Street, 11th Floor
Richmond, Virginia 23219
ATTENTION: Steven J. Keeler
or such other addresses as either PGA, the Buyer or Fox may designate by
written notice to each other. Notices delivered personally shall be deemed
duly given on the date of actual receipt; mailed notices shall be deemed duly
given as of the fourth date after the date so mailed.
3. ATTORNEY'S FEES. If any party shall bring an action to
enforce this Agreement, the prevailing party shall be entitled to recover its
reasonable attorney's fees and costs from the unsuccessful party.
4. WAIVER OF BREACH. The waiver by any party to a breach of any
provision in this Agreement cannot operate or be construed as a waiver of any
subsequent breach by a party.
5. SEVERABILITY. The invalidity or unenforceability of any
particular provision in this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if the invalid
or unenforceable provision were omitted.
6. AMENDMENTS. No modifications or amendment of this terms and
conditions shall be effective unless in writing and signed by the parties or
their duly authorized agents.
7. GOVERNING LAW. This Agreement shall be interpreted,
construed and governed according to the laws of the State of North Carolina,
without reference to conflicts of law principles thereof.
8. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their permitted successors,
assigns, legal representatives and heirs. Fox agrees that this Agreement may
be assigned by PGA and the
-3-
<PAGE> 50
Buyer upon the transfer or reorganization of the Buyer, and may be enforced by
any such assignee company. Such assignment shall be in writing and shall not
relieve PGA of its obligations hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
PERSONNEL GROUP OF AMERICA, INC.
By:_______________________________
Title:
_____________________________
STAFFPLUS, INC.
By:_______________________________
Title:
_____________________________
__________________________________(SEAL)
Judith Fox
-4-
<PAGE> 51
EXHIBIT E
FORM OF
UNSECURED PROMISSORY NOTE
[$1,000,000]
May 20, 1996
Charlotte, North Carolina
FOR VALUE RECEIVED, STAFFPLUS, INC., a Delaware corporation (the
"Buyer"), and PERSONNEL GROUP OF AMERICA, INC., a Delaware corporation ("PGA")
hereby jointly and severally promise to pay to the order of
JUDITH FOX COMPANIES, INC., a Virginia corporation (the "Seller"), at
4098 Wood Lane, Keswick, Virginia 22947 (or at such other place as Seller may
designate), or to the holder hereof the principal sum of up to
___________________ ($_________), or such lesser or greater amount as
may constitute the unpaid principal amount due from the Buyer to the Seller
under the terms of that certain Asset Purchase Agreement dated May 10, 1996, by
and among the Buyer, PGA, the Seller, the other Sellers identified therein and
Judith Fox (the "Asset Purchase Agreement"), under the terms and conditions of
this promissory note (this "Note") in lawful money of the United States of
America in immediately available funds, without interest, on August 19, 1996.
This Note is issued and delivered to evidence the obligation of Buyer
referenced in SECTION 2.3(B) of the Asset Purchase Agreement. All of the
terms, conditions and covenants of the Asset Purchase Agreement are expressly
made a part of this Note by reference in the same manner and with the same
effect as if set forth herein at length.
This Note shall be governed by and construed in accordance with the
internal laws and judicial decisions of the State of North Carolina.
IN WITNESS WHEREOF, the Buyer and PGA have caused this Note to be
executed under seal by their duly authorized corporate officers as of the day
and year first above written.
STAFFPLUS, INC.
By:__________________________________
Name:_____________________________
Title:____________________________
PERSONNEL GROUP OF AMERICA, INC.
By:__________________________________
Name:_____________________________
Title:____________________________
<PAGE> 52
EXHIBIT F
[Letterhead of LeClair Ryan]
[Date]
Boards of Directors
Personnel Group of America, Inc.
StaffPLUS, Inc.
Ladies and Gentlemen:
We have acted as special counsel for Judith Fox Companies, Inc., a
Virginia corporation, Fox Technical, Inc., a Virginia corporation and Judith
Fox Training for Growth, L.C., a Virginia limited liability company (each a
"Seller" and, collectively, the "Sellers") and Judith Fox ("Fox"), in
connection with the Asset Purchase Agreement dated as of May 10, 1996, by and
among the Sellers, Fox and each of you (the "Asset Purchase Agreement"), which
provides for the acquisition by StaffPLUS, Inc. (the "Buyer") of substantially
all of the assets of the Sellers. Capitalized terms not defined herein have
the meanings given them in the Asset Purchase Agreement, except as otherwise
provided herein. This opinion is furnished to you pursuant to Section 5.1.2 of
the Asset Purchase Agreement.
In connection with our opinions expressed herein, we have participated
in the preparation of the Asset Purchase Agreement, the Bill of Sale, the
Contract Assignment, [the Servicemark Assignment] and the Noncompetition
Agreement (collectively, the "ACQUISITION AGREEMENTS") and the other documents
referred to therein. In addition, we have examined originals or copies of such
corporate and other documents and records and certificates of public officials
as we have deemed necessary or appropriate for the purposes of this opinion.
We have relied as to factual matters on the representations and warranties made
by the Sellers and Fox in the Asset Purchase Agreement and on certificates of
officers of the Sellers and public officials, copies of which certificates have
been provided to you. We have assumed (i) the authority and genuineness of all
signatures of persons (other than Fox in her individual capacity and
representatives of the Sellers) signing the Acquisition Agreements and the
other documents referred to therein, (ii) the legal capacity of all natural
persons who are parties to the Acquisition Agreements and the other documents
referred to therein, (iii) the authenticity of all documents submitted to us as
originals, (iv) the conformity to authentic original documents of all documents
submitted to us as certified, conformed or photostatic copies, and (v) the
correctness and accuracy of all facts set forth in all certificates and reports
identified herein.
<PAGE> 53
Based on the foregoing, and subject to the assumptions, limitations
and qualifications hereinabove and hereinafter set forth, we are of the opinion
that, as of the date of this letter:
1. Each of the Sellers is a corporation or limited liability
company duly organized and validly existing and, based solely
on the certificates of good standing issued by the Virginia
State Corporation Commission on May 6, 1996, in good standing
under the laws of the State of Virginia. Each of the Sellers
has the corporate power and authority to use its corporate
name, to own or lease its properties and to carry on its
business as presently conducted.
2. Each of the Sellers has the requisite corporate power and
authority to execute and deliver the Asset Purchase Agreement
and the other Acquisition Agreements and to consummate the
transactions contemplated thereby. The execution and delivery
of the Asset Purchase Agreement and the other Acquisition
Agreements and the consummation of the transactions
contemplated thereby have been duly and validly authorized by
all requisite corporate action on the part of each of the
Sellers. Each of the Asset Purchase Agreement and the other
Acquisition Agreements has been duly and validly executed and
delivered by each of the Sellers and Fox, as applicable, and
each of the Acquisition Agreements other than the
Noncompetition Agreement constitutes the legal, valid and
binding agreement of each of the Sellers and Fox, as
applicable, enforceable against such parties in accordance
with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar
laws and procedural requirements affecting creditors' rights
and remedies generally and to general principles of equity
(regardless of whether enforceability is considered in an
action at law or a suit in equity).
3. To our knowledge, neither the execution, delivery or
performance by each of the Sellers and Fox, as applicable, of
the Asset Purchase Agreement or the other Acquisition
Agreements nor the consummation by each of the Sellers and Fox
of the transactions contemplated thereby, will (a) conflict
with or result in any breach of any provision of the
certificate of incorporation or bylaws or similar documents of
each of the Sellers, (b) to our knowledge, violate any order,
writ, injunction, decree, statute, rule or regulation
applicable to each of the Sellers or Fox or any of their
assets, or (c) to our knowledge, result in a default or give
rise to the creation of any lien or encumbrance on the assets
of any of the Sellers, with or without notice or lapse of time
or both, under any note, bond, mortgage, indenture, agreement
or other instrument
-2-
<PAGE> 54
or obligation to which any of the Sellers or Fox may be bound,
except for such defaults or rights of termination or such
liens or encumbrances as to which requisite waivers or
consents have been obtained.
4. The Bill of Sale and the Contract Assignment are sufficient to
convey to you all right, title and interest that the Sellers
have in the tangible personal property, accounts receivable
and Assumed Contracts (to the extent any third party consents
to any assignment are obtained) included in the Purchased
Assets and the Assignment Servicemark is sufficient to convey
to you all right, title and interest that the Sellers have in
the servicemarks described therein.
5. To our knowledge, all filings and registrations with,
notifications to, and permits, authorizations, consents and
approvals of, all governmental agencies or authorities and any
other third parties required to permit consummation by [each
of the Sellers] of the transactions contemplated by the Asset
Purchase Agreement have been obtained.
6. To our knowledge, there is no claim, action, suit,
investigation or proceeding which is pending or threatened
against any of the Sellers or Fox or any of their assets
before any court, governmental authority or agency that
questions the validity of the Asset Purchase Agreement or is
not disclosed in the schedules to the Asset Purchase
Agreement.
The foregoing opinions are limited in all respects to the substantive
laws of the United States and the State of Virginia, and we express no opinion
with respect to the laws of any other state or jurisdiction and we assume no
responsibility as to the applicability thereto, or the effect thereon, of the
laws of any other jurisdiction.
Our opinions above are subject to the following qualifications:
a. Where an opinion is limited to or refers to our knowledge, we
have undertaken to inform you of any matters that have come to the attention of
the attorneys in our firm who have devoted substantive attention to the
transactions referred to in this opinion, but we have undertaken no independent
investigation with respect thereto.
b. We express no opinion on the enforceability of any provisions
contained in the Acquisition Agreements which require waivers or amendments to
be made only in writing.
<PAGE> 55
c. We express no opinion as to the enforceability, under certain
circumstances, of contractual provisions respecting: severability; attorneys'
fees, to the extent inconsistent with applicable law; indemnity, to the extent
contrary to public policy; cumulations, non-exclusivity, or availability of
remedies or the enforcement of contractual provisions to the extent contrary to
public policy; provisions that contain a waiver of (i) broadly or vaguely
stated rights, (ii) the benefits of statutory, regulatory, or constitutional
rights, (iii) unknown future defenses, and (iv) rights to damages; provisions
that attempt to change or waive rules of evidence or fix the method or quantum
of proof to be applied in litigation or similar proceedings; non-waiver of
remedies by a failure or delay of exercise; performance requirements, to the
extent such requirements are beyond the control of the performer; choice of law
provisions, forum selection clauses and consent to jurisdiction clauses (both
as to personal jurisdiction and subject matter jurisdiction); restraints on
trade; and usury laws. In addition, we express no opinion as to the
enforceability of contractual provisions or contracts found by a court to be or
have been unconscionable or to constitute violations of public policy or to
result in a wholly unintended level of hardship, nor as to the rights and
remedies of any party who seeks to enforce any rights and remedies other than
in good faith and in a commercially reasonable manner.
This opinion (i) has been rendered solely for your information and
benefit in connection with the Acquisition Agreements and the transactions
contemplated thereby and may not be used, circulated, quoted, relied upon or
otherwise referred to by any other person or for any other purposes without our
prior written consent, (ii) is rendered as of the date hereof, and we undertake
no, and hereby disclaim any, obligation to advise you of any changes or new
developments which might affect any opinions or statements set forth herein,
and (iii) is limited to the matters stated herein and no opinions may be
inferred or implied inferred or implied beyond the matters expressly stated
herein.
Very truly yours,
LECLAIR RYAN,
A Professional Corporation
<PAGE> 56
EXHIBIT G
[Form of Robinson, Bradshaw & Hinson Opinion]
[Date]
Ms. Judith Fox
[Sellers]
Ladies and Gentlemen:
We have acted as special counsel for Personnel Group of America, Inc.,
a Delaware corporation ("PGA") and StaffPLUS, Inc., a Delaware corporation
("BUYER"), in connection with the Asset Purchase Agreement dated as of May __,
1996, between PGA, Buyer and each of you (the "ASSET PURCHASE AGREEMENT"),
which provides for the acquisition by Buyer of substantially all of the assets
of Sellers. Capitalized terms not defined herein have the meanings given them
in the Asset Purchase Agreement. This opinion is furnished to you pursuant to
Section 5.2 of the Asset Purchase Agreement.
We have participated in the preparation of the Asset Purchase
Agreement, the Contract Assignment, the Noncompetition Agreement (collectively,
the "ACQUISITION AGREEMENTS") and the other documents referred to therein. In
addition, we have examined such corporate and other documents and records and
certificates of public officials as we have deemed necessary or appropriate for
the purposes of this opinion. We have relied as to factual matters on the
representations and warranties made by PGA and Buyer in the Asset Purchase
Agreement and on certificates of officers of PGA and Buyer and public
officials, copies of which certificates have been provided to you. We have
assumed (i) the authority and genuineness of all signatures of persons (other
than representatives of PGA and Buyer) signing the Acquisition Agreements and
the other documents referred to therein, (ii) the legal capacity of all natural
persons who are parties to the Acquisition Agreements and the other documents
referred to therein, (iii) the authenticity of all documents submitted to us as
originals, and (iv) the conformity to authentic original documents of all
documents submitted to us as certified, conformed or photostatic copies.
Based on the foregoing, and subject to the assumptions and
qualifications hereinafter set forth, it is our opinion that:
1. Each of PGA and Buyer is a corporation duly organized and
validly existing and, based solely on the certificate of good
standing issued by the Delaware Secretary of State on
_________________, 1996, is in good standing under the laws of
the State of Delaware.
2. Each of PGA and Buyer has the requisite corporate power and
authority to execute and deliver the Asset Purchase Agreement
and the other Acquisition Agreements and to consummate the
transactions contemplated thereby. The execution and delivery
of the Asset Purchase Agreement
<PAGE> 57
and the other Acquisition Agreements and the consummation of
the transactions contemplated thereby have been duly and
validly authorized by all requisite corporate action on the
part of PGA and Buyer. Each of the Asset Purchase Agreement
and the other Acquisition Agreements has been duly and validly
executed and delivered by PGA or Buyer, as applicable, and
constitutes the legal, valid and binding agreement of PGA or
Buyer, as applicable, enforceable against such corporation in
accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium
and similar laws affecting creditors' rights and remedies
generally and to general principles of equity.
3. Neither the execution, delivery or performance by PGA or
Buyer, as applicable, of the Asset Purchase Agreement or the
other Acquisition Agreements nor the consummation by PGA and
Buyer of the transactions contemplated thereby, will conflict
with or result in any breach of any provision of the
certificate of incorporation or bylaws of PGA or Buyer, or
violate any order, writ, injunction, decree, statute, rule or
regulation applicable to PGA or Buyer or any of their assets.
4. All filings and registrations with, notifications to, and
permits, authorizations, consents and approvals of, all
governmental agencies or authorities and any other third
parties required to permit consummation by PGA and Buyer of
the transactions contemplated by the Asset Purchase Agreement
have been obtained; provided however, that upon the closing of
the transactions contemplated under the Asset Purchase
Agreement, PGA may file reports with the United States
Securities and Exchange Commission disclosing the
transactions.
5. To our knowledge, there is no claim, action, suit,
investigation or proceeding which is pending or threatened
against PGA or Buyer or any of their assets before any court,
governmental authority or agency that questions the validity
of the Asset Purchase Agreement.
The foregoing opinions are limited to the laws of the United States
and the State of North Carolina and to the provisions of the Delaware General
Corporation Law, and we express no opinion with respect to the laws of any
other state or jurisdiction.
Our opinions above are subject to the following qualifications:
a. Where an opinion is limited to or refers to our knowledge, we
have undertaken to inform you of any matters that have come to the attention of
the attorneys in our firm who have devoted substantive attention to the
transactions referred to in
<PAGE> 58
this opinion, but we have undertaken no independent investigation with respect
thereto.
b. We express no opinion on the enforceability of any provisions
contained in the Acquisition Agreements which require waivers or amendments to
be made only in writing.
c. We do not express an opinion as to the strict enforceability
of each and every right, remedy and power contained in the Acquisition
Agreements in accordance with their terms under all facts and circumstances.
However, it is our opinion that the remedies and provisions contained in the
Acquisition Agreements are sufficient as a whole, subject to the qualifications
elsewhere herein stated, for the practical realization of the essential
benefits intended thereby.
This opinion has been rendered solely for your benefit in connection
with the Acquisition Agreements and the transactions contemplated thereby and
may not be used, circulated, quoted, relied upon or otherwise referred to for
any other purposes without our prior written consent.
Very truly yours,
ROBINSON, BRADSHAW & HINSON, P.A.
<PAGE> 59
Schedule 2.1
ASSUMED CONTRACTS
1. Lease Agreement dated July 31, 1987 originally between Fox-Huber
Companies, Inc. as Tenant and Glen Forest Professional Center
Associates Landlord for space in Richmond, Virginia (as modified by
the Fourth Lease Amendment dated February 6, 1996, and all riders and
exhibits thereto including Dollar Allowance Work Letter Agreements and
Turn-Key Work Letter Agreement. Copies previously provided to Buyer.)
2. Lease Agreement dated September 17, 1992 between Judith Fox Companies,
Inc. as Lessee and Koger Management, Inc. as Manager for space in
Richmond, Virginia (Copy previously provided to Buyer.)*
3. Lease Agreement dated February 19, 1991 between Judith Fox Companies,
Inc. as Tenant and 1790 Broadway Associates as Owner for space in the
City of New York (including all riders, and as modified by Lease
Extension Agreement dated April 1, 1996. Copies previously provided to
Buyer.)*
4. Lease Agreement dated August 2, 1994 between Judith Fox Companies,
Inc. as Lessee and Ventures Unlimited as Lessor for space in
Charlottesville, Virginia (Copy previously provided to Buyer)*
5. Business Equipment Efficiency Agreement dated January 17, 1996 between
Judith Fox Companies, Inc. and Business Equipment Center of Virginia
(Copy previously provided to Buyer.)
6. Agreement to Furnish Horticultural Services dated March 15, 1995
between Buckingham Greenery, Inc. and Judith Fox Companies, Inc. (Copy
previously provided to Buyer.)
7. Maintenance Agreement effective November 30, 1995 between Rosemary
Scott Temporaries and Minolta Copier Corp. of N.Y., Inc. (Copy
previously provided to Buyer.)
8. Equipment Lease dated December 9, 1991 between Judith Fox Companies,
Inc. and Pitney Bowes Inc. (Copy previously provided to Buyer.)*
9. Maintenance Contract renewed effective July 28, 1995 between Judith
Fox Temporaries and Street and Co. (Copy previously provided to Buyer.)
10. Maintenance Agreement effective July 24, 1995 between Judith Fox
Companies and The Supply Room Companies, Inc. (Copy previously
provided to Buyer.)
11. Maintenance Agreement effective December 1, 1995 between Judith Fox
Companies, Inc. and The Supply Room Companies, Inc. (Copy previously
provided to Buyer.)
12. Maintenance Agreement effective January 10, 1996 between Rosemary
Scott Temps and Sigmatek, Inc. (Copy previously provided to Buyer.)*
13. Rental Agreement executed November 23, 1992 between Storage-USA, Inc.
and Judith Fox Companies, Inc. (Copy previously provided to Buyer.)*
14. Master Hardware Service Agreement dated July 5, 1991 between
Caldwell-Spartin Service, Inc. and Judith Fox Companies, Inc. (Copy
previously provided to Buyer.)*
15. Master Sales/Licensing Agreement dated July 5, 1991 between
Caldwell-Spartin Service, Inc. and Judith Fox Companies, Inc. (Copy
previously provided to Buyer.)*
<PAGE> 60
16. Master Software Service Agreement dated July 5, 1991 between
Caldwel-Spartin Service, Inc. and Judith Fox Companies, Inc. (Copy
previously provided to Buyer.)*
17. Employment Agreements for the 44 employees listed (copy attached), each
substantially in the form of the Employment Agreement and Restrictive
Covenant between Judith Fox Companies, Inc. and Susan A. Durnwirth
(Copy previously provided by Buyer.)
18. Maintenance Agreement between Copy Systems, Inc. and Judith Fox
Temporaries. (Copy of original one-year contract previously provided to
Buyer; no new written agreement provided)
19. Maintenance Agreement dated April 11, 1995 between Specialty Office
Equipment and Judith Fox Companies. (Copy of original contract
previously provided to Buyer.)
20. Safe Deposit Box Rental Agreement between United Security Vaults and
Judith Fox Companies, Inc., effective through December, 1996*
21. Any and all contracts listed on Schedule 3.1.4.
22. Any and all contracts listed on Schedule 3.1.15.
23. Any and all contracts listed on Schedule 3.1.17.
CONSENT TO ASSIGNMENT IS REQUIRED BUT
SUCH CONSENT HAS BEEN WAIVED AS A
CONDITION TO BUYER'S AND PGA'S
OBLIGATION TO CLOSE.
<PAGE> 61
Schedule 2.2
EXCLUDED ASSETS
[see Attached]
<PAGE> 62
2.2(a) Cash and cash equivalents as follows:
<TABLE>
<CAPTION>
Description Bank A/C# G/L A/C# G/L Amount
<S> <C> <C> <C> <C>
Judith Fox Companies, Inc.:
Crestar - Master account 201147599 1060-00-0000
Crestar - Temp payroll 201147610 1062-00-0000
Crestar - Staff payroll 201149095 1063-00-0000
Crestar - RST Disbursements 201149281 1061-00-0000
Crestar - JFT Disbursements 201149338 1061-00-0000
Rosemary Scott Temps (branch)
Chemical Bank - Temp payroll 1050-00-0000
Fox Technical, Inc.:
Signet Bank - Master account 5530462299 1050-00-0000
Signet Bank - Disbursements 5530462299 1051-00-0000
Signet Bank - Temp payroll 5530462299 1052-00-0000
Signet Bank - Staff payroll 5530462299 1053-00-0000
Judith Fox Training For Growth, L.C.:
Jefferson Nat'l Bank - Master 1060-00-0000
Jefferson Nat'l Bank - Disbursements 1061-00-0000
Jefferson Nat'l Bank - Temp payroll 1062-00-0000
Jefferson Nat'l Bank - Staff payroll 1O63-00-0000
----------------
Total Cash Balances 0
Less amount to satisfy total asset deficiency
----------------
Net excluded cash and cash equivalents 0
================
2.2(b) All contracts not assumed as follows: all insurance policies listed on
Schedule 3.1.4
2.2(c) The corporate seals, certificates of incorporation . . . or other records having
to do with the corporate organization of Sellers;
2.2(d) Any rights of Sellers . . . or after the date of this Agreement;
2.2(e) The rights of any of Sellers' . . . or carry backs;
</TABLE>
<PAGE> 63
2.2(f) Intercompany Receivables as follows:
<TABLE>
<CAPTION>
Description G/L A/C# G/L Amount
----------- -------- ----------
<S> <C> <C> <C>
Judith Fox Companies, Inc.:
Due from Training For Growth 1183-00-0000
Rosemary Scott Temps (branch)
Due from Judith Fox Temps 2300-00-0000
Fox Technical, Inc.:
Due from Training For Growth 2165-00-0000
</TABLE>
2.2(g) Other assets as follows:
<TABLE>
<CAPTION>
Description G/L A/C# G/L Amount
----------- -------- ----------
<S> <C> <C>
Judith Fox Companies, Inc.:
Prepaid Insurance 1550-00-0000
Fixed assets as follows:
Judith's 1993 Lexus Id. 1250-00-0000
Judith's Gateway 2000 PC Ser # 4526123 1210-00-0000
Judith's Bocca Modem Ser # FSR 51623 1210-00-0000
Judith's Multi-Function Fax/Copier 1210-00-0000
Serial # J53327485
Judith's IBM Laptop 486 Serial # 23C6473 1210-00-0000
Rosemary Scott Temps (branch)
Prepaid Insurance 1550-00-0000
Fox Technical, Inc.:
Prepaid Insurance 1550-00-0000
Organizational Expenses 1616-00-0000
Amort of Organizational Expenses 1617-00-0000
Judith Fox Training For Growth, L.C.:
Prepaid Insurance 1550-00-0000
Organizational Expenses 1616-00-0000
Amort of Organizational Expenses 1617-00-0000
</TABLE>
2.2(h) rights relating to "On The Job" radio program:
-2-
<PAGE> 64
Schedule 2.7
OTHER LIABILITIES ASSUMED BY BUYER
[see Attached]
<PAGE> 65
<TABLE>
<CAPTION>
Description G/L A/C# G/L Amount
----------- -------- ----------
<S> <C> <C> <C>
2.7(a) Assumed as part of assumed contracts:
Rosemary Scott Temps (branch)
Reserve For Discounts 1102-00-0000
2.7(b) Trade payables and normal operating accruals:
Judith Fox Companies, Inc.:
Accounts payable trade 2000-00-0000
Accrued accounts payable 2100-00-0000
Accrued payroll 2110-00-0000
Accrued payroll taxes 2110-00-0000
Federal withholdings 2400-00-0000
Fica withholdings 2410-00-0000
State withholdings 2420-00-0000
Disability withholdings 2450-00-0000
Garnishment withholdings 2460-00-0000
Section 126 withholdings 2480-00-0000
Other withholdings 2490-00-0000
Rosemary Scott Temps (branch)
Accounts payable trade 2000-00-0000
Accrued accounts payable 2100-00-0000
Accrued payroll 2110-00-0000
Accrued payroll taxes 2120-00-0000
Federal withholdings 2400-00-0000
Fica withholdings 2410-00-0000
State withholdings 2420-00-0000
City withholdings 2430-00-0000
Disability withholdings 2440-00-0000
Garnishment withholdings 2460-00-0000
Section 125 withholdings 2480-00-0000
Other withholdings 2490-00-0000
Fox Technical, Inc.
Accounts payable trade 2000-00-0000
Accrued accounts payable 2100-00-0000
Accrued payroll 2110-00-0000
Accrued payroll taxes 2120-00-0000
Federal withholdings 2400-00-0000
Fica withholdings 2410-00-0000
State withholdings 2420-00-0000
Garnishment withholdings 2460-00-0000
Section 125 withholdings 2480-00-0000
Other withholdings 2490-00-0000
</TABLE>
<PAGE> 66
<TABLE>
<S> <C>
Judith Fox Training For Growth, L.C.:
Accounts payable trade 2000-00-0000
Accrued accounts payable 2100-00-0000
Accrued payroll 2110-00-0000
Accrued payroll taxes 2120-00-0000
Federal withholdings 2400-00-0000
Fica withholdings 2410-00-0000
State withholdings 2420-00-0000
Garnishment withholdings 2460-00-0000
Section 125 withholdings 2480-00-0000
Other withholdings 2490-00-0000
------------
Total Assumed Liabilities 0
============
</TABLE>
-2-
<PAGE> 67
Schedule 3.1.1
STATES OF INCORPORATION/QUALIFICATION
<TABLE>
<CAPTION>
Entity State of Incorporation/Organization States of Qualification
<S> <C> <C> <C>
1. Judith Fox Companies, Inc. Virginia Virginia, New York
2. Fox Technical, Inc. Virginia Virginia
3. Judith Fox Training for Virginia Virginia
Growth, L.C.
</TABLE>
<PAGE> 68
Schedule 3.1.3
SELLERS' CONSENTS*
1. Lease Agreement dated September 17, 1992 between Judith Fox Companies,
Inc. as Lessee and Koger Management, Inc. as Manager for space in
Richmond, Virginia
2. Lease Agreement dated February 19, 1991 between Judith Fox Companies,
Inc. as Tenant and 1790 Broadway Associates as Owner for space in the
City of New York
3. Lease Agreement dated August 2, 1994 between Judith Fox Companies,
Inc. as Lessee and Ventures Unlimited as Lessor for space in
Charlottesville, Virginia
4. Equipment Lease dated December 9, 1991 between Judith Fox Companies,
Inc. and Pitney Bowes Inc.
5. Maintenance Agreement effective January 10, 1996 between Rosemary
Scott Temps and Sigmatek, Inc.
6. Rental Agreement executed November 23, 1992 between Storage-USA, Inc.
and Judith Fox Companies, Inc.
7. Master Hardware Service Agreement dated July 5, 1991 between
Caldwell-Spartin Service, Inc. and Judith Fox Companies, Inc.
8. Master Sales/Licensing Agreement dated July 5, 1991 between
Caldwell-Spartin Service, Inc. and Judith Fox Companies, Inc.
9. Master Software Service Agreement dated July 5, 1991 between
Caldwell-Spartin Service, Inc. and Judith Fox Companies, Inc.
10. Safe Deposit Box Rental Agreement between United Security Vaults and
Judith Fox Companies, Inc., effective through December, 1996
* Consent to assignment is required but such consent has been
waived as a condition to Buyer's and PGA's obligation to close.
<PAGE> 69
LEASE EXTENSION AGREEMENT
AGREEMENT made this first day of April 1996 by and between 1790
BROADWAY ASSOCIATES, as Landlord, and JUDITH FOX COMPANIES, INC., as Tenant.
IT IS MUTUALLY COVENANTED AND AGREED by and between the parties hereto
that the lease made by and between 1790 Broadway Associates, as Landlord, and
Judith Fox Companies, Inc., as Tenant, under date of February 19, 1991, for
that portion of the seventh (7th) floor known as Rooms 701-702 in the building
known as 1790 Broadway, New York, New York, shall be and hereby is extended
from May 1, 1996 to April 30, 1999 at a yearly rental of
FIFTY ONE THOUSAND SEVEN HUNDRED THIRTY THREE DOLLARS AND 20/00 CENTS
($51,733.20)
so that the date of expiration is modified and amended to be April 30, 1999, as
though the said date were the original date of expiration mentioned in said
lease and the parties hereto agree to be bound by the same terms, covenants,
conditions, provisions, rules and regulations embodied at length in said lease,
except as specifically modified herein. The said lease shall form a part
hereof as though included fully at length herein and forms a part hereof by
reference thereto.
IT IS FURTHER COVENANTED AND AGREED that the Landlord is not to make
any repairs or decorations to the premises mentioned in said Lease, except as
specifically mentioned in this Lease Extension Agreement and in the Rider
attached hereto and forming a part hereof.
IN WITNESS WHEREOF, and intending to be bound thereby, the parties
hereto have executed this instrument as of the day and year first above
written.
WITNESS: 1790 BROADWAY ASSOCIATES
By: 1790 Broadway Corp., General Partner
_________________________ By: ____________________________________
Its:
JUDITH FOX COMPANIES, INC.
_________________________ By: ____________________________________
Its:
<PAGE> 70
RIDER ATTACHED TO AND FORMING PART
OF LEASE EXTENSION AGREEMENT BY AND BETWEEN
1790 BROADWAY ASSOCIATES, AS OWNER,
AND JUDITH FOX COMPANIES, INC., AS TENANT
It is hereby agreed by and between Owner and Tenant that the following
amendments to the Lease dated February 19, 1991, by and between Owner and
Tenant shall be incorporated into and form a part of this Lease Extension
Agreement dated as of April 1, 1996. If and to the extent that any of the
provisions of this Rider conflict or are otherwise inconsistent with any of the
preceding provisions of the Lease Extension Agreement or of the Lease, whether
or not such inconsistency is expressly noted in this Rider, the provisions of
this Rider shall prevail.
1. REAL ESTATE TAX ESCALATION.
Article 39 A (2) shall read:
(2) "Base Year Taxes" shall mean the Real Estate Taxes as finally
determined for the tax fiscal year July 1, 1995 through June 30, 1996 ("Base
Year").
2. EXPENSE ESCALATION.
Article 40 A (2) shall read:
(2) "Base Rate" shall mean the rate in effect in 1996.
3. RENT ESCALATION - UTILITY INCREASE.
Articles 41 A (4) and (5) shall read:
(4) "Base Year" shall mean the twelve (12) month period ending on
the last day of December, 1996.
(5) "Comparison Year" shall mean the twelve (12) month period
commencing on January 1, 1997 and each successive twelve (12) month period in
which occurs any part of the term of this lease.
4. AS IS: OWNER'S CONSTRUCTION.
Article 51 shall be amended to read:
A. Save as hereinafter set forth, Tenant acknowledged that it has
inspected the demised premises and Tenant agrees to accept the demised premises
in their "AS IS" physical condition and acknowledges that Owner shall not be
obligated to make any improvements or alterations to the demised premises
whatsoever.
B. Owner shall, at Owner's sole cost and expense, repaint the
demised premises to building standard. Owner shall, at Owner's sole cost and
expense, clean the entire carpeted area of the demised premises, including
carpet re-gluing where necessary.
C. Tenant acknowledges that Tenant is presently in possession of
the demised premises pursuant to the Lease, as amended and hereby extended.
Tenant further acknowledges that the work specified in subparagraph B hereof
shall be carried out at the same time as Tenant is in occupancy of the demised
premises and Tenant agrees that Tenant will co-operate fully with Owner and
with Owner's contractors or other labor in performing said work, and that there
shall be no abatement of rent or other allowance to Tenant for diminution in
rental value and no liability on the part of Owner by reason of inconvenience,
annoyance or injury to business arising from said work.
<PAGE> 71
5. NO BROKER.
Tenant covenants, represents and warrants that Tenant has had no
dealings or communications with any broker or agent in connection with the
consummation of this Lease Extension Agreement and Tenant covenants and agrees
to pay, hold harmless and indemnify Landlord from and against any and all cost,
expense (including reasonable attorneys' fees) or liability for any
compensation, commissions or charges claimed by any broker or agent with
respect to this Lease Extension Agreement or the negotiation thereof.
6. LEASE IN FULL FORCE AND EFFECT.
Except as modified by this Lease Extension Agreement, the Lease, all
prior amendments of the Lease and all covenants, agreements, terms and
conditions thereof shall remain in full force and effect.
IN WITNESS WHEREOF, and intending to be bound thereby, the parties
hereto have executed this instrument as of the day and year first above
written.
WITNESS: 1790 BROADWAY ASSOCIATES
By: 1790 Broadway Corp., General Partner
______________________ By: __________________________________
Its:
JUDITH FOX COMPANIES, INC.
______________________ By: __________________________________
Its:
-2-
<PAGE> 72
Schedule 3.1.4
INSURANCE
<TABLE>
<CAPTION>
TERM
COMPANY/DESCRIPTION LIMIT POLICY # FROM/TO
- ------------------- ----- -------- -------
<S> <C> <C> <C>
JUDITH FOX COMPANIES, INC.
Safeco:
S. Durnwirth - keyman life $ 200,000 AA0677253 8/25/95-8/25/96
W. Sippel - keyman life $ 150,000 AA0677252 8/28/95-8/28/96
First Colony:
W. Devlin - keyman life $ 150,000 1,863,255 7/15/95-7/15/96
K. Wimbish - keyman life $ 200,000 2,205,607 7/20/95-7/20/96
K. Wimbish - Life (company paid personal policy) 2216691 7/20/95-7/20/96
Paul Revere Insurance:
S. Durnwirth - LTD (company paid personal policy) 10236684603 8/15/95-9/15/96
Judith Fox - LTD (company paid personal policy) 10217905903 9/15/95-9/15/96
K. Wimbish - LTD (company paid personal policy) 10267369803 9/15/95-9/15/96
EVLICO:
K. Wimbish - Life (company paid personal policy) 44 239 033 7/06/95-7/06/96
S. Durnwirth - Life (company paid personal policy) 44 242 359 7/06/94-7/06/95
Commercial Union:
Auto policy - 1993 LEXUS LS400 SEDAN $1,000,000 CXAH12241 1/01/96-1/01/97
Granite State Insurance:
Virginia workers comp $1,000,000 WC 334-54-48 1/05/96-1/05/97
Continental Insurance Company:
Crime policy $1,000,000 BNP0024324 1/01/96-1/01/97
Commercial Union insurance:
General Liability: AZR488900 1/01/96-1/01/97
General Aggregate $2,000,000
Products $2,000,000
Personal and Advertising $1,000,000
Each Occurrence $1,000,000
Commercial Union Insurance:
Umbrella: PZDZ48220 1/01/96-1/01/97
General Aggregate $2,000,000
Products $2,000,000
Bodily Injury $2,000,000
Each Occurrence $1,000,000
Employment agency bond 66013002943781 9/28/95-9/28/96
Aetna:
Fiduciary Responsibility (Profit Sharing Plan) $ 500,000 058FF100882032 6/01/95-6/01/98
National Union Fire Insurance:
Errors and Omissions $1,000,000 1941232 6/18/95-6/18/96
</TABLE>
<PAGE> 73
<TABLE>
<S> <C> <C> <C>
ROSEMARY SCOTT (branch)
The State Insurance Fund:
New York workers comp N.Y. State 959601-6 12/14/95-12/14/96
Required Limit
ITT Hartford:
Virginia workers comp $ 500,00 77WZ GR 6593 7/21/95-7/21/96
Penn-American Insurance Company:
General Liability: PAC 1030665 8/03/95-8/03/96
General Aggregate $2,000,000
Products $1,000,000
Personal and Advertising $1,000,000
Each Occurrence $1,000,000
</TABLE>
Copies of all policies provided to the auditors
-2-
<PAGE> 74
Schedule 3.1.5
LITIGATION
b) Judith Fox Companies, Inc. v. Jim Beck, Inc. - Judgement filing for
open accounts receivable in the amount of $4,294.21. Jim Beck, Inc.
has filed for bankruptcy.
c) Tax liens and garnishments filed against employees on a ongoing basis
in the normal course of operations.
<PAGE> 75
Schedule 3.1.6
LICENSES AND PERMITS
Business licenses for Albemarle, Chesterfield and Henrico Counties, Virginia.
<PAGE> 76
Schedule 3.1.12
FIXED ASSETS AND EQUIPMENT
Attachment A - Fixed assets as of December 31, 1995 per general ledger.
Attachment B - Fixed asset additions for the period January 1 thru April 30,
1996 per charges to the general ledger. Does not include
invoices not received as of April 30, 1996.
<PAGE> 77
Schedule 3.1.13
PROPRIETARY RIGHTS
1. Pending Application for service mark filed with the U.S. Patent and
Trademark office for "Judith Fox" (serial number 75-031611).
2. Pending Application for service mark filed with the U.S. Patent and
Trademark office for "Judith Fox Training for Growth" (serial number
75-031600).
3. "Judith Fox Staffing Companies" trade name.
4. "Judith Fox Staffing" trade name.
5. "Judith Fox Technical and Professional" trade name.
6. "Judith Fox Accounting and Finance" trade name.
7. "Judith Fox Temporaries" trade name.
8. "Rosemary Scott Temporaries" trade name.
9. All corporate names and foreign qualifications listed on Schedule
3.1.1.
10. All of Buyer's rights to software under licensing and other agreements
with Caldwell-Spartin Service, Inc.
11. Any and all other Intellectual Property, as defined in the Asset
Purchase Agreement, of the Buyer.
<PAGE> 78
Schedule 3.1.15
BENEFIT PLANS
1. Incentive Compensation Plan for Jack C. Glashow. (Copy previously
provided by Buyer.)
2. Incentive Compensation Plan for Bonnie A. Sugrue. (Copy previously
provided by Buyer.)
3. Incentive Compensation Plan for Catherine Homar. (Copy previously
provided by Buyer.)
4. Profit Sharing Plan. (Copy previously provided to Buyer.)
5. Section 125 Cafeteria Plan. (Copy previously provided to Buyer.)
6. Additional Benefits as listed in the "Employee Benefit Plan"
information package. (Copy previously provided by Buyer.)
<PAGE> 79
Schedule 3.1.17
CUSTOMER CONTRACTS
1. Services Agreement between Signet Bank and Judith Fox Companies, Inc.
entered into in July of 1994 pursuant to Confidential Proposal dated
June, 1994 (Copy previously provided to Buyer.)
2. Discount and Rebate Arrangement between Sony Music Entertainment and
Rosemary Scott Temporaries in accordance with Letter dated January 1,
1996 (Copy previously provided to Buyer.)
3. Value Discount Arrangement between CBS, Inc. and Rosemary Scott
Temporaries (Original rate sheet of September 1, 1985, Copy previously
provided to Buyer.)
<PAGE> 1
EXHIBIT 10.21
May 22, 1996
Mr. Michael Bernard
Personnel Group of America, Inc.
3720 One First Union Center
301 South College Street
Charlotte, North Carolina 28202
Re: $60 Million Senior Secured Revolving Credit Facility
Dear Mr. Bernard:
NationsBank, N.A. ("NationsBank") is pleased to offer to be the agent (in such
capacity, the "Agent") for a $60 million Senior Secured Revolving Credit
Facility (the "Facility") to Personnel Group of America, Inc., a Delaware
corporation (the "Borrower"), and to offer its commitment to lend up to $30
million of the Facility, upon and subject to the terms and conditions of this
letter and the Summary of Terms and Conditions attached hereto as Annex I (the
"Term Sheet"). All capitalized terms used and not otherwise defined herein
shall have the meanings set forth in the Term Sheet. NationsBanc Capital
Markets, Inc. ("NCMI") is pleased to advise you of its commitment, as Arranger
for the Facility, to use its best efforts to form a syndicate of financial
institutions (the "Lenders") reasonably acceptable to you for the Facility.
The commitments of NationsBank and NCMI hereunder are subject to the
satisfaction of each of the following conditions precedent in a manner
acceptable to NationsBank and NCMI in their sole discretion:
(a) each of the terms and conditions set forth herein;
(b) each of the terms and conditions set forth in the Term Sheet;
(c) the negotiation, execution and delivery of definitive
documentation with respect to the Facility consistent with the
Term Sheet satisfactory to the Agent and the Lenders; and
(d) there not having occurred and being continuing since the date
hereof a material adverse change in the market for syndicated bank
credit facilities or a material disruption of, or a material
adverse change in, financial, banking or capital market
conditions, in each case as determined by NationsBank and NCMI in
their sole discretion.
NationsBank will act as Agent for the Facility and NCMI will act as Arranger for
the Facility. No additional agents will be appointed without the prior approval
of NationsBank and NCMI.
Furthermore, the commitments of NationsBank and NCMI hereunder are based upon
the financial and other information regarding the Borrower and its subsidiaries
previously provided to NationsBank and NCMI and are subject to the condition,
among others, that there shall not have occurred after the date of such
information, in the opinion of NationsBank and NCMI, any material adverse change
in the
<PAGE> 2
Personnel Group of America, Inc.
May 22, 1996
Page 2
business, assets, liabilities (actual or contingent), operations, condition
(financial or otherwise) or prospects of the Borrower and its subsidiaries taken
as a whole. If the continuing review by NationsBank and NCMI of the Borrower
discloses information relating to conditions or events not previously disclosed
to NationsBank and NCMI or relating to new information or additional
developments concerning conditions or events previously disclosed to NationsBank
and NCMI which NationsBank and NCMI in their sole discretion believe may have a
material adverse effect on the condition (financial or otherwise), assets,
properties, business, operations or prospects of the Borrower and its
subsidiaries taken as a whole, NationsBank and NCMI may, in their sole
discretion, suggest alternative financing amounts or structures that ensure
adequate protection for the Lenders or decline to participate in the Facility.
You agree to actively assist NationsBank and NCMI in achieving a syndication of
the Facilities that is satisfactory to NationsBank, NCMI and you. In the event
that such syndication can not be achieved in a manner satisfactory to
NationsBank, NCMI and you under the structure outlined in the Term Sheet you
agree to cooperate with NationsBank and NCMI in attempting to develop an
alternative structure that will permit a satisfactory syndication of the
Facility. Syndication of the Facility will be accomplished by a variety of
means, including direct contact during the syndication between senior management
and advisors of the Borrower and the proposed Lenders. To assist NationsBank and
NCMI in the syndication efforts, you hereby agree to (a) provide and cause your
advisors to provide NationsBank and NCMI and the other Lenders upon request with
all information reasonably deemed necessary by NationsBank and NCMI to complete
syndication, (b) assist NationsBank and NCMI upon their reasonable request in
the preparation of an information memorandum to be used in connection with the
syndication of the Facility and (c) otherwise assist NationsBank and NCMI in
their syndication efforts, including by making available officers and advisors
of the Borrower and its subsidiaries from time to time to attend and make
presentations regarding the business and prospects of the Borrower and its
subsidiaries, as appropriate, at a meeting or meetings of prospective Lenders.
You further agree to refrain from engaging in new bank loans for the Borrower
and its subsidiaries during such syndication process unless otherwise agreed to
by NationsBank and NCMI.
It is understood and agreed that NationsBank and NCMI, after consultation with
you, will manage and control all aspects of the syndication, including decisions
as to the selection of proposed Lenders and any titles offered to proposed
Lenders, when commitments will be accepted and the final allocations of the
commitments among the Lenders. It is understood that no Lender participating in
the Facility will receive compensation from you outside the terms contained
herein and in the Term Sheet in order to obtain its commitment. It is also
understood and agreed that the amount and distribution of the fees among the
Lenders will be at the sole discretion of NationsBank and NCMI and that any
syndication prior to execution of definitive documentation will reduce the
commitment of NationsBank.
You hereby represent, warrant and covenant that (i) all information, other than
Projections (as defined below), which has been or is hereafter made available to
NationsBank and NCMI or the Lenders by you or any of your representatives in
connection with the transactions contemplated hereby ("Information") is and will
be complete and correct in all material respects and does not and will not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements contained therein not misleading and (ii) all
financial projections, as well as any pro forma financial statements, concerning
the Borrower that have been or are hereafter made available to NationsBank and
NCMI or the Lenders by you or any of your representatives (the "Projections")
have been or will be prepared in good faith based upon reasonable assumptions.
You agree to furnish us with such Information and Projections as we may
reasonably request and to supplement the Information and the Projections from
time to time until the closing date for the Facility so that the representation
and warranty in the preceding sentence is correct on such date. In arranging and
syndicating the Facility, NationsBank and NCMI will be using and relying on the
Information and the Projections without independent verification thereof.
By acceptance of this offer, Borrower agrees to pay all reasonable out-of-pocket
fees and expenses (including reasonable attorneys' fees and expenses and
expenses of due diligence) incurred before or after the date hereof by the Agent
or NCMI in connection with the Facility and the syndication thereof.
<PAGE> 3
Personnel Group of America, Inc.
May 22, 1996
Page 3
In the event that NationsBank or NCMI becomes involved in any capacity in any
action, proceeding or investigation in connection with any matter contemplated
by this letter, the Borrower will reimburse NationsBank and NCMI for their
reasonable legal and other expenses (including the cost of any investigation and
preparation) as they are incurred by NationsBank or NCMI. The Borrower also
agrees to indemnify and hold harmless NationsBank, NCMI and their affiliates and
their respective directors, officers, employees and agents (the "Indemnified
Parties") from and against any and all losses, claims, damages and liabilities,
joint or several, related to or arising out of any matters contemplated by this
letter unless and only to the extent that it shall be finally judicially
determined that such losses, claims, damages or liabilities resulted from the
gross negligence or willful misconduct of NationsBank or NCMI.
The provisions of the immediately preceding two paragraphs shall remain in full
force and effect regardless of whether definitive financing documentation for
the Facility shall be executed and delivered and notwithstanding the termination
of this letter or the commitments of NationsBank and NCMI hereunder.
Neither this offer nor the undertaking and commitment contained herein may be
disclosed to or relied upon by any other person or entity other than your
accountants, attorneys and other advisors, without the prior written consent of
NationsBank and NCMI, except that following your acceptance hereof you may make
public disclosure hereof as required by law.
As described herein and in the Term Sheet, NCMI will act as Arranger for the
Facilities. NationsBank reserves the right to allocate, in whole or in part, to
NCMI certain fees payable to NationsBank in such manner as NationsBank and NCMI
agree in their sole discretion. You acknowledge and agree that NationsBank may
share with any of its affiliates (including specifically NCMI) any information
relating to the Facilities, the Borrower and its subsidiaries and affiliates.
This letter shall be governed by the laws of the State of North Carolina. This
letter may be modified or amended only in writing. This letter is not
assignable by Borrower without the prior written consent of NationsBank and
NCMI. This letter supersedes and replaces any and all proposals or commitment
letters previously delivered by NationsBank or NCMI to Borrower relating to the
Facility.
This offer will expire at 5:00 p.m. Charlotte, North Carolina time on Thursday,
May 23, 1996 unless Borrower executes this letter and returns it to the Agent
prior to that time (which may be by facsimile transmission), whereupon this
letter shall become a binding agreement. Thereafter, this undertaking and
commitment will expire at 5:00 p.m. Charlotte, North Carolina time on Monday,
July 31, 1996 unless definitive Facility documentation is executed and delivered
prior to that time.
Very truly yours,
NATIONSBANK, N.A.,
Individually and as Agent
By: /s/ Mark D. Halmrast
--------------------------------
Mark D. Halmrast
Vice President
NATIONSBANC CAPITAL MARKETS, INC.
By: /s/ Charles F. Wallach
--------------------------------
Title: Vice President
-----------------------------
<PAGE> 4
Personnel Group of America, Inc.
May 22, 1996
Page 4
Accepted and Agreed To:
PERSONNEL GROUP OF AMERICA, INC.
By: /s/ Michael P. Bernard
---------------------------------------
Title: Chief Financial Officer & Treasurer
------------------------------------
<PAGE> 5
PERSONNEL GROUP OF AMERICA, INC.
SUMMARY OF TERMS & CONDITIONS
MAY 21, 1996
===============================================================================
BORROWER: Personnel Group of America, Inc. (the "Borrower").
GUARANTORS: All existing and hereafter acquired direct and indirect
subsidiaries of the Borrower (the "Subsidiaries") (the
Borrower and the Subsidiaries shall be referred to herein
together as the "Companies").
ADMINISTRATIVE
AGENT: NationsBank, N.A. (the "Agent" or "NationsBank") will act
as sole and exclusive Administrative Agent. As such,
NationsBank will negotiate with the Companies, act as the
primary contact for the Companies and perform all other
duties associated with the role of exclusive Administrative
Agent. No other agents or co-agents may be appointed
without the prior written consent of NationsBank and NCMI.
ARRANGER:
NationsBanc Capital Markets, Inc. ("NCMI").
LENDERS: A syndicate of financial institutions (including
NationsBank) arranged by NCMI, which institutions shall be
acceptable to the Borrower and the Agent (collectively, the
"Lenders").
FACILITY: NCMI will arrange, on a best-efforts basis, a $60 million
Revolving Credit Facility. The Facility will include a $10
million sublimit for the issuance of standby and commercial
letters of credit (each a "Letter of Credit"). Letters of
Credit will be issued by NationsBank (in such capacity, the
"Fronting Bank"), and each Lender will purchase an
irrevocable and unconditional participation in each Letter
of Credit.
PURPOSE: The proceeds of the Facility shall be used: (i) to
refinance the outstanding principal balance of existing
indebtedness of the Companies, (ii) to pay the cash portion
of the purchase price for Permitted Acquisitions (as
defined below); (iii) to pay fees and expenses incurred in
connection with the Permitted Acquisitions and (iv) to
provide for working capital and general corporate purposes
of the Companies.
INTEREST RATES: The Facility shall bear interest as set forth on Addendum
I hereto.
MATURITY: The Facility shall terminate and all amounts outstanding
thereunder shall be due and payable in full 3 years from
Closing.
AVAILABILITY: Loans under the Facility may be made, and Letters of Credit
may be issued subject to Availability. Availability shall
be determined
<PAGE> 6
by a Borrowing Base equal to 85% of Eligible
Receivables of the Companies.
SECURITY: The Agent (on behalf of the Lenders) shall receive a first
priority perfected security interest in all of the capital
stock or partnership interests of each of the domestic
direct and indirect subsidiaries of the Borrower, which
capital stock shall not be subject to any other lien or
encumbrance. The Agent (on behalf of the Lenders) shall
also receive a first priority perfected security interest
in all accounts receivable and a negative pledge, subject
to de minimus amounts agreed upon by the Agent, on all
other assets of the Companies.
The foregoing security shall ratably secure the Facility
and any interest rate swap/foreign currency swap or similar
agreements with a Lender under the Facility.
MANDATORY PREPAYMENTS
AND COMMITMENT
REDUCTIONS: The Facility will be prepaid by an amount equal to 100% of
the net cash proceeds of all asset sales by the Companies,
subject to de minimus baskets and reinvestment provisions
to be agreed upon and net of selling expenses and taxes to
the extent such taxes are paid.
OPTIONAL PREPAYMENTS
AND COMMITMENT
REDUCTIONS: The Borrower may prepay the Facility in whole or in part at
any time without penalty, subject to reimbursement of the
Lenders' breakage and redeployment costs in the case of
prepayment of LIBOR borrowings.
CONDITIONS PRECEDENT
TO CLOSING: The initial funding of the Facility will be subject to
satisfaction of the conditions precedent deemed appropriate
by the Agent and the Lenders, including but not limited to
the following:
(i) The completion of all due diligence with respect to
the Companies and the Acquisitions in process, in
scope and determination satisfactory to NationsBank
and NCMI in their sole discretion.
(ii) The negotiation, execution and delivery of
definitive documentation with respect to the
Facility satisfactory to NCMI, the Agent and the
Lenders.
(iii) The Agent's satisfactory review of any existing
purchase agreements (including all schedules and
exhibits thereto) regarding the Acquisitions in
process (the "Purchase Agreement").
(iv) The corporate capital and ownership structure
(including articles of incorporation and by-laws) of
the Companies
-2-
<PAGE> 7
(after giving effect to the Acquisitions in
process), shall be satisfactory to the Agent, and
all employment contracts, equity interests and key
man life insurance with senior executives shall be
satisfactory to the Agent. As a specific condition
of appropriate capital structure, the Borrower shall
have executed a successful secondary public offering
of equity. The determination of successful shall
include obtaining a minimum of $35 million in net
proceeds from such offering.
(v) The Agent shall have received and, in each case,
approved the consolidated financial statements of
the Companies for the fiscal years 1993, 1994 and
1995, including balance sheets, income and cash flow
statements audited by independent public accountants
of recognized national standing and prepared in
conformity with GAAP, interim monthly financial
statements, monthly working capital detail for the
trailing twelve months and first projected year, a
pro forma balance sheet of the Companies as of the
Closing Date giving effect to Acquisitions and
reflecting estimated purchase price accounting
adjustments, prepared by independent public
accountants of recognized national standing, and
such other information relating to the Acquisitions
as the Agent may require.
(vi) There shall not have occurred a material adverse
change since December 31, 1995 in the business,
assets, operations, condition (financial or
otherwise) or prospects of the Companies or the
Acquisitions in process.
(vii) The Agent shall have received and be satisfied with
the form and content of the accounts receivable
reports prepared by the Companies (including without
limitation the Acquisitions in process.
(viii) The Agent shall have received (a) satisfactory
opinions of counsel to the Companies (which shall
cover, among other things, authority, legality,
validity, binding effect and enforceability of the
documents for the Facility) and such corporate
resolutions, certificates and other documents as the
Agent shall reasonably require and (b) satisfactory
evidence that the Agent (on behalf of the Lenders)
holds a perfected, first priority lien in all
collateral for the Facility, subject to no other
liens except for permitted liens to be determined by
the Agent.
(ix) Receipt of all governmental, shareholder and third
party consents (including Hart-Scott Rodino
clearance) and approvals necessary or, in the
opinion of the Agent, desirable in connection with
the purchase of the Acquisitions in process and the
related financings and other transactions
contemplated hereby and expiration of all applicable
waiting periods without any action being
-3-
<PAGE> 8
taken by any authority that could restrain, prevent
or impose any material adverse conditions on the
Acquisitions in process or such other transactions
or that could seek or threaten any of the foregoing,
and no law or regulation shall be applicable which
in the judgment of the Agent could have such effect.
(x) The absence of any action, suit, investigation or
proceeding pending or threatened in any court or
before any arbitrator or governmental authority that
purports to affect the Acquisitions in process or
the Companies or any transaction contemplated
hereby, or that could have a material adverse effect
on the Acquisitions in process, the Companies or any
transaction contemplated hereby or on the ability of
the Companies to perform their obligations under the
documents to be executed in connection with the
Facility.
(xi) The Companies shall be in compliance with all
existing financial obligations, covenants and
agreements under the existing credit agreement with
NationsBank, after giving effect to Acquisitions in
process.
(xii) Receipt and review, with results satisfactory to the
Agent and its counsel, of information regarding
litigation, tax, accounting, labor, insurance,
pension liabilities (actual or contingent), real
estate leases, material contracts, debt agreements,
property ownership, and contingent liabilities of
the Companies and all Acquisitions in process.
(xiii) The Agent shall be satisfied that the amount of
committed financing available to the Borrower shall
be sufficient to meet the ongoing financing needs of
the Companies after giving effect to the Borrower's
financial plan and there shall be no less than $15
million of availability under the Facility at
Closing.
(xiv) The Borrower shall provide the Agent with written
evidence of its acquisition due diligence process
and procedures in form satisfactory to the Agent.
(xv) The Borrower shall provide a management
infrastructure plan which supports the Borrower's
internal growth and the addition of the already
acquired companies in form satisfactory to the
Agent.
(xvi) The Borrower shall provide written evidence of its
plan to develop its own in-house systems
capabilities independent from Adia and integration
of the Caldwell-Spartin system into the Borrower's
branch network. Such written plan shall be
acceptable to the Agent.
-4-
<PAGE> 9
(xvii) Provide the Agent with a 3 year financial forecast
which will include an income statement, balance
sheet and cash flow statement.
REPRESENTATIONS &
WARRANTIES: Usual and customary for transactions of this type, to
include without limitation: (i) corporate status; (ii)
corporate power and authority/enforceability; (iii) no
violation of law or contracts or organizational documents;
(iv) no material litigation; (v) correctness of specified
financial statements and no material adverse change; (vi)
no required governmental or third party approvals; (vii)
use of proceeds/compliance with margin regulations; (viii)
status under Investment Company Act; (ix) ERISA; (x)
environmental matters; (xi) perfected liens and security
interests; (xiii) payment of taxes, and (xiv) consummation
of the Acquisitions in process.
COVENANTS: Usual and customary for transactions of this type, to
include without limitation: (i) delivery of financial
statements and other reports; (ii) delivery of compliance
and borrowing base certificates: (iii) notices of default,
material litigation and material governmental and
environmental proceedings; (iv) compliance with laws; (v)
payment of taxes; (vi) maintenance of insurance; (vii)
limitation on liens; (viii) limitations on mergers,
consolidations and sales of assets; (ix) limitations on
incurrence of debt; (x) limitations on dividends and stock
redemptions and the redemption and/or prepayment of other
debt; (xi) limitations on investments; (xii) ERISA; (xiii)
limitation on transactions with affiliates; and (xiv)
limitation on capital expenditures.
Financial covenants to include (but not limited to):
- Maintenance at all times of a Minimum Net Worth,
with step-up provisions to be agreed upon
- Maintenance on a rolling four quarter basis of a
Maximum Leverage Ratio
- Maintenance on a rolling four quarter basis of a
Minimum Fixed Charge Coverage Ratio (EBITDAR less
capital expenditures less cash taxes)/(interest
expense + scheduled principal repayments + rents)
Maintenance at all times of a Current Ratio to be agreed
upon
All acquisitions will be subject to pro-forma covenant
compliance. Individual acquisitions where the
purchase price is greater than $12.5 million will be
subject to Lender approval. Except as otherwise
agreed between the Borrower and the Agent, all
acquisitions of health care related companies shall
be made by and become the property of Nursefinders,
Inc., and all other acquisitions shall be made by
and become the property of StaffPLUS, Inc.
-5-
<PAGE> 10
Prior to the closing, the Borrower and the Agent
will explore other structuring alternatives with
respect to future acquisitions.
The Borrower shall agree that it will not engage in any
business, activity or operations other than owning and
holding the capital stock of the Subsidiaries and
activities directly related thereto. The Borrower shall
not be permitted to merge with or into any of its
Subsidiaries either now owned or hereafter created.
EVENTS OF DEFAULT: Usual and customary in transactions of this nature, and to
include, without limitation, (i) nonpayment of principal,
interest, fees or other amounts, (ii) violation of
covenants, (iii) inaccuracy of representations and
warranties, (iii) cross-default to other material
agreements and indebtedness, (iv) bankruptcy, (v) material
judgments, (vi) ERISA, (vii) actual or asserted invalidity
of any loan documents or security interests, (viii)
Borrower engaging in any business or activity other than
holding 100% of the common stock of the Subsidiaries, or
(ix) a Change in Control of the Borrower.
ASSIGNMENTS/
PARTICIPATIONS: Each Lender will be permitted to make assignments to other
financial institutions approved by the Borrower and the
Agent, which approval shall not be unreasonably withheld.
Lenders will be permitted to sell participations with
voting rights limited to significant matters such as
changes in amount, rate, and maturity date. An assignment
fee of $3,500 is payable by the Lender to the Agent upon
any such assignment occurring (including, but not limited
to an assignment by a Lender to another Lender).
WAIVERS &
AMENDMENTS: Amendments and waivers of the provisions of the loan
agreement and other definitive credit documentation will
require the approval of Lenders holding loans and
commitments representing more than 50% of the aggregate
amount of loans and commitments under the Facility, except
that (a) the consent of all the Lenders affected thereby
shall be required with respect to (i) increases in
commitment amounts, (ii) reductions of principal, interest,
or fees, (iii) extensions of scheduled maturities or times
for payment, (iv) releases of all or substantially all
collateral and (v) releases of all or substantially all
guarantors.
INDEMNIFICATION: The Companies shall indemnify the Lenders from and against
all losses, liabilities, claims, damages or expenses
relating to their loans, the Companies' use of loan
proceeds or the commitments, including but not limited to
reasonable attorneys' fees and settlements costs. This
indemnification shall survive and continue for the benefit
of the Lenders at all times after the Borrower's acceptance
of the Lenders' commitment for the Facility,
notwithstanding any failure of the Facility to close.
CLOSING: On or before July 31, 1996.
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<PAGE> 11
GOVERNING LAW: North Carolina.
FEES/EXPENSES: As outlined in ADDENDUM I.
OTHER: This term sheet is intended as an outline only and does not
purport to summarize all the conditions, covenants,
representations, warranties and other provisions which
would be contained in definitive legal documentation for
the Facility contemplated hereby. The Companies shall
waive their right to a trial by jury.
-7-
<PAGE> 12
ADDENDUM I
FEES AND EXPENSES
===============================================================================
COMMITMENT FEE Commitment Fee (calculated on the basis of actual number of
days elapsed in a year of 360 days) calculated on the
unused portion of the Facility shall commence to accrue
upon the execution of a definitive credit agreement and
thereafter quarterly in arrears. Such commitment fee shall
be determined by the Pricing Matrix disclosed below.
INTEREST RATES: The Facility shall bear interest at a margin over the
applicable LIBOR rate, as determined by the Pricing Matrix,
or the Alternate Base Rate (defined as the higher of (i)
the NationsBank prime rate and (ii) the Federal Funds rate
plus 1/2%); provided, that if during the 180 day period
following the Closing, any breakage costs, charges or fees
are incurred with respect to LIBOR loans on account of the
syndication of the Facility, the Borrower shall immediately
reimburse the Agent for any such costs, charges or fees.
Such right of reimbursement to be in addition to and not in
limitation of customary cost and yield protection.
The Borrower may select interest periods of 1, 2, 3 or 6
months for LIBOR loans, subject to availability.
A penalty rate shall apply on all loans in the event of
default at a rate per annum of 2% above the applicable
interest rate.
PRICING MATRIX:
<TABLE>
<CAPTION>
DEBT TO EBITDA RATIO SPREAD OVER LIBOR COMMITMENT FEE
----------------------------------------------------------
<S> <C> <C> <C>
0.0 - 0.75 62.5 25
0.75 - 1.50 87.5 25
1.50 - 2.25 112.5 37.5
Above 2.25 135 37.5
</TABLE>
COST AND YIELD
PROTECTION: The usual for transactions and facilities of this
type, including, without limitation, in respect of
prepayments, changes in capital adequacy and capital
requirements or their interpretation, illegality,
unavailability, reserves without proration or
offset.
LETTER OF
CREDIT FEES: Letter of credit fees are due quarterly in arrears
to be shared proportionately by the Lenders. Fees
will be equal to the interest rate spread on LIBOR
loans on a per annum basis plus a fronting fee of
1/8% per annum to be paid to Agent as Fronting Bank
for its own account. Fees will be calculated on the
aggregate stated amount for each letter of credit
for the stated duration thereof.
-1-
<PAGE> 13
UPFRONT FEE: The Borrower shall pay to the Lenders at closing an
upfront fee calculated on the basis of each Lender's
committed amount of the Facility. The Agent
anticipates this fee to be equal in amount to 1/4%
of the Facility, subject to further review and
adjustment based on market conditions.
ARRANGEMENT FEE: The Borrower shall pay to NCMI an arrangement fee
equal to $300,000. The first $100,000 of this fee
shall be payable upon the Borrower's acceptance of
this Commitment, with the balance payable at closing
of the Facility.
ADMINISTRATIVE AGENT FEE: The Borrower shall pay the Agent an annual
administration fee equal in amount to $35,000.00.
EXPENSES: Borrower will pay all reasonable costs and expenses
associated with the preparation, due diligence,
administration, syndication and enforcement of all
documents executed in connection with the Facility,
including without limitation, the legal fees of the
Agent's counsel regardless of whether or not the
Facility is closed.
-2-
<PAGE> 1
EXHIBIT 21.01
SUBSIDIARIES OF PERSONNEL GROUP OF AMERICA, INC.
<TABLE>
<CAPTION>
STATE OF
SUBSIDIARY INCORPORATION DOES BUSINESS AS
- --------------------------------- ------------ --------------------------------------------
<S> <C> <C>
B.C.P., Inc...................... Hawaii Nursefinders of Hawaii, Inc.
PFI, Inc......................... Delaware Nursefinders, through its wholly-owned
subsidiary Nursefinders, Inc., a Texas
corporation, and NF Services, Inc., a New
York corporation and wholly-owned subsidiary
of Nursefinders, Inc.
Profile Temporary Services, Illinois Profile Temporary Staffing
Inc............................
StaffPLUS, Inc................... Delaware Abar Staffing, FirstWord Staffing Services,
Staffinders Personnel, Temp Connection,
TempWorld, West Personnel, and Word
Processors Personnel Services (WPPS)
Thomas Staffing Services, Inc.... California Thomas Staffing
</TABLE>
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated February 29, 1996 covering the consolidated financial statements of
Personnel Group of America, Inc. and subsidiaries, and our report dated May 10,
1996 covering the combined financial statements of Judith Fox Staffing Companies
and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
--------------------------------------
Charlotte, North Carolina,
May 23, 1996.
<PAGE> 1
EXHIBIT 23.02
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated September 13, 1995 covering the financial statements of The
Computer Resources Group, Inc. and to all references to our Firm included in or
made a part of this registration statement.
PHILLIP GOODMAN ACCOUNTANCY
CORPORATION
/s/ Philllip Goodman Accountancy
Corporation
--------------------------------------
Santa Clara, California,
May 22, 1996.
