<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 20, 1998
REGISTRATION NO. 333-49815
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-3
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 (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification Number)
incorporation or organization)
</TABLE>
6302 FAIRVIEW ROAD, SUITE 201
CHARLOTTE, NORTH CAROLINA 28210
TEL: (704) 442-5100
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
---------------------
KEN R. BRAMLETT, JR.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
6302 FAIRVIEW ROAD, SUITE 201
CHARLOTTE, NORTH CAROLINA 28210
TEL: (704) 442-5100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
COPIES TO:
<TABLE>
<S> <C>
STEPHEN M. LYNCH DONALD J. MURRAY
PATRICK S. BRYANT DEWEY BALLANTINE LLP
ROBINSON, BRADSHAW & HINSON, P.A. 1301 Avenue of the Americas
1900 Independence Center New York, New York 10019-6092
Charlotte, North Carolina 28246 Tel: (212) 259-8000
Tel: (704) 377-2536
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the Registration Statement becomes effective.
---------------------
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.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 20, 1998
PROSPECTUS
7,000,000 SHARES
[PGA LOGO]
PERSONNEL GROUP OF AMERICA, INC.
COMMON STOCK
------------------
All of the shares of Common Stock offered hereby (the "Offering") are being
sold by Personnel Group of America, Inc. ("PGA" or the "Company").
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol "PGA." On April 16, 1998, the last reported sale price of the
Company's Common Stock on the New York Stock Exchange was $23 per share.
------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
<TABLE>
<CAPTION>
================================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- ----------------------------------------------------------------------------------------------------------------
Total(3) $ $ $
================================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the Underwriters a 30-day option to purchase up to
1,050,000 additional shares of Common Stock on the same terms as set forth
above solely to cover over-allotments, if any. See "Underwriting." If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively.
------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1998 at the office of Smith Barney Inc., 333 West 34th Street, New
York, New York 10001.
------------------
SALOMON SMITH BARNEY
NATIONSBANC MONTGOMERY SECURITIES LLC
J.C. BRADFORD & CO.
THE ROBINSON-HUMPHREY COMPANY
CLEARY GULL REILAND & MCDEVITT INC.
, 1998
<PAGE> 3
[A map of the United States showing the
Company's Service locations appears here.]
------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified in
its entirety by the more detailed information and consolidated financial
statements, including the notes thereto, appearing elsewhere in this Prospectus
or incorporated by reference herein. All references to the "Company" or "PGA"
refer to Personnel Group of America, Inc. and, where appropriate, its
subsidiaries and their respective operations, and include the Company's
predecessors. The Company's fiscal year ends on the Sunday nearest December 31
and fiscal quarters end on the Sunday nearest to the end of the respective
calendar quarter. Unless otherwise indicated, all information presented for any
period on a pro forma basis reflects all acquisitions occurring during or
subsequent to such period as if such transactions had occurred on the first day
of such period, and all pro forma information presented as of a specific date
reflects all subsequent acquisitions as if they had occurred as of such date.
Unless otherwise indicated, the information in this Prospectus (i) assumes that
the Underwriters' over-allotment option will not be exercised and (ii) has been
adjusted to give effect to a two-for-one stock split of the Common Stock
effected as a stock dividend on March 30, 1998.
THE COMPANY
Personnel Group of America, Inc. is a leading provider of information
technology and commercial staffing services. The Company's staffing services
include temporary staffing, placement of full-time employees, on-site management
of temporary employees, training and testing of temporary and permanent workers
and information technology consulting. At April 8, 1998, the Company operated
through a network of 137 offices in 25 states and the District of Columbia. For
the year ended December 28, 1997, on a pro forma basis, the Company had revenues
of approximately $670.0 million.
The Company has grown by increasing revenues of existing operations and by
making selected acquisitions. Since its initial public offering in September
1995, PGA has acquired 30 operating companies. With the sale of its healthcare
division on December 26, 1997, the Company exited the highly regulated, low
growth healthcare staffing sector and completed a transformation begun in May
1996 when the Company committed to enter the high growth, high margin
information technology services business. For the year ended December 28, 1997,
on a pro forma basis, the Information Technology Division accounted for
approximately 55% of the Company's revenues. Through strategic acquisitions, the
Company has (i) become a leading provider of information technology staffing
services in selected markets, (ii) strengthened and broadened the market
coverage of its commercial staffing services, (iii) developed multiple
cross-selling opportunities between the Company's Information Technology and
Commercial Staffing Divisions in several target geographic markets, (iv)
established a significant presence in certain key geographic regions of the
country and (v) diversified its operations both geographically and
operationally. By reallocating to the Information Technology and Commercial
Staffing Divisions economic and other resources previously committed to the
healthcare division, PGA intends to accelerate its growth, both internally and
through acquisitions.
The Information Technology Division is comprised of 14 companies that offer
information technology professionals and consulting services in a range of
computer-related disciplines. The Information Technology Division provides
skilled personnel, such as programmers, systems designers, LAN administrators,
systems integrators, helpdesk staff and other technology specialists to a wide
variety of clients, typically on an as-needed time and materials basis. The
Commercial Staffing Division is comprised of 24 companies that offer a wide
variety of temporary office and clerical services to more than 10,000
organizations nationwide. The Commercial Staffing Division provides temporary
personnel who perform general office and administrative services, word
processing and desktop publishing, office automation, records management,
telemarketing and other staffing services. The Commercial Staffing Division also
provides light technical and light industrial services to its customers, but
these services account for a small portion of the division's total revenues.
Industry Overview
The staffing services industry has grown rapidly over the past decade.
According to the National Association of Temporary Staffing Services ("NATSS"),
the U.S. market for temporary staffing services grew
3
<PAGE> 5
at a compound annual rate of approximately 16.3% from approximately $20.5
billion in 1991 to approximately $43.6 billion in 1996. According to NATSS,
studies have shown 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. In addition to
the general trends affecting the staffing services industry, the information
technology sector in particular has experienced strong growth as businesses have
become increasingly dependent on the use of computer information technology and
increasingly willing to outsource the related staffing needs to implement and
operate information systems on a variable-cost basis. According to INPUT,
revenue from information technology professional services has grown from $27.2
billion in 1995 to an estimated $37.1 billion in 1997, representing a compound
annual growth rate of 16.8%.
Business Strategy
The Company's objective is to be a premier provider of information
technology and commercial staffing services and the employer of choice in all of
its markets. The Company's strategy includes the following key elements:
- Enhance Internal Growth. The Company plans to expand its existing
businesses by maintaining its decentralized management structure,
focusing on local and regional markets, attracting and retaining
qualified management and other personnel and emphasizing customer
service. Each of the Company's offices does business under established
local brand names, most of which have been continuously in use for
more than 16 years. The Company intends to continue building on the
strong reputations of these local brand names in their markets while
leveraging the sophisticated support services and lower cost
structures of a national provider. The Company's clients are primarily
local and regional, including substantial accounts with local and
regional offices of Fortune 500 companies. The Company generally does
not seek or compete for national contracts, which typically yield
lower gross margins than locally awarded contracts. The Company
believes 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. 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 generally experienced long-term
tenure of local management and continuity in client relationships,
with the average tenure of local management at the operating companies
being greater than 13 years. The Company strives to provide the
highest quality customer services in part through information systems
designed to match a candidate's work history, skills and personal
attributes with customer requirements and through extensive quality
assurance programs.
- Leverage Existing Infrastructure. The Company's organizational
structure allows the Company to leverage the costs associated with
centralized billing and payroll functions, workers' compensation
liability and technology development, as well as the costs of
analyzing and complying with state and federal regulations, over a
large number of temporary employees and clients. The clustering of
offices in key markets also permits common regional management and
facilitates cross-marketing opportunities.
- Make Selected Acquisitions. The Company seeks acquisitions of market
leading companies that will expand the geographic scope of its
Information Technology and Commercial Staffing Divisions, strengthen
its professional services and introduce new specialty services to its
business mix. Management believes that the Company's strong reputation
and decentralized management philosophy, 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. PGA has demonstrated its ability to increase the revenues and
cash flow of an acquired company by providing many of the
sophisticated systems, marketing programs and the immediate benefits
of purchasing power of a national company while, at the same time,
capitalizing on the acquired firm's significant brand identity and
established customer relationships in specific local market
4
<PAGE> 6
areas. The Company uses an acquisition profile in selecting attractive
acquisition candidates and applies a disciplined approach to the acquisition
process.
RECENT DEVELOPMENTS
Recent Acquisitions
Since December 28, 1997, the Company has completed the acquisition of three
information technology companies and four commercial staffing businesses. The
1997 revenues of the information technology companies acquired in 1998 were
$65.4 million, and the 1997 revenues of the commercial staffing companies
acquired in 1998 were $58.5 million. Although PGA regularly evaluates
acquisition opportunities, the Company currently has no definitive agreements
with respect to any future material acquisitions.
Expansion of Credit Facility
On March 17, 1998, the Company's revolving credit facility (the "Credit
Facility") was increased from $125.0 million to $200.0 million.
Two-for-one Stock Split
On March 30, 1998, the Company completed a two-for-one split of its Common
Stock effected as a stock dividend.
THE OFFERING
Common Stock offered hereby......... 7,000,000 shares
Common Stock to be outstanding after
the Offering........................ 31,920,574 shares(1)
Use of Proceeds..................... To repay indebtedness and for general
corporate purposes, including
possible acquisitions
New York Stock Exchange Symbol...... PGA
- ---------------
(1) Based on the number of shares of Common Stock outstanding as of March 26,
1998. Excludes, as of that date, (i) 2,314,730 shares of Common Stock
issuable upon exercise of outstanding options at a weighted average exercise
price of $12.70 per share, (ii) approximately 2,423,356 additional shares
reserved for issuance under the Company's 1995 Equity Participation Plan and
1997 Employee Stock Purchase Plan and (iii) 6,456,140 shares of Common Stock
reserved for issuance upon conversion of the Company's outstanding
convertible subordinated notes at a conversion price of $17.81 per share.
See "Description of Capital Stock -- Stock Option Plan," "-- Employee Stock
Purchase Plan" and Notes 10 and 11 of Notes to Consolidated Financial
Statements.
5
<PAGE> 7
SUMMARY CONSOLIDATED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------------------------------------
1997
-----------------------
1993 1994 1995 1996 ACTUAL PRO FORMA(1)
-------- -------- -------- -------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues........................ $107,386 $125,822 $143,243 $243,608 $475,620 $670,000
Direct cost of services......... 84,310 99,948 109,755 186,338 349,616 482,753
-------- -------- -------- -------- -------- --------
Gross profit.................... 23,076 25,874 33,488 57,270 126,004 187,247
Selling, general and
administrative................ 17,642 19,426 24,568 38,454 79,216 116,049
Depreciation and amortization... 1,528 1,498 1,149 3,362 9,037 14,458
-------- -------- -------- -------- -------- --------
Operating income................ 3,906 4,950 7,771 15,454 37,751 56,740
Interest expense................ -- -- 159 1,155 6,951 8,776
-------- -------- -------- -------- -------- --------
Income from continuing
operations before income
taxes......................... 3,906 4,950 7,612 14,299 30,800 47,964
Provision for income taxes...... 1,716 2,181 3,282 5,995 13,010 20,271
-------- -------- -------- -------- -------- --------
Income from continuing
operations.................... 2,190 2,769 4,330 8,304 17,790 27,693
Income from discontinued
operations, net of taxes...... 346 1,130 2,779 3,213 2,412 --
-------- -------- -------- -------- -------- --------
Net income...................... $ 2,536 $ 3,899 $ 7,109 $ 11,517 $ 20,202 $ 27,693
======== ======== ======== ======== ======== ========
Income from continuing
operations per diluted
share......................... $ -- $ -- $ 0.27 $ 0.41 $ 0.71 $ 0.84
Income from discontinued
operations per diluted share,
net of taxes.................. -- -- 0.17 0.16 0.09 --
-------- -------- -------- -------- -------- --------
Net income per diluted share.... $ -- $ -- $ 0.44 $ 0.56 $ 0.80 $ 0.84
======== ======== ======== ======== ======== ========
Weighted average diluted shares
outstanding................... -- -- 16,000 20,432 28,078 35,680
OTHER DATA:
EBITDA(2)....................... $ 5,434 $ 6,448 $ 8,920 $ 18,816 $ 46,788 $ 71,198
EBITDA margin(2)................ 5.1% 5.1% 6.2% 7.7% 9.8% 10.6%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 28, 1997
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(3)(4)
-------- ------------ -----------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................ $ 69,090 $ 77,391 $ 86,217
Intangible assets, net................................. 316,413 435,992 435,992
Total assets........................................... 451,309 589,957 598,783
Convertible subordinated notes......................... 115,000 115,000 115,000
Other short-term and long-term debt.................... 37,540 158,172 13,540
Shareholders' equity................................... 205,076 214,038 367,496
</TABLE>
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(1) Reflects (i) the acquisition of the 13 companies acquired in 1997 and the
seven companies acquired in 1998, (ii) the sale of the healthcare division
and the application of the net proceeds therefrom to reduce indebtedness and
(iii) the Offering and the application of the net proceeds therefrom as
described under "Use of Proceeds" (assuming a public offering price of
$23.00 per share and after deducting estimated underwriting discounts and
commissions and offering expenses), in each case as if such transactions had
occurred on December 30, 1996.
(2) EBITDA represents earnings from continuing operations before interest
expense, taxes and depreciation and amortization. EBITDA margin represents
EBITDA as a percentage of revenues. EBITDA and EBITDA margin are included
herein because management believes that such data are used by certain
investors. However, EBITDA does not represent cash flow from operations, as
defined by generally accepted accounting principles, should not be
considered as a substitute for net earnings as an indicator of the Company's
operating performance or cash flow as a measure of liquidity, and should be
examined in conjunction with the Consolidated Financial Statements of the
Company and notes thereto included elsewhere in this Prospectus.
(3) Reflects the acquisition of the seven companies acquired in 1998 and the
related increases in borrowings under the Company's Credit Facility, as if
such transactions had been completed on such date.
(4) Reflects the Offering and the application of the net proceeds therefrom as
described under "Use of Proceeds" (assuming a public offering price of
$23.00 per share and after deducting estimated underwriting discounts and
commissions and offering expenses).
6
<PAGE> 8
RISK FACTORS
Prospective purchasers of the Common Stock should carefully consider the
risk factors set forth below, as well as the other information contained in this
Prospectus. Certain of the matters discussed under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and elsewhere in this
Prospectus and information incorporated herein by reference may constitute
forward-looking statements for purposes of the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended, and as such may
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or condition of the Company to be materially
different from future results, performance or financial condition expressed or
implied by any such forward-looking statements. Important factors that could
cause the actual results, performance or financial condition of the Company to
differ materially from the Company's expectations are disclosed in this
Prospectus (the "Cautionary Statements"), including without limitation those
statements made in conjunction with any such forward-looking statements in this
"Risk Factors" section and otherwise herein. Any such forward-looking statements
are expressly qualified in their entirety by the Cautionary Statements.
POSSIBLE ADVERSE EFFECT OF FLUCTUATIONS IN THE GENERAL ECONOMY
Demand for information technology and commercial 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."
ABILITY TO ATTRACT AND RETAIN THE SERVICES OF QUALIFIED EMPLOYEES
The Company's operations depend upon its ability to attract and retain the
services of qualified employees who possess the technical skills and experience
necessary to meet clients' specific needs. The Company must continually
evaluate, upgrade and supplement its staff in each of its markets to keep pace
with changing client needs and technologies and to fill new positions. The
information technology staffing industry in particular has high turnover rates,
and the demand for information technology professionals continues to
substantially exceed supply. This trend has resulted in intense competition for
information technology professionals, and the Company expects such competition
to continue. Certain of the Company's information technology operations recruit
internationally under the H-1B visa program, and U.S. immigration policy
currently restricts the number of H-1B visas that may be granted in each fiscal
year. Certain legislative proposals have been introduced that could have the
effect of imposing further restrictions on the H-1B visa program. There can be
no assurance that the Company will be able to attract and retain the services of
the personnel it requires to conduct its operations successfully or engage
additional qualified personnel as it expands its operations. Failure to attract
and retain the services of such personnel, or an increase in the Company's
turnover rate among its employees, could have a material adverse effect on the
Company's business, operating results or financial condition. There can be no
assurance that qualified employees, particularly information technology
professionals, will continue to be available to the Company in sufficient
numbers or on economic terms that are, or will continue to be, acceptable to the
Company.
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<PAGE> 9
IMPACT OF PRICING PRESSURE AND EMPLOYEE COSTS ON GROSS MARGINS
Price competition in the staffing services industry is intense in each of
the Company's divisions. Pricing pressures from competitors and customers are
increasing. In addition, competition for qualified employees has resulted in
recent wage increases in certain markets. Although to date the Company generally
has been able to pass wage increases on to its customers through higher bill
rates, there can be no assurance that the Company will be able to maintain or
increase its current gross margins, the reduction of which 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."
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. The Company competes in national, regional and local
markets with full-service and specialized temporary service agencies. While the
majority of the Company's competitors are significantly smaller than the
Company, a number of large 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.
ABILITY TO CONTROL GROWTH; ACQUISITION RISKS
The ability of the Company to continue to execute its business strategy
will depend on a number of factors, including the availability of working
capital, existing and emerging competition and the availability of attractive
acquisition opportunities. The Company has acquired 30 companies since its
initial public offering in September 1995 (the "IPO") and is seeking new
acquisition opportunities. 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 additional borrowings and
resulting leverage, 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 and delays 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.
The failure by the Company to complete additional acquisitions or integrate
acquired businesses into its operations 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 -- Liquidity and Capital Resources" and "Business -- Business
Strategy -- Make Selected 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. 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. 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, however, that the
Company will be able to increase the fees charged to its clients if expenses
continue to rise. Any such inability could have a material adverse effect on the
Company's financial condition and results of operations. See Notes 7, 8 and 15
of Notes to Consolidated Financial Statements.
8
<PAGE> 10
INCREASED COSTS FROM GOVERNMENT REGULATION
The Company is required to pay a number of federal, state and local payroll
and related costs, including unemployment taxes and insurance, workers'
compensation, FICA and Medicare, for its employees and personnel. Significant
increases in the effective rates of any payroll related costs likely would have
a material adverse effect upon the Company. The Company's costs could also
increase as a result of health care reforms or the possible imposition of
additional requirements and restrictions related to the placement of personnel.
Federal and state legislative proposals have included provisions extending
health insurance benefits to personnel who currently do not receive such
benefits. There can be no assurance that the Company will be able to increase
the fees charged to its clients in a timely manner and in a sufficient amount to
cover increased costs, if any such proposals are adopted. There is also no
assurance that the Company will be able to adapt to future regulatory changes
made by the Internal Revenue Service, the Department of Labor or other state and
federal regulatory agencies. The Company's inability to increase its fees or
adapt to future regulatory changes could have a material adverse effect upon the
Company's business, operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
INDUSTRY RISKS
Temporary staffing services providers employ and place people generally in
the workplaces of other businesses. Attendant risks of such activity include
possible claims of discrimination and harassment, employment of illegal aliens,
violations of wage and hour requirements, errors and omissions of its temporary
employees and, particularly of professionals (e.g., accountants), misuse of
client proprietary information, misappropriation of funds, other criminal
activity or torts and other similar claims. In some instances the Company,
pursuant to written services contracts, has agreed to indemnify clients against
some or all of the foregoing matters. Moreover, in certain circumstances the
Company may be held responsible for the actions at a workplace of persons not
under the Company's direct control. Although the Company historically has not
had any significant problems in this area, there can be no assurance that the
Company will not experience such problems in the future or that the Company's
insurance, if any, will be sufficient in amount or scope to cover any such
liability. The failure of any Company employee or personnel to observe the
Company's policies and guidelines, relevant client policies and guidelines, or
applicable federal, state or local laws, rules and regulations, or other
circumstances that cannot be predicted, could have a material adverse effect
upon the Company's business, operating results and financial condition.
Temporary staffing services providers are also affected by fluctuations and
interruptions in the business of their clients. For example, inclement weather
or work stoppages, which may require clients to close or reduce their hours of
operation, could have a material adverse effect on the Company's business,
operating results and financial condition.
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 relationships. 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."
SUBSTANTIAL INTANGIBLE ASSETS
As of December 28, 1997, the Company had intangible assets of $316.4
million, net of accumulated amortization relating to the purchase of certain of
its subsidiaries and divisions ($436.0 million on a pro forma basis as if the
acquisitions completed after December 28, 1997 through the date of this
Prospectus had been completed on that date). Such intangible assets approximated
70.1% of the Company's total assets and
9
<PAGE> 11
154.3% of its total shareholders' equity as of December 28, 1997 (72.8% of total
assets and 118.6% of total shareholders' equity on a pro forma basis, giving
effect to acquisitions completed after December 28, 1997 and related borrowings
under the Credit Facility and this Offering). Such intangible assets may
increase if additional acquisitions are completed and will increase upon payment
of contingent earnout amounts with respect to completed acquisitions. These
intangible assets result in significant recurring amortization expense. In
addition, 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 Note 2 of Notes to Consolidated Financial Statements.
POSSIBLE INTERNATIONAL OPERATIONS
Although all of the Company's operations are currently in the United
States, the Company's growth plans contemplate possible international
operations. Operations in international markets are subject to risks inherent in
international business activities, including varying economic and political
conditions, cultures and business practices in different countries or regions,
overlapping or differing tax structures and compliance with a variety of
accounting and reporting requirements and complex or ambiguous foreign laws and
regulations. Fluctuations in the exchange rates between the U.S. dollar and the
currencies of the other countries in which the Company may operate could affect
the results of the Company's international operations and the value of such
operations' net assets that are reported in U.S. dollars.
INDEMNIFICATION OBLIGATIONS
Pursuant to the agreement to sell its healthcare division, the Company
agreed to indemnify the purchaser against certain specified expenses or losses
incurred by the purchaser. Although to date no claims have been asserted against
the Company pursuant to this indemnification provision, there can be no
assurance that indemnification claims will not be made or that such claims, if
made, would not have a material adverse effect on the Company's financial
condition or results of operations.
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 or staffing services industry 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 companies. These broad
fluctuations may adversely affect the market price of the Common Stock. See
"Price Range of Common Stock."
CERTAIN PROVISIONS RELATING TO CHANGES IN CONTROL
The Company's Certificate of Incorporation and Bylaws, as well as a
stockholder rights plan 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 pre-approved the terms of a series of Preferred Stock that may be issued
under the Company's stockholder rights plan upon the occurrence
10
<PAGE> 12
of certain triggering events. In general, the stockholder rights plan 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 -- Stockholder
Rights Agreement."
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. Additionally, the Company's Credit Facility currently
prohibits the payment of cash dividends on the Common Stock. See "Dividend
Policy."
11
<PAGE> 13
RECENT DEVELOPMENTS
RECENT ACQUISITIONS
Since December 28, 1997, the Company has completed the acquisition of three
information technology companies and four commercial staffing businesses. The
1997 revenues of the information technology companies acquired in 1998 were
$65.4 million, and the 1997 revenues of the commercial staffing companies
acquired in 1998 were $58.5 million. Although PGA regularly evaluates
acquisition opportunities, the Company currently has no definitive agreements
with respect to any future material acquisitions.
SALE OF HEALTHCARE DIVISION
On December 26, 1997, the Company completed the sale of its healthcare
division for $65.3 million. Of such amount, $34.6 million was initially paid by
delivery by the purchaser of a promissory note at closing and the balance was
paid in cash at closing. The note was paid in full in January 1998. The
Company's financial statements include financial results of the healthcare
division as a discontinued operation. For the fiscal year ended December 28,
1997, income from discontinued operations, net of taxes, was $2.4 million. See
Note 4 of Notes to Consolidated Financial Statements.
EXPANSION OF CREDIT FACILITY
On March 17, 1998, the Company closed an amendment to its Credit Facility
that increased the maximum availability thereunder from $125.0 million to $200.0
million and effected certain minor amendments to the Credit Facility. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
TWO-FOR-ONE STOCK SPLIT
On March 30, 1998, the Company completed a two-for-one split of its Common
Stock effected as a stock dividend.
USE OF PROCEEDS
The net proceeds from the sale of the 7,000,000 shares of Common Stock
offered by the Company hereby are estimated to be $153.5 million ($176.6 million
if the Underwriters' over-allotment option is exercised in full) based on a
public offering price of $23.00 per share and after deducting estimated
underwriting discounts and commissions and offering expenses. The Company
intends to use the net proceeds of this Offering to repay in full debt
outstanding under its Credit Facility and for general corporate purposes,
including possible acquisitions. At April 17, 1998, the Company had $153.2
million of borrowings outstanding under the Credit Facility. The Company's
Credit Facility currently bears interest at LIBOR plus 1.35 percentage points
and is scheduled to mature in June 2002. At March 31, 1998, the weighted average
interest rate for outstanding borrowings under the Credit Facility was 7.0%.
Borrowings under the Credit Facility have been used to finance acquisitions and
for general corporate purposes. See "Recent Developments."
The Company intends to continue to selectively pursue opportunities to
acquire businesses offering products similar or complementary to those offered
by the Company. Although the Company regularly evaluates acquisition
opportunities, the Company currently has no definitive agreements with respect
to any future material acquisitions.
12
<PAGE> 14
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
at December 28, 1997, (ii) the pro forma capitalization of the Company at
December 28, 1997, giving effect to the acquisitions completed by the Company
after that date and the increased borrowings under the amended Credit Facility
and (iii) the pro forma capitalization of the Company at December 28, 1997, as
adjusted to reflect the sale of the 7,000,000 shares of Common Stock offered by
the Company hereby (at an assumed public offering price of $23.00 per share),
after deduction of the estimated underwriting discounts and commissions and
offering expenses, and the application of the net proceeds therefrom as
described in "Use of Proceeds." The information in the table below is qualified
in its entirety by, and should be read in conjunction with, the Consolidated
Financial Statements of the Company and notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
DECEMBER 28, 1997
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Cash and cash equivalents................................. $ 642 $ 3,242 $ 12,068
======== ======== ========
Total debt:
Credit Facility......................................... $ 24,000 $144,632 $ --
5 3/4% convertible subordinated notes................... 115,000 115,000 115,000
Other debt.............................................. 13,540 13,540 13,540
-------- -------- --------
Total debt...................................... 152,540 273,172 128,540
-------- -------- --------
Shareholders' equity:
Preferred stock, $0.01 par value; 5,000 shares
authorized, no shares issued and outstanding......... -- -- --
Common stock, $0.01 par value; 95,000 shares authorized,
24,278 shares issued and outstanding, actual; 24,880
shares issued and outstanding, pro forma; and 31,880
shares issued and outstanding, pro forma as
adjusted(1).......................................... 242 249 319
Additional paid-in capital.............................. 171,038 179,993 333,381
Retained earnings....................................... 34,066 34,066 34,066
Deferred compensation................................... (270) (270) (270)
-------- -------- --------
Total shareholders' equity...................... 205,076 214,038 367,496
-------- -------- --------
Total capitalization.......................... $357,616 $487,210 $496,036
======== ======== ========
</TABLE>
- ---------------
(1) Excludes (i) 2,195,552 shares of Common Stock issuable upon exercise of
outstanding options at a weighted average exercise price of $12.20 per
share, (ii) approximately 2,446,148 additional shares reserved for issuance
under the Company's 1995 Equity Participation Plan and Employee Stock
Purchase Plan and (iii) 6,456,140 shares of Common Stock reserved for
issuance upon conversion of the Company's outstanding convertible
subordinated notes at a conversion price of $17.81 per share. See
"Description of Capital Stock -- Stock Option Plan," "-- Employee Stock
Purchase Plan" and Notes 10 and 11 of Notes to Consolidated Financial
Statements.
13
<PAGE> 15
DIVIDEND POLICY
The Company has paid no cash dividends on its Common Stock with respect to
earnings since the IPO 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 currently prohibits the Company from paying cash dividends on
the Common Stock.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "PGA." The following table sets forth the high and low sales prices
of the Common Stock as reported on the New York Stock Exchange for the periods
indicated.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal 1996:
First Quarter............................................. $10 $ 6 1/2
Second Quarter............................................ 13 1/8 9 3/16
Third Quarter............................................. 13 9 15/16
Fourth Quarter............................................ 14 3/8 9 11/16
Fiscal 1997:
First Quarter............................................. 13 5/8 9 13/16
Second Quarter............................................ 15 7/8 8 5/8
Third Quarter............................................. 18 1/32 14 1/2
Fourth Quarter............................................ 19 3/32 14 5/8
Fiscal 1998:
First Quarter............................................. 24 14 25/32
Second Quarter (through April 16, 1998)................... 23 1/2 21 1/2
</TABLE>
On April 16, 1998, the last reported sale price of the Common Stock on the
New York Stock Exchange was $23 per share. As of February 27, 1998, the Company
had approximately 6,500 stockholders based on the number of holders of record
and an estimate of the number of individual participants represented by
securities position listings.
14
<PAGE> 16
SELECTED FINANCIAL DATA
The selected consolidated financial data for each of the fiscal years in
the four-year period ended December 29, 1996 are derived from, and are qualified
by reference to, the consolidated financial statements of the Company, which
have been audited by Arthur Andersen LLP, independent public accountants. The
selected consolidated financial data as of December 28, 1997 and for the fiscal
year then ended are derived from, and are qualified by reference to, the
consolidated financial statements of the Company, which have been audited by
Price Waterhouse LLP, independent public accountants. The consolidated financial
statements as of December 29, 1996 and December 28, 1997 and for each of the
years in the three-year period ended December 28, 1997, and the reports thereon,
are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues............................ $107,386 $125,822 $143,243 $243,608 $475,620
Direct cost of services............. 84,310 99,948 109,755 186,338 349,616
-------- -------- -------- -------- --------
Gross profit........................ 23,076 25,874 33,488 57,270 126,004
Selling, general and
administrative.................... 17,642 19,426 24,568 38,454 79,216
Depreciation and amortization....... 1,528 1,498 1,149 3,362 9,037
-------- -------- -------- -------- --------
Operating income.................... 3,906 4,950 7,771 15,454 37,751
Interest expense.................... -- -- 159 1,155 6,951
-------- -------- -------- -------- --------
Income from continuing operations
before income taxes............... 3,906 4,950 7,612 14,299 30,800
Provision for income taxes.......... 1,716 2,181 3,282 5,995 13,010
-------- -------- -------- -------- --------
Income from continuing operations... 2,190 2,769 4,330 8,304 17,790
Income from discontinued operations,
net of taxes...................... 346 1,130 2,779 3,213 2,412
-------- -------- -------- -------- --------
Net income.......................... $ 2,536 $ 3,899 $ 7,109 $ 11,517 $ 20,202
======== ======== ======== ======== ========
Income from continuing operations
per diluted share................. $ -- $ -- $ 0.27 $ 0.41 $ 0.71
Income from discontinued operations
per diluted share, net of taxes... -- -- 0.17 0.16 0.09
-------- -------- -------- -------- --------
Net income per diluted share........ $ -- $ -- $ 0.44 $ 0.56 $ 0.80
======== ======== ======== ======== ========
Weighted average diluted shares
outstanding....................... -- -- 16,000 20,432 28,078
BALANCE SHEET DATA -- AT PERIOD END:
Working capital..................... $ 11,396 $ 11,792 $ 17,719 $ 26,558 $ 69,090
Intangible assets, net.............. 13,264 12,249 11,604 178,943 316,413
Total assets........................ 69,434 74,584 83,441 293,575 451,309
Convertible subordinated notes...... -- -- -- -- 115,000
Other short-term and long-term
debt.............................. -- -- -- 85,147 37,540
Shareholders' equity................ 64,257 68,438 75,986 183,257 205,076
</TABLE>
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and related notes 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.
The Company is organized into two divisions: the Information Technology
Division, which provides information technology staffing and consulting services
in a range of computer-related disciplines; and the Commercial Staffing
Division, which provides a wide variety of temporary office, clerical, light
technical and light industrial staffing services. Substantially all of the
Company's services are performed on a time and materials basis. At April 8,
1998, the Information Technology Division was comprised of 14 companies and the
Commercial Staffing Division was comprised of 24 companies.
The following table sets forth the number and nature of the Company's
offices at the end of the years indicated and at April 8, 1998:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
APRIL 8, ------------------
1998 1997 1996 1995
-------- ---- ---- ----
<S> <C> <C> <C> <C>
Information technology services........................... 37 30 18 --
Commercial staffing....................................... 100 82 74 58
--- --- -- --
Total offices................................... 137 112 92 58
</TABLE>
The Company completed its IPO in September 1995. Prior to the IPO, the
Company was an indirect wholly owned subsidiary of an international staffing
company (the "Former Parent"). The Company was organized to facilitate the IPO.
As a result of the IPO, in which the Former Parent 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 shares in the IPO.
In June 1996, the Company issued 8,050,000 shares of its common stock in a
second underwritten public offering (the "1996 Equity Offering"), which raised
approximately $95.6 million of net proceeds for the Company. The net proceeds of
the 1996 Equity Offering were used to repay outstanding borrowings under the
Credit Facility and to fund several acquisitions.
In June and July 1997, the Company completed a private placement of $115.0
million of 5 3/4% Convertible Subordinated Notes (the "Notes"). The net proceeds
of the Notes were approximately $111.8 million and were used to repay
indebtedness under the Credit Facility and to retire a separate $10.0 million
line of credit.
In 1997, the Company acquired six information technology services companies
and seven commercial staffing companies in seven separate transactions. The
combined pro forma revenues of these 13 companies were approximately $151.0
million in 1997. At April 8, 1998, the Company had completed seven acquisitions
subsequent to fiscal year end: Ann Wells Personnel in Silicon Valley,
California; Creative Temporaries in Charlotte, North Carolina; Corporate
Staffing Consultants in Charlotte, North Carolina; Advanced Business Consultants
in Kansas City, Missouri; IMA Plus in Jacksonville, Florida; The Temporary
Connection in Houston, Texas; and Trilogy Consulting in Chicago, Illinois. Ann
Wells Personnel, Creative Temporaries, Corporate Staffing Consultants and The
Temporary Connection are leading providers of commercial staffing services in
their respective markets. Advanced Business Consultants, IMA Plus and Trilogy
Consulting are leading providers of information technology services in their
respective markets. These companies had combined revenues of $123.9 million in
1997. Had the Company owned each of the acquired companies discussed above at
the beginning of 1997, the Company's pro forma 1997 revenues would have been
approximately $670.0 million, and 55% and 45% of such revenues would have come
from the Information Technology and Commercial Staffing Divisions, respectively.
16
<PAGE> 18
On December 26, 1997, the Company completed the sale of its healthcare
division for approximately $65.3 million. Of such amount, $34.6 million was
initially paid by delivery by the purchaser of a promissory note at closing and
the balance was paid in cash at closing. The note was paid in full in January
1998. With the sale of the healthcare division, the Company completed a
transformation that began in 1996 when the Company made a strategic commitment
to enter the high growth, high margin information technology services business.
The gain on the sale of the healthcare division was not material. As a result of
the sale, the healthcare division has been reflected as a discontinued operation
in the Company's financial statements for all periods presented.
Each of the Company's acquisitions has been accounted for using the
purchase method of accounting and has been included in the following discussions
as applicable since the respective dates of acquisition. The Company allocates
the excess of cost over the fair value of the net tangible assets first to
identifiable intangible assets, if any, and then to goodwill. The Company
believes that buying market-leading companies and then allowing them to maintain
their separate identities and independence preserves the goodwill for an
unlimited period. Although the Company believes that goodwill has an unlimited
life, the Company amortizes such costs on a straight-line basis over 40 years.
Intangible assets represented 70.1% of total assets and 154.3% of total
shareholders' equity at December 28, 1997. The Company evaluates the
recoverability of its investment in goodwill and other intangibles in relation
to anticipated future cash flows on an undiscounted basis. Based on this
assessment, the Company expects its investments in intangible assets to be fully
recovered.
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 or businesses. The timing of such expansion activities also can affect
period-to-period comparisons of the Company's results of operations.
OVERVIEW
The following table summarizes certain income statement information for the
Company for the years ended December 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Information technology
services................... $249,749 52.5% $ 55,472 22.8% $ -- 0.0%
Commercial staffing........... 225,871 47.5 188,136 77.2 143,243 100.0
-------- ----- -------- ----- -------- -----
Total revenues........ 475,620 100.0 243,608 100.0 143,243 100.0
Direct cost of services......... 349,616 73.5 186,338 76.5 109,755 76.6
-------- ----- -------- ----- -------- -----
Gross profit.......... 126,004 26.5 57,270 23.5 33,488 23.4
Selling, general and
administrative................ 79,216 16.7 38,454 15.8 24,568 17.2
Depreciation and amortization... 9,037 1.9 3,362 1.4 1,149 0.8
-------- ----- -------- ----- -------- -----
Operating income...... 37,751 7.9 15,454 6.3 7,771 5.4
Interest expense................ 6,951 1.5 1,155 0.5 159 0.1
-------- ----- -------- ----- -------- -----
Income from continuing
operations before income
taxes......................... 30,800 6.5 14,299 5.9 7,612 5.3
Provision for income taxes...... 13,010 2.7 5,995 2.5 3,282 2.3
-------- ----- -------- ----- -------- -----
Income from continuing
operations.................... 17,790 3.7 8,304 3.4 4,330 3.0
Total income from discontinued
operations, net of taxes...... 2,412 0.5 3,213 1.3 2,779 1.9
-------- ----- -------- ----- -------- -----
Net income...................... $ 20,202 4.2% $ 11,517 4.7% $ 7,109 5.0%
======== ===== ======== ===== ======== =====
</TABLE>
The commercial staffing business is subject to the seasonal impact of
summer and holiday employment trends. Typically, the second six months of each
calendar year is more heavily affected as companies tend to increase their use
of temporary personnel during this period. While the commercial staffing
business is cyclical, the Company believes that the broad geographic coverage of
its operations, its emphasis on high-end
17
<PAGE> 19
clerical staffing and its rapid expansion into the less cyclical information
technology services sector, mitigate the adverse effects of economic cycles in a
single industry or geographic region.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 28, 1997 VERSUS YEAR ENDED DECEMBER 29, 1996
Revenues. Total revenues increased 95.2% to $475.6 million in 1997 from
$243.6 million in 1996. Information technology services revenue grew 350.2% as
the Company continued its aggressive acquisition program with six information
technology acquisitions in 1997. In addition, the Company experienced strong
internal growth as information technology services revenues on a pro forma
basis, giving effect to 1997 acquisitions only, grew 34.7% in 1997 over 1996.
Commercial staffing revenue grew 20.1% as the result of the contribution of
revenues from the seven commercial staffing companies acquired by the Company in
1997 and as a result of pro forma internal growth, giving effect to 1997
acquisitions only, of 9.0% in 1997 over 1996. High internal growth rates in 1997
were due to the continued strong demand for information technology services and
the increasing acceptance by businesses and other organizations in the use of a
contingent workforce.
Direct Cost of Services and Gross Profit. Direct costs, consisting of
payroll and related expenses of consultants and temporary workers, increased
87.6% to $349.6 million from $186.3 million in 1996. Gross margin as a
percentage of revenue increased 300 basis points to 26.5% from 23.5% during
1996. This increase reflected the Company's continued expansion into the higher
margin information technology staffing and consulting sectors. Information
technology services revenues represented 52.5% of total revenues in 1997, up
from 22.8% in 1996. Gross profit margins in the Information Technology and
Commercial Staffing Divisions remained consistent with 1996 margins as pay rate
pressures were generally passed on to the Company's customers through higher
bill rates.
Operating Expenses. Operating expenses, consisting of selling, general and
administrative expenses and depreciation and amortization expense, increased
111.1% to $88.3 million in 1997 from $41.8 million in 1996. As a percentage of
revenues, selling, general and administrative expenses increased to 16.7% in
1997 from 15.8% for 1996. The increase is primarily due to a shift in the
business mix to information technology, which has higher selling, general and
administrative costs as a percentage of revenues in relation to the Commercial
Staffing Division. Depreciation and amortization expense during 1997 increased
to 1.9% of revenues from 1.4% of revenues for 1996 primarily due to the
acquisitions completed in 1997 and 1996.
Interest Expense. Interest expense increased to $7.0 million in 1997 as
the Company borrowed funds to continue its aggressive acquisition strategy. The
Company completed a private placement of $115.0 million of 5 3/4% Convertible
Subordinated Notes due 2004 in June and July 1997. In addition, the Company
continued to borrow funds under its Credit Facility and from certain sellers of
acquired businesses to finance acquisitions. Lower interest expense of $1.2
million in 1996 reflected the application of the proceeds received from the 1996
Equity Offering to finance certain 1996 acquisitions. See "-- Liquidity and
Capital Resources."
Income Tax Expense. The effective tax rate increased slightly to 42.2% in
1997 from 41.9% for 1996. This increase was due to additional nondeductible
amortization expense in 1997 in relation to pretax income, as well as an
increase in state income taxes attributable to changes in the Company's business
mix geographically among the states. The Company's effective tax rate has
historically been higher than the U.S. federal statutory rate of 35.0% primarily
due to state income taxes and nondeductible amortization expense.
Income from Continuing Operations. Income from continuing operations
increased 114.2% to $17.8 million in 1997 (or 3.7% of revenue) from $8.3 million
(3.4% of revenue) in 1996 due to the factors discussed above.
YEAR ENDED DECEMBER 28, 1996 VERSUS YEAR ENDED DECEMBER 31, 1995
Revenues. Total revenues increased 70.1% to $243.6 million in 1996 from
$143.2 million in 1995. Commercial Staffing Division revenue grew 31.3%,
primarily as the result of the contribution of revenues from
18
<PAGE> 20
the four commercial staffing companies acquired by the Company in 1996, internal
growth attributable to increases in billable hours and billing rates and an
improved service mix. All of the Information Technology Division's revenues
resulted from acquisitions completed in 1996.
Direct Cost of Services and Gross Profit. Direct costs, consisting of
payroll and related expenses of consultants and temporary workers, increased
69.8% to $186.3 million from $109.8 million in 1995. Gross margin as a
percentage of revenue increased slightly to 23.5% from 23.4% during 1995. This
increase reflected the Company's entry into the higher margin information
technology services sector in 1996.
Operating Expenses. Operating expenses, consisting of selling, general,
and administrative expenses and depreciation and amortization expenses,
increased 62.6% to $41.8 million in 1996 from $25.7 million in 1995. As a
percentage of revenues, selling, general and administrative expenses decreased
to 15.8% in 1996 from 17.2% for 1995 primarily as the result of the spreading of
these expenses over a larger revenue base. Depreciation and amortization expense
recognized during 1996 increased to 1.4% of revenues from 0.8% of revenues for
1995 primarily due to the acquisitions completed during 1996.
Interest Expense. Interest expense increased to $1.2 million in 1996 as
the Company borrowed funds under its Credit Facility and from certain sellers at
various times during the year primarily to finance acquisitions. See
"-- Liquidity and Capital Resources." Prior to March 1996, the Company had not
borrowed any funds under its Credit Facility, and interest expense had been
immaterial.
Income Tax Expense. The effective tax rate decreased to 41.9% in 1996 from
43.1% for 1995. This decrease was due to reductions in nondeductible
amortization expense related to pretax income and in state income taxes
attributable to changes in the Company's business mix geographically among the
states. The Company's effective tax rate has historically been higher than the
U.S. federal statutory rate of 35.0% primarily due to state income taxes and
nondeductible amortization expense.
Income from Continuing Operations. Income from continuing operations
increased 91.8% to $8.3 million in 1996 (or 3.4% of revenue) from $4.3 million
(or 3.0% of revenue) in 1995 due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Changes in liquidity during the year ended December 28, 1997, represented
the net effect of cash generated by operations, financing activities and from
the sale of the Company's healthcare division, offset by the Company's principal
uses of cash to finance receivables due to the growth in business, fund
acquisitions and make capital expenditures. For the year ended December 28,
1997, cash provided by operating activities increased to $23.4 million, up from
$7.5 million for 1996, primarily as the result of higher earnings before
depreciation and amortization in 1997. Cash used for investing activities
decreased to $91.0 million in 1997 from $164.6 million in 1996. This decrease
reflected the reduction in cash used for acquisitions of $115.7 million in 1997
versus $155.8 million in 1996, as well as the cash received in connection with
the sale of the healthcare division. Cash flows from financing activities
decreased to $63.1 million in 1997 from $157.6 million in 1996. This decrease is
primarily due to net repayments under the Credit Facility in 1997 versus net
borrowings under the Credit Facility in 1996, offset by the $111.8 million net
proceeds from the issuance of the Notes.
As of December 28, 1997, receivables for the Information Technology
Division and the Commercial Staffing Division remained outstanding an average of
53 and 44 days, respectively, after billing. In the aggregate, days sales
outstanding were 48 and 51 days at December 28, 1997, and December 29, 1996,
respectively.
The Company's primary capital expenditure requirements relate to
acquisitions. As of the date of this Prospectus, the Company has made cash
payments, including contingent earnout and post-closing payments, and issued
notes aggregating $448.4 million for acquisitions of existing businesses. As of
December 28, 1997, the Company was obligated under certain acquisition
agreements to repay notes during the next two years of $13.1 million in the
aggregate and to make contingent earnout and post-closing payments to former
owners of acquired businesses. As of December 28, 1997, the Company has recorded
$34.1 million and $2.4 million of
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<PAGE> 21
contingent consideration to be paid in 1998 and 1999, respectively, relating to
1997 earnings, and has recorded $4.6 million of post-closing payments due to
former owners of acquired businesses. Earnout payments based on 1998 earnings
and beyond are contingent on the future performance of such acquired businesses,
and thus the actual amount cannot be determined until such date. The Company
estimates, based on certain assumptions as to future performance of such
acquired businesses, that aggregate earnout payments may be in the range of
$15.0 million to $24.0 million in 1999, $18.0 million to $28.0 million in 2000,
and $7.0 million to $10.0 million in 2001. There can be no assurance, however,
that the future performance of the acquired businesses will be consistent with
the assumptions used in establishing the foregoing estimates, or that the actual
amounts of any earnout payments will not differ materially from the estimates
set forth herein.
The Company selectively seeks acquisition opportunities in the ordinary
course of business, and management believes that the Company will continue to
make acquisitions as attractive opportunities become available. The Company
intends to seek additional capital as necessary to fund other potential
acquisitions through one or more funding sources that may include borrowings
under the Credit Facility described below 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 any acquisition expenditures. The Company
also expects to spend approximately one percent of its revenues during 1998 on
field automation systems, management information systems and other capital
expenditures not directly related to acquisitions.
The Company's Credit Facility is a five-year $200.0 million revolving line
of credit due June 2002. As of December 28, 1997, $24.0 million of borrowings
were outstanding under the Credit Facility and approximately $4.0 million had
been used for the issuance of undrawn letters of credit to secure the Company's
workers' compensation programs. Borrowings under the Credit Facility bear
interest at a rate equal to LIBOR plus a percentage corresponding to the
Company's consolidated leverage ratio, as defined, or the agent's base rate, as
defined, at the Company's option. In 1997, the daily weighted average interest
rate under the Credit Facility was 7.2%.
At April 17, 1998, the amount available for borrowing under the Credit
Facility was approximately $42.8 million. The Credit Facility is secured by
pledges of the stock of the Company's subsidiaries and contains customary
covenants such as the maintenance of certain financial ratios, minimum net worth
and working capital requirements, and a restriction on the payment of cash
dividends on the Common Stock. The Credit Facility also limits borrowing
availability for acquisition-related purposes.
In June and July 1997, the Company completed the private placement of
$115.0 million of Notes. The net proceeds of approximately $111.8 million from
this offering were used to repay a substantial portion of outstanding
indebtedness under the Company's Credit Facility and permanently repay
outstanding indebtedness under a separate $10.0 million line of credit. The
Notes are subordinated to all present and future senior indebtedness of the
Company, including indebtedness under the Credit Facility. Interest on the Notes
is payable semi-annually, commencing January 1998. The Notes are convertible
into Common Stock of the Company at any time before maturity at a conversion
price of $17.81 per share. The Notes are not redeemable prior to July 2000.
Thereafter, the Company may redeem the Notes initially at 103.29% and at
decreasing prices thereafter to 100% at maturity, in each case together with
accrued interest.
The Company believes that cash flow from operations, borrowing capacity
under the Credit Facility, the proceeds from this Offering and other available
financing alternatives, including offerings of debt or equity securities of the
Company, will be adequate to meet its presently anticipated needs for working
capital, acquisitions, and capital expenditures. There can be no assurance,
however, that other alternative sources of capital will be available in the
future or, if available, that any such alternative sources will be available on
favorable terms.
New Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosure about Segments of an Enterprise and Related Information,"
("FAS 131") which changes the way that public companies report information about
operating segments in annual and interim financial statements. FAS 131 will be
effective in years beginning after December 15, 1997. The Company will be
required to adopt FAS 131
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<PAGE> 22
beginning with its 1998 annual financial statements. Management has not yet
completed its analysis of the impact that this standard will have on the
financial statements of the Company.
Year 2000 Compliance
Management believes that the Company's operational and financial reporting
systems are substantially Year 2000 compliant. Future Year 2000 compliance costs
are not expected to have a material impact on the financial position, results of
operations or cash flows of the Company. Management does not know at this time
what, if any, impact Year 2000 compliance may have on its payor and vendor
sources and the impact, if any, on the Company if such payors or vendors are not
fully compliant. Management is attempting to determine when its significant
payors and vendors will be Year 2000 compliant.
Inflation
The effects of inflation on the Company's operation were not material in
1997. Inflationary increases in payroll costs were generally passed on to the
Company's customers through higher bill rates.
Forward-Looking Information
This Prospectus, including "Management's Discussion and Analysis of
Financial Condition and Results of Operations," may contain various
"forward-looking statements," within the meaning of Section 21E of the
Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933,
which are based on management's belief and assumptions, as well as information
currently available to management. When used in this Prospectus, the words
"anticipate," "estimate," "expect" and similar expressions may identify forward-
looking statements. Although the Company believes that the expectations
reflected in any such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. Any 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, the Company's actual results, performance or financial
conditions may vary materially from those anticipated, estimated or expected.
Among the key factors that may have a direct bearing on the Company's actual
results, performance or financial condition are fluctuations in the economy,
general employment trends, including wage trends, the degree and nature of
competition, demand for the Company's services, changes in laws and regulations
affecting the Company's business, 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 and wage inflation and other matters
discussed in this Prospectus and the Company's other filings with the Securities
and Exchange Commission.
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<PAGE> 23
BUSINESS
Personnel Group of America, Inc. is a leading provider of information
technology and commercial staffing services. The Company's staffing services
include temporary staffing, placement of full-time employees, on-site management
of temporary employees, training and testing of temporary and permanent workers
and information technology consulting. At April 8, 1998, the Company operated
through a network of 137 offices in 25 states and the District of Columbia. For
the year ended December 28, 1997, on a pro forma basis, the Company had revenues
of approximately $670.0 million.
The Company has grown by increasing revenues of existing operations and by
making selected acquisitions. Since its IPO in September 1995, PGA has acquired
30 operating companies. With the sale of its healthcare division on December 26,
1997, the Company exited the highly regulated, low growth healthcare staffing
sector and completed a transformation begun in May 1996 when the Company
committed to enter the high growth, high margin information technology services
business. For the year ended December 28, 1997, on a pro forma basis, the
Information Technology Division accounted for approximately 55% of the Company's
revenues. Through strategic acquisitions, the Company has (i) become a leading
provider of information technology staffing services in selected markets, (ii)
strengthened and broadened the market coverage of its commercial staffing
services, (iii) developed multiple cross-selling opportunities between the
Company's Information Technology and Commercial Staffing Divisions in several
target geographic markets, (iv) established a significant presence in certain
key geographic regions of the country and (v) diversified its operations both
geographically and operationally. By reallocating to the Information Technology
and Commercial Staffing Divisions economic and other resources previously
committed to the healthcare division, PGA intends to accelerate its growth, both
internally and through acquisitions.
The Information Technology Division is comprised of 14 companies that offer
information technology professionals and consulting services in a range of
computer-related disciplines. The Information Technology Division provides
skilled personnel, such as programmers, systems designers, LAN administrators,
systems integrators, helpdesk staff and other technology specialists to a wide
variety of clients, typically on an as-needed, time and materials basis. The
Commercial Staffing Division is comprised of 24 companies that offer a wide
variety of temporary office and clerical services to more than 10,000
organizations nationwide. The Commercial Staffing Division provides temporary
personnel who perform general office and administrative services, word
processing and desktop publishing, office automation, records management,
telemarketing and other staffing services. The Commercial Staffing Division also
provides light technical and light industrial services to its customers, but
these services account for a small portion of the division's total revenues.
INDUSTRY OVERVIEW
The staffing services industry has grown rapidly over the past decade.
According to NATSS, the U.S. market for temporary staffing services grew at a
compound annual rate of approximately 16.3% from approximately $20.5 billion in
1991 to approximately $43.6 billion in 1996. According to NATSS, studies have
shown 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 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. Advances in technology have also created a need for temporary staffing
of workers skilled in using the new technology. In addition, entrants into the
labor force increasingly look to temporary assignments as a way to build
experience, make contacts, gain valuable exposure to a variety of work settings,
and as a vehicle to obtain 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 activities, 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
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<PAGE> 24
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 as a method of screening and selectively hiring
employees that ultimately may be added to their full-time staff.
In addition to the general trends affecting the staffing services industry,
specific factors are contributing to the strong growth in the information
technology sector. In recent years, businesses have become increasingly
dependent on the use of computer information technology to manage operations
more efficiently and remain competitive. Faced with the challenge of
implementing and operating more complex information systems without enlarging
their corporate staffs, businesses are increasingly turning to information
technology staffing companies as a variable-cost solution. According to INPUT,
revenue from information technology professional services has grown from $27.2
billion in 1995 to an estimated $37.1 billion in 1997, representing a compound
annual growth rate of 16.8%. Management believes that, even during economic
downturns, rapid and continual changes in information technology increase the
demand for staffing services.
BUSINESS STRATEGY
The Company's objective is to be a premier provider of information
technology services and commercial staffing services and the employer of choice
in selected markets in which the Company expects growth in the demand for such
services. The Company's strategy includes the following key elements:
Enhance Internal Growth. The Company plans to expand its existing
businesses by maintaining its decentralized management structure and pursuing
the following objectives:
- Focus on Local and Regional Markets. Each of the Company's offices
does business under established local brand names, most of which have
been continuously in use for more than 16 years. The Company intends
to continue building on the strong reputations of these local brand
names in their markets while leveraging the sophisticated support
services and low cost structures of a national provider. The Company's
clients are primarily local and regional, including substantial
accounts with local and regional offices of Fortune 500 companies. The
Company generally does not seek or compete for national contracts,
which typically yield lower gross margins than locally awarded
contracts. The Company believes 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.
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.
- 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
generally has experienced long-term tenure of local management and
continuity in client relationships, with the average tenure of local
management at the operating companies being greater than 13 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. 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's
customized on-site temporary personnel management system, the Company
provides a high level of on-site service to major staffing clients.
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<PAGE> 25
Leverage Existing Infrastructure. The Company seeks to increase revenues
and profitability by adding offices and employees without proportionately
increasing overhead expenses. The Company's organizational structure allows the
Company to leverage the costs associated with centralized billing and payroll
functions, workers' compensation liability, 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.
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.
In addition, office clustering facilitates cross-marketing opportunities between
the Information Technology Division and the Commercial Staffing Division.
Make Selected Acquisitions. The Company seeks acquisitions of market
leading companies that will expand the geographic scope of its Information
Technology and Commercial Staffing Divisions, strengthen its professional
services and introduce new specialty services 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. PGA has demonstrated its ability to increase the revenues
and cash flow of an acquired company by providing many of the sophisticated
systems, marketing programs, and the immediate benefits of purchasing power of a
national company while, at the same time, capitalizing on the acquired firm's
significant brand identity and established customer relationships in specific
local market areas. The Company uses an acquisition profile in selecting
attractive acquisition candidates, and applies a disciplined approach to the
acquisition process. 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
further believes that acquisition risk is minimized by the Company's strategy of
acquiring market leaders in its target markets and retaining local management.
The Company avoids acquiring companies that require significant operational
improvements.
INFORMATION TECHNOLOGY DIVISION
The Information Technology Division provided information technology
professionals and consulting services through 37 offices in 19 states and the
District of Columbia at April 8, 1998. The Information Technology Division had
approximately 3,250 consultants on assignment at April 8, 1998, of which
approximately 50% were salaried employees and 50% were hourly (including
independent contractors).
The Information Technology Division was created in 1996 following the
acquisition by the Company of five companies in the information technology
services business. The Information Technology Division provides skilled
personnel, such as programmers, systems designers, software engineers, LAN
administrators, systems integrators, helpdesk staff and other technology
specialists, to a wide variety of clients, typically on an as-needed time and
materials basis. The Information Technology Division's staffing services include
providing individuals or teams of computer professionals to corporations and
other organizations that need assistance with project management, analysis,
systems design, programming, maintenance, testing and special technologies for
short-term and long-term information technology projects. A number of the
division's operating companies also provide Year 2000 staffing services. The
division's service offerings encompass a wide variety of tasks, ranging from
management of all aspects of a project or the implementation of turnkey systems
to the fulfillment of temporary staffing needs for technology projects.
Selected offices in the Information Technology Division also provide
complementary or stand-alone consulting services in the information technology
area, typically on an as-needed, time and materials basis. For example, BEST
Consulting's Enterprise Division works with clients, chief executive officers
and other executives interested in alternatives to outsourcing their internal
information technology organization, as well as implementing complex systems
integration solutions, and offers a broad range of consulting services,
including systems development projects and client/server networks that span
mainframe, mid-range and desktop systems. These services are provided at the
client's site or at Enterprise's off-site development center. The Company
intends to continue expanding the consulting services component of the
Information Technology Division as part of its strategy to offer a full range of
information technology services to its clients. Other
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<PAGE> 26
Information Technology Division companies also provide information technology
consulting services to supplement their staffing services offerings.
Operations
The Information Technology Division markets its services to regional and
local accounts on a decentralized basis. The following table sets forth
information at April 8, 1998, on the names, markets, numbers of offices, dates
founded and dates acquired of the Information Technology Division companies:
<TABLE>
<CAPTION>
NUMBER OF DATE DATE
NAME MARKETS OFFICES FOUNDED ACQUIRED
- ---- ------- --------- ------- --------
<S> <C> <C> <C> <C>
Advanced Business Kansas City, MO 1 1986 Feb. 1998
Consultants
BAL Associates Los Altos, CA 2 1989 Dec. 1997
Orlando, FL
BEST Consulting Seattle and Olympic, WA 11 1990 Sept. 1996
Portland, OR
Salt Lake City, UT
Boise, ID
Sacramento, CA
Phoenix, AZ
Minneapolis, MN
Las Vegas and Reno, NV
Broughton Systems Richmond, VA 2 1981 July 1996
Research Triangle Park, NC
Command Technologies Denver, CO 1 1978 July 1996
Computer Resources San Francisco, 4 1972 June 1996
Group Sacramento and Santa Clara, CA
Salt Lake City, UT
DRACS Consulting Group Atlanta, GA 1 1989 Sept. 1997
Energetix Chicago, IL 1 1988 Feb. 1997
IMA Plus Jacksonville, FL 1 1984 March 1998
Lipson Conroy Services Silicon Valley, CA 1 1992 Apr. 1997
Lloyd-Ritter Consulting Silicon Valley, CA 1 1980 Apr. 1997
Software Service Corp. Atlanta, GA 2 1990 Sept. 1996
Birmingham, AL
Trilogy Consulting Chicago, IL 5 1982 Apr. 1998
Kalamazoo, MI
San Mateo, CA
Princeton, NJ
Research Triangle Park, NC
Vital Computer Services New York, NY 4 1970 June 1997
Livingston, NJ
Washington, DC
Miami, FL
</TABLE>
Sales and Marketing
The Information Technology Division has developed a sales and marketing
strategy that focuses on both regional and local accounts, and is implemented in
a decentralized manner through its various branch
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<PAGE> 27
locations. At the regional level, the Information Technology Division has
attained preferred vendor status under multiple local brand names at a variety
of large clients. These accounts are typically targeted by a local Information
Technology Division company with a presence in a specific market, and then are
sold on the basis of the strength of the Information Technology Division's
geographic presence in multiple markets.
Local accounts are targeted and sold by account managers at the branch
offices, permitting the Information Technology Division to capitalize on the
brand names of the companies in the Information Technology Division and the
local expertise and established relationships of its branch office employees.
Such accounts are solicited through personal sales presentations, telephone
marketing, direct mail solicitation, referrals from clients and other companies
in the Information Technology and Commercial Staffing Divisions and advertising
in a variety of local and national media. These advertisements appear in the
Yellow Pages, newspapers and trade publications. Local employees are also
encouraged to be active in civic organizations and industry trade groups to
facilitate the development of new customer relationships.
COMMERCIAL STAFFING DIVISION
At April 8, 1998, the Commercial Staffing Division operated through 100
offices in 13 states and the District of Columbia. The Commercial Staffing
Division provides temporary personnel who perform general office and
administrative services, word processing and desktop publishing, office
automation, records management, production/assembly/distribution, telemarketing,
finance, accounting and other staffing services, typically on an as-needed, time
and materials basis. Certain of the Commercial Staffing Division's offices also
provide full-time placement and payrolling services. Payrolling services entail
employment by the Commercial Staffing Division of individuals recruited by a
customer for which the Commercial Staffing Division is compensated on a fee
basis.
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Operations
The Commercial Staffing Division markets its staffing services to local and
regional clients through its network of offices across the United States. The
following table sets forth information at April 8, 1998, on the names, markets,
numbers of offices and dates founded of the Commercial Staffing Division's
companies:
<TABLE>
<CAPTION>
NUMBER OF DATE
NAME MARKETS OFFICES(1) FOUNDED
- ---- ------- ---------- -------
<S> <C> <C> <C>
Abar Staffing San Francisco Bay Area, CA 5 1954
Allegheny Personnel Pittsburgh, PA 4 1972
Ann Wells Personnel(2) Silicon Valley, CA 1 1980
Corporate Staffing Consultants(2) Charlotte, NC 5 1975
Creative Temporaries(2) Charlotte, NC 6 1972
Denver Temporaries Denver, CO 2 1978
FirstWord Staffing Services Dallas, TX 7 1978
Jeffrey Staffing Group Boston, MA 11 1971
(Franklin-Pierce Associates,
Franklin-Pierce Temporaries,
Scott-Wayne Associates,
Scott-Wayne Staffing, Scott-Wayne
Temporaries and Integrity
Technical Services)
Judith Fox Staffing Companies Richmond and Charlottesville, 3 1978
(Judith Fox Staffing and Rosemary VA
Scott Temporaries) New York, NY
Profile Temporaries Loop Area of Chicago, IL 1 1979
Staffinders Personnel Houston, TX 3 1983
Temp Connection New York and Long Island, NY 2 1982
TempWorld Atlanta, GA 14 1980
Birmingham, AL
Washington, DC
The Temporary Connection(2) Houston, TX 6 1984
Austin, TX
Dallas, TX
Thomas Staffing Los Angeles/Orange County, CA 20 1969
Riverside/San Bernardino, CA
San Diego, CA
West Personnel Service North and West 7 1954
Suburban Chicago, IL
Word Processing Professionals New York, NY 1 1982
Word Processors Personnel Services Atlanta, GA 2 1978
</TABLE>
- ---------------
(1) Does not include SourcePLUS vendor-on-premises locations at customer sites.
(2) Ann Wells Personnel, Creative Temporaries and Corporate Staffing were
acquired by the Company in January 1998 and The Temporary Connection was
acquired in March 1998.
The Commercial Staffing Division strives to satisfy the needs of its
customers by providing customized services, such as on-site workforce management
and full-time placement services. The flexibility of the Commercial Staffing
Division'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.
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<PAGE> 29
To meet the growing demand in the staffing services business for on-site
management capability, the Commercial Staffing Division offers SourcePLUS, its
customized on-site temporary personnel management system. SourcePLUS places an
experienced staffing services manager at the client facility to provide complete
staffing support, customized to meet client-specific needs. This program
facilitates client use of temporary personnel and allows the client to outsource
a portion of its personnel responsibility to the Commercial Staffing Division's
on-site representative, who gathers and records requests for temporary jobs from
client department heads and then fulfills client requirements. These
representatives can also access the Commercial Staffing Division's systems
through on-site personal computers.
The Commercial Staffing Division's full-time placement services provide
traditional staff selection and recruiting services to its clients. In addition
to recruiting employees through referrals, the Commercial Staffing Division
places advertisements in local newspapers to recruit employees for specific
positions at client companies. The Commercial Staffing Division utilizes its
expertise and selection methods to evaluate the applicant's credentials. If the
applicant receives and accepts a full-time position at the client, the
Commercial Staffing Division charges the employer a one-time fee, generally
based on the annual salary of the employee.
In order to maintain a consistent quality standard for all its temporary
employees, the Commercial Staffing Division uses a comprehensive automated
system, the QuestPLUS System, to screen and evaluate potential temporary
personnel, make proper assignments and review a temporary employee's
performance. The QuestPLUS System integrates the results of skills testing with
personal attributes and work history and automatically matches available
candidates with customer requirements. The Commercial Staffing Division also
provides uniform training to all of its employees in sales, customer service and
leadership skills.
Sales and Marketing
The Commercial Staffing Division has implemented a business development
program to target potential customers with temporary staffing needs and to
maintain and expand existing customer relationships. The marketing efforts of
the Commercial Staffing Division are decentralized and capitalize on
long-standing business relationships with the clients of the Commercial Staffing
Division's companies and their established brand names, most of which have been
in use for more than 20 years. The Commercial Staffing Division obtains new
clients primarily through personal sales presentations and referrals from other
clients of the Information Technology and Commercial Staffing Divisions 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 Commercial Staffing Division devotes the majority of its selling
efforts to the local and regional operations of a wide variety of businesses
(including a number of Fortune 500 companies) that it has identified as
consistent users of temporary staffing services. Local and regional accounts are
characterized by shorter sales cycles and higher gross margins. The Commercial
Staffing 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.
The commercial 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 commercial staffing industry
is cyclical, the Company believes that the broad geographic coverage of its
operations and the diversity of the services it provides (including its emphasis
on high-end white collar clerical workers) generally mitigate the adverse
effects of economic cycles in a single industry or geographic region.
RECRUITING AND RETENTION OF TEMPORARY EMPLOYEES
The Company recruits its temporary employees and Information Technology
Division consultants through a recruiting program that primarily utilizes local
and national advertisements and the Internet. In addition, the Company has
succeeded in recruiting qualified employees through referrals from its existing
labor force. To encourage further referrals, certain of the companies in the
Information Technology and
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<PAGE> 30
Commercial Staffing Divisions have initiated policies whereby they pay referral
fees to employees responsible for attracting new recruits. 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. The Commercial Staffing Division employs temporary employees on
an as-needed, time and materials basis dependent upon client demand. These
temporary employees are paid only for time they actually work.
In the Information Technology Division, the demand for technology
consultants significantly exceeds supply. In an effort to attract a broad
spectrum of employees, the Company offers a wide variety of employment options
and training programs. The Company emphasizes the utilization of salaried
full-time status for its consultants with the payment of annual salaries
irrespective of assignment. In addition, the Information Technology Division
operates a number of formal and informal training programs to provide its
consultants with access to and training in new software applications and a
diverse mix of mainframe, client/server and personal computer technologies. The
Company believes that these training initiatives have improved employee
recruitment and retention, increased the technical skills of the Information
Technology Division's personnel and resulted in better service for the
Information Technology Division's clients.
The Company provides competitive compensation packages and benefits for all
of its temporary employees. Most of the temporary employees are also eligible
for the Company's 401(k) matching plans and employee stock purchase plan.
ORGANIZATIONAL STRUCTURE
The Company operates through a network of decentralized Company-operated
offices. Each 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 offices in a region, branch managers may report to
regional managers, division vice presidents or, in the Commercial Staffing
Division, a division president. 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 of
their operations and is designed to motivate them to maximize the growth and
profitability of their offices.
AUTOMATED OPERATING SYSTEMS
The Commercial Staffing Division uses a number of automated systems to
allow it to quickly and effectively measure the skills of temporary employee
candidates and to match skills with client requests. 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 allows 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 utilizes branch paybill systems for the Commercial Staffing
Division. The paybill processing system provides payroll processing and customer
invoicing. Installation of this system began in the second quarter of 1996 and
has been completed in all of the Division companies that were part of the
Company in September 1995, when the Company went public. Installation of this
system in subsequently acquired companies is continuing.
In the Information Technology Division, the Company has entered into an
agreement with a software company for a new branch operating system for the
existing information technology companies. Installation of this new system began
in the first quarter of 1997 and has been completed in over 50% of the
Division's existing offices. The Company expects that additional acquired
companies will install this system during 1998.
The Company has also recently entered into an agreement with a software
company to install human resources and financial systems for its information
technology companies. Installation of these systems is expected to begin in the
second quarter of 1998 and continue through the year 2000.
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<PAGE> 31
There can be no assurance, however, that there will not be unanticipated
costs or delays associated with these installations or that the systems will
operate as expected.
COMPETITION
The United States 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. However, the commercial staffing and information
technology staffing industries have been undergoing significant consolidation.
The largest publicly owned companies specializing in personnel staffing services
in the United States are Manpower Inc., Kelly Services, Inc., Adecco, Inc., The
Olsten Corporation, AccuStaff, Incorporated, Interim Services Inc. and Norrell
Corporation, all of which have greater marketing, financial and other resources
than the Company.
In the temporary staffing industry, competition generally is limited to
firms with offices located within a customer's particular local market. In most
major markets, commercial staffing competitors generally include many of the
publicly traded companies and, in addition, numerous regional and local
full-service and specialized temporary service agencies, some of which may
operate only in a single market. Competitors for information technology services
include local information technology staffing firms, large, multi-purpose
staffing firms and accounting firms.
Since many clients 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 large clients 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
appropriately skilled temporary personnel at the local level 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 and the
number of hours of work available. Management believes that it is highly
competitive in these areas due to its focus on local markets and the autonomy
given to its local management.
REGULATION
The Company, like other temporary employment service firms, is generally
subject to the following types of government regulation: (i) regulation of the
employer/employee relationship between a firm and its temporary employees; (ii)
registration, licensing, record keeping and reporting requirements; and (iii)
substantive limitations on its operations. The Company is the legal employer of
its temporary workers. Therefore, it is governed by laws regulating the
employer/employee relationship, such as tax withholding or reporting, social
security or retirement, anti-discrimination and workers' compensation.
TRADEMARKS
The Company maintains a number of trademarks, tradenames, service marks and
other intangible rights. The Company is not currently aware of any infringing
uses or other conditions that would materially and adversely affect its use of
its proprietary rights.
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<PAGE> 32
EMPLOYEES
At April 8, 1998, the Company had approximately 1,025 permanent
administrative employees. None of the Company's employees are covered by
collective bargaining agreements. The Company believes that its relationships
with its employees are good.
PROPERTIES
Generally, 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 Information Technology and
Commercial Staffing Divisions' offices are typically in high quality office or
industrial buildings, and occasionally in retail buildings, and the Company's
headquarters facilities and regional offices are in similar facilities.
LEGAL PROCEEDINGS
From time to time the Company is involved in 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. In the opinion of the Company's management, matters
presently pending will not in the aggregate have a material adverse effect on
the Company's financial condition or results of operations.
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<PAGE> 33
MANAGEMENT
EXECUTIVE OFFICERS, DIVISION OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
Company's current executive officers, division officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Edward P. Drudge, Jr...................... 59 Chairman of the Board and Chief Executive Officer
James C. Hunt............................. 41 Chief Financial Officer, Treasurer and Director
Ken R. Bramlett, Jr....................... 38 Senior Vice President, General Counsel, Secretary
and Director
Michael H. Barker......................... 43 President -- Commercial Staffing Division
Rosemary Payne-Harris..................... 46 Senior Vice President -- Atlantic Operations,
Commercial Staffing Division
Ann S. Fleming............................ 55 Senior Vice President -- Central Operations,
Commercial Staffing Division
Craig E. Newbold.......................... 49 Senior Vice President -- Western Operations,
Information Technology Division
Kevin P. Egan(1).......................... 55 Director
J. Roger King(1).......................... 58 Director
James V. Napier(1)(2)..................... 61 Director
William J. Simione, Jr.(2)................ 56 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
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, S.A., a Swiss corporation ("Adia"),
and Senior Vice President of Adia Services, Inc., a California corporation and
wholly owned subsidiary of Adia, 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 Proctor & Gamble.
James C. Hunt: Mr. Hunt joined the Company as a Senior Vice President on
January 2, 1997, and has served as Chief Financial Officer and Treasurer and as
a director of the Company since March 1, 1997. Prior to joining the Company, Mr.
Hunt spent 18 years with Arthur Andersen LLP, a worldwide accounting and
consulting firm, the last six years as a partner.
Ken R. Bramlett, Jr.: Mr. Bramlett has served as Senior Vice President,
General Counsel and Secretary of the Company since October 1996 and as a
director of the Company since August 13, 1997. Prior to joining the Company, Mr.
Bramlett spent 12 years with Robinson, Bradshaw & Hinson, P.A., a Charlotte,
North Carolina law firm, the last six years as a partner. Mr. Bramlett serves on
the board of directors of World Acceptance Corporation, a small loan consumer
finance company headquartered in Greenville, South Carolina.
Michael H. Barker: Mr. Barker has served as President of the Commercial
Staffing Division since January 1998. Prior to joining the Company, Mr. Barker
served as the Chief Operations Officer for the Computer Group Division of IKON
Technology Services, a diversified technology company, for three years. Prior to
that, Mr. Barker served as a regional vice president for Control Data, Inc., a
systems integration company, for three years.
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<PAGE> 34
Rosemary Payne-Harris: Ms. Payne-Harris has served as a Senior Vice
President of the Company since the formation of the Company in July 1995 and as
Senior Vice President of Atlantic Operations of the Commercial Staffing Division
since October 1996. Prior to that time, Ms. Payne-Harris was Vice President of
Field Operations for the Personnel Group of America Division of Adia Services,
Inc., having joined Adia in July 1990. Prior to joining Adia, Ms. Payne-Harris
was with Manpower, Inc. for a total of eight years.
Ann S. Fleming: Ms. Fleming has served as Senior Vice President of Central
Operations of the Commercial Staffing Division since October 1996 and as
President of FirstWord Temporary Services since September 1991. Prior to joining
the Company, Ms. Fleming spent nine years in the temporary help business with
Manpower, Inc. and Volt Information Services.
Craig E. Newbold: Mr. Newbold has served as Senior Vice President of
Western Operations of the Information Technology Division since January 1, 1998.
Mr. Newbold also has served as President of BEST Consulting for the past seven
years. The Company acquired BEST Consulting in September 1996.
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. PrimeNet provides database and integrated marketing services. Prior
to forming PrimeNet in 1983, Mr. Egan was senior vice president of Manpower
Temporary Services from 1975 to 1983. Mr. Egan also previously held marketing
and management positions with the Graphic Services Division of 3M Company and
Transamerica Computer Co., London, England.
J. Roger King: Mr. King has served as a director of the Company since
September 1995. Mr. King retired on February 1, 1998, after a 28-year career
with PepsiCo, Inc. and its affiliates. Mr. King joined the Frito-Lay Division of
PepsiCo in 1969 and served in various personnel and employee relations positions
for PepsiCo, including Senior Vice President of Personnel of PepsiCo, from 1984
to 1995. Mr. King served as Senior Vice President of Human Resources of
Frito-Lay from June 1995 until his retirement.
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. Between 1988 and 1992,
Mr. Napier served as Chairman and Chief Executive Officer of The Commercial
Telephone Group, a telecommunications engineering and design company, and
between 1985 and 1986, as Chief Executive Officer and President of HBO &
Company, Inc., a health care information services company. 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., 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 has served as Vice Chairman and
Executive Vice President of Simione Central Holdings, Inc., which provides
consulting services and information services to the home health care industry,
since October 1996, and served with its predecessors prior to that time. He is a
member of the Prospective Payment Task Force, a Regulatory Affairs Subcommittee
for the National Association for Home Care, and is one of the Subcommittee's
National Reimbursement Consultants. Mr. Simione is also a member of many state
and federal committees involving home care issues.
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<PAGE> 35
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company currently consists of
95,000,000 shares of Common Stock, par value $.01 per share, and 5,000,000
shares of Preferred Stock, par value $.01 per share.
COMMON STOCK
Holders of the Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. 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. In addition, the Company's Credit Facility currently
prohibits the Company from paying cash dividends on the Common Stock. 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 validly issued, fully paid and
nonassessable.
The Transfer Agent and Registrar for the Common Stock is First Union
National Bank.
PREFERRED STOCK
The Company's Board of Directors is authorized to issue from time to time,
without shareholder 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 agreement described below, has
pre-approved the terms of a series of Preferred Stock which may be issued upon
the occurrence of certain triggering events.
STOCK OPTION PLAN
The Company's 1995 Equity Participation Plan currently has reserved for
issuance at all times thereunder a number of shares equal to 15% of the Common
Stock issued and outstanding from time to time.
EMPLOYEE STOCK PURCHASE PLAN
The Company's 1997 Employee Stock Purchase Plan currently has reserved for
issuance approximately 1,000,000 shares of Common Stock.
STOCKHOLDER RIGHTS AGREEMENT
On February 6, 1996, the Company's Board of Directors declared a 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, between the Company and First Union National Bank, as
successor Rights Agent. Each
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<PAGE> 36
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 Preferred") for an exercise price of $95.00, subject to
adjustment. Each 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 to occur 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 shareholder 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 AND CHARTER AND BYLAW PROVISIONS
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
currently 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
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<PAGE> 37
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.
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. 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 certain 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 he 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.
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<PAGE> 38
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase from the Company, and the Company has agreed to sell to such
Underwriter, the number of shares of Common Stock set forth below opposite the
name of such Underwriter.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
Smith Barney Inc. ..........................................
NationsBanc Montgomery Securities LLC.......................
J.C. Bradford & Co. ........................................
The Robinson-Humphrey Company, LLC..........................
Cleary Gull Reiland & McDevitt Inc. ........................
---------
Total............................................. 7,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than those covered by the over-allotment option described
below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc., NationsBanc Montgomery
Securities LLC, J.C. Bradford & Co., The Robinson-Humphrey Company, LLC and
Cleary Gull Reiland & McDevitt Inc. are acting as the Representatives, propose
to offer part of the shares directly to the public at the public offering price
set forth on the cover page of this Prospectus and part of the shares to certain
dealers at a price which represents a concession not in excess of $ per
share under the public offering price. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After the offering of the shares to the public, the
public offering price and such concessions may be changed by the
Representatives.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 1,050,000 additional
shares of Common Stock at the price to public set forth on the cover page of
this Prospectus minus the underwriting discounts and commissions. The
Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with the Offering of the shares offered
hereby. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth opposite
each Underwriter's name in the preceding table bears to the total number of
shares listed in such table.
The Company and the Company's executive officers and directors have agreed
that, subject to certain customary exceptions, for a period of 90 days from the
date of this Prospectus, they will not, without the prior written consent of
Smith Barney Inc., offer, sell, contract to sell, or otherwise dispose of, any
shares of Common Stock of the Company or any securities convertible into, or
exercisable or exchangeable for, Common Stock of the Company.
In connection with this Offering and in compliance with applicable law, the
Underwriters may overallot (i.e., sell more Common Stock than the total amount
shown on the list of Underwriters and participations which appears above) and
may effect transactions which stabilize, maintain or otherwise affect the market
price of the Common Stock at levels above those which might otherwise prevail in
the open market. Such transactions may include placing bids for the Common Stock
or effecting purchases of the Common Stock for the purpose of pegging, fixing or
maintaining the price of the Common Stock or for the purpose of reducing a
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<PAGE> 39
syndicate short position created in connection with the Offering. A syndicate
short position may be covered by exercise of the option described above in lieu
of or in addition to open market purchases. In addition, the contractual
arrangements among the Underwriters include a provision whereby if the
Representatives purchase Common Stock in the open market for the account of the
underwriting syndicate and the securities purchased can be traced to a
particular Underwriter or member of the selling group, the underwriting
syndicate may require the Underwriter or selling group member in question to
purchase the Common Stock in question at the cost price to the syndicate or may
recover from (or decline to pay to) the Underwriter or selling group member in
question the selling concession applicable to the securities in question. The
Underwriters are not required to engage in any of these activities and any such
activities, if commenced, may be discontinued at any time.
The Representatives and certain of their affiliates have engaged and may in
the future engage in investment banking and commercial banking transactions with
the Company in the ordinary course of business. Each of Smith Barney Inc.,
NationsBanc Capital Markets, Inc. (an affiliate of NationsBanc Montgomery
Securities LLC), J.C. Bradford & Co. and The Robinson-Humphrey Company, Inc.
served as initial purchasers (the "Initial Purchasers") of, and received
customary discounts and commissions in connection with, the Company's 5 3/4%
Convertible Subordinated Notes issued in June and July 1997. In addition, Smith
Barney Inc. acted as a manager of, and received customary discounts and
commissions in connection with, the Company's IPO and the Company's 1996 equity
offering. The Company agreed to indemnify each of the Initial Purchasers and
Smith Barney Inc. and their controlling persons against certain liabilities,
including liabilities under the Securities Act, in connection with such
offerings, or to contribute to payments the Initial Purchasers or Smith Barney
Inc. may be required to make in respect thereof.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
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 in connection with the Offering will be passed
upon for the Underwriters by Dewey Ballantine LLP, New York, New York.
EXPERTS
The consolidated financial statements of the Company for the year ended
December 28, 1997, included herein and in the Registration Statement of which
this Prospectus is a part have been so included in reliance upon the report of
Price Waterhouse LLP, independent accountants, appearing elsewhere herein, given
on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of the Company as of December 29,
1996 and for each of the two years in the period ended December 29, 1996,
included herein and in the Registration Statement of which this Prospectus is a
part have been audited by Arthur Andersen LLP, independent public accountants,
as indicated in their report 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.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities of the Commission, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 as well as at the Commission's
regional offices located at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511 and at Seven World Trade Center, 13th Floor,
New York, New York 10048. Copies can
38
<PAGE> 40
be obtained from the Commission by mail at prescribed rates. Requests should be
directed to the Commission's Public Reference Branch, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. Such material may also be accessed
electronically by means of the Commission's home page on the Internet
(http://www.sec.gov).
The Common Stock is listed on the New York Stock Exchange, and such
reports, proxy statements and other information may be inspected at the offices
of the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
This Prospectus constitutes a part of a registration statement on Form S-3
(herein, together with all exhibits thereto, referred to as the "Registration
Statement") filed by the Company with the Commission under the Securities Act,
with respect to the securities offered hereby. This Prospectus does not contain
all the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. Reference is hereby made to the Registration Statement, and to the
exhibits thereto for further information with respect to the Company and the
securities offered hereby. Copies of the Registration Statement and the exhibits
thereto are on file at the offices of the Commission and may be obtained upon
payment of the prescribed fee or may be examined without charge at the public
reference facilities of the Commission described above. Statements contained
herein concerning the provisions of documents are necessarily summaries of such
documents, and each statement is qualified in its entirety by reference to the
copy of the applicable document filed with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission (File No.
1-13956) are incorporated by reference in this Prospectus:
(1) Annual Report on Form 10-K for the fiscal year ended December 28,
1997;
(2) Current Report on Form 8-K filed on December 29, 1997, Amendment
No. 1 to Current Report on Form 8-K/A filed on January 12, 1998, Current
Report on Form 8-K filed on March 9, 1998, Current Report on Form 8-K filed
on April 9, 1998 and Current Report on Form 8-K filed on April 10, 1998;
and
(3) The description of the Company's Common Stock contained in its
Form 8-A filed with the Commission on September 19, 1995, including any
amendment or reports filed for the purpose of updating such description.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the Offering shall be deemed to be incorporated by reference
into this Prospectus.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. These documents (not including exhibits to the
documents incorporated by reference unless such exhibits are specifically
incorporated by reference into the information that the Prospectus incorporates)
are available without charge to each person to whom a Prospectus is delivered
upon written or oral request. Requests should be directed to Personnel Group of
America, Inc., 6302 Fairview Road, Suite 201, Charlotte, North Carolina 28210,
Attention: Corporate Secretary (telephone number (704) 442-5100).
39
<PAGE> 41
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports of Independent Accountants.......................... F-2
Consolidated Balance Sheets as of December 28, 1997 and
December 29, 1996......................................... F-4
Consolidated Statements of Income for the years ended
December 28, 1997, December 29, 1996 and December 31,
1995...................................................... F-5
Consolidated Statements of Shareholders' Equity for the
years ended December 28, 1997, December 29, 1996 and
December 31, 1995......................................... F-6
Consolidated Statements of Cash Flows for the years ended
December 28, 1997, December 29, 1996 and December 31,
1995...................................................... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 42
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Personnel Group of America, Inc.:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of Personnel Group of
America, Inc. (the "Company") and its subsidiaries at December 28, 1997, and the
results of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above. The financial statements of the Company for the two years ended December
29, 1996 were audited by other independent accountants whose report dated
February 7, 1997, except for Note 4, for which the date is December 26, 1997 and
except for Note 10, for which the date is March 5, 1998, expressed an
unqualified opinion on those statements.
/s/ PRICE WATERHOUSE LLP
Charlotte, North Carolina
February 3, 1998, except for Note 10,
for which the date is March 5, 1998.
F-2
<PAGE> 43
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Personnel Group of America, Inc.
We have audited the consolidated balance sheet of Personnel Group of
America, Inc. and subsidiaries (a Delaware corporation) as of December 29, 1996,
and the related consolidated statements of income, shareholders' equity and cash
flows for each of the two years in the period ended December 29, 1996. 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 29, 1996, and
the results of their operations and their cash flows for each of the two years
in the period ended December 29, 1996, in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
Charlotte, North Carolina
February 7, 1997 (except with
respect to the matter discussed
in Note 4, as to which the date
is December 26, 1997, and
except with respect to the
matter discussed in Note 10, as
to which the date is March 5,
1998).
F-3
<PAGE> 44
CONSOLIDATED BALANCE SHEETS
DECEMBER 28, 1997 AND DECEMBER 29, 1996
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 642 $ 5,111
Accounts receivable, net of allowance for doubtful
accounts of $1,063 and $519 in 1997 and 1996,
respectively........................................... 77,869 46,219
Prepaid expenses and other current assets................. 1,674 1,075
Deferred income taxes..................................... 4,165 1,701
Notes receivable from sale of discontinued operations..... 36,276 --
-------- --------
Total current assets.............................. 120,626 54,106
Property and equipment, net................................. 9,162 5,746
Intangible assets, net...................................... 316,413 178,943
Other assets................................................ 5,108 1,815
Net assets of discontinued operations....................... -- 52,965
-------- --------
Total assets...................................... $451,309 $293,575
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 7,490 $ 6,670
Accounts payable.......................................... 2,200 2,596
Accrued wages and benefits................................ 19,544 11,514
Other accrued liabilities................................. 12,777 5,990
Income taxes payable...................................... 9,525 778
-------- --------
Total current liabilities......................... 51,536 27,548
Long-term debt.............................................. 145,050 78,477
Other long-term liabilities................................. 49,647 4,293
-------- --------
Total liabilities................................. 246,233 110,318
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 95,000;
24,278 and 12,034 shares issued and outstanding in 1997
and 1996, respectively................................. 242 120
Additional paid-in capital................................ 171,038 169,273
Retained earnings......................................... 34,066 13,864
Deferred compensation..................................... (270) --
-------- --------
Total shareholders' equity........................ 205,076 183,257
-------- --------
Total liabilities and shareholders' equity........ $451,309 $293,575
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-4
<PAGE> 45
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 28, 1997, DECEMBER 29, 1996, AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
REVENUES.................................................... $475,620 $243,608 $143,243
DIRECT COST OF SERVICES..................................... 349,616 186,338 109,755
-------- -------- --------
GROSS PROFIT................................................ 126,004 57,270 33,488
SELLING, GENERAL AND ADMINISTRATIVE......................... 79,216 38,454 24,568
DEPRECIATION AND AMORTIZATION............................... 9,037 3,362 1,149
-------- -------- --------
OPERATING INCOME............................................ 37,751 15,454 7,771
INTEREST EXPENSE............................................ 6,951 1,155 159
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES....... 30,800 14,299 7,612
PROVISION FOR INCOME TAXES.................................. 13,010 5,995 3,282
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS........................... 17,790 8,304 4,330
-------- -------- --------
DISCONTINUED OPERATIONS:
Income from discontinued operations, net of taxes......... 2,323 3,213 2,779
Gain on disposal of discontinued operations, net of
taxes.................................................. 89 -- --
-------- -------- --------
Total discontinued operations..................... 2,412 3,213 2,779
-------- -------- --------
NET INCOME.................................................. $ 20,202 $ 11,517 $ 7,109
======== ======== ========
NET INCOME PER BASIC SHARE:
Income from continuing operations......................... $ 0.74 $ 0.41 $ 0.27
-------- -------- --------
Discontinued operations:
Income from discontinued operations, net of taxes...... 0.10 0.16 0.17
Gain on disposal of discontinued operations, net of
taxes................................................ -- -- --
-------- -------- --------
Total discontinued operations..................... 0.10 0.16 0.17
-------- -------- --------
NET INCOME PER BASIC SHARE........................ $ 0.83 $ 0.56 $ 0.44
-------- -------- --------
NET INCOME PER DILUTED SHARE:
Income from continuing operations......................... $ 0.71 $ 0.41 $ 0.27
-------- -------- --------
Discontinued operations:
Income from discontinued operations, net of taxes...... 0.09 0.16 0.17
Gain on disposal of discontinued operations, net of
taxes................................................ -- -- --
-------- -------- --------
Total discontinued operations..................... 0.09 0.16 0.17
-------- -------- --------
NET INCOME PER DILUTED SHARE...................... $ 0.80 $ 0.56 $ 0.44
======== ======== ========
WEIGHTED AVERAGE BASIC SHARES OUTSTANDING................... 24,204 20,432 16,000
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING................. 28,078 20,432 16,000
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 46
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 28, 1997, DECEMBER 29, 1996, AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN RETAINED DEFERRED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS COMPENSATION NET ASSETS EQUITY
------ ------ ---------- -------- ------------ ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1,
1995.................... -- $ -- $ -- $ -- $ -- $ 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
====== ==== ======== ======= ===== ======== ========
Issuance of common
stock................... 4,025 40 95,589 -- -- -- 95,629
Exercises of stock
options................. 9 -- 125 -- -- -- 125
Net income................ -- -- -- 11,517 -- -- 11,517
------ ---- -------- ------- ----- -------- --------
BALANCE, December 29,
1996.................... 12,034 $120 $169,273 $13,864 $ -- $ -- $183,257
====== ==== ======== ======= ===== ======== ========
Exercises of stock
options................. 95 1 1,570 -- -- -- 1,571
Issuance of restricted
stock................... 10 -- 316 -- (316) -- --
Amortization of deferred
compensation............ -- -- -- -- 46 -- 46
Net income................ -- -- -- 20,202 -- -- 20,202
Two-for-one stock split... 12,139 121 (121) -- -- -- --
------ ---- -------- ------- ----- -------- --------
BALANCE, December 28,
1997.................... 24,278 $242 $171,038 $34,066 $(270) $ -- $205,076
====== ==== ======== ======= ===== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 47
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 28, 1997, DECEMBER 29, 1996, AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from continuing operations..................... $ 17,790 $ 8,304 $ 4,330
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 9,037 3,362 1,149
Deferred income taxes, net............................. 3,083 (286) 73
Changes in assets and liabilities:
Accounts receivable.................................. (14,684) (8,890) (3,201)
Prepaid expenses and other current assets............ (490) 1,319 (395)
Other assets......................................... 60 (1,402) (136)
Accounts payable and accrued liabilities............. 9,238 6,091 (467)
Income taxes payable................................. (597) (1,026) 1,776
--------- -------- -------
Net cash provided by operating activities......... 23,437 7,472 3,129
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used in acquisitions, net of cash acquired........... (115,663) (155,837) --
Net cash provided (used) by discontinued operations....... 29,812 (5,535) 7,956
Purchase of property and equipment, net................... (5,162) (3,239) (21)
--------- -------- -------
Net cash (used in) provided by investing
activities...................................... (91,013) (164,611) 7,935
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible subordinated notes issuance,
net.................................................... 111,750 -- --
Proceeds from issuance of common stock, net............... -- 95,629 --
Repayments under Credit Facility.......................... (190,632) (30,775) --
Borrowings under Credit Facility.......................... 147,307 98,100 --
Proceeds from exercise of stock options................... 1,617 125 --
Repayments of seller notes and acquired indebtedness...... (6,935) (5,524) --
Distributions to the Former Parent, net................... -- -- (7,351)
--------- -------- -------
Net cash provided by (used in) financing
activities...................................... 63,107 157,555 (7,351)
--------- -------- -------
Net (decrease) increase in cash and cash equivalents........ (4,469) 416 3,713
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 5,111 4,695 982
--------- -------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 642 $ 5,111 $ 4,695
========= ======== =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments during the period for:
Income taxes........................................... $ 10,888 $ 9,617 $ 3,737
Interest............................................... $ 5,042 $ 1,307 $ --
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE> 48
PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 28, 1997, DECEMBER 29, 1996, AND DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND NATURE OF OPERATIONS
Basis of Presentation
Personnel Group of America, Inc. and its subsidiaries (collectively, the
"Company") completed its initial public offering (the "IPO") in September 1995.
Prior to the IPO, the Company was an indirect wholly owned subsidiary of an
international staffing company (the "Former Parent"). The operations of the
Company are presented on an historical cost basis, and all significant
intercompany transactions have been eliminated.
As a result of the IPO, in which the Former Parent 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 in the IPO.
Nature of Operations
The Company operates through a network of Company-operated offices. The
Company is organized into two Divisions: Information Technology Services, which
provides information technology staffing and consulting services in a range of
computer-related disciplines; and Commercial Staffing, which provides temporary
office, clerical and light industrial and light technical services. At December
28, 1997, the Information Technology Division was comprised of 11 companies and
the Commercial Staffing Division was comprised of 20 companies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company recognizes revenue at the time services are performed.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and highly liquid
investments 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 seven
years). Leasehold improvements are stated at cost and amortized over the shorter
of the lease term or the useful life of the improvements.
Intangible Assets
The Company's businesses were acquired from unrelated third parties in
exchange for cash and other consideration. The Company allocates the excess of
cost over the fair value of net tangible assets first to identifiable intangible
assets, if any, and then to goodwill. Although the Company believes that
goodwill has an unlimited life, the Company amortizes such costs on a
straight-line basis over 40 years. Gross amounts and accumulated amortization of
excess of cost over fair value of net assets acquired amounted to $323,952 and
$10,295 at December 28, 1997, respectively, and $181,179 and $4,508 at December
29, 1996, respectively.
Other intangible assets consist primarily of covenants not to compete and
other, and are amortized over three to five years. Gross amounts and accumulated
amortization of such other intangible assets amounted to $3,807 and $1,051 at
December 28, 1997, respectively, and $2,718 and $446 at December 29, 1996,
respectively.
F-8
<PAGE> 49
PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES
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 recorded 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, were included
in the Former Parent's consolidated federal income tax return and combined state
tax returns filed in various states. The Company has filed its own consolidated
federal income tax return and various state returns for the periods ending after
September 29, 1995.
Net Income Per Share
The computation of net income per basic share was based on the weighted
average number of shares of common stock outstanding. The computation of net
income per diluted share was based on the weighted average number of common
stock and common stock equivalents outstanding and also assumed the conversion
of the Company's Convertible Notes in 1997. In 1996 and 1995, the computation of
both basic and diluted net income per share have been retroactively restated in
accordance with FAS 128.
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, 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 amounts could differ from those estimates.
3. ACQUISITIONS
During 1997, the Company acquired the following businesses in seven
separate transactions:
<TABLE>
<CAPTION>
NAME OF BUSINESS TYPE OF BUSINESS DATE ACQUIRED
- ---------------- ---------------- -------------
<S> <C> <C>
Word Processing
Professionals Commercial Staffing January 1997
Energetix Information Technology February 1997
Lipson Conroy Services Information Technology April 1997
Lloyd-Ritter Consulting Information Technology April 1997
Vital Computer Services Information Technology June 1997
DRACS Consulting Group Information Technology September 1997
Jeffrey Staffing Group* Commercial Staffing September 1997
BAL Associates Information Technology December 1997
</TABLE>
- ---------------
* Includes Franklin-Pierce Companies, Scott-Wayne Companies and Integrity
Technical Services
F-9
<PAGE> 50
PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1996, the Company acquired the following businesses in eight
separate transactions:
<TABLE>
<CAPTION>
NAME OF BUSINESS TYPE OF BUSINESS DATE ACQUIRED
- ---------------- ---------------- -------------
<S> <C> <C>
Profile Temporary Services Commercial Staffing March 1996
Allegheny Personnel Services Commercial Staffing March 1996
Judith Fox Staffing
Companies Commercial Staffing May 1996
Computer Resources Group Information Technology June 1996
Broughton Systems Information Technology July 1996
Denver Temporary Services Commercial Staffing July 1996
Command Technologies Information Technology July 1996
BEST Consulting Information Technology September 1996
Software Service Corporation Information Technology September 1996
</TABLE>
The acquisitions are collectively referred to hereinafter as the
"Transactions," and the acquired businesses are collectively referred to
hereinafter as the "Acquired Companies." The companies acquired in 1997 had pro
forma 1997 revenues of approximately $151,000.
In 1997 and 1996, the Company paid approximately $112,500 and $176,900,
respectively, in cash and notes to consummate the Transactions (which included
direct acquisition costs but excluded contingent earnout payments associated
with certain of the Transactions). Certain of the acquisitions provide for
additional purchase price consideration upon attainment of certain earnings
targets for various periods during the next three years. The Company paid $3,421
in contingent consideration in 1997. The Company has recorded $34,079 and $2,375
of contingent consideration to be paid in 1998 and 1999, respectively, relating
to 1997 earnings. In addition, the Company has recorded $4,630 of post-closing
payments due to former owners of acquired businesses. Contingent earnout
payments based on 1998 earnings and beyond are contingent on the future
performance of such acquired businesses, and thus the actual amount cannot be
determined until such date. Any additional consideration will be recorded as
additional purchase price when earned and will increase the amount of excess of
cost over fair value of net assets acquired. All of the Transactions have been
accounted for using the purchase method of accounting. Accordingly, the assets
and liabilities of the entities acquired, based on preliminary allocations, were
recorded at their estimated fair values at the dates of the acquisitions, and
the results of operations of the Acquired Companies have been included in the
Company's consolidated results of operations from the dates of the respective
acquisitions. Final allocation of the purchase price may result in adjustments
to the amounts previously recorded as excess of cost over fair market value of
net assets acquired.
Since December 28, 1997, the Company has completed the acquisitions of Ann
Wells Personnel ("Ann Wells") in Silicon Valley, California; Creative
Temporaries ("Creative") in Charlotte, North Carolina; and Corporate Staffing
Consultants ("Corporate") in Charlotte, North Carolina. Ann Wells, acquired in
January 1998, provides word processing and desktop publishing services to
professional services firms and financial institutions in the Silicon Valley.
Creative and Corporate, acquired in January 1998, provide commercial staffing
services in the Charlotte area. These companies had combined revenues in excess
of $40,000 in 1997. The Company funded the acquisitions of Ann Wells, Creative
and Corporate primarily through borrowings under the Credit Facility (see Note
11).
The following table presents the Company's unaudited pro forma consolidated
results of operations for 1997 and 1996 as if the Transactions and the
acquisitions subsequent to year-end 1997 discussed above had occurred on January
1, 1996:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Revenues.................................................... $585,906 $482,834
Income from continuing operations........................... 21,007 11,416
Income from continuing operations per diluted share......... $ 0.81 $ 0.54
Weighted average diluted shares outstanding................. 28,678 21,032
</TABLE>
F-10
<PAGE> 51
PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. DISCONTINUED OPERATIONS
On December 26, 1997, the Company completed the sale of its healthcare
division for $65,250. Of such amount, $34,600 was paid by delivery of a
promissory note from the purchaser. The assets, liabilities, results of
operations and cash flows of the healthcare division have been segregated and
reported as discontinued operations for all periods presented, and previously
reported results have been restated. The sale of the healthcare division
resulted in a gain of $89.
In January 1998, the $34,600 note was collected in full. The total proceeds
received in connection with the sale were used to repay outstanding borrowings
under the Credit Facility (see Note 11).
During 1997 and 1996, the Company allocated interest expense to the
discontinued operations based on the ratio of net assets of the discontinued
operations to the total net assets of the consolidated Company. Interest expense
allocated in 1997 and 1996 was $2,217 and $445, respectively. No other corporate
overhead expenses have been allocated to the discontinued operations.
Summary operating results of the discontinued operations were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues............................................... $133,442 $122,937 $107,812
Total expenses......................................... 129,438 117,387 103,010
-------- -------- --------
Income before income taxes............................. 4,004 5,550 4,802
Provision for income taxes............................. 1,681 2,337 2,023
-------- -------- --------
Net income............................................. $ 2,323 $ 3,213 $ 2,779
======== ======== ========
</TABLE>
5. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at December 28, 1997, and
December 29, 1996:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Trade accounts receivable................................... $78,932 $46,738
Less -- Allowance for doubtful accounts..................... (1,063) (519)
------- -------
$77,869 $46,219
======= =======
</TABLE>
The following table sets forth further information on the Company's
allowance for doubtful accounts:
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
YEAR ENDED OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
December 28, 1997.............................. $519 $1,138 $(594) $1,063
December 29, 1996.............................. 332 899 (712) 519
December 31, 1995.............................. 295 243 (206) 332
</TABLE>
F-11
<PAGE> 52
PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consisted of the following at December 28,
1997, and December 29, 1996:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Computer equipment and software............................. $ 9,504 $ 6,669
Furniture and other equipment............................... 3,145 3,663
Leasehold improvements...................................... 589 590
------- -------
13,238 10,922
Less -- Accumulated depreciation............................ (4,076) (5,176)
------- -------
$ 9,162 $ 5,746
======= =======
</TABLE>
7. OTHER ACCRUED LIABILITIES
Accrued liabilities consisted of the following at December 28, 1997, and
December 29, 1996:
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Accrued interest............................................ $ 4,073 $ --
Workers' compensation reserves.............................. 1,616 1,605
Other....................................................... 7,089 4,385
------- ------
$12,777 $5,990
======= ======
</TABLE>
8. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consisted of the following at December 28,
1997, and December 29, 1996:
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Amounts due sellers of acquired businesses.................. $41,084 $2,792
Deferred tax liabilities.................................... 4,428 --
Workers' compensation reserves and other.................... 4,135 1,501
------- ------
$49,647 $4,293
======= ======
</TABLE>
The amounts due sellers of acquired business are for additional purchase
price consideration and for post-closing payments based upon the operating
results of 1997. Of the amounts due at December 28, 1997, $37,659 is due in 1998
and will be paid with borrowings under the Company's Credit Facility (see Note
11).
9. EMPLOYEE BENEFIT PLANS
The Company has 401(k) profit sharing and nonqualified profit sharing
plans, which cover substantially all of its employees. Company contributions or
allocations are made on a discretionary basis for these plans (except for
matching contributions made to certain 401(k) profit sharing plans as required
by the terms of such plans). Contributions charged to operating expenses were
$523, $492 and $383 for the years ended December 28, 1997, December 29, 1996,
and December 31, 1995, respectively.
The Company does not provide postretirement healthcare and life insurance
benefits to retired employees or postemployment benefits to terminated
employees.
10. CAPITAL STOCK AND STOCK OPTIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE
DATA):
On March 5, 1998, the Board of Directors authorized a two-for-one split of
common stock to be effected in the form of a 100% stock dividend payable to
shareholders of record on March 16, 1998. The par value
F-12
<PAGE> 53
PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
remained at $0.01 per share. Shareholders' equity has been restated by
reclassifying from additional paid-in capital to common stock the par value of
the additional shares arising from the split. All references in the accompanying
consolidated financial statements to the number of common shares, except shares
authorized, and to per share amounts have been restated to reflect the stock
split.
In June 1996, the Company issued 8,050,000 shares of its common stock in an
underwritten public offering (the "1996 Equity Offering"), which raised $95,629
for the Company, net of offering expenses. The proceeds from the 1996 Equity
Offering were used to repay outstanding borrowings under the Company's Credit
Facility and fund several acquisitions.
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. The Incentive Plan has reserved for issuance 15% of
the Company's issued and outstanding common stock from time to time. The
Incentive Plan allows for the issuance of options, stock appreciation rights,
and other awards, or restricted or other deferred stock awards. Incentive stock
options may be granted only to employees and, when granted, have an exercise
price equal to at least 100% of the fair market value of the 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. The NQSOs
granted to nonemployee directors are fully vested and exercisable upon grant and
the term of each such option is 10 years. NQSOs may also 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.
In 1997, the Company issued each outside member of the Board of Directors a
restricted share grant of 5,000 shares, for a total of 20,000 shares. These
shares will vest ratably over a three-year period. The non-vested portion of the
restricted share grant is included as deferred compensation on the Company's
Statement of Shareholders' Equity.
F-13
<PAGE> 54
PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of stock option activity follows:
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE
UNDER PRICE PER
OPTION SHARE
--------- ---------
<S> <C> <C>
Outstanding, January 1, 1995................................ -- $ --
Granted in 1995........................................... 865,410 6.93
Outstanding, December 31, 1995.............................. 865,410 6.93
Granted in 1996........................................... 841,296 12.66
Exercised.............................................. 18,620 6.69
Canceled............................................... 48,180 7.31
--------- ------
Outstanding, December 29, 1996.............................. 1,639,906 $10.15
========= ======
Granted in 1997........................................... 867,792 15.50
Exercised.............................................. 190,196 8.26
Canceled............................................... 121,950 10.32
========= ======
Outstanding, December 28, 1997.............................. 2,195,552 $12.20
========= ======
Exercisable, December 31, 1995............................ 223,082 $ 6.93
========= ======
Exercisable, December 29, 1996............................ 527,112 $ 8.93
========= ======
Exercisable, December 28, 1997............................ 870,982 $ 9.98
========= ======
</TABLE>
Pursuant to the requirements of SFAS No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"), the following disclosures are presented to reflect
the Company's pro forma net income for the three years ended December 28, 1997,
December 29, 1996, and December 31, 1995, as if the fair value method of
accounting prescribed by SFAS 123 had been used. In preparing these disclosures,
the Company has determined the value of all options granted using the minimum
value method, as discussed in SFAS 123, and based on the following weighted
average assumptions used for grants:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate..................................... 6.1% 6.9% 6.7%
Expected dividend yield..................................... 0.0% 0.0% 0.0%
Expected life............................................... 5 years 5 years 5 years
</TABLE>
Using these assumptions, the fair value of the stock options granted in
1997, 1996 and 1995 was approximately $5,976, $4,920 and $2,744, respectively.
Had compensation expense been determined consistent with SFAS 123, utilizing the
assumptions above and the straight-line amortization method over the vesting
period, the Company's net income would have been reduced to the following pro
forma amounts:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net income, as reported................................... $20,202 $11,517 $ 7,109
Net income per diluted share, as reported................. 0.80 0.56 0.44
Pro forma net income...................................... 18,720 9,922 6,400
Pro forma net income per diluted share.................... 0.75 0.49 0.40
</TABLE>
On February 6, 1996, the Board of Directors of the Company declared a
dividend of one nonvoting preferred share purchase right (a "Right") for each
outstanding share of common stock. The dividend was paid on February 27, 1996,
to the shareholders of record on that date. In the event of an acquisition, or
the announcement 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
F-14
<PAGE> 55
PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock, par value $0.01 per share, of the Company at a price of $95.00 per one
one-hundredth of a share of Preferred Stock, subject to adjustment. In addition,
each Right entitles the right holder to certain other rights 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.
11. LONG-TERM DEBT
Long-term debt consisted of the following at December 28, 1997, and
December 29, 1996:
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
5 3/4% Convertible Subordinated Notes due July 2004......... $115,000 $ --
$125,000 revolving Credit Facility due June 2002............ 24,000 67,325
Notes payable to sellers of acquired companies and other.... 13,540 17,822
-------- -------
152,540 85,147
Less current portion........................................ (7,490) (6,670)
-------- -------
$145,050 $78,477
======== =======
</TABLE>
In June and July 1997, the Company completed a private placement of
$115,000 of 5 3/4% Convertible Subordinated Notes due July 2004 (the "Notes").
The net proceeds of approximately $111,750 were used to repay a substantial
portion of outstanding indebtedness under the Company's $125,000 Revolving
Credit Facility (the "Credit Facility") and permanently repay outstanding
indebtedness under a separate $10,000 line of credit. Interest on the Notes is
payable semi-annually, commencing January 1998. The Notes are convertible into
Common Stock of the Company at any time before maturity at an initial conversion
price of $17.81 per share. The Notes are not redeemable prior to July 2000.
Thereafter, the Company may redeem the Notes initially at 103.29% and at
decreasing prices thereafter to 100% at maturity, in each case together with
accrued interest. The Notes are subordinated to all present and future senior
indebtedness of the Company (as defined), including indebtedness under the
Credit Facility.
Concurrent with the issuance of the Notes, the Credit Facility was amended
and restated. The term of the Credit Facility was extended to June 2002.
Borrowings under the Credit Facility bear interest, at a rate equal to LIBOR
plus a percentage corresponding to the Company's consolidated leverage ratio, as
defined, or the agent's base rate, as defined, at the Company's option. The
Credit Facility is secured by pledges of stock of the Company's subsidiaries and
contains customary covenants such as the maintenance of certain financial
ratios, minimum net worth and working capital requirements and a restriction on
the payment of cash dividends on common stock. The Credit Facility also limits
borrowing availability for acquisition-related purposes. At December 28, 1997,
the Company was in compliance with the covenants contained in the Credit
Facility.
During 1997, the maximum aggregate outstanding borrowing under the Credit
Facility was $125,000 and the average outstanding balance during the year was
$55,900. In addition, approximately $4,000 of the Credit Facility has been used
for the issuance of undrawn letters of credit to secure the Company's workers'
compensation program. The daily weighted average interest rate under the Credit
Facility was 7.2% during 1997. The Company's borrowings under the Credit
Facility bore interest at the agent's base rate of 8.5% at December 28, 1997. At
February 3, 1998, the amount available for borrowing under the Credit Facility
was approximately $118,500.
The Company has also issued notes payable in connection with certain
acquisitions. These notes are due in varying installments and carry variable
interest rates ranging from 6.8% to 7.0% at December 28, 1997.
F-15
<PAGE> 56
PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Scheduled maturities of long-term debt at December 28, 1997, are as
follows:
<TABLE>
<S> <C>
1998........................................................ $ 7,490
1999........................................................ 6,050
2000........................................................ --
2001........................................................ --
2002 and thereafter......................................... 139,000
--------
$152,540
========
</TABLE>
12. INCOME TAXES
The provision for income taxes for the years ended December 28, 1997,
December 29, 1996, and December 31, 1995, consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Current provision
Federal................................................... $ 8,863 $5,119 $2,666
State..................................................... 2,183 1,162 543
------- ------ ------
Total current provision........................... 11,046 6,281 3,209
Deferred provision (benefit)
Federal................................................... 1,576 (233) 61
State..................................................... 388 (53) 12
------- ------ ------
Total deferred provision (benefit)................ 1,964 (286) 73
------- ------ ------
Total............................................. $13,010 $5,995 $3,282
======= ====== ======
</TABLE>
The reconciliation of the effective tax rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate...................................... 35.0% 35.0% 35.0%
State taxes, net of federal benefit......................... 5.4 5.0 4.7
Effect of nondeductible amortization and other.............. 1.8 1.9 3.4
---- ---- ----
Total............................................. 42.2% 41.9% 43.1%
==== ==== ====
</TABLE>
The components of the Company's net deferred tax assets and liabilities
were as follows at December 28, 1997, and December 29, 1996:
<TABLE>
<CAPTION>
1997 1996
------ -------
<S> <C> <C>
Deferred tax liability -- Excess of cost over fair value of
net assets acquired....................................... $3,883 $ --
Other deferred tax liabilities.............................. 545 --
------ -------
4,428 --
Deferred tax assets:
Accrued workers' compensation and other................... 2,698 961
Allowance for doubtful accounts........................... 425 208
Other..................................................... 1,042 532
------ -------
4,165 1,701
------ -------
Net deferred tax liability (asset)................ $ 263 $(1,701)
====== =======
</TABLE>
F-16
<PAGE> 57
PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Tax-Sharing Agreement
Generally, the Former Parent 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 beginning after September 29, 1995.
13. NET INCOME PER SHARE
In the fourth quarter of 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"). FAS 128
simplifies the calculation of earnings per share ("EPS") primarily by removing
common stock equivalents from consideration in calculating basic EPS.
In accordance with FAS 128, the following tables reconcile net income and
weighted average shares outstanding to the amounts used to calculate basic and
diluted earnings per share for each of the three years ended December 28, 1997,
December 29, 1996, and December 31, 1995:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(SHARE AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
EARNINGS PER BASIC SHARE:
Net income.............................................. $20,202 $11,517 $ 7,109
======= ======= =======
Weighted average shares outstanding....................... 24,204 20,432 16,000(1)
Earnings per basic share.................................. $ 0.83 $ 0.56 $ 0.44
======= ======= =======
EARNINGS PER DILUTED SHARE:
Net income.............................................. $20,202 $11,517 $ 7,109
Add: Interest expense on Convertible Notes, net of
tax................................................ 2,217 -- --
------- ------- -------
Diluted net income...................................... 22,419 11,517 7,109
Weighted average shares outstanding..................... 24,204 20,432 16,000(1)
Add: Dilutive employee stock options.................... 502 -- --
Add: Assumed conversion of Convertible Notes............ 3,372 -- --
------- ------- -------
Weighted average diluted shares outstanding............. 28,078 20,432 16,000
Earnings per diluted share................................ $ 0.80 $ 0.56 $ 0.44
======= ======= =======
</TABLE>
- ---------------
(1) Assumes that the weighted average common shares outstanding equals the
16,000 shares sold by the Former Parent in the IPO.
14. FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments
The fair value of the Company's cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities approximates the book value
at December 28, 1997, due to the short-term nature of these instruments. The
fair value of the Company's borrowings under the Credit Facility and the notes
payable to sellers of acquired businesses approximate the book value at December
28, 1997, because of the variable rate associated with these borrowings. The
Convertible Notes had a fair value of $129,231 at December 28, 1997, as compared
to the carrying value of $115,000.
Concentration of Credit Risk
The Company maintains cash and cash equivalents with various financial
institutions.
F-17
<PAGE> 58
PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
15. 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>
<S> <C>
1998........................................................ $ 4,682
1999........................................................ 4,021
2000........................................................ 3,201
2001........................................................ 2,522
2002 and thereafter......................................... 2,594
-------
$17,020
=======
</TABLE>
Total rent expense under operating leases amounted to $4,078, $2,461 and
$1,652 for the years ended December 28, 1997, December 29, 1996, and December
31, 1995, respectively.
Insurance
The Company maintains a self-insurance program for workers' compensation
and medical and dental claims. The Company accrues liabilities under the
workers' compensation program based on the loss and loss adjustment expenses as
estimated by an outside administrator. At December 28, 1997, the Company had
standby letters of credit with a bank in connection with a portion of its
workers' compensation program.
The Company is subject to claims and legal actions by customers in the
ordinary course of business. The Company maintains professional liability
insurance for losses.
Employment Agreements
The Company has agreements with several executive officers providing for
cash compensation and other benefits in the event that a change in control of
the Company occurs.
Legal Proceedings
The Company is 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 Obligation
Pursuant to the agreement to sell the healthcare division, the Company
agreed to indemnify the purchaser against certain specified expenses or losses
incurred by the purchaser. Management believes that future indemnification
claims, if any, made by the purchaser should not have a material impact on the
Company's financial position or results of operations.
F-18
<PAGE> 59
PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth quarterly financial information for each
quarter in the years ended December 28, 1997, and December 29, 1996:
<TABLE>
<CAPTION>
1997
----------------------------------------
FIRST SECOND THIRD FOURTH
------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues....................................... $94,161 $113,205 $128,994 $139,261
Operating income............................... 6,081 8,410 10,698 12,562
Net income from continuing operations.......... 2,769 3,854 5,130 6,037
Net income..................................... 3,461 4,449 5,764 6,528
Net income per diluted share
Income from continuing operations............ $ 0.11 $ 0.15 $ 0.20 $ 0.23
Total discontinued operations................ 0.03 0.02 0.02 0.01
------- -------- -------- --------
Net income................................... $ 0.14 $ 0.18 $ 0.22 $ 0.24
======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1996
-------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues.......................................... $38,251 $47,572 $67,327 $90,458
Operating income.................................. 859 2,865 4,916 6,814
Net income from continuing operations............. 476 1,495 2,952 3,381
Net income........................................ 1,490 2,250 3,575 4,202
Net income per diluted share
Income from continuing operations............... $ 0.03 $ 0.08 $ 0.12 $ 0.14
Total discontinued operations................... 0.06 0.04 0.03 0.03
------- ------- ------- -------
Net income...................................... $ 0.09 $ 0.13 $ 0.15 $ 0.17
======= ======= ======= =======
</TABLE>
F-19
<PAGE> 60
PROSPECTUS
-- INSIDE BACK COVER--
[The Company's operating company logos appear here.]
<PAGE> 61
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Recent Developments................... 12
Use of Proceeds....................... 12
Capitalization........................ 13
Dividend Policy....................... 14
Price Range of Common Stock........... 14
Selected Financial Data............... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 22
Management............................ 32
Description of Capital Stock.......... 34
Underwriting.......................... 37
Legal Matters......................... 38
Experts............................... 38
Additional Information................ 38
Incorporation of Certain Documents by
Reference........................... 39
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
======================================================
======================================================
7,000,000 SHARES
(PGA LOGO)
PERSONNEL GROUP OF
AMERICA, INC.
COMMON STOCK
------------
PROSPECTUS
, 1998
------------
SALOMON SMITH BARNEY
NATIONSBANC MONTGOMERY
SECURITIES LLC
J.C. BRADFORD & CO.
THE ROBINSON-HUMPHREY
COMPANY
CLEARY GULL REILAND
& MCDEVITT INC.
======================================================
<PAGE> 62
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the Registrant's costs and expenses in
connection with the sale and distribution of the securities being registered,
other than the underwriting discounts and commissions. All amounts shown are
estimates except for the Commission registration fee, the NASD filing fee and
the New York Stock Exchange listing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 52,393
NASD filing fee............................................. 18,261
New York Stock Exchange listing fee......................... 58,475
Blue Sky fees and expenses.................................. 2,000
Accounting fees and expenses................................ 175,000
Legal fees and expenses..................................... 175,000
Printing, engraving and mailing expenses.................... 80,000
Miscellaneous............................................... 138,871
--------
Total............................................. $700,000
========
</TABLE>
ITEM 15. 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.
II-1
<PAGE> 63
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. 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's 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 certain of its officers and directors, pursuant to which the Company has
agreed to indemnify such officers and directors, and to advance expenses to such
persons, to the maximum extent permitted by applicable law.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <C> <S>
1.0 -- Form of Underwriting Agreement
3.1 -- Restated Certificate of Incorporation of the Company, as
amended (incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-3 (Registration
No. 333-31863))
3.2 -- Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 to the Company's Registration
Statement on Form S-1 (Registration No. 33-95228))
4.0 -- Specimen Stock Certificate (incorporated by reference to
Exhibit 4.0 to the Company's Registration Statement on Form
S-1 (Registration No. 33-95228))
4.1 -- Rights Agreement between the Company and First Union
National Bank (as successor trustee) (incorporated by
reference to Exhibit 1 to the Company's Registration
Statement on Form 8-A (Registration No. 0-27792))
4.2 -- Indenture between the Company and First Union National Bank,
as Trustee amended (incorporated by reference to Exhibit 4.2
to the Company's Registration Statement on Form S-3
(Registration No. 333-31863))
4.3 -- Form of Note Certificate for 5 3/4% Convertible Subordinated
Notes (incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-3 (Registration
No. 333-31863))
5.1 -- Opinion of Robinson, Bradshaw & Hinson, P.A
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Price Waterhouse LLP
23.3 -- Consent of Robinson, Bradshaw & Hinson, P.A. (included in
Exhibit 5.1)
24.1 -- Power of Attorney (included in the signature pages to this
Registration Statement as initially filed)
</TABLE>
(b) Financial Statement Schedules
Not Applicable.
II-2
<PAGE> 64
ITEM 17. UNDERTAKINGS
The undersigned Company hereby undertakes that, for purposes of determining
any liability under the Securities Act, each filing of the Company's annual
report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in the
Registration Statement 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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions contained in the Company's Articles of Incorporation
and bylaws and the laws of the State of Delaware, or otherwise, the Company has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Company 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
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 65
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Company certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-3 and has duly caused this Registration
Statement or amendment thereto to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Charlotte, State of North Carolina, on
this 17th day of April, 1998.
By: /s/ KEN R. BRAMLETT, JR.
------------------------------------
Ken R. Bramlett, Jr.
Senior Vice President
Pursuant to the requirements of the Securities Act, this Registration
Statement or amendment thereto has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ EDWARD P. DRUDGE, JR.* Director and Chief April 17, 1998
- ----------------------------------------------------- Executive Officer
Edward P. Drudge, Jr.
/s/ JAMES C. HUNT* Director, Senior Vice April 17, 1998
- ----------------------------------------------------- President and Chief
James C. Hunt Financial Officer
(Principal Accounting and
Financial Officer)
/s/ KEN R. BRAMLETT, JR. Director, Senior Vice April 17, 1998
- ----------------------------------------------------- President and General
Ken R. Bramlett, Jr. Counsel
/s/ KEVIN P. EGAN* Director April 17, 1998
- -----------------------------------------------------
Kevin P. Egan
/s/ J. ROGER KING* Director April 17, 1998
- -----------------------------------------------------
J. Roger King
/s/ JAMES V. NAPIER* Director April 17, 1998
- -----------------------------------------------------
James V. Napier
/s/ WILLIAM J. SIMIONE, JR.* Director April 17, 1998
- -----------------------------------------------------
William J. Simione, Jr.
*By: /s/ KEN R. BRAMLETT, JR.
------------------------------------------------
Ken R. Bramlett, Jr.
Attorney-in-fact
</TABLE>
II-4
<PAGE> 1
EXHIBIT 1.0
Draft of April 17, 1998
7,000,000 Shares
PERSONNEL GROUP OF AMERICA, INC.
Common Stock
UNDERWRITING AGREEMENT
____________, 1998
SMITH BARNEY INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
J.C. BRADFORD & CO.
THE ROBINSON-HUMPHREY COMPANY LLC
CLEARY GULL REILAND & MCDEVITT INC.
As Representatives of the
several Underwriters
c/o Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
Personnel Group of America, Inc., a Delaware corporation (the
"Company"), proposes to sell an aggregate of 7,000,000 shares (the "Firm
Shares") of the Company's Common Stock, $.01 par value per share (the "Common
Stock"), to you and to the several other Underwriters named in Schedule I hereto
(collectively, the "Underwriters"), for whom you are acting as representatives
(the "Representatives"), in connection with the offering and sale of such shares
of Common Stock. The Company has also agreed to grant to you and the other
Underwriters an option (the "Option") to purchase up to an additional 1,050,000
shares of Common Stock (the "Option Shares") on the terms and for the purposes
set forth in Section l(b). The Firm Shares and the Option Shares are referred to
collectively herein as the "Shares."
The Company confirms as follows its agreement with the Representatives
and the several other Underwriters.
1. Agreement to Sell and Purchase.
a. On the basis of the respective representations, warranties and
agreements of the Company herein contained and subject to all the terms and
conditions of this Agreement, (i) the Company agrees to sell to the several
Underwriters and (ii) each of the Underwriters, severally and not jointly,
agrees to purchase from the
<PAGE> 2
Company, at a purchase price of $__________ per share, the number of Firm Shares
set forth opposite the name of such Underwriter in Schedule I, plus such
additional number of Firm Shares which such Underwriter may become obligated to
purchase pursuant to Section 8 hereof.
b. Subject to all the terms and conditions of this Agreement, the
Company grants the Option to the several Underwriters to purchase, severally and
not jointly, up to 1,050,000 Option Shares from the Company at the same price
per share as the Underwriters shall pay for the Firm Shares. The Option may be
exercised only to cover over-allotments in the sale of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time (but not more
than once) on or before the 30th day after the date of the Prospectus, upon
written or telegraphic notice (the "Option Shares Notice") by the
Representatives to the Company no later than 12:00 noon, New York City time, at
least two and no more than five business days before the date specified for
closing in the Option Shares Notice (the "Option Closing Date") setting forth
the aggregate number of Option Shares to be purchased and the time and date for
such purchase. On the Option Closing Date, the Company will issue and sell to
the Underwriters the number of Option Shares set forth in the Option Shares
Notice, and each Underwriter will purchase such percentage of the Option Shares
as is equal to the percentage of Firm Shares that such Underwriter is
purchasing, as adjusted by the Representatives in such manner as they deem
advisable to avoid fractional shares.
2. Delivery and Payment. Delivery of the Firm Shares shall be made to
the Representatives for the accounts of the Underwriters against payment of the
purchase price by check(s) or by wire transfer in same-day available funds to
the account of the Company. Delivery to the Representatives of and payment for
the Firm Shares shall be made at the offices of Smith Barney Inc., 388 Greenwich
Street, New York, New York 10013, at 10:00 A.M., New York City time, on
______________ (the "Closing Date"). The place of closing for the Firm Shares
and the Closing Date may be varied by agreement between you and the Company.
To the extent the Option is exercised, delivery of the Option Shares
against payment by the Underwriters (in the manner specified above) will take
place at the time and date (which may be the Closing Date) specified in the
Option Shares Notice.
The cost of original issue tax stamps, if any, in connection with the
issuance and delivery of the Firm Shares and Option Shares by the Company to the
respective Underwriters shall be borne by the Company. The Company will pay and
save each Underwriter and any subsequent holder of the Shares harmless from any
and all liabilities with respect to or resulting from any failure or delay in
paying Federal and state stamp and other transfer taxes, if any, which may be
payable or determined to be payable in connection with the original issuance or
sale to such Underwriter of the Firm Shares and Option Shares.
3. Representations and Warranties of the Company. The Company
represents, warrants and covenants to each Underwriter that:
2
<PAGE> 3
a. A registration statement (Registration No. 333-49815) on Form S-3
relating to the Shares, including a preliminary prospectus and such amendments
to such registration statement as may have been required to the date of this
Agreement, has been prepared by the Company under the provisions of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(collectively referred to as the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission. The registration statement contains a preliminary prospectus, as
contemplated by Rule 430 or Rule 430A ("Rule 430A") of the Rules and
Regulations, to be used in connection with the offering and sale of the Shares.
The term "Preliminary Prospectus" as used herein means a preliminary prospectus
included at any time as part of the registration statement. Copies of such
registration statement and amendments have been delivered to the Representatives
and copies of each related preliminary prospectus have been delivered to the
Representatives of the Underwriters. The term "Registration Statement" means the
registration statement as amended at the time it becomes or became effective
(the "Effective Date"), including financial statements and all exhibits and any
information deemed to be included by Rule 430A or Rule 434 of the Rules and
Regulations. If the Company files a registration statement to register a portion
of the Shares and relies on Rule 462(b) of the Rules and Regulations for such
registration statement to become effective upon filing with the Commission (the
"Rule 462 Registration Statement"), then any reference to the "Registration
Statement" shall be deemed to include the Rule 462 Registration Statement, as
amended from time to time. The term "Prospectus" means the prospectus relating
to the Shares in the form it is first filed with the Commission pursuant to Rule
424(b) of the Rules and Regulations or, if no such filing is required, the form
of final prospectus included in the Registration Statement at the Effective
Date. Any reference herein to the registration statement, the Registration
Statement, the Preliminary Prospectus, any Rule 462 Registration Statement or
the Prospectus shall be deemed to refer to and include the documents
incorporated by reference therein pursuant to Form S-3 under the Act, as of the
date of registration statement, the Registration Statement, the Preliminary
Prospectus, any Rule 462 Registration Statement or the Prospectus, as the case
may be, and any reference to any amendment or supplement to the registration
statement, the Registration Statement, the Preliminary Prospectus, any Rule 462
Registration Statement or the Prospectus shall be deemed to refer to and include
any documents filed after such date under the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Exchange Act") and deemed incorporated by reference pursuant
to Form S-3 under the Act. As used herein, the term "Incorporated Documents"
means the documents which at the time are incorporated by reference in
registration statement, the Registration Statement, the Preliminary Prospectus,
any Rule 462 Registration Statement, the Prospectus or any amendment or
supplement thereto.
b. The Company meets the requirements for use of Form S-3 under
the Act. On the Effective Date, the date the Prospectus is first filed with the
Commission pursuant to Rule 424(b) (if required), at all times subsequent to and
including the Closing Date and, if later, the Option Closing Date and when any
post-effective amendment to the Registration Statement becomes effective or any
amendment or supplement to the Prospectus is filed with the Commission, the
Registration Statement
3
<PAGE> 4
and the Prospectus (as amended or as supplemented if the Company shall have
filed with the Commission any amendment or supplement thereto), including the
financial statements included in the Prospectus, did or will comply as to form
in all material respects with all applicable provisions of the Act and the Rules
and Regulations and will contain all statements required to be stated therein in
accordance with the Act and the Rules and Regulations.
On the Effective Date and when any post-effective amendment to the
Registration Statement becomes effective, no part of the Registration Statement
or any such amendment did or will contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein not misleading. At the Effective Date,
the date the Prospectus or any amendment or supplement to the Prospectus is
filed with the Commission and at the Closing Date and, if later, the Option
Closing Date, the Prospectus did not or will not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The foregoing representations and warranties in this
Section 3(b) do not apply to any statements or omissions made in reliance on and
in conformity with information relating to any Underwriter furnished in writing
to the Company by the Representatives specifically for inclusion in the
Registration Statement or Prospectus or any amendment or supplement thereto. For
all purposes of this Agreement, information in the last paragraph on the cover
of the Prospectus, the information on page 2 of the Prospectus regarding
stabilization and the information in the table under the caption "Underwriting"
and the second, fifth and seventh paragraphs following the table under the
caption "Underwriting" in the Prospectus constitute the only information
relating to any Underwriter furnished in writing to the Company by the
Representatives specifically for inclusion in the Preliminary Prospectus, the
Registration Statement or the Prospectus. The Company has not distributed any
offering material in connection with the offering or sale of the Shares other
than the Registration Statement, the Preliminary Prospectus, the Prospectus or
any other materials, if any, permitted by the Act.
c. The only subsidiaries (as defined in the Rules and
Regulations) of the Company are the subsidiaries disclosed in the Registration
Statement or listed in an exhibit to an Incorporated Document (the
"Subsidiaries"). The Company and each of its Subsidiaries is, and at the Closing
Date will be, a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation. The Company and
each of its Subsidiaries has, and at the Closing Date will have, full corporate
power and authority to conduct all the activities conducted by it, to own or
lease all the assets owned or leased by it and to conduct its business as
described in the Registration Statement and the Prospectus. The Company and each
of its Subsidiaries is, and at the Closing Date will be, duly qualified to do
business and in good standing as a foreign corporation in all jurisdictions in
which the nature of the activities conducted by it or the character of the
assets owned or leased by it makes such qualification necessary except where the
failure to do so would not have a material adverse effect on the business,
financial condition or results of operations of the Company and its
Subsidiaries, taken as a whole. All of the outstanding shares of capital stock
of the Subsidiaries have been duly authorized and validly issued and are fully
paid
4
<PAGE> 5
and non-assessable and, except as described in the Registration Statement and
Prospectus, are owned by the Company free and clear of all liens, encumbrances
and claims whatsoever.
Except for the stock of the Subsidiaries and as disclosed in
the Registration Statement, the Company does not own, and at the Closing Date
will not own, directly or indirectly, any shares of stock or any other equity
or long-term debt securities of any corporation or have any equity interest in
any firm, partnership, joint venture, association or other entity.
Complete and correct copies of the certificate of incorporation
(or articles of incorporation, as the case may be) and of the by-laws of the
Company and each of its Subsidiaries and all amendments thereto have been made
available to the Representatives, and no changes therein will be made subsequent
to the date hereof and prior to the Closing Date or, if later, the Option
Closing Date.
d. The outstanding shares of Common Stock have been, and the
Shares to be issued and sold by the Company upon such issuance will be, duly
authorized, validly issued, fully paid and nonassessable and will not be subject
to any preemptive right under the Company's certificate of incorporation or
Delaware law or similar right. The description of the Common Stock in the
Registration Statement and the Prospectus is, and at the Closing Date will be,
complete and accurate in all material respects. Except as set forth in the
Prospectus and except for options granted, or shares of Common Stock issued,
pursuant to employee benefit plans described in the Registration Statement and
the Prospectus, the Company does not have outstanding, and at the Closing Date
will not have outstanding, any options to purchase, or any rights or warrants to
subscribe for, or any securities or obligations convertible into, or any
contracts or commitments to issue or sell, any shares of Common Stock, any
shares of capital stock of any Subsidiary or any such warrants, convertible
securities or obligations.
e. The financial statements and schedules included in the
Registration Statement or the Prospectus present fairly the consolidated
financial condition of the Company as of the respective dates thereof and the
consolidated results of operations and cash flows of the Company for the
respective periods covered thereby, all in conformity with generally accepted
accounting principles applied on a consistent basis throughout the entire period
involved, except as otherwise disclosed in the Prospectus. The pro forma
financial statements and other pro forma financial information included in the
Registration Statement or the Prospectus (i) present fairly in all material
respects the information shown therein, (ii) have been prepared in accordance
with all applicable rules and guidelines of the Commission with respect to pro
forma financial statements and (iii) have been properly computed on the bases
described therein. The assumptions used in the preparation of the pro forma
financial statements and other pro forma financial information included in the
Registration Statement or the Prospectus are reasonable and the adjustments used
therein are appropriate to give effect to the transactions or circumstances
referred to therein. Other than those of the Company, no other financial
statements or schedules of the Company are required by the Act or the Rules and
Regulations to be included in the Registration Statement or the
5
<PAGE> 6
Prospectus or, as of the Effective Date and the date of the Prospectus, to be
filed with a document which upon filing with the Commission would become an
Incorporated Document. Each of Price Waterhouse LLP and Arthur Andersen LLP (the
"Accountants"), who has reported on the financial statements and schedules for
the Company, as of the date of such financial statement or schedule, was an
independent public accountant under Rule 101 of the AICPA's Code of Professional
Conduct and as required by the Act and the Rules and Regulations.
f. The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
g. Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus and prior to the
Closing Date, except as set forth in or contemplated by the Registration
Statement and the Prospectus or as may have occurred or may occur in the
ordinary course of business, (i) there has not been and will not have been any
change in the capitalization of the Company, or any material adverse change in
the business, properties, financial condition or results of operations of the
Company and its Subsidiaries taken as a whole, (ii) neither the Company nor any
of its Subsidiaries has incurred nor will it incur any material liabilities or
obligations, direct or contingent, nor has it entered into nor will it enter
into any material transactions other than pursuant to this Agreement and the
transactions referred to herein and (iii) the Company has not and will not have
paid or declared any dividends or other distributions of any kind on any class
of its capital stock.
h. The Company is not an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
i. Except as set forth in the Registration Statement and the
Prospectus, there are no actions, suits or proceedings pending or threatened
against or affecting the Company or any of its Subsidiaries or any of their
respective officers in their capacity as such, before or by any Federal or state
court, commission, regulatory body, administrative agency or other governmental
body, domestic or foreign, wherein an unfavorable ruling, decision or finding is
reasonably probable which would materially and adversely affect the business,
properties, financial condition or results of operations of the Company and its
Subsidiaries taken as a whole.
j. Except as would not have a material adverse effect on the
business, financial condition or results of operations of the Company and its
Subsidiaries taken as a whole, the Company and each of its Subsidiaries has, and
at the Closing Date will have, (i) all governmental licenses, permits, consents,
orders, approvals and other
6
<PAGE> 7
authorizations necessary to carry on its business as contemplated in the
Prospectus, (ii) complied in all respects with all laws, regulations and orders
applicable to it or its business and (iii) performed all of its obligations
required to be performed by it, and is not, and at the Closing Date will not be,
in default, under any indenture, mortgage, deed of trust, voting trust
agreement, loan agreement, bond, debenture, note agreement, lease, contract or
other agreement or instrument which is listed as an exhibit to the Registration
Statement or which is material to the Company and its Subsidiaries taken as a
whole (collectively, a "contract or other agreement") to which it is a party or
by which its property is bound. To the best knowledge of the Company and each of
its Subsidiaries, no other party under any contract or other agreement to which
it is a party is in default in any respect thereunder. Neither the Company nor
any of its Subsidiaries is, nor at the Closing Date will any of them be, in
violation of any provision of its certificate of incorporation, or articles of
incorporation, as the case may be, or by-laws.
k. No consent, approval, authorization or order of, or any
filing or declaration with, any court or governmental agency or body is required
in connection with the authorization, issuance, transfer, sale or delivery of
the Shares by the Company, in connection with the execution, delivery and
performance of this Agreement by the Company or in connection with the taking by
the Company of any action contemplated hereby, except such as have been obtained
under the Act or the Rules and Regulations and such as may be required under
state securities or Blue Sky laws, the rules of the New York Stock Exchange or
the by-laws and rules of the National Association of Securities Dealers, Inc.
(the "NASD") in connection with the purchase and distribution by the
Underwriters of the Shares to be sold by the Company.
l. The Company has full corporate power and authority to enter
into this Agreement. This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding agreement of the
Company and is enforceable against the Company in accordance with the terms
hereof, except as enforcement hereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and subject to the
applicability of general principles of equity, and except as rights of indemnity
and contribution hereunder may be limited by federal or state securities laws or
principles of public policy. The performance of this Agreement, the consummation
of the transactions contemplated hereby and the application of the net proceeds
from the offering and sale of the Shares to be sold by the Company in the manner
set forth in the Prospectus under "Use of Proceeds" will not result in the
creation or imposition of any lien, charge or encumbrance upon any of the assets
of the Company or any of its Subsidiaries pursuant to the terms or provisions
of, or result in a breach or violation of any of the terms or provisions of, or
constitute a default under, or give any other party a right to terminate any of
its obligations under, or result in the acceleration of any obligation under,
the certificate of incorporation or articles of incorporation, as the case may
be, or by-laws of the Company or any of its Subsidiaries, any contract or other
agreement to which the Company or any of its Subsidiaries is a party or by which
the Company or any of its Subsidiaries or any of its properties is bound or
affected, or violate or conflict with any judgment, ruling, decree, order,
statute, rule or regulation of any court or other governmental agency or body
applicable to the business or properties of the Company or any of its
Subsidiaries.
7
<PAGE> 8
m. The Company and each of its Subsidiaries owns all
properties and assets described in the Prospectus as owned by it, free and clear
of all liens, charges, encumbrances or restrictions, except such as are
described in the Prospectus or are not material to the business of the Company
and its Subsidiaries taken as a whole. The Company and each of its Subsidiaries
has valid, subsisting and enforceable leases for the properties described in the
Prospectus as leased by it, with such exceptions as are not material to the
Company and its Subsidiaries taken as a whole.
n. There is no document or contract of a character required to
be described in the Registration Statement or the Prospectus or to be filed as
an exhibit to the Registration Statement or any Incorporated Document which is
not described or filed as required. All such contracts to which the Company or
any Subsidiary is a party have been duly authorized, executed and delivered by
the Company or such Subsidiary, constitute valid and binding agreements of the
Company or such Subsidiary and are enforceable against the Company or such
Subsidiary in accordance with the terms thereof, except as enforcement thereof
may be limited by bankruptcy, insolvency or similar laws affecting creditors'
rights generally and subject to the applicability of general principles of
equity.
o. No statement, representation, warranty or covenant made by
the Company in this Agreement or made in any certificate or document required by
this Agreement to be delivered to the Representatives was or will be, when made,
inaccurate, untrue or incorrect.
p. Neither the Company nor, to the Company's knowledge, any of
its directors, officers or controlling persons has taken, directly or
indirectly, any action intended, or which might reasonably be expected, to cause
or result, under the Act or otherwise, in, or which has constituted,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares.
q. No holder of securities of the Company has rights to the
registration of any securities of the Company because of the filing of the
Registration Statement, except such rights as have been duly and validly waived.
r. The Shares are duly authorized for listing, subject to
official notice of issuance, on the New York Stock Exchange and shares of the
Company's Common Stock have been listed on and in compliance with the
requirements for continued listing on the New York Stock Exchange since at least
January 1, 1998.
s. No labor dispute with the employees of the Company or any
of its Subsidiaries exists or, to the knowledge of the Company, is any such
dispute threatened, which would have a material adverse effect on the Company
and its Subsidiaries, taken as a whole.
t. The Company and its Subsidiaries own, or are licensed or
otherwise have the full right to use, all material trademarks and trade names
which are described in the Prospectus. To the best knowledge of the Company, no
pending claims
8
<PAGE> 9
have been asserted by any person to the use of any such trademarks or trade
names or challenging or questioning the validity or effectiveness of any such
trademark or trade name. The use, in connection with the business and operations
of the Company and its Subsidiaries of such trademarks and trade names does not,
to the Company's knowledge, infringe on the rights of any person.
u. Neither the Company nor any of its Subsidiaries nor, to
the Company's knowledge, any employee or agent of the Company or any Subsidiary
has made any payment of funds of the Company or any Subsidiary or received or
retained any funds in violation of any law, rule or regulation or of a character
required to be disclosed in the Prospectus.
v. The Company has complied, and until the completion of the
distribution of the Shares will comply, with all of the provisions of
(including, without limitation, filing all forms required by) Section 517.075 of
the Florida Securities and Investor Protection Act and regulation 3E-900.001
issued thereunder with respect to the offering and sale of the Shares.
w. The Incorporated Documents heretofore filed, when they were
filed (or, if any amendment with respect to any such document was filed, when
such document was filed), conformed in all material respects with the
requirements of the Exchange Act and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and any further
Incorporated Documents will, when so filed, be filed in a timely manner and
conform in all material respects with the requirements of the Exchange Act and
will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading.
4. Agreements of the Company. The Company agrees with the several
Underwriters as follows:
a. The Company will not, either prior to the Effective Date or
thereafter during such period as the Prospectus is required by law to be
delivered in connection with sales of the Shares by a Underwriter or dealer,
file any amendment or supplement to the Registration Statement or the Prospectus
or file any information, documents or reports pursuant to the Exchange Act which
upon filing becomes an Incorporated Document, unless a copy thereof shall first
have been submitted to the Representatives within a reasonable period of time
prior to the filing thereof and the Representatives shall not have objected
thereto in good faith.
b. The Company will use its best efforts to cause the
Registration Statement to become effective, and will notify the Representatives
promptly, and will confirm such advice in writing, (1) when the Registration
Statement has become effective and when any post-effective amendment thereto
becomes effective, (2) of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus or for additional
information, (3) of the issuance by the Commission of
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any stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose or the threat thereof, (4) of the
happening of any event during the period mentioned in the second sentence of
Section 4(e) that in the judgment of the Company makes any statement made in the
Registration Statement or the Prospectus untrue or that requires the making of
any changes in the Registration Statement or the Prospectus in order to make the
statements therein, in light of the circumstances in which they are made, not
misleading and (5) of receipt by the Company or any representative or attorney
of the Company of any other communication from the Commission relating to the
Registration Statement, any preliminary prospectus or the Prospectus. If at any
time the Commission shall issue any order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to obtain
the withdrawal of such order at the earliest possible moment. The Company will
use its best efforts to comply with the provisions of and make all requisite
filings with the Commission pursuant to Rule 430A and to notify the
Representatives promptly of all such filings.
c. The Company will furnish to each of the Representatives,
without charge, two conformed copies of the Registration Statement and of any
post-effective amendment thereto, including financial statements and schedules
and, if requested, all Incorporated Documents and all exhibits thereto, and will
furnish to the Representatives without charge for transmittal to each of the
other Underwriters one conformed copy of the Registration Statement and any
post-effective amendment thereto, including financial statements and schedules
but without exhibits.
d. The Company will comply with all the provisions of any
undertakings contained in the Registration Statement.
e. On the business day following the date of this Agreement,
and thereafter from time to time, the Company will deliver (i) to each of the
Underwriters, without charge, as many copies of the Prospectus or any amendment
or supplement thereto as the Representatives may reasonably request. The Company
consents to the use of the Prospectus or any amendment or supplement thereto or
any document incorporated therein by the several Underwriters and by all dealers
to whom the Shares may be sold, both in connection with the offering or sale of
the Shares and for any period of time thereafter during which the Prospectus is
required by law to be delivered in connection therewith. If during such period
of time any event shall occur which in the judgment of the Company or counsel to
the Underwriters should be set forth in the Prospectus in order to make any
statement therein, in the light of the circumstances under which it was made,
not misleading, or if it is necessary to supplement or amend the Prospectus to
comply with law or to file under the Exchange Act any document which upon filing
becomes an Incorporated Document, the Company will forthwith prepare and,
subject to Section 4(a) hereof, duly file with the Commission an appropriate
supplement or amendment thereto or Incorporated Document, and will deliver to
each of the Underwriters, without charge, such number of copies of such
supplement or amendment to the Prospectus as the Representatives may reasonably
request.
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<PAGE> 11
f. Prior to any public offering of the Shares, the Company
will cooperate with the Representatives and counsel to the Underwriters in
connection with the registration or qualification of the Shares for offer and
sale under the securities or Blue Sky laws of such jurisdictions as the
Representatives may request, including, without limitation, the provinces and
territories of Canada and other jurisdictions outside of the United States;
provided, that in no event shall the Company be obligated to qualify to do
business in any jurisdiction where it is not now so qualified or to take any
action which would subject it to general service of process in any jurisdiction
where it is not now so subject.
g. During the period of five years commencing on the Effective
Date, the Company will furnish to the Representatives upon request and each
other Underwriter who may so request copies of such financial statements and
other periodic and special reports as the Company may from time to time
distribute generally to the holders of its Common Stock and will furnish to the
Representatives and each other Underwriter who may so request a copy of each
annual or other report it shall be required to file with the Commission.
h. The Company will make generally available to holders of its
securities as soon as may be practicable but in no event later than the last day
of the fifteenth full calendar month following the calendar quarter in which the
Effective Date falls, an earnings statement (which need not be audited but shall
be in reasonable detail) for a period of 12 months ended commencing after the
Effective Date, and satisfying the provisions of Section 11(a) of the Act
(including Rule 158 of the Rules and Regulations).
i. Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement is terminated, the Company will pay,
or reimburse if paid by the Representatives, all costs and expenses incident to
the performance of the obligations of the Company under this Agreement,
including, but not limited to, costs and expenses of or relating to (1) the
preparation, printing and filing of the Registration Statement and exhibits to
it, each preliminary prospectus, Prospectus and any amendment or supplement to
the Registration Statement or Prospectus or any Incorporated Document, (2) the
preparation and delivery of certificates representing the Shares, (3) the
printing of this Agreement, the Agreement Among Underwriters, any Dealer
Agreements, any Underwriters' Questionnaire and the Agreement and Power of
Attorney, (4) furnishing (including costs of shipping, mailing and courier) such
copies of the Registration Statement, the Prospectus and any preliminary
prospectus, and all amendments and supplements thereto, including all
Incorporated Documents, as may be reasonably requested for use in connection
with the offering and sale of the Shares by the Underwriters or by dealers to
whom Shares may be sold, (5) the supplemental listing of the Shares on the New
York Stock Exchange, (6) any filings required to be made by the Underwriters
with the NASD, (7) the registration or qualification of the Shares for offer and
sale under the securities or Blue Sky laws of such jurisdictions designated
pursuant to Section 4(f), including the fees, disbursements and other charges of
counsel (including counsel in Canadian provinces and territories) to the
Underwriters in connection therewith, and the preparation and printing of
preliminary, supplemental and final Blue
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<PAGE> 12
Sky memoranda, (8) counsel to the Company, (9) the transfer agent for the Shares
and (10) the Accountants.
j. If this Agreement shall be terminated by the Underwriters
pursuant to any of the provisions hereof (otherwise than pursuant to Section 7
or Section 8 hereof) or if for any reason the Company shall be unable to perform
its obligations, the Company will reimburse the several Underwriters for all
out-of-pocket expenses (including the fees, disbursements and other charges of
counsel to the Underwriters) reasonably incurred by them in connection herewith,
including those fees and expenses referred to in Section 4(i). The Company shall
have no reimbursement obligation under this Section 4(j) if this Agreement is
terminated by the Company pursuant to the second paragraph of Section 8 hereof.
k. The Company will not at any time, directly or indirectly,
take any action intended, or which might reasonably be expected, to cause or
result in, or which will constitute, stabilization of the price of the shares of
Common Stock to facilitate the sale or resale of any of the Shares.
l. The Company will apply the net proceeds from the offering
and sale of the Shares to be sold by the Company in the manner set forth in the
Prospectus under "Use of Proceeds."
m. The Company will not, and will cause each of its executive
officers and directors to enter into agreements with the Representatives in the
form set forth in Exhibit A to the effect that they will not, for a period of 90
days after the commencement of the public offering of the Shares, without the
prior written consent of Smith Barney Inc., sell, contract to sell or otherwise
dispose of any shares of Common Stock or rights to acquire such shares (other
than, in the case of the Company: (i) pursuant to employee stock option plans;
(ii) in connection with other employee incentive compensation arrangements;
(iii) upon conversion of the Company's 5 3/4% Convertible Subordinated Notes due
2004; (iv) in connection with acquisitions, provided that the persons to whom
any such shares or rights are issued pursuant to this clause (iv) have agreed
with the Underwriters not to resell such shares or rights for at least the
duration of the 90-day lock-up period described above; or (v) or as otherwise
described in the Registration Statement).
5. Conditions of the Obligations of the Underwriters. The obligations
of each Underwriter hereunder are subject to the following conditions:
a. Notification that the Registration Statement has become
effective shall be received by the Representatives not later than 5:00 p.m., New
York City time, on the date of this Agreement or at such later date and time as
shall be consented to in writing by the Representatives and all filings required
by Rule 424 of the Rules and Regulations and Rule 430A shall have been made.
b. (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall
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<PAGE> 13
be pending or threatened by the Commission, (ii) no order suspending the
effectiveness of the Registration Statement or the qualification or registration
of the Shares under the securities or Blue Sky laws of any jurisdiction shall be
in effect and no proceeding for such purpose shall be pending before or
threatened or contemplated by the Commission or the authorities of any such
jurisdiction, (iii) any request for additional information on the part of the
staff of the Commission or any such authorities shall have been complied with to
the satisfaction of the staff of the Commission or such authorities and (iv)
after the date hereof no amendment or supplement to the Registration Statement
or the Prospectus, or any information, documents or reports pursuant to the
Exchange Act which upon filing becomes an Incorporated Document, shall have been
filed unless a copy thereof was first submitted to the Representatives and the
Representatives do not object thereto in good faith, except with respect to any
such amendment or supplement or Incorporated Document that is required by law
and the Representatives do not reasonably object as to the form thereof, and the
Representatives shall have received certificates, dated the Closing Date and the
Option Closing Date and signed by the Chief Executive Officer or the Chairman of
the Board of Directors of the Company and the Chief Financial Officer of the
Company (who may, as to proceedings threatened, rely upon the best of their
information and belief), to the effect of clauses (i), (ii) and (iii).
c. Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, (i) there shall not have been
a material adverse change in the general affairs, business, properties,
management, financial condition or results of operations of the Company and its
Subsidiaries, taken as a whole, whether or not arising from transactions in the
ordinary course of business, in each case other than as set forth in or
contemplated by the Registration Statement and the Prospectus and (ii) neither
the Company nor any of its Subsidiaries shall have sustained any material loss
or interference with its business or properties from fire, explosion, flood or
other casualty, whether or not covered by insurance, or from any labor dispute
or any court or legislative or other governmental action, order or decree, which
is not set forth in the Registration Statement and the Prospectus, if in the
judgment of the Representatives any such development makes it impracticable or
inadvisable to consummate the sale and delivery of the Shares by the
Underwriters at the initial public offering price.
d. Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there shall have been no
litigation or other proceeding instituted against the Company or any of its
Subsidiaries or any of their respective officers or directors in their
capacities as such, before or by any Federal, state or local court, commission,
regulatory body, administrative agency or other governmental body, domestic or
foreign, in which litigation or proceeding an unfavorable ruling, decision or
finding would materially and adversely affect the business, properties,
business, financial condition or results of operations of the Company and its
Subsidiaries taken as a whole.
e. Each of the representations and warranties of the Company
contained herein shall be true and correct in all material respects at the
Closing Date as if made at the Closing Date and, with respect to the Option
Shares, each of the representations and warranties of the Company contained
herein shall be true and correct
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<PAGE> 14
in all material respects at the Option Closing Date, and all covenants and
agreements contained herein to be performed on the part of the Company and all
conditions contained herein to be fulfilled or complied with by the Company at
or prior to the Closing Date and, with respect to the Option Shares, at or prior
to the Option Closing Date, shall have been duly performed, fulfilled or
complied with.
f. The Representatives shall have received opinions, each
dated the Closing Date and, with respect to the Option Shares, the Option
Closing Date, and satisfactory in form and substance to counsel for the
Underwriters, from Robinson, Bradshaw & Hinson, P.A., counsel to the Company, to
the effect set forth in Exhibit B.
g. The Representatives shall have received an opinion, dated
the Closing Date and the Option Closing Date, from Dewey Ballantine LLP, counsel
to the Underwriters, with respect to the Registration Statement, the Prospectus
and this Agreement, which opinion shall be satisfactory in all respects to the
Representatives.
h. On the date of the Prospectus, the Accountants shall have
furnished to the Representatives one or more letters, each dated the date of its
delivery, addressed to the Representatives and in form and substance
satisfactory to the Representatives, confirming that they are independent
accountants with respect to the Company as required by the Act and the Rules and
Regulations and with respect to the financial and other statistical and
numerical information contained in the Registration Statement. At the Closing
Date and, as to the Option Shares, the Option Closing Date, the Accountants
shall have furnished to the Representatives a letter, dated the date of its
delivery, which shall confirm, on the basis of a review in accordance with the
procedures set forth in the letter from the Accountants, that nothing has come
to their attention during the period from the date of the letter referred to in
the prior sentence to a date (specified in the letter) not more than five days
prior to the Closing Date and the Option Closing Date, as the case may be, which
would require any material change in their letter dated the date of the
Prospectus, if it were required to be dated and delivered at the Closing Date
and the Option Closing Date.
i. At the Closing Date and, as to the Option Shares, the
Option Closing Date, there shall be furnished to the Representatives a
certificate, dated the date of its delivery, signed by each of the Chief
Executive Officer and the Chief Financial Officer of the Company, in form and
substance satisfactory to the Representatives, to the effect that:
i) Each signer of such certificate has carefully
examined the Registration Statement and the Prospectus and (A) as of
the date of such certificate, such documents are true and correct in
all material respects and do not omit to state a material fact required
to be stated therein or necessary in order to make the statements
therein not untrue or misleading and (B) since the Effective Date, no
event has occurred as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein not
untrue or misleading in any material respect.
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<PAGE> 15
ii) Each of the representations and warranties of
the Company contained in this Agreement were, when originally made, and
are, at the time such certificate is dated, true and correct in all
material respects.
iii) Each of the covenants required to be performed
by the Company herein on or prior to the date of such certificate has
been performed in all material respects, and each condition herein
required to be satisfied or fulfilled on or prior to the date of such
certificate has been satisfied or fulfilled in all material respects.
j. On or prior to the Closing Date, the Representatives shall
have received the executed agreements referred to in Section 4(m).
k. The Shares shall be qualified for sale or exempt from
qualification in such jurisdictions as the Representatives may reasonably
request (subject to Section 4(f)), and each such qualification shall be in
effect and not subject to any stop order or other proceeding on the Closing Date
or the Option Closing Date.
l. Prior to the Closing Date, the Shares shall have been duly
authorized for listing by the New York Stock Exchange upon official notice of
issuance.
m. The Company shall have furnished to the Representatives
such certificates, in addition to those specifically mentioned herein, as the
Representatives may have reasonably requested as to the accuracy and
completeness at the Closing Date and the Option Closing Date of any statement
in the Registration Statement or the Prospectus as to the accuracy at the
Closing Date and the Option Closing Date of the representations and warranties
of the Company herein, as to the performance by the Company of its and their
respective obligations hereunder, or as to the fulfillment of the conditions
concurrent and precedent to the obligations hereunder of the Representatives.
6. Indemnification.
a. The Company will indemnify and hold harmless each
Underwriter, the directors, officers, employees and agents of each Underwriter
and each person, if any, who controls each Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, from and against any
and all losses, claims, liabilities, expenses and damages (including any and all
investigative, legal and other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding between any
of the indemnified parties and any indemnifying parties or between any
indemnified party and any third party, or otherwise, or any claim asserted), to
which they, or any of them, may become subject under the Act, the Exchange Act
or other Federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, liabilities, expenses or damages
arise out of or are based on any untrue statement or alleged untrue statement of
a material fact contained in any preliminary prospectus, the Registration
Statement or the Prospectus or any amendment or supplement to the Registration
Statement or the Prospectus or any
15
<PAGE> 16
Incorporated Document, or the omission or alleged omission to state in such
document a material fact required to be stated in it or necessary to make the
statements in it not misleading, provided that the Company will not be liable to
the extent that such loss, claim, liability, expense or damage arises from the
sale of the Shares in the public offering to any person by an Underwriter and is
based on an untrue statement or omission or alleged untrue statement or omission
(i) made in reliance on and in conformity with information relating to any
Underwriter furnished in writing to the Company by the Representatives on behalf
of any Underwriter expressly for inclusion in the Registration Statement, the
Preliminary Prospectus or the Prospectus or (ii) with respect to the Underwriter
from whom the person asserting the loss, claim, liability, expense or damage
purchased Shares, made in any preliminary prospectus if a copy of the Prospectus
(as amended or supplemented, if the Company shall have furnished the
Underwriters with such amendments or supplements thereto on a timely basis) was
not delivered by or on behalf of such Underwriter to the person asserting the
loss, claim, liability, expense or damage at or prior to the written
confirmation of the sale of the Shares and the Prospectus (so amended or
supplemented) would have corrected such untrue statement or omission. This
indemnity agreement will be in addition to any liability that the Company might
otherwise have.
b. Each Underwriter will indemnify and hold harmless the
Company, each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, each director of the
Company and each officer of the Company who signs the Registration Statement to
the same extent as the foregoing indemnity from the Company to each Underwriter,
but only insofar as losses, claims, liabilities, expenses or damages arise out
of or are based on any untrue statement or omission or alleged untrue statement
or omission made in reliance on and in conformity with information relating to
any Underwriter furnished in writing to the Company by the Representatives on
behalf of such Underwriter expressly for use in the Registration Statement, the
Preliminary Prospectus or the Prospectus. This indemnity will be in addition to
any liability that each Underwriter might otherwise have.
c. Any party that proposes to assert the right to be
indemnified under this Section 6 will, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim is to
be made against an indemnifying party or parties under this Section 6, notify
each such indemnifying party of the commencement of such action, enclosing a
copy of all papers served, but the omission so to notify such indemnifying party
will not relieve it from any liability that it may have to any indemnified party
under the foregoing provisions of this Section 6 unless, and only to the extent
that, such omission results in the forfeiture of substantive rights or defenses
by the indemnifying party. If any such action is brought against any indemnified
party and it notifies the indemnifying party of its commencement, the
indemnifying party will be entitled to participate in and, to the extent that it
elects by delivering written notice to the indemnified party promptly after
receiving notice of the commencement of the action from the indemnified party,
jointly with any other indemnifying party similarly notified, to assume the
defense of the action, with counsel satisfactory to the indemnified party, and
after notice from the indemnifying party to the indemnified party of its
election to assume the defense, the indemnifying party will not be liable to the
indemnified party for
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<PAGE> 17
any legal or other expenses except as provided below and except for the
reasonable costs of investigation subsequently incurred by the indemnified party
in connection with the defense. The indemnified party will have the right to
employ its own counsel in any such action, but the fees, expenses and other
charges of such counsel will be at the expense of such indemnified party unless
(1) the employment of counsel by the indemnified party has been authorized in
writing by the indemnifying party, (2) the indemnified party has reasonably
concluded (based on written advice of counsel) that there may be legal defenses
available to it that are different from or in addition to those available to any
other person represented by such counsel in such matter, (3) a conflict or
potential conflict exists (based on written advice of counsel to the indemnified
party) between the indemnified party and the indemnifying party (in which case
the indemnifying party will not have the right to direct the defense of such
action on behalf of the indemnified party) or (4) the indemnifying party has not
in fact employed counsel to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the action, in
each of which cases the reasonable fees, disbursements and other charges of
counsel will be at the expense of the indemnifying party or parties.
It is understood that the indemnifying party or parties shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the reasonable fees, disbursements and other charges of more than
one separate firm admitted to practice in such jurisdiction at any one time for
all such indemnified party or parties. All such fees, disbursements and other
charges will be reimbursed by the indemnifying party promptly as they are
incurred. An indemnifying party will not be liable for any settlement of any
action or claim effected without its written consent (which consent will not be
unreasonably withheld). No indemnifying party shall, without the prior written
consent of each indemnified party, settle or compromise or consent to the entry
of any judgment in any pending or threatened claim, action or proceeding
relating to the matters contemplated by this Section 6 (whether or not any
indemnified party is a party thereto), unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from all
liability that may arise out of such claim, action or proceeding.
d. In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 6 is applicable in accordance with its terms but for
any reason is held to be unavailable from the Company or the Underwriters, the
Company and the Underwriters will contribute to the total losses, claims,
liabilities, expenses and damages (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted, but after
deducting any contribution received by the Company from persons other than the
Underwriters, such as persons who control the Company within the meaning of the
Act, officers of the Company who signed the Registration Statement and directors
of the Company, who also may be liable for contribution) to which the Company
and any one or more of the Underwriters may be subject in such proportion as
shall be appropriate to reflect the relative benefits received by the Company on
the one hand and the Underwriters on the other. The relative benefits received
by the Company on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the
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<PAGE> 18
total net proceeds from the offering (before deducting expenses) received by the
Company bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. If, but only if, the allocation provided by the foregoing sentence
is not permitted by applicable law, the allocation of contribution shall be made
in such proportion as is appropriate to reflect not only the relative benefits
referred to in the foregoing sentence but also the relative fault of the
Company, on the one hand, and the Underwriters, on the other, with respect to
the statements or omissions which resulted in such loss, claim, liability,
expense or damage, or action in respect thereof, as well as any other relevant
equitable considerations with respect to such offering. Such relative fault
shall be determined by reference to whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company or the Representatives on
behalf of the Underwriters, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Underwriters agree that it would not
be just and equitable if contributions pursuant to this Section 6(d) were to be
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take into account the equitable considerations referred to herein. The amount
paid or payable by an indemnified party as a result of the loss, claim,
liability, expense or damage, or action in respect thereof, referred to above in
this Section 6(d) shall be deemed to include, for purpose of this Section 6(d),
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 6(d), no Underwriter
shall be required to contribute any amount in excess of the underwriting
discounts received by it, and no person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute as provided in
this Section 6(d) are several in proportion to their respective underwriting
obligations and not joint. For purposes of this Section 6(d), any person who
controls a party to this Agreement within the meaning of the Act will have the
same rights to contribution as that party, and each director of the Company and
each officer of the Company who signed the Registration Statement will have the
same rights to contribution as the Company, subject in each case to the
provisions hereof. Any party entitled to contribution, promptly after receipt of
notice of commencement of any action against such party in respect of which a
claim for contribution may be made under this Section 6(d), will notify any such
party or parties from whom contribution may be sought, but the omission so to
notify will not relieve the party or parties from whom contribution may be
sought from any other obligation it or they may have under this Section 6(d). No
party will be liable for contribution with respect to any action or claim
settled without its written consent (which consent will not be unreasonably
withheld).
e. The indemnity and contribution agreements contained in this
Section 6 and the representations and warranties of the Company contained in
this Agreement shall remain operative and in full force and effect regardless of
(i) any
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<PAGE> 19
investigation made by or on behalf of the Underwriters, (ii) acceptance
of any of the Shares and payment therefor or (iii) any termination of this
Agreement.
7. Termination. The obligations of the several Underwriters under this
Agreement may be terminated at any time on or prior to the Closing Date (or,
with respect to the Option Shares, on or prior to the Option Closing Date), by
notice to the Company from the Representatives, without liability on the part of
any Underwriter to the Company, if, prior to delivery and payment for the Shares
(or the Option Shares, as the case may be), in the sole judgment of the
Representatives, (i) trading in any of the equity securities of the Company
shall have been suspended by the Commission, by an exchange that lists such
securities or by the NASDAQ Stock Market, (ii) trading in securities generally
on the New York Stock Exchange shall have been suspended or minimum or maximum
prices shall have been generally established on such exchange, or additional
material governmental restrictions, not in force on the date of this Agreement,
shall have been imposed upon trading in securities generally by such exchange or
by order of the Commission or any court or other governmental authority, (iii) a
general banking moratorium shall have been declared by either Federal or New
York State authorities or (iv) any material adverse change in the financial or
securities markets in the United States or in political, financial or economic
conditions in the United States or any outbreak or material escalation of
hostilities or declaration by the United States of a national emergency or war
or other calamity or crisis shall have occurred, the effect of any of which is
such as to make it, in the sole judgment of the Representatives, impracticable
or inadvisable to market the Shares on the terms and in the manner contemplated
by the Prospectus.
8. Effective Date of Agreement; Substitution of Underwriters. This
Agreement shall become effective: (i) upon the execution and delivery hereof by
the parties hereto; or (ii) if, at the time this Agreement is executed and
delivered, it is necessary for the registration statement or a post-effective
amendment thereto or a Rule 462 Registration Statement to be declared effective
before the offering of the Shares may commence, when notification of the
effectiveness of the registration statement or such post-effective amendment or
Rule 462 Registration Statement has been released by the Commission. Until such
time as this Agreement shall have become effective, it may be terminated by the
Company, by notifying you, or by you, by notifying the Company.
If any one or more of the Underwriters shall fail or refuse to purchase
any of the Firm Shares which it or they have agreed to purchase hereunder, and
the aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than one-tenth
of the aggregate number of Firm Shares, the other Underwriters shall be
obligated, severally, to purchase the Firm Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase, in the
proportions which the number of Firm Shares which they have respectively agreed
to purchase pursuant to Section 1 bears to the aggregate number of Firm Shares
which all such non-defaulting Underwriters have so agreed to purchase, or in
such other proportions as the Representatives may specify; provided that in no
event shall the maximum number of Firm Shares which any Underwriter has become
obligated to purchase pursuant to Section 1 be increased pursuant to this
Section 8 by more than one-
19
<PAGE> 20
ninth of the number of Firm Shares agreed to be purchased by such Underwriter
without the prior written consent of such Underwriter. If any Underwriter or
Underwriters shall fail or refuse to purchase any Firm Shares and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed or refused to purchase exceeds one-tenth of the aggregate number of
the Firm Shares and arrangements satisfactory to the Representatives and the
Company for the purchase of such Firm Shares are not made within 48 hours after
such default, this Agreement will terminate without liability on the part of any
non-defaulting Underwriter, or the Company for the purchase or sale of any
Shares under this Agreement. In any such case either the Representatives or the
Company shall have the right to postpone the Closing Date, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. Any action taken pursuant to this Section 8 shall
not relieve any defaulting Underwriter from liability in respect of any default
of such Underwriter under this Agreement.
9. Miscellaneous. Notice given pursuant to any of the provisions of
this Agreement shall be in writing and, unless otherwise specified, shall be
mailed or delivered (a) if to the Company, at the office of the Company, 6302
Fairview Road, Charlotte, North Carolina 28210, Attention: Ken R. Bramlett, Jr.
or (b) if to the Underwriters, to the Representatives at the offices of Smith
Barney Inc., 388 Greenwich Street, New York, New York 10013, Attention: Manager,
Investment Banking Division, with a copy to Dewey Ballantine LLP, 1301 Avenue of
the Americas, New York, New York 10019, Attention: Donald J. Murray, Esq. Any
such notice shall be effective only upon receipt. Any notice under Section 7 or
8 may be made by telex or telephone, but if so made shall be subsequently
confirmed in writing.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company and of the controlling persons, directors and
officers referred to in Section 6 and their respective successors and assigns.
No other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" as used in this Agreement shall not
include a purchaser, as such purchaser, of Shares from any of the several
Underwriters.
Any action required or permitted to be taken by the Representatives
under this Agreement may be taken by them jointly or by Smith Barney Inc.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF
LAWS PRINCIPLES OF SUCH STATE.
This Agreement may be signed in two or more counterparts with the same
effect as if the signatures thereto and hereto were upon the same instrument.
20
<PAGE> 21
In case any provision in this Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
The Company and the Underwriters each hereby irrevocably waive
any right they may have to a trial by jury in respect of any claim based upon or
arising out of this Agreement or the transactions contemplated hereby.
This Agreement may not be amended or otherwise modified or any
provision hereof waived except by an instrument in writing signed by the
Representatives and the Company.
21
<PAGE> 22
Please confirm that the foregoing correctly sets forth the
agreement among the Company and the several Underwriters.
Very truly yours,
PERSONNEL GROUP OF AMERICA, INC.
By:
---------------------------------
Title:
------------------------------
Confirmed as of the date first
above-mentioned:
SMITH BARNEY INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
J.C. BRADFORD & CO.
THE ROBINSON-HUMPHREY COMPANY LLC
CLEARY GULL REILAND & MCDEVITT INC.
On behalf of the several Underwriters
named in Schedule I hereof.
By: SMITH BARNEY INC.
By:
-------------------------------
Managing Director
22
<PAGE> 23
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
Number of
Names of Firm Shares
Underwriters to be Purchased
- ------------------------------------------------- ---------------
<S> <C>
Smith Barney Inc...............................................................
NationsBanc Montgomery Securities LLC..........................................
J.C. Bradford & Co.............................................................
The Robinson-Humphrey Company LLC..............................................
Cleary Gull Reiland & McDevitt Inc.............................................
---------
Total........................................................................... 7,000,000
=========
</TABLE>
23
<PAGE> 24
EXHIBIT A
PERSONNEL GROUP OF AMERICA, INC.
LOCK-UP LETTER
______________, 1998
SMITH BARNEY INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
J.C. BRADFORD & CO.
THE ROBINSON-HUMPHREY COMPANY, LLC
CLEARY GULL REILAND & McDEVITT INC.
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
In connection with the proposed public offering of shares of Common
Stock, par value $.01 per share (the "Common Stock"), of Personnel Group of
America, Inc. (the "Company"), for which a Registration Statement on Form S-3 is
or will be filed with the Securities and Exchange Commission, the Company
proposes to enter into an underwriting agreement (the "Underwriting Agreement")
with you.
In consideration of your entering into the Underwriting Agreement and
the transactions contemplated thereby and for other good and valuable
consideration, the undersigned hereby irrevocably agrees that without the prior
written consent of Smith Barney Inc., the undersigned will not publicly announce
or disclose any intention to, and will not, directly or indirectly, sell, offer
to sell, solicit an offer to buy, contract to sell, loan, pledge, grant any
option to purchase, or otherwise transfer or dispose of, any shares of Common
Stock, or any securities convertible into or exercisable or exchangeable for
Common Stock now owned or hereafter acquired by the undersigned or with respect
to which the undersigned has or hereafter acquires the power of disposition
(such shares of Common Stock or securities are collectively referred to as the
"Securities"), for a period of 90 days after the Effective Date, as defined in
the Underwriting Agreement (the "Lock-Up Period"), unless pursuant to a bona
fide gift to a person who agrees in writing with you to be bound by the
provisions of this agreement. Prior to the expiration of such
A-1
<PAGE> 25
period, the undersigned will not publicly announce or disclose any intention to
do anything after the expiration of such period which the undersigned is
prohibited, as provided in the preceding sentence, from doing during such
period. The foregoing restriction is expressly agreed to preclude the holder of
the Securities from engaging in any hedging, pledge or other transaction which
is designed to, or which may reasonably be expected to lead to or result in a
disposition of Securities during the Lock-Up Period even if such Securities
would be disposed of by someone other than the undersigned. Such prohibited
hedging, pledge or other transactions would include without limitation any short
sale (whether or not against the box), any pledge of shares covering an
obligation that matures, or could reasonably mature during the Lock-Up Period,
or any purchase, sale or grant of any right (including without limitation any
put or call option) with respect to any Securities or with respect to any
security (other than a broad-based market basket or index) that includes,
relates to or derives any significant part of its value from Securities.
The undersigned agrees that the provisions of this agreement shall be
binding also upon the successors, assigns, heirs and personal representatives of
the undersigned.
In furtherance of the foregoing, the Company and First Union National
Bank, its Transfer Agent, are hereby authorized to decline to make any transfer
of Securities if such transfer would constitute a violation or breach of this
letter agreement.
It is understood that, if the Underwriting Agreement does not become
effective (other than the provisions thereof which survive termination) or shall
terminate or be terminated prior to payment for and delivery of the Common
Stock, you will release us from our obligations under this letter agreement.
Very truly yours,
Name:
--------------------------------------
Address: 6302 Fairview Road, Suite 201
Charlotte, North Carolina 28210
A-2
<PAGE> 26
EXHIBIT B
Form of Opinion of Counsel to the Company
1. The Company and each of its Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has full corporate power and authority to
conduct all the activities conducted by it, to own or lease all the assets owned
or leased by it and to conduct its business as described in the Registration
Statement and the Prospectus. The Company is the sole record owner of all of the
capital stock of each of its Subsidiaries.
2. All of the outstanding shares of Common Stock have been, and the
Shares, when paid for by the Underwriters in accordance with the terms of the
Agreement, will be, duly authorized, validly issued, fully paid and
nonassessable and will not be subject to any preemptive right under Delaware law
or the Company's certificate of incorporation or to such counsel's knowledge,
any similar right. Except as described in the Registration Statement or the
Prospectus, to the best of our knowledge, there is no commitment or arrangement
to issue, and, other than options granted, or shares of Common Stock issued,
pursuant to employee benefit plans described in the Registration Statement and
the Prospectus, there are no outstanding options, warrants or other rights
calling for the issuance of, any share of capital stock of the Company or any
Subsidiary to any person or any security or other instrument that by its terms
is convertible into, exercisable for or exchangeable for capital stock of the
Company.
3. To the best of our knowledge, no consent, approval, authorization or
order of, or any filing or declaration with, any court or governmental agency or
body is required by the Company in connection with the authorization, issuance,
transfer, sale or delivery of the Shares by the Company pursuant to the
Agreement or in connection with the taking by the Company of any action
contemplated thereby, except such as have been obtained under the Act and the
Rules and Regulations and such as may be required under state securities or
"Blue Sky" laws, the rules of the New York Stock Exchange or by the by-laws and
rules of the NASD in connection with the purchase and distribution by the
Underwriters of the Shares to be sold by the Company.
4. The authorized and, based solely on a review of the stock records of
the Company, the issued and outstanding capital stock of the Company is as set
forth in the Registration Statement and the Prospectus under the caption
"Capitalization." The description of the Common Stock contained in the
Prospectus is complete and accurate in all material respects. The form of
certificate used to evidence the Common Stock is in due and proper form and
complies with Delaware law.
5. The Registration Statement and the Prospectus comply in all material
respects as to form with the requirements of the Act and the Rules and
Regulations
B-1
<PAGE> 27
(except that we express no opinion as to financial statements, schedules and
other statistical and financial data contained in the Registration Statement or
the Prospectus).
6. To the best of our knowledge, any instrument, document, lease,
license, contract or other agreement (each a "Document" and collectively, the
"Documents") required to be described or referred to in the Registration
Statement or the Prospectus has been properly described or referred to therein
and any Document required to be filed as an exhibit to the Registration
Statement or any Incorporated Document has been filed as an exhibit thereto or
has been incorporated as an exhibit by reference in the Registration Statement
and no default exists in the due performance or observance of any material
obligation, agreement, covenant or condition contained in any Document filed or
required to be filed as an exhibit to the Registration Statement.
7. To the best of our knowledge, except as disclosed in the
Registration Statement or the Prospectus, no person or entity has the right to
require the registration under the Act of shares of Common Stock or other
securities of the Company by reason of the filing or effectiveness of the
Registration Statement.
8. To the best of our knowledge, the Company is not in violation of,
or in default with respect to, any law, rule, regulation, order, judgment or
decree, except as may be described in the Prospectus or such as in the aggregate
do not now have and will not in the future have a material adverse effect upon
the operations, business or assets of the Company and the Subsidiaries, taken as
a whole.
9. All descriptions in the Prospectus of statutes, regulations or
legal or governmental proceedings are accurate and fairly present the
information required to be shown.
10. The Company has full corporate power and authority to enter into
the Agreement, and the Agreement has been duly authorized, executed and
delivered by the Company, is a valid and binding agreement of the Company and,
except for the indemnification and contribution provisions thereof, as to which
we express no opinion, is, assuming for this purpose that the law of the State
of North Carolina is identical to the law of the State of New York, enforceable
against the Company in accordance with the terms thereof.
11. The execution and delivery by the Company of, and the performance
by the Company of its agreements in, the Agreement, does not and will not (i)
violate the certificate of incorporation or by-laws of the Company, (ii) breach
or result in a default under, cause the time for performance of any obligation
to be accelerated under, or result in the creation or imposition of any lien,
charge or encumbrance upon any of the assets of the Company or any of its
Subsidiaries pursuant to the terms of, any document filed as an exhibit, or
incorporated by reference as an exhibit, to the Registration Statement, (iii)
breach or otherwise violate any existing obligation of the Company under any
court or administrative order, judgment or decree of which we have knowledge or
(iv) violate applicable provisions of any statute or regulation in the State of
Delaware or of the United States.
B-2
<PAGE> 28
12. The Shares have been duly authorized for listing by the New York
Stock Exchange upon official notice of issuance.
We hereby confirm to you that we have been advised by the Commission
that the Registration Statement has become effective under the Act and that no
order suspending the effectiveness of the Registration Statement has been issued
and no proceeding for that purpose has been instituted or is threatened, pending
or contemplated.
We hereby further confirm to you that we are aware of no actions,
suits, proceedings or investigations pending or overtly threatened in writing
against the Company or any of their respective officers or directors in their
capacities as such, before or by any court, governmental agency or arbitrator
which (i) seek to challenge the legality or enforceability of the Agreement,
(ii) seek to challenge the legality or enforceability of any of the documents
filed, or required to be filed, as exhibits to the Registration Statement, (iii)
seek damages or other remedies with respect to any of the documents filed, or
required to be filed, as exhibits to the Registration Statement or any
Incorporated Document, (iv) except as set forth in or contemplated by the
Registration Statement and the Prospectus, seek money damages of a material
amount or seek to impose criminal penalties upon the Company, any of its
Subsidiaries or any of their respective officers or directors in their
capacities as such and of which we have knowledge or (v) seek to enjoin any of
the business activities of the Company or any of its Subsidiaries or the
transactions described in the Prospectus and of which we have knowledge.
We have participated in the preparation of the Registration Statement
and the Prospectus and, without assuming any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus or in any amendment or supplement thereto, and
relying as to materiality to a large extent upon the statements of officers and
other representatives of the Company, nothing has come to our attention that
causes us to believe that, both as of the Effective Date and as of the Closing
Date and the Option Closing Date, the Registration Statement, or any amendment
thereto, contained or contains any untrue statement of a material fact or
omitted or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that any Prospectus
or any amendment or supplement thereto at the time such Prospectus was issued,
at the time any such amended or supplemented Prospectus was issued, at the
Closing Date and the Option Closing Date, contained or contains any untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances in which they were made, not misleading (except that we express no
belief as to, and this paragraph expressly excludes, the financial statements,
schedules and other statistical and financial data contained in the Registration
Statement or the Prospectus).
The foregoing opinion is subject to the qualification that the
enforceability of the Agreement may be: (i) subject to bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally; and (ii) subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding at law or in equity),
including principles of commercial reasonableness or conscionability and an
implied covenant of good faith and fair dealing.
B-3
<PAGE> 29
This letter is furnished by us solely for your benefit in connection
with the transactions referred to in the Agreement and may not be circulated to,
or relied upon by, any other person, except that this letter may be relied upon
by your counsel in connection with the opinion letter to be delivered to you
pursuant to Section 5(g) of the Agreement.
In rendering the foregoing opinion, counsel may state that they express
no opinion as to the laws of any jurisdictions other than the federal laws of
the United States, the general corporation law of the State of Delaware, the
laws of the State of North Carolina and, subject to the qualification in
paragraph 10 hereof, the laws of the State of New York, and as to matters of
fact, upon the Company's representations and warranties in the Underwriting
Agreement and certificates of officers of the Company and of government
officials. Such counsel shall also not be required to render any opinion with
respect to any matters as to which the Representatives receive special opinions
pursuant to the provisions of the Underwriting Agreement. Copies of all such
certificates shall be furnished to counsel to the Underwriters on the Closing
Date.
B-4
<PAGE> 1
EXHIBIT 5.1
Patrick S. Bryant
(704) 377-8366
Fax (704) 373-3966
Internet [email protected]
April 17, 1998
Personnel Group of America, Inc.
6302 Fairview Road, Suite 201
Charlotte, North Carolina 28210
RE: REGISTRATION STATEMENT ON FORM S-3 (FILE NO. 333-49815)
Ladies and Gentlemen:
We refer to the Registration Statement on Form S-3, as amended (the
"Registration Statement") of Personnel Group of America, Inc., a Delaware
corporation (hereinafter referred to as the "Company"), filed with the
Securities and Exchange Commission for the purpose of registering under the
Securities Act of 1933, as amended (the "Act"), up to 8,050,000 shares of the
Company's Common Stock, par value $.01 per share (the "Shares") for offer and
sale by the Company. We have examined drafts of the underwriting agreement in
the form attached as Exhibit 1.0 to the Registration Statement, the Restated
Certificate of Incorporation and the Amended and Restated Bylaws of the Company,
minutes of applicable corporate proceedings and other Company records, together
with such other documents and records as we have deemed relevant.
Based upon the foregoing and subject to the conditions set forth
below, it is our opinion that the Shares, when issued and sold as contemplated
by the Registration Statement, will be legally issued, fully paid and
nonassessable.
The opinions expressed herein are contingent upon the Registration
Statement, as amended, becoming effective under the Act.
We hereby consent to the filing of this opinion as an exhibit to said
Registration Statement and to being named therein and in the prospectus that
constitutes a part thereof as attorneys who will pass upon certain legal matters
in connection with the validity of the Shares.
Very truly yours,
ROBINSON, BRADSHAW & HINSON, P.A.
/s/ Patrick S. Bryant
Patrick S. Bryant
PSB:spl
<PAGE> 1
EXHIBIT 23.1
[ARTHUR ANDERSEN LLP]
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the
incorporation by reference in this prospectus of our report on the consolidated
balance sheet of Personnel Group of America, Inc. as of December 29, 1996, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the two years in the period ended December 29, 1996, included
in Personnel Group of America, Inc.'s Form 10-K and to all references to our
firm included in or made a part of this prospectus.
/s/ Arthur Andersen LLP
Charlotte, North Carolina,
April 17, 1998.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
February 3, 1998, except for Note 10, for which the date is March 5, 1998, which
appears on page 30 of the 1997 Annual Report to Shareholders of Personnel Group
of America, Inc. (the ''Company''), which is included as Exhibit 13.1 of the
Company's Form 10-K for the year ended December 28, 1997. We also consent to the
references to us under the headings ''Experts'' and ''Selected Financial Data''
in such Prospectus. However, it should be noted that Price Waterhouse LLP has
not prepared or certified such ''Selected Financial Data.''
/s/ PRICE WATERHOUSE LLP
Price Waterhouse LLP
Charlotte, North Carolina
APRIL 20, 1998
