-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HLUTrrIl4iX8GuWg3cLm0HI5qV5Wrz5x0eKpZJLvIiDTogjdnlA2ISl/ojYjZ5mE cs8NFv1o9YrMIooKlY1B5g== 0000950144-96-002925.txt : 19960529 0000950144-96-002925.hdr.sgml : 19960529 ACCESSION NUMBER: 0000950144-96-002925 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19960524 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PERSONNEL GROUP OF AMERICA INC CENTRAL INDEX KEY: 0000948850 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HELP SUPPLY SERVICES [7363] IRS NUMBER: 561930691 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-04573 FILM NUMBER: 96572592 BUSINESS ADDRESS: STREET 1: 301 SOUTH COLLEGE ST STREET 2: SUITE 3720 CITY: CHARLOTTE STATE: NC ZIP: 28202 BUSINESS PHONE: 7043331322 S-1 1 PERSONNEL GROUP OF AMERICA S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 24, 1996 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 PERSONNEL GROUP OF AMERICA, INC. (Exact name of registrant as specified in its charter) DELAWARE 7363 56-1930691 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. employer incorporation or organization) Classification Code Number) Identification No.)
6302 FAIRVIEW ROAD, SUITE 201 CHARLOTTE, NORTH CAROLINA 28210 (704) 442-5100 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------ EDWARD P. DRUDGE, JR. CHAIRMAN AND CHIEF EXECUTIVE OFFICER 6302 FAIRVIEW ROAD, SUITE 201 CHARLOTTE, NORTH CAROLINA 28210 (704) 442-5100 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------ WITH COPIES TO: KEN R. BRAMLETT, JR. LAURA B. HUNTER ROBINSON, BRADSHAW & HINSON, P.A. BROBECK, PHLEGER & HARRISON LLP 1900 INDEPENDENCE CENTER 4675 MACARTHUR COURT, SUITE 1000 101 NORTH TRYON STREET NEWPORT BEACH, CALIFORNIA 92660 CHARLOTTE, NORTH CAROLINA 28246 (714) 752-7535 (704) 377-2536
------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As promptly as practicable after the effective date of this registration statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 (the "Securities Act"), check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. / / ------------------ CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- PROPOSED PROPOSED MAXIMUM MAXIMUM AGGREGATE AMOUNT OF TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE - --------------------------------------------------------------------------------------------------- Common Stock, $.01 par value...................... 4,025,000 shares $22.00 $88,550,000 $30,535 - --------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------
(1) Includes 525,000 shares subject to the Underwriters' over-allotment option. (2) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(c), based on the high and low sales prices for the Common Stock on the New York Stock Exchange on May 20, 1996. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PERSONNEL GROUP OF AMERICA, INC. PART I CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION OF ITEMS IN THE PROSPECTUS 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus..... Forepart of Registration Statement; Cross- Reference Sheet; Outside Front Cover Page of Prospectus 2. Inside Front and Outside Back Cover Pages of Prospectus.............................. Inside Front Cover Page of Prospectus; Outside Back Cover Page of Prospectus; Available Information 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges............... Prospectus Summary; The Company; Risk Factors; Selected Combined Financial Data 4. Use of Proceeds............................ Use of Proceeds 5. Determination of Offering Price............ Outside Front Cover Page of Prospectus; Underwriting 6. Dilution................................... Not Applicable 7. Selling Security Holders................... Not Applicable 8. Plan of Distribution....................... Outside Front Cover Page of Prospectus; Underwriting 9. Description of Securities to be Registered................................. Description of Capital Stock 10. Interests of Named Experts and Counsel..... Legal Matters; Experts 11. Information with Respect to the Registrant................................. Outside Front Cover Page of Prospectus; Prospectus Summary; Risk Factors; The Company; Dividend Policy; Price Range of Common Stock; Capitalization; Selected Consolidated Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Certain Transactions; Principal Stockholders; Description of Capital Stock; Available Information; Financial Statements 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities................................ Not Applicable
3 EXPLANATORY NOTE This Registration Statement contains a prospectus relating to a public offering in the United States and Canada (the "U.S. Offering") of an aggregate of 2,800,000 shares of common stock, par value $0.01 per share (the "Common Stock"), of Personnel Group of America, Inc. (the "Company"), together with separate prospectus pages relating to a concurrent offering outside the United States and Canada (the "International Offering") of an aggregate of 700,000 shares of Common Stock. The complete prospectus for the U.S. Offering follows immediately after this Explanatory Note. After such prospectus are the alternate pages for the International Offering: a front cover page, pages which comprise the "Certain U.S. Tax Consequences to Non-U.S. Stockholders," "Underwriting," "Legal Matters," "Experts" and "Available Information" sections and a back cover page. All other pages of the prospectus for the U.S. Offering are to be used for both the U.S. Offering and the International Offering. 4 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED MAY 24, 1996 3,500,000 SHARES [PGA LOGO] PERSONNEL GROUP OF AMERICA, INC. COMMON STOCK ------------------------ All of the shares of Common Stock offered hereby are being offered by the Company. Of the 3,500,000 shares of Common Stock offered, 2,800,000 shares are being offered hereby in the United States and Canada (the "U.S. Shares") and 700,000 shares are being offered in a concurrent international offering outside the United States and Canada. The price to the public and aggregate underwriting discounts and commissions per share will be identical for both offerings. See "Underwriting." The Common Stock is listed on the New York Stock Exchange under the symbol "PGA." On May 22, 1996, the last reported sale price of the Common Stock on the New York Stock Exchange was $22.50 per share. See "Price Range of Common Stock" appearing on page 14. SEE "RISK FACTORS" ON PAGE 7 OF THIS PROSPECTUS FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- Underwriting Price to Discounts and Proceeds to Public Commissions(1) Company(2) - ------------------------------------------------------------------------------------------------- Per Share......................... $ $ $ - ------------------------------------------------------------------------------------------------- Total............................. $ $ $ - ------------------------------------------------------------------------------------------------- Total Assuming Full Exercise of Over-Allotment Option(3)........ $ $ $ - ------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------
(1) See "Underwriting." (2) Before deducting expenses estimated at $600,000, which are payable by the Company. (3) Assuming exercise in full of the 30-day option granted by the Company to the Underwriters to purchase up to 525,000 additional shares on the same terms, solely to cover over-allotments. See "Underwriting." ------------------------ The U.S. Shares are offered by the U.S. Underwriters, subject to prior sale, when, as and if delivered to and accepted by the U.S. Underwriters, and subject to their right to reject orders in whole or in part. It is expected that delivery of the Common Stock will be made in New York City on or about , 1996. ------------------------ PAINEWEBBER INCORPORATED SMITH BARNEY INC. J.C. BRADFORD & CO. THE ROBINSON-HUMPHREY COMPANY, INC. ------------------------ THE DATE OF THIS PROSPECTUS IS , 1996 5 A MAP OF THE UNITED STATES SHOWING THE COMPANY'S STAFFING SERVICES LOCATIONS AND HEALTH CARE SERVICES LOCATIONS APPEARS BELOW. The Company endeavors to protect its intellectual property rights and has obtained registrations in the United States of certain trademarks and tradenames that appear in this Prospectus. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 6 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and consolidated financial statements, including the notes thereto, appearing elsewhere in this Prospectus. All references to the Company refer to Personnel Group of America, Inc. and its subsidiaries and their respective operations, and include the Company's predecessors. Unless otherwise indicated, the information in this Prospectus assumes that the Underwriters' over-allotment option will not be exercised. This Prospectus contains forward-looking statements and information which involve risks and uncertainties. The Company's actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain factors set forth under the heading "Risk Factors" and elsewhere in this Prospectus. THE COMPANY Personnel Group of America, Inc. provides personnel staffing services in selected markets throughout the U.S. to businesses, professional and governmental organizations, health care facilities, and individuals who require home health care and related services. The Company's staffing services include temporary staffing, placement of full-time employees and, depending on client needs, training and testing of temporary and permanent workers. At May 20, 1996, the Company operated through a network of 118 Company-operated, 36 franchised and 14 licensed offices in 32 states and the District of Columbia. Each of these offices operates under established brand names, most of which have been continuously in use for more than 16 years. The Company's business is organized into two divisions: the Staffing Services Division and the Health Care Services Division. The Staffing Services Division offers a wide variety of temporary office, clerical, light technical and light industrial services to more than 10,000 organizations nationwide. These services include general office and administrative services, software staffing, office automation, records management, production/assembly/distribution, telemarketing and other staffing services. The Health Care Services Division, through Company-operated, franchised and licensed offices, provides health care personnel to supplement the staffing needs of hospitals, nursing homes and other health care facilities. The Health Care Services Division also provides home health care services and related products to individuals. The Staffing Services and Health Care Services Divisions represented approximately 57% and 43% of the Company's total revenues, respectively, for the year ended December 31, 1995 and the three-month period ended March 31, 1996. The staffing services industry has grown rapidly over the past decade as a result of cyclical economic trends and changing approaches to staffing. According to the National Association of Temporary Staffing Services, the U.S. market for temporary staffing services grew at a compound annual rate of approximately 17.6% from approximately $20.5 billion in revenues in 1991 to approximately $39.2 billion in 1995, with revenues increasing at an annual rate of approximately 22%, 14%, 23% and 13% in 1992, 1993, 1994 and 1995, respectively. Studies show that more than 90% of all businesses use temporary staffing services. The use of temporary personnel has become widely accepted as a valuable tool for managing personnel costs, supplementing permanent workforces and meeting specialized or fluctuating employment requirements. Vacations, illnesses, resignations, seasonal increases in work volume, marketing promotions and month-end requirements have historically created a demand for temporary staffing. More recently, the growing cost and difficulty of hiring, laying off and terminating full-time workers have also encouraged a greater use of temporary workers. In addition, entrants into the labor force increasingly look to temporary assignments as a way to build experience, make contacts, and get valuable exposure to a variety of work settings, and as a vehicle to gain full-time employment. Home health care has become one of the fastest growing sectors of the health care industry primarily as a result of the shift away from providing care in institutional settings. Studies indicate that the cost of home health care is 30% to 60% lower than the cost of comparable care in hospitals and other institutional settings. Industry growth is also being driven by an aging U.S. population that requires additional health care services, changes in family structures that formerly supported the care of the sick and the elderly, and by technological advances enabling the treatment of higher acuity patients and chronic diseases in the home. Based on industry reports, the home health care industry has grown at a compound annual rate of approximately 19.4% from approximately $11.6 billion in revenues in 1991 to approximately $23.6 billion in 1995, with revenues 3 7 increasing at an annual rate of approximately 25%, 23%, 17% and 13% in 1992, 1993, 1994 and 1995, respectively. The Company's objective is to be a premier provider of quality personnel staffing services to clients, employees and applicants in selected markets throughout the U.S. in which the Company expects growth in the demand for personnel staffing services. The Company seeks to accomplish this objective by: (i) capitalizing on strong reputation and client familiarity with the Company's brand names; (ii) focusing on local and regional markets; (iii) attracting and retaining qualified management and personnel; (iv) focusing on customer service; (v) continuing to diversify the mix of personnel services offered; and (vi) leveraging existing infrastructure by adding offices and employees without proportionately increasing overhead expenses. The Company's growth strategy includes plans to: (i) increase the sales of existing branch offices; (ii) open new offices in markets already served by the Company; (iii) acquire businesses in growth markets not already served by the Company; (iv) acquire businesses that offer specialty services; (v) expand the license network through sales of additional licenses and conversion of qualified independent home health care companies to Company-operated facilities and licensees; and (vi) selectively acquire home health care operators. See "Business -- Business Strategy" and "-- Growth Strategy." RECENT DEVELOPMENTS Since January 1, 1996, the Company has acquired three staffing services companies and has entered into a definitive agreement to acquire an information technology services company. The Company acquired Allegheny Personnel Services ("Allegheny") in Pittsburgh, Pennsylvania, and Profile Temporary Services ("Profile") in Chicago, Illinois, in March 1996, and Judith Fox Staffing Companies ("Fox") in Richmond, Virginia, in May 1996. The combined revenues of these three companies for fiscal 1995 were approximately $39.3 million and the aggregate purchase price for the three acquisitions was approximately $28.2 million (including direct acquisition costs and excluding certain contingent earnout payments). On May 23, 1996, the Company entered into a definitive agreement to acquire The Computer Resources Group, Inc. ("CRG"), an information technology services company based in San Francisco, California, with revenues for its fiscal year ended May 31, 1995 and the nine-month period ended February 29, 1996 of approximately $21.2 million and $21.0 million, respectively. The consummation of this acquisition is subject to customary conditions set forth in the agreement, such as the Company's satisfaction with its due diligence review of CRG, and no assurance can be given that the proposed acquisition will be consummated. If consummated, the CRG acquisition will enable the Company to enter the information technology services market and provide a platform for further information technology services acquisitions. The information technology services market is one of the fastest growing sectors of the staffing services industry, with estimated industry revenues of approximately $8.9 billion in 1995. The CRG acquisition also furthers the Company's strategies of diversifying the mix of its personnel services offerings and expanding into growth markets that it does not currently serve. See "Business -- Growth Strategy -- Acquisitions" and the Company's Unaudited Pro Forma Financial Statements for information related to these acquisitions. THE OFFERING Common Stock offered by the Company............................. 3,500,000 shares(1) Common Stock to be Outstanding after the Offering........................ 11,500,300 shares(2) Use of Proceeds..................... To repay indebtedness, to fund the CRG acquisition and for general corporate purposes, including other possible acquisitions New York Stock Exchange Symbol...... PGA - --------------- (1) Of which 2,800,000 shares are being offered in the United States and Canada and 700,000 shares are being offered outside the United States and Canada. (2) Does not include an aggregate of (i) 437,403 shares of Common Stock subject to outstanding options as of May 20, 1996 and (ii) 762,297 additional shares of Common Stock reserved for issuance under the Company's 1995 Equity Participation Plan. See "Management -- Compensation Plans and Arrangements." 4 8 SUMMARY CONSOLIDATED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ---------------------------------------------------- ------------------- 1991 1992 1993 1994 1995 1995 1996 -------- -------- -------- -------- -------- ------- ------- (UNAUDITED) STATEMENT OF INCOME DATA: Revenues Staffing services.............. $ 96,989 $ 93,433 $107,386 $125,822 $143,243 $33,553 $38,252 Health care services........... 62,100 54,291 61,765 82,700 104,110 25,071 27,794 Franchise fees................. 3,674 3,664 3,327 3,345 3,702 888 827 -------- -------- -------- -------- -------- ------- ------- Total revenues.......... 162,763 151,388 172,478 211,867 251,055 59,512 66,873 -------- -------- -------- -------- -------- ------- ------- Direct cost of services.......... 118,280 109,707 126,286 155,987 178,966 42,804 48,851 Selling, general and administrative................. 42,255 36,692 37,329 44,529 56,010 13,925 14,551 Depreciation and amortization.... 4,346 4,437 4,247 4,391 3,665 946 880 -------- -------- -------- -------- -------- ------- ------- Total expenses.......... 164,881 150,836 167,862 204,907 238,641 57,675 64,282 -------- -------- -------- -------- -------- ------- ------- Operating income (loss).......... (2,118) 552 4,616 6,960 12,414 1,837 2,591 Income tax expense (benefit)..... (538) 462 2,080 3,061 5,305 772 1,101 -------- -------- -------- -------- -------- ------- ------- Net income (loss)................ $ (1,580) $ 90 $ 2,536 $ 3,899 $ 7,109 $ 1,065 $ 1,490 ========= ========= ========= ========= ========= ======== ======== Net income per share............. -- -- -- -- -- -- $ 0.19 ========= ========= ======== ======== Pro forma net income per share(1)....................... -- -- -- $ 0.49 $ 0.89 $ 0.13 -- ========= ========= ======== ======== Weighted average common shares outstanding(1)................. -- -- -- 8,000,000 8,000,000 8,000,000 8,000,000 SELECTED OPERATING DATA: Number of branches(2)............ 127 106 105 108 116 110 126(3) Revenues per branch(4)........... $ 1,282 $ 1,428 $ 1,643 $ 1,962 $ 2,164 $ 541 $ 531(3)
AS OF MARCH 31, 1996 ---------------------------------------- PRO FORMA ACTUAL PRO FORMA(5) AS ADJUSTED(6) -------- ------------ -------------- BALANCE SHEET DATA: Working capital................................................... $ 26,647 $ 29,084 $ 53,700 Total assets...................................................... 111,924 156,641 181,257 Long-term debt.................................................... 7,600 49,400 -- Shareholders' equity.............................................. 77,476 77,476 151,492
YEAR ENDED THREE MONTHS DECEMBER 31, ENDED MARCH 1995 31, 1996 ------------ -------------- PRO FORMA UNAUDITED STATEMENT OF INCOME DATA(7): Revenues Staffing services...................................................... $207,055 $ 54,519 Health care services................................................... 114,783 29,400 Franchise fees......................................................... 3,702 827 ------------ -------------- Total revenues.................................................. 325,540 84,746 ------------ -------------- Direct cost of services.................................................. 233,709 62,228 Selling, general and administrative...................................... 69,929 17,494 Depreciation and amortization............................................ 5,520 1,281 ------------ -------------- Total expenses.................................................. 309,158 81,003 ------------ -------------- Operating income......................................................... 16,382 3,743 Interest expense......................................................... 3,359 800 Income tax expense....................................................... 5,595 1,251 ------------ -------------- Net income............................................................... $ 7,428 $ 1,692 ============ ============== Net income per share(1).................................................. $ 0.93 $ 0.21 ============ ============== Weighted average common shares outstanding(1)......................................................... 8,000,000 8,000,000 SELECTED PRO FORMA OPERATING DATA(8): Number of Branches....................................................... 130 133 Revenues per branch...................................................... $ 2,504 $ 637
See Notes to Summary Consolidated Financial Data 5 9 NOTES TO SUMMARY CONSOLIDATED FINANCIAL DATA - --------------- (1) Based on 8,000,000 shares of Common Stock issued in connection with the Company's initial public offering in September 1995. See "The Company." (2) Branches include Company-operated and licensed offices and exclude franchised offices and vendor-on-premises locations at customer sites at the end of the period. (3) Includes nine offices added during the first quarter of 1996, five of which were added in March pursuant to the acquisitions of Allegheny and Profile, two of which were converted in January and March, respectively, from franchised offices to Company-operated offices and two of which were new offices opened during the quarter. Total revenues as reflected in the unaudited statement of income data for the three-month period ended March 31, 1996 reflect revenues generated by such offices subsequent to their acquisition, conversion or commencement of operations, as applicable. (4) Revenues per branch equal total revenues for the period divided by the number of branches at the end of the period. (5) The pro forma unaudited balance sheet data has been prepared as if the acquisitions of Fox and CRG had occurred as of March 31, 1996. The other acquisitions referenced in footnote 6 below occurred prior to March 31, 1996. (6) As adjusted amounts reflect the net proceeds of the sale of 3,500,000 shares of Common Stock offered hereby at an assumed offering price of $22.50 per share and the application of the net proceeds therefrom. See "Use of Proceeds." (7) The pro forma unaudited statement of income data has been prepared to reflect the Company's operations as if the initial public offering (the "IPO"), the acquisitions of Allegheny, Profile, Fox and CRG and the conversion of three former Nursefinder franchises to Company-operated offices had occurred at January 1, 1995. The pro forma results of operations are not necessarily indicative of the results that would have occurred had the IPO, the acquisitions or the conversions been consummated at January 1, 1995 and do not purport to indicate the results of operations as of any future date or for any future period. (8) The pro forma operating data includes revenues per branch equal to total pro forma revenues for the period divided by the number of branches for Company-operated and licensed offices at the end of each period as if the acquisitions of Allegheny, Profile, Fox and CRG and the conversion of three Nursefinders franchises to Company-operated offices had occurred on January 1, 1995. 6 10 RISK FACTORS In addition to the other information in this Prospectus, the following should be considered carefully in evaluating an investment in the Common Stock. POSSIBLE ADVERSE EFFECT OF FLUCTUATIONS IN THE GENERAL ECONOMY Demand for staffing services is significantly affected by the general level of economic activity in the country. Companies use temporary staffing services to manage personnel costs and staffing needs due to business fluctuations. When economic activity increases, temporary employees are often added before full- time employees are hired. As economic activity slows, many companies reduce their usage of temporary employees before undertaking layoffs of their regular employees. During expansions, there is intense competition among temporary services firms for qualified temporary personnel. In addition, the Company may experience increased competitive pricing pressures during such periods. There can be no assurance that during periods of increased economic activity and higher general employment levels the Company will be able to recruit and retain sufficient temporary personnel to meet the needs of its clients, or that pricing pressures will not adversely affect the Company's results of operations. Similarly, a slowdown in the economy may result in decreased demand for temporary personnel, which may have an adverse effect on the Company's financial condition and results of operations. During the most recent recession, the Company's operations were adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Demand for the Company's health care services is influenced by trends in public and private funding of health care, but is less directly affected by the general level of economic activity. Changes in these funding arrangements and in the health care industry could have an adverse effect on the Company's financial condition and results of operations. See "-- Possible Adverse Effect of Health Care Regulatory and Reimbursement Changes" and "Business -- The Staffing Services Industry." HIGHLY COMPETITIVE MARKET; LIMITED BARRIERS TO ENTRY The U.S. staffing services market is highly competitive and highly fragmented, with limited barriers to entry and more than 15,000 offices competing in the industry. Management believes that no one firm has more than 11% of the national market, as measured by revenue, although the staffing and health care staffing services industries have been undergoing significant consolidation. The Company competes in national, regional and local markets with full-service and specialized temporary service agencies and health care providers. While the majority of the Company's competitors are significantly smaller than the Company, a number of competitors have greater marketing and financial resources than those of the Company. The Company expects that the level of competition will remain high in the future, which could limit the Company's ability to maintain or increase its market share or maintain or increase gross margins, either of which could have a material adverse effect on the Company's financial condition and results of operations. See "Business -- Competition." IMPACT OF PRICING PRESSURE ON MARGINS Price competition in the staffing services industry is intense in both the Company's Staffing Services and Health Care Services Divisions. Pricing pressures from competitors, payors and customers are increasing. There can be no assurance that the Company will be able to maintain or increase its current margins, the reduction of which could have a material adverse effect on the Company's financial condition and results of operations. See "-- Possible Adverse Effect of Health Care Regulatory and Reimbursement Changes," "Management's Discussion and Analysis of Financial Condition and Results of Operations -- General" and "Business -- The Staffing Services Industry." ABILITY TO CONTROL GROWTH; ACQUISITION RISKS The ability of the Company to execute its growth strategy will depend on a number of factors, including the availability of working capital, existing and emerging competition and the availability of attractive 7 11 acquisition opportunities. The Company recently has consummated several acquisitions and is actively seeking acquisition opportunities. Management believes that the Company will complete several additional acquisitions during 1996 (including the proposed CRG acquisition), as attractive opportunities become available. Once integrated, acquisitions may not achieve levels of revenue, profitability or productivity comparable to those of the Company's existing locations or may not otherwise perform as expected. Acquisitions also involve special risks, including risks associated with unanticipated liabilities and contingencies, diversion of management attention and possible adverse effects on earnings resulting from increased goodwill amortization, increased interest costs, the issuance of additional securities and difficulties related to the integration of the acquired business. There can be no assurance that the Company will be able to successfully identify additional suitable acquisition candidates, complete additional acquisitions or integrate acquired businesses into its operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and "Business -- Growth Strategy -- Acquisitions." INCREASED EMPLOYEE COSTS; WORKERS' COMPENSATION Businesses use temporary staffing in part to shift certain employment costs and risks (e.g., workers' compensation and unemployment insurance) to temporary personnel services companies. Accordingly, the Company is responsible for and pays unemployment insurance premiums, workers' compensation and medical and other employer costs for job-related injuries for its temporary employees. The Company's workers' compensation and medical costs are based on the loss and loss adjustment expenses as estimated by an outside administrator. Workers' compensation costs have increased as various states have raised benefit levels and liberalized allowable claims. Unemployment insurance premiums are set annually by the states in which employees perform services and have increased as a result of increased unemployment and the extension of periods for which benefits are available. The Company currently pays health insurance premiums for all of its permanent employees but none of its temporary employees. Certain health care reform proposals have included as a component a mandate that employers pay such health insurance premiums for all temporary employees. Historically, the Company has increased fees charged to its clients to absorb increases in unemployment, workers' compensation, medical and other direct costs of services. There can be no assurance that the Company will be able to increase the fees charged to its clients if expenses related to workers' compensation or unemployment insurance increase or if employer-paid health insurance is extended to temporary employees. Any such inability could have a material adverse effect on the Company's financial condition and results of operations. See Notes 6, 7, and 13 of Notes to Consolidated Financial Statements. INDUSTRY RISK OF LITIGATION AND CLAIMS The Company is subject to litigation and claims by its employees, customers, franchisees and other third parties. The Company is in the business of employing people and placing them in the work place of other businesses or the homes of persons requiring health care. Attendant risks of such activities include possible claims by customers or patients of employee misconduct or negligence, including malpractice, claims by employees of discrimination or harassment (including claims relating to actions of the Company's clients), claims related to the inadvertent employment of illegal aliens or unlicensed personnel, payment of workers' compensation claims and other similar claims. The Company has policies and guidelines in place to reduce its exposure to these risks, and has insurance against certain risks in amounts which it believes to be adequate. There can be no assurance that the Company will not experience litigation and claims in the future which are not covered by or which exceed its insurance, or that the Company will not incur damages, fines or other losses or negative publicity with respect to such matters, any of which could have a material adverse effect on the Company's business. See "Business -- Properties and Insurance" and "-- Legal Proceedings." DEPENDENCE ON KEY PERSONNEL The Company's operations are dependent on the continued efforts of its executive officers and senior management. In addition, the Company is dependent on the performance and productivity of its local branch managers and field personnel. The loss of some of the Company's key managers could have an adverse effect on the Company's operations, including the Company's ability to establish and maintain customer relation- 8 12 ships. The Company's ability to attract and retain business is significantly affected by local relationships and the quality of service rendered by branch managerial personnel. If the Company is unable to attract and retain key employees to perform these services, the Company's business could be adversely affected. See "Business -- Business Strategy" and "Management." DEPENDENCE ON AVAILABILITY OF QUALIFIED TEMPORARY PERSONNEL The Company depends upon its ability to attract qualified temporary personnel who possess the skills and experience necessary to meet the staffing requirements of its clients. The Company must continually evaluate and upgrade its base of available qualified personnel to keep pace with changing client needs and emerging technologies. Competition for individuals with proven professional skills, particularly home health care providers and technologically skilled administrative employees, is intense, and demand for such individuals is expected to remain very strong for the foreseeable future. There can be no assurance that qualified personnel will continue to be available to the Company in sufficient numbers in the future. See "Business -- Competition." INEXPERIENCE AS AN INDEPENDENT COMPANY; DEPENDENCE ON FORMER PARENT The Company became an independent company in September 1995 following the completion of its initial public offering. Operating and managing the Company as a separate public company places significant demands on the Company's management and operating systems. While the Company's executive officers as a group have extensive experience in its operations, they do not have experience at comparable levels of responsibility in operating an independent public company. There can be no assurance that the Company will not incur unexpected incremental costs as an independent public company or that the Company will successfully develop the necessary infrastructure or operating systems. Further, since the Company's initial public offering, it has been dependent upon its former parent for certain accounting, finance, human resources and risk management services pursuant to an agreement which expires in September 1996 and management information systems and paybill services pursuant to agreements which expire in September 1997. Although the Company recently has purchased systems to perform such services from unrelated third parties and has commenced or completed installation of certain of these systems, no assurance can be given that the integration of such new systems will be successful, that the Company's former parent will agree, if requested by the Company, to perform services beyond the periods presently agreed, or that the services performed will adequately support the Company's business. The Company also licenses certain proprietary rights from its former parent on a perpetual basis. The loss of such rights could have an adverse effect on the Company's business. See "Business" and "Certain Transactions." RISK OF GOVERNMENT REGULATION RELATING TO HEALTH CARE PROVIDERS The Company's Health Care Services Division is subject to extensive government regulation under federal, state and local law, including but not limited to, licensing requirements, certificate of need requirements, periodic examinations by government agencies, federal and state antifraud, anti-abuse and anti-kickback statutes and regulations, and federal and state laws prohibiting physician ownership or compensation arrangements in entities, including home health agencies, to which they refer patients for health care services. In particular, the U.S. Department of Health & Human Services has targeted for investigation certain specific areas of the Medicare and Medicaid programs, including fraud in home health care services. Health care providers are also subject to extensive documentation requirements of government agencies and industry participants, such as insurance companies and managed care companies. These regulations can affect the Company's ability to obtain reimbursement for services and products provided to patients. There can be no assurance that the Company will be able to continue to obtain or maintain the required governmental approvals or licenses, obtain reimbursement for its services or avoid compliance or other problems under applicable laws and regulations. See "Business -- Health Care Services Division" and "-- Regulation." 9 13 DEPENDENCE ON CERTIFICATES OF NEED Certificate of need laws restrict the types of care that may be provided and can limit or eliminate a company's ability to provide certain services, including home health care services, to establish or expand operations, and to act as a Medicare or Medicaid provider in 22 jurisdictions. The Company currently has no certificates of need. The process of obtaining a certificate of need can be costly and time consuming, and some states in which the Company does business are not currently granting additional certificates of need. Accordingly, such laws may render it more difficult for the Company to, or preclude the Company from, expanding the scope of its home health care services. However, the Company offers certain services not restricted by certificate of need laws in some states which require certificates of need. See "Business -- Health Care Services Division -- Operations." POSSIBLE ADVERSE EFFECT OF HEALTH CARE REGULATORY AND REIMBURSEMENT CHANGES Congress and various state legislatures have periodically proposed legislation affecting the regulation of the health care industry. Changes in government support of health care services, the methods by which such services are delivered, the prices for such services, the reimbursement for such services, or the regulations governing such services, may all have a material adverse effect on the Company's financial condition and results of operations. Even if the ultimate impact on revenues of any such changes is positive, no assurance can be given that the costs of complying with possible new requirements would not have a negative impact on the Company's future earnings. For the years ended December 31, 1994 and 1995 and for the three months ended March 31, 1996, 12%, 15% and 15% of the Company's revenues, respectively, were derived from the Medicare and Medicaid programs. The Medicare and Medicaid programs are subject to statutory and regulatory changes, retroactive and prospective rate adjustments and administrative rulings and funding restrictions, all of which could have the effect of limiting or reducing reimbursement levels for the Company's services. Among the changes under consideration are proposals that would reduce Medicare and Medicaid expenditures by lowering reimbursement rates, increasing case management review of services, negotiating reduced contract pricing and expanding risk contracting. Any significant decrease in Medicare or Medicaid reimbursement levels, or the imposition of significant restrictions on participation in the Medicare and Medicaid programs, could have a material adverse effect on the Company. The Company also has contracts with private payors to provide certain health care services to covered patients. There can be no assurance that the rates paid to the Company by Medicare, Medicaid or other payors will be adequate to reimburse the Company for the cost of providing services. In addition to the risk of such third-party payors denying full reimbursement for staffing costs, under the Company's SingleSource program, the Company assumes the risk of such payors denying reimbursement for the use of products and services purchased by the Company under subcontracts with third party vendors. Further, cost increases due to inflation without corresponding increases in reimbursement would adversely affect the Company's business. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- General," "Business -- Health Care Services Division." FRANCHISING AND LICENSING RISKS The Company derives a significant amount of its net income from franchised and licensed operations. Franchisees and licensees may terminate their agreements, resulting in a loss of revenues and corresponding profitability. The ownership of the Company's franchises and licenses is relatively concentrated, and the loss of one or more of those relationships could have an adverse effect on the Company's results of operations. Further, while the Company's agreements contain non-competition covenants, former franchisees and licensees may nevertheless seek to compete with the Company. The Company must comply with federal and state laws and regulations governing the sale of franchises and licenses, and state laws concerning the ongoing relationship with franchisees and licensees (including the termination and non-renewal of such relationships). The Company is subject to the risk of franchisee and licensee litigation pursuant to such laws or otherwise. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Introduc- 10 14 tion," "-- General," "Business -- Organizational Structure -- Franchised Offices" and "-- Licensed Offices." STOCK PRICE VOLATILITY From time to time, there may be significant volatility in the market price of the Common Stock. Factors such as announcements of fluctuations in the Company's or its competitors' operating results, market conditions for growth stocks, staffing services stocks or health care stocks in general, changes in general conditions in the economy or financial markets, natural disasters or other developments could cause the market price of the Common Stock to fluctuate substantially. In addition, the stock market in recent years has experienced extreme price and volume fluctuations that often have been unrelated or disproportionate to the operating performance of affected companies. These broad fluctuations may adversely affect the market price of the Common Stock. See "Price Range of Common Stock." SUBSTANTIAL INTANGIBLE ASSETS As of December 31, 1995, the Company had capitalized excess of cost over fair value of net assets acquired and other intangibles of $51.1 million, net of accumulated amortization relating to the purchase of certain of its subsidiaries and divisions. This resulted in an annual charge to earnings for the year ended December 31, 1995 of approximately $2.3 million. Such intangible assets approximated 49.8% of the Company's total assets and 67.3% of its total shareholders' equity as of December 31, 1995. Assuming completion of the Fox and CRG acquisitions and the conversion of one of the Nursefinders franchises as of March 31, 1996, $100.2 million, or 64.0%, of the Company's total assets would have been intangible assets. Any impairment of such assets, with resultant write offs, could have a material adverse effect on the Company's financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Other Matters" and Note 2 of Notes to Consolidated Financial Statements. CERTAIN PROVISIONS RELATING TO CHANGES IN CONTROL The Company's Certificate of Incorporation and Bylaws, as well as a stockholder rights plan recently adopted by the Board of Directors, contain provisions which may have the effect of discouraging, delaying or preventing a change in control of the Company, including transactions in which the stockholders might otherwise receive a premium for their shares over then current market prices, and may limit the ability of the stockholders to approve transactions that they may deem to be in their best interests. Such provisions in the Certificate of Incorporation and Bylaws include a classified Board of Directors and a prohibition on stockholder action by written consent. In addition, the Certificate of Incorporation permits the Company's Board of Directors to issue up to 5,000,000 shares of Preferred Stock and to determine the price, rights, preferences and privileges of those shares without any further vote or action by the stockholders. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any Preferred Stock that may be issued in the future. The issuance of Preferred Stock could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company. Although the Company has no present plans to issue shares of Preferred Stock, the Board of Directors has preapproved the terms of a series of Preferred Stock that may be issued pursuant to the stockholder rights plan upon the occurrence of certain triggering events. In general, the stockholder rights plan provides a mechanism by which the Board of Directors and stockholders may act to substantially dilute the share position of any takeover bidder who acquires 15% or more of the Common Stock. See "Description of Capital Stock." NO CASH DIVIDENDS The Company presently intends to retain future earnings to support the growth of its business and does not anticipate paying cash dividends in the foreseeable future. See "Dividend Policy." 11 15 FORWARD-LOOKING INFORMATION This Prospectus contains various forward-looking statements and information that are based on management's belief and assumptions, as well as information currently available to management. When used in this document, the words "anticipate," "estimate," "expect," and similar expressions are intended to identify forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or expected. Among the key factors that may have a direct bearing on the Company's operating results are fluctuations in the economy, the degree and nature of competition, demand for the Company's services and the Company's ability to complete acquisitions and integrate the operations of acquired businesses, to recruit and place temporary professionals, to expand into new markets, and to maintain profit margins in the face of pricing pressures. 12 16 THE COMPANY The Company completed its initial public offering in September 1995. Prior to the initial public offering, the Company was an indirect wholly-owned subsidiary of Adia, S.A., a Swiss corporation (together with its subsidiaries collectively, "Adia"). The Company was organized by Adia in July 1995 to facilitate the initial public offering. As a result of the initial public offering, in which Adia sold its entire ownership interest in the Company, the Company became an independent public company. The Company did not receive any of the proceeds from the sale of its shares by Adia in the initial public offering. The Company's address is 6302 Fairview Road, Suite 201, Charlotte, North Carolina 28210, and its phone number is (704) 442-5100. USE OF PROCEEDS The net proceeds to the Company from the sale of the 3,500,000 shares of Common Stock offered by the Company are estimated to be approximately $74.0 million (or $85.2 million if the Underwriters' over-allotment option is exercised in full), after deducting estimated underwriting discounts and commissions and offering expenses, based upon an assumed offering price of $22.50 per share. The Company intends to use such net proceeds for the repayment of outstanding bank debt (which was $27.3 million as of May 20, 1996), approximately $20.3 million to consummate the CRG acquisition and the balance for general corporate purposes, including possible acquisitions. The Company's bank debt was drawn under a $35.0 million revolving credit facility with a commercial bank, secured by a pledge of the stock of the Company's subsidiaries and a lien on receivables and certain other assets of the Company, currently bearing interest at a rate equal to LIBOR plus 1.25% or the lender's base rate, at the Company's option, and maturing on September 30, 1998 (provided, that maximum availability under the revolving credit facility will reduce to $30.0 million as of June 30, 1996). The weighted average interest rate on the Company's outstanding borrowings under the credit facility was approximately 6.2% at March 31, 1996. After repayment of the credit facility, the Company will be able to redraw on the credit facility as needed, subject to certain limitations, for future potential acquisitions, capital expenditures and working capital. The indebtedness under the credit facility was used primarily to fund acquisitions and for the issuance of undrawn letters of credit to secure the Company's workers' compensation program. The Company has obtained a commitment from its lender to use its best efforts to syndicate the credit facility and increase the maximum availability thereunder to $60.0 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Pending application of the net proceeds as described above, the Company intends to invest the net proceeds in short-term, interest-bearing investment grade securities. DIVIDEND POLICY The Company has paid no cash dividends on its Common Stock with respect to earnings since its initial public offering and does not anticipate paying cash dividends in the foreseeable future. The Company presently intends to retain future earnings to support the growth of its business. Any determination regarding the future payment of cash dividends, as well as the amount thereof, is subject to the discretion of the Board of Directors of the Company and will depend upon, among other things, the Company's financial condition, results of operations, current and anticipated capital requirements, plans for expansion, future prospects and other factors deemed relevant by the Board of Directors. Further, the Company's credit facility imposes certain restrictions on the ability of the Company to pay cash dividends on Common Stock. 13 17 PRICE RANGE OF COMMON STOCK Since the completion of the Company's initial public offering on September 25, 1995, the Common Stock has been listed on the New York Stock Exchange ("NYSE") under the symbol "PGA." The following table sets forth the range of high and low sales prices of the Common Stock as reported on the NYSE for the periods indicated.
HIGH LOW ------ ------ 1995 Third Quarter (September 25 through September 30)........................ $14.00 $14.00 Fourth Quarter........................................................... 15.00 11.00 1996 First Quarter............................................................ 21.25 12.88 Second Quarter (through May 22, 1996).................................... 23.75 18.63
The last reported sale price of the Common Stock on the NYSE on May 22, 1996 was $22.50. As of May 22, 1996, there were 77 holders of record of the Common Stock. CAPITALIZATION The following table sets forth the actual total capitalization of the Company at March 31, 1996, and the total capitalization on a pro forma basis giving effect to (i) the acquisitions of Fox and CRG and the conversion of one of the former Nursefinders franchises as if acquired or converted prior to March 31, 1996 and (ii) adjustments which reflect the sale of the shares of Common Stock offered hereby (at an assumed offering price of $22.50 per share) and the application of the estimated net proceeds therefrom as described under "Use of Proceeds."
MARCH 31, 1996 ----------------------------------- PRO FORMA ACTUAL(1) PRO FORMA AS ADJUSTED --------- --------- ----------- Current portion of long-term debt.............................. $ -- $ -- $ -- ======= ======== ========= Long-term debt(2).............................................. $ 7,600 $ 49,400 $ -- Shareholders' equity:.......................................... Preferred stock, $0.01 par value; 5,000,000 shares authorized, no shares issued and outstanding.............. -- -- -- Common stock, $0.01 par value; 20,000,000 shares authorized, 8,000,300 shares issued and outstanding (8,000,300 shares, pro forma, and 11,500,300 shares, pro forma as adjusted)(3).............................................. 80 80 115 Additional paid-in capital................................... 73,559 73,559 147,540 Retained earnings............................................ 3,837 3,837 3,837 --------- --------- ----------- Total shareholders' equity........................... 77,476 77,476 151,492 --------- --------- ----------- Total capitalization................................. $85,076 $ 126,876 $ 151,492 ======= ======== =========
- --------------- (1) Includes all acquisitions completed prior to March 31, 1996. (2) As of May 20, 1996, the Company's outstanding borrowings under its bank credit facility amounted to approximately $27.3 million. The Company intends to repay such borrowings with the net proceeds of this offering. See "Use of Proceeds." (3) Excludes an aggregate of (i) 437,403 shares of Common Stock subject to outstanding options as of May 20, 1996 and (ii) 762,297 additional shares of Common Stock reserved for issuance under the Company's 1995 Equity Participation Plan. See "Management -- Compensation Plans and Arrangements." 14 18 SELECTED CONSOLIDATED FINANCIAL DATA The following table sets forth selected consolidated financial data for the Company as of and for each of the years ended December 31, 1991, 1992, 1993, 1994 and 1995 and the three-month periods ended March 31, 1995 and 1996. The consolidated financial data as of and for the years ended December 31, 1991 and the three months ended March 31, 1995 and 1996 are derived from the unaudited condensed consolidated financial statements of the Company. In management's opinion, this unaudited information is prepared on a basis consistent with the audited consolidated financial statements of the Company and includes all adjustments necessary for a fair presentation. The consolidated financial data as of and for each of the years ended December 31, 1992, 1993, 1994 and 1995 are derived from the consolidated financial statements of the Company, which have been audited by Arthur Andersen LLP, independent public accountants. The consolidated financial statements include assets and liabilities at historical amounts from the consolidated financial statements of the Company's former parent, and other adjustments intended to reflect the revenues and expenses the Company would have reported had the enterprise been combined prior to the beginning of the earliest period presented. The results of operations for the three months ended March 31, 1996 are not necessarily indicative of the results which may be expected for the entire year, and the results of operations for all periods are not necessarily indicative of the results which would have been obtained had the Company been independent in such periods. The data set forth below should be read in conjunction with the financial statements and information, including Management's Discussion and Analysis of Financial Condition and Results of Operations, included elsewhere herein.
THREE MONTHS YEAR ENDED DECEMBER 31, ENDED MARCH 31, ----------------------------------------------------- --------------------- 1991 1992 1993 1994 1995 1995 1996 -------- -------- -------- -------- --------- --------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) STATEMENT OF INCOME DATA: Revenues Staffing services............... $ 96,989 $ 93,433 $107,386 $125,822 $ 143,243 $ 33,553 $ 38,252 Health care services............ 62,100 54,291 61,765 82,700 104,110 25,071 27,794 Franchise fees.................. 3,674 3,664 3,327 3,345 3,702 888 827 -------- -------- -------- -------- --------- --------- --------- Total revenues........... 162,763 151,388 172,478 211,867 251,055 59,512 66,873 -------- -------- -------- -------- --------- --------- --------- Direct cost of services........... 118,280 109,707 126,286 155,987 178,966 42,804 48,851 Selling, general and administrative.................. 42,255 36,692 37,329 44,529 56,010 13,925 14,551 Depreciation and amortization..... 4,346 4,437 4,247 4,391 3,665 946 880 -------- -------- -------- -------- --------- --------- --------- Total expenses........... 164,881 150,836 167,862 204,907 238,641 57,675 64,282 -------- -------- -------- -------- --------- --------- --------- Operating income (loss)........... (2,118) 552 4,616 6,960 12,414 1,837 2,591 Income tax expense (benefit)...... (538) 462 2,080 3,061 5,305 772 1,101 -------- -------- -------- -------- --------- --------- --------- Net income (loss)................. $ (1,580) $ 90 $ 2,536 $ 3,899 $ 7,109 $ 1,065 $ 1,490 ========= ========= ========= ========= ========= ========= ========= Net income per share.............. -- -- -- -- -- -- $ 0.19 ========= ========= ========= ========= Pro forma net income per share(1)........................ -- -- -- $ 0.49 $ 0.89 $ 0.13 -- ========= ========= ========= ========= Weighted average common shares outstanding(1).................. -- -- -- 8,000,000 8,000,000 8,000,000 8,000,000 SELECTED OPERATING DATA: Number of branches(2)............. 127 106 105 108 116 110 126(3) Revenues per branch(4)............ $ 1,282 $ 1,428 $ 1,643 $ 1,962 $ 2,164 $ 541 $ 531(3) BALANCE SHEET DATA -- AT END OF PERIOD: Working capital................... $ 8,261 $ 14,190 $ 21,331 $ 26,440 $ 28,969 $ 22,856 $ 26,647 Total assets...................... 81,927 79,395 84,333 90,984 102,623 75,319 111,924 Long-term debt.................... -- -- -- -- -- -- 7,600 Shareholders' equity.............. 57,173 58,987 64,257 68,438 75,986 71,185 77,476
15 19
THREE MONTHS ENDED MARCH 31, YEAR ENDED 1996 DECEMBER 31, --------------- 1995 ------------ (UNAUDITED) PRO FORMA UNAUDITED STATEMENT OF INCOME DATA(5): Revenues Staffing services..................................... $ 207,055 $ 54,519 Health care services.................................. 114,783 29,400 Franchise fees........................................ 3,702 827 ------------ --------------- Total revenues................................ 325,540 84,746 ------------ --------------- Direct cost of services................................. 233,709 62,228 Selling, general and administrative..................... 69,929 17,494 Depreciation and amortization........................... 5,520 1,281 ------------ --------------- Total expenses................................ 309,158 81,003 Operating income........................................ 16,382 3,743 Interest expense........................................ 3,359 800 Income tax expense...................................... 5,595 1,251 ------------ --------------- Net income.............................................. $ 7,428 $ 1,692 ========== ============ Net income per share(1)................................. $ 0.93 $ 0.21 ========== ============ Weighted average common shares outstanding(1)........... 8,000,000 8,000,000 SELECTED PRO FORMA OPERATING DATA(6): Number of branches...................................... 130 133 Revenues per branch..................................... $ 2,504 $ 637
- --------------- (1) Based on 8,000,000 shares of Common Stock issued in connection with the Company's initial public offering in September 1995. See "The Company." (2) Branches include Company-operated and licensed offices and exclude franchised offices and vendor-on-premises locations at customer sites at the end of the period. (3) Includes nine offices added during the first quarter of 1996, five of which were added in March pursuant to the acquisitions of Allegheny and Profile, two of which were converted in January and March, respectively, from franchised offices to Company-operated offices and two of which were new offices opened during the quarter. Total revenues as reflected in the unaudited statement of income data for the three-month period ended March 31, 1996 reflect revenues generated by such offices subsequent to their acquisition, conversion or commencement of operations, as applicable. (4) Revenues per branch equal total revenues for the period divided by the number of branches at the end of the period. (5) The pro forma unaudited statement of income data has been prepared to reflect the Company's operations as if the IPO, the acquisitions of Allegheny, Profile, Fox and CRG and the conversion of three former Nursefinders franchises to Company-operated offices had occurred at January 1, 1995. The pro forma results of operations are not necessarily indicative of the results that would have occurred had the IPO, the acquisitions or the conversions been consummated at January 1, 1995 and do not purport to indicate the results of operations as of any future date or for any future period. (6) The pro forma operating data includes revenues per branch equal to total pro forma revenues for the period divided by the number of branches for Company-operated and licensed offices at the end of each period as if the acquisitions of Allegheny, Profile, Fox and CRG and the conversion of three Nursefinders franchises to Company-operated offices had occurred on January 1, 1995. 16 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Company's consolidated financial statements and notes thereto included elsewhere in this Prospectus. The Company's fiscal year ends on the Sunday nearest to December 31 and the fiscal quarters end on the Sunday nearest to the end of the respective calendar quarters. For presentation purposes, fiscal periods are shown as ending on December 31 and March 31 herein. The Company operates within one industry segment and is organized into two divisions: the Staffing Services Division, which provides a wide variety of staffing services, and the Health Care Services Division, which, through Company-operated, franchised and licensed offices, provides home health care services and supplemental staffing for health care facilities. At May 20, 1996, the Staffing Services Division included 70 Company-operated offices doing business under ten proprietary brands, and the Health Care Services Division included 48 Company-operated, 36 franchised, and 14 licensed offices doing business under the Nursefinders brand. In 1991 and 1992, the Company underwent a consolidation and shift in strategy to respond to changing market conditions, including a recession in the U.S. and a decrease in the demand for certain staffing services. The consolidation included reducing the number of staffing and health care services branches through combinations, closings and conversion to the brand of the Company's former parent. See "-- Office Census." The shift in strategy included a new emphasis on home health care, strengthened management, new automated systems and other productivity enhancements. INTRODUCTION The Company recognizes as revenues the amounts billed to clients of Company-operated and licensed offices. In these cases, the temporary worker is the Company's employee and all costs of employing the temporary worker are the responsibility of the Company and are included in direct cost of services. The Company remits monthly to licensees the gross profits of the licensed office less 7% of gross revenues, uncollectible receivables and certain other expenses of the licensed office. The Company also records a 5% royalty on gross revenues of franchised offices. The Company has not aggressively marketed licenses in recent periods and has not offered new franchises, and franchise and license fees have not been material. However, the Company views its franchises and licenses as an important adjunct to its health care services business, particularly insofar as the program allows operations under the Nursefinders brand in areas which might not otherwise meet the Company's criteria for a Company-operated branch, allows a further spreading of fixed costs over additional revenues, and is believed to yield a fair profit for Company services provided. See "Business -- Organizational Structure." For the years ended December 31, 1993, 1994, 1995 and the three months ended March 31, 1996, the Staffing Services Division's five largest clients accounted for approximately 16.4%, 17.1%, 16.6% and 14.3% respectively, of the Division's total revenues. In such periods, the largest single client accounted for approximately 5.7%, 6.9%, 6.1% and 4.9%, respectively, of the Staffing Services Division's total revenues. The Health Care Services Division's customers are health care institutions and individual patients, none of which accounted for more than 1% of the Division's revenues in any of such periods. No single client accounted for more than 4% of the total combined revenues of the Company for 1995. RECENT ACQUISITIONS Since January 1, 1996, the Company has acquired three staffing services companies and has entered into a definitive agreement to acquire an information technology services company. The Allegheny and Profile acquisitions were completed in March 1996 and the Fox acquisition in May 1996. The combined revenues of these three companies were approximately $39.3 million in fiscal 1995, and the aggregate purchase price for these acquisitions was approximately $28.2 million (including direct acquisition costs and excluding certain contingent earnout payments). On May 23, 1996, the Company entered into an agreement to acquire CRG, 17 21 an information technology services company based in San Francisco, California with revenues for its fiscal year ended May 31, 1995 and the nine-month period ended February 29, 1996 of approximately $21.2 million and $21.0 million, respectively. The consummation of this acquisition is subject to customary conditions set forth in the agreement, such as the Company's satisfaction with its due diligence review of CRG, and no assurance can be given that the proposed acquisition will be consummated. If consummated, the CRG acquisition will enable the Company to enter the information technology services market, one of the fastest growing sectors of the staffing services industry, and will provide a platform for further acquisitions in the information technology services sector. See "Business -- Growth Strategy -- Acquisitions" and the Company's Unaudited Pro Forma Financial Statements for further information related to these acquisitions. Each of these acquisitions has been or will be accounted for using the purchase method of accounting. The results of the operations of Allegheny and Profile, which were acquired prior to March 31, 1996, have been included in the following discussion since the date of acquisition. In the future, the Company's revenues and expenses may be significantly affected by the number and timing of the opening or acquisition of additional offices. The timing of such expansion activities also can affect period-to-period comparisons. FRANCHISE CONVERSIONS Since January 1, 1996, the Company has converted three former Nursefinders franchise offices to Company-operated offices by acquiring the franchise. The combined revenues of these three offices for the year ended December 31, 1995 were approximately $11.2 million. The Company recorded approximately $0.5 million in franchise fee revenue in 1995 relating to these franchises, which are located in Hawaii, California and Missouri. 18 22 GENERAL The following table summarizes by Division the Company's revenue mix as a percentage of total revenues and the related growth rates:
THREE MONTHS YEAR ENDED DECEMBER 31, ENDED MARCH 31, ---------------------------------- ------------------- 1993 1994 1995 1995 1996 -------- -------- -------- ------- ------- (DOLLAR AMOUNTS IN THOUSANDS) Revenues by Division: Staffing services: Clerical.................. $ 77,281 $ 82,860 $ 91,146 $21,510 $25,451 Light technical, light industrial and other.... 30,105 42,962 52,097 12,043 12,801 -------- -------- -------- ------- ------- Total staffing services........... 107,386 125,822 143,243 33,553 38,252 -------- -------- -------- ------- ------- As a percentage of total................... 62.3% 59.4% 57.1% 56.4% 57.2% Health care services: Home health care.......... $ 34,440 $ 53,292 $ 70,403 $16,663 $19,172 Staffing.................. 27,325 29,408 33,707 8,408 8,622 Franchise................. 3,327 3,345 3,702 888 827 -------- -------- -------- ------- ------- Total health care services........... 65,092 86,045 107,812 25,959 28,621 -------- -------- -------- ------- ------- As a percentage of total................... 37.7% 40.6% 42.9% 43.6% 42.8% Total revenues....... $172,478 $211,867 $251,055 $59,512 $66,873 ======== ======== ======== ======= ======= Growth Rates by Division: Staffing services: Clerical.................. 8.7% 7.2% 10.0% 11.1% 18.3% Light technical, light industrial and other.... 34.6 42.7 21.3 32.2 6.3 Total staffing services........... 14.9 17.2 13.8 17.9 14.0 Health care services: Home health care.......... 61.8 54.7 32.1 48.4 15.1 Staffing.................. (17.2) 7.6 14.6 17.2 2.5 Franchise................. (9.2) 0.5 10.7 6.0 (6.9) Total health care services........... 12.3 32.2 25.3 34.9 10.3 Total revenues....... 13.9% 22.8% 18.5% 27.4% 12.4%
For the period January 1, 1993 through March 31, 1996, staffing and health care services revenues generally were increasing, due in part to cyclical effects of a recovering economy on staffing services, in part to Company efforts and actions to increase sales, and in part to rapid growth in the demand for home health care services. A correlative of the increase in home health care services was an increase in Medicare and Medicaid revenues, which comprised 16%, 30%, 36% and 36%, respectively, of health care services revenues (excluding franchise fees) for 1993, 1994, 1995 and the three months ended March 31, 1996. Also during the period January 1, 1993 through March 31, 1996, the Company was able to increase its revenues from the declining supplemental health care staffing market, and hold franchise fees approximately level with fewer franchised locations. During all periods, revenues per branch increased. See "Selected Consolidated Financial Data." 19 23 The following table presents certain operating expenses, operating income and net income as a percentage of revenues:
THREE MONTHS YEAR ENDED DECEMBER 31, ENDED MARCH 31, ------------------------- --------------- 1993 1994 1995 1995 1996 ----- ----- ----- ----- ----- Total revenues............................. 100.0% 100.0% 100.0% 100.0% 100.0% Direct cost of services.................. 73.2 73.6 71.3 71.9 73.1 Gross margin............................... 26.8 26.4 28.7 28.1 26.9 Selling, general and administrative...... 21.6 21.0 22.3 23.4 21.8 Depreciation and amortization............ 2.5 2.1 1.5 1.6 1.3 ----- ----- ----- ----- ----- Operating income (loss).................... 2.7 3.3 4.9 3.1 3.8 Income tax expense (benefit)............. 1.2 1.5 2.1 1.3 1.6 ----- ----- ----- ----- ----- Net income (loss).......................... 1.5% 1.8% 2.8% 1.8% 2.2% ===== ===== ===== ===== =====
While expenses generally follow revenue trends, the variance of expense as a percentage of revenues from period to period can be material. Direct cost of services as a percentage of revenues during all periods fluctuated from a low of 71.3% in 1995 to a high of 73.6% in 1994. Direct cost of services as a percentage of revenues generally rose from 1993 through 1994, primarily as a result of pricing pressure from clients. In 1995 the direct cost of services as a percentage of revenues decreased primarily as a result of changes in the mix of services. Selling, general and administrative expense before license fees was less than 21% of revenues from 1994 through 1995, despite the increases in health care services revenues, which typically have higher associated administrative costs than staffing services revenues. License fees as a percentage of revenues have increased since 1993 primarily because licensee revenues have increased. Income tax expense as a percentage of revenues fluctuated throughout the periods, with various effective rates from year to year based on federal and state income tax requirements and the effect of assets deductible for financial statement purposes but not for income tax purposes, as more fully described in the period to period comparisons herein. Operating income and income as a percentage of revenues in each of the periods was a function of revenues and the interaction of the above items. OFFICE CENSUS The following table sets forth the number and nature of the Company's offices, and changes therein, at the end of, and during, the periods indicated:
YEAR ENDED DECEMBER 31, THREE MONTHS ------------------ ENDED MARCH 31, 1993 1994 1995 1996 ---- ---- ---- --------------- Staffing offices...................................... 56 57 58 65 Company-operated health care offices.................. 46 47 48 49 Licensed Nursefinders offices......................... 3 4 10 12 Franchised Nursefinders offices....................... 50 48 40 37 ---- ---- ---- --- Total offices............................... 155 156 156 163 ==== ==== ==== ============ Offices opened........................................ 2 6 8 3 Offices acquired...................................... -- -- -- 5 Offices sold.......................................... -- -- (1 ) -- Offices closed........................................ (8 ) (5 ) (7 ) (1) ---- ---- ---- --- Net change............................................ (6 ) 1 -- 7 ==== ==== ==== ============
20 24 RESULTS OF OPERATIONS The staffing services business is subject to the seasonal impact of summer and holiday employment trends. Typically the second six months of the calendar year is more heavily affected, as companies tend to increase their use of temporary personnel during this period. The results for interim periods are not necessarily indicative of the results which may be expected for the entire year. The following table sets forth certain information for the quarterly periods indicated:
THREE MONTHS ENDED ------------------------------------------------------------------------------ DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, 1994 1995 1995 1995 1995 1996 ------------ --------- -------- ------------- ------------ --------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) Total revenues................. $ 57,918 $59,512 $ 61,260 $63,885 $ 66,428 $66,873 Operating income............... 2,597 1,837 3,066 3,393 4,118 2,591 Net income..................... 1,446 1,065 1,700 1,997 2,347 1,490 Net income per share........... -- -- -- -- $ 0.29 $ 0.19 ========== ======= Pro forma net income per share(1)................. $ 0.18 $ 0.13 $ 0.21 $ 0.25 -- -- ========== ======= ======= ========== ========== =======
- --------------- (1) Based on 8,000,000 shares of Common Stock issued in connection with the Company's initial public offering in September 1995. See "The Company." Three Months Ended March 31, 1996 versus Three Months Ended March 31, 1995 Revenues Total revenues for the three months ended March 31, 1996 increased 12.4% to $66.9 million from $59.5 million for the three months ended March 31, 1995. Staffing Services Division revenue grew 14.0% primarily due to increases in billable hours and the average billable hour rate as compared to the same period of the prior year. These changes were primarily attributable to the improvement in economic conditions experienced during 1995 that continued into 1996, which led to a higher demand for the Company's services relative to the same period of the prior year. Also, in March 1996 the Staffing Services Division completed the Allegheny and Profile acquisitions, which provided $1.4 million of revenues after their respective acquisition dates in the three-month period ended March 31, 1996. These acquisitions also accounted for five of the seven offices added to the Company's Staffing Services Division network during this period. For the three-month period ended March 31, 1996, the Health Care Services Division experienced a 10.3% increase in revenue (including franchise fees), which was attributable to increases in home health care visits and billing rates. During this period, the Health Care Services Division converted two franchised offices to Company-operated offices, closed one Company-operated office, converted two franchised offices to licensed offices and entered into a new franchise agreement covering one office. This led to a net increase of one Company-operated office and two licensed offices and a decrease of three franchised offices over the same period of the prior year. Direct Cost of Services Direct costs, consisting of payroll and related expenses of temporary workers, increased 14.1% to $48.9 million for the three months ended March 31, 1996 from $42.8 million for the three months ended March 31, 1995, primarily due to increases in revenues during the period. Direct costs of services as a percentage of revenues increased to 73.1% during the three months ended March 31, 1996 from 71.9% during the same period of the prior year. This increase reflects the reclassification of certain non-billable administrative costs related to the Medicare program as direct costs of patient services in 1996. On a combined basis, direct cost of services and selling, general and administrative expenses before license fees as a percentage of revenues decreased to 92.6% for the three months ended March 31, 1996 from 93.9% for the same period of the prior year. 21 25 Other Operating Expenses Other operating expenses, consisting of selling, general and administrative expenses, depreciation and amortization expenses and license fees, increased 3.8% to $15.4 million for the three months ended March 31, 1996, from $14.9 million for the three months ended March 31, 1995. As a percentage of revenues, selling, general and administrative expenses before license fees decreased to 19.5% for the three months ended March 31, 1996 from 22.0% for the same period of the prior year due primarily to the treatment of the non-billable administrative cost related to the Medicare program as direct cost as discussed above. Depreciation and amortization expense recognized during the three months ended March 31, 1996 decreased to 1.3% of revenues from 1.6% for the same period of the prior year due to the completion of the amortization of certain intangible assets early in 1995 and increased revenues. License fees increased $0.7 million due both to increased fees from existing offices and from fees relating to four converted or added licensed offices since March 31, 1995. Income Tax Expense For the three months ended March 31, 1996, the effective tax rate increased to 42.5% from 42.0% for the comparable period of the prior year. The current effective tax rate reflects the Company's estimate of its annual tax provision relative to pre-tax income generated for the current quarter. Due to the acquisitions consummated in the first quarter of 1996, nondeductible amortization expense is expected to increase. Net Income Net income increased 40.0% to $1.5 million, or 2.2% of revenue, for the three months ended March 31, 1996 from $1.1 million, or 1.8% of revenue, for the three months ended March 31, 1995 due to the factors discussed above. Year Ended December 31, 1995 versus Year Ended December 31, 1994 Revenues Total revenues increased 18.5% to $251.1 million in 1995 from $211.9 million in 1994. Staffing Services Division revenue grew 13.8%, of which 11.6% was due to an increase in billable hours and the remainder was attributable to increases in billing rates and an improved service mix. During this period, the Health Care Services Division experienced a 25.3% increase in revenues (including franchise fees), of which 17.2% was attributable to an increase in home health care visits and billable hours and 8.1% was primarily attributable to increased billing rates and franchise fees. Direct Cost of Services Direct costs, consisting of payroll and related expenses of temporary workers, increased 14.7% to $179.0 million in 1995 from $156.0 million in 1994. Direct cost of services as a percentage of revenue decreased to 71.3% during 1995 from 73.6% during 1994. This decline reflected faster growth in the Health Care Services Division, which typically has higher gross margins, as well as increases in billing rates and an improved service mix. Other Operating Expenses Other operating expenses, consisting of selling, general, and administrative expenses, depreciation and amortization expenses and license fees, increased 22.1% to $59.7 million in 1995 from $48.9 million in 1994. Selling, general and administrative expenses for 1995 as a percentage of total revenues did not significantly change compared with 1994. Depreciation and amortization expense recognized during 1995 decreased to 1.5% of revenues from 2.1% of revenues for 1994 primarily due to the completion of the amortization of certain intangibles as of December 31, 1994 and increased revenues. License fees increased by $2.7 million due to increased revenues from the licensed offices and an increased number of licensed offices. This increase in license fees included $0.8 million related to converted offices, $0.8 million related to new licensed offices and $1.1 million related to existing licensed locations. Income Tax Expense The effective tax rate decreased to 42.7% for 1995 from 44.0% for 1994. The decrease was due to a reduction in the estimated annual effective tax rate primarily attributable to a reduction in nondeductible 22 26 intangible amortization expense relative to pretax income for the period. The Company's effective tax rate is higher than the U.S. federal statutory rate of 35.0% primarily due to the amortization of intangibles that is not deductible for tax purposes and state income taxes. Net Income Net income increased 82.3% to $7.1 million (2.8% of revenue) for 1995 from $3.9 million (1.8% of revenue) for 1994 due to the factors discussed above. Year Ended December 31, 1994 versus Year Ended December 31, 1993 Revenues Total revenues increased 22.8% to $211.9 million in 1994 from $172.5 million in 1993. Staffing Services Division revenue grew 17.2%, of which 16% was attributable to an increase in billable rates. During this period, the Health Care Services Division experienced a 32.2% increase in revenues (including franchise fees), of which 29% was attributable to an increase in home health care visits and billable hours and 3% was attributable to increased billing rates and franchise fees. Direct Cost of Services Direct costs, consisting of payroll and related expenses of temporary workers, increased 23.5% to $156.0 million in 1994 from $126.3 million in 1993. Direct cost of services as a percentage of revenues was relatively unchanged at 73.6% in 1994 compared with 73.2% in 1993. Other Operating Expenses Other operating expenses, consisting of selling, general, and administrative expenses, depreciation and amortization expense and license fees, increased 17.5% to $48.9 million in 1994 from $41.6 million in 1993. Selling, general and administrative expenses before license fees declined to 20.2% of total revenues in 1994 from 21.0% in 1993, reflecting spreading of fixed costs over a larger revenue base. Depreciation and amortization expense recognized during the years was comparable, resulting from amortization of goodwill and intangibles on a straight-line basis. The 53% increase in license fees during this period primarily resulted from growth in sales at existing licensed offices. Income Tax Expense The Company's effective tax rate of 44.0% for 1994 was comparable to its effective tax rate of 45.0% for 1993. The effective tax rate was higher than the U.S. federal statutory rate of 35.0% primarily due to the amortization of intangibles that is not deductible for income tax purposes and state income taxes. Net Income Due to the above factors, net income increased 53.7% to $3.9 million (1.8% of revenue) for 1994 from $2.5 million (1.5% of revenue) for 1993. LIQUIDITY AND CAPITAL RESOURCES Cash Flows The Company's principal uses of cash are to finance receivables and fund capital expenditures and acquisitions. The Company pays wages to its employees on a weekly basis and, in the Health Care Services Division, makes payments to vendors under its SingleSource program on a monthly basis. However, receivables for the Staffing Services Division and the Health Care Services Division remain outstanding an average of 38 and 56 days, respectively, after billing. Health care receivables are generally paid by insurance companies and governmental agencies and therefore tend to be outstanding longer than commercial receivables. In the aggregate, days sales outstanding as of December 31, 1995 and March 31, 1996 were 49 and 46, respectively, compared with 52 and 50, respectively, as of December 31, 1994 and March 31, 1995. This reduction was due primarily to improvements in the collection time for commercial receivables. For 1995, cash flows from operating activities increased to $10.5 million, up from $3.0 million for 1994. The increase in cash flows from operating activities resulted from an increase in earnings before depreciation and amortization offset by changes in working capital. Cash used for investing activities decreased to 23 27 $0.8 million for 1995 from $3.3 million for 1994, reflecting the Company's investment in additional property and equipment in 1994 to support growing operations. These additions to property and equipment were primarily related to replacement and upgrades of office furniture and fixtures at field locations, general additions related to renovations and improvements at service center branch locations, and a major field office automation project which was initiated and completed in 1994 by the Health Care Services Division. This project included the purchase and installation of personal computers and local area networks. The Company made distributions to its former parent amounting to $7.4 million during 1995 in accordance with its normal policies as a wholly owned subsidiary of that company. No such distributions have been made subsequent to the Company's initial public offering. For the three-month period ended March 31, 1996, cash flows from operating activities were $2.2 million, down from $3.9 million for the same period in 1995. The decrease in cash flows from operating activities resulted from a decrease in working capital that offset an increase in earnings before depreciation and amortization. Cash used for investing activities totalled $11.6 million for the three months ended March 31, 1996, substantially all of which related to the Allegheny and Profile acquisitions completed in March 1996. Cash flows from financing activities during the same period totaled $7.0 million, representing the net increase in outstandings under the Company's Credit Facility (as defined below), which were used to fund a portion of the acquisition costs for the Allegheny and Profile acquisitions. Indebtedness The Company has a three-year $35.0 million revolving bank line of credit (the "Credit Facility"), secured by a pledge of the stock of the Company's subsidiaries and a lien on receivables and certain other assets of the Company, currently bearing interest at a rate equal to LIBOR plus 1.25% or the lender's base rate, at the Company's option, and maturing on September 30, 1998 (provided, that maximum availability under the Credit Facility will reduce to $30.0 million as of June 30, 1996). As of May 20, 1996, the Company had outstanding borrowings under the Credit Facility of $27.3 million, $2.5 million used for the issuance of undrawn letters of credit to secure the Company's workers' compensation program and remaining availability of $5.2 million. The Company intends to repay outstanding borrowings under the Credit Facility with the net proceeds of the offering of Common Stock. The Credit Facility contains customary covenants such as the maintenance of certain financial ratios and minimum net worth and working capital requirements, and a restriction on the payment of cash dividends on common stock. The Credit Facility also limits the availability for acquisition related purposes and further limits the aggregate purchase price for permitted acquisitions in a single year. The Company has obtained a commitment from its lender to use its best efforts to syndicate the Credit Facility and increase the maximum availability thereunder to $60.0 million. There can be no assurance, however, that the syndicated Credit Facility will close, and until such time, there can be no assurance that the amount available to the Company under the Credit Facility will be increased. Capital Expenditures The Company's primary capital expenditure requirements relate to the acquisition of staffing services businesses. Since January 1, 1996, the Company has made cash payments of approximately $28.3 million for acquisitions of staffing services businesses. The Company is obligated to pay an additional $1.0 million under the Fox acquisition agreement on or about August 18, 1996. The agreed cash portion of the purchase price for the prospective CRG acquisition is approximately $20.3 million (including direct acquisition costs and excluding certain contingent earnout payments). The Company is also obligated under various other acquisition agreements to make earnout payments to former stockholders of acquired companies over the next four years. The Company cannot currently estimate the total amount of these payments, but anticipates that the cash generated by the operations of the acquired companies will provide a substantial part of the capital required to fund the earnout payments. The Company is actively seeking acquisition opportunities and management believes that the Company will complete several acquisitions during the balance of 1996 (including the proposed CRG acquisition) as attractive opportunities become available. The Company intends to use a portion of the net proceeds of the offering of Common Stock to fund the CRG acquisition and to seek additional capital as necessary to fund other possible acquisitions through one or more funding sources that may include borrowings under the Credit Facility or offerings of debt or equity securities of the Company. Cash flow from operations, to the extent available, may also be used to fund a portion of these expenditures. 24 28 Although management believes that the Company will be able to obtain sufficient capital to fund acquisitions, there can be no assurance that capital will be available to the Company at the time it is required or on terms acceptable to the Company. The Company opened two new branches during the first quarter of 1996 and expects to open six additional branches during the remainder of the year. Start-up costs related to the opening of the new branches vary, but are expected to approximate $100,000 per branch. Costs for furniture, fixtures, and equipment are capitalized and depreciated, and other start-up costs are expensed as incurred. New Company-operated and licensed offices also impose additional working capital requirements on the Company. In addition to opening new branches, the Company is in the process of purchasing and installing an accounting and financial information system and branch operating and paybill systems. The Company expects that its capital expenditures related to these projects will aggregate approximately $2.5 million during 1996 and 1997. The Company believes that the net proceeds from the offering of Common Stock, cash flow from operations, the current borrowing capacity under the Credit Facility and other available financing alternatives, including the possible syndication and enlargement of the Credit Facility, will be adequate to meet its presently anticipated needs for working capital and capital expenditures, but no assurance can be given that the Credit Facility will be syndicated and enlarged or that alternative sources of capital will be available on acceptable terms to permit the Company to finance future acquisitions. INFLATION The effects of inflation on the Company's operations were not significant during the three months ended March 31, 1996, or the years ended December 31, 1995, 1994 or 1993. OTHER MATTERS Amortization of Intangible Assets As of December 31, 1995, the Company had capitalized goodwill and other intangibles of $51.1 million, net of accumulated amortization relating to the purchase of certain of its subsidiaries and divisions. This resulted in an annual charge to earnings for the year ended December 31, 1995 of approximately $2.3 million. Such intangible assets approximated 49.8% of the Company's total assets and 67.3% of its total shareholders' equity as of December 31, 1995. Assuming completion of Fox and CRG acquisitions as of March 31, 1996, $100.2 million, or 64.0%, of the Company's total assets would have been intangible assets. These intangible assets would include $98.2 million related to goodwill, with the balance attributable to client and employee lists, franchise agreements, covenants not to compete and other intangible assets. Goodwill is the excess of the purchase price of net assets acquired in business combinations over their fair value at the date of acquisition. Although management believes goodwill has an unlimited life, the Company amortizes its goodwill over 40 years. Management believes that its strategy of maintaining the brand name, management and culture of its acquisitions preserves the goodwill for an indeterminate period. However, any impairment of such assets, with resultant write-offs, could have a material adverse effect on the Company's financial condition and results of operations. Impact of Economic Conditions The staffing services industry is seasonal and cyclical. However, the Company believes that the diversity and broad geographic coverage of its operations generally mitigates the adverse impact of an economic cycle in any single industry or geographic region within the United States. Additionally, the demand for health care services is less sensitive to economic cycles. Interest Expense Prior to the Company's initial public offering in September 1995, the Company incurred interest income and expense on intercompany balances. The average balance of intercompany accounts was not material for the years ended December 31, 1993, 1994 and 1995. Accordingly, interest expense was not material in those periods. Under the Credit Facility, the Company has incurred interest charges for borrowed funds not incurred in prior years, and may continue to incur interest charges in the future. 25 29 BUSINESS Personnel Group of America, Inc. provides personnel staffing services in selected markets throughout the U.S. to businesses, professional and governmental organizations, health care facilities, and individuals who require home health care and related services. The Company's staffing services include temporary staffing, placement of full-time employees, and, depending on client needs, training and testing of temporary and permanent workers. At May 20, 1996, the Company operated through a network of 118 Company-operated, 36 franchised and 14 licensed offices in 32 states and the District of Columbia. Each of the Company's offices does business under established brand names, most of which have been continuously in use for more than 16 years. The Company's business is currently organized into two divisions. The Staffing Services Division operates under the Abar Staffing, Allegheny Personnel, FirstWord Staffing Services, Judith Fox Temporaries, Rosemary Scott Temporaries, Fox Technical, Profile Temporaries, Staffinders Personnel, Temp Connection, TempWorld, Thomas Staffing, West Personnel and Word Processors Personnel Service brand names. The Health Care Services Division operates as Nursefinders. The Staffing Services Division offers a wide variety of temporary office, clerical, light technical and light industrial services to more than 10,000 organizations nationwide. These services include general office and administrative services, software staffing, office automation, records management, production/assembly/distribution, telemarketing and other staffing services. The Health Care Services Division, through Company-operated, franchised and licensed offices, provides health care personnel to supplement the staffing needs of hospitals, nursing homes and other health care facilities. The Health Care Services Division also provides home health care services and related products to individuals. For the year ended December 31, 1995 and the three months ended March 31, 1996, respectively, the Staffing Services and Health Care Services Divisions represented approximately 57% and 43% of the Company's total revenues. If the Company consummates the proposed acquisition of CRG, it intends to establish a separate information technology services division. THE STAFFING SERVICES INDUSTRY The demand for staffing services, information technology services and health care services has grown rapidly, and the Company believes that, subject to normal cyclical fluctuations, this trend is likely to continue. Staffing Services The staffing services industry has grown rapidly over the past decade as a result of cyclical economic trends as well as changing approaches to staffing. According to The National Association of Temporary Staffing Services ("NATSS"), the U.S. market for temporary services grew at a compound annual rate of approximately 17.6% from approximately $20.5 billion in revenues in 1991 to approximately $39.2 billion in 1995, with revenues increasing at an annual rate of approximately 22%, 14%, 23% and 13% in 1992, 1993, 1994 and 1995, respectively. Studies show that more than 90% of all businesses use temporary staffing services. The use of temporary personnel has become widely accepted as a valuable tool for managing personnel costs, supplementing permanent workforces and meeting specialized or fluctuating employment requirements. Vacations, illness, resignations, seasonal increases in work volume, marketing promotions and month-end requirements have historically created demand for temporary staffing. More recently, the growing cost and difficulty of hiring, laying off and terminating full-time workers has also encouraged a greater use of temporary workers. In addition, entrants into the labor force increasingly look to temporary assignments as a way to build experience, make contacts, and get valuable exposure to a variety of work settings, and as a vehicle to gain full-time employment. Organizations have also begun using flexible staffing to reduce administrative overhead by strategically outsourcing operations that are not part of their core business functions, such as recruiting, training and benefit administration. By utilizing temporary employees, businesses are able to avoid the management and administrative costs incurred if full-time personnel are employed. An ancillary benefit, particularly for smaller businesses, is that such use shifts certain employment costs and risks (e.g., workers' compensation and unemployment insurance) to the temporary personnel provider, which can spread the costs and risks over a larger pool of employees. Businesses are also utilizing staffing services to selectively hire and add to their full-time staff. This concept, typically referred to as "temp-to-perm," provides the customer with the opportunity 26 30 to evaluate skills and proficiency prior to making full-time employment offers. NATSS estimates that approximately 40% of temporary employees are offered full-time employment by clients. The range of clerical, light technical and light industrial staffing services provided by temporary personnel has expanded substantially in recent years. Technological advances, as well as changing attitudes toward managing work forces, have resulted in a proliferation of new temporary staffing needs, including word processing, computer graphics, and database management. In addition, as businesses use temporary staffing companies to supplement permanent work forces, demand for temporary employees possessing strong technical and administrative skills is increasing. Information Technology Services Information technology services is one of the fastest growing sectors of the staffing services industry as a result of substantially increased demand for personnel in a range of computer-related disciplines, including, among other things, technical project support, software development and documentation, systems and database management and desktop publishing. According to industry sources, revenues from the information technology services sector in 1995 are estimated to have been $8.9 billion, representing a 25% increase over 1994. This growth has been driven by a number of factors. Computer-related activities are by nature project oriented and, as a result, conducive to the use of contract personnel. In addition, the rapid emergence of new technologies requires that staff be trained in the latest computer languages and tools. In these circumstances, temporary personnel can be used both to facilitate timely completion of projects and to retrain existing staff in new technologies. Health Care Services Health care institutions have historically used supplemental staffing to handle peak periods, illnesses and vacations and to help these facilities manage operating expenses. In response to national pressure to reduce health care expenditures, patients are being transferred to lower cost settings, resulting in fewer hospital admissions and shorter lengths of stay. Consequently, reliance on temporary nursing personnel for routine hospital staffing has decreased. Home health care has become one of the fastest growing sectors of the health care industry primarily as a result of the shift away from providing care in institutional settings. Studies indicate that the cost of home health care is 30% to 60% lower than the cost of comparable care in hospital or other institutional settings. Industry growth is also being driven by the aging U.S. population, which requires additional health care services, changes in family structure which formerly supported the care of the sick and the elderly, and technological advances, which now make it possible to treat higher acuity patients and chronic diseases in the home. Based on industry reports, the home health care industry has grown at a compound annual rate of 19.4% from approximately $11.6 billion in revenues in 1991 to approximately $23.6 billion in 1995, with revenues increasing at an annual rate of approximately 25%, 23%, 17% and 13% in 1992, 1993, 1994 and 1995, respectively. BUSINESS STRATEGY The Company's objective is to be a premier provider of quality personnel staffing services to clients, employees and applicants in selected markets throughout the U.S. in which the Company expects growth in the demand for personnel staffing services. The Company's business strategy includes the following key elements: Capitalize on Strong Reputation and Brand Name Recognition. The Company intends to continue to build on its strong reputation and client familiarity with the Company's brand names. The Company believes its local presence, accessible management and sophisticated support services position it as a provider of choice of staffing services. The Company also believes that its ability to be a cost effective, full service provider of quality health care services positions it to be a provider of choice to health care payors. The Company estimates that it is one of the top five providers of services based on the number of offices in most of the markets it serves. 27 31 Focus on Local and Regional Markets. The Company believes that the buyers and users of its services are primarily local or regional and that well established local providers in many cases have a competitive marketing advantage over national providers because they have developed a strong presence in their markets and have tailored their operations to meet local client needs. The Company's strategy combines its ability to capitalize on the recognition of its brands, all of which are established local or regional brands, with the sophisticated support services of a national provider. Decentralization of staff selection, pricing and decisions regarding business mix and advertising allows for significant local autonomy. This permits each local and regional operator to be extremely flexible and responsive to the specific needs of its local clientele, including the ability to offer favorable pricing for high volume accounts. The Company's organizational structure allows the Company to spread the costs associated with workers' compensation liability, centralized billing and payroll functions, technology development and malpractice risks as well as the costs of analyzing and complying with state and federal regulations over a large number of temporary employees and clients. Attract and Retain Qualified Management and Personnel. The Company believes that high quality management and branch office personnel with strong ties to the local community are key competitive factors given the importance of long-term relationships in determining local staffing decisions. As a result of its established community presence, quality-oriented culture, positive work environment and its management and personnel selection and recruiting processes, the Company has experienced long-term senior staff tenure and continuity in client relationships, with the average tenure of the Company's senior staff being more than seven years. In addition, the Company's decentralized structure gives regional and local management significant autonomy and attracts high quality, entrepreneurial managers. Focus on Customer Service. The Company is dedicated to providing the highest quality customer service by establishing long-term relationships with local staffing decision makers. Its quality assurance programs include confirmation calls, employee performance appraisals, job opinion questionnaires, reference requests and service evaluations. The Company uses the automated systems, ProficiencyPLUS and QuestPLUS, to match a candidate's work history, skills and personal attributes with customer requirements. Through SourcePLUS, the Company provides a high level of service to major staffing clients through comprehensive on-site management programs. Through the Company's SingleSource program, the Health Care Services Division contracts with other providers of health care products and services to promote continuity and coordination throughout the continuum of care. This allows for a single point of contact for payors, eliminating burdensome and duplicative accounting, administration and documentation. The Company believes that the SingleSource program provides the Company with a marketing advantage, but the SingleSource program does not currently account for a material portion of the Company's revenues. Maintain Diversification. A key element of the Company's diversification strategy is to offer a broad selection of personnel services. The Company will attempt to supplement its existing services with the addition of new staffing specialities, such as the introduction of information technology staffing services following the proposed CRG acquisition. Through licensing and franchising of offices, the Company is able to broaden its geographic coverage and leverage its existing business with a minimum capital investment. The Company's current mix of staffing and health care business reduces its exposure to economic cycles and earnings volatility because the health care industry is generally less sensitive to changes in economic conditions than the staffing services industry. Further, no customer represented more than 4% of the Company's revenues, and the top five customers represented less than 10% of the Company's revenues for the year ended December 31, 1995. Leverage Existing Infrastructure. The Company seeks to increase profitability by adding offices and employees without proportionately increasing overhead expenses. The clustering of offices in key markets results in economies of scale through common regional management and the spreading of recruiting, training, advertising, administrative and branch office costs over a larger revenue base. The key markets in which the Company clusters offices are large enough that each Company office is able to target a particular area of the market without directly competing with other Company offices. 28 32 GROWTH STRATEGY The Company's growth strategy is to build on its successful operating results by concentrating resources in strategic growth markets. Specifically, management plans to grow the Company by: (i) increasing sales in existing branch offices; (ii) opening new offices in markets already served by the Company; (iii) acquiring businesses in growth markets not already served by the Company; (iv) acquiring businesses that offer specialty services; (v) expanding the license network through sales of additional licenses and converting qualified independent home health care companies to Company-operated licensees; and (vi) selectively acquiring home health care operators. Internal Growth The Company's internal growth strategy includes expanding and enhancing services at existing offices and increasing its presence in its existing markets by opening new offices. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- General" and "-- Liquidity and Capital Resources." The Company has consistently increased its average revenues per branch. Average revenues per branch were approximately $1.3 million, $1.4 million, $1.6 million, $2.0 million, $2.2 million, $0.5 million and $0.5 million for the years ended December 31, 1991, 1992, 1993, 1994, and 1995 and for the three months ended March 31, 1995 and 1996, respectively. With the ongoing implementation of its business development plan, and subject to normal cyclical fluctuations, the Company expects to continue to grow its revenues per branch. In certain markets, the Company intends to offer specialized professional and niche services through existing offices. In addition, the Company intends to expand the range of health care personnel that it offers to include nurses who provide specialized services for pediatric, diabetic, psychiatric and asthma patients. Management believes that new offices can be integrated into the Company at low incremental cost and that the Company will compete more effectively as it expands by spreading its fixed administrative and data processing costs over a larger revenue base. Acquisitions A key component of the Company's growth strategy is to acquire existing staffing operations. The Company seeks acquisitions that will expand the geographic scope of its Staffing and Health Care Services Divisions, strengthen its professional services and introduce new specialty services, such as information technology and legal staffing, to its business mix. Management believes that the Company's strong reputation and decentralized management style, as well as its emphasis on preserving local brand identity, facilitate its efforts to acquire independent staffing businesses seeking an alliance with a national company. In determining whether to proceed with an acquisition, the Company evaluates a number of factors, including: local demographics and economic conditions; the available local workforce; the historical and projected financial results of the candidate; the purchase price and expected impact on the Company's earnings per share; the expansion of the Company's geographic market share; the enhancement to the Company's breadth of services; the experience, reputation and personality of management; and any expected synergies with the Company's existing operations. Management believes that acquired businesses can be integrated into the Company at low incremental cost and will enable the Company to continue to spread fixed costs over a larger revenue base. The Company generally retains the former names and marketing identities of acquired companies to the extent that such identities have value in the markets in which such companies compete. Since January 1, 1996, the Company has acquired three staffing services companies and has entered a definitive agreement to acquire an information technology services company. Each of these companies is described briefly below. Allegheny Personnel Services ("Allegheny"). The Company acquired Allegheny in March 1996. Allegheny offers staffing services through four offices in the Pittsburgh, Pennsylvania area. For the year ended December 31, 1995, Allegheny had revenues of approximately $16.5 million. Profile Temporary Services ("Profile"). The Company acquired Profile in March 1996. Profile operates one office in the loop district of downtown Chicago, Illinois. For the year ended December 31, 1995, Profile had revenues of approximately $6.8 million. 29 33 Judith Fox Staffing Companies ("Fox"). Acquired on May 20, 1996, Fox provides staffing services through three offices in Richmond and Charlottesville, Virginia and New York, New York. For the year ended December 31, 1995, Fox had combined revenues of approximately $15.9 million. The Computer Resources Group ("CRG"). On May 23, 1996, the Company entered into an agreement to acquire CRG, an information technology services company with three offices in San Francisco, Sacramento and Santa Clara California. CRG had revenues for its fiscal year ended May 31, 1995 and the nine-month period ended February 29, 1996 of approximately $21.2 million and $21.0 million, respectively. The consummation of this acquisition is subject to customary conditions set forth in the agreement, such as the Company's satisfaction with its due diligence review of CRG, and no assurance can be given that the proposed acquisition will be consummated. If consummated, the CRG acquisition will enable the Company to enter the information technology services market and provide a platform for further information technology acquisitions. STAFFING SERVICES DIVISION The Company supplies staffing services to over 10,000 business, professional, and government organizations in the United States. At May 20, 1996 the Company operated its Staffing Services Division (the "Division") through 70 offices. Services The Division provides temporary personnel who perform general office and administrative services, software staffing, office automation, records management, production/assembly/distribution, telemarketing and other staffing services. Certain of the Division's offices also provide full-time placement and payrolling services. Payrolling services entail employment by the Division of individuals recruited by and assigned to a customer for an ongoing fee. For the year ended December 31, 1995, 64% of the Company's staffing services revenues were derived from clerical services, and 36% of such revenue were derived from light technical, light industrial and other services. The corresponding percentages for the three months ended March 31, 1996 were 67% and 33%, respectively. Operations The objective of the Division is to consistently deliver the appropriate number and quality of personnel to its customers in a timely fashion at a competitive price. The Division seeks to accomplish its objective through: 30 34 Local and Regional Focus and Brand Name Recognition. The Company markets its staffing services to local and regional clients through its network of offices across the U.S. The marketing efforts of the Division capitalize on long standing business relationships with its clients and its established brand names, most of which have been in use for more than 16 years. The following table sets forth information at May 20, 1996 on the names, markets, number of offices, and dates founded of the Division's brands:
NUMBER OF DATE NAME MARKETS OFFICES(1) FOUNDED -------------------------------- -------------------------------- --------- ------- Abar Staffing................... San Francisco Bay Area, CA 6 1954 Allegheny Personnel 4 1972 Services(2)................... Pittsburgh, PA FirstWord Staffing Services..... Dallas, TX 7 1978 Judith Fox Staffing(3).......... Richmond, VA, Charlottesville, 3 1978 VA, New York, NY Profile Temporary Services(2)... Chicago, IL 1 1979 Staffinders Personnel........... Houston, TX 3 1983 Temp Connection................. New York/Long Island, NY 2 1982 TempWorld....................... Atlanta, GA 16 1980 Birmingham, AL Charlotte, NC Washington DC Metropolitan Area Thomas Staffing................. Los Angeles/Orange County, CA 20 1969 Riverside/San Bernardino, CA San Diego, CA West Personnel Service.......... North and West Suburban Chicago, 6 1954 IL Word Processors Personnel 2 1978 Service....................... Atlanta, GA -- Total................. 70 ========
- --------------- (1) Does not include vendor-on-premises locations at customer sites. (2) Acquired in March 1996. (3) Acquired in May 1996 and includes Judith Fox Temporaries, Rosemary Scott Temporaries and Fox Technical. Customized Client Services. Management believes that one of the Company's major strengths is its ability to satisfy the needs of its customers by providing customized services such as on-site management and full-time placement services. The flexibility of the Company's decentralized organization allows it to tailor its operations to meet local client requirements. For example, certain clients are provided with customized billings, utilization reports, and safety awareness and training programs. An important trend in the staffing services business is on-site management. The Division offers SourcePLUS, its customized on-site temporary personnel management system, which places an experienced project manager at the client facility to provide complete staffing support. This program facilitates client use of temporary personnel and allows the client to "outsource" a portion of its personnel responsibility to the Division representative, who gathers and records requests for temporary jobs from client department heads and then fulfills client requirements. Company representatives on client premises can access the Division systems through on-site personal computers. The Division's full-time placement services provide traditional staff selection and recruiting services to its clients. In addition to recruiting employees through referrals, the Division places advertisements in local newspapers to recruit employees for specific positions at client companies. The Division utilizes its expertise 31 35 and selection methods to evaluate the applicant's credentials. If the applicant receives and accepts a full-time position at the client, the Company receives a one-time fee, based on the annual salary of the employee. Automated Service Systems. In order to maintain a consistent quality standard for all its temporary employees, the Division uses a comprehensive automated system to screen and evaluate potential temporary personnel, make proper assignments and review a temporary employee's performance. The Division uses the QuestPLUS System to integrate the results of the Division's skills testing with personal attributes and work history and automatically matches available candidates with customer requirements. Sales and Marketing The Division has implemented a business development program to target potential customers with temporary staffing needs and to maintain and expand existing customer relationships. The Company obtains new clients primarily through personal sales presentations and supports its sales efforts with telemarketing, direct mail solicitation, and advertising in a variety of local and national media, including the Yellow Pages, newspapers, magazines and trade publications. The Division devotes the majority of its selling efforts to smaller, regional accounts and potential customers which the Division has identified as consistent users of temporary staffing services. Smaller, regional accounts are characterized by shorter sales cycles and higher gross margins. The Division generally does not seek any national account agreements, but does provide services to a wide variety of customers with national and international businesses. Bids for large user accounts and the provision of services to clients with multiple location requirements are coordinated at the Company's headquarters. Seasonality The staffing business is subject to the seasonal impact of summer and holiday employment trends. Typically, the second half of the calendar year is more heavily affected, as companies tend to increase their use of temporary personnel during this period. While the staffing industry is cyclical, the Company believes that the broad geographic coverage of its operations and the diversity of the services it provides generally mitigates the adverse effects of economic cycles in a single industry or geographic region. HEALTH CARE SERVICES DIVISION The Company's Health Care Services Division, operating under the name Nursefinders ("Nursefinders"), provides health care staffing services through 48 Company-operated, 36 franchised and 14 licensed locations at May 20, 1996. The Company provides home care services to individuals as well as health care personnel for supplemental staffing to hospitals, nursing homes, and other health care institutions. The Company believes that it is the fourth largest national provider of home nursing care services in terms of revenue and the number of locations. The Company also believes it is the largest provider of supplemental staffing services to health care institutions. Services Nursefinders provides a wide range of licensed and trained personnel. These include licensed professionals such as registered nurses and licensed practical/vocational nurses, nursing assistants and technicians, certified aides, and companions. Registered nurses and licensed practical/vocational nurses perform skilled procedures for patients in the home or institutional setting, including nursing assessment and evaluation, medication administration, infusion therapy, complex therapeutic treatments and case management. Nursing assistants and technicians perform personal care and simple procedures for patients in institutional settings. Home health and personal care aides provide basic personal care, feeding, dressing and assisting with activities of daily living to the homebound patient. Companions assist home care patients with meal preparation, shopping and other light housekeeping tasks. Institutional staffing and home care services are also provided by physical, occupational, speech and respiratory therapists and medical social workers. 32 36 For the year ended December 31, 1995, approximately 65% (66% for the three months ended March 31, 1996) of Nursefinders' sales were derived from providing home health care services, with the balance being derived from health care staffing services provided to hospitals and other institutions. Since 1990, in response to the declining demand for temporary nursing services in hospital settings, Nursefinders has diversified its health care staffing customer base to include sub-acute and long-term care facilities. Nursefinders will continue to emphasize the development of home health care services by introducing new specialty programs and attempting to capture increased market share through the services it now provides. Operations The objective of Nursefinders is to consistently provide cost effective, high quality, home health care to individuals and supplemental staffing personnel to health care institutions. Nursefinders seeks to accomplish its objective through: Brand Name Recognition and Local and Regional Focus. The Nursefinders brand name has been in use for more than 17 years, and Nursefinders is widely recognized as a leading provider of home health care staffing and related services. Nursefinders' local managers have the flexibility of determining staff selection, compensation, business mix, marketing and pricing, which allows each Nursefinders office to respond to local competitive conditions. Most health care staffing services are purchased at the local level, and Nursefinders' established reputation has resulted in ongoing referrals in the communities which it serves. Quality Assurance. Nursefinders has established and monitors precise quality assurance standards for Company-operated, franchised and licensed offices. The Company believes these policies and procedures comply with all local, state and federal regulations for hiring criteria, training programs and patient care delivery systems. Nursefinders has applied for, and has received for certain locations, accreditation for Company-operated, franchised and licensed offices by the Joint Commission on Accreditation of Healthcare Organizations ("JCAHO"). JCAHO is the recognized national accrediting authority for health care services, and by participating in the voluntary accreditation program, Nursefinders is able to better compete in the health care staffing market. JCAHO has determined that Nursefinders' policies meet JCAHO standards and began the compliance survey stage of the accreditation review during 1995. Nursefinders believes that in the provision of home health care, the caregiver is the critical factor in (i) providing and assuring the quality of care, (ii) coordinating the effective utilization of all home health care services and products, and (iii) determining the frequency and level of patient health care intervention. Nursefinders monitors home care services through close supervision and evaluation of patient care outcomes. Specific criteria are used in accepting and discharging patients so that Nursefinders can assure that patient needs are met in the home setting. Clinical documentation used in home care patient records meet professional standards of practice, and quarterly record reviews are performed by health care professionals to validate the quality and appropriateness of care. SingleSource Program. With managed care organizations focusing on cost containment, an increasing number of patients are being transferred from hospitals to lower cost care settings. Consequently, patients with increasingly complex needs are receiving care in their homes, and the number of patients requiring multiple services in the home is also increasing significantly. In order to meet this need, Nursefinders developed the SingleSource program, in which Nursefinders contracts with other providers of health care products and services to provide the full continuum of home health care needs. These services include skilled and non-skilled nursing care, IV therapy, respiratory, physical, occupational and speech therapies, home medical equipment and medical supplies. Nursefinders pays its personnel and subcontractors while billing third party payors at pre-negotiated rates. Nursefinders' ability to manage all aspects of home health care as a single source or full service provider with access to and supervision of home health care personnel positions Nursefinders as a provider of choice with managed care organizations. 33 37 Development of Disease State Management Programs. Managed care and insurance companies are increasingly focusing their attention on disease states that are expensive to treat because of long hospital stays. Nursefinders is developing disease-specific early intervention programs to monitor, and reduce the need for hospitalization of, patients with diabetes, cancer, cardiovascular conditions and asthma. Nursefinders also is developing specialty programs to further address the needs of managed care organizations to reduce costs for psychiatric and pediatric care. Responsiveness to Changing Payor Mix; Medicare and Medicaid Certification. In the midst of the changing health care legislative and regulatory environment, Nursefinders believes that participation in the Medicare program remains important. The trend towards home health care services has resulted in an increase in the portion of health care revenues being remitted through Medicare and Medicaid. Additionally, Nursefinders believes Medicare certification serves as a widely recognized indicator of quality and standing in local communities and is, therefore, important in obtaining desirable business from physicians, managed care organizations and certain other referral sources. As of May 20, 1996, Nursefinders provides Medicare and Medicaid services through its Company-operated network of 29 Medicare or Medicaid certified locations. Additionally, seven Nursefinders licensed locations and 15 Nursefinders franchises are Medicare and, in some cases Medicaid, certified. For the year ended December 31, 1994, approximately 39%, 30% and 31% of Nursefinders' revenues were derived from private pay and other sources, the Medicare and Medicaid programs, and supplemental staffing services, respectively. For the year ended December 31, 1995, approximately 31%, 36% and 33% of Nursefinders' revenues were derived from such sources, respectively, and for the three months ended March 31, 1996, approximately 33%, 36% and 31% of Nursefinders' revenues were derived from such sources, respectively. For the three months ended March 31, 1996, less than 15% of the combined Medicare and Medicaid revenues of Nursefinders were derived from the Medicaid program. The Company-operated, franchised and licensed locations that are not Medicare or Medicaid certified are unable to participate in such programs and instead derive all of their revenues from supplemental staffing, private pay and other sources. Nursefinders does not presently intend to seek Medicare or Medicaid certification for its Company-operated locations which are not presently certified. Marketing Home health care staffing services are generally purchased at the local level, either by case managers on behalf of private insurers or by private individuals through referrals from physicians, health maintenance organizations or hospital discharge planners. Nursefinders' marketing efforts for health care services principally involve presentations to contract administrators, utilization review nurses, medical directors and case managers for managed health care programs, government agencies, social service agencies, physicians and their staffs, hospital discharge planners, nursing home supervisors, insurance company representatives and employers with self-funded employee health benefit programs. Nursefinders also advertises in local and national media, including the Yellow Pages, newspapers, magazines and trade publications. Nursefinders has longstanding relationships with clients from whom it receives referrals and with governmental social service agencies with which Nursefinders conducts business under non-exclusive contracts that generally are renewable automatically from year to year. ORGANIZATIONAL STRUCTURE The Company utilizes a combination of Company-operated and, in the case of health care services, franchised and licensed offices, based on the characteristics of the particular market and the nature of services that the Company intends to provide. In general, the Company focuses its licensing and franchising activities in smaller and mid-sized markets. In larger markets, the Company employs a Company-operated branch strategy to permit existing supervisory, advertising, and administration expenses to be spread over a larger number of offices in close proximity. The Company believes that its franchise and license network is a benefit to the Company because its owners provide the Company with a substantial local market presence. The franchise and license network also provides the Company with royalty and license fee income. 34 38 Company-Operated Offices At May 20, 1996, there were 118 Company-operated offices. Each Company-operated office reports to a manager who is responsible for day-to-day operations and the profitability of the office. Depending on, among other things, the number of Company-operated offices in a region, branch managers may report to regional managers, division vice presidents or division presidents. Branch and regional managers are given a high level of autonomy in making decisions about the operation of their principal region. The compensation of branch and regional managers includes bonuses generally based on the incremental year-to-year increase in profitability and is designed to motivate them to maximize the growth and profitability of the offices. Franchised Offices Prior to 1990, Nursefinders offered franchises for Nursefinders offices. Nursefinders has experienced a low turnover rate in its franchise operations, with an average tenure of franchise ownership of 7.3 years and 77% of franchisees operating more than one franchise. At May 20, 1996, Nursefinders' 13 franchisees operated 36 franchised offices. Nursefinders encourages and assists franchisees to expand by establishing additional offices in existing and adjacent territories. Nursefinders grants the franchisee the exclusive right to establish an office and to provide Nursefinders' products and services within a designated geographic area using the Nursefinders' trade names, service marks, advertising materials, sales programs, manuals and forms. Franchisees receive training from Nursefinders, attend seminars, participate in marketing programs and utilize Nursefinders' sales literature. Nursefinders requires its franchisees to follow the basic procedures and standards established for its branch and licensed offices. Nursefinders assists its franchisees in obtaining business from its national and regional accounts. Nursefinders also makes available to each franchised office software used by its branch offices to assist in maintaining availability listings on temporary employees, scheduling employees, maintaining licensure and other information required by health care providers, and facilitating the payroll and billing functions. Franchisees operate their businesses autonomously within the framework of the Nursefinders' policies and standards, and recruit, employ and pay their own employees. The franchisee is responsible for screening and recruiting qualified temporary personnel, as well as obtaining clients. Nursefinders receives a royalty equal to 5% of the franchisee's sales. Franchisees paid Nursefinders an initial non-recurring franchise fee of $19,600 partially to cover screening, training, and other start-up costs incurred by Nursefinders in establishing a franchised office. Franchise agreements are generally for a term of five years, but are cancelable by the franchisee upon specified prior notice and renew at the option of the franchisee for successive five year periods thereafter. Nursefinders may terminate a franchise if the franchisee fails to meet Nursefinders' standards or otherwise breaches the franchise agreement. In recent periods, termination of franchise agreements has not had a material impact on the Company, but there can no assurance that such terminations in future periods will not have a material adverse impact on Nursefinders' and the Company's results of operations, financial condition and business prospects. Licensed Offices In 1990, Nursefinders began granting licenses instead of franchises because it believed that the reduced capital requirements of a licensed office would be more attractive to a larger number of potential licensees and because it believed that the license arrangement afforded it better control over the quality of patient care. At May 20, 1996, the Company had eight licensees operating 14 licensed offices. Nursefinders encourages and assists licensees to expand by establishing additional offices in existing and adjacent territories, and intends to issue additional licenses in the future. Licensees operate their businesses autonomously within the framework of the Nursefinders' policies and standards, and recruit, employ, and pay their own permanent employees. Licensees must maintain their own insurance coverage for the licensed office and its permanent employees, including workers' compensation, general liability and automobile liability insurance coverage. Licensees enjoy all the benefits afforded to franchisees. In addition, under the license agreements, Nursefinders employs all temporary employees, pays all payroll costs of employing the temporary employees, including workers' compensation and liability insurance 35 39 and fidelity bonds, bills the customers, and owns the receivables (with recourse to the licensee). The customer lists of the licensed operation belong to Nursefinders. Nursefinders records as revenues the amounts billed to clients of licensees, and the costs of wages and related benefits are recorded by Nursefinders as costs of services (the difference between revenues and cost of services being gross profit). Nursefinders remits monthly to licensees the gross profit of the licensed office less 7% of gross revenues, uncollectible receivables and certain other expenses of the licensed office. Licensees pay Nursefinders an initial non-recurring license fee of $19,600 partially to cover screening, training and other start-up costs incurred by Nursefinders in establishing a licensed office. License agreements are generally for a term of ten years and renew at the option of the licensee for successive five year periods thereafter. Nursefinders may terminate a license if the licensee fails to meet Nursefinders' standards or otherwise breaches the agreement. To date, termination of license agreements has not had a material impact on the Company, but there can be no assurance that such termination in future periods will not have a material adverse impact on Nursefinders' and the Company's result of operations, financial condition and business prospects. AUTOMATED OPERATING SYSTEMS An important factor in providing the services sought by users of staffing and health care services is the ability to quickly and effectively measure the skills of the candidates that make themselves available and to match skills with the client request. The Company's Staffing Services Division uses a number of automated systems to allow it to accomplish this task efficiently. The ProficiencyPLUS program is designed to test specific computer related skills by allowing the candidate to operate in the actual software program environment. The QuestPLUS system integrates the results of the Company's skills testing with personal attributes and work history and automatically matches available candidates with customer requirements. This system also can allow the Company to track the performance of its temporary employees and provide quality reports to customers that document the level of the Company's performance. The Company's Health Care Services Division utilizes a similar automated operating system. The software used in the QuestPLUS system is owned by the Company's former parent. The Company has entered into an agreement with its former parent to use the software for a monthly fee of approximately $13,600 through September 1997, with an option to extend for an additional year. See "Certain Transactions." In December 1995, the Company entered into an agreement with a software company to purchase an accounting and financial information system, the installation of which is substantially complete. In addition, the Company also has entered into an agreement with a separate software company for branch operating and paybill systems. The branch operating system integrates the results of the Company's skills testing with personal attributes and work history and automatically matches available candidates with customer requirements. The paybill processing system provides payroll processing and customer invoicing. This system will enhance the QuestPLUS system that is now utilized. Installation of these systems began in the second quarter of 1996 and is expected to be completed by the end of 1997. COMPETITION The U.S. staffing services market is highly competitive and highly fragmented, with more than 15,000 offices competing in the industry, and has limited barriers to entry. No one firm has more than 11% of the market, as measured by revenue. However, both the staffing and health care services industries have been undergoing significant consolidation. The largest publicly owned companies specializing in personnel staffing services in the U.S. are Manpower, Inc., Kelly Services, Inc., The Olsten Corporation, CDI Corporation, Norrell Corporation, Interim Services Inc., AccuStaff Incorporated and Robert Half International, Inc. In the temporary staffing services industry, competition generally is limited to firms with offices located within a customer's particular local market. In most major markets, competitors generally include many of the publicly traded companies and, in addition, numerous regional and local full-service and specialized temporary service agencies and health care providers, some of which may operate only in a single market. 36 40 Since many clients of both the Health Care Services and Staffing Services Divisions contract for their staffing services locally, competition varies from market to market. In most areas, no single company has a dominant share of the market. Many client companies use more than one staffing services company, and it is common for a major client company to use several staffing services companies at the same time. However, in recent years, there has been a significant increase in the number of large customers consolidating their temporary staffing purchases with a single supplier or with a small number of firms. The trend to consolidate temporary staffing purchases has in some cases made it more difficult for the Company to gain business from potential customers who have already contracted to fill their staffing needs with competitors of the Company. In other cases, the Company has been able to increase the volume of business with certain customers who choose to purchase staffing primarily from the Company. The competitive factors in obtaining and retaining clients include an understanding of clients' specific job requirements, the ability to provide temporary personnel in a timely manner, the monitoring of quality of job performance and the price of services. The primary competitive factors in obtaining qualified candidates for temporary employment assignments are wages and responsiveness to work schedules. Management believes that it is highly competitive in these areas. REGULATION Temporary employment service firms are generally subject to one or more of the following types of government regulation: (i) regulation of the employer/employee relationship between a firm and its employees; (ii) registration, licensing, record keeping and reporting requirements; and (iii) substantive limitations on its operations. Staffing services firms are the legal employers of their temporary workers. Therefore, the firm is governed by laws regulating the employer/employee relationship, such as tax withholding or reporting, social security or retirement, antidiscrimination and workers' compensation. The Company's Health Care Services Division is subject to extensive government regulation under federal, state and local law, including but not limited to, licensing requirements, certificate of need requirements, Medicare and Medicaid certification requirements, reimbursement requirements, periodic examinations by government agencies, federal and state anti-fraud, anti-abuse and anti-kickback statutes and regulations, and federal and state laws prohibiting physician ownership or compensation arrangements with entities, including home health care agencies, to which they refer patients for home health care services. Health care providers are also subject to extensive documentation requirements of government agencies and industry participants, such as insurance companies and managed care companies. These regulations can affect the ability of the Company to collect its fees for services provided. There can be no assurance that the Company will be able to continue to obtain or maintain the required governmental approvals or licenses, obtain reimbursement for its services or avoid compliance or other problems under applicable laws and regulations. Home health care providers are subject to certificate of need laws in 22 jurisdictions. Some jurisdictions require home health care service providers to have a certificate of need in order to be licensed to provide home health care services, including Medicare and Medicaid services, and other jurisdictions require a certificate of need only to provide Medicare home health care services. Certificate of need laws restrict the types of care that may be provided and can limit or eliminate a company's ability to provide certain services, including home health care services, to establish or expand operations and to act as a Medicare or Medicaid provider. The process of obtaining a certificate of need can be costly and time consuming. The Company currently has no certificates of need, but offers certain services not restricted by certificate of need laws in some states which require certificates of need. Some states in which the Company does business and does not have a certificate are not currently granting additional certificates of need. Accordingly, such laws may render it more difficult for the Company to, or preclude the Company from, expanding the geographic scope of its home health care services. The federal and state governments have enacted in the past, and are expected to enact in the future, laws and regulations that affect the provision of, and reimbursement for, Medicare and Medicaid services by the 37 41 Company's Health Care Services Division. See "Risk Factors -- Possible Adverse Effect of Health Care Regulatory and Reimbursement Changes." New York State requires the approval by the Public Health Council of the New York State Department of Health ("NYPHC") of any change in "the controlling person" of an operator of a licensed health care services agency (an "LHCSA") or any transfer, assignment or other disposition of the stock or voting rights thereunder which results in the change of ownership or control of more than 10% of the stock or voting rights thereunder of the LHCSA. "Controlling person" includes a person who either directly or indirectly possesses the ability to direct or cause the direction of the actions, management or policies of a person, whether through the ownership of voting securities or voting rights by contract or otherwise, and includes a parent corporation which possesses or will possess the ability to direct or cause the direction of the actions, management or policies of the LHCSA corporation which is the licensed home health care agency. Control of an entity is presumed to exist if any person directly or indirectly owns, controls or holds the power to vote 10% or more of the voting securities of such entity. A person seeking to become a controlling person of an operator of an LHCSA must file an application for prior approval from NYPHC. The Company has two offices in New York State which are LHCSAs and which are Medicaid certified. Such offices accounted for less than 2% of the Company's revenues for the year ended December 31, 1995. If any person should become the owner or holder, or acquire control, of the right to vote 10% or more of the Common Stock, such person could not exercise control of the Company's LHCSAs until such ownership, control or holding has been approved by the NYPHC. The transactions culminating in the Company's initial public offering and this offering have not yet been obtained from the NYPHC, and the Company is currently engaged in settlement discussions with the NYPHC regarding non-compliance with the approval requirement in connection with the transactions culminating in the initial public offering. The Company similarly intends to seek approval of, and resolve any non-compliance issues related to, this offering. The Company believes that such approvals will be obtained and that any penalties resulting from such non-compliance will not have a material adverse effect on the Company's business, financial condition or results of operations. The Company is subject to various federal and state laws relating to franchising, principally the Federal Trade Commission's franchise rules and state franchise registration, disclosure, and relationship laws and state business opportunity laws. TRADEMARKS The Company maintains a number of trademarks, tradenames, service marks and other intangible rights, and licenses certain other proprietary rights in connection with its business. Certain proprietary rights relating to the Company's two divisions, including the trademarks Nursefinders and TempWorld, are licensed from the Company's former parent. See "Certain Transactions." The Company plans to file affidavits of use and incontestability at the proper time and will effect timely renewals, as appropriate, for the intangible rights it maintains. The Company is not currently aware of any infringing uses which would be likely to materially and adversely affect its use of these rights. PROPERTIES AND INSURANCE All of the Company's offices are leased under leases of relatively moderate duration (typically three to five years, with options to extend) containing customary terms and conditions. The Staffing Services Division offices are typically in higher quality office or industrial buildings, and occasionally in retail buildings. Health care services offices are typically in medical office buildings or parks. The Company's headquarters facilities and regional offices are in similar facilities. The Company's leases for Company-operated offices expire through 1999. Aggregate rent expense under these leases was $3.2 million for the year ending December 31, 1995, and the leases call for aggregate rents for the year ending December 31, 1996 of $2.9 million. See Note 13 of Notes to Consolidated Financial Statements. The Company maintains property, liability and other insurance against customary risks in amounts which it believes to be prudent, and self-insures for workers' compensation and certain medical benefits (subject, in each case, to excess insurance coverage for benefits above a specified limit). The Company offers health care insurance to permanent employees and to temporary employees who meet certain criteria. Prior to the Company's initial public offering, it operated under its former parent's program of insurance, including self- 38 42 insurance. The Company anticipates that the cost of maintaining comparable insurance coverage as an independent company will be substantially similar to the proportionate cost of insurance to its former parent. There can be no assurance that such costs will not exceed the costs of insuring the Company borne by its former parent that the Company's insurance coverage and self-insurance reserves will be sufficient to protect it from loss, damage or liability it may incur or that insurance coverage will continue to be available. LEGAL PROCEEDINGS The Company is a party to certain disputes and litigation relating to claims arising out of its operations in the ordinary course of business. Further, the Company periodically is subject to government audits and inspections. Management believes that matters presently pending will not in the aggregate have a material adverse effect on the Company. EMPLOYEES Temporary personnel are recruited through advertising in local and, to a lesser extent, national media, the Yellow Pages, and classified advertising. In addition, a substantial portion of new employees are obtained through referrals from other employees of the Company, clients, organizations and associations. The Company interviews, tests, checks references and evaluates the skills of applicants for temporary employment, utilizing systems and procedures developed and enhanced over the years by the Company and its predecessors. Additionally, Nursefinders verifies that all of its health care providers maintain current licenses. Temporary employees are employed by the Company on an as needed basis dependent upon client demand. Temporary employees are paid only for time they actually work. At March 31, 1996, the Company had approximately 800 permanent employees, of whom 89 were Nursefinders billable staff who render temporary services to patients. During 1995, the Company and its licensees placed approximately 50,000 temporary employees with clients, of which approximately 10,000 were placed, on average, with clients at any given time. None of the Company's employees are covered by collective bargaining agreements. The Company believes that its relationships with its employees are good. For its permanent employees, the Company offers a package of benefits which it believes to be competitive, including vacation and holiday pay, health and dental insurance, life insurance, disability insurance, and a 401(k) plan to which it makes certain contributions. All employees of the Company are covered by workers' compensation and general liability insurance and by a fidelity bond. In addition, employees performing health care services are covered by professional medical liability insurance. The Company is responsible for and pays the employer's share of Social Security taxes, federal and state unemployment taxes, workers' compensation insurance and other similar costs relating to its temporary employees. The Company has a 401(k) plan in which temporary employees may participate, and temporary employees may receive vacation and holiday benefits scaled to services. As part of health care reform, federal and certain state legislative proposals have included provisions which would extend health insurance benefits to temporary employees who are not currently provided with such benefits. 39 43 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information as to the Company's executive officers and directors:
NAME AGE POSITION --------------------------------------- --- --------------------------------------- Edward P. Drudge, Jr................... 57 Chairman of the Board and Chief Executive Officer Michael P. Bernard..................... 41 Chief Financial Officer, Treasurer and Director Rosemary Payne-Harris.................. 44 Senior Vice President and Secretary Richard L. Peranton.................... 47 Senior Vice President Gene C. Wilson......................... 51 Senior Vice President Kevin P. Egan(1)....................... 52 Director J. Roger King(1)....................... 55 Director James V. Napier(1)(2).................. 59 Director William J. Simione, Jr.(2)............. 54 Director
- --------------- (1) Member of the Compensation and Bonus Committee. (2) Member of the Audit Committee. Edward P. Drudge, Jr.: Mr. Drudge is the Chairman of the Board and Chief Executive Officer of the Company and has served as such since the formation of the Company in July 1995. Prior to that time, Mr. Drudge was President of the Personnel Group of America Division of Adia, the Company's former parent, and Senior Vice President of Adia Services, Inc., having joined Adia in April 1989. Prior to joining Adia, Mr. Drudge held senior management positions with Manpower, Inc., a provider of personnel services, for 16 years, and prior to that, sales and marketing positions with Procter & Gamble. Michael P. Bernard: Mr. Bernard has been employed as the Chief Financial Officer and Treasurer of the Company since August 1995 and has served as a director of the Company since September 1995. From March 1993 until immediately prior to joining the Company, Mr. Bernard was with Coastal Physician Group, Inc. a physician practice management company, where he had served as Vice President, Controller and Chief Accounting Officer. From September 1992 through March 1993, Mr. Bernard served as Chief Financial Officer of American Threshold Industries, Inc., a manufacturer of non-woven disposable products, and for 14 years preceding that was employed by Ernst & Young LLP, a certified public accounting firm, most recently as a Senior Manager. Rosemary Payne-Harris: Ms. Payne-Harris is a Senior Vice President and the Secretary of the Company and has served as such since the formation of the Company in July 1995. Prior to that time, Ms. Payne-Harris was Vice President of Field Operations for the Personnel Group of America Division of Adia, having joined Adia in July 1990. Prior to joining Adia, Ms. Payne-Harris was with Manpower, Inc. for a total of eight years, with her most recent position being Area Manager overseeing 12 branch operations. Richard L. Peranton: Mr. Peranton is a Senior Vice President of the Company and has served as such since the formation of the Company in July 1995. He has been President of Nursefinders, Inc. (formerly a wholly-owned subsidiary of Adia and since 1995, a subsidiary of the Company) since April 1994 and has 15 years experience in the home health care industry. From 1982 until April 1994, he held several executive positions with Kimberly Quality Care, a provider of home health care services, including President of the Southeastern Division. Gene C. Wilson: Mr. Wilson is a Senior Vice President of the Company and has served as such since the formation of the Company in July 1995. Mr. Wilson also has been President of Thomas Staffing Services, Inc. (formerly a wholly-owned subsidiary of Adia and since 1995, a subsidiary of the Company) since 40 44 April 1991. Prior to joining Thomas Staffing Services, Inc., Mr. Wilson served from 1988 until 1991 as Executive Vice President and Chief Operating Officer at ChemLawn Services Corporation, a lawn care service company and from 1980 until 1988 as Vice President of the Pizza Hut Division of PepsiCo, Inc. Kevin P. Egan: Mr. Egan has served as a director of the Company since September 1995. Since October 1995, Mr. Egan has been the President of Tamarack Holdings, an investment company. From 1983 to September 1995, Mr. Egan served as President and Chief Operating Officer of PrimeNet DataSystems, St. Paul, Minnesota, a provider of database and integrated marketing services. Prior to forming PrimeNet in 1983, Mr. Egan was senior vice president of Manpower, Inc. from 1975 to 1983. Mr. Egan also previously held marketing and management positions with the Graphic Services Division, 3M Company and Transamerica Computer Co., London, England. J. Roger King: Mr. King has served as a director of the Company since September 1995. Since June 1995, Mr. King has served as Senior Vice President of Human Resources of the Frito-Lay Division of PepsiCo, Inc., and from February 1984 to June 1995 served as Senior Vice President of Personnel of PepsiCo, Inc. Mr. King joined PepsiCo's Frito-Lay Division in 1969 and has served in various personnel and employee relations positions for PepsiCo. James V. Napier: Mr. Napier has served as a director of the Company since September 1995. Since November 1992, Mr. Napier has been the Chairman of Scientific-Atlanta, Inc., a telecommunications company. Prior to that, Mr. Napier served as Chairman and Chief Executive Officer of The Commercial Telephone Group, a telecommunications engineering and design company, between 1988 and 1992, and as Chief Executive Officer and President of HBO & Company, Inc., a health care information services company, between 1985 and 1986. In addition to serving on the Board of Directors of Scientific-Atlanta, Mr. Napier is a director of Engelhard Corporation, Vulcan Materials Company, HBO & Company, Inc., Rhodes, Inc., Intelligent Systems Corporation and Westinghouse Air Brake Company. William J. Simione, Jr.: Mr. Simione has served as a director of the Company since September 1995. Mr. Simione is President of the Certified Public Accounting firm of Simione & Simione, which provides consulting and information services to the home health care industry. He is a member of the Fraud & Abuse Task Force, a Regulatory Affairs Subcommittee for the National Association for Home Care, and is one of their National Reimbursement Consultants. Mr. Simione is also a member of many state and federal committees involving home care issues. The Board of Directors is ultimately responsible for the management and policies of the Company. The Board of Directors establishes the principles of strategy, accounting, organization and financing to be used by the Company. The Board of Directors appoints the executive officers of the Company. The Company's Certificate of Incorporation and Bylaws provide for seven directors who are divided into three classes. The terms of the directors in the initial classes are being phased in over a three-year period, and after the expiration of the terms of these directors, newly elected directors will serve for a three-year term or until their successors are elected and qualified. Directors may be re-elected to successive terms. Messrs. Drudge, Napier and Simione have been appointed to Class III to serve until annual the meeting of stockholders in 1998. Messrs. Egan and King have been appointed to Class II to serve until the annual meeting of stockholders in 1997. Mr. Bernard, who initially was appointed to Class I to serve until the annual meeting of stockholders in 1996, was re-elected at the meeting to a term expiring at the 1999 annual meeting of stockholders or until his successor has been duly elected and qualified. The Board of Directors is actively seeking a director candidate to fill a vacancy on the Board created by the April 1, 1996 resignation of Ms. Joyce Mazero, a former Class I Director. Any director appointed to fill the vacancy on the Board will be designated a Class I director and will serve a term expiring at the 1999 annual meeting of stockholders, expected to be held in May 1999, or until a successor has been duly elected and qualified. The Board of Directors maintains an Audit Committee (the "Audit Committee") and a Compensation and Bonus Committee (the "Compensation Committee"), each of which consists entirely of non-employee directors. 41 45 The principal functions of the Audit Committee are to meet with appropriate financial and legal personnel and the independent public accountants of the Company and review the internal controls of the Company and the objectivity of its financial reporting. The Audit Committee recommends to the Board of Directors the appointment of the independent public accountants to serve as auditors in examining the corporate accounts of the Company. The independent public accountants periodically meet privately with the Audit Committee and have access to the Audit Committee at any time. The principal functions of the Compensation Committee are to review proposals regarding the establishment or change of benefit plans, salaries and compensation of the executive officers and other employees of the Company and advise management and make recommendations to the Board of Directors with respect thereto and administer the Company's incentive compensation plans. DIRECTOR COMPENSATION Each non-employee director receives an annual retainer of $7,500, and any such director who chairs a committee also receives an annual retainer of $1,000. In addition, non-employee directors receive meeting fees of $1,000 per board meeting attended and $500 per committee meeting attended, plus reimbursement of expenses. Each non-employee director receives, upon joining the Board of Directors, an initial option grant to purchase 6,250 shares of Common Stock at the then fair market value, an additional option grant to purchase 3,125 shares of Common Stock at the then fair market value in each of the next two years, and an annual option grant to purchase 1,500 shares of Common Stock at the then fair market value in each year thereafter that such director remains on the Board of Directors. All of such options will be granted under the Company's 1995 Equity Participation Plan. Officers of the Company who are also directors are not paid any director fees. See "Management -- Compensation Plans and Arrangements -- The 1995 Equity Participation Plan." EXECUTIVE COMPENSATION The following table sets forth information concerning the compensation for the fiscal years ended December 31, 1994 and 1995 for those persons who were, at December 31, 1995, the Chief Executive Officer and the Company's four other most highly compensated executive officers (the "Named Executive Officers"): SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ------------ AWARDS ANNUAL ------------ COMPENSATION(1) SECURITIES ------------------- UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS(#)(2) COMPENSATION(3) - --------------------------------- -------- -------- ------------ --------------- Edward P. Drudge, Jr. ........... 1995 $269,994 $296,535 178,572 $ 500(4) Chairman and Chief Executive 1994 243,750 230,750 -- 30,575(5) Officer Richard L. Peranton.............. 1995 205,691 133,333 26,786 -- Senior Vice President 1994 133,333 133,333 -- -- Gene C. Wilson................... 1995 162,500 149,894 26,786 -- Senior Vice President 1994 155,173 70,873 -- 14,605(5) Rosemary Payne-Harris............ 1995 106,750 75,174 26,786 483(4) Senior Vice President and 1994 92,175 61,331 -- 8,219(5) Secretary Michael P. Bernard............... 1995(6) 47,828 11,902 35,715 27,000(7) Chief Financial Officer and 1994 -- -- -- -- Treasurer
- --------------- (1) In accordance with the rules of the Securities and Exchange Commission, other annual compensation in the form of perquisites and other personal benefits have been omitted where the aggregate amount of such perquisites and other personal benefits constituted the lesser of $50,000 or 10% of the total annual salary and bonus for the Named Executive Officer for the fiscal year. 42 46 (2) Amounts represent shares of Common Stock issuable upon the exercise of options granted under the Company's 1995 Equity Participation Plan (the "1995 Plan"). Options with respect to 20% of such shares vested and became immediately exercisable on September 25, 1995, and an additional 20% will vest on each succeeding June 30 through 1999. See "-- Option Grants During Last Fiscal Year." (3) Non-qualified profit-sharing allocations for 1995 are not currently available. (4) Amounts represent employer matching contributions to individual retirement accounts. (5) Amounts represent non-qualified profit-sharing allocations for 1994. (6) Mr. Bernard did not join the Company until August 1995. (7) Amount represents reimbursement of moving expenses incurred by Mr. Bernard in connection with his employment as Chief Financial Officer and Treasurer of the Company. OPTION GRANTS DURING LAST FISCAL YEAR The following table sets forth certain information concerning grants of stock options to the Named Executive Officers during the year ended December 31, 1995. No stock appreciation rights were granted to those individuals during such year. OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS ------------------------------------------------ POTENTIAL REALIZABLE PERCENT OF VALUE NUMBER OF TOTAL AT ASSUMED ANNUAL RATES SECURITIES OPTIONS OF STOCK PRICE UNDERLYING GRANTED TO EXERCISE APPRECIATION OPTIONS EMPLOYEES OR BASE FOR OPTION TERM(1) GRANTED IN FISCAL PRICE EXPIRATION ----------------------- NAME (#)(2) YEAR ($/SH)(3) DATE 5% 10% - -------------------------------- ---------- ---------- --------- ---------- ---------- ---------- Edward P. Drudge, Jr............ 178,572 44.5% $ 14.00 9/25/05 $1,571,434 $3,983,941 Richard L. Peranton............. 26,786 6.7 14.00 9/25/05 253,717 597,596 Gene C. Wilson.................. 26,786 6.7 14.00 9/25/05 253,717 597,596 Rosemary Payne-Harris........... 26,786 6.7 14.00 9/25/05 253,717 597,596 Michael P. Bernard.............. 35,715 8.9 14.00 9/25/05 314,292 796,802
- --------------- (1) The 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by the rules of the Securities and Exchange Commission. There can be no assurance provided to the option holder or any other holder of the Company's securities that the actual stock price appreciation over the ten-year option term will be at the assumed 5% and 10% levels or any other defined level. (2) Amounts represent shares of Common Stock issuable upon the exercise of options granted to the Named Executive Officers on September 25, 1995 under the Company's 1995 Plan. Each option has a maximum term of ten years measured from the grant date. Such options vested as to 20% of the option shares on September 25, 1995, and will vest as to the balance of such option shares in a series of four equal installments on each of June 30, 1996, 1997, 1998 and 1999. Notwithstanding the vesting schedule, these options become immediately and fully exercisable upon the termination of the employee by the Company for reasons other than "cause" or upon the employee's leaving the Company for "good reason" (as defined in the employee's employment agreement). Moreover, the committee administering the 1995 Plan has the right, in its discretion, to accelerate the vesting schedule of these options, and may provide that such options become automatically vested in connection with certain significant events, including the merger, consolidation, liquidation or dissolution of the Company or the acquisition by another party of 80% of the Company's then outstanding voting stock. (3) The exercise price may be paid in cash or, in the discretion of the Compensation Committee and subject to certain conditions, in shares of the Company's Common Stock (including shares issuable upon exercise of the option) or other property valued at fair market value on the exercise date. The Company may also finance the option exercise price for the purchased shares. 43 47 AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES The following table sets forth certain information concerning option holdings for the year ended December 31, 1995 with respect to each of the Named Executive Officers. No stock options were exercised by the Named Executive Officers during such fiscal year.
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END($)(1) ------------------------------ --------------------------- NAME EXERCISABLE UNEXERCISABLE(2) EXERCISABLE UNEXERCISABLE - ---------------------------------------------- ----------- ---------------- ----------- ------------- Edward P. Drudge, Jr.......................... 35,714 142,858 $22,321 $89,286 Richard L. Peranton........................... 5,357 21,429 3,348 13,393 Gene C. Wilson................................ 5,357 21,429 3,348 13,393 Rosemary Payne-Harris......................... 5,357 21,429 3,348 13,393 Michael P. Bernard............................ 7,143 28,572 4,464 17,858
- --------------- (1) Represents the difference between the option exercise price and the closing price of the Company's Common Stock as reported on the NYSE on December 29, 1995. (2) Options with respect to approximately 25% of these options shares (or 20% of the aggregate number of option shares shown for the Named Executive Officer in the Exercisable and Unexercisable columns) will vest on June 30, 1996, and will vest as to the balance of such option shares in a series of three additional equal installments on each of June 30, 1997, 1998 and 1999. COMPENSATION PLANS AND ARRANGEMENTS Employment Agreements The Company has entered into an employment agreement with Mr. Drudge, dated as of September 29, 1995, which provides for his employment as Chief Executive Officer of the Company until September 30, 1998, subject to automatic renewal for successive one-year periods unless either the Company or Mr. Drudge has given notice of non-renewal six months prior to expiration. The employment agreement provides for (i) an annual base salary of $300,000 (subject to annual adjustment as determined by the Board of Directors), (ii) the right to earn bonuses under the Company's Management Incentive Compensation Plan, and (iii) the right under the Company's 1995 Plan to purchase $2,500,000 in shares of Common Stock at a price per share equal to $14.00, the initial public offering price, 20% of which options vested upon the consummation of the initial public offering, with an additional 20% vesting on each successive June 30 on which Mr. Drudge is employed by the Company. If the employment agreement is terminated by the Company other than for cause or by Mr. Drudge upon a change in terms and conditions of employment or following a change in control of the Company, the Company must pay Mr. Drudge severance equal to 24 months salary and accrued but unpaid bonus, and all unvested options to purchase Common Stock then held by Mr. Drudge become immediately exercisable. The employment agreement contains a provision prohibiting Mr. Drudge from competing with the Company or soliciting employees and customers of the Company for a period of two years from the date Mr. Drudge is no longer an employee of the Company. The Company has entered into an employment agreement with Mr. Bernard dated as of September 29, 1995, which provides for his employment as Chief Financial Officer and Treasurer of the Company until September 30, 1996, subject to automatic renewal for successive one-year periods unless either the Company or Mr. Bernard has given notice of non-renewal six months prior to expiration. The employment agreement provides for (i) an annual base salary of $125,000 (subject to annual adjustment as determined by the Board of Directors), (ii) the right to earn bonuses under the Company's Management Incentive Compensation Plan, and (iii) the right under the Company's 1995 Plan to purchase $500,000 in shares of the Company's Common Stock at a price per share equal to $14.00, the public offering price, 20% of which options vested upon the consummation of the initial public offering, with an additional 20% vesting on each successive June 30 on which Mr. Bernard is employed by the Company. If the employment agreement is terminated by the Company other than for cause or by Mr. Bernard upon a change in terms and conditions of employment or following a change in control of the Company, the Company must pay Mr. Bernard severance equal to six 44 48 months salary and accrued but unpaid bonus, and all unvested options to purchase Common Stock then held by Mr. Bernard become immediately exercisable. The employment agreement contains a provision prohibiting Mr. Bernard from competing with the Company or soliciting employees and customers of the Company for a period of two years from the date Mr. Bernard is no longer an employee of the Company. The Company has assumed the obligations of Nursefinders, Inc. under an employment agreement with Mr. Peranton, dated April 1, 1994, which provides for his employment as President of Nursefinders, Inc. The employment agreement provides for (i) an annual base salary of $205,800 (subject to annual adjustment), and (ii) the right to earn bonuses of up to 100% of this base salary based on the performance of Nursefinders. Under the employment agreement, Mr. Peranton must be given six months' notice of termination. In addition, if Nursefinders is sold during the first three years of Mr. Peranton's employment and Mr. Peranton elects not to be an employee of the acquiring company, the Company must pay Mr. Peranton severance equal to 12 months salary (not including bonus or benefits). The employment agreement contains a provision prohibiting Mr. Peranton from competing with the Company or soliciting employees and customers of the Company for a period of one year from the date Mr. Peranton is no longer an employee of the Company. The Company has assumed the obligations of Thomas Staffing Services, Inc. under an employment agreement with Mr. Wilson, dated April 22, 1991, which provides for his employment as President of Thomas Staffing Services, Inc. The employment agreement provides for (i) an annual base salary of $165,000 (subject to annual adjustment), and (ii) the right to earn bonuses of up to 100% of this base salary based on the performance of Thomas Staffing Services. If the employment agreement is terminated by the Company other than for cause, the Company must give Mr. Wilson ten week's prior notice or, alternatively, pay Mr. Wilson severance equal to ten week's salary (not including bonus or benefits). The employment agreement contains a provision prohibiting Mr. Wilson from competing with the Company or soliciting employees and customers of the Company for a period of one year from the date Mr. Wilson is no longer an employee of the Company. The Company has entered into an employment agreement with Ms. Payne-Harris, dated October 19, 1995, which provides for her employment as Senior Vice President and Secretary of the Company until October 31, 1996, subject to automatic renewal for successive one-year periods unless the Company or Ms. Payne-Harris has given notice of non-renewal six months prior to expiration. The employment agreement provides for (i) an annual base salary of $112,000 (subject to annual adjustment), (ii) the right to earn bonuses under the Company's Management Incentive Compensation Plan, and (iii) the right under the Company's 1995 Plan to purchase $375,000 in shares of the Company's Common Stock at a price per share equal to $14.00, the public offering price, 20% of which options vested upon the consummation of the initial public offering, with an additional 20% vesting on each successive June 30 on which Ms. Payne-Harris is employed by the Company. If the employment agreement is terminated by the Company other than for cause or by Ms. Payne-Harris upon a change in terms and conditions of employment or following a change in control of the Company, the Company must pay Ms. Payne-Harris severance equal to 12 months salary and accrued but unpaid bonus, and all unvested options to purchase Common Stock then held by Ms. Payne-Harris become immediately exercisable. The employment agreement contains a provision prohibiting Ms. Payne-Harris from competing with the Company or soliciting employees and customers of the Company for a period of two years from the date Ms. Payne-Harris is no longer an employee of the Company. Compensation Committee Interlocks and Insider Participation During the year ended December 31, 1995, no member of the Compensation Committee was an employee or officer, or former employee or officer, of the Company. Prior to the Company's initial public offering in September 1995, the Company did not have a compensation committee, and decisions concerning the compensation of executive officers were made by members of the executive management of the Company's former parent. Management Incentive Compensation Plan Under the Company's annual bonus plan (the "Management Incentive Compensation Plan"), selected key employees, including executive officers, are eligible to receive bonus payments. The Management 45 49 Incentive Compensation Plan is intended to provide an incentive for superior work and to motivate eligible employees toward even higher achievement and business results, to tie their goals and interests to those of the Company and its stockholders and to enable the Company to attract and retain highly qualified employees. An eligible employee may receive a bonus payment based upon the attainment of performance objectives established by the Compensation Committee and related to one or more of the following corporate business criteria: pre-tax income, operating income, cash flow, earnings per share, return on equity, return on invested capital or assets, cost reductions and savings, return on revenues, collection of accounts receivable or productivity. The Management Incentive Compensation Plan provides that the maximum bonus for an eligible employee is equal to the lesser of 100% of the eligible employee's annual base salary for the performance period or $500,000 with respect to any fiscal year of the Company. The Management Incentive Compensation Plan is designed to ensure that the annual bonus paid thereunder to eligible employees of the Company is deductible by the Company without limit under Section 162(m) of the Internal Revenue Code. Section 162(m), which was added to the Code in 1993, places a limit of $1 million, subject to certain exceptions, on the amount of compensation that may be deducted by the Company in any tax year with respect to the chief executive officer and each of the Company's four most highly paid executives. 1995 Equity Participation Plan The 1995 Plan was adopted to attract and retain officers, key employees, consultants and directors. An aggregate of 1,200,000 shares of the Common Stock (or their equivalent in other equity securities), subject to adjustment for stock splits, stock dividends and certain other types of recapitalizations, has been authorized for issuance upon exercise of options, stock appreciation rights ("SARs"), and other awards, or as restricted or deferred stock awards under the 1995 Plan. The maximum number of shares which may be subject to options or SARs granted under the 1995 Plan to any individual in any calendar year cannot exceed 200,000. The Compensation Committee generally administers the 1995 Plan and determines the persons to whom options, SARs, restricted stock and other awards are to be granted and the terms and conditions, including the number of shares and the period of exercisability, thereof; provided, however, that the Board, acting by a majority, administers the 1995 Plan with respect to formula-based option grants to non-employee directors. Options, SARs, restricted stock and other awards under the 1995 Plan may be granted to individuals who are then officers or other employees of the Company or any of its present or future subsidiaries and who are determined by the Committee to be key employees. Such awards also may be granted to consultants of the Company selected by the Committee for participation in the 1995 Plan. Approximately 100 officers and other employees are eligible to participate in the 1995 Plan. The 1995 Plan authorizes the grant or issuance of various options and other awards to employees and consultants, and the terms of each such option or award will be set forth in separate agreements. In addition, non-employee directors (including the directors who administer the plan) are eligible to receive non- discretionary grants of nonqualified stock options ("NQSOs") under the Incentive Plan pursuant to a formula. Pursuant to such formula, each of the Company's nonemployee directors receive, upon being elected to the Board of Directors, a grant of NQSOs to purchase 6,250 shares of the Common Stock at the then fair market value of the Common Stock; thereafter, each non-employee director receives annual grants of options to purchase 3,125 shares of Common Stock in each of the two succeeding years and thereafter an annual grant of options to purchase 1,500 shares, in each case on the date of the Company's stockholders' meeting at which such non-employee director is reelected and with an exercise price equal to the fair market value of the Common Stock on the date of the grant. NQSOs may be granted to an employee or consultant for any term specified by the Compensation Committee and will provide for the right to purchase Common Stock at a specified price which, except with respect to NQSOs intended to qualify as performance-based compensation under Section 162(m) of the Code, may be less than fair market value on the date of grant (but not less than par value), and may become exercisable (in the discretion of the Compensation Committee) in one or more installments after the grant date. Of the NQSOs granted to non-employee directors, 100% shall be fully vested and exercisable upon grant and the term of each such option shall be ten years. Subject to expiration 90 days after the director ceases to serve as a director, except upon the director's retirement in accordance with the 46 50 Company's retirement policy applicable to directors. Incentive stock options may be granted only to employees, and if granted, will be designed to comply with the provisions of the Code and will be subject to restrictions contained in the Code, including having an exercise price equal to at least 100% of fair market value of Common Stock on the grant date and a ten year restriction on their term, but may be subsequently modified to disqualify them from treatment as an incentive stock option. SARs may be granted to employees and consultants and may be granted in connection and simultaneously with the grant of an option, with respect to a previously granted option or independent of an option. Participants may receive dividend equivalents representing the value of the dividends per share paid by the Company, calculated with reference to the number of shares covered by the stock options, SARs or performance awards held by the participant. Performance awards may be granted by the Compensation Committee to employees and consultants and may include bonus or "phantom" stock awards that provide for payments based upon increases in the price of the Common Stock over a predetermined period. Restricted stock may be sold to employees and consultants at various prices (but not below par value) and made subject to such restrictions as may be determined by the Compensation Committee. Deferred stock may be awarded to employees and consultants, typically without payment of consideration, but subject to vesting conditions based on continued employment or on performance criteria established by the Compensation Committee. Whereas purchasers of restricted stock will have voting rights and will receive dividends prior to the time when the restrictions lapse, recipients of deferred stock generally will have no voting or dividend rights prior to the time when vesting conditions are satisfied. Stock awards may be made to employees and consultants and the number of shares shall be determined by the Compensation Committee and may be based upon the fair market value, book value, net profits or other measure of the value of Common Stock or other specific performance criteria. The exercise or purchase price for all options, SARs, restricted stock and other rights to acquire Common Stock, together with any applicable tax required to be withheld, may be in cash or at the discretion of the Compensation Committee (or the Board, in the case of NQSOs granted to non-employee directors), with shares of Common Stock owned by the optionee (or issuable upon exercise of the option) or with other lawful consideration, including services rendered. The dates on which options or other awards under the 1995 Plan first become exercisable and on which they expire will be set forth in individual stock options or other agreements setting forth the terms of the awards. Such agreements generally will provide that options and other awards expire upon termination of the optionee's status as an employee or consultant, although the Committee may provide that such options continue to be exercisable following a termination without cause, or following a change in control of the Company, or because of the grantee's retirement, death, disability or otherwise. Similarly, restricted stock granted under the 1995 Plan which has not vested generally will be subject to repurchase by the Company in the event of the grantee's termination of employment or consultancy, although the Committee may make exceptions, based on the reason for termination or on other factors, in the terms of an individual restricted stock agreement. No restricted stock, deferred stock, option, SAR or other right to acquire Common Stock granted under the 1995 Plan may be assigned or transferred by the grantee, except by will or the laws of intestate succession, although such shares or the shares underlying such rights may be transferred if all applicable restrictions have lapsed. During the lifetime of the holder of any option or right, the option or right may be exercised only by the holder. The shares subject to stock options, SARs or other awards which have terminated or lapsed unexercised or which have been cancelled upon grant of a new option, SAR or other award, and shares which are withheld by the Company upon the exercise of stock options or other awards in payment of the exercise price thereof, will continue to be available for issuance under the 1995 Plan. The Compensation Committee has the right to accelerate, in whole or in part, from time to time, conditionally or unconditionally, the right to exercise any option or other award granted under the 1995 Plan; provided, however, such acceleration shall not be permitted with respect to NQSOs granted to non-employee directors. 47 51 Amendments of the 1995 Plan to increase the number of shares as to which options, SARs, restricted stock and other awards may be granted (except for adjustments resulting from stock splits and the like) require the approval of the Company's stockholders. The provisions of the 1995 Plan relating to options granted to non-employee directors shall not be amended more than once in any six-month period other than to comport with changes in the Code, the Employee Retirement Income Security Act, or the respective rules thereunder. In all other respects the 1995 Plan can be amended, modified, suspended or terminated by the Compensation Committee, unless such action would otherwise require stockholder approval as a matter of applicable law, regulation or rule. Amendments of the 1995 Plan will not, without the consent of the participant, affect such person's rights under an award previously granted, unless the award itself otherwise expressly so provides. The 1995 Plan terminates 10 years from the date it is adopted by the Company's Board of Directors. During the year ended December 31, 1995, the Company granted options under the 1995 Plan to purchase an aggregate of 432,703 shares of Common Stock, of which options with respect to 123,326 shares are currently exercisable, and options with respect to an additional 58,929 shares will vest on June 30, 1996. The Company intends for the compensation awarded under the 1995 Plan to comply with the requirements of the "performance-based" compensation exception to the $1 million deductibility limit under Section 162(m), including option pricing requirements and requirements governing the administration of the 1995 Plan, so that the deductibility of compensation paid to top executives thereunder is not expected to be disallowed. 401(k) Plan All employees of the Company who are not "highly compensated employees" as defined in Section 414(q) of the Code may elect to participate in the Company's 401(k) Plan (the "401(k) Plan") after satisfying the 401(k) Plan's eligibility requirements. Each employee who is employed by the Company for one year and completes 1,000 hours of service is eligible to participate. Participating employees may make contributions by electing to reduce their cash compensation up to a maximum of $9,240 in 1995, and have the amount of that reduction contributed to an account for them under the 401(k) Plan. The Company will make matching contributions equal to $0.25 per each $1.00 of employee contribution up to a maximum matching contribution of $500 per year per employee. The Company also may make additional profit sharing contributions determined in its discretion taking financial results into consideration. Employees are always fully vested as to employee contributions and Company matching contributions and become fully vested as to Company profit sharing contributions, if any, based on their number of years of service with the Company and the Company's former parent. The purpose of the 401(k) Plan is to enable participating employees to save for their retirement through a program of employer and employee contributions. The 401(k) Plan is a qualified plan under Section 401 of the Code. Employee contributions are before-tax contributions. Nonqualified Profit Sharing Plan Certain employees who are excluded from participating in the 401(k) Plan because of being classified as "highly compensated employees" under the Code and who complete one year and 1,000 hours of service are eligible to participate in the Company's Nonqualified Profit Sharing Plan. At the discretion of the Board of Directors, the Company may, but is not required to, make contributions under the plan, generally based on the profitability of the Company. The amount of any such contribution allocated to each participant's account is based on a formula specified by the Board of Directors, or if no formula is specified by the Board of Directors, a formula which allocates the contribution approximately proportionate to the participant's compensation compared to the total compensation of all participants. Participants generally become fully vested in their accounts based on their number of years of service with the Company and the Company's former parent. 48 52 LIMITATION OF LIABILITY AND INDEMNIFICATION The Company's Certificate of Incorporation provides that, to the extent permitted by Delaware law, each director shall not be liable for monetary damages for breach of such director's fiduciary duty as a director to the Company and its stockholders. In addition, the Company's Bylaws provide that the Company will indemnify its directors and officers, and may indemnify its employees and agents, against losses incurred by any such person by reason of the fact that such person was acting in such capacity. The Company maintains insurance for the benefit of its directors and officers insuring against all liabilities that may be incurred by such director or officer in or arising out of his capacity as a director, officer, employee or agent of the Company. The Company has entered into indemnification agreements with its officers and directors. See "Description of Capital Stock -- Limitation of Liability and Indemnification Agreements." CERTAIN TRANSACTIONS The Company was organized in 1995 in a series of transactions culminating in an initial public offering (the "IPO") of 100% of the Common Stock by Adia, the Company's former parent. Adia organized the Company in July 1995 and transferred to the Company the subsidiaries and divisions comprising the Staffing Services and Health Care Services Divisions of the Company, which Adia had owned and operated for many years. The net assets transferred to the Company by Adia had a book value at June 30, 1995 of $73,888,000. In exchange for the transfer of these assets, Adia received 8,000,000 shares, or 100%, of the Common Stock. Adia subsequently sold all 8,000,000 shares of the Common Stock in the IPO at $14.00 per share, which offering was consummated in September 1995. Net proceeds of the IPO to Adia were approximately $103,280,000. The Company received no proceeds from the IPO. The Company licenses certain proprietary rights, including the Nursefinders and TempWorld trademarks and certain related customer lists, employee lists, covenants not to compete and other rights and obligations, from Adia. Aggregate annual fees under the licenses are $10,000. The licenses are perpetual, subject to the right of Adia to cause the Company to purchase, at any time after September 25, 1995, the intangible assets for an aggregate price of $100,000, which price decreases annually over five years to a minimum aggregate price of $65,000. In addition, the Company has entered into (i) certain service agreements with Adia, effective as of the consummation of the IPO, pursuant to which Adia will provide certain accounting, finance, human resources and risk management services to the Company for up to one year following the consummation of the IPO for a monthly fee of $21,167, and certain paybill services for two years following the consummation of the IPO, with an option for an additional year, for a monthly fee equal to the greater of $1.86 per timecard processed or $10,000 and (ii) a license agreement pursuant to which Adia has licensed to the Company the software used in the QuestPLUS system for two years following the consummation of the IPO, with an option for an additional year, for an initial monthly fee of $13,583, increasing 5% annually. The Company may terminate any of these agreements at any time upon 30 days' prior notice. The Company has recently engaged third party vendors to develop an accounting and financial information system and a branch operating and paybill system, including software to replace the software currently licensed from Adia for use in the QuestPLUS system. The Company believes that the term of these agreements with Adia are no less favorable to the Company than terms available from a third party, but intends to continue to sever its dependence on Adia. For purposes of enabling Nursefinders to sell franchises and licenses without obtaining separately audited financial statements for Nursefinders, Adia guaranteed the performance of Nursefinders' obligations as franchisor/licensor under its franchise/license agreements. The Company has obtained novations pursuant to which it has assumed, and Adia has been released from, the obligations under such guaranty with respect to certain of such agreements effective as of the consummation of the IPO. Since the consummation of the IPO, Adia no longer guarantees Nursefinders' obligations to new franchisees or licensees. Adia's obligations under its guaranty with respect to certain of the Nursefinders' franchise agreements, however, remain in effect. Pursuant to an indemnification agreement between the Company and Adia, the Company has agreed to indemnify Adia against certain expenses or losses which may be incurred by Adia or its respective affiliates arising from the conduct of the Company's business, including any losses it may incur in connection with such 49 53 guaranty. Adia received no specific consideration from the Company or Nursefinders or its franchisees for its guaranty. In addition, the Company and Adia are parties to an income tax sharing agreement pursuant to which, with respect to any taxable period of the Company that ended on the date of the consummation of the IPO, and with respect to any taxable period of the Company that began before and ended after the consummation of the IPO (such period, a "Straddle Period"), the Company will generally be obligated to reimburse Adia for the Company's share of federal, state, local and foreign income taxes incurred by Adia with respect to such period (or, in the case of a Straddle Period, the portion of such Straddle Period beginning on the first day of such taxable period and ending on the date of consummation of the IPO). Except as provided above, Adia will generally be liable for income taxes of the Company for any taxable period that ended on or before the date of the consummation of the IPO, and the Company will be liable for income taxes for any period that ended after the consummation of the IPO. During fiscal 1995, certain executive officers of the Company, Edward P. Drudge, Jr., Gene C. Wilson and Rosemary Payne-Harris, received certain income attributable to the exercise of options to purchase Adia common stock and the subsequent sale of such stock. Such options, which consisted of both options intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code and options not intended to qualify as incentive stock options, were granted to these persons in their capacity as employees of Adia as incentive compensation for periods of service prior to the formation of the Company. The income recognized from the exercise of such options was as follows: Mr. Drudge -- $637,935; Mr. Wilson -- $211,937; Ms. Payne-Harris -- $88,061. 50 54 PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding beneficial ownership of the Common Stock as of May 20, 1996, and as adjusted to give effect to the sale of 3,500,000 shares of Common Stock offered by the Company in this offering, by (i) each person who owns beneficially more than five percent of the Common Stock, (ii) each of the Company's directors and director nominees, (iii) each of the Company's Named Executive Officers and (iv) all executive officers and directors as a group. Except as otherwise indicated, the persons named in the table have sole voting and investment power with respect to all shares beneficially owned, subject to community property laws where applicable.
SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED PRIOR TO OWNED AFTER THE OFFERING THE OFFERING -------------------- -------------------- NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT(1) NUMBER PERCENT(1) - ---------------------------------------------------------------- ------- ---------- ------- ---------- RCM Capital Management RCM Limited L.P. RCM General Corporation(2)(3)................................... 792,000 9.9% 792,000 6.9% Four Embarcadero Center, Suite 3000 San Francisco, California 94111-4189 Metropolitan Life Insurance Company(2)(4)....................... 663,500 8.3 663,500 5.8 One Madison Avenue New York, New York 10010-3690 State Street Research & Management Company(2)(5)................ 663,500 8.3 663,500 5.8 One Financial Center, 30th Floor Boston, Massachusetts 02111-2690 Edward P. Drudge, Jr.(6)........................................ 88,828 1.1 88,828 * Kevin P. Egan(7)................................................ 13,375 * 13,375 * James V. Napier(7).............................................. 11,875 * 11,875 * Michael P. Bernard(8)........................................... 14,486 * 14,486 * J. Roger King(7)................................................ 9,975 * 9,975 * William J. Simione, Jr.(9)...................................... 9,375 * 9,375 * Rosemary Payne-Harris(10)....................................... 11,816 * 11,816 * Richard L. Peranton(9).......................................... 10,716 * 10,716 * Gene C. Wilson(9)............................................... 10,716 * 10,716 * All directors and executive officers as a group (10 executive persons)(11).................................................. 181,162 2.2 181,162 1.6
- --------------- * Less than 1%. (1) Assumes no exercise of the Underwriters' over-allotment option. Shares of Common Stock that are not outstanding but that may be acquired by a person upon exercise of options within 60 days of May 20, 1996 are deemed outstanding for the purpose of computing the percentage of outstanding shares beneficially owned by such person, but are not deemed outstanding for the purpose of computing the percentage of outstanding shares beneficially owned by any other person. (2) The amount and nature of the shares beneficially owned are as of December 31, 1995 and are based on the most recent Schedule 13G on file with the Company. (3) Includes 682,000 shares with respect to which sole voting power is reported. (4) These shares are also reported as beneficially owned by State Street Research & Management Company, a subsidiary of Metropolitan Life Insurance Company. Includes 649,600 shares with respect to which sole voting power is reported. (5) These shares are also reported as beneficially owned by Metropolitan Life Insurance Company. Includes 649,600 shares with respect to which sole voting power is reported. State Street Research & Management Company disclaims beneficial ownership of all shares reported. (6) Includes 71,428 shares issuable upon the exercise of options exercisable within 60 days of May 20, 1996 and 1,000 shares owned by Mr. Drudge's sons over which he disclaims beneficial ownership. (7) Includes 9,375 shares issuable upon the exercise of options exercisable within 60 days of May 20, 1996. (8) Includes 14,286 shares issuable upon the exercise of options exercisable within 60 days of May 20, 1996. (9) Represents shares issuable upon the exercise of options exercisable within 60 days of May 20, 1996. (10) Includes 10,716 shares issuable upon the exercise of options exercisable within 60 days of May 20, 1996 and 1,100 shares over which Ms. Payne-Harris shares voting and investment power with her husband. (11) Includes 155,362 shares issuable upon the exercise of options exercisable within 60 days of May 20, 1996. 51 55 DESCRIPTION OF CAPITAL STOCK The following description of the Company's capital stock does not purport to be complete and is subject in all respects to applicable Delaware law and to the provisions of the Company's Certificate of Incorporation, Bylaws and Rights Agreement (as defined below), copies of which have been filed as exhibits to the Registration Statement of which this Prospectus is a part. The authorized capital stock of the Company consists of 20,000,000 shares of Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred Stock, par value $.01 per share. Immediately following the completion of this offering an aggregate of 11,500,300 shares of Common Stock will be issued and outstanding, and no shares of Preferred Stock will be issued or outstanding. The Company has reserved an aggregate of 1,200,000 shares of Common Stock for issuance under the 1995 Plan, and options with respect to 437,403 such shares were issued and outstanding at May 20, 1996. COMMON STOCK Holders of the Common Stock are entitled to one vote per share on all matters to be voted upon by the stockholders. Holders of Common Stock do not have cumulative voting rights, and therefore holders of a majority of the shares voting for the election of directors can elect all of the directors. In such event, the holders of the remaining shares will not be able to elect any directors. Holders of the Common Stock are entitled to receive such dividends as may be declared from time to time by the Board of Directors out of funds legally available therefor. The Company does not anticipate paying cash dividends in the foreseeable future. See "Dividend Policy." In the event of the liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities. Holders of Common Stock have no preemptive, conversion or redemption rights and are not subject to further calls or assessments by the Company. All of the outstanding shares of Common Stock are, and the shares offered by the Company hereby will be, if issued, validly issued, fully paid and nonassessable. The Transfer Agent and Registrar for the Common Stock is The First National Bank of Boston. PREFERRED STOCK The Company's Board of Directors is authorized to issue from time to time, without stockholder authorization, in one or more designated series, any or all of the authorized but unissued shares of Preferred Stock with such dividend, redemption, conversion and exchange provisions as may be provided in the particular series. Any series of Preferred Stock may possess voting, dividend, liquidation and redemption rights superior to that of the Common Stock. The rights of the holders of Common Stock will be subject to and may be adversely affected by the rights of the holders of any Preferred Stock that may be issued in the future. Issuance of a new series of Preferred Stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of entrenching the Company's Board of Directors and making it more difficult for a third party to acquire, or discouraging a third party from acquiring, a majority of the outstanding voting stock of the Company. Although the Company has no present plans to issue any series of Preferred Stock, the Company's Board of Directors, in connection with the adoption of the stockholder rights plan described below, has pre-approved the terms of a series of Preferred Stock which may be issued upon the occurrence of certain triggering events. STOCKHOLDER RIGHTS PLAN On February 6, 1996, the Company's Board of Directors declared a dividend (the "Rights Dividend"), payable February 27, 1996, of one right (a "Right") for each outstanding share of the Company's Common Stock held of record at the close of business on February 27, 1996. The Rights were issued pursuant to a Rights Agreement, dated as of February 6, 1996 (the "Rights Agreement"), between the Company and The First National Bank of Boston, as Rights Agent. Each Right entitles the holder to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock (the "Junior Participating 52 56 Preferred") for an exercise price of $95.00, subject to adjustment. Each one one-hundredth of a share of Junior Participating Preferred, which will be created upon the occurrence of certain triggering events, is designed to have economic and voting terms similar to those of one share of Common Stock. The Rights will expire on the earliest of (i) the declaration by the Board of Directors of an exchange of Rights for Common Stock, as described below, (ii) the close of business on February 6, 2006 or (iii) the date on which the Rights are redeemed or terminated, as described below. The Rights will be evidenced by the Company's Common Stock certificates, and no separate certificates representing the Rights will be distributed until such time as the Rights separate from the Common Stock. In general, the Rights will separate from the Common Stock and become exercisable upon the date (the "Distribution Date") that is the earlier of (i) the tenth day (the "Flip-in Date") following a public announcement that any person or group of affiliated or associated persons other than the Company and certain Company-related entities (an "Acquiring Person"), with certain exceptions, has acquired beneficial ownership of 15% or more of the outstanding Common Stock or (ii) the tenth business day (or such later date as may be determined by the Board of Directors prior to the Distribution Date that otherwise would have occurred) following the date on which an Acquiring Person commences a tender or exchange offer that, if consummated, would result in such Acquiring Person becoming the beneficial owner of 15% or more of the Company's outstanding Common Stock. After the Distribution Date, each holder of a Right, other than Rights beneficially owned by the Acquiring Person (which thereupon become void), will have the right to receive upon exercise of a Right, at the then current exercise price of the Right, that number of shares of Common Stock having a market value of two times the exercise price of the Right. In addition, the Board of Directors has certain rights to redeem, terminate or exchange the Rights for Common Stock. At any time prior to the close of business on a Flip-in Date, the Board of Directors may, at its option, redeem all of the then outstanding Rights at a price of $.01 per Right. The Board may generally amend the Rights in any respect prior to a Flip-in Date, and may thereafter amend Rights in any respect not materially adverse to the Rights holders generally. At any time after a Flip-in Date and prior to the time an Acquiring Person becomes the beneficial owner of more than 50% of the outstanding Common Stock, the Board may elect to exchange all Rights for Common Stock at the rate of one share of Common Stock (or one one-hundredth of a share of the Junior Participating Preferred, or shares of a class or series of the Company's Preferred Stock having equivalent rights, preferences and privileges) per Right. Until a Right is exercised, the holder of the Right, as such, will have no rights as a stockholder of the Company, including without limitation the right to vote or receive dividends. The issuance of the Rights could have the effect of making it more difficult for a third party to acquire, or discourage a third party from acquiring, a majority or substantial minority interest in the Common Stock of the Company. CERTAIN PROVISIONS OF DELAWARE LAW The Company is a Delaware corporation and is subject to Section 203 of the Delaware General Corporation Law (the "Delaware Law"). In general, Section 203 prevents an "interested stockholder" (defined generally as a person owning 15% or more of a corporation's outstanding voting stock) from engaging in a "business combination" (as defined) with a Delaware corporation for three years following the date such person became an interested stockholder unless (i) before such person became an interested stockholder, the board of directors of the corporation approved the transaction in which the interested stockholder became an interested stockholder or approved the business combination, (ii) upon consummation of the transaction that resulted in the interested stockholder becoming an interested stockholder, the interested stockholder owns at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding shares owned by persons who are both officers and directors of the corporation and shares held by certain employee stock ownership plans), or (iii) following the transaction in which such person became an interested stockholder, the business combination is approved by the board of directors of the corporation and authorized at a meeting of stockholders by the affirmative vote of the holders of at least two-thirds of the outstanding voting stock of the corporation not owned by the interested stockholder. 53 57 CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION AND BYLAWS AFFECTING STOCKHOLDERS The Company's Certificate of Incorporation provides for a classified Board of Directors consisting of three classes as nearly equal in size as practicable. Each class will hold office until the third annual meeting for election of directors following the election of such class; provided, however, that the current terms of the directors in the second and third classes of the Board will expire in 1997 and 1998, respectively. A majority vote of the stockholders is required to alter, amend or repeal the foregoing provisions. The classification of the Board of Directors may discourage a third party from making a tender offer or otherwise attempting to gain control of the Company and may maintain the incumbency of the Board of Directors. The Company's Certificate of Incorporation also requires that any action required or permitted by stockholders must be effected at a duly called annual or special meeting of stockholders and may not be effected by written consent. The Company's Bylaws set forth an advance notice procedure with regard to stockholder nominations and business to be brought before a meeting of stockholders. LIMITATION OF LIABILITY AND INDEMNIFICATION AGREEMENTS The Company's Certificate of Incorporation provides that to the fullest extent permitted by Delaware law, a director of the Company shall not be liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director. Under current Delaware law, liability of a director may not be limited (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) in respect of certain unlawful dividend payments or stock redemptions or repurchases, and (iv) for any transaction from which the director derives an improper personal benefit. The effect of this provision of the Company's Certificate of Incorporation is to eliminate the rights of the Company and its stockholders (through stockholders' derivative suits on behalf of the Company) to recover monetary damages against a director for breach of the fiduciary duty of care as a director (including breaches resulting from negligent or grossly negligent behavior), except in the situations described in clauses (i) through (iv) above. This provision does not limit or eliminate the rights of the Company or any stockholder to seek nonmonetary relief such as an injunction or rescission in the event of a breach of a director's duty of care. In addition, the Company's Bylaws provide that the Company shall indemnify its directors and officers, and may indemnify employees and agents, against losses incurred by any such person by reason of the fact that such person was acting in such capacity. The Company has entered into agreements (the "Indemnification Agreements") with each of the directors and officers of the Company pursuant to which the Company has agreed to indemnify such director or officer for any damages, judgments, fines, expenses, costs, penalties or amounts paid in settlement in connection with any claim, action, suit or proceeding in which such director or officer is involved as a party or otherwise by reason of the fact that he is or was a director or officer of the Company or any other corporation or other entity of which served as a director or officer at the request of the Company to the maximum extent permitted by applicable law. In addition, such director or officer is entitled to an advance of expenses to the maximum extent authorized or permitted by law. To the extent that the Board of Directors or the stockholders of the Company may in the future wish to limit or repeal the ability of the Company to provide indemnification as set forth in the Company's Bylaws, such repeal or limitation may not be effective as to directors and officers who are parties to the Indemnification Agreements, because their rights to full protection would be contractually assured by the Indemnification Agreements. It is anticipated that similar contracts may be entered into, from time to time, with future directors and officers of the Company. 54 58 UNDERWRITING The U.S. Underwriters named below, acting through PaineWebber Incorporated, Smith Barney Inc., J.C. Bradford & Co., and The Robinson-Humphrey Company, Inc., as Representatives (the "Representatives"), have severally agreed, subject to the terms and conditions set forth in the U.S. Underwriting Agreement by and between the Company and the Representatives (the "U.S. Underwriting Agreement"), to purchase from the Company, and the Company has agreed to sell to the Underwriters, the number of shares of Common Stock set forth opposite their respective names below:
NUMBER U.S. UNDERWRITERS OF SHARES -------------------------------------------------------------------------- --------- PaineWebber Incorporated.................................................. Smith Barney Inc.......................................................... J.C. Bradford & Co........................................................ The Robinson-Humphrey Company, Inc........................................ --------- Total........................................................... 2,800,000 ========
In addition, the International Underwriters (together with the U.S. Underwriters, the "Underwriters"), in a concurrent offering of the Common Stock to persons other than U.S. or Canadian Persons (as defined below), acting through PaineWebber International (U.K.) Ltd., Smith Barney Inc., J.C. Bradford & Co. and The Robinson-Humphrey Company, Inc., as International Representatives (the "International Representatives"), have severally agreed, subject to the terms and conditions set forth in the International Underwriting Agreement by and between the Company and the International Representatives (the "International Underwriting Agreement"), to purchase from the Company and the Company has agreed to sell to the International Underwriters, 700,000 shares of Common Stock. The U.S. Underwriting Agreement provides that the obligation of the U.S. Underwriters to purchase all of the shares of Common Stock is subject to certain conditions. The U.S. Underwriters are committed to purchase, and the Company is obligated to sell, all the shares of Common Stock offered by this Prospectus, if any of the shares of Common Stock being sold pursuant to the U.S. Underwriting Agreement are purchased. The offering price and underwriting discounts and commissions under both underwriting agreements are identical. In general, the closing with respect to the sale of the shares of Common Stock pursuant to the U.S. Underwriting Agreement is a condition to the closing with respect to the sale of the shares of Common Stock pursuant to the International Underwriting Agreement and vice versa. PaineWebber International (U.K.) Ltd. is an affiliate of PaineWebber Incorporated. The Company has been advised by the Representatives that the U.S. Underwriters propose to offer the Common Stock to the public initially at the public offering price set forth on the cover page of this Prospectus, and to certain dealers at such price less a concession not in excess of $ per share. The U.S. Underwriters may allow, and such dealers may allow, a discount not in excess of $ per share to other dealers. After the shares of Common Stock are released for sale to the public, the public offering price and the concession and discount to dealers may be changed by the Representatives. Each U.S. Underwriter has agreed that, as part of the distribution of the shares of Common Stock, (i) it is not purchasing any shares of Common Stock for the account of anyone other than a U.S. or Canadian Person (as defined below), and (ii) it has not offered or sold, and will not offer or sell, directly or indirectly, any shares of Common Stock or distribute this Prospectus to any person outside the United States or Canada or to anyone other than a U.S. or Canadian Person. Each International Underwriter has agreed that, as part of the distribution of shares of Common Stock, (i) it is not purchasing any shares of Common Stock for the account of any U.S. or Canadian Person, and (ii) it has not offered or sold, and will not offer or sell, directly or indirectly, any shares of Common Stock or distribute the International Prospectus to any person within the United States or Canada or to any U.S. or Canadian Person. The foregoing limitations do not apply to stabilization transactions or to certain other transactions specified in the Agreement Between U.S. and International Underwriters described below. As used herein, "U.S. or Canadian Person" means any individual who is resident in the United States or Canada, or any corporation, pension, profit-sharing or other trust or 55 59 other entity organized under or governed by the laws of the United States or Canada or any political subdivision thereof (other than a foreign branch of any U.S. or Canadian Person), and includes any U.S. or Canadian branch of a non-U.S. or Canadian Person. The Underwriters have entered into an Agreement Between U.S. and International Underwriters that provides for the coordination of their activities. Pursuant to the Agreement Between U.S. and International Underwriters, sales may be made between the U.S. Underwriters and the International Underwriters of such number of shares of Common Stock as may be mutually agreed upon. The per share price of any shares so sold shall be the public offering price set forth on the cover page of this Prospectus, less an amount not greater than the per share amount of the concession to dealers set forth above. To the extent there are sales between the U.S. Underwriters and the International Underwriters, the number of shares of Common Stock initially available for sale by the U.S. Underwriters or by the International Underwriters may be more or less than the amount appearing on the cover page of this Prospectus. The Company has granted an option to the U.S. Underwriters exercisable during the 30-day period after the date of this Prospectus, to purchase up to a maximum of 525,000 additional shares of Common Stock at the public offering price less the underwriting discounts and commissions shown on the cover page of this Prospectus. The U.S. Underwriters may exercise such option only to cover over-allotments, if any, in the sale of the shares that the U.S. Underwriters have agreed to purchase. To the extent that the U.S. Underwriters exercise this option, each of the U.S. Underwriters will be committed, subject to certain conditions, to purchase approximately the same percentage of additional shares as the percentage it is required to purchase of the total number of shares of Common Stock under the U.S. Underwriting Agreement. The Company and its officers and directors have agreed that, except with the prior written consent of PaineWebber Incorporated, during the 90 days following the date of this Prospectus they will not offer for sale, sell, grant any options, right or warrants with respect to any shares of Common Stock or any other Company capital stock, securities or instruments convertible into or exchangeable for Common Stock or other Company capital stock or otherwise dispose of, directly or indirectly, of any shares of Common Stock, such other capital stock or any other securities, instruments, options or rights convertible into or exchangeable for, or otherwise exercisable for, Common Stock or other Company capital stock, except for the Common Stock offered hereby. Notwithstanding the foregoing, the Company may (i) grant options pursuant to the Company's stock option plans in the ordinary course consistent with past practice and issue shares of Common Stock upon the exercise of any such options or under options currently outstanding and (ii) issue shares of Common Stock or other securities convertible into Common Stock or any other capital stock of any company solely to owners of capital stock of any company acquired by the Company subsequent to the date 45 days from the date of this Prospectus. Any permitted shortening of such periods and any related sales of Common Stock would not necessarily be preceded by a public announcement of the Company or the Representatives that such consent has been given. The Company has agreed to indemnify the Underwriters and their controlling persons against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Underwriters may be required to make in respect thereof. PaineWebber Incorporated and Smith Barney Inc. acted as managers and received customary discounts and commissions in connection with the Company's initial public offering. The Common Stock is listed on the New York Stock Exchange under the symbol PGA. LEGAL MATTERS The validity of the shares of Common Stock offered hereby will be passed upon for the Company by Robinson, Bradshaw & Hinson, P.A., Charlotte, North Carolina. Certain legal matters relating to the offering will be passed upon for the Underwriters by Brobeck, Phleger & Harrison LLP, Newport Beach, California. 56 60 EXPERTS The consolidated financial statements of the Company as of December 31, 1994 and 1995 and for each of the three years in the period ended December 31, 1995, and the combined financial statements of Judith Fox Staffing Companies as of December 31, 1995, and for the year then ended, included in this Prospectus have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said reports. The financial statements of The Computer Resources Group, Inc. as of May 31, 1994 and 1995 and for the years then ended included in this Prospectus have been audited by Phillip Goodman Accountancy Corporation, independent auditors, as stated in their report thereon, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said reports. AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "SEC" or the "Commission") a Registration Statement on Form S-1 (the "Registration Statement") under the Securities Act with respect to the Common Stock being offered by this Prospectus. As permitted by the rules and regulations of the Commission, this Prospectus omits certain information, exhibits and undertakings contained (or to be contained) in the Registration Statement. Statements made in this Prospectus as to the contents of any contract, agreement or other document are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to such exhibit for a more complete description of the matter involved, and each such statement is qualified in its entirety by such reference. The Company is subject to the informational and reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith, files reports and other information with the Commission. The Registration Statement and the exhibits and schedules thereto, and the reports, proxy and information statements filed by the Company with the Commission pursuant to the informational requirements of the Exchange Act, may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and should be available at the Commission's Regional Offices at 7 World Trade Center, 13th Floor, New York, New York 10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can also be obtained at prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, reports, proxy statements and other information concerning the Company (Symbol: PGA) can be inspected and copied at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005, on which the Common Stock is listed. In June 1995, the Company's former parent retained Arthur Andersen LLP as the Company's independent public accountants. The former parent had previously retained another independent public accountant to audit certain subsidiaries of the Company for one or more of the years ended December 31, 1992, 1993 and 1994. The former auditors' reports on such subsidiaries' financial statements for each of the three years ended December 31, 1994 does not cover the consolidated financial statements of the Company included in this Prospectus. Such reports did not contain adverse opinions or disclaimers of opinion and were not modified as to uncertainty, audit scope or accounting principles. There were no disagreements with the former auditors on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure at the time of the change or with respect to such subsidiaries' financial statements for each of the three years ended December 31, 1994, which, if not resolved to the former auditors' satisfaction, would have caused them to make reference to the subject matter of the disagreement in connection with their reports. Prior to retaining Arthur Andersen LLP, such subsidiaries had not consulted with Arthur Andersen LLP regarding accounting principles. 57 61 INDEX TO FINANCIAL STATEMENTS
PAGE ---- PERSONNEL GROUP OF AMERICA, INC. Report of Independent Public Accountants.............................................. F-2 Consolidated Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996 (unaudited)......................................................................... F-3 Consolidated Statements of Income for the years ended December 31, 1993, 1994 and 1995 and the three months ended March 31, 1995 and 1996 (unaudited)...................... F-4 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1993, 1994 and 1995 and the three months ended March 31, 1996 (unaudited)................. F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and the three months ended March 31, 1995 and 1996 (unaudited)................. F-6 Notes to Consolidated Financial Statements for the years ended December 31, 1993, 1994 and 1995 and the three months ended March 31, 1996 (unaudited)...................... F-7 JUDITH FOX STAFFING COMPANIES Report of Independent Public Accountants.............................................. F-16 Combined Balance Sheets as of December 31, 1995 and March 31, 1996 (unaudited)........ F-17 Combined Statements of Income for the year ended December 31, 1995 and for the three months ended March 31, 1995 and March 31, 1996 (unaudited).......................... F-18 Combined Statements of Changes in Shareholders' Equity for the year ended December 31, 1995 and the three months ended March 31, 1996 (unaudited).......................... F-18 Combined Statements of Cash Flows for the year ended December 31, 1995 and for the three months ended March 31, 1995 and March 31, 1996 (unaudited).................... F-19 Notes to Combined Financial Statements -- December 31, 1995 and March 31, 1996 (unaudited)......................................................................... F-20 COMPUTER RESOURCES GROUP Independent Auditor's Report.......................................................... F-24 Balance Sheets as of May 31, 1994 and 1995 and February 29, 1996 (unaudited).......... F-25 Statements of Operations for the years ended May 31, 1994 and 1995 and for the nine months ended February 28, 1995 and February 29, 1996................................ F-26 Statements of Stockholders' Equity for the years ended May 31, 1994 and 1995 and the nine months ended February 29, 1996 (unaudited)..................................... F-26 Statements of Cash Flows for the years ended May 31, 1994 and 1995 and for the nine months ended February 28, 1995 and February 29, 1996................................ F-27 Notes to Combined Financial Statements for the years ended May 31, 1994 and 1995 and the nine months ended February 29, 1996............................................. F-28 UNAUDITED PRO FORMA FINANCIAL STATEMENTS Unaudited Pro Forma Balance Sheet as of March 31, 1996................................ F-35 Notes to Unaudited Pro Forma Balance Sheet............................................ F-36 Unaudited Pro Forma Statement of Income for the year ended December 31, 1995.......... F-37 Unaudited Pro Forma Statement of Income for the three month period ended March 31, 1996................................................................................ F-38 Notes to Unaudited Pro Forma Statements of Income..................................... F-39
F-1 62 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Personnel Group of America, Inc.: We have audited the accompanying consolidated balance sheets of Personnel Group of America, Inc. and subsidiaries (a Delaware Corporation) as of December 31, 1994 and 1995, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Personnel Group of America, Inc. and subsidiaries as of December 31, 1994 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Charlotte, North Carolina, February 29, 1996, except for the matters discussed in Note 15, as to which the date is May 23, 1996. F-2 63 PERSONNEL GROUP OF AMERICA, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, -------------------- MARCH 31, 1994 1995 1996 ------- -------- --------- (UNAUDITED) ASSETS Current Assets Cash and cash equivalents................................. $ 2,931 $ 5,273 $ 2,900 Accounts receivable, net of allowance for doubtful accounts of $547 and $514 in 1994 and 1995 and $453 at March 31, 1996, respectively........................... 33,180 36,727 35,599 Prepaid expenses and other current assets................. 1,358 1,889 3,256 Deferred income taxes..................................... 2,877 3,347 3,437 ------- -------- --------- Total current assets.............................. 40,346 47,236 45,192 Property and equipment, net................................. 4,333 3,602 4,206 Excess of cost over fair value of net assets acquired, net....................................................... 44,530 50,091 60,315 Other intangibles, net...................................... 1,521 1,056 1,540 Other assets................................................ 254 638 671 ------- -------- --------- Total assets...................................... $90,984 $102,623 $ 111,924 ======= ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable.......................................... $ 337 $ 222 $ 741 Accrued liabilities....................................... 13,569 16,269 17,037 Income taxes payable...................................... -- 1,776 767 ------- -------- --------- Total current liabilities......................... 13,906 18,267 18,545 Notes payable to bank....................................... -- -- 7,025 Other notes payable......................................... -- -- 575 Deferred income taxes....................................... 8,640 8,370 8,303 ------- -------- --------- Total liabilities................................. 22,546 26,637 34,448 ------- -------- --------- Commitments and contingencies Shareholders' equity: Preferred stock, $.01 par value; shares authorized 5,000; no shares issued and outstanding....................... -- -- -- Common stock, $.01 par value; shares authorized 20,000; 8,000 shares issued and outstanding.................... -- 80 80 Additional paid-in capital................................ -- 73,559 73,559 Retained earnings......................................... -- 2,347 3,837 Net assets................................................ 68,438 -- -- ------- -------- --------- Total shareholders' equity........................ 68,438 75,986 77,476 ------- -------- --------- Total liabilities and shareholders' equity........ $90,984 $102,623 $ 111,924 ======= ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-3 64 PERSONNEL GROUP OF AMERICA, INC. CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED THREE MONTHS ENDED DECEMBER 31 MARCH 31, ------------------------------ ------------------------- 1993 1994 1995 1995 1996 -------- -------- -------- ----------- ----------- (UNAUDITED) Revenues................................... $172,478 $211,867 $251,055 $ 59,512 $ 66,873 -------- -------- -------- ----------- ----------- Operating expenses: Direct cost of services.................. 126,286 155,987 178,966 42,804 48,851 Selling, general and administrative...... 36,227 42,842 51,592 13,097 13,071 Depreciation and amortization............ 4,247 4,391 3,665 946 880 License fees............................. 1,102 1,687 4,418 828 1,480 -------- -------- -------- ----------- ----------- Total operating expenses......... 167,862 204,907 238,641 57,675 64,282 -------- -------- -------- ----------- ----------- Income before income taxes................. 4,616 6,960 12,414 1,837 2,591 Provisions for income taxes................ 2,080 3,061 5,305 772 1,101 -------- -------- -------- ----------- ----------- Net income................................. $ 2,536 $ 3,899 $ 7,109 $ 1,065 $ 1,490 ======== ======== ======== ========= ========= Net income per share....................... -- $ -- $ -- $ -- $ 0.19 Pro forma net income per share............. -- $ 0.49 $ 0.89 $ 0.13 $ -- Weighted average shares outstanding........ -- 8,000 8,000 8,000 8,000
The accompanying notes are an integral part of these consolidated financial statements. F-4 65 PERSONNEL GROUP OF AMERICA, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
COMMON STOCK ADDITIONAL TOTAL --------------- PAID-IN RETAINED SHAREHOLDERS' SHARES AMOUNT CAPITAL EARNINGS NET ASSETS EQUITY ------ ------ ---------- -------- ---------- ------------- Balance, December 31, 1992.............. -- $ -- $ -- $ -- $ 58,987 $58,987 Capital contributions, net............ -- -- -- -- 2,734 2,734 Net income............................ -- -- -- -- 2,536 2,536 ------ ------ ---------- -------- ---------- ------------- Balance, December 31, 1993.............. -- -- -- -- 64,257 64,257 Capital contributions, net............ -- -- -- -- 282 282 Net income............................ -- -- -- -- 3,899 3,899 ------ ------ ---------- -------- ---------- ------------- Balance, December 31, 1994.............. -- -- -- -- 68,438 68,438 Cash distributions.................... -- -- -- -- (7,351) (7,351) Contributions of assets............... -- -- -- -- 7,790 7,790 Net income............................ -- -- -- 2,347 4,762 7,109 Reclassification of net assets as of September 30, 1995................. 8,000 80 73,559 -- (73,639) -- ------ ------ ---------- -------- ---------- ------------- Balance, December 31, 1995.............. 8,000 $ 80 $ 73,559 $2,347 $ -- $75,986 Net income for the three months ended March 31, 1996 (unaudited)............ -- -- -- 1,490 -- 1,490 ------ ------ ---------- -------- ---------- ------------- Balance March 31, 1996 (unaudited)...... 8,000 $ 80 $ 73,559 $3,837 -- $77,476 ===== ====== ======= ====== ======== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-5 66 PERSONNEL GROUP OF AMERICA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
THREE MONTHS YEARS ENDED ENDED DECEMBER 31, MARCH 31, -------------------------- ----------------- 1993 1994 1995 1995 1996 ------ ------- ------- ------ -------- (UNAUDITED) Cash flows from operating activities: Net income...................................... $2,536 $ 3,899 $ 7,109 $1,064 $ 1,490 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization................ 4,247 4,391 3,665 946 880 Deferred income taxes, net................... (97) (470) (140) (67) (157) Changes in assets and liabilities: Accounts receivable........................ (6,839) (7,322) (3,547) 398 1,075 Prepaid expenses and other current assets.................................. 840 (272) (531) (570) (1,349) Accounts payable and accrued liabilities... (62) 2,740 2,585 2,154 1,287 Income taxes payable....................... -- -- 1,776 -- (1,009) Other...................................... (68) 58 (384) 48 (33) ------ ------- ------- ------ -------- Net cash provided by operating activities............................ 557 3,024 10,533 3,973 2,184 ------ ------- ------- ------ -------- Cash flows from investing activities: Purchases of property and equipment, net........ (2,037) (3,251) (840) -- (919) Acquisitions, net of cash acquired.............. -- -- -- -- (10,663) ------ ------- ------- ------ -------- Net cash used in investing activities... (2,037) (3,251) (840) -- (11,582) ------ ------- ------- ------ -------- Cash flows from financing activities: Contributions from (distributions to) Adia, net.......................................... 2,734 282 (7,351) (5,575) -- Repayments of notes payable to bank............. -- -- -- -- (1,475) Borrowings of notes payable to bank............. -- -- -- -- 8,500 ------ ------- ------- ------ -------- Net cash provided by (used in) financing activities............................ 2,734 282 (7,351) (5,575) 7,025 ------ ------- ------- ------ -------- Net increase (decrease) in cash and cash equivalents..................................... 1,254 55 2,342 (1,602) (2,373) Cash and cash equivalents at beginning of year.... 1,622 2,876 2,931 2,931 5,273 ------ ------- ------- ------ -------- Cash and cash equivalents at end of year.......... $2,876 $ 2,931 $ 5,273 $1,329 $ 2,900 ====== ======= ======= ====== ======== Supplemental cash flow information: Income taxes paid............................... $2,177 $ 3,530 $ 3,737 -- $ 2,184 ====== ======= ======= ====== ========
The accompanying notes are an integral part of these consolidated financial statements. F-6 67 PERSONNEL GROUP OF AMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1994 AND 1995 AND MARCH 31, 1996 (UNAUDITED) (IN THOUSANDS EXCEPT PER SHARE DATA) 1. ORGANIZATION: BASIS OF PRESENTATION Personnel Group of America, Inc. and subsidiaries (the Company) completed an underwritten initial public offering (the Offering) in September 1995. Prior to the Offering, the Company was an indirect wholly owned subsidiary of Adia, S.A., a Swiss corporation (Adia). The Company was organized by Adia to facilitate the Offering. In the Company's formation and organization, Adia transferred to the Company the subsidiaries and divisions that it had previously owned and that now comprise the Company's Staffing Services and Health Care Staffing Services divisions in exchange for common stock. The financial statements of the Company are presented on the historical cost basis, and all significant intercompany transactions have been eliminated. As a result of the Offering, in which Adia sold its entire ownership interest in the Company, the Company became an independent public company. The Company did not receive any of the proceeds of the sale of its shares by Adia in the Offering. Although for presentation purposes the Company has indicated its year-end as December 31, 1995, its fiscal year actually ends on the Sunday nearest to December 31. Each fiscal year presented contained 52 weeks. BUSINESS The Company is a provider of staffing services to businesses, professional and governmental organizations, health care facilities, and individuals who require home health care and related services. The Company's staffing services include temporary staffing, placement of full-time employees and, depending on client needs, training and testing of temporary and permanent workers. The Company operates through a network of Company-operated, franchised and licensed offices. The Company's business is organized into two divisions: the Staffing Services Division, which provides temporary office, clerical and light industrial and light technical services, and the Health Care Services Division, which provides health care personnel. The Staffing Services Division consists of the following companies and divisions: Abar, FirstWord Staffing Services, Thomas Staffing, Staffinders Personnel, Temp Connection, TempWorld, West Personnel Service and Word Processors Personnel Service (WPPS). The Health Care Services Division, which consists of Nursefinders, Inc. (Nursefinders), provides health care personnel to supplement the staffing needs of hospitals, nursing homes and other health care facilities, as well as home health services and related products to individuals. The Company's Health Care Services Division is subject to extensive federal, state and local laws and government regulations, including licensing requirements, certificate of need requirements to be a Medicare provider in some states, periodic examinations by government agencies, and federal and state anti-fraud, anti-abuse and anti-kickback statutes and regulations. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: RECOGNITION OF REVENUE Other than for the items described below, revenues are recognized upon the performance of services. Franchise-related revenues are recognized pursuant to the specific terms of two different types of agreements (herein referred to as Franchise Agreements and License Agreements). For Franchise Agreements, the Company provides general training, operating, site selection and marketing programs, administration of insurance and payroll tax obligations and assistance in tax planning and legal matters. In exchange for these services, the Company recognizes franchise royalty revenue generally based on 5% of the franchisees' patient and staffing services revenue. Revenue is recognized upon performance F-7 68 PERSONNEL GROUP OF AMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) of patient or staffing service by the franchisee. Existing Franchise Agreements have a five-year term. Under Franchise Agreements, the Company recognized revenue of $3,327, $3,345 and $3,702 in 1993, 1994 and 1995, respectively. In addition, included in the 1995 revenues is a $405 gain on the cancellation of the Cleveland franchise agreement. For License Agreements, in addition to the services described above, the Company employs and pays individuals to perform services for the licensees' customers, invoices customers, maintains professional liability insurance and supports the training, office administration, systems and marketing needs of the licensee. All revenues and expenses generated by the licensee, therefore, belong to the Company and are included in the Company's revenues and expenses. The Company is primarily liable for operating expenses. The Company pays the licensee a license fee, based on gross margin for temporary services less 7% of revenues, adjusted for uncollectible receivables and certain other expenses. Gross margin is the difference between the amounts billed to clients less direct cost of services consisting of direct labor, payroll taxes, insurance and benefits for temporary employees. License fees are included in other operating expenses. License Agreements generally have a 10-year term. Initial agreement fees, under both Franchise and License agreements, are recognized currently as income. These fees are not material. Medicare revenues, are recognized at an amount equivalent to allowable costs as defined by the Medicare program. Medicare reimbursable costs are limited by aggregate cost limits or "caps" and by disallowance of certain costs not directly resulting from patient care services such as promotion and advertising. The Company believes it has not exceeded the aggregate cost limits and believes adequate provisions have been made for any potential disallowances as a result of future audits. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash on hand and highly liquid money market instruments with original maturities of three months or less. PROPERTY AND EQUIPMENT Property and equipment are carried at cost and depreciated on a straight-line basis over their estimated useful lives (generally three to five years). Leasehold improvements are stated at cost and amortized over the shorter of the lease term or the useful life of the improvements. EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED AND OTHER INTANGIBLES The Company's businesses were initially acquired by Adia or its affiliates from unrelated third parties in exchange for cash. Excess of cost over fair value of net assets acquired and other intangible assets resulting from such acquisitions have been recorded on the books of the Company at historical cost. For material acquisitions, the Company had independent appraisals performed to allocate the purchase price. Excess of cost over fair value of net assets acquired is amortized on a straight-line basis over 40 years. In January 1995, Adia acquired all of the remaining outstanding shares of a majority-owned subsidiary. This acquisition resulted in additional excess of cost over fair value of net assets acquired being recorded by Adia. The Company recorded its pro rata share ($7,191) of this excess. Accumulated amortization of excess of cost over fair value of net assets acquired amounted to $11,398 and $12,941 at December 31, 1994 and 1995, respectively. Other intangibles consist primarily of client and employee lists and covenants not to compete that were specifically valued by the Company's independent appraisers at the time of the acquisition. Other intangibles are being amortized over the stated lives of the agreements, ranging from 5 to 10 years. F-8 69 PERSONNEL GROUP OF AMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company evaluates the recoverability of its investment in excess of cost over fair value of net assets acquired and other intangibles in relation to anticipated future cash flows on an undiscounted basis. Based on this assessment, the Company expects its investment in excess of cost over fair value of net assets acquired and other intangibles to be fully recovered. INCOME TAXES Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences arising between the tax bases of assets and liabilities and their reported amounts in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The Company's operating results through September 29, 1995, are included in Adia's consolidated federal income tax return and combined state tax returns filed in various states. The Company will file its own consolidated federal income tax return and state returns in various states for periods ending after September 29, 1995. The income tax provision is calculated on a separate company basis for all years presented. NET INCOME PER SHARE Net income per share has been provided only for quarters subsequent to the Offering (see Note 14). Pro forma net income per share for all other periods provided is presented assuming that the weighted average number of shares outstanding equals the 8,000,000 shares issued in connection with the Offering. The effect of stock options on net income per share and pro forma net income per share is not material. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions. These affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECLASSIFICATIONS Certain amounts included in the consolidated financial statements for 1993 and 1994 have been reclassified from their original presentation to conform with the current year's presentation. INTERIM FINANCIAL STATEMENTS The financial data as of March 31, 1996, and for the three months ended March 31, 1995 and 1996, are unaudited. In the opinion of management, the unaudited financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations for the periods covered by these financial statements. The results of operations for the three months ended March 31, 1996, are not necessarily indicative of the results to be expected for the full 1996 fiscal year. F-9 70 PERSONNEL GROUP OF AMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. ACCOUNTS RECEIVABLE: Accounts receivable consisted of the following:
DECEMBER 31, ------------------- 1994 1995 ------- ------- Trade accounts receivable........................................ $26,271 $28,190 Medicare/Medicaid, net of contractual allowances................. 7,250 6,725 Due from Adia and other (see Note 9)............................. 206 2,326 ------- ------- 33,727 37,241 Allowance for doubtful accounts.................................. (547) (514) ------- ------- $33,180 $36,727 ======= =======
A summary of activity in the allowance for doubtful accounts was as follows:
BALANCE AT CHARGED TO BALANCE BEGINNING COSTS AND AT END YEAR ENDED DECEMBER 31, OF PERIOD EXPENSES DEDUCTIONS OF PERIOD - ----------------------- ---------- ---------- ----------- --------- 1993.............................. $1,397,000 $414,000 $(1,114,000) $ 697,000 1994.............................. $ 697,000 $599,000 $ (749,000) $ 547,000 1995.............................. $ 547,000 $906,000 $ (939,000) $ 514,000
4. PROPERTY AND EQUIPMENT, NET: Property and equipment, net, consisted of the following:
DECEMBER 31, ------------------- 1994 1995 ------- ------- Furniture and equipment.......................................... $ 7,960 $ 7,786 Purchased software............................................... 1,185 1,065 Leasehold improvements........................................... 816 659 ------- ------- 9,961 9,510 Less -- Accumulated depreciation................................. (5,628) (5,908) ------- ------- $ 4,333 $ 3,602 ======= =======
5. OTHER INTANGIBLE ASSETS: Other intangible assets consisted of the following:
DECEMBER 31, USEFUL --------------------- LIVES 1994 1995 -------- -------- -------- Client and employee lists........................... 5 years $ 8,053 $ 5,641 Franchise agreements................................ 10 years 1,665 1,665 Covenants not-to-compete............................ 5 years 4,686 4,686 Other............................................... 5 years 881 881 -------- -------- 15,285 12,873 (13,764) (11,817) -------- -------- Less -- Accumulated amortization.................... $ 1,521 $ 1,056 ======== ========
F-10 71 PERSONNEL GROUP OF AMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. ACCRUED LIABILITIES: Accrued liabilities consisted of the following:
DECEMBER 31, ----------------- 1994 1995 ------- ------- Accrued wages and benefits......................................... $ 5,917 $ 8,062 Accrued workers' compensation benefits............................. 5,871 5,381 Other.............................................................. 1,781 2,826 ------- ------- $13,569 $16,269 ======= =======
7. EMPLOYEE BENEFIT PLANS: The Company has 401(k) profit sharing and nonqualified profit sharing plans, which cover substantially all of its employees. Company contributions are made on a discretionary basis. Contributions charged to operating expenses were $316, $470 and $706 for the years ended December 31, 1993, 1994 and 1995, respectively. The Company does not provide postretirement health care and life insurance benefits to retired employees or postemployment benefits to terminated employees. 8. CAPITAL STOCK: In connection with the Offering, the Company's Board of Directors adopted its 1995 Equity Participation Plan (the Incentive Plan) to attract and retain officers, key employees, consultants and directors. An aggregate of 1,200,000 shares of the common stock was authorized for issuance upon exercise of options, stock appreciation rights (SARs), and other awards, or as restricted or deferred stock awards under the Incentive Plan. Incentive stock options may be granted only to employees, and when granted have an exercise price equal to at least 100% of fair market value of common stock on the grant date and a term not longer than 10 years. In addition, nonemployee directors (including the directors who administer the plan) are eligible to receive nondiscretionary grants of nonqualified stock options (NQSOs) under the Incentive Plan pursuant to a formula. NQSOs may be granted to an employee or consultant for any term specified by the compensation committee of the Board and will provide for the right to purchase common stock at a specified price which, except with respect to NQSOs intended to qualify as performance-based compensation, may be less than fair market value on the date of grant (but not less than par value), and may become exercisable (at the discretion of the compensation committee) in one or more installments after the grant date. Of the NQSOs granted to nonemployee directors, 100% shall be fully vested and exercisable upon grant, and the term of each such option shall be ten years. In 1995, 432,705 options were granted at prices ranging from $13.38 to $14.00. At December 31, 1995, none of the options had been exercised or expired and 111,541 were exercisable. On February 6, 1996, the Board of Directors of the Company declared a dividend of one nonvoting preferred share purchase right (Right) for each outstanding share of common stock. The dividend was payable on February 27, 1996, to the stockholders of record on that date. In the event of an acquisition by a party of a beneficial interest of at least 15% of the Company's common stock, each right would become exercisable (the Distribution Date). Each Right entitles the registered holder to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock, par value $0.01 per share, of the Company (Preferred Stock) at a price of $95.00 per one one-hundredth of a share of Preferred Stock (the Purchase Price) subject to adjustment. In addition, each Right entitles the right holder to certain other rights F-11 72 PERSONNEL GROUP OF AMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) as specified in the Company's rights agreement. The Rights are not exercisable until Distribution Date. The Rights will expire on February 6, 2006 (the Final Expiration Date), unless the Final Expiration Date is extended or unless the Rights are earlier redeemed or exchanged by the Company. 9. MANAGEMENT FEES: Historically, Adia and its affiliates have provided certain services and paid certain expenses for the Company in exchange for a management fee. These services include accounting, billing and collections, legal, and other selling, general and administrative expenses. Management of the Company negotiated with management of Adia to determine the appropriate fee charged based on the approximate cost of the services provided and the expenses paid by Adia on behalf of the Company. All transactions between the Company and Adia have been reflected in the consolidated financial statements. Management fees paid to Adia were $302, $582, and $603 for the years ended December 1993, 1994, and 1995, respectively. In addition, the Company has cash clearing transactions with Adia primarily for dividends, estimated tax payments, management fees and workers' compensation expenses that are recorded in an intercompany account. Following the Offering, Adia agreed to provide certain services to the Company pursuant to various written agreements on terms and at prices as set forth in such agreements. Included in accounts receivable in the accompanying consolidated balance sheet was $1,659 due from Adia at December 1995 ($0 at December 31, 1994), related to these transactions. 10. CREDIT FACILITY: In September 1995, the Company entered into a three-year unsecured $30,000 revolving line of credit (the Credit Facility) with a bank, extendible for up to two additional years. There were no borrowings during 1995. Approximately $2,800 of the Credit Facility has been used for the issuance of undrawn letters of credit to secure the Company's workers' compensation program. Borrowings under the Credit Facility will bear interest, payable quarterly, at a rate equal to LIBOR plus 0.75% or the lender's base rate, as defined, at the Company's option. The Credit Facility contains customary covenants such as the maintenance of certain financial ratios, and minimum net worth and working capital requirements, and a restriction on the payment of cash dividends on common stock. The Company was in compliance with such covenants as of December 31, 1995. 11. INCOME TAXES: The provision for income taxes consisted of the following:
YEARS ENDED DECEMBER 31, ---------------------------- 1993 1994 1995 ------ ------ ------ Current provision........................................ $2,177 $3,530 $5,445 Deferred benefit......................................... (97) (469) (140) ------ ------ ------ Total.......................................... $2,080 $3,061 $5,305 ====== ====== ======
The reconciliation of the effective tax rate is as follows:
YEARS ENDED DECEMBER 31, -------------------------- 1993 1994 1995 ---- ---- ---- Amount of federal income tax based upon the statutory rate..................................................... 35.0% 35.0% 35.0% Effect of goodwill amortization and other.................. 5.0 4.7 2.7 State taxes, net of federal benefit........................ 5.0 4.3 5.0 ---- ---- ---- Total............................................ 45.0% 44.0% 42.7% ==== ==== ====
F-12 73 PERSONNEL GROUP OF AMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The components of the Company's net deferred tax assets and liabilities were as follows:
DECEMBER 31, --------------- 1994 1995 ------ ------ Deferred tax assets -- Accrued workers' compensation...................................... $2,253 $2,614 Allowance for doubtful accounts and other.......................... 624 733 ------ ------ $2,877 $3,347 ====== ====== Deferred tax liability -- Excess of cost over fair value of net assets acquired.................................................... $8,640 $8,370 ====== ======
In certain of the Company's acquisitions, the Company was able to deduct currently, for tax purposes, certain amounts representing purchase price paid in excess of book value of recorded assets and liabilities. For financial reporting purposes, this was recorded as excess of cost over fair value of net assets acquired with a corresponding deferred tax liability related to this timing difference. For certain of the Company's other acquisitions, no deductions are permitted on the Company's tax return. TAX SHARING AGREEMENT Generally, Adia is liable for income taxes of the Company for any taxable period that ends on or before September 29, 1995, and the Company is liable for income taxes for any period ending after September 29, 1995. 12. FINANCIAL INSTRUMENTS: CONCENTRATION OF CREDIT RISK The Company maintains cash and cash equivalents with various financial institutions. Credit risk with respect to accounts receivable is dispersed due to the nature of the business, the large number of customers and the diversity of industries serviced. The Company performs credit evaluations of its customers. 13. COMMITMENTS AND CONTINGENCIES: OPERATING LEASES The Company leases facilities under operating leases, certain of which require it to pay property taxes, insurance and maintenance costs. Operating leases for facilities are usually renewable at the Company's option and include escalation clauses linked to inflation. Future minimum annual rentals for the next five years are as follows:
YEARS ENDED DECEMBER 31, ----------------------------------------------------------------- 1996.......................................................... $2,858 1997.......................................................... 1,977 1998.......................................................... 1,174 1999.......................................................... 675 2000 and thereafter........................................... 268 ------ $6,952 ======
Total rent expense under operating leases amounted to $2,878, $2,991 and $3,151 for the years ended December 31, 1993, 1994, and 1995, respectively. F-13 74 PERSONNEL GROUP OF AMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) INSURANCE The Company maintains a self-insurance program for workers' compensation and medical and dental claims. The Company accrues liabilities under this program based on the loss and loss adjustment expenses as estimated by an outside administrator. At December 31, 1995, the Company had a standby letter of credit with a bank in connection with the workers' compensation program. The Company is subject to claims and legal actions by patients and customers in the ordinary course of business. The Company maintains professional liability insurance for losses. MEDICARE COST-REIMBURSEMENT PROGRAM Final determination of amounts earned under the Medicare cost-reimbursement program are subject to review and audit by appropriate governmental authorities or their agents. In the opinion of management, adequate provision has been made for any adjustments that could result from future Medicare audits. For the years ended December 31, 1993, 1994, and 1995, 6%, 12% and 13% of the Company's revenues, respectively, were derived from the Medicare program. The Medicare program is subject to statutory and regulatory changes, retroactive and prospective rate adjustments and administrative rulings and funding restrictions, all of which could have the effect of limiting or reducing reimbursement levels for the Company's services. EMPLOYMENT AGREEMENTS The Company has agreements with several executive officers which provide for cash compensation and other benefits in the event that a change in control of the Company occurs. LEGAL PROCEEDINGS The Company is also involved in various legal actions and claims. In the opinion of management, after considering appropriate legal advice, the future resolutions of all actions and claims will not have a material adverse effect on the Company's consolidated financial position or results of operations. INDEMNIFICATION The Company and Adia entered into an Indemnification Agreement, whereby the Company agreed to indemnify Adia against certain expenses or losses which may be incurred by Adia arising from the conduct of the Company's business. 14. SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
1995 ------------------------------------------- FIRST SECOND THIRD FOURTH ------- ------- ------- ------- Revenues.................................... $59,512 $61,260 $63,855 $66,428 Operating expenses.......................... 57,675 58,194 60,462 62,310 Net income.................................. 1,065 1,700 1,997 2,347 Net income per share........................ -- -- -- 0.29 Pro forma net income per share.............. $ 0.13 $ 0.21 $ 0.25 -- ======= ======= ======= =======
F-14 75 PERSONNEL GROUP OF AMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1994 ------------------------------------------- FIRST SECOND THIRD FOURTH ------- ------- ------- ------- Revenues.................................... $47,993 $50,294 $55,662 $57,918 Operating expenses.......................... 47,491 48,602 53,493 55,321 Net income.................................. 273 942 1,238 1,446 Pro forma net income per share.............. $ 0.03 $ 0.12 $ 0.15 $ 0.18 ======= ======= ======= =======
15. ACQUISITIONS AND FINANCINGS Subsequent to year-end, the Company acquired Profile Temporary Services in Chicago, Illinois (Profile), Allegheny Personnel Services in Pittsburgh, Pennsylvania (Allegheny), Judith Fox Staffing Companies in Richmond, Virginia (Fox), and converted three previously franchised Nursefinders offices (collectively the Transactions or the Acquired Companies). The Profile and Allegheny acquisitions were completed in March 1996 while Fox was completed in May 1996. The former Nursefinders franchisees were converted in January, March and April 1996. The Acquired Companies have combined annual revenues of approximately $50,000. The purchase price for the Transactions totaled $33,000, including direct acquisition costs but excluding certain contingent earnout payments. The acquisition of Profile provides for additional purchase price consideration upon attainment of certain earnings targets over the next three calendar years. Any additional consideration will be recorded as additional purchase price when paid and will increase the amount of excess of cost over fair value of net assets acquired. The Transactions were primarily funded through borrowings under the Credit Facility and have been accounted for using the purchase method of accounting. Accordingly, the results of operations of the Acquired Companies will be included in the Company's consolidated results of operations from the date of acquisition. In addition, the Company has signed an Asset Purchase Agreement in May, 1996, to acquire The Computer Resources Group, Inc. (CRG), an information technology services company based in San Francisco, California. CRG had revenues for its fiscal year ended May 31, 1995, and for the nine-month period ended February 29, 1996, of approximately $21,200 and $21,000, respectively. The Company will purchase CRG for $19,500, payable at closing. The seller may also receive additional consideration upon attainment of certain earnings targets over the next two years. In addition, in May 1996, the Company amended the Credit Facility to increase the available line up to $35,000 for acquisition related purposes and to increase the limits for the aggregate purchase price for permitted acquisitions in 1996. The Credit Facility as amended is secured by a lien on the Company's receivables and certain other personal property and a pledge of the stock of the Company's subsidiaries. On June 30, 1996, aggregate availability under the Credit Facility will be reduced from $35,000 to $30,000. As of May 20, 1996, the Company had outstanding borrowings under the Credit Facility of $27,300; in addition $2,500 has been used for the issuance for the overdrawn letters of credit to secure the Company's workers' compensation program. The Company has also obtained a commitment from its lender to use its best efforts to syndicate the Credit Facility and increase the maximum availability thereunder to $60,000. F-15 76 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Judith Fox Staffing Companies: We have audited the accompanying combined balance sheet of Judith Fox Staffing Companies (see Note 1) (Virginia Corporations), as of December 31, 1995, and the related combined statements of income, changes in shareholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Judith Fox Staffing Companies as of December 31, 1995, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Charlotte, North Carolina, May 10, 1996. F-16 77 JUDITH FOX STAFFING COMPANIES COMBINED BALANCE SHEETS
DECEMBER 31, MARCH 31, 1995 1996 ------------ ---------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents.......................................... $ 601,715 $ 405,772 Accounts receivable, net........................................... 1,410,587 1,678,171 Prepaid expenses................................................... 34,256 69,707 ------------ ---------- Total current assets....................................... 2,046,558 2,153,650 Property and equipment, net.......................................... 203,079 221,018 Other assets......................................................... 12,832 13,242 ------------ ---------- Total assets............................................... $2,262,469 $2,387,910 ========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable................................................... $ 40,991 $ 37,500 Accrued liabilities................................................ 384,860 385,948 Accumulated payroll withholdings................................... 58,941 54,469 Income taxes payable............................................... 6,652 7,422 ------------ ---------- Total current liabilities.................................. 491,444 485,339 Deferred income taxes................................................ 25,716 25,716 ------------ ---------- Total liabilities.......................................... 517,160 511,055 ------------ ---------- Commitments and contingencies Shareholders' equity: Common stock....................................................... 1,500 1,500 Additional paid-in capital......................................... 62,724 62,724 Retained earnings.................................................. 1,681,085 1,812,631 ------------ ---------- Total shareholders' equity................................. 1,745,309 1,876,855 ------------ ---------- Total liabilities and shareholders' equity................. $2,262,469 $2,387,910 ========== =========
The accompanying notes are an integral part of these combined financial statements. F-17 78 JUDITH FOX STAFFING COMPANIES COMBINED STATEMENTS OF INCOME
THREE MONTHS ENDED YEAR ENDED MARCH 31, DECEMBER 31, ------------------------- 1995 1995 1996 ------------ ----------- ----------- (UNAUDITED) Revenues.................................................. $ 15,919,196 $ 3,728,944 $ 4,165,589 ------------ ----------- ----------- Operating expenses: Direct cost of services................................. 11,697,535 2,835,914 3,022,389 Selling, general and administrative..................... 2,544,333 614,135 771,731 Depreciation and amortization........................... 77,888 16,450 17,762 ------------ ----------- ----------- Total operating expenses........................ 14,319,756 3,466,499 3,811,882 ------------ ----------- ----------- Income before income taxes................................ 1,599,440 262,445 353,707 Provision for income taxes................................ 26,978 9,600 7,500 ------------ ----------- ----------- Net income................................................ $ 1,572,462 $ 252,845 $ 346,207 ========== ========= =========
JUDITH FOX STAFFING COMPANIES COMBINED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
COMMON STOCK ADDITIONAL TOTAL ----------------- PAID-IN RETAINED SHAREHOLDERS' SHARES AMOUNT CAPITAL EARNINGS EQUITY ------ ------ ---------- ---------- ------------- Balance, December 31, 1994............ 1,050 $1,500 $ 62,624 $ 919,508 $ 983,632 Issuance of membership interest in Training......................... -- -- 100 -- 100 Distributions to JFC shareholder.... -- -- -- (810,885) (810,885) Net income for the year ended December 31, 1995................ -- -- -- 1,572,462 1,572,462 ------ ------ ---------- ---------- ------------- Balance, December 31, 1995............ 1,050 1,500 62,724 1,681,085 1,745,309 Distributions to JFC shareholder (unaudited)...................... -- -- -- (214,661) (214,661) Net income for three-months ended March 31, 1996 (unaudited)....... -- -- -- 346,207 346,207 ------ ------ ---------- ---------- ------------- Balance, March 31, 1996 (unaudited)... 1,050 $1,500 $ 62,724 $1,812,631 $ 1,876,855 ===== ====== ======= ========= ==========
The accompanying notes are an integral part of these combined financial statements. F-18 79 JUDITH FOX STAFFING COMPANIES COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEAR THREE MONTHS ENDED MARCH ENDED 31, DECEMBER 31, ------------------------- 1995 1995 1996 ------------ ----------- ----------- (UNAUDITED) Cash flows from operating activities: Net income............................................... $ 1,572,462 $ 252,845 $ 346,207 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization......................... 77,888 16,450 17,762 Loss on disposition of property and equipment......... 800 100 -- Deferred income taxes, net............................ (3,347) -- -- Changes in assets and liabilities: Accounts receivable................................. 8,946 134,782 (267,584) Prepaid expenses and other current assets........... 46,564 5,115 (35,451) Other assets........................................ (1,874) (920) (598) Accounts payable and accrued liabilities............ (99,932) (51,895) (6,875) Income taxes payable................................ (1,241) (9,741) 770 ------------ ----------- ----------- Net cash provided by operating activities........ 1,600,266 346,736 54,231 ------------ ----------- ----------- Cash flows used in investing activities: Purchases of property and equipment, net................. (52,838) (3,210) (35,513) ------------ ----------- ----------- Cash flows from financing activities: Proceeds from line of credit............................. 2,145,000 793,000 -- Payments on line of credit............................... (2,314,000) (962,000) -- Proceeds from issuance of membership interest in Training.............................................. 100 -- -- Distributions to JFC shareholder......................... (810,885) (8,187) (214,661) ------------ ----------- ----------- Net cash used in financing activities............ (979,785) (177,187) (214,661) ------------ ----------- ----------- Net increase (decrease) in cash and cash equivalents.................................... 567,643 166,339 (195,943) Cash and cash equivalents, beginning of period............. 34,072 34,072 601,715 ------------ ----------- ----------- Cash and cash equivalents, end of period................... $ 601,715 200,411 $ 405,772 ========== ========= ========= Supplemental cash flow information: Income taxes paid........................................ $ 31,566 19,341 $ 6,730 Interest paid............................................ 6,868 2,666 -- ========== ========= =========
The accompanying notes are an integral part of these combined financial statements. F-19 80 JUDITH FOX STAFFING COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1995, AND MARCH 31, 1996 (UNAUDITED) 1. ORGANIZATION: BASIS OF PRESENTATION The accompanying combined financial statements present the financial information of Judith Fox Companies, Inc., (JFC) Fox Technical, Inc. (Technical) and Judith Fox Training for Growth L.C. (Training) (collectively, Judith Fox Staffing Companies or the Companies). JFC and Technical are Virginia corporations wholly owned by Judith S. Fox (the Shareholder), which have elected to be treated as S Corporations for income tax purposes (see Note 2). Training is a Virginia limited liability corporation owned by the Shareholder and members of her immediate family. The financial statements are presented on the historical cost basis, and all significant intercompany transactions have been eliminated. In the opinion of management, the accompanying unaudited combined balance sheet as of March 31, 1996, and the unaudited combined statements of income and cash flows for the three-month periods ended March 31, 1996 and 1995, contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the combined financial position of the Companies as of March 31, 1996, and the results of their operations and their cash flows for the three-month periods ended March 31, 1996 and 1995. The interim financial information is not necessarily indicative of the results that will occur for a full year and is not intended to be a projection of future results or trends. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS The Companies are providers of personnel staffing services to businesses, professional and governmental organizations. The Companies' staffing services include temporary staffing, placement of full-time employees and, depending on client needs, training and testing of temporary workers. JFC operates two temporary personnel divisions, Judith Fox Temporaries in Richmond and Charlottesville, Virginia, and Rosemary Scott Temporaries in New York, New York. Technical, operating from Richmond, Virginia, provides specialized personnel services in the areas of engineering, information systems, accounting management and scientific expertise. Training, operating from Richmond, Virginia, was started in 1995 to provide training services. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: RECOGNITION OF REVENUE Revenues are recognized upon the performance of services. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash on hand and highly liquid money instruments with original maturities of three months or less. PROPERTY AND EQUIPMENT Property and equipment are carried at cost and depreciated on a straight-line and accelerated basis over their estimated useful lives (generally five to seven years). Leasehold improvements are stated at cost and amortized over the shorter of the lease term or the useful life of the improvements. INCOME TAXES JFC and Technical have elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code and, as such, do not generally pay federal income taxes. Training is a limited liability corporation and, as such, is treated as a partnership for tax reporting purposes and does not generally pay federal income taxes. Instead, except as noted hereafter, the Shareholder is individually responsible for federal F-20 81 JUDITH FOX STAFFING COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) and state income taxes on the Companies' taxable income. Corporate income taxes are provided for New York State and City which do not recognize S corporation status. It is the Companies' policy to provide dividends for Shareholder's taxes arising from the pass-through of corporate tax attributes. VOLUME DISCOUNTS JFC has volume discount agreements with selected customers. These discounts are issued in the form of credits which may be applied against future billings to the customer. JFC accrues the estimated expense of these discounts as they are earned by each customer. Total estimated discounts earned as of December 31, 1995, were approximately $207,000, and are netted against accounts receivable in the accompanying combined balance sheet at December 31, 1995. UNCOLLECTIBLE ACCOUNTS Uncollectible account expense is both infrequent and immaterial. The Companies expense such amounts in the period accounts are deemed uncollectible and has not established a reserve against accounts receivable. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions. These affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. PROPERTY AND EQUIPMENT, NET: PROPERTY AND EQUIPMENT, NET, CONSISTED OF THE FOLLOWING AT DECEMBER 31, 1995: Furniture and equipment.................................................. $ 516,331 Computer software........................................................ 48,533 Leasehold improvements................................................... 23,934 --------- 588,798 Less -- Accumulated depreciation and amortization........................ (385,719) --------- $ 203,079 =========
4. LINE OF CREDIT: JFC has a working capital line-of-credit agreement with a bank. The line of credit has a maximum permitted outstanding balance of the lesser of $1,000,000 or 80% of trade receivables, as defined. The unpaid principal balance is due upon demand and is secured by all of the accounts receivable and intangibles of JFC. Interest on the line of credit is based upon the 30-day LIBOR rate plus 2.25% at December 31, 1995. The interest rate on the line-of-credit was 7.969% at December 31, 1995. 5. SHAREHOLDERS' EQUITY: JFC has 1,500 shares of common stock authorized, with a par value of $10.00 per share. At December 31, 1995, 50 shares were issued and outstanding. Technical has 5,000 shares of common stock authorized, with a par value of $1.00 per share. At December 31, 1995, 1,000 shares were issued and outstanding. Training is a limited liability corporation formed on April 20, 1995. The Shareholder and members of her family purchased all of the membership interest in Training for $100, which has been reflected as additional paid-in capital in F-21 82 JUDITH FOX STAFFING COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) the accompanying combined balance sheet at December 31, 1995, and in the accompanying combined statements of changes in shareholders' equity for the year ended December 31, 1995. 6. FINANCIAL INSTRUMENTS: CONCENTRATION OF CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS The Companies maintain cash and cash equivalents with various financial institutions. The fair value of cash and cash equivalents approximates carrying value because of the short-term nature of the cash equivalents. Credit risk with respect to accounts receivable is dispersed due to the nature of the business, the large number of customers and the diversity of industries serviced (see Note 9). The Companies perform credit evaluations of its customers. 7. EMPLOYEE BENEFITS: JFC sponsors a profit-sharing plan covering substantially all full-time, permanent employees and certain temporary employees. Contributions are determined annually not to exceed the maximum amount deductible for federal income tax purposes. The accrued contributions were $76,285 at December 31, 1995, and are included in accrued liabilities on the accompanying combined balance sheet. The Companies maintain retroactive premium-based workers' compensation coverage for all full-time permanent employees and substantially all temporary employees. The final premium adjustments for the year ended December 31, 1995, are included in accrued liabilities in the accompanying combined balance sheet at December 31, 1995. The Companies also provide group health insurance to those employees electing coverage and Section 125 Cafeteria Plan to eligible full-time permanent employees and temporary employees. The Companies do not provide postretirement health care and life insurance benefits to retired employees or postemployment benefits to terminated employees. 8. INCOME TAXES: The provision for income taxes for 1995 consisted of the following: Current provision.......................................................... $30,325 Deferred benefit........................................................... (3,347) ------- Total............................................................ $26,978 =======
The Companies generally do not pay federal income taxes (see Note 2). JFC is required to pay state income taxes in a state in which it operates. The income tax provision represents this state income tax, which has a statutory rate of approximately 11%. The components of the Companies' net deferred tax assets and liabilities as of December 31, 1995, were as follows: Deferred tax assets -- Accrual to cash adjustments, net................... $ 7,323 Deferred tax liability -- Accrual to cash adjustments, net................ (33,039) -------- Net deferred tax liability................................................ $(25,716) ========
F-22 83 JUDITH FOX STAFFING COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 9. COMMITMENTS AND CONTINGENCIES: OPERATING LEASES Rental expense reflected in the accompanying financial statements total $205,244 for the year ended December 31, 1995. Future minimum lease payments under noncancellable operating leases are as follows:
OPERATING LEASES --------- 1996...................................................................... $ 211,528 1997...................................................................... 209,754 1998...................................................................... 214,473 1999...................................................................... 123,776 Later years............................................................... 0 --------- Total future minimum lease payments....................................... $ 759,531 ========
In February 1996, the lease for JFC's headquarters was renewed for an additional 42 months. Management expects that in the normal course of business other leases that expire will be renewed or replaced by similar leases. SIGNIFICANT CUSTOMERS One of JFC's customers accounted for approximately 15% of revenues in 1995 and approximately 9% of trade accounts receivable as of December 31, 1995. JFC's ten largest customers, including the one customer previously disclosed, accounted for approximately 45% of revenues in 1995 and approximately 27% of trade accounts receivable as of December 31, 1995. These customers are all large national or regional firms operating in either Richmond or New York City, and most have had a long-standing relationship with JFC. 10. SUBSEQUENT EVENT: On May 10, 1996, each of the Companies and the Shareholder entered into an Asset Purchase Agreement (the Agreement) with Personnel Group of America, Inc. and its subsidiary, StaffPlus, Inc. (PGA). The Agreement provides for the acquisition by PGA of substantially all the assets of the Companies and the Companies' right and interest to certain contracts as stipulated in the Agreement as well as the assumption by PGA of trade payables and certain other liabilities up to a combined total of $330,000. The accompanying financial statements do not reflect any adjustments which may be required as a result of this transaction. Subsequent to the acquisition, PGA will own and operate each of the Companies. F-23 84 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders The Computer Resources Group, Inc. We have audited the accompanying balance sheets of The Computer Resources Group, Inc., as of May 31, 1994 and 1995, and the related statements of operations, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Computer Resources Group, Inc. as of May 31, 1994 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Phillip Goodman Accountancy Corporation Santa Clara, California, September 13, 1995 Except for the matters discussed in Note 10, as to which the date is May 20, 1996. F-24 85 THE COMPUTER RESOURCES GROUP, INC. BALANCE SHEETS
MAY 31, FEBRUARY ------------------------ 29, 1994 1995 1996 ---------- ---------- ----------- (UNAUDITED) ASSETS Current assets: Cash.................................................... $ 3,689 $ 54,705 $ 30,043 Accounts receivable, less allowance for doubtful accounts ($30,000 in 1995, $20,000 in 1994 and $30,000 at February 29, 1996)........................ 1,950,147 2,948,977 3,466,916 Employee advances....................................... 2,000 1,696 4,440 Notes receivable from stockholder (Note 8).............. 7,759 17,348 11,218 Prepaid expenses........................................ 140,831 196,713 165,422 Income tax refund....................................... -- 1,200 1,200 ---------- ---------- ----------- Total current assets............................ 2,104,426 3,220,639 3,679,239 ---------- ---------- ----------- Long term assets: Notes receivable from stockholder (Note 8).............. 342,241 333,871 324,043 Property and equipment (Note 3)......................... 261,661 284,184 315,138 Other assets............................................ 111,444 117,035 135,354 ---------- ---------- ----------- Total long term assets.......................... 715,346 735,090 774,535 ---------- ---------- ----------- Total assets.................................... $2,819,772 $3,955,729 $ 4,453,774 ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable (Note 4)............................... $1,145,262 $1,659,283 $ 2,284,514 Deferred income taxes (Note 2).......................... 24,000 17,000 17,000 Line of credit (Note 6)................................. 675,000 1,235,000 200,000 Notes payable to stockholders (Note 6).................. 75,000 -- 50,260 Short term lease obligations............................ -- 18,979 18,996 Other liabilities....................................... 13,713 -- -- ---------- ---------- ----------- Total current liabilities....................... 1,932,975 2,930,262 2,570,770 Long term liabilities: Long term lease obligations............................. -- 46,888 33,197 Deferred rent (Note 6).................................. 202,883 230,560 249,942 ---------- ---------- ----------- Total long term liabilities..................... 202,883 277,448 283,139 ---------- ---------- ----------- Total liabilities (Note 6)...................... 2,135,858 3,207,710 2,853,909 ---------- ---------- ----------- Stockholders' equity: (Notes 7 and 8) Common stock, no par value; 10,000,000 shares authorized; shares issued and outstanding: 244,899 shares (1995), 246,337 shares (1994)................................ 677,764 668,564 632,164 Retained earnings....................................... 6,150 79,455 967,701 ---------- ---------- ----------- Total stockholders' equity...................... 683,914 748,019 1,599,865 ---------- ---------- ----------- Total liabilities and stockholders' equity...... $2,819,772 $3,955,729 $ 4,453,774 ========= ========= =========
See accompanying notes to financial statements and auditors' report. F-25 86 THE COMPUTER RESOURCES GROUP, INC. STATEMENTS OF OPERATIONS
NINE MONTHS ENDED FEBRUARY FEBRUARY YEARS ENDED MAY 31, 28, 29, -------------------------- ----------- ----------- 1994 1995 1995 1996 ----------- ----------- ----------- ----------- (UNAUDITED) Revenues: Contract fees billed.................. $17,136,222 $21,229,686 $15,415,602 $21,021,086 Operating Expenses: Contract programmer fees and salaries........................... 12,326,375 15,228,441 11,051,992 15,161,375 Other salaries........................ 3,141,294 4,142,789 2,926,686 3,419,020 Rent (Note 6)......................... 351,624 332,820 296,621 265,007 Advertising and promotion............. 144,438 137,337 105,572 116,037 Other operating expenses.............. 767,219 1,170,073 828,207 1,016,527 ----------- ----------- ----------- ----------- 16,730,950 21,011,460 15,209,078 19,977,966 ----------- ----------- ----------- ----------- Income from operations............. 405,272 218,226 206,524 1,043,120 Other Income (Expenses): Other income.......................... 12,670 31,244 33,444 24,343 Interest expense...................... (96,976) (120,140) (69,810) (95,817) Gain/(Loss) from partnership interest (Note 8)........................... 1,730 (1,704) -- -- Loss on disposal of assets............ -- (56,057) -- -- ----------- ----------- ----------- ----------- (82,576) (146,657) (36,366) (71,474) ----------- ----------- ----------- ----------- Income before Income Tax Provision...... 322,696 71,569 170,158 971,646 Income Tax Expense (Note 2)............. 7,000 (6,200) 2,500 14,575 ----------- ----------- ----------- ----------- Net Income............................ $ 315,696 $ 77,769 $ 167,658 $ 957,071 ========== ========== ========== ==========
THE COMPUTER RESOURCES GROUP, INC. STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK TOTAL -------------------- RETAINED STOCKHOLDERS' SHARES AMOUNT EARNINGS EQUITY ------- -------- --------- ------------- Balance at May 31, 1993....................... 226,754 $615,689 $(309,546) $ 306,143 Shares issued under Employee Stock Bonus Plan..................................... 19,583 62,075 -- 62,075 Net Income.................................. -- -- 315,696 315,696 ------- -------- --------- ------------- Balance at May 31, 1994....................... 246,337 $677,764 $ 6,150 $ 683,914 Shares issued under Employee Stock Bonus Plan..................................... 3,482 -- -- -- Shares redeemed............................. (4,920) (9,200) (4,464) (13,664) Net Income.................................. -- -- 77,769 77,769 ------- -------- --------- ------------- Balance at May 31, 1995....................... 244,899 $668,564 $ 79,455 $ 748,019 Shares redeemed, unaudited.................. (10,065) (36,400) (68,825) (105,225) Net Income, unaudited....................... -- -- 957,071 957,071 ------- -------- --------- ------------- Balance at February 29, 1996, unaudited....... 234,834 $632,164 $ 967,701 $ 1,599,865 ======= ======== ========= ==========
See accompanying notes to financial statements and auditors' report. F-26 87 THE COMPUTER RESOURCES GROUP, INC. STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED YEARS ENDED MAY 31, FEBRUARY 28, FEBRUARY 29, ---------------------- ------------- ------------ 1994 1995 1995 1996 --------- --------- ------------- ------------ (UNAUDITED) Cash flows from operating activities: Net Income.................................. $ 315,696 $ 77,769 $ 167,658 $ 957,071 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization............. 134,068 155,338 101,696 59,331 Loss on write-off of fixed assets......... 1,345 56,057 -- -- Deferred taxes (credit)................... (4,000) (7,000) (1,224) -- Income tax refund......................... -- (1,200) (2,484) -- (Increase)/Decrease in accounts receivable............................. 174,309 (998,830) (758,976) (517,939) (Increase)/Decrease in employee advances............................... 5,236 304 (16,655) (2,744) (Increase)/Decrease in note receivable............................. -- (1,219) (1,423) 15,958 (Increase)/Decrease in prepaid expenses... 19,535 (55,882) 88,468 31,291 (Increase)/Decrease in other assets....... 39,742 (5,591) (2,831) (18,319) Increase/(Decrease) in accounts payable... (197,160) 427,218 144,011 346,867 Increase/(Decrease) in deferred rent...... 103,678 27,677 20,911 19,382 --------- --------- ------------- ------------ Total adjustments................. 276,753 (403,128) (428,507) (66,173) --------- --------- ------------- ------------ Net Cash provided by (used in) operating activities............ 592,449 (325,359) (260,849) 890,898 Cash flow from investing activities: Additions to fixed assets................. (59,787) (233,918) (148,183) (90,285) Cash flow from financing activities: Increase/(Decrease) in bank overdraft.............................. 14,552 86,803 246,392 278,364 Principal borrowing (repayment) on line of credit................................. (381,639) 560,000 219,987 (1,035,000) Increase/(Decrease) in other liabilities............................ (15,426) 52,154 (13,713) (13,674) Principal borrowing on notes payable...... 424,000 -- -- 93,826 Principal repayment on notes payable................................ (635,950) (75,000) -- (43,566) Proceeds from issuance of common stock.... 62,075 -- -- -- Repurchase of common stock................ -- (13,664) -- (105,225) --------- --------- ------------- ------------ Net cash provided by (used in) financing activities............ (532,388) 610,293 452,666 (825,275) --------- --------- ------------- ------------ Net increase (decrease) in cash............. 274 51,016 43,634 (24,662) Cash, beginning of year..................... 3,415 3,689 3,689 54,705 --------- --------- ------------- ------------ Cash, end of year........................... $ 3,689 $ 54,705 $ 47,323 $ 30,043 ========= ========= ========== ========== Supplemental disclosure of cash flow information: Income taxes paid......................... $ 800 $ 2,000 $ 14,250 $ 1,200 Interest paid............................. 96,976 120,140 69,810 95,817 ========= ========= ========== ==========
See accompanying notes to financial statements and auditors' report. F-27 88 THE COMPUTER RESOURCES GROUP, INC. NOTES TO FINANCIAL STATEMENTS (SEE AUDITORS' REPORT) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Computer Resources Group, Inc. (CRG) (the Company) provides a full range of computer consulting services primarily in the Northern California area. The computer professionals performing these services (which include project management, applications development, systems programming, analysis, design, coding, testing, networking, telecommunication and technical writing) are placed in client companies on a temporary basis. The length of the consulting projects/contracts varies, but is typically less than one year. REVENUE AND COST RECOGNITION Fees earned by the Company for rendering professional services are recognized as revenue when services have been rendered by the consultant. The cost of the fees earned includes all consultant costs related to contract performance. PROPERTY, EQUIPMENT AND RELATED DEPRECIATION Property and equipment are stated at cost. Depreciation is computed using the straight-line method over estimated useful lives of five years for all assets except for computer software. Depreciation of computer software is computed using the straight-line method over an estimated useful life of three years. In fiscal years prior to 1994, the Company had taken a full year of depreciation in the year of acquisition for any asset additions. After fiscal year 1993, only a half-year of depreciation is taken in the year of acquisition. This change in accounting estimate resulted in a decrease in depreciation of $8,235 for assets placed in service during the 1994 fiscal year. CONCENTRATION OF CREDIT RISK The Company's services are primarily provided to customers in Northern California. The Company performs on-going credit evaluations of its customers and generally does not require collateral. Historically, credit losses have been insignificant. INTERIM FINANCIAL STATEMENTS The financial data as of February 29, 1996 and for the nine months ended February 28, 1995 and February 29, 1996 are unaudited. In the opinion of the Company, the unaudited financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations for the periods covered by these financial statements. The results of operations for the nine months ended February 29, 1996 are not necessarily indicative of the results to be expected for the full 1996 fiscal year. 2. INCOME TAXES The stockholders of CRG have elected to be taxed under the S-Corporation provision of the Internal Revenue Code and respective California tax code. For Federal taxation purposes, the net income of the Company is taxable to the individual stockholders and is not taxed at the corporate level. For California taxation purposes, S-Corporation income is taxed at the corporate level and a provision for California income taxes (using the California S-Corporation tax rates of 1.5% for 1995 and 2.5% for 1994) is included in the accompanying 1995 and 1994 statements of operations. Deferred income taxes for the years ended May 31, 1995 and 1994 have been provided using the California S-Corporation general tax rates of 1.5% and 2.5%, respectively, applied to timing differences between income for financial statement purposes and taxable income. The differences result primarily from F-28 89 THE COMPUTER RESOURCES GROUP, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) the use of cash basis for income tax reporting and financial statement depreciation in excess of income tax depreciation. The Income Tax Provision consists of:
1994 1995 ------- ------- Current: State............................................................ $11,000 $ 800 Deferred taxes, net.............................................. (4,000) (7,000) ------- ------- Total Income Tax Provision............................... $ 7,000 $(6,200) ======= =======
3. PROPERTY AND EQUIPMENT Property and equipment consists of:
1994 1995 -------- -------- Leasehold improvements......................................... $ 28,379 $ 28,379 Office and computer equipment.................................. 502,809 344,886 Furniture and fixtures......................................... 147,003 39,050 -------- -------- 678,191 412,315 Less Accumulated depreciation............................... (416,530) (128,131) -------- -------- Total Property and equipment........................... $261,661 $284,184 ======== ========
Depreciation expense for 1995 and 1994 was $155,338 and $134,068, respectively. 4. ACCOUNTS PAYABLE Accounts payable consists of:
1994 1995 ---------- ---------- Accounts payable.............................................. $ 892,057 $1,319,275 Bank overdraft................................................ 253,205 340,008 ---------- ---------- Total Accounts payable.............................. $1,145,262 $1,659,283 ========= =========
5. RETIREMENT PLANS The Company has a defined contribution pension (Money Purchase) plan for the benefit of all eligible employees. Contributions are determined at 5% of eligible compensation. There were no pension plan contributions for both 1995 and 1994. The Company has filed an Application for Determination with the Internal Revenue Service relating to termination of the pension plan, effective for the year ended May 31, 1994, and no further contributions were made in 1994 or subsequent years pending approval from the Internal Revenue Service. The Company also has defined contribution profit sharing (Cash Option and 401(k)) plans for the benefit of all eligible employees. Contributions are determined annually by vote of the Board of Directors, not to exceed 15% of eligible compensation. There were no cash option profit sharing contributions for 1995 and 1994. In January 1995, the Company instituted an employer matching contribution for the 401(k) plan for a portion of participant contributions. At May 31, 1995, the Company contributed $42,741. The vesting periods for both plans begin at 2 full years of service and become fully vested after 6 full years of service. Employees become eligible under both plans upon completion of 500 hours of service. F-29 90 THE COMPUTER RESOURCES GROUP, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 6. COMMITMENTS LINE OF CREDIT The Company has a $1,750,000 line of credit secured by accounts receivable and property and equipment. The line of credit bears interest at the rate of prime plus 1.5% and may be cancelled with 120 days written notice. Richard Green, Chairman and Chief Executive Officer, is the personal guarantor of the line of credit up to $500,000. This line of credit was used to pay off principal and interest of $855,013 on the original line of credit at October 21, 1994, and is also used for working capital purposes. The outstanding balance at May 31, 1995 was $1,235,000. The line of credit is due in full, unless it is extended, on November 2, 1995. As part of the line of credit requirements, the Company is required to maintain the following loan covenants: Tangible net worth of $800,000. Trading capital greater than $300,000. Leverage Ratio -- the ratio of total liabilities to tangible net worth should be less than 3.00 to 1.00. Trading Ratio -- the ratio of trading assets to trading liabilities should be greater than 1.15 to 1.00. The Company must maintain profitable operations. The Company is not in compliance with these ratios as of May 31, 1995. The bank waived compliance with the above covenants in a letter dated September 7, 1995. NOTES PAYABLE
1994 1995 ------- ------- Unsecured note payable to stockholder at an interest rate of prime plus 2.0%, principal and interest due May 31, 1995...... $75,000 $ -- ------- ------- Total................................................. 75,000 -- Less Current portion of Notes Payable........................... 75,000 -- ------- ------- Long term portion of Notes Payable.............................. $ -- $ -- ======= =======
CAPITALIZED LEASES Future minimum lease payments for capitalized lease obligations at May 31, 1995 are as follows: 1996....................................................................... $28,492 1997....................................................................... 28,492 1998....................................................................... 16,805 1999....................................................................... 9,842 2000....................................................................... 743 2001 and beyond............................................................ -- ------- Total minimum lease payments............................................. 84,374 Less: amount representing interest....................................... 18,507 ------- Present value of minimum lease payments.................................. 65,867 Current portion.......................................................... 18,979 ------- Total non-current portion........................................ $46,888 =======
F-30 91 THE COMPUTER RESOURCES GROUP, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) OPERATING LEASES The Company is obligated under various operating leases for its office space and for office and computer equipment. Minimum annual rentals are as follows:
OFFICE & COMPUTER OFFICE LEASE EQUIPMENT ------------ ----------------- 1996...................................................... $ 276,689 $41,356 1997...................................................... 300,544 20,336 1998...................................................... 329,445 1,813 1999...................................................... 291,409 -- 2000...................................................... 264,240 -- 2001 and beyond........................................... 1,255,140 -- ------------ ----------------- $ 2,717,467 $63,505 ========= =============
Office rental expense for 1995 and 1994 was $332,820 and $351,624, respectively; equipment rental expense under operating leases was $48,584 for 1995. Richard Green, Chairman and Chief Executive Officer, has provided a personal guarantee in the amount of $100,000 for the lease of the Company's San Francisco office on Battery Street. The Battery Street lease provides for a 12 year term with free rent for the first six months and a 50% abatement on rent for the next six months. It has fixed rent increases over the lease term. Rent expense on such a lease must be expensed on a straight-line basis over the life of the lease. This results in an increase of rent expense over rent actually paid for the first few years of the lease. This difference is placed in an accrued rent account which is expensed in the latter part of the lease when rent expense is lower than actual rent paid. For 1995 and 1994, the increase in rent expense over rent actually paid is $126,841 and $103,677, respectively. Net income is decreased by those amounts. 7. EMPLOYEE STOCK BONUS PLAN The Company previously had an employee stock bonus plan for key employees which terminated during fiscal year 1994. The plan provides for the sale (repurchase) of shares to (from) key employees at the book value of the shares of stock issued and outstanding at the end of the previous fiscal year. At May 31, 1995, there were 18,145 issued and outstanding shares subject to possible redemption should the respective stockholder's employment with the Company be terminated. ADDITIONAL SHARES ISSUED As a result of restatements to the 1992 and 1993 financial statements, the Company issued additional stock in 1995. An adjusted number of shares was issued to each employee participating in the plan during those years. The Company re-calculated the shares which would have been issued at the correct prices in 1992 and 1993, and corrected the number of shares held by each participant. Although additional shares were issued, the shares' basis was decreased, and therefore the total dollar value of shares outstanding has not changed. 8. RELATED PARTY TRANSACTIONS FACILITY LEASE The Company leases office space in Santa Clara, California, from a limited partnership in which it owns a 25.33% partnership interest. The Company's share of the partnership's gain (loss) amounted to $(1,704) and $1,730 for the years ended May 31, 1995 and May 31, 1994, respectively. Rental expense of $66,258 and F-31 92 THE COMPUTER RESOURCES GROUP, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) $68,810 for the years ended May 31, 1995 and May 31, 1994, respectively, is included in operating expenses. The Company uses the equity method of accounting to report this partnership investment. NOTE RECEIVABLE The Company has a $350,000 unsecured note receivable from the majority stockholder at an interest rate of 7.87%. An interest only payment of $42,523.50 was paid as scheduled on January 21, 1994. Principal and interest are due in annual installments of $35,304.11; the first payment was made on January 21, 1995. The last installment will be paid January 21, 2014. COMMON STOCK TRANSACTIONS During the 1993 fiscal year, the Company entered into an agreement with Allen Prestegard, President and Chief Operating Officer, and Catherine Valentine, Trustees of the Prestegard Trust (a living trust), regarding the sale of common stock. The Company agreed to sell a number of shares equal to 20% of shares issued and outstanding to the Prestegard Trust. The total number of shares comprising the 20% was to be determined after the shares from the employee stock bonus plan for 1993 were issued in the 1994 fiscal year. Therefore, the transaction closed in March 1994. Allen Prestegard paid $200,000 for 46,536 shares; 45,351 of which were issued in 1993 and the remaining 1,185 were issued in 1994. The agreement also provides for the repurchase of these shares in installments over a period of time in the event of Allen Prestegard's death, permanent disability, bankruptcy or termination. The amount of the redemption purchase price to be paid by the Company shall be an amount equal to three times the book value of the Company computed on a per share basis as of the last day of the month preceding the date that the agreement is reached on the number of shares to be redeemed at that time. In addition, the Company gave Allen Prestegard the option, to be exercised within one year, to purchase another 5% of shares issued and outstanding for $50,000. This was exercised in 1994, with the purchase of 12,471 shares, bringing the Prestegard Trust's holdings in the Company up to 59,007 shares. Allen Prestegard has terminated employment with the Company. 9. TOP HEAVY STATUS OF PENSION PLAN During the fiscal year 1994, it was determined that the defined contribution plans sponsored by the Company acquired top heavy status (under Internal Revenue code Section 416) during the 1993 fiscal year, thus requiring a minimum contribution or that equivalent benefits be allocated to all participants in all defined contribution plans sponsored by the Company. The Company retained ERISA counsel and submitted a proposal to the Internal Revenue Service under the Voluntary Compliance Resolution Program. Per the proposal submitted to the Internal Revenue Service, the Company would have two alternatives: 1) Contributions made by key employees to the plans would be withdrawn; or 2) The Company would make an additional minimum contribution allocated to all participants. Under the first alternative, there would be no effect on the Company. Under the second alternative, the Company would incur an additional $128,000 of retirement plan expense and this would decrease net income by the same amount. Thus, pending the resolution of this issue with the Internal Revenue Service, the Company has an exposure range of no effect on net income to a decrease of $128,000 in net income. As the outcome is uncertain, no accrual has been made as of the date of this report. F-32 93 THE COMPUTER RESOURCES GROUP, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 10. SUBSEQUENT EVENTS On January 20, 1996, the Company entered into an agreement to repurchase certain shares of outstanding common stock per the terms of its Stock Redemption Agreement dated March 29, 1993. The Company will repurchase 5,901 shares of stock for a total of $93,826, making monthly payments of $10,000 or a percentage of revenue as determined by the Stock Redemption Agreement, whichever is greater. On April 25, 1996, the Company signed a letter of intent to sell the business and substantially all of its assets and related liabilities. The purchase price is not to exceed $23,400,000 and is to be paid over a three-year period. The four key employees would remain with the business under three-year employment and noncompete agreements. F-33 94 UNAUDITED PRO FORMA FINANCIAL STATEMENTS The following unaudited pro forma financial statements (the Unaudited Pro Forma Financial Statements) have been derived by the application of pro forma adjustments to historical consolidated financial statements, included elsewhere in this Prospectus. The unaudited pro forma statements of income for the year ended December 31, 1995, and the three-month period ended March 31, 1996, give effect to the initial public offering (the IPO) in September 1995, the acquisitions of Allegheny, Profile, Fox and CRG and the conversion of three previously franchised Nursefinders offices to Company-owned offices (collectively the Transactions or the Acquired Companies) and this offering as if such transactions were consummated as of January 1, 1995. The unaudited pro forma balance sheet gives effect to the acquisitions of Fox and CRG, the conversion of one of the Nursefinder franchises, and this offering as if such transactions had occurred on March 31, 1996. The Company's historical balance sheet as of March 31, 1996, includes the assets of Allegheny and Profile and the conversion of two of the Nursefinders franchises as those acquisitions were completed prior to such date. The Unaudited Pro Forma Financial Statements should not be considered indicative of actual results that would have been achieved had the IPO, the Transactions and this offering been consummated on the date or for the periods indicated and do not purport to indicate balance sheet data or results of operations as of any future date or for any future period. The Unaudited Pro Forma Financial Statements should be read in conjunction with the historical financial statements and the notes thereto included elsewhere in the Prospectus. The pro forma adjustments were applied to the historical financial statements to reflect and account for the Transactions as purchases. Accordingly, the pro forma data reflect the preliminary allocation of the purchase price paid for the Acquired Companies based on the estimated fair value of the tangible and intangible assets and liabilities. Management believes that the final allocation will not vary significantly from such preliminary allocation. F-34 95 PERSONNEL GROUP OF AMERICA, INC. UNAUDITED PRO FORMA BALANCE SHEET MARCH 31, 1996 (IN THOUSANDS)
IMPACT OF TRANSACTIONS ------------------------------------------------------------------------------------ OTHER 1996 PRO FORMA PRO FORMA PGA FOX TRANSACTIONS ADJUSTMENTS PRO FORMA CRG ADJUSTMENTS -------- ------ ----------- ----------- --------- ------ ----------- ASSETS Current assets: Cash.................................... $ 2,900 $ 406 $ 12 $ (418)(a) $ 2,900 $ 30 $ (30)(a) Accounts receivable..................... 35,599 1,678 966 (966)(a) 37,277 3,467 -- Prepaid expenses........................ 3,256 70 27 (54)(a) 3,299 166 -- Deferred income taxes................... 3,437 -- -- -- 3,437 -- -- -------- ------ ----------- ----------- --------- ------ ----------- Total current assets.............. 45,192 2,154 1,005 (1,438) 46,913 3,663 (30) Property and equipment, net............... 4,206 221 21 (42)(a) 4,406 315 -- Excess of cost over fair value of net assets acquired, net.................... 60,315 -- -- 19,258(b) 79,573 -- 18,653(b) Other intangibles, net.................... 1,540 -- -- 400(b) 1,940 -- 50(b) Other assets.............................. 671 13 72 (74)(a) 682 476 -- -------- ------ ----------- ----------- --------- ------ ----------- Total assets...................... $111,924 $2,388 $ 1,098 $18,104 $133,514 $4,454 $18,673 ======== ====== ========== =========== ========== ====== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable........................ $ 741 $ 38 $ 46 $ (84)(a) $ 741 $2,285 $ -- Accrued liabilities..................... 17,037 440 93 (203)(a) 17,367 302 -- Income taxes payable.................... 767 7 -- (7)(a) 767 -- -- -------- ------ ----------- ----------- --------- ------ ----------- Total current liabilities......... 18,545 485 139 (294) 18,875 2,587 -- Notes payable............................. 7,600 -- 14 21,246(a),(b) 28,860 250 20,290(b) Deferred income taxes payable............. 8,303 25 -- (25)(a) 8,303 17 (17) -------- ------ ----------- ----------- --------- ------ ----------- Total liabilities................. 34,448 510 153 20,927 56,038 2,854 20,273 Shareholders' equity: Preferred stock......................... -- -- -- -- -- -- -- Common Stock............................ 80 2 1 (3)(b) 80 632 (632)(b) Additional paid-in capital.............. 73,559 63 210 (273)(b) 73,559 -- -- Retained earnings....................... 3,837 1,813 734 (2,547)(b) 3,837 968 (968)(b) -------- ------ ----------- ----------- --------- ------ ----------- Total shareholders' equity........ 77,476 1,878 945 (2,823) 77,476 1,600 (1,600) -------- ------ ----------- ----------- --------- ------ ----------- Total liabilities and shareholders' equity............ $111,924 $2,388 $ 1,098 $18,104 $133,514 $4,454 $18,673 ======== ====== ========== =========== ========== ====== =========== IMPACT OF OFFERING --------------------------- PRO FORMA PRO FORMA PRO FORMA ADJUSTMENTS AS ADJUSTED --------- ----------- ----------- Current assets: Cash.................................... $ 2,900 $24,616 $ 27,516 Accounts receivable..................... 40,744 -- 40,744 Prepaid expenses........................ 3,465 -- 3,465 Deferred income taxes................... 3,437 -- 3,437 --------- ----------- ----------- Total current assets.............. 50,546 24,616 75,162 Property and equipment, net............... 4,721 -- 4,721 Excess of cost over fair value of net assets acquired, net.................... 98,226 -- 98,226 Other intangibles, net.................... 1,990 -- 1,990 Other assets.............................. 1,158 -- 1,158 --------- ----------- ----------- Total assets...................... $156,641 $24,616 $ 181,257 ========== =========== =========== Current Liabilities: Accounts payable........................ $ 3,026 $ -- $ 3,026 Accrued liabilities..................... 17,669 -- 17,669 Income taxes payable.................... 767 -- 767 --------- ----------- ----------- Total current liabilities......... 21,462 -- 21,462 Notes payable............................. 49,400 (49,400)(c) -- Deferred income taxes payable............. 8,303 -- 8,303 --------- ----------- ----------- Total liabilities................. 79,165 (49,400) 29,765 Shareholders' equity: Preferred stock......................... -- -- -- Common Stock............................ 80 35(c) 115 Additional paid-in capital.............. 73,559 73,981(c) 147,540 Retained earnings....................... 3,837 -- 3,837 --------- ----------- ----------- Total shareholders' equity........ 77,476 74,016 151,492 --------- ----------- ----------- Total liabilities and shareholders' equity............ $156,641 $24,616 $ 181,257 ========== =========== ===========
F-35 96 PERSONNEL GROUP OF AMERICA, INC. NOTES TO UNAUDITED PRO FORMA BALANCE SHEET AS OF MARCH 31, 1996 The accompanying pro forma balance sheet as of March 31, 1996, was prepared to reflect the financial position of the Company as if the acquisitions of Fox and CRG, the conversion of one of the Nursefinders franchises, and this offering had occurred on March 31, 1996. These acquisitions and the conversion have been accounted for using the purchase method of accounting. CRG has a fiscal year-end of May 31. The accompanying pro forma balance sheet as of March 31, 1996, includes historical information of CRG as of February 29, 1996. The Company's historical balance sheet as of March 31, 1996, includes the assets and liabilities of Allegheny and Profile, and the conversion of two of the Nursefinders franchises, as these acquisitions and conversions were completed prior to such date. a) These adjustments reflect the reduction of certain assets not acquired and liabilities not assumed from the acquisitions of Fox and CRG and conversion of one of the former Nursefinders franchises by the Company. b) The pro forma adjustment to net assets represents management's preliminary allocation of the purchase price as follows (dollars in thousands):
OTHER 1996 FOX TRANSACTION CRG ------- ----------- ------- Purchase Price....................................... $18,500 $ 2,275 $19,500 Fees and expenses.................................... 485 0 790 ------- ----------- ------- Total purchase price....................... 18,985 2,275 20,290 Less: Net assets acquired................................ (1,574) (28) (1,587) Value assigned to noncompetition agreements........ (100) (300) (50) ------- ----------- ------- Excess of cost over fair value of net asset acquired........................................... $17,311 $ 1,947 $18,653 ======= ======== =======
The acquisitions of Profile and CRG provide for additional purchase price consideration upon attainment of certain earnings targets over the next three and two calendar years, respectively. Any additional consideration paid will be recorded as additional purchase price, allocated to excess of cost over fair value of net assets acquired and amortized over the remaining life of the asset. c) This adjustment reflects the application of the net proceeds of this offering as follows (dollars in thousands, except per share amount): Number of shares offered................................................. 3,500,000 Price to public.......................................................... $ 22.50 ---------- Total proceeds to the Company.................................. 78,750 Underwriting discounts and commissions and offering expenses............. (4,734) ---------- Net proceeds to the Company.................................... 74,016 Repayment of notes payable............................................... (49,400) ---------- Increase in cash and cash equivalents.......................... $ 24,616 =========
F-36 97 PERSONNEL GROUP OF AMERICA, INC. UNAUDITED PRO FORMA STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
IMPACT OF TRANSACTIONS --------------------------------------------------------------------------- OTHER 1996 PRO FORMA PGA FOX TRANSACTIONS ADJUSTMENTS PRO FORMA CRG -------- ------- ------------ ----------- --------- ------- Revenues..................................... $251,055 $15,919 $ 34,532 $ (520)(a) $300,986 $24,554 -------- ------- ------------ ----------- --------- ------- Operating expenses: Direct cost of services.................... 178,966 11,698 25,422 -- 216,086 17,623 Selling, general, and administrative....... 56,010 2,544 7,084 (1,249)(b) 64,389 6,177 Depreciation and amortization.............. 3,665 78 46 1,109(c) 4,898 146 -------- ------- ------------ ----------- --------- ------- Total operating expenses............. 238,641 14,320 32,552 (140) 285,373 23,946 Interest expense............................. -- -- 27 1,837(d) 1,864 176 -------- ------- ------------ ----------- --------- ------- Income before income taxes................... 12,414 1,599 1,953 (2,217) 13,749 432 Provision for income taxes................... 5,305 27 77 477(e) 5,886 (2) -------- ------- ------------ ----------- --------- ------- Net income................................... $ 7,109 $ 1,572 $ 1,876 $(2,694) $ 7,863 $ 434 ======== ======= ========== ========== ======== ======= Weighted average shares outstanding(g)....... 8,000 8,000 Pro forma net income per share(g)............ $ 0.89 $ 0.98 ======== ======== IMPACT OF OFFERING --------------------------- PRO FORMA PRO FORMA PRO FORMA ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED ----------- --------- ----------- ----------- Revenues..................................... $ -- $325,540 $ -- $ 325,540 ----------- --------- ----------- ----------- Operating expenses: Direct cost of services.................... -- 233,709 -- 233,709 Selling, general, and administrative....... (637)(b) 69,929 -- 69,929 Depreciation and amortization.............. 476(c) 5,520 -- 5,520 ----------- --------- ----------- ----------- Total operating expenses............. (161) 309,158 -- 309,158 Interest expense............................. 1,319(d) 3,359 (3,359)(f) -- ----------- --------- ----------- ----------- Income before income taxes................... (1,158) 13,023 3,359 16,382 Provision for income taxes................... (289)(e) 5,595 1,344(e) 6,939 ----------- --------- ----------- ----------- Net income................................... $ (869) $ 7,428 $ 2,015 $ 9,443 ========== ======== ========== ========= Weighted average shares outstanding(g)....... 8,000 11,500 Pro forma net income per share(g)............ $ 0.93 $ 0.82 ======== =========
F-37 98 PERSONNEL GROUP OF AMERICA, INC. UNAUDITED PRO FORMA STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1996 (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
IMPACT OF TRANSACTIONS ---------------------------------------------------------------------------------------------- OTHER 1996 PRO FORMA PRO FORMA PGA FOX TRANSACTIONS ADJUSTMENTS PRO FORMA CRG ADJUSTMENTS PRO FORMA ------- ------ ------------ ----------- --------- ------ ----------- --------- Revenues... $66,873 $4,166 $6,336 $ (73)(a) $77,302 $7,444 $ -- $84,746 ------- ------ ------------ ----------- --------- ------ ----------- --------- Operating expenses: Direct cost of services... 48,851 3,022 4,920 -- 56,793 5,435 -- 2,228 Selling, general, and administrative... 14,551 772 1,439 (658)(b) 16,104 1,549 (159)(b) 17,494 Depreciation and amortization... 880 18 11 233(c) 1,142 20 119(c) 1,281 ------- ------ ------------ ----------- --------- ------ ----------- --------- Total operating expenses... 64,282 3,812 6,370 (425) 74,039 7,004 (40) 81,003 Interest expense... -- -- -- 459(d) 459 11 330(d) 800 ------- ------ ------------ ----------- --------- ------ ----------- --------- Income (loss) before income taxes... 2,591 354 (34) (107) 2,804 429 (290) 2,943 Provision for income taxes... 1,101 8 -- 86(e) 1,195 6 50(e) 1,251 ------- ------ ------------ ----------- --------- ------ ----------- --------- Net income (loss)... $ 1,490 $ 346 $ (34) $(193) $ 1,609 $ 423 $(340) $ 1,692 ======= ====== ============ =========== ========= ====== =========== ========= Weighted average shares outstanding(g)... 8,000 8,000 8,000 Pro forma net income per share(g).. $ 0.19 $ 0.20 $ 0.21 ======= ========= ========= IMPACT OF OFFERING ------------------------- PRO FORMA PRO FORMA, ADJUSTMENTS AS ADJUSTED ----------- ----------- Revenues... $ -- $84,746 ----------- ----------- Operating expenses: Direct cost of services... -- 62,228 Selling, general, and administrative... -- 17,494 Depreciation and amortization... -- 1,281 ----------- ----------- Total operating expenses... -- 81,003 Interest expense... (800)(f) -- ----------- ----------- Income (loss) before income taxes... 800 3,743 Provision for income taxes... 320(e) 1,571 ----------- ----------- Net income (loss)... $ 480 $ 2,172 ========= ======== Weighted average shares outstanding(g)... 11,500 Pro forma net income per share(g).. $ 0.19 ========
F-38 99 PERSONNEL GROUP OF AMERICA, INC. NOTES TO UNAUDITED PRO FORMA STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1995, AND THE THREE-MONTH PERIOD ENDED MARCH 31, 1996 The accompanying pro forma statements of income for the year ended December 31, 1995, and the three-month period ended March 31, 1996, have been prepared to reflect the operations of the Company as if the IPO, the Transactions and this offering had occurred on January 1, 1995. CRG has a fiscal year-end of May 31. The accompanying pro forma statements of income for the year ended December 31, 1995, and the three-month period ended March 31, 1996, reflect the historical results of operations of CRG for the twelve-month period ended November 30, 1995, and the three-month period ended February 29, 1996, respectively. a) This adjustment reflects the elimination of franchise fees received from the converted Nursefinders offices. b) The adjustments to selling, general and administrative expense include the following (in thousands):
FOR THE YEAR ENDED DECEMBER 31, 1995 ------------------------- FOX AND OTHER 1996 TRANSACTIONS CRG ----------------- ----- Eliminate franchise fees paid.................................. $ (520) $ -- Adjust officer compensation.................................... (857) (637) Other.......................................................... 128 -- ----------------- ----- Total................................................ $(1,249) $(637) ============ =====
FOR THE THREE MONTHS ENDED MARCH 31, 1996 ------------------------- FOX AND OTHER 1996 TRANSACTIONS CRG ----------------- ----- Eliminate franchise fees paid.................................. $ (73) $ -- Adjust officer compensation.................................... (374) (159) Other.......................................................... (211) -- ----------------- ----- Total................................................ $ (658) $(159) ============ =====
The adjustment to officer compensation reflects the reduction of certain officers' compensation following the Transactions and the termination of employment of certain owner/officers, a result of selected officers of the Acquired Companies terminating their employment concurrent with the acquisitions. Other reflects the elimination of certain management fees and other transactions with related entities of the Acquired Companies that will be discontinued after the Transactions, offset by management's estimate of the net incremental stand-alone costs expected to be incurred by the Company for the period prior to the IPO. c) This adjustment reflects the increase in amortization expense related to the excess of cost over fair value of net assets acquired, and other intangible assets added as a result of the Transactions. The excess of cost over fair value of net assets acquired and other intangible assets will be amortized on a straight-line basis over 40 years and four to five years, respectively. d) This adjustment reflects the increase in interest expense for notes payable at an interest rate of 6.5% related to the acquisitions of Fox and CRG and the conversion of one of the Nursefinders franchises. The effect on pro forma interest expense and pro forma net income of a 1/8 percent variance in interest rates would not be material. e) This adjustment reflects the impact on income tax expense of the pro forma adjustments to income before provision for income taxes and to provide income taxes on the Acquired Companies that were F-39 100 PERSONNEL GROUP OF AMERICA, INC. NOTES TO UNAUDITED PRO FORMA STATEMENTS OF INCOME -- (CONTINUED) S corporations as if they were C corporations for federal income tax purposes based on a combined federal and state tax rate of 40%. f) This adjustment reflects the elimination of interest expense as certain proceeds of this offering are assumed to have been applied to the repayment of the notes payable. After repayment of the notes payable, the Company anticipates an increase in cash and cash equivalents of $24,616,000; the pro forma statements of income do not include any assumed return on this additional cash and cash equivalents. g) Pro forma net income per share was computed by dividing pro forma net income, after giving effect to each of the Transactions, by the weighted average number of shares outstanding during the year ended December 31, 1995, and the three months ended March 31, 1996. Pro forma net income per share, as adjusted, was computed by dividing pro forma net income, as adjusted for the impact of this offering, by the weighted average number of shares that would have been outstanding for the year ended December 31, 1995, and the three months ended March 31, 1996, as if this offering had occurred on January 1, 1995. The effect of stock options on pro forma net income per share is not material. F-40 101 ------------------------------------------------------------ ------------------------------------------------------------ NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary........................ 3 Risk Factors.............................. 7 The Company............................... 13 Use of Proceeds........................... 13 Dividend Policy........................... 13 Price Range of Common Stock............... 14 Capitalization............................ 14 Selected Consolidated Financial Data...... 15 Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. 17 Business.................................. 26 Management................................ 40 Certain Transactions...................... 49 Principal Stockholders.................... 51 Description of Capital Stock.............. 52 Underwriting.............................. 55 Legal Matters............................. 56 Experts................................... 57 Available Information..................... 57 Index to Financial Statements............. F-1
------------------------------------------------------------ ------------------------------------------------------------ 3,500,000 SHARES [PGA LOGO] PERSONNEL GROUP OF AMERICA, INC. COMMON STOCK ------------------------ P R O S P E C T U S ------------------------ PAINEWEBBER INCORPORATED SMITH BARNEY INC. J.C. BRADFORD & CO. THE ROBINSON-HUMPHREY COMPANY, INC. ------------------------ , 1996 ------------------------------------------------------------ ------------------------------------------------------------ 102 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED MAY 24, 1996 3,500,000 SHARES LOGO PERSONNEL GROUP OF AMERICA, INC. COMMON STOCK ------------------------ All the shares of Common Stock offered hereby are being offered by the Company. Of the 3,500,000 shares of Common Stock offered, 700,000 shares are being offered hereby in an international offering outside the United States and Canada (the "International Shares") and 2,800,000 shares are being offered in a concurrent offering in the United States and Canada. The price to the public and aggregate underwriting discounts and commissions per share will be identical for both offerings. See "Underwriting." The Common Stock is listed on the New York Stock Exchange under the symbol "PGA." On May 22, 1996, the last reported sale price of the Common Stock on the New York Stock Exchange was $22.50 per share. See "Price Range of Common Stock" appearing on page 14. SEE "RISK FACTORS" ON PAGE 7 OF THIS PROSPECTUS FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - ------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------
Underwriting Price to Discounts and Proceeds to Public Commissions(1) Company(2) - ------------------------------------------------------------------------------------------------- Per Share......................... $ $ $ - ------------------------------------------------------------------------------------------------- Total............................. $ $ $ - ------------------------------------------------------------------------------------------------- Total Assuming Full Exercise of Over-Allotment Option(3)........ $ $ $ - ------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------
(1) See "Underwriting." (2) Before deducting expenses estimated at $600,000, all of which are payable by the Company. (3) Assuming exercise in full of the 30-day option granted by the Company to the Underwriters to purchase up to 525,000 additional shares on the same terms, solely to cover over-allotments. See "Underwriting." ------------------------ The International Shares are offered by the International Underwriters, subject to prior sale, when, as and if delivered to and accepted by the International Underwriters, and subject to their right to reject orders in whole or in part. It is expected that delivery of the Common Stock will be made in New York City on or about , 1996. ------------------------ PAINEWEBBER INTERNATIONAL SMITH BARNEY INC. J.C. BRADFORD & CO. THE ROBINSON-HUMPHREY COMPANY, INC. ------------------------ THE DATE OF THIS PROSPECTUS IS , 1996 103 ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS CERTAIN U.S. TAX CONSEQUENCES TO NON-U.S. STOCKHOLDERS The following is a general discussion of certain United States federal tax consequences of the ownership and disposition of a share of Common Stock by a non-U.S. holder. For purposes of this discussion, a non-U.S. holder is a person or entity that, for U.S. federal income tax purposes, is a non-resident alien individual, a foreign corporation, a foreign partnership, or a non-resident fiduciary of a foreign estate or trust (that is, a trust or estate not subject to United States federal income tax on income from sources without the United States that is not effectively connected with the conduct of a trade or business within the United States). An individual may, subject to certain exceptions, be deemed to be a resident alien (as opposed to a non-resident alien) with respect to a calendar year by virtue of being present in the United States on at least 31 days in that calendar year and for an aggregate of at least 183 days during the three-year period ending in that calendar year (counting for such purposes all of the days present in that year, one-third of the days present in the immediately preceding year, and one-sixth of the days present in the second preceding year). Resident aliens are subject to U.S. federal tax as if they were United States citizens. This discussion does not consider any specific facts or circumstances that may apply to a particular non-U.S. holder and does not address any state, local or non-U.S. tax considerations. Furthermore, the following discussion is based on current provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the regulations promulgated thereunder and public administrative and judicial interpretations of the Code and regulations as of the date hereof, all of which are subject to change, which changes could be applied retroactively. Each prospective investor is urged to consult its own tax adviser with respect to the specific United States federal, state and local tax consequences of owning and disposing of a share of Common Stock, as well as any tax consequences arising under the laws of any other taxing jurisdiction. U.S. INCOME AND ESTATE TAX CONSEQUENCES Dividends. It is not currently contemplated that the Company will pay dividends on the Common Stock in the foreseeable future. A dividend that is not effectively connected with the conduct of a trade or business in the United States by a non-U.S. holder of the share of Common Stock (or, if a tax treaty applies, not attributable to a United States permanent establishment maintained by such non-U.S. holder) will be subject to U.S. withholding tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. A dividend that is effectively connected with the conduct of a trade or business in the United States by the non-U.S. holder of the share of Common Stock or, if a tax treaty applies, is attributable to a U.S. permanent establishment maintained by such non-U.S. holder, will be exempt from the withholding tax described above (if certain certification and disclosure requirements are met) and will be subject instead (i) to the U.S. federal income tax on net income that applies to U.S. persons, and (ii) with respect to corporate holders under certain circumstances, to the branch profits tax equal to 30% (or such lower rate as may be specified by an applicable income tax treaty) of its "effectively connected earnings and profits" within the meaning of the Code for the taxable year, as adjusted for certain items. A substantial portion of dividends otherwise subject to withholding may be exempt from withholding, however, under the provisions of the Code relating to a U.S. corporation that derives 80% or more of its gross income from a foreign active trade or business for the prior three taxable years. The Company does not currently qualify for the reduced withholding. Under current U.S. Treasury regulations, dividends paid to an address outside the United States are presumed to be paid to a resident of such country for purposes of the withholding discussed above (unless the payor has knowledge to the contrary), and, under the current interpretation of U.S. Treasury regulations, for purposes of determining the applicability of a tax treaty rate. However, under proposed U.S. Treasury regulations, which have not been, and may not be, put into effect, to claim the benefits of a tax treaty, a non-U.S. holder of Common Stock would be required to file certain forms accompanied by a statement from the competent authority of the treaty country that the non-U.S. holder is a resident thereof for purposes of its tax laws. Gain on Disposition of Common Stock. A non-U.S. holder generally will not be subject to U.S. federal income tax on any gain recognized on a disposition of a share of Common Stock unless (i) the gain is 55 104 ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS effectively connected with the conduct of a trade or business within the United States of the non-U.S. holder or, if a tax treaty applies, attributable to a permanent establishment maintained by the non-U.S. holder, (ii) the non-U.S. holder is an individual who holds the share as a capital asset and is present in the United States for 183 days or more in the taxable year of the disposition, (iii) the non-U.S. holder is subject to tax pursuant to the Code provisions applicable to certain U.S. expatriates, or (iv) the Company is or has been a "United States real property holding corporation" for federal income tax purposes at any time within the shorter of the five-year period preceding such disposition or such holder's holding period. The Company has determined that it has not been, is not currently and does not believe that it will become a "United States real property holding corporation" for federal income tax purposes. If an individual non-U.S. holder falls under clauses (i) or (iii) above, he or she will be taxed on his or her net gain derived from the sale under regular U.S. federal income tax rates. If the individual non-U.S. holder falls under clause (ii) above, he or she will be subject to a flat 30% tax on the gain derived from the sale which may be offset by U.S. capital losses recognized within the same taxable year of such sale (notwithstanding the fact that he or she may not be considered a resident of the United States). If a non-U.S. holder that is a foreign corporation falls under clause (i) above, it will be taxed on its gain under regular graduated U.S. federal income tax rates and, in addition, will under certain circumstances be subject to the branch profits tax equal to 30% of its "effectively connected earnings and profits" within the meaning of the Code for the taxable year, as adjusted for certain items, unless it qualifies for a lower rate under an applicable income tax treaty. A partner in a partnership or a beneficiary of a trust or estate may be subject to U.S. federal income tax on gain realized on the disposition of shares of Common Stock by the partnership, trust or estate (even though that entity may not be subject to tax) if (i) the partner or beneficiary is subject to U.S. federal income tax because of its own status, such as a United States resident or a foreign person engaged in a trade or business in the United States whose gain is effectively connected with that trade or business, or (ii) the partner or beneficiary is a nonresident alien individual or foreign corporation and the gain of the partnership, estate or trust disposing of the shares of Common Stock is effectively connected with the conduct of a trade or business within the United States by such partnership, estate or trust. Federal Estate Tax. Shares of Common Stock owned or treated as owned by an individual non-U.S. holder at the time of his or her death will be includible in his or her estate for U.S. estate tax purposes unless an applicable estate tax treaty provides otherwise. BACKUP WITHHOLDING AND INFORMATION REPORTING Dividends. The Company must report annually to the U.S. Internal Revenue Service and to each non-U.S. holder the amount of dividends paid to and the tax withheld, if any, with respect to such holder. These information reporting requirements apply regardless of whether withholding was not required because the dividends were effectively connected with a trade or business in the United States or withholding was reduced by an applicable tax treaty. Copies of these information returns may also be available under the provisions of a specific treaty or agreement with the tax authorities in the country in which the non-U.S. holder resides. Dividends that are subject to U.S. withholding tax at the 30% statutory rate or at a reduced tax treaty rate and dividends that are effectively connected with the conduct of a trade or business in the United States of the non-U.S. holder (or, if a tax treaty applies, attributable to a United States permanent establishment of the non-U.S. holder) are exempt from backup withholding of U.S. federal income tax (if certain certification and disclosure requirements are met). Backup withholding, which generally is a withholding tax imposed at a rate of 31% on certain payments to persons that fail to furnish the information required under the United States information reporting requirements, will therefore generally not apply to dividends paid on shares of Common Stock to a non-U.S. holder at an address outside the United States, under temporary U.S. Treasury regulations, unless the payor has actual knowledge that the payee is a U.S. person. Disposition of Common Stock. Information reporting and backup withholding imposed at a rate of 31% will apply to the proceeds of a disposition of Common Stock paid to or through a U.S. office of a broker unless the disposing holder certifies its non-U.S. status or otherwise establishes an exemption. Generally, U.S. information reporting and backup withholding will not apply to a payment of disposition proceeds if the payment is made outside the United States through a non-U.S. office of a non-U.S. broker. However, U.S. 56 105 ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS information reporting requirements (but not backup withholding) will apply to a payment of disposition proceeds outside the United States if (A) the payment is made through an office outside the United States of a broker that is either (i) a U.S. person, (ii) a foreign person which derives 50% or more of its gross income for certain periods from the conduct of a trade or business in the United States, or (iii) a "controlled foreign corporation" for U.S. federal income tax purposes and (B) the broker fails to maintain documentary evidence that the holder is a non-U.S. holder and that certain conditions are met or that the holder otherwise is entitled to an exemption or the broker has actual knowledge to the contrary. Temporary U.S. Treasury regulations provide that the U.S. Treasury is considering whether backup withholding will apply with respect to such payments that are not currently subject to backup withholding under the current regulations. These temporary regulations provide that any change to the regulations with respect to backup withholding or information reporting would apply on a prospective basis only. Under proposed U.S. Treasury regulations not currently in effect, backup withholding will not apply to such payments absent actual knowledge that the payee is a U.S. person. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained, provided that the required information is furnished to the U.S. Internal Revenue Service. 57 106 ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS UNDERWRITING The International Underwriters named below, acting through PaineWebber International (U.K.) Ltd., Smith Barney, Inc., J.C. Bradford & Co. and The Robinson-Humphrey Company, Inc., as Representatives (the "Representatives"), have severally agreed, subject to the terms and conditions set forth in the International Underwriting Agreement by and between the Company and the Representatives (the "International Underwriting Agreement"), to purchase from the Company, and the Company has agreed to sell to the International Underwriters, the respective number of shares of Common Stock set forth opposite their respective names below:
NUMBER INTERNATIONAL UNDERWRITERS OF SHARES --------------------------------------------------------------------------- --------- PaineWebber International (U.K.) Ltd....................................... Smith Barney Inc........................................................... J.C. Bradford & Co. ....................................................... The Robinson-Humphrey Company, Inc. ....................................... --------- Total............................................................ 700,000 =======
In addition, the U.S. Underwriters (together with the International Underwriters, the "Underwriters"), in a concurrent offering of the Common Stock to U.S. or Canadian Persons (as defined below), acting through PaineWebber Incorporated, Smith Barney Inc., J.C. Bradford & Co. and The Robinson-Humphrey Company, Inc., as U.S. Representatives (the "U.S. Representatives"), have severally agreed, subject to the terms and conditions set forth in the U.S. Underwriting Agreement by and between the Company and the U.S. Representatives (the "U.S. Underwriting Agreement") to purchase from the Company, and Company has agreed to sell to the U.S. Underwriters, 2,800,000 shares of Common Stock. The International Underwriting Agreement provides that the obligation of the International Underwriters to purchase all of the shares of Common Stock is subject to certain conditions. The International Underwriters are committed to purchase, and the Company is obligated to sell, all the shares of Common Stock offered by this Prospectus, if any of the shares of Common Stock being sold pursuant to the International Underwriting Agreement are purchased. The offering price and underwriting discounts and commissions under both underwriting agreements are identical. In general, the closing with respect to the sale of the shares of Common Stock pursuant to the International Underwriting Agreement is a condition to the closing with respect to the sale of the shares of Common Stock pursuant to the U.S. Underwriting Agreement and vice versa. PaineWebber International (U.K.) Ltd. is an affiliate of PaineWebber Incorporated. The Company has been advised by the Representatives that the International Underwriters propose to offer the Common Stock to the public initially at the public offering price set forth on the cover page of this Prospectus, and to certain dealers at such price less a concession not in excess of $ per share. The International Underwriters may allow, and such dealers may reallow, a discount not in excess of $ per share to other dealers. After the shares of Common Stock are released for sale to the public, the public offering price and the concession and discount to dealers may be changed by the Representatives. Each International Underwriter has agreed that, as part of the distribution of the shares of Common Stock, (i) it is not purchasing any shares of Common Stock for the account of any U.S. or Canadian Person, and (ii) it has not offered or sold, and will not offer or sell, directly or indirectly, any shares of Common Stock or distribute this Prospectus to any person within the United States or Canada or to any U.S. or Canadian Person. Each U.S. Underwriter has agreed that, as part of the distribution of the shares of Common Stock, (i) it is not purchasing any shares of Common Stock for the account of anyone other than a U.S. or Canadian Person, and (ii) it has not offered or sold, and will not offer or sell, directly or indirectly, any shares of Common Stock or distribute the U.S. Prospectus to any person outside the United States or Canada or to anyone other than a U.S. or Canadian Person. The foregoing limitations do not apply to stabilization transactions or to certain other transactions specified in the Agreement Between U.S. and International Underwriters described below. As used herein, "U.S. or Canadian Person" means any individual who is resident in the United States or Canada, or any corporation, pension, profit-sharing or other trust or other 58 107 ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS entity organized under or governed by the laws of the United States or Canada or any political subdivision thereof (other than a foreign branch of any U.S. or Canadian Person), and includes any U.S. or Canadian branch of a non-U.S. or Canadian Person. The Underwriters have entered into an Agreement Between U.S. and International Underwriters that provides for the coordination of their activities. Pursuant to the Agreement Between U.S. and International Underwriters, sales may be made between the U.S. Underwriters and the International Underwriters of such number of shares of Common Stock as may be mutually agreed upon. The per share price of any shares so sold shall be the public offering price set forth on the cover page of this Prospectus, less an amount not greater than the per share amount of the concession to dealers set forth above. To the extent there are sales between the U.S. Underwriters and the International Underwriters, the number of shares of Common Stock initially available for sale by the U.S. Underwriters or by the International Underwriters may be more or less than the amount appearing on the cover page of this Prospectus. The Company has granted an option to the U.S. Underwriters exercisable during the 30-day period after the date of this Prospectus, to purchase up to a maximum of 525,000 additional shares of Common Stock at the public offering price less the underwriting discounts and commissions shown on the cover page of this Prospectus. The U.S. Underwriters may exercise such option only to cover over-allotments, if any, in the sale of the shares that the U.S. Underwriters have agreed to purchase. To the extent that the U.S. Underwriters exercise this option, each of the U.S. Underwriters will be committed, subject to certain conditions, to purchase approximately the same percentage of additional shares as the percentage it is required to purchase of the total number of shares of Common Stock under the U.S. Underwriting Agreement. The Company and its officers and directors have agreed that, except with the prior written consent of PaineWebber Incorporated, during the 90 days following the date of this Prospectus they will not offer for sale, sell, grant any options, right or warrants with respect to any shares of Common Stock or any other Company capital stock, securities or instruments convertible into or exchangeable for Common Stock or other Company capital stock or otherwise dispose of, directly or indirectly, of any shares of Common Stock, such other capital stock or any other securities, instruments, options or rights convertible into or exchangeable for, or otherwise exercisable for, Common Stock or other Company capital stock, except for the Common Stock offered hereby. Notwithstanding the foregoing, the Company may (i) grant options pursuant to the Company's stock option plans in the ordinary course consistent with past practice and issue shares of Common Stock upon the exercise of any such options or under options currently outstanding and (ii) issue shares of Common Stock or other securities convertible into Common Stock or any other capital stock of any company solely to owners of capital stock of any company acquired by the Company subsequent to the date 45 days from the date of this Prospectus. Any permitted shortening of such periods and any related sales of Common Stock would not necessarily be preceded by a public announcement of the Company or the Representatives that such consent has been given. The Company has agreed to indemnify the Underwriters and their controlling persons against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"), or to contribute to payments the Underwriters may be required to make in respect thereof. PaineWebber Incorporated and Smith Barney Inc. acted as managers and received customary discounts and commissions in connection with the Company's initial public offering. The Common Stock is listed on the New York Stock Exchange under the symbol PGA. LEGAL MATTERS The validity of the shares of Common Stock offered hereby will be passed upon for the Company by Robinson, Bradshaw & Hinson, P.A., Charlotte, North Carolina. Certain legal matters relating to the offering will be passed upon for the Underwriters by Brobeck, Phleger & Harrison LLP, Newport Beach, California. 59 108 ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS EXPERTS The consolidated financial statements of the Company as of December 31, 1994 and 1995 and for each of the three years in the period ended December 31, 1995, and the combined financial statements of Judith Fox Staffing Companies as of December 31, 1995, and for the year then ended, included in this Prospectus have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said reports. The financial statements of The Computer Resources Group, Inc. as of May 31, 1994 and 1995 and for the years then ended included in this Prospectus have been audited by Phillip Goodman Accountancy Corporation, independent auditors, as stated in their report thereon, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said reports. AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "SEC" or the "Commission") a Registration Statement on Form S-1 (the "Registration Statement") under the Securities Act with respect to the Common Stock being offered by this Prospectus. As permitted by the rules and regulations of the Commission, this Prospectus omits certain information, exhibits and undertakings contained (or to be contained) in the Registration Statement. Statements made in this Prospectus as to the contents of any contract, agreement or other document are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to such exhibit for a more complete description of the matter involved, and each such statement is qualified in its entirety by such reference. The Company is subject to the informational and reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith, files reports and other information with the Commission. The Registration Statement and the exhibits and schedules thereto, and the reports, proxy and information statements filed by the Company with the Commission pursuant to the informational requirements of the Exchange Act, may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and should be available at the Commission's Regional Offices at 7 World Trade Center, 13th Floor, New York, New York 10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can also be obtained at prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, reports, proxy statements and other information concerning the Company (Symbol: PGA) can be inspected and copied at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005, on which the Common Stock is listed. In June 1995, The Company's former parent retained Arthur Andersen LLP as the Company's independent public accountants. The former parent had previously retained another independent public accountant to audit certain subsidiaries of the Company for one or more of the years ended December 31, 1992, 1993 and 1994. The former auditors' reports on such subsidiaries' financial statements for each of the three years ended December 31, 1994 does not cover the consolidated financial statements of the Company included in this Prospectus. Such reports did not contain adverse opinions or disclaimers of opinion and were not modified as to uncertainty, audit scope or accounting principles. There were no disagreements with the former auditors on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure at the time of the change or with respect to such subsidiaries' financial statements for each of the three years ended December 31, 1994, which, if not resolved to the former auditors' satisfaction, would have caused them to make reference to the subject matter of the disagreement in connection with their reports. Prior to retaining Arthur Andersen LLP, such subsidiaries had not consulted with Arthur Andersen LLP regarding accounting principles. 60 109 ------------------------------------------------------------ ------------------------------------------------------------ NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary........................ 3 Risk Factors.............................. 7 The Company............................... 13 Use of Proceeds........................... 13 Dividend Policy........................... 13 Price Range of Common Stock............... 14 Capitalization............................ 14 Selected Consolidated Financial Data...... 15 Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. 17 Business.................................. 26 Management................................ 40 Certain Transactions...................... 49 Principal Stockholders.................... 51 Description of Capital Stock.............. 52 Certain U.S. Tax Consequences to Non-U.S. Stockholders............................ 55 Underwriting.............................. 58 Legal Matters............................. 59 Experts................................... 60 Available Information..................... 60 Index to Financial Statements............. F-1
------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ 3,500,000 SHARES LOGO PERSONNEL GROUP OF AMERICA, INC. COMMON STOCK ------------------------- PROSPECTUS ------------------------- PAINEWEBBER INTERNATIONAL SMITH BARNEY INC. J.C. BRADFORD & CO. THE ROBINSON-HUMPHREY COMPANY, INC. ------------------------ , 1996 ------------------------------------------------------------ ------------------------------------------------------------ 110 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following is an itemized statement of the estimated expenses, other than underwriting discounts and commissions, all of which were or will be borne by the Company. Registration fee.................................................................. $ 30,535 NASD filing fee................................................................... 9,355 New York Stock Exchange listing fee............................................... 40,230 Blue Sky fees and expenses........................................................ 8,000 Accounting fees and expenses...................................................... 250,000 Printing and engraving expenses................................................... 75,000 Legal fees and expenses........................................................... 175,000 Miscellaneous fees and expenses................................................... 11,880 -------- Total................................................................... $600,000 ========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145(a) of the General Corporation Law of the State of Delaware provides that a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no cause to believe his conduct was unlawful. Section 145(b) provides that a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted under similar standards, except that no indemnification may be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the court in which such action or suit was brought shall determine that despite the adjudication of liability, such person is fairly and reasonably entitled to be indemnified for such expenses which the court shall deem proper. Section 145 further provides that to the extent a director, officer, employee or agent of a corporation has been successful in the defense of any action, suit or proceeding referred to in subsections (a) and (b) or in the defense of any claim, issue, or matter therein, he shall be indemnified against expenses actually and reasonably incurred by him in connection therewith; that indemnification provided for by Section 145 shall not be deemed exclusive of any other rights to which the indemnified party may be entitled; and that the corporation may purchase and maintain insurance on behalf of a director, officer, employee or agent of the corporation against any liability asserted against him or incurred by him in any such capacity or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liabilities under Section 145. Section 102(b)(7) of the General Corporation Law provides that a corporation in its original certificate of incorporation or an amendment thereto validly approved by stockholders may eliminate or limit personal liability of members of its board of directors or governing body for breach of a director's fiduciary duty. II-1 111 However, no such provision may eliminate or limit the liability of a director for breaching his duty of loyalty, failing to act in good faith, engaging in intentional misconduct or knowingly violating a law, paying a dividend or approving a stock repurchase that was illegal, or obtaining an improper personal benefit. A provision of this type has no effect on the availability of equitable remedies, such as injunction or rescission, for breach of fiduciary duty. The Company's Certificate of Incorporation provides that, to the extent permitted by Delaware law, each director shall not be liable for monetary damages for breach of such director's fiduciary duty as a director to the Company and its stockholders. In addition, the Company bylaws provide that the Company will indemnify, to the full extent permitted by law, its directors and officers, and may indemnify, at the discretion of the Board of Directors, employees and agents, against losses incurred by any such person by reason of the fact that such person was acting in such capacity. The Company maintains insurance for the benefit of its directors and officers insuring against certain liabilities and expenses that may be incurred by such director or officer in or arising out of his capacity as such, and insuring the Company, under certain circumstances, in the event that indemnification payments are made by the Company to such officers and directors. The Company has also entered into individual indemnification agreements with its officers and directors, pursuant to which the Company has agreed to indemnify its officers and directors, and to advance expenses to such persons, to the maximum extent permitted by applicable law. The U.S. Underwriting Agreement and the International Underwriting Agreement provide that the U.S. Underwriters or the Representatives, as applicable, shall indemnify each director of the Company, each officer of the Company who signed this Registration Statement and each person who controls the Company for certain liabilities, including certain liabilities under the Securities Act of 1933 (the "Securities Act"). ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES On July 29, 1995, the Company effected the initial issuance of its Common Stock, pursuant to which (i) the Company issued 4,000,000 shares of Common Stock to Adia Services, Inc., a California corporation and wholly owned subsidiary of Adia, S.A. (the Company's former parent), in exchange for 1,000 shares of common stock of StaffPLUS, Inc. and 32,604 shares of common stock of Thomas Staffing Services, Inc. and (ii) the Company issued 4,000,000 shares of Common Stock to Adia Services, Inc., a Delaware corporation and wholly owned subsidiary of Adia, S.A., in exchange for 1,000 shares of common stock of PFI Corp. The shares of Common Stock were issued in reliance upon the exemption from the registration requirements of the Securities Act afforded by Section 4(2) to transactions not involving a public offering. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits The following documents are filed as exhibits to this Registration Statement:
FILED HEREWITH (*), OR INCORPORATED BY REFERENCE FROM EXHIBIT TO BE FILED BY COMPANY REG. NO. PREVIOUS NUMBER DESCRIPTION AMENDMENT (**) OR REPORT EXHIBIT NO. - ------ ----------------------------------------- ------------------- ---------------- ----------- 1.1 -- Form of U.S. Underwriting Agreement ** 1.2 -- Form of International Underwriting ** Agreement 3.1 -- Amended and Restated Certificate of Incorporation of the Company 33-95228 3.1 3.2 -- Amended and Restated Bylaws of the Company 33-95228 3.2 4.0 -- Specimen Stock Certificate 33-95228 4.0 4.1 -- Rights Agreement between the Company and The First National Bank of Boston 8-K dated 1 2/20/96
II-2 112
OR FILED HEREWITH (*), INCORPORATED BY REFERENCE FROM EXHIBIT TO BE FILED BY COMPANY REG. NO. PREVIOUS NUMBER DESCRIPTION AMENDMENT (**) OR REPORT EXHIBIT NO. - ------ ----------------------------------------- ------------------- ---------------- ----------- 5.1 -- Opinion of Robinson, Bradshaw & Hinson, ** P.A. 10.1 -- 1995 Equity Participation Plan 10-Q for quarter 10.1 ended 9/30/95 10.2 -- Management Incentive Compensation Plan 10-Q for quarter 10.2 ended 9/30/95 10.3# -- Director and Officer Indemnification Agreement of James W. Napier 10-K for year 10.3 ended 12/31/95 10.4 -- License Agreement between Adia Services, Inc., a California corporation ("Adia 10-Q for quarter 10.4 California") and StaffPLUS, Inc. ended 9/30/95 10.5 -- License Agreement between Adia Services, Inc., a Delaware corporation ("Adia 10-Q for quarter 10.5 Delaware") and Nursefinders, Inc. ended 9/30/95 10.6 -- Administrative Services Agreement between the Company and Adia California 10-Q for quarter 10.6 ended 9/30/95 10.7 -- Paybill Services Agreement between the Company and Adia California 10-Q for quarter 10.7 ended 9/30/95 10.8 -- Software License Agreement between the Company and Adia California 10-Q for quarter 10.8 ended 9/30/95 10.9 -- Employment Agreement between the Company and Edward P. Drudge, Jr. 10-Q quarter 10.9 ended 9/30/95 10.10 -- Employment Agreement between the Company and Michael P. Bernard 10-Q for quarter 10.10 ended 9/30/95 10.11 -- Employment Agreement between Adia Delaware, PFI Corp. and Richard L. 33-95228 10.13 Peranton 10.12 -- Employment Agreement between Adia California and Gene C. Wilson 33-95228 10.14 10.13 -- Employment Agreement between the Company and Rosemary Payne-Harris 10-K for year 10.13 ended 12/31/95 10.14 -- Indemnification Agreement between the Company, Adia Delaware and Adia 10-Q for quarter 10.14 California ended 9/30/95 10.15 -- Tax-Sharing Agreement between the Company, Adia Delaware and Adia 10-Q for quarter 10.15 California ended 9/30/95 10.16 -- Non-Qualified Profit-Sharing Plan 10-K for year 10.16 ended 12/31/95 10.17 -- Revolving Credit Facility Loan Agreement between the Company and NationsBank of 10-Q for quarter 10.17 Texas, N.A. ended 9/30/95 10.18 -- Amendment No. 1 to Revolving Credit * Facility Loan Agreement between the Company and NationsBank, N.A. 10.19 -- Asset Purchase Agreement between the * Company and Judith Fox Staffing Companies 10.20 -- Asset Purchase Agreement between the ** Company and Computer Resources Group, Inc.
II-3 113
FILED HEREWITH (*), OR INCORPORATED BY REFERENCE FROM EXHIBIT TO BE FILED BY COMPANY REG. NO. PREVIOUS NUMBER DESCRIPTION AMENDMENT (**) OR REPORT EXHIBIT NO. - ------ ----------------------------------------- ------------------- ---------------- ----------- 10.21 -- Commitment Letter of NationsBank, N.A. * with respect to syndication of Revolving Credit Facility Loan Agreement 21.01 -- Subsidiaries of the Company * 23.01 -- Consent of Arthur Andersen LLP * 23.02 -- Consent of Phillip Goodman Accountancy * Corporation 24.1 -- Power of Attorney (included on the signature pages to this Registration Statement)
- --------------- # This Exhibit is substantially identical to Director and Officer Indemnification Agreements of the same date between the Company and the following individuals: Edward P. Drudge, Jr., Richard L. Peranton, Gene C. Wilson, Rosemary Payne-Harris, Michael P. Bernard, Kevin P. Egan, J. Roger King, Joyce G. Mazero and William Simione, Jr. Accordingly, agreements for such persons, other than Mr. Napier, have not be filed. (b) Financial Statement Schedules Not Applicable. ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes to provide to the underwriters, at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions in Item 14, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of the registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 114 SIGNATURES Pursuant to the requirements of the Securities Act, Personnel Group of America, Inc. has caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Charlotte, North Carolina, on May 24, 1996. PERSONNEL GROUP OF AMERICA, INC. By: /s/ EDWARD P. DRUDGE, JR. ------------------------------------ Edward P. Drudge, Jr. Chief Executive Officer POWER OF ATTORNEY Each undersigned director and officer of Personnel Group of America, Inc. hereby constitutes and appoints Edward P. Drudge, Jr. and Michael P. Bernard, and each of them, with full power to act without the other and with full power of substitution and resubstitution, his true and lawful attorneys-in-fact and agents, for him and in his name, place, and stead, in any and all capacities, to sign on his behalf any and all amendments (including post-effective amendments and amendments thereto) to this Registration Statement and any related registration statement (and any amendments thereto) filed pursuant to Rule 462(b) under the Securities Act, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Commission, and grants unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises as fully as to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all that such attorneys-in-fact or agents, or any of them, or their substitutes shall lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated below.
NAME TITLE DATE - --------------------------------------------- -------------------------------- ------------- /s/ EDWARD P. DRUDGE, JR. Chairman, Chief Executive May 24, 1996 - --------------------------------------------- Officer and Director Edward P. Drudge, Jr. (Principal Executive Officer) /s/ MICHAEL P. BERNARD Chief Financial Officer and May 24, 1996 - --------------------------------------------- Director (Principal Financial Michael P. Bernard Officer and Accounting Officer) /s/ KEVIN P. EGAN Director May 24, 1996 - --------------------------------------------- Kevin P. Egan /s/ J. ROGER KING Director May 24, 1996 - --------------------------------------------- J. Roger King /s/ JAMES V. NAPIER Director May 24, 1996 - --------------------------------------------- James V. Napier /s/ WILLIAM J. SIMIONE, JR. Director May 24, 1996 - --------------------------------------------- William J. Simione, Jr.
II-5 115 EXHIBIT INDEX
INCORPORATED BY REFERENCE FROM FILED HEREWITH(*), OR --------------------------------- EXHIBIT TO BE FILED BY COMPANY REG. NO. PREVIOUS NUMBER DESCRIPTION AMENDMENT(**) OR REPORT EXHIBIT NO. - ------ ---------------------------------------------- ------------------ ----------------- ------------ 1.1 -- Form of U.S. Underwriting Agreement ** 1.2 -- Form of International Underwriting Agreement ** 3.1 -- Amended and Restated Certificate of 33-95228 3.1 Incorporation of the Company 3.2 -- Amended and Restated Bylaws of the Company 33-95228 3.2 4.0 -- Specimen Stock Certificate 33-95228 4.0 4.1 -- Rights Agreement between the Company and The 8-K dated 1 First National Bank of Boston 5.1 -- Opinion of Robinson, Bradshaw & Hinson, P.A. ** 2/20/96 10.1 -- 1995 Equity Participation Plan 10-Q for quarter 10.1 ended 9/30/95 10.2 -- Management Incentive Compensation Plan 10-Q for quarter 10.2 ended 9/30/95 10.3 -- Director and Officer Indemnification Agreement 10-K for year 10.3 of James W. Napier ended 12/31/95 10.4 -- License Agreement between Adia Services, Inc., 10-Q for quarter 10.4 a California corporation ("Adia California") ended 9/30/95 and StaffPLUS, Inc. 10.5 -- License Agreement between Adia Services, Inc., 10-Q for quarter 10.5 a Delaware corporation ("Adia Delaware") and ended 9/30/95 Nursefinders, Inc. 10.6 -- Administrative Services Agreement between the 10-Q for quarter 10.6 Company and Adia California ended 9/30/95 10.7 -- Paybill Services Agreement between the Company 10-Q for quarter 10.7 and Adia California ended 9/30/95 10.8 -- Software License Agreement between the Company 10-Q for quarter 10.8 and Adia California ended 9/30/95 10.9 -- Employment Agreement between the Company and 10-Q quarter 10.9 Edward P. Drudge, Jr. ended 9/30/95 10.10 -- Employment Agreement between the Company and 10-Q for quarter 10.10 Michael P. Bernard ended 9/30/95 10.11 -- Employment Agreement between Adia Delaware, 33-95228 10.13 PFI Corp. and Richard L. Peranton 10.12 -- Employment Agreement between Adia California 33-95228 10.14 and Gene C. Wilson 10.13 -- Employment Agreement between the Company and 10-K for year 10.13 Rosemary Payne-Harris ended 12/31/95 10.14 -- Indemnification Agreement between the Company, 10-Q for quarter 10.14 Adia Delaware and Adia California ended 9/30/95 10.15 -- Tax-Sharing Agreement between the Company, 10-Q for quarter 10.15 Adia Delaware and Adia California ended 9/30/95 10.16 -- Non-Qualified Profit-Sharing Plan 10-K for year 10.16 ended 12/31/95 10.17 -- Revolving Credit Facility Loan Agreement 10-Q for quarter 10.17 between the Company and Nations Bank of Texas, ended 9/30/95 N.A. 10.18 -- Amendment No. 1 Revolving Credit Facility Loan * Agreement between the Company and NationsBank, N.A.
116
INCORPORATED BY REFERENCE FROM FILED HEREWITH(*), OR --------------------------------- EXHIBIT TO BE FILED BY COMPANY REG. NO. PREVIOUS NUMBER DESCRIPTION AMENDMENT(**) OR REPORT EXHIBIT NO. - ------ ---------------------------------------------- ------------------ ----------------- ------------ 10.19 -- Asset Purchase Agreement between the Company * and Judith Fox Staffing Companies 10.20 -- Asset Purchase Agreement between the Company ** and Computer Resources Group, Inc. 10.21 -- Commitment Letter of NationsBank, N.A. with * respect to syndication of Revolving Credit Facility Loan Agreement 21.01 -- Subsidiaries of the Company * 23.01 -- Consent of Arthur Andersen LLP * 23.02 -- Consent of Phillip Goodman Accountancy * Corporation 24.1 -- Power of Attorney (included on the signature pages to this Registration Statement)
EX-10.18 2 AMENDMENT NO 1 REVOLVING CREDIT FACILITY LOAN 1 EXHIBIT 10.18 AMENDMENT NO. 1 TO CREDIT AGREEMENT THIS AMENDMENT AGREEMENT (this "Agreement" or "Amendment No. 1"), dated as of May 20, 1996, among PERSONNEL GROUP OF AMERICA, INC., a Delaware corporation (the "BORROWER"), the financial institutions and other entities listed on the signature pages hereof as Lenders (collectively, the "LENDERS" and each a "LENDER"), and NATIONSBANK, N.A., a national banking association, as agent for the Lenders (in such capacity, the "AGENT"); W I T N E S S E T H: WHEREAS, pursuant to that certain Credit Agreement, dated as of September 29, 1995 (the "EXISTING CREDIT AGREEMENT"), among the Borrower, the Initial Lenders signatories thereto, and NationsBank of Texas, N.A. (the "INITIAL AGENT"), the Initial Lenders made certain loans and advances to the Borrower; WHEREAS, the Initial Agent has resigned from its capacity as agent under the Credit Agreement and the Lenders have appointed the Agent to serve in such capacity for the benefit of the Lenders; WHEREAS, the Borrower, the Lenders, and the Agent desire that certain amendments be made to the Existing Credit Agreement; NOW, THEREFORE, based upon the foregoing, and for good and valuable consideration, the sufficiency and receipt of which is hereby acknowledged, the parties hereby agree as follows: PART I DEFINITIONS SUBPART 1.1. Certain Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Agreement, including its preamble and recitals, have the following meanings (such meanings to be equally applicable to the singular and plural forms thereof): "Amended Credit Agreement" means the Existing Credit Agreement as amended hereby. "Amendment No. 1 Effective Date" is defined in Subpart 3.1. SUBPART 1.2. Other Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Amendment, including its preamble and recitals, have the meanings provided in the Amended Credit Agreement. 2 PART II AMENDMENTS TO EXISTING CREDIT AGREEMENT Effective on (and subject to the occurrence of) the Amendment No. 1 Effective Date, the Existing Credit Agreement is hereby amended in accordance with this Part II. Except as so amended, the Existing Credit Agreement, the Notes and the other Loan Documents shall continue in full force and effect. SUBPART 2.1 AMENDMENTS TO THE INTRODUCTION. The first paragraph of the Existing Credit Agreement is amended to read in its entirety as follows: THIS CREDIT AGREEMENT, dated as of September 29, 1995, and amended as of May 20, 1996, is by and among PERSONNEL GROUP OF AMERICA, INC., a Delaware corporation (the "BORROWER"), NationsBank, N.A. ("NATIONSBANK") and the other financial institutions becoming lenders hereunder from time to time (the "LENDERS"), and NationsBank, N.A. as L/C Bank (as hereinafter defined) and as agent (in such capacity, together with any successor in such capacity appointed pursuant to Article VII hereof, the "AGENT") for the Lenders and the L/C Bank hereunder. SUBPART 2.2 AMENDMENTS TO ARTICLE I. Article I of the Existing Credit Agreement is hereby amended by inserting, in the alphabetically appropriate place, the following definition: "AMENDMENT NO. 1" means that Amendment No. 1 to the Credit Agreement, dated as of May 20, 1996, among the Borrower, the Agent and the Lenders, amending this Credit Agreement as then in effect. Article I of the Existing Credit Agreement is further amended by deleting the existing definition of "Agent's Account" contained therein and replacing it with the following definition: "AGENT'S ACCOUNT" means the account of the Agent maintained by the Agent with NationsBank, N.A. at its offices at 100 North Tryon Street, Charlotte, North Carolina, Account No. _____________, ABA No. 053000196, Attention: Corporate Credit Services, Reference: Personnel Group of America, Inc. Article I of the Existing Credit Agreement is further amended by deleting the existing definition of "Applicable Margin" contained therein and replacing it with the following definition: - 2 - 3 "APPLICABLE MARGIN" means 0.0% per annum for Base Rate Advances and, for Eurodollar Rate Advances, the applicable percentage per annum corresponding to the Debt Coverage Ratio in effect as of the most recent Calculation Date as shown below:
Debt Coverage Applicable Ratio Margin ------------------------------------------------------------------ Pricing Level I 0.0 - 0.5 0.625% Pricing Level II 0.5 - 1.0 0.75 % Pricing Level III 1.0 - 1.5 1.00 % Pricing Level IV 1.5 - 2.0 1.25 % Pricing Level V 2.0 - 2.5 1.50 % Pricing Level VI 2.5 - 3.0 1.75 %
The initial Applicable Margin for Eurodollar Rate Advances shall be based on Pricing Level IV and shall either remain at Pricing Level IV or, if applicable based on the then effective Debt Coverage Ratio, be adjusted on the first Calculation Date occurring after the Amendment No. 1 Effective Date. Thereafter, the Applicable Margin for Eurodollar Rate Advances shall be determined and adjusted quarterly on the date five Business Days after the date by which the Borrower is required to provide the officer's certificate in accordance with the provisions of Section 6.03(b) and (c) hereof (each a "CALCULATION DATE"). Such Applicable Margin for Eurodollar Rate Advances shall be effective from such Calculation Date until the next such Calculation Date. Any adjustment in the Applicable Margin shall be applicable to all existing Eurodollar Rate Advances as well as any new Eurodollar Rate Advances made thereafter. Article I of the Existing Credit Agreement is further amended by deleting the existing definition of "Borrower's Account" contained therein and replacing it with the following definition: "BORROWER'S ACCOUNT" means the account of the Borrower maintained by the Borrower with NationsBank at its office at 100 North Tryon Street, Charlotte, North Carolina 28255, Account No. ______________. Article I of the Existing Credit Agreement is further amended by inserting, in the alphabetically appropriate place, the following definition: - 3 - 4 "DEBT COVERAGE RATIO" means, with respect to the Borrower and its Subsidiaries on a consolidated basis, the ratio of (a) all Debt of the Borrower and its Subsidiaries to (b) the Consolidated EBITDA of the Borrower and its Subsidiaries for the period of four consecutive fiscal quarters ending as of the last day of the then most recently ended fiscal quarter. Article I of the Existing Credit Agreement is further amended by inserting, in the alphabetically appropriate place, the following definition: "FINANCING STATEMENTS" means the UCC-1 financing statements to be executed by each of the Loan Parties in order to perfect, upon filng, the security interests granted to the Agent for the benefit of the Lenders under the Security Agreement and the Pledge Agreement, and all amendments and continuation statements relating thereto. Article I of the Existing Credit Agreement is further amended by deleting the existing definition of "Lenders" and replacing it with the following definition: "LENDERS" means NationsBank, N.A. and each Eligible Assignee that shall become a party hereto pursuant to Section 9.07. Article I of the Existing Credit Agreement is further amended by deleting the existing definition of "L/C Bank" and replacing it with the following definition: "L/C BANK" means NationsBank, N.A. in its capacity as the issuer of a Letter of Credit. Article I of the Existing Credit Agreement is further amended by deleting the existing definition of "Loan Documents" and replacing it with the following definition: "LOAN DOCUMENTS" means this Agreement, the Notes, the Guaranty, each Letter of Credit Agreement and application therefor, the Security Agreement, the Pledge Agreement, and the Financing Statements. Article I of the Existing Credit Agreement is further amended by deleting the existing definition of "Permitted Liens" and replacing it with the following definition: "PERMITTED LIENS" means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced: (a) - 4 - 5 Liens for taxes, assessments, and governmental charges or levies to the extent not required to be paid under Section 6.01(b) hereof; (b) Liens imposed by law, such as materialmen's, mechanics', carriers', workmen's, and repairmen's Liens and other similar Liens arising in the ordinary course of business securing obligations that are not overdue for a period of more than 30 days or, if overdue by more than 30 days, are being diligently contested in good faith and are bonded in a manner satisfactory to the Agent and the Required Lenders in an amount equal to 100% of the Lien claim; (c) pledges or deposits to secure obligations under worker's compensation laws or similar legislation or to secure public or statutory obligations; (d) easements, rights of way and other encumbrances on title to real property that do not render title to the property encumbered thereby unmarketable or materially adversely affect the use of such property for its intended purposes; and (e) Liens in favor of the Agent for the benefit of the Lenders pursuant to the Security Agreement or the Pledge Agreement. Article I of the Existing Credit Agreement is further amended by inserting in the alphabetically appropriate place the following definition of "Pledge Agreement": "PLEDGE AGREEMENT" means the pledge agreement to be executed and delivered by each of the Loan Parties having Subsidiaries, dated as of the Amendment No. 1 Effective Date, in form and content satisfactory to the Agent, as the same may be amended, supplemented or otherwise modified from time to time. Article I of the Existing Credit Agreement is further amended by inserting in the alphabetically appropriate place the following definition of "Security Agreement": "SECURITY AGREEMENT" means the security agreement to be executed and delivered by each of the Loan Parties as of the Amendment No. 1 Effective Date, in form and content satisfactory to the Agent, as the same may be amended, supplemented or otherwise modified from time to time. - 5 - 6 SUBPART 2.3 AMENDMENTS TO SECTION 2.04. Section 2.04 of the Existing Credit Agreement is amended in its entirety so that such Section now reads as follows: SECTION 2.04. REDUCTION OF THE REVOLVING COMMITMENTS. (a) Voluntary Reductions. The Borrower shall have the right, upon at least three Business Days' notice to the Agent, to terminate in whole or reduce ratably in part the unused portions of the respective Revolving Commitments of the Lenders; provided, however, that (i) each partial reduction shall be in an aggregate amount of $5,000,000 or any multiple of $1,000,000 in excess thereof, and (ii) the aggregate amount of the Revolving Commitments shall not be reduced pursuant to this Section 2.04 to an amount less than the sum of (A) the aggregate principal amount of all Revolving Advances then outstanding, and (B) the aggregate amount of all Letter of Credit Obligations then outstanding. (b) Mandatory Reduction. Notwithstanding any other term, provision or condition of this Agreement or any other Loan Document, the aggregate amount of the Revolving Commitments shall reduce to $30,000,000.00 on June 30, 1996. SUBPART 2.4 AMENDMENTS TO SECTION 2.05. Section 2.05 of the Existing Credit Agreement is amended by re-numbering existing Section 2.05(c) as a new Section 2.05(d), and inserting a new Section 2.05(c) which reads in its entirety as follows: (c) Mandatory Prepayments from the Proceeds of Equity Contributions or the Issuance of Stock. Within five Business Days (or such longer period of time agreed to by the Required Lenders) of each date on which the Borrower or any of its Subsidiaries receives proceeds from any equity contributions or proceeds from the issuance of stock from and after the Amendment No. 1 Effective Date (exclusive of the issuance of any stock pursuant to the exercise by executives of the Borrower or its Subsidiaries of any stock options issued pursuant to the 1995 Equity Participation Plan), the Borrower shall pay, or shall cause such Subsidiary to pay, such proceeds to the Agent for the ratable account of the Lenders; provided, however, that in the event of any such prepayment of a Eurodollar Rate Advance other than on the last day of the applicable Interest Period therefor, the Borrower shall be obligated to reimburse the Lenders in respect thereof pursuant to Section 9.04(c) hereof. All prepayments made pursuant to this Section 2.05(c) shall be applied - 6 - 7 to the aggregate outstanding principal amount of Revolving Advances, with any excess proceeds being retained by the Borrower or such Subsidiary for general corporate purposes and uses. The Borrower shall notify the Agent of any prepayment pursuant to this Section 2.05(c) at least two Business Days prior to the date on which such prepayment is required to be made, but the failure of the Borrower to give such notice shall not affect the obligation of the Borrower to make such prepayment on a timely basis hereunder. SUBPART 2.5 AMENDMENTS TO SECTION 2.06. Section 2.06 of the Existing Credit Agreement is amended by adding a new subsection (g) to such Section, immediately following existing subsection (f), providing as follows: (g) MANDATORY BASE RATE. Notwithstanding any other term, condition or provision hereof, if, at any time, the then outstanding aggregate amount of all Advances shall be in excess of $30,000,000.00, then the principal amount of Advances in excess of $30,000,000.00 shall bear interest only at the Base Rate (but subject to subsection (d) above), and the Borrower shall pay such interest in accordance with the requirements of subsection (a) above. SUBPART 2.6 AMENDMENTS TO SECTION 2.07. Section 2.07(a) of the Existing Credit Agreement is amended in its entirety so that such Section now reads as follows: (a) COMMITMENT FEES. The Borrower agrees to pay to the Agent a commitment fee on the average daily Unused Revolving Commitment of each Lender, for the account of such Lender, from the Closing Date in the case of each Initial Lender and from the effective date specified in the Assignment and Acceptance pursuant to which it became a Lender in the case of each other Lender until the Termination Date, at the rate of 0.25% per annum, payable in arrears on the last day of each March, June, September, and December, commencing on December 31, 1995 and on the Termination Date; provided, however, if the Debt Coverage Ratio of the Borrower and its Subsidiaries shall be equal to or greater than 1.5 to 1.0 as of any Calculation Date (as defined in the definition of "Applicable Margin"), then such commitment fee shall be determined at the rate of 0.375% per annum until the next succeeding Calculation Date, whereupon such fee shall be adjusted, if applicable. - 7 - 8 SUBPART 2.7 AMENDMENTS TO SECTION 3.05. Section 3.05(a)(ii) of the Existing Credit Agreement is amended in its entirety so that such Section now reads as follows: (ii) for the account of each Lender, a letter of credit fee with respect to each Letter of Credit, in each case at a rate per annum equal to the Applicable Margin for Eurodollar Rate Advances then in effect applied to such Lender's Pro Rata Share of the average daily Available Amount of such Letter of Credit outstanding from time to time. SUBPART 2.8 AMENDMENTS TO SECTION 6.01. Section 6.01(j) of the Existing Credit Agreement is amended in its entirety so that such Section now reads as follows: ADDITIONAL GUARANTORS. Within five Business Days after the formation or acquisition by the Borrower or any of its Subsidiaries of any new or additional Subsidiary, cause such new or additional Subsidiary to guarantee the Obligations hereunder by executing and delivering to the Agent an Amendment to Guaranty in substantially the form of Exhibit G, and to grant to the Agent for the benefit of the Lenders a security interest by executing and delivering to the Agent (i) an Amendment to Security Agreement in substantially the form of Exhibit H and (ii) all Financing Statements reasonably requested by the Agent in relation thereto. SUBPART 2.9 AMENDMENTS TO SECTION 6.02. Section 6.02(d)(iii) of the Existing Credit Agreement is amended in its entirety so that such Section now reads as follows: (iii) the Borrower and its Subsidiaries may make any Permitted Acquisition so long as (A) no Default exists or would result therefrom, (B) such Permitted Acquisition would not constitute a violation or default under any Contractual Obligation or Requirement of Law, (C) in any fiscal year other than 1996, the aggregate consideration for all such Permitted Acquisitions in such fiscal year shall not exceed $15,000,000, and (D) in fiscal year 1996, such Permitted Acquisitions are limited to the Borrower's acquisition of The Judith Fox Staffing Companies, Profile Termporary Services, and Allegheny Personnel Services; provided, however, in the event that the Borrower receives after the Amendment No. 1 Effective Date, at least $35 million in proceeds of additional equity contributions or proceeds from the issuance of additional capital stock, then the Borrower or its Subsidiaries may also acquire in fiscal year 1996 all or substantially all of the assets, or all of - 8 - 9 the capital stock or equity interests in Computer Resources Group, Inc. for aggregate consideration for such acquisition not to exceed $20,000,000, exclusive of assumed liabilities and any "earn-out" or other contingent payment obligations (not to exceed $5 million in the aggregate for all such contingent payment obligations) incurred in connection therewith. SUBPART 2.10 GENERAL AMENDMENT TO TIME REFERENCES. All references in the Existing Credit Agreement to "Dallas, Texas time"), or similar phrases, shall be deleted and replaced with references to "Charlotte, North Carolina time". SUBPART 2.11 AMENDMENT TO SCHEDULE I. Schedule I of the Existing Credit Agreement is hereby deleted and replaced with a new Schedule I as attached to this Amendment No. 1. SUBPART 2.12 ADDITION OF EXHIBIT H. A new Exhibit H is added to the Existing Credit Agreement in the form of Appendix "B" attached to this Amendment No. 1. SUBPART 2.13 CONSENT TO ACQUISITION. NationsBank, in its capacities as a Lender and as the Agent, hereby consents to the Borrower's acquisition of The Judith Fox Staffing Companies on the terms and conditions set forth in that certain Asset Purchase Agreement dated as of May 10, 1996. PART III CONDITIONS TO EFFECTIVENESS SUBPART 3.1. AMENDMENT NO. 1 EFFECTIVE DATE. This Amendment shall be and become effective on such date (the "Amendment No. 1 Effective Date") when all of the conditions set forth in this Subpart 3.1 shall have been satisfied, and thereafter, this Amendment shall be known, and may be referred to, as "Amendment No. 1." SUBPART 3.1.1. EXECUTION OF COUNTERPARTS. The Agent shall have received counterparts of this Amendment, each of which shall have been duly executed on behalf of the Borrower, the Agent and the Required Lenders. SUBPART 3.1.2. CONSENT. The Agent shall have received, from each person listed on the signature pages of the Consent attached hereto as Appendix "A", an executed copy of such Consent. SUBPART 3.1.3. CLOSING CERTIFICATE. The Agent shall have received a certificate from the Borrower certifying that, after giving effect to this Agreement, (i) no Default or Event of Default exists as of the Amendment No. 1 Effective Date, and (ii) - 9 - 10 the representations and warranties of the Borrower made in or pursuant to the Loan Documents shall be true in all material respects on and as of the Amendment No. 1 Effective Date. SUBPART 3.1.4. DOCUMENTATION. All documents executed or submitted pursuant hereto shall be satisfactory in form and substance to the Agent and its counsel. The Agent and its counsel shall have received all information, and such counterpart originals or such certified or other copies of such originals, as the Agent may reasonably request, and all legal matters incident to the transactions contemplated by this Amendment shall be satisfactory to the Agent. In addition, the Agent shall have received such other agreements, documents or instruments (including legal opinions) as it may from time to time reasonably request. SUBPART 3.1.5 DUE DILIGENCE. The Agent shall have completed to its own satisfaction its due diligence investigations with respect to the Borrower and its Subsidiaries. SUBPART 3.1.6 COLLATERAL DOCUMENTS. The Agent shall have received (i) the Security Agreement executed by each of the Loan Parties, (ii) the Pledge Agreement executed by each of the Loan Parties having Subsidiaries, (iii) executed Financing Statements from each of the Loan Parties in favor of the Agent (in form and content satisfactory to the Agent) for each location where such Loan Parties maintain their respective executive offices, and (iv) the original stock certificates identified in the Pledge Agreement. SUBPART 3.2 DUE AUTHORIZATION. The Borrower hereby represents and warrants to the Agent and the Lenders that its execution, delivery and performance of this Amendment No. 1 are within the Borrower's corporate powers and have been duly authorized by all necessary corporate action. PART IV MISCELLANEOUS SUBPART 4.1 CROSS-REFERENCES. References in this Amendment to any Part or Subpart are, unless otherwise specified, to such Part or Subpart of this Amendment. SUBPART 4.2 INSTRUMENT PURSUANT TO EXISTING CREDIT AGREEMENT. This Amendment is a document executed pursuant to the Existing Credit Agreement and shall (unless otherwise expressly indicated therein) be construed, administered and applied in accordance with the terms and provisions of the Existing Credit Agreement. SUBPART 4.3 NOTES AND LOAN DOCUMENTS. The Borrower hereby confirms and agrees that the Notes and the other Loan Documents - 10 - 11 are, and shall continue to be, in full force and effect, and hereby ratifies and confirms in all respects its obligations thereunder, except that, upon the effectiveness of, and on and after the date of, this Amendment, all references in each Note and each Loan Document to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Existing Credit Agreement shall mean the Amended Credit Agreement. SUBPART 4.4 COUNTERPARTS, EFFECTIVENESS, ETC. This Amendment may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. SUBPART 4.5 GOVERNING LAW; ENTIRE AGREEMENT. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF. SUBPART 4.6 SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. [Remainder of this Page Intentionally Left Blank] - 11 - 12 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective duly authorized officers as of the day and year first above written. PERSONNEL GROUP OF AMERICA, INC. ATTEST: By /s/ Rosemary Payne-Harris By /s/ Michael P. Bernard ------------------------- --------------------------------------- Title Secretary Title Chief Financial Officer & Treasurer ----------------------- ------------------------------------ (Corporate Seal) NATIONSBANK, N.A., in its individual capacity as a Lender and as Agent By /s/ Mark D. Halmrast --------------------------------------- Title Vice President ------------------------------------ - 12 - 13 SCHEDULE I COMMITMENTS AND APPLICABLE LENDING OFFICES
Name of Revolving Domestic Eurodollar Lender Commitment Lending Office Lending Office - ------ ---------- -------------- -------------- NationsBank, N.A. $35,000,000 100 N. Tryon Street 100 N. Tryon Street Charlotte, NC 28255 Charlotte, NC 28255
- 13 - 14 APPENDIX A CONSENT This Consent (this "Consent"), dated as of May 20, 1996, is delivered in connection with the Amendment No. 1 to Credit Agreement, dated as of the date hereof ("Amendment No. 1"), among PERSONNEL GROUP OF AMERICA, INC., the various financial institutions parties thereto (the "Lenders") and NATIONSBANK, N.A., as Agent (the "Agent"). Unless otherwise defined, terms used herein have the meanings provided in the Existing Credit Agreement (as defined in the Amendment No. 1) as amended by Amendment No. 1 (such Existing Credit Agreement, as so amended, being the "Amended Credit Agreement"). The undersigned, as parties to the Guaranty, hereby acknowledge the execution and delivery of Amendment No. 1, and hereby confirm and agree that the Guaranty is, and shall continue to be, in full force and effect, and hereby ratify and confirm in all respects their respective obligations thereunder, except that, upon the effectiveness of, and on and after the date of, Amendment No. 1, all references in the Guaranty to the "Credit Agreement," "thereunder," "thereof" or words of like import referring to the Existing Credit Agreement shall mean the Amended Credit Agreement. This Consent may be executed by the parties hereto in counterparts, each of which shall be deed to be an original and all of which shall constitute together but one and the same instrument. STAFFPLUS, INC., a Delaware corporation By /s/ Michael P. Bernard ------------------------------- Title Chief Financial Officer --------------------------- THOMAS STAFFING SERVICES, INC., a Delaware corporation By /s/ Michael P. Bernard ------------------------------- Title Chief Financial Officer & Treasurer --------------------------- 15 PFI, INC. By /s/ Michael P. Bernard ------------------------------- Title Treasurer ---------------------------- NURSEFINDERS, INC. By /s/ Michael P. Bernard ------------------------------- Title Treasurer ---------------------------- NF SERVICES, INC. By /s/ Michael P. Bernard ------------------------------- Title Treasurer ---------------------------- B.C.P., INC. By /s/ Michael P. Bernard ------------------------------- Title Treasurer ---------------------------- PROFILE TEMPORARY SERVICES, INC. By: /s/ Michael P. Bernard ------------------------------ Title: Vice President & Treasurer --------------------------- 16 APPENDIX B EXHIBIT H [FORM OF AMENDMENT TO SECURITY AGREEMENT] AMENDMENT TO GUARANTY This Amendment to Security Agreement (this "Amendment"), dated as of ______________, 199__, relates to the Security Agreement dated as of May 20, 1996 (as amended, modified or supplemented to date, the "Security Agreement"), executed by Personnel Group of America, Inc. (the "Borrower") and each of its subsidiaries (collectively, the "Loan Parties") in favor of the Lenders and the L/C Bank (as such terms are defined in the Credit Agreement (as hereinafter defined)) and NationsBank, N.A., as Agent for the Lenders and the L/C Bank (in such capacity, the "Agent"). In compliance with Section 6.01(j) of the Credit Agreement dated as of September 29, 1995 (as amended, modified or supplemented from time to time, the "CREDIT AGREEMENT") among the Borrower, the Agent, the Lenders and the L/C Bank, [SUBSIDIARY] (the "ADDITIONAL LOAN PARTY") and the Loan Parties hereby agree as follows (capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Security Agreement): 1. Amendment. The Security Agreement is hereby amended to add, as a Grantor thereunder, the Additional Loan Party. 2. Representations and Warranties. The Additional Loan Party represents and warrants to the Agent, the Lenders and the L/C Bank, that each of the representations and warranties of a Grantor contained in the Security Agreement is hereby made by the Additional Loan Party as of the date hereof and is true and correct as to the Additional Loan Party as of the date hereof. 3. Additional Loan Party as Grantor. The Additional Loan Party agrees to be bound by the Security Agreement as if the Additional Loan Party were an original party to the Security Agreement and shall be a Grantor for all purposes under the Security Agreement. The Additional Loan Party hereby grants to the Agent, for the benefit of the Lenders, a security interest in all of its collateral. 4. Effectiveness. This Amendment shall become effective as of the date hereof upon the execution hereof by the Loan Parties, the Additional Loan Party and the Agent and delivery hereof to the Agent. 17 5. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to the conflict of law rules thereof (other than Section 5-1401 of the New York General Obligations law). [ADDITIONAL LOAN PARTY] By:_____________________________________ Title: Notice Address: ________________________________________ ________________________________________ Attention:______________________________ PERSONNEL GROUP OF AMERICA, INC. By:_____________________________________ Title: LOAN PARTIES By:_____________________________________ Title: NATIONSBANK, N.A., as Agent By:_____________________________________ Title: EX-10.19 3 ASSET PURCHASE AGREEMENT 1 EXHIBIT 10.19 ASSET PURCHASE AGREEMENT ================================ ASSET PURCHASE AGREEMENT between PERSONNEL GROUP OF AMERICA, INC. and STAFFPLUS, INC. and JUDITH FOX COMPANIES, INC., FOX TECHNICAL, INC. and JUDITH FOX TRAINING FOR GROWTH, L.C. and JUDITH FOX Dated as of May 10, 1996 ================================ 2 TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE II SALE AND PURCHASE OF THE ASSETS 2.1 Sale and Purchase of the Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.2 Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.3 Purchase Price and Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.4 Employment; Noncompetition Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.5 Apportionments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.6 Purchase Price Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.7 No Assumed Liabilities Except as Stated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.8 Procedures for Assets Not Transferable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.9 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.10 Post-Closing Payment and Setoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1 Representations and Warranties of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.1.1. Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.1.2. Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.1.3. No Violation; Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.1.4. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.1.5. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.1.6. Governmental Authorizations; Compliance with Laws . . . . . . . . . . . . . . . . . . . 11 3.1.7. Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 3.1.8. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.1.9. No Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.1.10. Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3.1.11. Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.1.12. Fixed Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.1.13. Proprietary Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.1.14. Assumed Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.1.15. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-i- 3 3.1.16. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 3.1.17. Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.1.18. Assets Sufficient for Conduct of Business . . . . . . . . . . . . . . . . . . . . . 15 3.1.19. Accuracy of Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.1.20. Brokers; Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.2 Representations and Warranties of Buyer and PGA . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.2.1. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.2.2. Authorization; Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.2.3. No Violation; Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE IV CERTAIN COVENANTS 4.1 Access and Information; Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.2 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 4.3 Change of Corporate Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 4.4 Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 4.5 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 4.6 Lien Search . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ARTICLE V CONDITIONS PRECEDENT 5.1 Conditions to Obligation of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.1.1. Representations; Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.1.2. Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.1.3. Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.1.4. No Proceeding or Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.1.5. No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.1.6. Purchased Assets and Documents Delivered . . . . . . . . . . . . . . . . . . . . . 19 5.1.7. HSR Act Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 5.1.8. Closing Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 5.2 Conditions to Obligation of Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 5.2.1. Representations; Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 5.2.2. Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 5.2.3. No Proceeding or Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 5.2.4. Purchase Price and Documents Delivered . . . . . . . . . . . . . . . . . . . . . . 21 5.2.5. HSR Act Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
-ii- 4 ARTICLE VI INDEMNIFICATION 6.1 Indemnification by Sellers and Fox. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.2 Indemnification by Buyer and PGA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.3 Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 6.4 Procedure for Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 6.4.1. Third Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 6.4.2. Direct Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 6.4.3. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 6.5 Adjustment of Closing Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 ARTICLE VII MISCELLANEOUS 7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 7.2 Default by Buyer or PGA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 7.3 Default by Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 7.4 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 7.5 Bulk Sales Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 7.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 7.7 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 7.8 Assignment; Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 7.9 Amendment and Modification; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 7.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 7.11 Further Assurances; Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 7.12 Tax and Financial Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 7.13 Submission to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 7.14 Entire Agreement; Counterparts; Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 28 7.15 Post-Closing Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
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Exhibits A Form of Bill of Sale B Form of Contract Assignment C Form of Employment and Noncompetition Agreement D Form of Noncompetition Agreement E Form of Unsecured Promissory Note F Form of LeClair Ryan Opinion G Form of Robinson, Bradshaw & Hinson Opinion Schedules 2.1 Assumed Contracts 2.2 Excluded Assets 2.7 Other Liabilities Assumed by Buyer 3.1.1 Charter Documents 3.1.3 Sellers' Consents 3.1.4 Insurance 3.1.5 Litigation 3.1.6 Licenses and Permits 3.1.12 Fixed Assets 3.1.13 Proprietary Rights 3.1.15 Benefit Plans 3.1.17 Customer Contracts 3.2.3 Buyer's Consents
-iv- 6 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT dated as of May 10, 1996, is by and among the following: PERSONNEL GROUP OF AMERICA, INC., a Delaware corporation ("PGA"), and STAFFPLUS, INC., a Delaware corporation (the "BUYER"); JUDITH FOX COMPANIES, INC., a Virginia corporation, FOX TECHNICAL, INC., a Virginia corporation, and JUDITH FOX TRAINING FOR GROWTH, L.C., a Virginia limited liability company (each, a "SELLER" and collectively, the "SELLERS"); and JUDITH FOX, an individual resident of Keswick, Virginia and the sole owner of each of the corporate Sellers and a principal owner of the limited liability company Seller ("FOX"). STATEMENT OF AGREEMENT NOW, THEREFORE, in consideration of the premises and of the covenants made herein and of the mutual benefits to be derived herefrom, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. The following terms as used in this Agreement shall have the following meanings: "Affiliate": with reference to a Person, any Person that directly or indirectly through one or more intermediaries controls or is controlled by or is under common control with the specified Person. For purposes of this definition, "control" (including, with correlative meaning, the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. "Agreement": this Agreement, all Exhibits and Schedules hereto, and all amendments made hereto and thereto by written agreement between the parties. "Assumed Contracts": those Contracts set forth on Schedule 2.1 attached hereto. 7 "Benefit Plans": the meaning specified in SECTION 3.1.15. "Bill of Sale": the meaning specified in SECTION 2.1. "Business": the staffing, training and related businesses conducted by Sellers as of and prior to the Closing Date. "Business Day": a day other than a Saturday, Sunday or day on which commercial banks in Charlotte, North Carolina are generally closed for business. "Buyer": the meaning specified in the introductory paragraph. "Charter Documents": the meaning specified in SECTION 3.1.1. "Closing" and "Closing Date": the meanings specified in SECTION 2.9. "Closing Balance Sheet": the meaning specified in SECTION 5.1.8. "Code": the Internal Revenue Code of 1986, as amended. "Consent": the meaning specified in SECTION 3.1.3. "Contract Assignment": the meaning specified in SECTION 2.1. "Contracts": includes all contracts, licenses or agreements, whether written or oral, to which any Seller is a party or shall become a party prior to the Closing Date (other than this Agreement and the agreements executed pursuant hereto or contemplated hereby), including without limitation all supply and customer contracts; work and purchase orders; employment and consultancy contracts; contracts with shareholders; Intercompany Contracts; labor union contracts; contracts, plans and arrangements regarding any pension, retirement, deferred compensation, profit-sharing, incentive compensation, bonus, stock purchase, stock option, welfare, hospitalization or insurance plan or arrangement or any vacation pay or severance pay or any other employee benefit arrangement for its officers, employees, consultants or agents; equipment, capital and real property leases; all commitments and arrangements pursuant to which any Seller has made or will make loans or advances, or has or will have incurred debts or become a guarantor or surety or pledged its assets or its credit on or otherwise become responsible with respect to any undertaking of another (except for the negotiation or collection of negotiable instruments in transactions in the ordinary course of business); all indentures, credit agreements, loan agreements, notes, mortgages, security agreements and agreements for financing; all powers of attorney and agency agreements with any Person pursuant to which such Person is granted the authority to act for or on behalf of any Seller; and all property, casualty and other forms of insurance, excluding, however, such oral contracts and arrangements which may be terminated at will by any Seller without liability arising from such termination and which termination would not have an adverse effect on the Business. -2- 8 "ERISA": the Employee Retirement Income Security Act of 1974, as amended. "Employment Agreement": the meaning specified in SECTION 2.4. "Environmental Claim": any claim, suit, proceeding or investigation by any governmental authority or other Person alleging the violation, whether alleged or actual, by any Seller of any Environmental Law or the liability, whether fixed or contingent, actual or alleged, of any Seller pursuant to the provisions of any Environmental Law with respect to any act or omission of such Seller, or with respect to any condition existing, on or prior to the Closing Date. "Environmental Law": any and all federal, state and local laws or regulations, codes, orders, decrees, judgments, injunctions, notices or demand letters issued, promulgated, approved or entered under any of the foregoing, in each case limited to those laws and other regulations that exist on the date hereof, relating to pollution or protection of the environment, including without limitation laws relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment (including without limitation ambient air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminates, chemicals or industrial, toxic or hazardous substances or wastes, and specifically including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.A. Section Section 9601 et seq., and the Resource Conservation and Recovery Act, 42 U.S.C. Section Section 6901 et seq.. "Excluded Assets": the meaning specified in SECTION 2.2. "Excluded Liabilities": the meaning specified in SECTION 2.7. "Financial Statements": the reviewed income statements, balance sheets and statements of cash flows of Judith Fox Companies, Inc. as of December 31, 1995 and 1994 and for each of the years then ended, the internally-prepared income statements and balance sheets of Fox Technical, Inc. as of the same dates and for the same periods, the internally-prepared income statements and balance sheets of Judith Fox Training For Growth, L.C. as of December 31, 1995 and for the year then ended and the internally prepared income statements and balance sheets of each of the Sellers as of March 31, 1996 and for the fiscal quarter then ended. "Fox": the meaning specified in the introductory paragraph. "HSR Act": the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the regulations thereunder. "Income Tax" or "Income Taxes": means all federal, state or local income taxes (inclusive of any and all interest and penalties thereon) imposed on Sellers or Fox with respect -3- 9 to the assets or operations of Sellers and which are based in whole or in part upon income, but does not include any Taxes. "Intellectual Property": means all trademarks, service marks, trade dress, logos, trade names and corporate names of Sellers' and all goodwill associated therewith (including without limitation the use of Sellers' current corporate names and trade names and all translations, adaptations, derivations and combinations of the foregoing); copyrights and copyrightable works; mask works; and all registrations, applications and renewals for any of the foregoing; trade secrets and confidential information (including without limitation ideas, formulae, compositions, know-how, manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, proposals, technical data, financial, business and marketing plans, and customer and supplier lists and related information); computer software (including without limitation data, data bases, systems and related documentation); patents, patent applications, patent disclosures and inventions (whether or not patentable and whether or not reduced to practice) and any reissues, continuations, continuations-in-part, revisions, extensions or reexaminations thereof; other proprietary rights; and all copies and tangible embodiments of the foregoing (in whatever form or medium), in each case including without limitation the items set forth on Schedule 3.1.13 attached hereto (but subject in any event to SECTION 7.16 hereof). "Intercompany Contracts": means all agreements, contracts and licenses between any Seller and any of its Affiliates (including any other Seller or its Affiliates). "Intercompany Receivables": the entire amount (including principal and accrued interest) of indebtedness owed to any Seller by any of its Affiliates (including any other Seller or its Affiliates). "Lien:" with respect to any asset, any lien, security interest, claim, encumbrance, option, lease (or sublease), conditional sales agreement, title retention agreement, charge, easement or encroachment thereon. "Limitation Date": the meaning specified in SECTION 7.4. "Noncompetition Agreement": the meaning specified in SECTION 2.4. "Person": an individual, firm, partnership, association, unincorporated organization, trust, corporation, or any other entity. "PGA": the meaning specified in the introductory paragraph. "Proprietary Rights": means all of the Intellectual Property owned by, issued to or licensed to any Seller which is used in the Business, along with all income, royalties, damages and payments due or payable at Closing or thereafter (including without limitation damages and payments for past or future infringements or misappropriations thereof), the right to sue and -4- 10 recover for past infringements or misappropriations thereof and any and all corresponding rights that now or hereafter may be secured throughout the world. "Purchased Assets": the meaning specified in SECTION 2.1. "Purchase Price": the meaning specified in SECTION 2.3. "Real Property": the four office locations leased by Sellers in Richmond and Charlottesville, Virginia and New York, New York for the conduct of the Business prior to the Closing and one storage facility leased by Sellers in Richmond, Virginia, which constitute all of the real property owned, leased or otherwise used by Sellers in the Business. "Real Property Leases": all leases and lease arrangements regarding the Sellers' leases of any of the Real Property. "Seller" or "Sellers": the meaning specified in the introductory paragraph. "Tax" or "Taxes": federal, state, municipal, local or foreign taxes, assessments, additions to tax, deficiencies, duties, fees and other governmental charges or impositions of each and every kind, whether measured by properties, assets, wages, payroll, withholding, purchases, value added, payments, sales, use, business, capital stock or surplus income, and including without limitation all business, occupation, franchise, excise, stamp, leasing, lease, rent, transfer, severance and employment, income withholding and Social Security taxes, real and personal property, sales, use and other taxes, including interest, penalties and additions in connection therewith, arising from or in connection with the Business prior to the Closing Date, but in all cases excluding Income Taxes. 1.2 Interpretation. The following provisions shall govern the interpretation of this Agreement: (a) "Herein" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section, subsection, Exhibit or Schedule. (b) Headings or captions are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. (c) Words importing the singular number only shall include the plural and vice versa and words importing the masculine gender shall include the feminine and neuter genders and vice versa and words importing individuals shall include Persons and vice versa. -5- 11 (d) The calculation of time within which or following which any act is to be done or step is to be taken pursuant to this Agreement excludes the date which is the reference day in calculating such period. (e) Performance on holidays is not required hereunder. Whenever anything is required to be done or any action is required to be taken hereunder on or by a day which is not a Business Day, then such thing may be validly done and such action may be validly taken on or by the next succeeding day that is a Business Day. ARTICLE II SALE AND PURCHASE OF THE ASSETS 2.1 Sale and Purchase of the Assets. Subject to the terms and conditions of this Agreement, at the Closing, Sellers shall sell, transfer, convey, assign and deliver to Buyer, and Buyer shall purchase from Sellers, all of the assets, properties, goodwill and rights of Sellers used in the Business as a going concern of every nature, kind and description, tangible and intangible, wheresoever located and whether or not carried or reflected on the books and records of Sellers (such purchased assets being hereinafter sometimes collectively called the "PURCHASED ASSETS"), including without limitation: (a) all of Sellers' cash and cash equivalents, but only to the extent that (i) the book value of Sellers' total assets as shown on the Closing Balance Sheet is less than $1,925,000 and then only to the extent of such deficiency and (ii) Sellers elect to include such cash in lieu of any reduction in the payment otherwise due under SECTION 2.3(A); (b) all of Sellers' right, title and interest in and to all of the Assumed Contracts (but only to the extent consents to the assignment thereof can be obtained); (c) all inventories and supplies; (d) all accounts receivable, checks, negotiable instruments and chattel paper payable to or, with respect to bearer instruments, in the Sellers' possession; (e) all furniture, fixtures, equipment and machinery; (f) all leasehold interests and Sellers' interest in all improvements thereon; (g) all books and records, files and operating data relating to the Purchased Assets (but excluding the corporate, income tax and accounting records and books of Sellers); -6- 12 (h) all of Sellers' right, title and interest in and to their Proprietary Rights and Intellectual Property (subject to SECTION 7.16) and to all other licenses and governmental authorizations (but only to the extent consents to the assignment thereof can be obtained); (i) all of Sellers' telephone numbers and telephone directory listings and advertisements; (j) all claims, causes of actions, and suits which any Seller has or may have against third parties in connection with the Purchased Assets; and (k) the Business of Sellers as a going concern; and excluding only the Excluded Assets (as defined in SECTION 2.2 below). Sellers shall convey to Buyer good and marketable title to the Purchased Assets, free and clear of all Liens, which conveyance shall be made pursuant to a bill of sale substantially in the form of Exhibit A attached hereto (the "BILL OF SALE"), an assignment and assumption agreement substantially in the form of Exhibit B attached hereto (the "CONTRACT ASSIGNMENT"), and the other instruments of conveyance to be delivered pursuant to this Agreement. 2.2 Excluded Assets. Notwithstanding anything to the contrary contained herein, the Purchased Assets shall not include any of the following (collectively, the "EXCLUDED ASSETS"): (a) cash and cash equivalents of Sellers as of the Closing Date, except for cash and cash equivalents necessary to satisfy any total assets deficiency as specified in SECTION 2.1(A) if Sellers have elected to include such cash to cover any such deficiency; (b) all Contracts which are not Assumed Contracts; (c) the corporate seals, certificates of incorporation, minute books, stock books, tax returns, books of account or other records having to do with the corporate organization of Sellers; (d) any rights of Sellers under this Agreement or under any other agreement between Sellers on the one hand and Buyer or PGA on the other hand entered into on or after the date of this Agreement; (e) the rights to any of Sellers' claims for any federal, state, local or foreign Income Tax refunds or carry backs; (f) any Intercompany Contracts or Intercompany Receivables; (g) the assets listed in Schedule 2.2 attached hereto; and -7- 13 (h) all rights relating to and interests in the "On the Job" radio program (subject to the conditions set forth in SECTION 7.16). 2.3 Purchase Price and Payment. The purchase price to be paid by Buyer for the Purchased Assets shall be Eighteen Million Five Hundred Thousand Dollars ($18,500,000) (the "PURCHASE PRICE"), payable to Sellers as follows: (a) the sum of $17,500,000 (subject to adjustment as provided in SECTION 5.1.8) shall be payable at Closing in cash by wire transfer in immediately available funds to an account or accounts designated by Sellers; and (b) the sum of $1,000,000 shall be payable 90 calendar days after Closing (without interest) in cash by wire transfer in immediately available funds to an account or accounts designated by Sellers (such obligation to be evidenced by one or more unsecured promissory notes to be executed by Buyer and PGA and delivered to Sellers at Closing in the form of Exhibit E, and subject to the terms and conditions of this Agreement). 2.4 Employment; Noncompetition Agreements. (a) Sue Durnwirth shall simultaneously with the execution of this Agreement enter into an Employment and Noncompetition Agreement with Buyer or Buyer's designated Affiliate (the "EMPLOYMENT AGREEMENT"), with a term to commence as of the Closing Date and substantially in the form of Exhibit C attached hereto. (b) Fox shall enter into a Noncompetition Agreement dated the Closing Date in favor of Buyer, PGA and their Affiliates (the "NONCOMPETITION AGREEMENT") substantially in the form of Exhibit D attached hereto. 2.5 Apportionments. (a) Sales, use and transfer taxes, if any, imposed by law in connection with the sale of the Purchased Assets shall be borne and paid by Sellers. Ad valorem property and business license taxes pertaining to the Purchased Assets shall be apportioned between the parties as of the date of Closing. In respect of any payments made by or to either party, whether before or after Closing, appropriate remittances shall be made promptly to assure that such items are apportioned as of the date of Closing. Buyer shall not be obligated to pay Seller's income and capital gain taxes allocable to the sale. (b) At or immediately prior to Closing, Buyer and Sellers shall notify all persons providing electric, gas, water, telephone or other utility services to the Real Property or any part thereof to transfer such services and billing therefor to Buyer, effective at Closing, and to issue a final bill to Sellers for such utility service. Buyer shall refund -8- 14 to Sellers any payments previously made by Sellers for utility services furnished or to be furnished after Closing. (c) Each party hereto shall be entitled to avail itself of any exemption from the payment of any taxes or fees which it may enjoy. 2.6 Purchase Price Allocation. The Purchase Price, as adjusted pursuant hereto, shall be allocated among the Purchased Assets and the Noncompetition Agreement in accordance with a schedule to be delivered by Sellers on or before May 15, 1996 and subject to Buyer's reasonable approval (which shall include allocations of $100,000 to the Noncompetition Agreement and at least $1,200,000 to Judith Fox Training for Growth L.C.). The allocation set forth in such schedule shall be intended to comply with the requirements of Section 1060 of the Code. Fox, Sellers and Buyer agree to file all income tax returns or reports, including without limitation IRS form 8594, for their respective taxable years in which the Closing occurs to reflect the allocation described in such schedule and agree not to take any position inconsistent therewith before any governmental agency charged with the collection of any Tax or Income Tax or in any judicial proceeding. 2.7 No Assumed Liabilities Except as Stated. Except for (a) the performance and payment of Sellers' obligations under the Assumed Contracts after the Closing (but only to the extent such obligations are not the result of a breach or default by any Seller under any such Contract prior to Closing) and (b) trade accounts payable, normal operating accruals (including accruals for payroll and payroll tax withholding), and other liabilities specifically set forth on Schedule 2.7 of the Sellers up to but not in excess of $330,000 in the aggregate as of the Closing Date (such amount to be increased to reflect any inclusion of cash in the Purchased Assets under SECTION 2.1(A), the excess, if any, of Purchased Assets over $1,925,000 or a reduction in the payment otherwise due under SECTION 2.3(A) to account for any liabilities in excess of $330,000 assumed by Buyer and reflected on the Closing Balance Sheet), Buyer (and PGA) shall not assume or otherwise be or become liable for any debts, liabilities or obligations of Sellers or pertaining to the Sellers' ownership or operation prior to the Closing Date of the Business or any of the Purchased Assets, whether now asserted or unasserted, known or unknown, fixed or contingent (except as aforesaid, collectively, the "EXCLUDED LIABILITIES"). Fox and Sellers agree to satisfy all Excluded Liabilities whether known at Closing or thereafter determined, as and when due and Fox and Sellers shall indemnify and hold Buyer and PGA harmless therefor as provided in ARTICLE VI hereof. 2.8 Procedures for Assets Not Transferable. If any of the Assumed Contracts or any other property or rights included in the Purchased Assets are not assignable or transferable either by virtue of the provisions thereof or under applicable law without the consent of some other party or parties, Sellers shall use all reasonable efforts to obtain such consents prior to and after the Closing Date and shall notify the Buyer on or prior to the Closing Date of any consents not so obtained. If any such consent for one or more of the Assumed Contracts (other than those identified with the notation "Consent to assignment is required but such consent has been waived as a condition to Buyer's and PGA's obligation to close" on Schedule 2.1) cannot be obtained prior to Closing, Buyer either may (i) waive such requirement as a condition to closing, and in -9- 15 such event, this Agreement, and the related instruments of transfer shall not constitute an assignment or transfer thereof and the Buyer shall not assume the Sellers' obligations with respect thereto or (ii), if one or more of such contracts is, individually or in the aggregate, material to the Business, terminate this Agreement pursuant to SECTION 7.1(B). Following the Closing, Sellers shall use all reasonable efforts to obtain any consents not previously obtained as soon as possible after the Closing Date or otherwise obtain for Buyer the practical benefit of such property or rights. 2.9 Closing. The closing of the sale and purchase of the Purchased Assets (the "CLOSING") will take place at the offices of LeClair Ryan, A Professional Corporation, 707 E. Main Street, Richmond, Virginia 23219, at or before 11:00 a.m. on May 20, 1996, or at such other place, time and date as the parties may agree upon in writing (the "CLOSING DATE"). 2.10 Post-Closing Payment and Setoffs. Part or all of the payment described in SECTION 2.3(B) may be offset by Buyer against any claims for indemnity by Buyer or PGA pursuant to ARTICLE VI hereof, provided that notice of the nature and amount of such indemnity claim offsets shall be delivered in writing to Sellers at the time such payment is due. Nothing herein shall limit the rights of Sellers or Fox to contest the validity of such indemnity claims or any rights under ARTICLE VI. The Buyer also may offset against such payment the amount of any accounts receivable reflected on the Closing Balance Sheet that have not been collected as of the date such payment is due, provided that such uncollected accounts receivable shall be transferred to the Sellers. Finally, Buyer may offset against such payment an amount equal to any post-Closing adjustments to the Closing Balance Sheet in favor of the Buyer, subject to the procedures of SECTION 6.5. ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1 Representations and Warranties of Sellers and Fox. Sellers and Fox (jointly and severally as to each such Person) hereby represent and warrant to Buyer and PGA as follows: 3.1.1. Existence. Each Seller is a corporation or limited liability company duly incorporated or organized, validly existing and in good standing under the laws of Virginia and has full corporate power and authority to own or lease its properties and to carry on its business as now conducted. Each Seller has delivered to Buyer or PGA true and complete copies of its charter and bylaws or other organizational documents, each as amended to date (collectively, the "CHARTER DOCUMENTS"). Fox is the sole shareholder or owner of each corporate Seller and Fox and members of her family are the sole owners of Judith Fox Training For Growth, L.C. Each Seller is duly qualified to do business and in good standing as a foreign corporation or limited liability company in the states set forth on Schedule 3.1.1 attached hereto. No Seller presently owns, directly or indirectly, any shares of capital stock of or other equity interest in any corporation, partnership or other entity. -10- 16 3.1.2. Authorization; Enforceability. Each Seller has full corporate or other power and authority to enter into and perform its obligations under this Agreement and to consummate the transactions contemplated herein. The execution, delivery and performance of this Agreement by Sellers have been duly authorized by all requisite corporate action. This Agreement is the legal, valid and binding obligation of each Seller and Fox, as the case may be, enforceable in accordance with its terms, except as enforceability may be limited by equitable principles or by bankruptcy, fraudulent conveyance or insolvency laws affecting creditors' rights generally. 3.1.3. No Violation; Consents. Neither the execution, delivery and performance by each Seller and Fox of their obligations under this Agreement, nor the consummation of the transactions contemplated hereby, will conflict with, violate or result in a breach of any of the terms or provisions of, or constitute a default (with the passage of time or giving of notice or both) under, or result in the creation or imposition of any lien on the assets of any Seller or Fox pursuant to, any indenture, mortgage, deed of trust, lease, note, or other agreement or instrument to which any Seller or Fox is a party, the Charter Documents, or, to the best knowledge of Sellers and Fox, under any order, judgment, decree, rule or regulation of any court or governmental agency or body having jurisdiction over any Seller, Fox or their properties, or any provision of law. Except for any required filing under the HSR Act and as otherwise set forth on Schedule 3.1.3 attached hereto, no consent, approval, authorization, order, filing, registration or qualification of or with any governmental authority or other Person (each, a "CONSENT") is required to be obtained by any Seller or Fox in connection with the execution and delivery of this Agreement by Sellers and Fox or the consummation of the transactions contemplated herein other than those Consents, individually or in the aggregate, that if not obtained would not be likely to have a material adverse effect on the Purchased Assets or the Business. 3.1.4. Insurance. Schedule 3.1.4 attached hereto accurately lists all policies of insurance covering the assets and operations of Sellers as of the date hereof and as of the Closing Date, and a copy of each such policy has been delivered to Buyer or PGA. No written notice of termination of any such policy has been received by any Seller or its Affiliates. Each Seller currently has paid up insurance, including without limitation employee health and accident insurance, and environmental, property, general liability, product liability and worker's compensation insurance as described on Schedule 3.1.4. 3.1.5. Litigation. Except as set forth on Schedule 3.1.5 attached hereto, there are no actions, suits, labor disputes or other litigation, proceedings or governmental investigations pending or, to the knowledge of any Seller and Fox, threatened against or affecting any Seller or any of the properties or businesses thereof, or relating to the transactions contemplated by this Agreement. No Seller is subject to any order, judgment, decree, stipulation, or consent of or with any court, governmental body or agency. 3.1.6. Governmental Authorizations; Compliance with Laws. Each Seller holds the licenses and permits described on Schedule 3.1.6 attached hereto, and no other -11- 17 licenses, certificates, permits, franchises and rights, federal, state, local and foreign, are necessary for the lawful operation of the Business. To the best knowledge of each of the Sellers and Fox, each Seller is in compliance with all laws applicable to the operation of the Business and the ownership of its assets. No Seller has received written notice that it is in violation of or in default under (a) any governmental licenses, franchises, permits, approvals and other governmental authorizations which are necessary to entitle such Seller to own or lease, operate and use its assets and properties and to conduct the Business as now conducted; (b) any judgment, order or decree of any court or administrative agency applicable to it; or (c) any law, rule or regulation applicable to it. 3.1.7. Tax Matters. Each Seller and Fox has timely filed or will timely file all tax returns and reports required to be filed for any period ending on or before the Closing Date, or if applicable, any period that includes the Closing Date, and have properly calculated and have timely paid or will timely pay or cause to be paid all Income Taxes and Taxes due to any taxing authority with respect to all such periods. No Seller has received written notice that the Internal Revenue Service or any other taxing authority has asserted against such Seller any deficiency or claim for additional Taxes or Income Taxes in connection therewith. No Seller has been granted or has given any waiver of any statute of limitations with respect to, or any extension of a period for the assessment or filing of, any Tax or Income Tax. All deposits required by law to be made by any Seller with respect to employees' withholding taxes have been made. There are no tax liens on any assets of any Seller, except liens for Taxes not yet due. There are no claims pending against any Seller for past due Taxes or Income Taxes, and neither Sellers nor Fox know of any such threatened claim or the basis for any such claim. There are not now any matters under discussion with any federal, state, local or other authority with respect to any additional Taxes or Income Taxes relating to any Seller. 3.1.8. Financial Statements. Sellers have delivered to Buyer or PGA copies of the Financial Statements. The Financial Statements present fairly the financial position of each Seller with respect to, and the assets of, the Business and the results of the operation of the Business and changes in financial position with respect to the Business as of and for the periods indicated in conformity with consistently applied accounting practices during the periods, and the Financial Statements make full and adequate disclosure of and provision for all obligations and liabilities of Sellers related to the Business as of the date thereof. 3.1.9. No Adverse Change. Since December 31, 1995, there has not been (a) any material adverse change in the financial condition, financial statements, business, properties, assets, or results of operations of the Business, (b) any material loss or damage (whether or not covered by insurance) to any of the Purchased Assets, which materially affects or impairs the ability of any Seller to conduct the Business, or any other event or condition of any character which has materially and adversely affected the Business, (c) any mortgage or pledge of any of the Purchased Assets, (d) any indebtedness incurred by any Seller relating to, or taking as security any interest whatsoever in, the Purchased Assets, (e) any contract or other transaction entered into by any Seller relating to, or otherwise affecting in any way, the Business or the operation thereof, other than in the ordinary course of business, (f) any sale or transfer -12- 18 of the Purchased Assets or any cancellation of any debts or claims of any Seller, except in the ordinary course of business, (g) any waiver by any Seller of any rights which have any material value, (h) (1) any increase in the rate or terms of compensation payable to the Sellers' employees, except increases occurring in accordance with Sellers's customary practices or (2) any modifications in employee benefits to the Business' employees, or (i) any loss or termination of any customer contracts representing billings in excess of $500,000 during the 12-month period prior to loss or termination. 3.1.10. Title to Properties. Each Seller has good and marketable title to, is the lawful owner of, and has the full right to sell, convey, transfer, assign and deliver the Purchased Assets owned by it free and clear of any Liens. At and as of the Closing, Sellers will convey the Purchased Assets to Buyer and Buyer will have, good and valid record and marketable title to all of the Purchased Assets, free and clear of all Liens. 3.1.11. Accounts Receivable. All of the Sellers' accounts, notes and other receivables comprising a portion of the Purchased Assets represent valid and bona fide claims and were acquired or arose in the ordinary course of business. 3.1.12. Fixed Assets. Schedule 3.1.12 attached hereto sets forth a complete and accurate list of all of the equipment and other fixed assets constituting Purchased Assets, other than items acquired by Sellers in the ordinary course of business from the date hereof through the Closing Date (and Sellers will identify in writing to the Buyer, prior to the Closing, each item so acquired which has a market value or book value of $1,000 or more). All of such assets have been well maintained and are in normal operating condition (with the exception of normal wear and tear), free from defects other than such minor defects as do not interfere with the continued use thereof in the conduct of normal operations. 3.1.13. Proprietary Rights. Schedule 3.1.13 attached hereto is an accurate and complete list of all of Sellers' Proprietary Rights. All Proprietary Rights for Intellectual Property are owned by Sellers free and clear of all Liens or have been duly licensed for use by Sellers. None of the Intellectual Property has been or is the subject of any pending adverse claim, or to the knowledge of Sellers and Fox, any threatened litigation or claim of infringement. To the best knowledge of Sellers and Fox, the Sellers' conduct of the Business does not infringe any trademark, trade name, copyright or patent of another, and no Seller has received any notice contesting its right to use any trademark, trade name, product, process, design, computer program or written work now used by it in connection with the Business or the operation thereof. No Seller has granted any license in respect of any Intellectual Property or made any commitment to pay any royalty or license in respect of any Intellectual Property. 3.1.14. Assumed Contracts. Sellers have delivered to Buyer true and correct copies of each Assumed Contract. Each Assumed Contract is (a), to the best knowledge of each of the Sellers and Fox, valid, binding and in full force and effect, (b) no Seller is in default under any Assumed Contract nor does there exist any condition or event which after notice, lapse of time or both would constitute a default by such Seller under any Assumed Contract, (c) -13- 19 to the knowledge of Sellers and Fox, no other party to any Assumed Contract is in default, or alleged to be in default, under any such Contract, (d) to the knowledge of Sellers and Fox, there does not exist any condition or event which, after notice, lapse of time or both, would constitute a default by any other party to any Assumed Contract, (e) no Seller has received notice of the election of any party to any Assumed Contract to cancel, terminate or not to renew such contract whether in accordance with the terms of any Assumed Contract or otherwise, (f) except as set forth on Schedule 3.1.3, none of the Assumed Contracts requires the consent of the other party thereto for the assignment of such Contract to Buyer, and (g) the Assumed Contracts include all of the Contracts between the Sellers and their customers and all other Contracts that are material to the operation of the Business. 3.1.15. Employee Benefit Plans. (a) Except as set forth on Schedule 3.1.15 attached hereto, no Seller is a party to, maintains or is required to make any payment or other contribution under, any employment contract, noncompete agreement, or employee benefit plan or arrangement, whether oral or written, qualified or non-qualified, including without limitation any pension or welfare plan, withdrawal, termination, severance or lay-off plan or arrangement, bonus plan, stock option plan, health or life insurance plan, policy or benefit, vacation or sick leave policy or any other agreement or arrangement providing for remuneration or benefits to employees or former employees of such Seller (each a "BENEFIT PLAN"). All Benefit Plans comply in form and in operation with all applicable requirements of law and regulation. There have been no "prohibited transactions" (as described in Section 406 of ERISA or Section 4975 of the Code) with respect to any Benefit Plan governed by ERISA and maintained by any Seller or to which any Seller has been a party. A true and correct copy of the annual report (as described in Section 103 of ERISA) most recently filed for each Benefit Plan governed by ERISA and listed in Schedule 3.1.15 has been supplied to Buyer or PGA by Sellers, and there have been no material changes in the financial condition in such plans from that stated in the annual reports supplied. (b) No employee of any Seller currently participates in any multiemployer plan, and no person reasonably expects to participate in such a plan, in either case, on account of his or her employment with a Seller, nor does any Seller have any liability or contingent liability to any multiemployer plan. 3.1.16. Environmental Matters. (a) The operation of the Business does not violate any applicable Environmental Law in effect as of the date hereof or on the Closing Date and, to the knowledge of Sellers and Fox, no condition or event has occurred which, with notice or the passage of time or both, would constitute a violation of any Environmental Law; (b) no Seller has stored or used any pollutants, contaminants or hazardous or toxic wastes, substances or materials on or at the Real Property, except for inventories of chemicals which are to be used in the ordinary course of business of a Seller (which inventories have been stored or used in accordance with all applicable environmental permits and all Environmental Laws); (c) neither any Seller nor any of its Affiliates has received any notice from any governmental authority or private entity advising it that the Real Property or the operation thereof are in violation of any Environmental Law or any applicable environmental permit or that it is responsible (or -14- 20 potentially responsible) for the cleanup of any pollutants, contaminants or hazardous or toxic wastes, substances or materials at, on or beneath the Real Property or at, on or beneath any other real property or in connection with any waste or contamination site; (d) neither the Business nor the operation thereof nor, to the best knowledge of each of the Sellers and Fox, the Real Property are the subject of federal, state, local or private litigation or proceedings involving a demand for damages or other potential liability with respect to violations of Environmental Laws; and (e) no Seller has buried, dumped, disposed, spilled or released any pollutants, contaminants or hazardous or toxic wastes, substances or materials on, beneath or about the Real Property or any other real property. Each Seller has timely filed all reports required to be filed with respect to the Real Property and has generated and maintained all required data, documentation and records under any applicable Environmental Laws with respect thereto. 3.1.17. Customers. Schedule 3.1.17 attached hereto summarizes each customer contract representing billings by any Seller in excess of $500,000 in the 12 months ended March 31, 1996. No Seller has received any notice from any of such customers to the effect that such customers' contract is being terminated or is being considered for termination or nonrenewal. 3.1.18. Assets Sufficient for Conduct of Business. The Purchased Assets constitute all of the assets and properties required for the operation of the Business as it is presently operated by Sellers. 3.1.19. Accuracy of Statements. Neither this Agreement (including the exhibits and schedules attached hereto) nor any statement, list, certificate or other information furnished or to be furnished by or on behalf of Sellers to Buyer or PGA in connection with this Agreement or any of the transactions contemplated hereby contains or will contain any untrue statement of a material fact regarding Sellers, the Purchased Assets or the operation of the Business or omits or will omit to state a material fact necessary to make the statements regarding Sellers, the Purchased Assets or the operation of the Business contained herein or therein, in light of the circumstances in which they are made, not misleading. 3.1.20. Brokers; Finders. Sellers have not retained any broker or finder in connection with the transactions contemplated herein so as to give rise to any valid claim against Buyer or PGA for any brokerage or finder's commission, fee or similar compensation. Sellers and Fox shall be and shall remain solely liable for all fees and expenses payable to any such broker or finder and will indemnify Buyer and PGA regarding same. 3.2 Representations and Warranties of Buyer and PGA. Buyer and PGA (jointly and severally as to each such Person) represents and warrants to Sellers as follows: 3.2.1. Corporate Existence. Each of Buyer and PGA is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. -15- 21 Each of Buyer and PGA has full corporate power and authority to enter into and perform this Agreement and to consummate the transactions contemplated herein. 3.2.2. Authorization; Enforceability. The execution, delivery and performance of this Agreement by each of Buyer and PGA and the consummation of the transactions contemplated herein have been duly authorized by all requisite corporate action. This Agreement has been duly executed and delivered by each of Buyer and PGA and constitutes the valid, legal and binding obligation of each of Buyer and PGA, as the case may be, enforceable in accordance with its terms, except as enforceability may be limited by equitable principles or by bankruptcy, fraudulent conveyance or insolvency laws affecting creditors' rights generally. 3.2.3. No Violation; Consents. Neither the execution, delivery and performance by each of Buyer and PGA of its obligations under this Agreement, nor the consummation of the transactions contemplated hereby, will conflict with, violate or result in a breach of any of the terms or provisions of, or constitute a default (with the passage of time or giving of notice or both) under, or result in the creation or imposition of any lien on the assets of Buyer or PGA pursuant to, any indenture, mortgage, deed of trust, lease, note, or other agreement or instrument to which Buyer or PGA is a party, the certificate of incorporation or bylaws of Buyer or PGA, any order, judgment, decree, rule or regulation of any court or governmental agency or body having jurisdiction over Buyer, PGA or their properties, or under any provision of law. Except for any required filing under the HSR Act and as otherwise set forth on Schedule 3.2.3 attached hereto, no consent, approval, authorization, order, filing, registration or qualification of or with any governmental authority or other Person is required to be obtained by Buyer or PGA in connection with the execution and delivery of this Agreement by Buyer or PGA or the consummation of the transactions contemplated herein. ARTICLE IV CERTAIN COVENANTS 4.1 Access and Information; Confidentiality. (a) From the date hereof until the Closing Date, each Seller will give to Buyer, PGA and their representatives (upon reasonable advance notice and during normal business hours) reasonable access to its properties, books, records, contracts and commitments and will furnish all such information and documents relating to its properties and business as Buyer or PGA may reasonably request, and Buyer and PGA will furnish to each Seller and its representatives all such information and documents relating to Buyer and PGA as each Seller may reasonably request; provided, that no such access shall include or involve the presence on or any contact with Sellers' business premises by Buyer, PGA or any of their representatives or any meetings or any form of contact between Buyer, PGA or their representatives and any employee of any Seller without the prior and specific written consent of Fox (other than Rod Devlin, Sue Durnwirth and Karen Wimbish as required to conduct due diligence and after notifying Fox in each instance). -16- 22 (b) At all times prior to the Closing Date, Buyer and PGA agree to treat as strictly confidential, and to cause their employees and agents to protect the confidentiality of all proprietary and confidential information received from each Seller or any other source pursuant to this SECTION 4.1, this Agreement or otherwise, using the same care and procedures used to protect Buyer's and PGA's own proprietary and confidential information, and agree not to disclose, and to cause their employees and agents not to disclose, such proprietary and confidential information to any other persons except as may be reasonably necessary in connection with the transactions contemplated herein or except to the extent (i) such information is or becomes publicly available or obtainable from independent, nonconfidential sources and not in breach of Buyer's or PGA's obligations hereunder or any other party's confidentiality obligations owed to Sellers, (ii) such information is required to be disclosed by law or by governmental authorities having jurisdiction over Buyer or PGA, or (iii) disclosure is necessary for Buyer or PGA to enforce any or all of its rights under this Agreement. (c) At all times prior to the Closing Date, Buyer and PGA further agree not to contact or attempt to contact any of Sellers' clients as disclosed to Buyer or PGA pursuant to the Schedules to this Agreement without the prior written consent of Fox. 4.2 Conduct of Business. Except as otherwise contemplated by the terms of this Agreement, from the date hereof until the Closing, the Sellers will: (a) not enter into any Contract relating to the Business unless such Contract involves an aggregate financial obligation on the part of Sellers of $50,000 or less or is terminable upon not more than 30 days' prior notice; (b) conduct the Business only in the ordinary course and in substantially the same manner as heretofore; (c) maintain and keep their properties and equipment in good repair, working order and condition, except for ordinary wear and tear; (d) keep in full force and effect insurance comparable in amount and scope of coverage to that now maintained; (e) perform their obligations under all Contracts; (f) use reasonable efforts consistent with their normal business practices to maintain and preserve their business organizations, retain their present employees and maintain their relationships with suppliers and customers; (g) maintain their books of account and records in the usual and regular manner; (h) comply with all laws and regulations applicable to them and to the conduct of their Business; (i) except to the extent of any Excluded Assets, not make any distribution, dividend or advance to any Affiliate without the prior written consent of Buyer; (j) use reasonable efforts to maintain and protect their Proprietary Rights; and (k) not make any change in any Benefit Plan or compensation to any officers, directors or employees or adopt any new Benefit Plan without the prior written consent of Buyer. 4.3 Change of Corporate Name. On the Closing Date or as soon as practicable thereafter, Sellers shall either be dissolved or change their corporate names to new names which do not include the term or the acronym or abbreviation or any variations, translations or combinations thereof or similar names and otherwise is not likely to be confused with their present names so as to make Sellers' present names available to Buyer. From and after the Closing, neither Sellers nor Fox shall use the term or the acronym or abbreviation or any variations, translations or combinations thereof or similar names in connection with any business. -17- 23 4.4 Filings. Buyer and Sellers will make or cause to be made all such filings and submissions under applicable laws and regulations as may be required for the consummation of the transactions contemplated hereunder, including without limitation any filings required under the HSR Act. Buyer and Sellers will cooperate and coordinate with one another in connection with any such filings or submissions. 4.5 Employees. (a) Buyer and Sellers agree that on the Closing Date the employees of Sellers shall cease to be employees of Sellers and, except for those employees subject to written employment agreements expressly assigned to and assumed by Buyer pursuant to this Agreement and except as otherwise determined by Buyer in its sole discretion, shall be offered employment by Buyer or an Affiliate of Buyer on an employment at will basis. If Buyer does not offer employment to any of Sellers' employees as of the Closing Date, or if any of the employees do not accept Buyer's offer of employment, Sellers and Fox hereby agree to indemnify Buyer and PGA from and against any claim by such employees for termination or severance payments, benefits or other such actions and all other costs or liabilities associated with the termination of such employees on the Closing Date (it being the intent of the parties that Sellers and Fox shall not be liable for indemnification or otherwise for actions taken by Buyer or PGA with respect to such employees after the effective time of the Closing). (b) The parties acknowledge and agree that it is the intention of the parties that all contracts of noncompetition between Sellers and their employees shall be transferred to or assumed by Buyer as a result of the transactions described herein and that such contracts shall constitute Assumed Contracts hereunder. (c) Sellers shall, if requested by Buyer, assign to Buyer Sellers' unemployment insurance and worker's compensation experience ratings and take such steps as Buyer shall reasonably request to effect such assignment, if such assignment is permitted and does not result in any cost, expense or penalty to Sellers and is otherwise not prejudicial to Sellers. (d) Unless prohibited by law, Sellers shall make available to Buyer all personnel records, including without limitation names, Social Security numbers, dates of hire by Sellers or any subsidiary of Sellers, dates of birth, number of hours worked each calendar year, and salary histories, for all Sellers' employees hired by Buyer or PGA. Sellers and Buyer shall also cooperate, both before and after the Closing Date, in exchanging information including pertinent employment records, benefit information, salary and compensation records, financial statements and other data, and in taking other action respecting the interests of Sellers' employees who become employees of Buyer at or shortly following the Closing Date, and their respective beneficiaries and dependents, in each of the employee benefit plans of Sellers and any plans established by Buyer, so as to secure an orderly and effective transition of the benefit arrangements for such employees of Sellers and their respective beneficiaries and dependents. (e) Employee Benefits. Buyer will provide to all of Sellers' employees who are hired by Buyer those benefits generally offered to other similarly situated employees of Buyer, and -18- 24 will give effect to such employees' tenure of service with Sellers for determining eligibility and waiting period requirements under Buyer's benefit plans. 4.6 Lien Search. Prior to Closing, the Sellers at their expense shall obtain and deliver Uniform Commercial Code and tax lien search results covering the Purchased Assets from each jurisdiction in which Purchased Assets are located. The searches shall be accurate as of a date not earlier than 10 days prior to the Closing Date. ARTICLE V CONDITIONS PRECEDENT 5.1 Conditions to Obligation of Buyer. The obligation of Buyer under this Agreement to purchase the Purchased Assets and to consummate the other transactions contemplated by this Agreement is subject to the fulfillment, at or prior to the Closing, of each of the following conditions, each of which may be waived in whole or in part by Buyer in its sole discretion: 5.1.1. Representations; Performance. The representations and warranties of Sellers and Fox contained herein shall be true in all material respects on and as of the date hereof and on and as of the Closing Date with the same effect as though made on and as of the Closing Date, except as modified by transactions permitted by this Agreement. Sellers shall have duly performed and complied in all material respects with all agreements and conditions required by this Agreement to be performed or complied with by it prior to or at the Closing. Sellers shall have delivered to Buyer and PGA a certificate, dated the Closing Date and signed by the Chief Executive Officer or President of each Seller, to the effect set forth above in this SECTION 5.1.1. 5.1.2. Opinion of Counsel. Buyer and PGA shall have received a favorable opinion, addressed to Buyer and PGA and dated the Closing Date, of LeClair Ryan, A Professional Corporation, counsel to each Seller, in the form and substance of Exhibit F attached hereto. 5.1.3. Consents. All Consents required to be obtained by Seller to consummate the transactions contemplated herein and all consents to the assignment of the Assumed Contracts pursuant to and to the extent required by SECTION 2.8 shall have been obtained, other than any Consents the acquisition of which has been temporarily waived by Buyer. 5.1.4. No Proceeding or Litigation. No claim, action, suit, arbitration, investigation or other formal proceeding shall be pending or threatened on or before the Closing which (a) seeks to (i) enjoin, restrain or prohibit the transactions contemplated herein, (ii) impose limitations on the ability of Buyer to exercise full rights of ownership of the Purchased Assets or (iii) require the divestiture by Buyer or its Affiliates of any of the Purchased Assets -19- 25 or any other assets of Buyer or its Affiliates by reason of this Agreement, or (b) could have a material adverse effect on the Purchased Assets or the use thereof or the transactions contemplated herein. 5.1.5. No Material Adverse Change. There shall have occurred no material adverse change in the financial condition or prospects of the Business. 5.1.6. Purchased Assets and Documents Delivered. Buyer shall have received at the Closing the following documents required to be delivered to Buyer by the Sellers or Fox as provided herein: (a) the Bill of Sale; (b) the Contract Assignment; (c) the Employment Agreement; (d) the Noncompetition Agreement; (e) corporate certificates of good standing for each Seller issued by the Secretaries of State and Departments of Revenue (or similar applicable offices) of each jurisdiction where each Seller is organized and qualified to do business; (f) a certificate of the secretary of each Seller, certifying and attaching copies of the Charter Documents, the resolutions of the directors and shareholders or other owners of each Seller approving the execution and delivery by each Seller of this Agreement and the consummation of the transactions contemplated hereby, and the incumbency of the officers of each Seller executing this Agreement and all other agreements and instruments to be executed and delivered by each Seller in connection herewith; and (g) such other documents, certificates and items reasonably requested by Buyer or PGA to consummate the transactions contemplated hereby and effect the transfer of the Purchased Assets as provided herein. 5.1.7. HSR Act Filings. All filings required by any Person under the HSR Act with respect to the transfer of the Purchased Assets shall have been made, all applicable waiting periods with respect thereto shall have expired or been terminated and no action shall have been taken or threatened by the United States Department of Justice or Federal Trade Commission challenging or seeking to enjoin the transactions contemplated under this Agreement. 5.1.8. Closing Balance Sheet. Prior to Closing, the Sellers shall have delivered a pro forma balance sheet (the "CLOSING BALANCE SHEET"), dated as of the Business Day immediately preceding the Closing Date and in form and detail comparable to the balance -20- 26 sheets included in the Financial Statements, showing Sellers best reasonable estimates of all Purchased Assets (excluding any Excluded Assets) and all liabilities (excluding any Excluded Liabilities) of the Sellers on a consolidated basis as of such date. If the assets (including any cash in an amount equal to any total asset deficiency as described in SECTION 2.1(A)) shown on the Closing Balance Sheet less the liabilities to be assumed by Buyer pursuant to SECTION 2.7(B) shown thereon shall be less than $1,595,000, then the payment described in SECTION 2.3(A) shall be decreased, on a dollar-for-dollar basis, by the amount of such deficiency. If such net amount exceeds $1,595,000, then Sellers shall be allowed to retain and not transfer to Buyer accounts receivable in an amount equal to such excess. The parties shall finalize the Closing Balance Sheet after Closing in the manner described in SECTION 6.5. 5.2 Conditions to Obligation of Sellers. The obligations of Sellers under this Agreement to sell the Purchased Assets and to consummate the other transactions contemplated by this Agreement is subject to the fulfillment, at or prior to the Closing, of each of the following conditions, each of which may be waived in whole or in part by Sellers in their sole discretion: 5.2.1. Representations; Performance. The representations and warranties of Buyer and PGA contained herein hereof shall be true on and as of the date hereof and on and as of the Closing Date with the same effect as though made on and as of the Closing Date, except as modified by transactions permitted by this Agreement. Buyer and PGA shall have duly performed and complied with all agreements and conditions required by this Agreement to be performed or complied with by it prior to or at the Closing. Each of Buyer and PGA shall have delivered to Sellers a certificate, dated the Closing Date and signed by the Chief Executive Officer or President of Buyer and PGA, to the effect set forth above in this SECTION 5.2.1. 5.2.2. Opinion of Counsel. Sellers shall have received a favorable opinion, addressed to Sellers and dated the Closing Date, of Robinson, Bradshaw & Hinson, P.A., counsel to Buyer and PGA, in the form of Exhibit G attached hereto. 5.2.3. No Proceeding or Litigation. No injunction or order of any court or administrative agency of competent jurisdiction shall be in effect and no actions by any public or governmental authority seeking any such injunction or order shall be pending as of the Closing Date that restrains or prohibits the purchase and sale of the Purchased Assets or any other action to be taken in connection herewith. 5.2.4. Purchase Price and Documents Delivered. Sellers shall have received at the Closing the payment required under SECTION 2.3(A), and the following documents required to be delivered to Sellers at the Closing as provided herein: (a) the Employment Agreement; (b) the Noncompetition Agreement; -21- 27 (c) the Bill of Sale; (d) the Contract Assignment; (e) the promissory note or notes; (f) a corporate certificate of good standing for each of Buyer and PGA issued by the Delaware Secretary of State; and (g) a certificate of the secretary of each of Buyer and PGA, certifying and attaching copies of its certificate of incorporation and bylaws, the resolutions of the directors of Buyer and PGA approving the execution and delivery by Buyer and PGA of this Agreement and the consummation of the transactions contemplated hereby, and the incumbency of the officers of Buyer and PGA executing this Agreement and all other agreements and instruments to be executed and delivered by Buyer or PGA in connection herewith. 5.2.5. HSR Act Filings. All filings required by any Person under the HSR Act with respect to the transfer of the Purchased Assets shall have been made, all applicable waiting periods with respect thereto shall have expired or been terminated and no action shall have been taken or threatened by the United States Department of Justice or Federal Trade Commission challenging or seeking to enjoin the transactions contemplated under this Agreement. ARTICLE VI INDEMNIFICATION 6.1 Indemnification by Sellers and Fox. Sellers and Fox (jointly and severally as to each such Person) agree to indemnify and hold harmless Buyer, PGA and their shareholders, officers and directors, Affiliates, agents and employees from and against and in respect of any and all damages, losses or expenses suffered or incurred by any such party (whether as a result of third party claims (whether valid or not), demands, suits, causes of action, proceedings, investigations, judgments or liabilities or otherwise), including reasonable attorneys' fees assessed, incurred or sustained by or against any of them, with respect to or arising out of (i) any breach of the representations, warranties and covenants of Sellers and Fox set forth herein and in any other agreement or instrument executed by Sellers or Fox in connection herewith, or (ii) the Excluded Liabilities, in all cases subject to each of the terms, conditions and limitations set forth in this ARTICLE VI hereof. 6.2 Indemnification by Buyer and PGA. Buyer and PGA (jointly and severally as to each such Person)) agree to indemnify, defend and hold harmless Sellers, Fox and the Sellers' officers, directors, employees, Affiliates and agents from and against and in respect of any and all damages, losses or expenses suffered or incurred by any such party (whether as a result of third party claims, (whether valid or not), demand, suits, causes of action, proceedings, investigations, judgments or liabilities or otherwise), including reasonable attorneys' fees -22- 28 assessed or incurred or sustained by or against any of them, with respect to or arising out of (i) any breach of the representations, warranties and covenants of Buyer and PGA set forth herein and in any other agreement or instrument executed by Buyer or PGA in connection herewith, (ii) any liability, claim, action or loss arising from actions of Buyer or PGA or Buyer's operation of the Business after the Closing, including without limitation any post-Closing actions of Buyer or PGA pursuant to the Assumed Contracts and the other liabilities expressly assumed by Buyer pursuant to SECTION 2.7(B) and (iii) any liability, claim, action or loss arising from the Business or the Purchased Assets after the Closing that does not relate to or arise from any act or omission of the Sellers or Fox prior to the Closing. 6.3 Limitations. Notwithstanding anything contained herein to the contrary, no person shall be entitled to indemnification under the provisions of this ARTICLE VI (i) unless such party shall have given written notice to the indemnifying party setting forth its claim for indemnification in reasonable detail, on or prior to the close of business on the Limitation Date, and (ii) unless and until the aggregate amount of all claims for indemnification under SECTION 6.1 or SECTION 6.2, as applicable, shall have exceeded $50,000, in which event the indemnified person shall be entitled to such indemnification only for all claims in excess of that aggregate amount (except that any indemnity obligation arising from a breach of SECTION 3.1.20 shall not be subject to the limitation of this subsection (ii) nor shall such limitation apply to adjustments relating to accounts receivable described in SECTION 2.10 or the Closing Balance Sheet adjustments described in SECTION 6.5); provided, that none of the Sellers and Judith Fox or the Buyer and PGA shall be required to make any indemnification payments hereunder after the total of all indemnification payments made by either the Sellers and Judith Fox or the Buyer and PGA, respectively, equals 65% of the Purchase Price. 6.4 Procedure for Indemnification. 6.4.1. Third Party Claims. If any Person shall claim indemnification hereunder arising from any claim or demand of a third party, the party seeking indemnification (the "indemnitee") shall promptly notify the party from whom indemnification is sought (the "indemnitor") in writing of the basis for such claim or demand setting forth the nature of the claim or demand in reasonable detail. The failure of the indemnitee to so notify the indemnitor shall not relieve the indemnitor of any indemnification obligation hereunder unless the indemnitor shall have been materially prejudiced thereby. If any claim of indemnification is brought hereunder, the indemnitor shall assume the defense thereof, including the employment of counsel and the payment of all expenses. The indemnitee shall, in its sole discretion, have the right to employ separate counsel (who may be selected by the indemnitee in its sole discretion) in any such action and to participate in the defense thereof, and the fees and expenses of such counsel shall be paid by such indemnitee, except that the indemnitor shall be required to pay such fees and expenses if (1) the indemnitor agrees to pay such fees and expenses, (2) the indemnitor shall fail to assume the defense of such action or proceeding or shall fail, in the reasonable discretion of the indemnitee, to employ counsel satisfactory to the indemnitee in any such action or proceeding, or (c) the named parties to any such action or proceeding (including any impleaded parties) include both the indemnitor and the indemnitee, and the indemnitee shall -23- 29 have been advised by counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnitor. The indemnitee shall fully cooperate with the indemnitor and its counsel in the defense or compromise of such claim or demand, provided that all reasonable out-of-pocket expenses incurred by indemnitee shall be paid by indemnitor. No settlement of a third party claim or demand defended by the indemnitee shall be made without the written consent of the indemnitor. The indemnitor shall not, except with the written consent of the indemnitee, consent to the entry of a judgment or settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to the indemnitee of an unconditional release from all liability in respect of such third party claim or demand. 6.4.2. Direct Claims. If either party shall claim indemnification hereunder for any claim other than third party claims, the indemnitee shall promptly notify the indemnitor in writing of the basis for such claim setting forth the nature and amount of the damages resulting from such claim. The indemnitor shall give written notice of any disagreement with such claim within fifteen (15) days following receipt of indemnitee's notice of the claim, specifying in reasonable detail the nature and extent of such disagreement. If the indemnitor and indemnitee are unable to resolve any disagreement within thirty (30) days following receipt by the indemnitee of the notice referred to in the preceding sentence, the disagreement shall be submitted for resolution to an independent person (the "arbitrator") mutually agreed by the indemnitor and indemnitee. If the indemnitor and indemnitee cannot agree on a single arbitrator, then the disagreement shall be submitted to a panel of three arbitrators, one selected by the indemnitor, one by the indemnitee and one by the two arbitrators so selected. The arbitrator(s)' determination shall be made within thirty (30) days of the submission of the dispute, shall be in accordance with this Agreement, shall be set forth in a written statement delivered to indemnitor and the indemnitee and shall be final, binding and conclusive. Judgment upon the decision rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof and may include the award of attorneys' fees and other costs to the extent provided by this Article. The Person who prevails in the resolution of such disagreement shall pay the fees and expenses of the arbitrator(s); and if one Person does not prevail on all issues, the fees and expenses shall be apportioned in such manner as the arbitrator(s) shall determine. Any amount owing by any Person as a result of this SECTION 6.4.2 shall be paid within two (2) business days after final determination of such amount. 6.4.3. Interest. Interest shall accrue on the unpaid amount of all indemnification obligations hereunder at the per annum prime rate of interest announced from time to time by NationsBank, N.A. (or, if such bank discontinues its practice of announcing its prime rate, such other institution approved by Fox and Buyer) as its prime rate of interest, as in effect from time to time, such interest to be calculated based on the actual number of days elapsed from the date each indemnification obligation becomes due and owing until paid in full and based on a 365-day year. 6.5 Adjustment of Closing Balance Sheet. Within 30 days following the Closing, the Buyer shall prepare a final Closing Balance Sheet reflecting the actual Purchased Assets and -24- 30 assumed liabilities as of the Closing. If the final Closing Balance Sheet differs from the initial Closing Balance Sheet, the parties shall make the same purchase price adjustments described in SECTION 5.1.8 to the extent of such differences. Such adjustments shall increase or decrease the amount of the payment described in SECTION 2.3(B), provided that in no event shall total payments by Buyer or PGA pursuant to SECTION 2.3 exceed $18,500,000. If there is any dispute regarding the final Closing Balance Sheet, the disputing party shall promptly notify the other parties in writing of the basis for such dispute. If the parties are unable to resolve the dispute within fifteen (15) days following receipt of the dispute notice referred to in the preceding sentence, the dispute shall be submitted for resolution to an independent arbitrator mutually agreed by the parties. If the parties cannot agree on a single arbitrator, then the dispute shall be submitted to a panel of three arbitrators, one selected by each party and one by the two arbitrators so selected. The arbitrator(s)' determination shall be made within thirty (30) days of the submission of the dispute, shall be in accordance with this Agreement, shall be set forth in a written statement delivered to the parties and shall be final, binding and conclusive. Judgment upon the decision rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof and may include the award of attorneys' fees and other costs to the extent provided by this Section. The Person who is prevailed against in the resolution of such dispute shall pay the fees and expenses of the arbitrator(s); and if one Person does not prevail on all issues, the fees and expenses shall be apportioned in such manner as the arbitrator(s) shall determine. If such a dispute is ongoing at the time the payment pursuant to SECTION 2.3(B) becomes due, then any disputed amounts shall be paid into an escrow account to be disbursed according to the decision of the arbitrator(s). Any other amount owing by any Person as a result of this SECTION 6.5 shall be paid within two (2) Business Days after final determination of such amount. To the extent not inconsistent with the express terms of this section, any arbitration proceeding shall be conducted pursuant to the rules of the American Arbitration Association. ARTICLE VII MISCELLANEOUS 7.1 Termination. This Agreement may be terminated at any time prior to the Closing: (a) by mutual written consent of Buyer, PGA, Sellers and Fox; or (b) by Buyer by written notice to Sellers and Fox if and as permitted under SECTION 2.8 or if any of the conditions set forth in SECTION 5.1 hereof shall not have been fulfilled in all material aspects on or prior to the Closing Date, or shall have become incapable of fulfillment in all material respects, and shall not have been waived by Buyer; or (c) by Sellers and Fox by written notice to Buyer and PGA if any of the conditions set forth in SECTION 5.2 hereof shall not have been fulfilled in all material aspects on or prior to the Closing Date, or shall have become incapable of fulfillment in all material aspects, and shall not have been waived by Sellers and Fox; or -25- 31 (d) by Sellers and Fox or Buyer and PGA if the Closing has not occurred on or before June 15, 1996, provided that such terminating party shall not be in material breach of its obligations under this Agreement. If this Agreement is terminated in accordance with the foregoing provisions, all further obligations of the parties hereunder shall terminate, except that the obligations contained in SECTION 4.1(B) shall survive. 7.2 Default by Buyer or PGA. In the event that (a) this Agreement is terminated by Sellers and Fox pursuant to SECTION 7.1(C) or (D) by reason of the wilful failure of Buyer or PGA to satisfy one or more of the conditions set forth in SECTION 5.2 and (b) all of the conditions set forth in SECTION 5.1 have been satisfied, then Buyer and PGA shall be liable to Sellers and Fox for all loss, damage or expense incurred by Sellers and Fox as a result of Buyer's or PGA's wilful default. 7.3 Default by Sellers. In the event that (a) this Agreement is terminated by Buyer or PGA pursuant to SECTION 7.1(B) or (D) by reason of the wilful failure of any Seller or Fox to satisfy one or more of the conditions set forth in SECTION 5.1 and (b) all of the conditions set forth in SECTION 5.2 have been satisfied, then Sellers and Fox shall be liable to Buyer and PGA for all loss, damage or expense incurred by Buyer and PGA as a result of such Seller's or Fox's wilful default. 7.4 Survival of Representations and Warranties. The indemnities contained in ARTICLE VI and all representations and warranties of the parties as set forth in this Agreement shall survive the Closing until the second anniversary of the Closing Date (the "LIMITATION DATE"), provided that the representations and warranties of Sellers and Fox set forth in SECTIONS 3.1.7 (Tax Matters), SECTION 3.1.10 (Title to Properties) and 3.1.16 (Environmental Matters) shall survive the Closing for a period of thirty (30) days following the expiration of any applicable statute of limitations, and accordingly, as used with respect to the representations and warranties of Sellers and Fox set forth in SECTIONS 3.1.7, 3.1.10 and 3.1.16 hereof, the Limitation Date shall mean the thirtieth (30th) day following the expiration of the applicable statute of limitations. 7.5 Bulk Sales Law. Buyer hereby waives compliance by Sellers with the provisions of any applicable bulk sales law, or other law for the protection of creditors. Fox and Sellers shall indemnify, defend and hold harmless Buyer in accordance with ARTICLE VI hereof from any liability, claim, loss or expense (including reasonable attorney's fees) arising from any noncompliance with such laws; provided, however that nothing in this section shall relieve the Buyer and PGA for liabilities arising from the Assumed Contracts or other liabilities expressly assumed hereunder. 7.6 Expenses. Except as otherwise provided herein, Sellers and Fox shall assume and bear all expenses, costs and fees incurred or assumed by Sellers and Fox in the preparation and execution of this Agreement and compliance herewith, and Buyer and PGA shall assume and -26- 32 bear all expenses, costs and fees incurred or assumed by Buyer and PGA in the preparation and the execution of this Agreement and compliance herewith, in each case whether or not the purchase and sale provided for herein shall be consummated. 7.7 Public Announcements. Sellers and Fox shall not, directly or indirectly, make or cause to be made any public announcement or issue any notice in any form with respect to this Agreement or the transactions contemplated herein without the prior written consent of Buyer, such consent not to be unreasonably withheld or delayed. Notwithstanding the foregoing, (a) Sellers and Fox may confidentially notify Sellers' employees of the transactions contemplated by this Agreement upon the parties' execution hereof and (b) Buyer and PGA, upon the parties' execution of this Agreement, may make any disclosure required by law. 7.8 Assignment; Successors. This Agreement shall not be assigned by any party without the prior written consent of the other party, which consent shall not be unreasonably withheld. This Agreement is intended for the exclusive benefit of the parties hereto and their respective heirs, successors and permitted assigns, and shall not create any rights in or be enforceable by any other Person whomsoever other than any Person entitled to indemnification from Sellers and Fox on the one hand or Buyer and PGA on the other hand pursuant to ARTICLE VI hereof, it being the intention of the parties that no one shall be deemed to be a third party beneficiary of this Agreement. This Agreement shall inure to the benefit of, and be binding on and enforceable against, the successors and permitted assigns of the respective parties. 7.9 Amendment and Modification; Waivers. This Agreement or any term hereof may be changed, waived, discharged or terminated only by an agreement in writing signed by both parties. No waiver by a party of any condition or of any breach of any term, covenant, representation or warranty contained herein shall be effective unless in writing, and no waiver in any one or more instances shall be deemed to be a further or continuing waiver of any such condition or breach in any other instances or a waiver of any other condition or breach of any other term, covenant, representation or warranty. 7.10 Notices. All notices, consents, requests, instructions, approvals and other communications provided for herein and all legal process in regard shall be validly given, made or served, if in writing and delivered personally or sent by telecopier, telex, nationally recognized overnight courier or registered or certified mail, postage prepaid, to the following address: If to Sellers or Fox: 4098 Wood Lane Keswick, Virginia 22947 Facsimile Number: _______________ -27- 33 With a copy to: LeClair Ryan 707 E. Main Street, 11th Floor Richmond, Virginia 23219 ATTENTION: Steven J. Keeler Facsimile Number: (804) 783-2294 If to Buyer or PGA: 6302 Fairview Road, Suite 201 Charlotte, North Carolina 28210 ATTENTION: Edward P. Drudge, Jr. Facsimile Number: (704) 442-5138 With a copy to: Robinson, Bradshaw & Hinson, P.A. 101 N. Tryon Street, Suite 1900 Charlotte, North Carolina 28246 ATTENTION: Ken R. Bramlett, Jr. Facsimile Number: (704) 378-4000 or in each case at such other address as may be specified in writing, but no such change shall be deemed to have been given until it is actually received by the parties sought to be charged with its contents. All notices and other communications given hereunder shall be effective (1) upon delivery if delivered personally or sent by telecopier or telex, (2) if delivered by overnight courier shall be effective one business day after delivery to such courier, and (3) if delivered by mail shall be effective three business days after deposit in the United States mail. 7.11 Further Assurances; Records. Each of Sellers and Fox and Buyer and PGA shall cooperate and take such actions, and execute all such further instruments and documents, at or subsequent to the Closing, as either may reasonably request in order to convey title to the Purchased Assets to Buyer and otherwise to effect the terms and purposes of this Agreement. Each party shall provide the other party or parties with access to all relevant documents and other information pertaining to the Purchased Assets which are needed by such other party or parties for the purposes of preparing tax returns or responding to an audit by any governmental agency or for any other reasonable purpose. Such access will be during normal business hours and not subject to time limitations, except as provided below. 7.12 Tax and Financial Cooperation. After the Closing, Sellers, Fox, PGA and Buyer agree to cooperate with each other in connection with any official tax inquiry, tax audit, tax determination or tax-related proceeding affecting tax liability of Sellers or Buyer or in connection with a determination of any tax liability or treatment to make available to each other party within a reasonable amount of time, at no cost to such party, or its employees and officers, together with documents, correspondence, reports, books and records of Sellers and other materials bearing on such tax inquiry, audit, examination, proceeding or determination of tax liability or treatment, provided that each party shall be reimbursed for any out-of-pocket expenses it incurs in assisting another party hereunder. -28- 34 7.13 Submission to Jurisdiction. Each of the parties hereto hereby consents to the jurisdiction of any State or federal court located within the State of North Carolina or the State of Virginia and irrevocably agrees that all actions and proceedings relating to this Agreement or the transactions contemplated hereby may properly be litigated in such courts; provided however, that any disagreement pursuant to SECTION 6.4.2 shall be resolved exclusively by the dispute resolution process set forth in SECTION 6.4.2 and judgment upon the decision reached by any arbitrator(s) pursuant to SECTION 6.4.2 may be entered in any court of competent jurisdiction. Each of the parties hereto waives any objection that it may have to the conduct of any action or proceeding in any such court based on improper venue or forum non conveniens, waives personal service of any and all process upon it, and consents that all service of process may be made by mail or courier service directed to it at the address set forth herein and that service so made shall be deemed to be completed upon the earlier of actual receipt or ten (10) days after the same shall have been posted. Nothing contained in this SECTION 7.13 shall affect the right of any party hereto to serve legal process in any other matter permitted by law or affect the right of any party hereto to bring any action or proceeding against any other party hereto or any party's property in the courts in any other jurisdiction. 7.14 Entire Agreement; Counterparts; Governing Law. This Agreement, together with the Exhibits and Schedules attached hereto, constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, including without limitation that certain letter dated March 27, 1996 between the parties. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which, together, shall constitute one and the same instrument. This Agreement shall be governed in all respects, including validity, interpretation and effect, by the laws of the State of North Carolina (without reference to conflict-of-law provisions). 7.15 Post-Closing Matters. From and after the Closing Date and up to and including December 31, 1996, the Buyer will provide access to office space and support staff to Fox, without charge, on a reasonable, as-needed basis from time to time at Fox's request. 7.16 Personal Use of Name. Notwithstanding any of the foregoing provisions of this Agreement, nothing herein shall prohibit or limit the use by Judith Fox of her name in her individual capacity. Judith Fox agrees that she shall not use her name in the name of a business or as a trademark or tradename or for other business or commercial purposes or otherwise in any manner likely to cause dilution of or confusion with the "Judith Fox" name as used in the business of PGA or any of its Affiliates without the prior written approval of PGA, which approval shall not be unreasonably withheld. Judith Fox may use her name in connection with the "On the Job" radio program so long as such program includes no reference either to PGA or its Affiliates (without their written approval) or to any other business or commercial entity. -29- 35 IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. BUYER: STAFFPLUS, INC. By: /s/ Edward P. Drudge, Jr. -------------------------------- Title: Chairman and CEO PGA: PERSONNEL GROUP OF AMERICA, INC. By: /s/ Edward P. Drudge, Jr. -------------------------------- Title: Chairman and CEO SELLERS: JUDITH FOX COMPANIES, INC. By: /s/ Judith Fox -------------------------------- Title: President FOX TECHNICAL, INC. By: /s/ Judith Fox -------------------------------- Title: President JUDITH FOX TRAINING FOR GROWTH, L.C. By: /s/ Judith Fox -------------------------------- Title: Manager FOX: /s/ Judith Fox (SEAL) ---------------------------------- Judith Fox -30- 36 EXHIBIT A BILL OF SALE THIS BILL OF SALE dated May __, 1996, is made by JUDITH FOX COMPANIES, INC., a Virginia corporation, FOX TECHNICAL, INC., a Virginia corporation, and JUDITH FOX TRAINING FOR GROWTH, L.C., a Virginia limited liability company (each, a "SELLER" and collectively, the "SELLERS"), to STAFFPLUS, INC., a Delaware corporation ("BUYER"). The Sellers, pursuant to the terms of an Asset Purchase Agreement dated as of May __, 1996, between Sellers, Buyer, Personnel Group of America, Inc. ("PGA"), a Delaware corporation and the sole shareholder of the Buyer, and Judith Fox (the "ASSET PURCHASE AGREEMENT"), for good and valuable consideration, the receipt and sufficiency of which are0 hereby acknowledged, do hereby bargain, sell, assign, transfer and convey to Buyer, its successors and assigns, all of the Purchased Assets listed on Exhibit A attached hereto. Each Seller, for itself and its successors and assigns, warrants and covenants to Buyer and PGA and their successors and assigns that (a) such Seller is the sole owner of the Purchased Assets conveyed by it and has the right and power to sell and transfer the same to Buyer, (b) such Seller has good and marketable title to the Purchased Assets conveyed by it, free and clear of all claims, liens, security interests and other encumbrances (other than any liabilities to be assumed by Buyer or PGA pursuant to the Asset Purchase Agreement), and (c) such Seller will forever defend such title to such Purchased Assets against the lawful claims of all persons whomsoever. Each Seller, for itself and its successors and assigns, further covenants and agrees with Buyer, its successors and assigns, that such Seller will execute and deliver such other bills of sale, transfers, assignments and other instruments of conveyance and will do such other acts as reasonably requested by Buyer further to vest in Buyer good and marketable title to the Purchased Assets and to fulfill and discharge such Seller's obligations of conveyance hereunder and under the Asset Purchase Agreement. This Bill of Sale shall be governed by and construed in accordance with the internal laws of the State of North Carolina, and shall be binding upon and shall inure to the benefit of the Sellers and Buyer and their respective successors and assigns. 37 IN WITNESS WHEREOF, the Sellers have executed and sealed this Bill of Sale on the day and year first above written. JUDITH FOX COMPANIES, INC. By:___________________________________ Judith Fox, President FOX TECHNICAL, INC. By:___________________________________ Judith Fox, President JUDITH FOX TRAINING FOR GROWTH, L.C. By:___________________________________ Judith Fox, Manager -2- 38 EXHIBIT B ASSIGNMENT AND ASSUMPTION AGREEMENT THIS ASSIGNMENT AND ASSUMPTION AGREEMENT dated May ___, 1996, is made by JUDITH FOX COMPANIES, INC., a Virginia corporation, FOX TECHNICAL, INC., a Virginia corporation, and JUDITH FOX TRAINING FOR GROWTH, L.C., a Virginia limited liability company (each, an "ASSIGNOR" and collectively, the "ASSIGNORS"), to STAFFPLUS, INC., a Delaware corporation ("ASSIGNEE"). The Assignors, pursuant to the terms of an Asset Purchase Agreement dated as of May ___, 1996, between Assignors, Assignee, Personnel Group of America, Inc., ("PGA") a Delaware corporation and the sole shareholder of the Assignee, and Judith Fox (the "ASSET PURCHASE AGREEMENT"), for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, do hereby sell, convey, transfer and assign to Assignee, its successors and assigns, all of the right, title and interest of Assignors in and to any and all of the Assumed Contracts (as defined in the Asset Purchase Agreement). Assignee and PGA do hereby jointly and severally assume and agree to pay and perform all obligations of Assignors arising under all such Assumed Contracts, and the trade accounts payable, normal operating accruals and other liabilities listed on the attached EXHIBIT A, all in accordance with the terms and subject to the limitations of the Asset Purchase Agreement (including, without limitation, the indemnification obligations of ARTICLE VI thereof). Assignors and Assignee further agree to execute and deliver, file and take such other actions as may be necessary or desirable to effect the purposes of this Agreement and the Asset Purchase Agreement. This Assignment and Assumption Agreement shall be governed by and construed in accordance with the internal laws of the State of North Carolina, and shall be binding upon and shall inure to the benefit of the Assignors and Assignee and their respective successors and assigns. IN WITNESS WHEREOF, Assignors and Assignee have duly executed this Agreement as of May ___, 1996. ASSIGNORS: JUDITH FOX COMPANIES, INC. By:_________________________________ Judith Fox, President [Signatures Continued] 39 FOX TECHNICAL, INC. By:_________________________________ Judith Fox, President JUDITH FOX TRAINING FOR GROWTH, L.C. By:_________________________________ Judith Fox, Manager ASSIGNEE: STAFFPLUS, INC. By:_________________________________ Title:______________________________ PERSONNEL GROUP OF AMERICA, INC. By:_________________________________ Title:______________________________ -2- 40 EXHIBIT C EMPLOYMENT AND NONCOMPETITION AGREEMENT This Employment and Noncompetition Agreement (this "Agreement), dated May 10, 1996, is between PERSONNEL GROUP OF AMERICA, INC., a Delaware corporation ("PGA"), STAFFPLUS, INC., a Delaware corporation and wholly owned subsidiary of PGA ("STAFFPLUS"), and SUE DURNWIRTH (the "EMPLOYEE"). WHEREAS, as of the date hereof PGA and StaffPlus have entered into an Asset Purchase Agreement (the "ASSET PURCHASE AGREEMENT") between PGA, StaffPlus, the Sellers (as defined below) and Judith Fox pursuant to which StaffPlus will purchase the businesses operated by Judith Fox Companies, Inc., a Virginia corporation, Fox Technical, Inc., a Virginia corporation and Judith Fox Training For Growth, L.C., a Virginia limited liability company (collectively, the "SELLERS"); and WHEREAS, PGA and StaffPlus have offered Employee employment following the consummation of the acquisition, and Employee desires to accept such offer of employment upon the terms and conditions set forth below. STATEMENT OF AGREEMENT NOW, THEREFORE, in consideration of the premises and of the mutual covenants contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. EMPLOYMENT. Upon the Closing Date of the Asset Purchase Agreement, StaffPlus shall employ Employee for the term of this Agreement as President of StaffPlus' Judith Fox Staffing Companies Division, and Employee hereby agrees to accept such employment upon the terms and conditions herein set forth. 2. TERM OF AGREEMENT. This Agreement is effective as of the date hereof and Employee's employment shall commence on the Closing Date of the Asset Purchase Agreement and shall continue for three years (the "INITIAL TERM") from such Closing Date unless terminated earlier as provided herein. Upon expiration of the Initial Term, this Agreement shall automatically renew for successive one-year terms unless either party gives notice to the other of the intent not to renew at least ninety (90) days prior to the expiration of any such renewal term. 3. DUTIES OF EMPLOYEE. (a) Duties. Employee is employed by StaffPlus as President of StaffPlus' Judith Fox Staffing Companies Division. Employee's duties shall be such executive, managerial, administrative and professional duties as are commensurate with the position of a division President and as shall be assigned by the President or Chief Executive Officer of StaffPlus or PGA or any such officer's designee. Such duties shall include, without limitation, managing 41 the offices of the Sellers that were acquired by PGA and StaffPlus under the Asset Purchase Agreement. (b) Engaging in Other Employment. During the term of this Agreement, Employee shall not directly or indirectly render any services of a business, commercial or professional nature to any other person whether for compensation or otherwise, without the prior written consent of StaffPlus or PGA. (c) Loyal and Conscientious Performance. Employee agrees that to the best of her ability and experience she will at all times loyally and conscientiously perform all the duties and obligations required of her by the terms of this Agreement. 4. COMPENSATION AND BENEFITS. (a) Salary. For all the services to be rendered by Employee in any capacity hereunder, Employee shall be paid an annual salary (subject to such social security, unemployment insurance, withholding taxes and other payroll deductions as are required to be made by law) of $100,000 during the first year of employment under this Agreement, payable in installments consistent with StaffPlus' practices for its permanent employees. For the remainder of the Initial Term and so long as this Agreement remains in effect thereafter, Employee's salary will be established annually no later than January of each year by StaffPlus' Board of Directors, provided that Employee's annual salary shall not be less than $100,000 during the Initial Term. (b) Bonus. Employee shall be paid a bonus in respect of calendar year 1996 based on the financial performance of StaffPlus' Judith Fox Staffing Companies Division (the "Division") as follows. Such bonus shall be equal to ten percent (10%) of the amount by which EBIT (as defined below) for the Division for the calendar period from the Closing Date through December 31, 1996 exceeds $1,520,000. Such bonus shall be paid in a manner consistent with the payment of bonuses to other division presidents of StaffPlus. For subsequent years, Employee's bonus arrangement shall be reviewed annually with the bonuses of other division presidents and established at the discretion of StaffPlus's Board of Directors. "EBIT" shall mean, for any period, the aggregate net earnings before interest and taxes of the Division for such period, determined in accordance with GAAP, consistently applied, and in accordance with the following parameters (without limitation): (a) EBIT after Closing shall be calculated with the Division being considered on a stand-alone basis; and (b) there shall be no deduction for allocation by PGA or StaffPlus of corporate overhead expenses to the Division during the calculation period. (c) Fringe Benefits. So long as Employee remains in the employ of StaffPlus, PGA or any company controlled by or under common control with PGA (collectively, the "PGA AFFILIATES"), Employee shall: (i) Insurance. Be provided with health, life and disability insurance coverages in accordance with the standard policies of the PGA Affiliates; -2- 42 (ii) Vacation/Sick Days. Be provided with vacation/sick time in accordance with the standard policies of the PGA Affiliates; and (iii) 401(k) Plan. Not be permitted to participate in the PGA 401(k) Plan, which plan currently excludes highly compensated employees but shall (x) be permitted to participate in the PGA Profit Sharing Plan on a basis consistent with other highly compensated employees of StaffPlus and (y) be recommended to the stock option plan committee of the PGA Board of Directors for a grant of stock options pursuant to the terms of the PGA employee stock option plan. 5. NONCOMPETITION BY EMPLOYEE. (a) Employee agrees that for the term of her employment with any PGA Affiliate and a period of two (2) years thereafter, without PGA's prior written consent and except in performing her duties to the PGA Affiliates pursuant to this Agreement, she will not, directly or indirectly, either as principal, agent, manager, employee, partner, shareholder, director, officer, consultant or otherwise, (A) become engaged or involved in any business (other than as a less than 5% equity owner of any corporation traded on any national, international or regional stock exchange or in the over-the-counter market), that competes with the PGA Affiliates in the business of providing temporary staffing services; or (B) induce or attempt to induce any customer, supplier or employee of any PGA Affiliate to reduce, terminate, restrict or otherwise alter its business relationship with such PGA Affiliate. If any provision or part of this SECTION 5 is held to be unenforceable because of the duration of such provision or the area covered thereby, the parties hereto agree to modify such provision, or, alternatively, agree that the court making such determination shall have the power to modify such provision, to reduce the duration or area of such provision or both, or to delete specific words or phrases herefrom ("blue-penciling"), and, in its reduced or blue-penciled form, such provision shall then be enforceable and shall be enforced. If Employee violates any of the restrictive covenants set forth in this SECTION 5, then the time limitation otherwise applicable shall be extended for a period of time equal to the period of time during which such breach or breaches occurred. The parties intend the above restrictions on competition to be completely severable and independent, and any invalidity or unenforceability of any one or more of such restrictions shall not render invalid or unenforceable any one or more of the other restrictions. (b) The provisions of SECTION 5(A) shall be limited in scope and effective only within the following geographical areas: (i) The Cities of Richmond and Charlottesville, Virginia and New York, New York; -3- 43 (ii) Henrico, Hanover, Chesterfield and Albermarle Counties, Virginia and New York City and each county immediately adjacent thereto; and (iii) Henrico, Hanover, Chesterfield and Albermarle Counties, Virginia and New York City and a 60- mile radius outside the boundary limits of each such territory. The parties intend the above geographical areas to be completely severable and independent, and any invalidity or unenforceability of this Agreement with respect to any one area shall not render this Agreement unenforceable as applied to any one or more of the other areas. (c) Employee acknowledges that the PGA Affiliates may have no adequate means to protect their rights under this SECTION 5 other than by securing an injunction (a court order prohibiting Employee from violating this Agreement). Employee agrees that any PGA Affiliate may enforce this Agreement by obtaining a preliminary and permanent injunction and any other appropriate equitable relief in any court of competent jurisdiction. Employee acknowledges that the recovery of damages will not be an adequate means to redress a breach of this Agreement, but nothing in this SECTION 5 shall prohibit any PGA Affiliate from pursuing any remedies in addition to injunctive relief, including recovery of damages. (d) Employee acknowledges and agrees that PGA would not agree to consummate the transactions under the Asset Purchase Agreement or enter into this Agreement in the absence of the covenants made by Employee in this SECTION 5, and that such agreements by PGA and the other PGA Affiliates constitute adequate and sufficient consideration for the covenants made by Employee in this SECTION 5 and in the remainder of this Agreement. (e) Employee's obligations under this SECTION 5 shall survive any termination of this Agreement. 6. CONFIDENTIALITY. Employee shall not, at any time, use (other than in the ordinary course of fulfilling her duties as an employee of StaffPlus or PGA), divulge or otherwise disclose, directly or indirectly, any confidential and proprietary information (including without limitation any customer or prospect list, supplier list, data, records or financial information which is not generally known to the public) concerning the business, policies or operations of the PGA Affiliates which Employee may have learned on or prior to the date hereof or during the term of Employee's employment by StaffPlus or PGA (as an employee, consultant, shareholder, officer, controlling person, agent or otherwise). Employee's obligations under this SECTION 6 shall survive any termination of this Agreement. 7. TERMINATION. (a) Notwithstanding anything to the contrary contained herein, this Agreement, may be terminated by StaffPlus or PGA prior to the end of its term, as follows: -4- 44 (i) due to the death of Employee; (ii) due to a disability which prevents Employee from performing her full duties for a period of ninety (90) consecutive days at anytime during the term of this Agreement; or (iii) for cause, which is defined as the occurrence of: (A) gross neglect, malfeasance or gross insubordination regarding the duties, responsibilities and limitations of Employee under this Agreement; (B) a substantiated act of theft; (C) conviction for a felony; (D) any act of dishonesty or malicious action by Employee which is detrimental to any PGA Affiliate; (E) a material violation of the provisions of SECTION 5 or 6 hereof; or (F) poor performance (provided that poor performance shall be deemed to constitute cause only after (x) a finding by StaffPlus' Board of Directors of poor performance on the part of Employee and (y) the failure to remedy such performance to the Board's satisfaction for 30 days after delivery of written notice (reasonably describing the poor performance) to Employee of the Board's finding. In the event of early termination of this Agreement as permitted herein, Employee shall be entitled only to her base salary earned through the date of termination. (b) This Agreement shall terminate by its own terms if the transactions described in the Asset Purchase Agreement do not close. 8. NOTICE. Any notice to be given hereunder by either party to the other may be effectuated either by personal delivery in writing or by mail, registered or certified, postage prepaid, with return receipt requested. Mailed notices shall be addressed to the parties at the following addresses: If to any PGA Affiliate: 6302 Fairview Road, Suite 201 Charlotte, North Carolina 28210 Attn: Mr. Edward P. Drudge, Jr., Chief Executive Officer If to Employee: 5821 Harbor Hill Place Midlothian, Virginia 23112 or such other addresses as either a PGA Affiliate or Employee may designate by written notice to each other. Notices delivered personally shall be deemed duly given on the date of actual receipt; mailed notices shall be deemed duly given as of the fourth day after the date so mailed. 9. ATTORNEY'S FEES. If any party shall bring an action to enforce this Agreement, the prevailing party shall be entitled to recover her/its reasonable attorneys' fees and costs from the unsuccessful party. -5- 45 10. WAIVER OF BREACH. The waiver by any party to a breach of any provision in this Agreement cannot operate or be construed as a waiver of any subsequent breach by a party. 11. SEVERABILITY. The invalidity or unenforceability of any particular provision in this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if the invalid or unenforceable provision were omitted. 12. ENTIRE AGREEMENT. Except as otherwise provided herein, this Agreement covers the entire understanding of the parties as to the employment of Employee, superseding all prior understandings and agreements, and no modifications or amendments of the terms and conditions herein shall be effective unless in writing and signed by the parties or their respective duly authorized agents. 13. GOVERNING LAW. This Agreement shall be interpreted, construed and governed according to the laws of the State of North Carolina, without reference to conflicts of law principles thereof. 14. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their permitted successors, assigns, legal representatives and heirs, but neither this Agreement nor any rights hereunder shall be assignable by Employee. -6- 46 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. PERSONNEL GROUP OF AMERICA, INC. By:________________________________ Title: _____________________________ STAFFPLUS, INC. By:________________________________ Title: _____________________________ ___________________________________ (SEAL) Sue Durnwirth -7- 47 EXHIBIT D NONCOMPETITION AGREEMENT (Judith Fox) This Noncompetition Agreement (this "Agreement), dated May ___, 1996, is between PERSONNEL GROUP OF AMERICA, INC., a Delaware corporation ("PGA"), STAFFPLUS, INC., a Delaware corporation and wholly owned subsidiary of PGA (the "BUYER"), and JUDITH FOX ("FOX"). WHEREAS, as of the date hereof the Buyer has purchased substantially all of the assets of Judith Fox Companies, Inc., Fox Technical, Inc., and Judith Fox Training for Growth, L.C. (collectively, the "SELLERS") pursuant to the terms of an Asset Purchase Agreement (the "ASSET PURCHASE AGREEMENT"), dated as of May ___, 1996, between Sellers, Fox, Buyer and PGA; WHEREAS, Fox is the sole owner of each of the corporate Sellers and a principal owner of Judith Fox Training for Growth, L.C.; and WHEREAS, as a condition to consummating the transactions contemplated by the Asset Purchase Agreement, PGA has required that Fox enter into this Agreement. To induce PGA to consummate such transactions, Fox has agreed to enter into this Agreement. STATEMENT OF AGREEMENT NOW, THEREFORE, in consideration of the premises and of the mutual covenants contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. NONCOMPETITION BY FOX. (a) Fox agrees that for a period of four (4) years after the date hereof, without PGA's or the Buyer's prior written consent, she will not, directly or indirectly, either as principal, agent, manager, employee, partner, shareholder, director, officer, consultant or otherwise, (A) become engaged or involved in any business (other than as a less than 5% equity owner of any corporation traded on any national, international or regional stock exchange or in the over-the-counter market), that competes with PGA, the Buyer or any person or entity that controls, is controlled by or is under common control with PGA and the Buyer (hereinafter, "PGA'S "AFFILIATES") in the business of providing temporary or permanent staffing services or employee training services; or (B) induce or attempt to induce any customer, supplier or employee of the Buyer, PGA or any of PGA's Affiliates to reduce, terminate, restrict or otherwise alter its business relationship with the Buyer, PGA or any of PGA's Affiliates. If any provision or part of this SECTION 1 is held to be unenforceable because of the duration of such provision or the area covered thereby, the parties hereto agree to modify such provision, or that the court making such determination shall have the power to modify such provision, to reduce the duration or area of such provision or both, or 48 to delete specific words or phrases herefrom ("blue-penciling") and, in its reduced or blue-penciled form, such provision shall then be enforceable and shall be enforced. If Fox violates any of the restrictive covenants set forth in this SECTION 1, then the time limitation otherwise applicable shall be extended for a period of time equal to the period of time during which such breach or breaches occurred. The parties intend the above restrictions on competition to be completely severable and independent, and any invalidity or unenforceability of any one or more of such restrictions shall not render invalid or unenforceable any one or more of the other restrictions. (b) The provisions of SECTION 1(A) shall be limited in scope and effective only within the following geographical areas: (i) The Cities of Richmond and Charlottesville, Virginia, and New York, New York; and (ii) Henrico, Hanover, Chesterfield and Albemarle Counties, Virginia, and New York City and each county immediately adjacent thereto; and (iii) Henrico, Hanover, Chesterfield and Albemarle Counties, Virginia, and New York City and each county immediately adjacent thereto, and a 20-mile radius outside the boundary limits of each such territory. The parties intend the above geographical areas to be completely severable and independent, and any invalidity or unenforceability of this Agreement with respect to any one area shall not render this Agreement unenforceable as applied to any one or more of the other areas. (c) Fox acknowledges that PGA and the Buyer may have no adequate means to protect their rights under this SECTION 1 other than by securing an injunction (a court order prohibiting Fox from violating this Agreement). Fox agrees that PGA and the Buyer may enforce this Agreement by obtaining a preliminary and permanent injunction and any other appropriate equitable relief in any court of competent jurisdiction. Fox acknowledges that the recovery of damages will not be an adequate means to redress a breach of this Agreement, but nothing in this SECTION 1 shall prohibit PGA and the Buyer from pursuing any remedies in addition to injunctive relief, including recovery of damages. (d) Fox acknowledges and agrees that PGA would not agree to consummate the transactions under the Asset Purchase Agreement or enter into this Agreement in the absence of the covenants made by Fox in this SECTION 1, and that such agreements by PGA constitute adequate and sufficient consideration for the covenants made by Fox in this SECTION 1 and in the remainder of this Agreement. 2. NOTICE. Any notice to be given hereunder by either party to the other may be effectuated either by personal delivery in writing or by mail, registered or certified, postage prepaid, with return receipt requested. Mailed notices shall be addressed to the parties at the following addresses: -2- 49 If to PGA or Buyer: 6302 Fairview Road, Suite 201 Charlotte, North Carolina 28210 Mr. Edward P. Drudge, Jr., Chief Executive Officer With a copy to: Robinson, Bradshaw & Hinson, P.A. 101 N. Tryon Street, Suite 1900 Charlotte, North Carolina 28246 ATTENTION: Kenneth R. Bramlett If to Fox: 4098 Wood Lane Keswick, Virginia 22947 With a copy to: LeClair Ryan 707 E. Main Street, 11th Floor Richmond, Virginia 23219 ATTENTION: Steven J. Keeler or such other addresses as either PGA, the Buyer or Fox may designate by written notice to each other. Notices delivered personally shall be deemed duly given on the date of actual receipt; mailed notices shall be deemed duly given as of the fourth date after the date so mailed. 3. ATTORNEY'S FEES. If any party shall bring an action to enforce this Agreement, the prevailing party shall be entitled to recover its reasonable attorney's fees and costs from the unsuccessful party. 4. WAIVER OF BREACH. The waiver by any party to a breach of any provision in this Agreement cannot operate or be construed as a waiver of any subsequent breach by a party. 5. SEVERABILITY. The invalidity or unenforceability of any particular provision in this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if the invalid or unenforceable provision were omitted. 6. AMENDMENTS. No modifications or amendment of this terms and conditions shall be effective unless in writing and signed by the parties or their duly authorized agents. 7. GOVERNING LAW. This Agreement shall be interpreted, construed and governed according to the laws of the State of North Carolina, without reference to conflicts of law principles thereof. 8. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their permitted successors, assigns, legal representatives and heirs. Fox agrees that this Agreement may be assigned by PGA and the -3- 50 Buyer upon the transfer or reorganization of the Buyer, and may be enforced by any such assignee company. Such assignment shall be in writing and shall not relieve PGA of its obligations hereunder. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. PERSONNEL GROUP OF AMERICA, INC. By:_______________________________ Title: _____________________________ STAFFPLUS, INC. By:_______________________________ Title: _____________________________ __________________________________(SEAL) Judith Fox -4- 51 EXHIBIT E FORM OF UNSECURED PROMISSORY NOTE [$1,000,000] May 20, 1996 Charlotte, North Carolina FOR VALUE RECEIVED, STAFFPLUS, INC., a Delaware corporation (the "Buyer"), and PERSONNEL GROUP OF AMERICA, INC., a Delaware corporation ("PGA") hereby jointly and severally promise to pay to the order of JUDITH FOX COMPANIES, INC., a Virginia corporation (the "Seller"), at 4098 Wood Lane, Keswick, Virginia 22947 (or at such other place as Seller may designate), or to the holder hereof the principal sum of up to ___________________ ($_________), or such lesser or greater amount as may constitute the unpaid principal amount due from the Buyer to the Seller under the terms of that certain Asset Purchase Agreement dated May 10, 1996, by and among the Buyer, PGA, the Seller, the other Sellers identified therein and Judith Fox (the "Asset Purchase Agreement"), under the terms and conditions of this promissory note (this "Note") in lawful money of the United States of America in immediately available funds, without interest, on August 19, 1996. This Note is issued and delivered to evidence the obligation of Buyer referenced in SECTION 2.3(B) of the Asset Purchase Agreement. All of the terms, conditions and covenants of the Asset Purchase Agreement are expressly made a part of this Note by reference in the same manner and with the same effect as if set forth herein at length. This Note shall be governed by and construed in accordance with the internal laws and judicial decisions of the State of North Carolina. IN WITNESS WHEREOF, the Buyer and PGA have caused this Note to be executed under seal by their duly authorized corporate officers as of the day and year first above written. STAFFPLUS, INC. By:__________________________________ Name:_____________________________ Title:____________________________ PERSONNEL GROUP OF AMERICA, INC. By:__________________________________ Name:_____________________________ Title:____________________________ 52 EXHIBIT F [Letterhead of LeClair Ryan] [Date] Boards of Directors Personnel Group of America, Inc. StaffPLUS, Inc. Ladies and Gentlemen: We have acted as special counsel for Judith Fox Companies, Inc., a Virginia corporation, Fox Technical, Inc., a Virginia corporation and Judith Fox Training for Growth, L.C., a Virginia limited liability company (each a "Seller" and, collectively, the "Sellers") and Judith Fox ("Fox"), in connection with the Asset Purchase Agreement dated as of May 10, 1996, by and among the Sellers, Fox and each of you (the "Asset Purchase Agreement"), which provides for the acquisition by StaffPLUS, Inc. (the "Buyer") of substantially all of the assets of the Sellers. Capitalized terms not defined herein have the meanings given them in the Asset Purchase Agreement, except as otherwise provided herein. This opinion is furnished to you pursuant to Section 5.1.2 of the Asset Purchase Agreement. In connection with our opinions expressed herein, we have participated in the preparation of the Asset Purchase Agreement, the Bill of Sale, the Contract Assignment, [the Servicemark Assignment] and the Noncompetition Agreement (collectively, the "ACQUISITION AGREEMENTS") and the other documents referred to therein. In addition, we have examined originals or copies of such corporate and other documents and records and certificates of public officials as we have deemed necessary or appropriate for the purposes of this opinion. We have relied as to factual matters on the representations and warranties made by the Sellers and Fox in the Asset Purchase Agreement and on certificates of officers of the Sellers and public officials, copies of which certificates have been provided to you. We have assumed (i) the authority and genuineness of all signatures of persons (other than Fox in her individual capacity and representatives of the Sellers) signing the Acquisition Agreements and the other documents referred to therein, (ii) the legal capacity of all natural persons who are parties to the Acquisition Agreements and the other documents referred to therein, (iii) the authenticity of all documents submitted to us as originals, (iv) the conformity to authentic original documents of all documents submitted to us as certified, conformed or photostatic copies, and (v) the correctness and accuracy of all facts set forth in all certificates and reports identified herein. 53 Based on the foregoing, and subject to the assumptions, limitations and qualifications hereinabove and hereinafter set forth, we are of the opinion that, as of the date of this letter: 1. Each of the Sellers is a corporation or limited liability company duly organized and validly existing and, based solely on the certificates of good standing issued by the Virginia State Corporation Commission on May 6, 1996, in good standing under the laws of the State of Virginia. Each of the Sellers has the corporate power and authority to use its corporate name, to own or lease its properties and to carry on its business as presently conducted. 2. Each of the Sellers has the requisite corporate power and authority to execute and deliver the Asset Purchase Agreement and the other Acquisition Agreements and to consummate the transactions contemplated thereby. The execution and delivery of the Asset Purchase Agreement and the other Acquisition Agreements and the consummation of the transactions contemplated thereby have been duly and validly authorized by all requisite corporate action on the part of each of the Sellers. Each of the Asset Purchase Agreement and the other Acquisition Agreements has been duly and validly executed and delivered by each of the Sellers and Fox, as applicable, and each of the Acquisition Agreements other than the Noncompetition Agreement constitutes the legal, valid and binding agreement of each of the Sellers and Fox, as applicable, enforceable against such parties in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws and procedural requirements affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether enforceability is considered in an action at law or a suit in equity). 3. To our knowledge, neither the execution, delivery or performance by each of the Sellers and Fox, as applicable, of the Asset Purchase Agreement or the other Acquisition Agreements nor the consummation by each of the Sellers and Fox of the transactions contemplated thereby, will (a) conflict with or result in any breach of any provision of the certificate of incorporation or bylaws or similar documents of each of the Sellers, (b) to our knowledge, violate any order, writ, injunction, decree, statute, rule or regulation applicable to each of the Sellers or Fox or any of their assets, or (c) to our knowledge, result in a default or give rise to the creation of any lien or encumbrance on the assets of any of the Sellers, with or without notice or lapse of time or both, under any note, bond, mortgage, indenture, agreement or other instrument -2- 54 or obligation to which any of the Sellers or Fox may be bound, except for such defaults or rights of termination or such liens or encumbrances as to which requisite waivers or consents have been obtained. 4. The Bill of Sale and the Contract Assignment are sufficient to convey to you all right, title and interest that the Sellers have in the tangible personal property, accounts receivable and Assumed Contracts (to the extent any third party consents to any assignment are obtained) included in the Purchased Assets and the Assignment Servicemark is sufficient to convey to you all right, title and interest that the Sellers have in the servicemarks described therein. 5. To our knowledge, all filings and registrations with, notifications to, and permits, authorizations, consents and approvals of, all governmental agencies or authorities and any other third parties required to permit consummation by [each of the Sellers] of the transactions contemplated by the Asset Purchase Agreement have been obtained. 6. To our knowledge, there is no claim, action, suit, investigation or proceeding which is pending or threatened against any of the Sellers or Fox or any of their assets before any court, governmental authority or agency that questions the validity of the Asset Purchase Agreement or is not disclosed in the schedules to the Asset Purchase Agreement. The foregoing opinions are limited in all respects to the substantive laws of the United States and the State of Virginia, and we express no opinion with respect to the laws of any other state or jurisdiction and we assume no responsibility as to the applicability thereto, or the effect thereon, of the laws of any other jurisdiction. Our opinions above are subject to the following qualifications: a. Where an opinion is limited to or refers to our knowledge, we have undertaken to inform you of any matters that have come to the attention of the attorneys in our firm who have devoted substantive attention to the transactions referred to in this opinion, but we have undertaken no independent investigation with respect thereto. b. We express no opinion on the enforceability of any provisions contained in the Acquisition Agreements which require waivers or amendments to be made only in writing. 55 c. We express no opinion as to the enforceability, under certain circumstances, of contractual provisions respecting: severability; attorneys' fees, to the extent inconsistent with applicable law; indemnity, to the extent contrary to public policy; cumulations, non-exclusivity, or availability of remedies or the enforcement of contractual provisions to the extent contrary to public policy; provisions that contain a waiver of (i) broadly or vaguely stated rights, (ii) the benefits of statutory, regulatory, or constitutional rights, (iii) unknown future defenses, and (iv) rights to damages; provisions that attempt to change or waive rules of evidence or fix the method or quantum of proof to be applied in litigation or similar proceedings; non-waiver of remedies by a failure or delay of exercise; performance requirements, to the extent such requirements are beyond the control of the performer; choice of law provisions, forum selection clauses and consent to jurisdiction clauses (both as to personal jurisdiction and subject matter jurisdiction); restraints on trade; and usury laws. In addition, we express no opinion as to the enforceability of contractual provisions or contracts found by a court to be or have been unconscionable or to constitute violations of public policy or to result in a wholly unintended level of hardship, nor as to the rights and remedies of any party who seeks to enforce any rights and remedies other than in good faith and in a commercially reasonable manner. This opinion (i) has been rendered solely for your information and benefit in connection with the Acquisition Agreements and the transactions contemplated thereby and may not be used, circulated, quoted, relied upon or otherwise referred to by any other person or for any other purposes without our prior written consent, (ii) is rendered as of the date hereof, and we undertake no, and hereby disclaim any, obligation to advise you of any changes or new developments which might affect any opinions or statements set forth herein, and (iii) is limited to the matters stated herein and no opinions may be inferred or implied inferred or implied beyond the matters expressly stated herein. Very truly yours, LECLAIR RYAN, A Professional Corporation 56 EXHIBIT G [Form of Robinson, Bradshaw & Hinson Opinion] [Date] Ms. Judith Fox [Sellers] Ladies and Gentlemen: We have acted as special counsel for Personnel Group of America, Inc., a Delaware corporation ("PGA") and StaffPLUS, Inc., a Delaware corporation ("BUYER"), in connection with the Asset Purchase Agreement dated as of May __, 1996, between PGA, Buyer and each of you (the "ASSET PURCHASE AGREEMENT"), which provides for the acquisition by Buyer of substantially all of the assets of Sellers. Capitalized terms not defined herein have the meanings given them in the Asset Purchase Agreement. This opinion is furnished to you pursuant to Section 5.2 of the Asset Purchase Agreement. We have participated in the preparation of the Asset Purchase Agreement, the Contract Assignment, the Noncompetition Agreement (collectively, the "ACQUISITION AGREEMENTS") and the other documents referred to therein. In addition, we have examined such corporate and other documents and records and certificates of public officials as we have deemed necessary or appropriate for the purposes of this opinion. We have relied as to factual matters on the representations and warranties made by PGA and Buyer in the Asset Purchase Agreement and on certificates of officers of PGA and Buyer and public officials, copies of which certificates have been provided to you. We have assumed (i) the authority and genuineness of all signatures of persons (other than representatives of PGA and Buyer) signing the Acquisition Agreements and the other documents referred to therein, (ii) the legal capacity of all natural persons who are parties to the Acquisition Agreements and the other documents referred to therein, (iii) the authenticity of all documents submitted to us as originals, and (iv) the conformity to authentic original documents of all documents submitted to us as certified, conformed or photostatic copies. Based on the foregoing, and subject to the assumptions and qualifications hereinafter set forth, it is our opinion that: 1. Each of PGA and Buyer is a corporation duly organized and validly existing and, based solely on the certificate of good standing issued by the Delaware Secretary of State on _________________, 1996, is in good standing under the laws of the State of Delaware. 2. Each of PGA and Buyer has the requisite corporate power and authority to execute and deliver the Asset Purchase Agreement and the other Acquisition Agreements and to consummate the transactions contemplated thereby. The execution and delivery of the Asset Purchase Agreement 57 and the other Acquisition Agreements and the consummation of the transactions contemplated thereby have been duly and validly authorized by all requisite corporate action on the part of PGA and Buyer. Each of the Asset Purchase Agreement and the other Acquisition Agreements has been duly and validly executed and delivered by PGA or Buyer, as applicable, and constitutes the legal, valid and binding agreement of PGA or Buyer, as applicable, enforceable against such corporation in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and to general principles of equity. 3. Neither the execution, delivery or performance by PGA or Buyer, as applicable, of the Asset Purchase Agreement or the other Acquisition Agreements nor the consummation by PGA and Buyer of the transactions contemplated thereby, will conflict with or result in any breach of any provision of the certificate of incorporation or bylaws of PGA or Buyer, or violate any order, writ, injunction, decree, statute, rule or regulation applicable to PGA or Buyer or any of their assets. 4. All filings and registrations with, notifications to, and permits, authorizations, consents and approvals of, all governmental agencies or authorities and any other third parties required to permit consummation by PGA and Buyer of the transactions contemplated by the Asset Purchase Agreement have been obtained; provided however, that upon the closing of the transactions contemplated under the Asset Purchase Agreement, PGA may file reports with the United States Securities and Exchange Commission disclosing the transactions. 5. To our knowledge, there is no claim, action, suit, investigation or proceeding which is pending or threatened against PGA or Buyer or any of their assets before any court, governmental authority or agency that questions the validity of the Asset Purchase Agreement. The foregoing opinions are limited to the laws of the United States and the State of North Carolina and to the provisions of the Delaware General Corporation Law, and we express no opinion with respect to the laws of any other state or jurisdiction. Our opinions above are subject to the following qualifications: a. Where an opinion is limited to or refers to our knowledge, we have undertaken to inform you of any matters that have come to the attention of the attorneys in our firm who have devoted substantive attention to the transactions referred to in 58 this opinion, but we have undertaken no independent investigation with respect thereto. b. We express no opinion on the enforceability of any provisions contained in the Acquisition Agreements which require waivers or amendments to be made only in writing. c. We do not express an opinion as to the strict enforceability of each and every right, remedy and power contained in the Acquisition Agreements in accordance with their terms under all facts and circumstances. However, it is our opinion that the remedies and provisions contained in the Acquisition Agreements are sufficient as a whole, subject to the qualifications elsewhere herein stated, for the practical realization of the essential benefits intended thereby. This opinion has been rendered solely for your benefit in connection with the Acquisition Agreements and the transactions contemplated thereby and may not be used, circulated, quoted, relied upon or otherwise referred to for any other purposes without our prior written consent. Very truly yours, ROBINSON, BRADSHAW & HINSON, P.A. 59 Schedule 2.1 ASSUMED CONTRACTS 1. Lease Agreement dated July 31, 1987 originally between Fox-Huber Companies, Inc. as Tenant and Glen Forest Professional Center Associates Landlord for space in Richmond, Virginia (as modified by the Fourth Lease Amendment dated February 6, 1996, and all riders and exhibits thereto including Dollar Allowance Work Letter Agreements and Turn-Key Work Letter Agreement. Copies previously provided to Buyer.) 2. Lease Agreement dated September 17, 1992 between Judith Fox Companies, Inc. as Lessee and Koger Management, Inc. as Manager for space in Richmond, Virginia (Copy previously provided to Buyer.)* 3. Lease Agreement dated February 19, 1991 between Judith Fox Companies, Inc. as Tenant and 1790 Broadway Associates as Owner for space in the City of New York (including all riders, and as modified by Lease Extension Agreement dated April 1, 1996. Copies previously provided to Buyer.)* 4. Lease Agreement dated August 2, 1994 between Judith Fox Companies, Inc. as Lessee and Ventures Unlimited as Lessor for space in Charlottesville, Virginia (Copy previously provided to Buyer)* 5. Business Equipment Efficiency Agreement dated January 17, 1996 between Judith Fox Companies, Inc. and Business Equipment Center of Virginia (Copy previously provided to Buyer.) 6. Agreement to Furnish Horticultural Services dated March 15, 1995 between Buckingham Greenery, Inc. and Judith Fox Companies, Inc. (Copy previously provided to Buyer.) 7. Maintenance Agreement effective November 30, 1995 between Rosemary Scott Temporaries and Minolta Copier Corp. of N.Y., Inc. (Copy previously provided to Buyer.) 8. Equipment Lease dated December 9, 1991 between Judith Fox Companies, Inc. and Pitney Bowes Inc. (Copy previously provided to Buyer.)* 9. Maintenance Contract renewed effective July 28, 1995 between Judith Fox Temporaries and Street and Co. (Copy previously provided to Buyer.) 10. Maintenance Agreement effective July 24, 1995 between Judith Fox Companies and The Supply Room Companies, Inc. (Copy previously provided to Buyer.) 11. Maintenance Agreement effective December 1, 1995 between Judith Fox Companies, Inc. and The Supply Room Companies, Inc. (Copy previously provided to Buyer.) 12. Maintenance Agreement effective January 10, 1996 between Rosemary Scott Temps and Sigmatek, Inc. (Copy previously provided to Buyer.)* 13. Rental Agreement executed November 23, 1992 between Storage-USA, Inc. and Judith Fox Companies, Inc. (Copy previously provided to Buyer.)* 14. Master Hardware Service Agreement dated July 5, 1991 between Caldwell-Spartin Service, Inc. and Judith Fox Companies, Inc. (Copy previously provided to Buyer.)* 15. Master Sales/Licensing Agreement dated July 5, 1991 between Caldwell-Spartin Service, Inc. and Judith Fox Companies, Inc. (Copy previously provided to Buyer.)* 60 16. Master Software Service Agreement dated July 5, 1991 between Caldwel-Spartin Service, Inc. and Judith Fox Companies, Inc. (Copy previously provided to Buyer.)* 17. Employment Agreements for the 44 employees listed (copy attached), each substantially in the form of the Employment Agreement and Restrictive Covenant between Judith Fox Companies, Inc. and Susan A. Durnwirth (Copy previously provided by Buyer.) 18. Maintenance Agreement between Copy Systems, Inc. and Judith Fox Temporaries. (Copy of original one-year contract previously provided to Buyer; no new written agreement provided) 19. Maintenance Agreement dated April 11, 1995 between Specialty Office Equipment and Judith Fox Companies. (Copy of original contract previously provided to Buyer.) 20. Safe Deposit Box Rental Agreement between United Security Vaults and Judith Fox Companies, Inc., effective through December, 1996* 21. Any and all contracts listed on Schedule 3.1.4. 22. Any and all contracts listed on Schedule 3.1.15. 23. Any and all contracts listed on Schedule 3.1.17. CONSENT TO ASSIGNMENT IS REQUIRED BUT SUCH CONSENT HAS BEEN WAIVED AS A CONDITION TO BUYER'S AND PGA'S OBLIGATION TO CLOSE. 61 Schedule 2.2 EXCLUDED ASSETS [see Attached] 62 2.2(a) Cash and cash equivalents as follows:
Description Bank A/C# G/L A/C# G/L Amount Judith Fox Companies, Inc.: Crestar - Master account 201147599 1060-00-0000 Crestar - Temp payroll 201147610 1062-00-0000 Crestar - Staff payroll 201149095 1063-00-0000 Crestar - RST Disbursements 201149281 1061-00-0000 Crestar - JFT Disbursements 201149338 1061-00-0000 Rosemary Scott Temps (branch) Chemical Bank - Temp payroll 1050-00-0000 Fox Technical, Inc.: Signet Bank - Master account 5530462299 1050-00-0000 Signet Bank - Disbursements 5530462299 1051-00-0000 Signet Bank - Temp payroll 5530462299 1052-00-0000 Signet Bank - Staff payroll 5530462299 1053-00-0000 Judith Fox Training For Growth, L.C.: Jefferson Nat'l Bank - Master 1060-00-0000 Jefferson Nat'l Bank - Disbursements 1061-00-0000 Jefferson Nat'l Bank - Temp payroll 1062-00-0000 Jefferson Nat'l Bank - Staff payroll 1O63-00-0000 ---------------- Total Cash Balances 0 Less amount to satisfy total asset deficiency ---------------- Net excluded cash and cash equivalents 0 ================ 2.2(b) All contracts not assumed as follows: all insurance policies listed on Schedule 3.1.4 2.2(c) The corporate seals, certificates of incorporation . . . or other records having to do with the corporate organization of Sellers; 2.2(d) Any rights of Sellers . . . or after the date of this Agreement; 2.2(e) The rights of any of Sellers' . . . or carry backs;
63 2.2(f) Intercompany Receivables as follows:
Description G/L A/C# G/L Amount ----------- -------- ---------- Judith Fox Companies, Inc.: Due from Training For Growth 1183-00-0000 Rosemary Scott Temps (branch) Due from Judith Fox Temps 2300-00-0000 Fox Technical, Inc.: Due from Training For Growth 2165-00-0000
2.2(g) Other assets as follows:
Description G/L A/C# G/L Amount ----------- -------- ---------- Judith Fox Companies, Inc.: Prepaid Insurance 1550-00-0000 Fixed assets as follows: Judith's 1993 Lexus Id. 1250-00-0000 Judith's Gateway 2000 PC Ser # 4526123 1210-00-0000 Judith's Bocca Modem Ser # FSR 51623 1210-00-0000 Judith's Multi-Function Fax/Copier 1210-00-0000 Serial # J53327485 Judith's IBM Laptop 486 Serial # 23C6473 1210-00-0000 Rosemary Scott Temps (branch) Prepaid Insurance 1550-00-0000 Fox Technical, Inc.: Prepaid Insurance 1550-00-0000 Organizational Expenses 1616-00-0000 Amort of Organizational Expenses 1617-00-0000 Judith Fox Training For Growth, L.C.: Prepaid Insurance 1550-00-0000 Organizational Expenses 1616-00-0000 Amort of Organizational Expenses 1617-00-0000
2.2(h) rights relating to "On The Job" radio program: -2- 64 Schedule 2.7 OTHER LIABILITIES ASSUMED BY BUYER [see Attached] 65
Description G/L A/C# G/L Amount ----------- -------- ---------- 2.7(a) Assumed as part of assumed contracts: Rosemary Scott Temps (branch) Reserve For Discounts 1102-00-0000 2.7(b) Trade payables and normal operating accruals: Judith Fox Companies, Inc.: Accounts payable trade 2000-00-0000 Accrued accounts payable 2100-00-0000 Accrued payroll 2110-00-0000 Accrued payroll taxes 2110-00-0000 Federal withholdings 2400-00-0000 Fica withholdings 2410-00-0000 State withholdings 2420-00-0000 Disability withholdings 2450-00-0000 Garnishment withholdings 2460-00-0000 Section 126 withholdings 2480-00-0000 Other withholdings 2490-00-0000 Rosemary Scott Temps (branch) Accounts payable trade 2000-00-0000 Accrued accounts payable 2100-00-0000 Accrued payroll 2110-00-0000 Accrued payroll taxes 2120-00-0000 Federal withholdings 2400-00-0000 Fica withholdings 2410-00-0000 State withholdings 2420-00-0000 City withholdings 2430-00-0000 Disability withholdings 2440-00-0000 Garnishment withholdings 2460-00-0000 Section 125 withholdings 2480-00-0000 Other withholdings 2490-00-0000 Fox Technical, Inc. Accounts payable trade 2000-00-0000 Accrued accounts payable 2100-00-0000 Accrued payroll 2110-00-0000 Accrued payroll taxes 2120-00-0000 Federal withholdings 2400-00-0000 Fica withholdings 2410-00-0000 State withholdings 2420-00-0000 Garnishment withholdings 2460-00-0000 Section 125 withholdings 2480-00-0000 Other withholdings 2490-00-0000
66 Judith Fox Training For Growth, L.C.: Accounts payable trade 2000-00-0000 Accrued accounts payable 2100-00-0000 Accrued payroll 2110-00-0000 Accrued payroll taxes 2120-00-0000 Federal withholdings 2400-00-0000 Fica withholdings 2410-00-0000 State withholdings 2420-00-0000 Garnishment withholdings 2460-00-0000 Section 125 withholdings 2480-00-0000 Other withholdings 2490-00-0000 ------------ Total Assumed Liabilities 0 ============
-2- 67 Schedule 3.1.1 STATES OF INCORPORATION/QUALIFICATION
Entity State of Incorporation/Organization States of Qualification 1. Judith Fox Companies, Inc. Virginia Virginia, New York 2. Fox Technical, Inc. Virginia Virginia 3. Judith Fox Training for Virginia Virginia Growth, L.C.
68 Schedule 3.1.3 SELLERS' CONSENTS* 1. Lease Agreement dated September 17, 1992 between Judith Fox Companies, Inc. as Lessee and Koger Management, Inc. as Manager for space in Richmond, Virginia 2. Lease Agreement dated February 19, 1991 between Judith Fox Companies, Inc. as Tenant and 1790 Broadway Associates as Owner for space in the City of New York 3. Lease Agreement dated August 2, 1994 between Judith Fox Companies, Inc. as Lessee and Ventures Unlimited as Lessor for space in Charlottesville, Virginia 4. Equipment Lease dated December 9, 1991 between Judith Fox Companies, Inc. and Pitney Bowes Inc. 5. Maintenance Agreement effective January 10, 1996 between Rosemary Scott Temps and Sigmatek, Inc. 6. Rental Agreement executed November 23, 1992 between Storage-USA, Inc. and Judith Fox Companies, Inc. 7. Master Hardware Service Agreement dated July 5, 1991 between Caldwell-Spartin Service, Inc. and Judith Fox Companies, Inc. 8. Master Sales/Licensing Agreement dated July 5, 1991 between Caldwell-Spartin Service, Inc. and Judith Fox Companies, Inc. 9. Master Software Service Agreement dated July 5, 1991 between Caldwell-Spartin Service, Inc. and Judith Fox Companies, Inc. 10. Safe Deposit Box Rental Agreement between United Security Vaults and Judith Fox Companies, Inc., effective through December, 1996 * Consent to assignment is required but such consent has been waived as a condition to Buyer's and PGA's obligation to close. 69 LEASE EXTENSION AGREEMENT AGREEMENT made this first day of April 1996 by and between 1790 BROADWAY ASSOCIATES, as Landlord, and JUDITH FOX COMPANIES, INC., as Tenant. IT IS MUTUALLY COVENANTED AND AGREED by and between the parties hereto that the lease made by and between 1790 Broadway Associates, as Landlord, and Judith Fox Companies, Inc., as Tenant, under date of February 19, 1991, for that portion of the seventh (7th) floor known as Rooms 701-702 in the building known as 1790 Broadway, New York, New York, shall be and hereby is extended from May 1, 1996 to April 30, 1999 at a yearly rental of FIFTY ONE THOUSAND SEVEN HUNDRED THIRTY THREE DOLLARS AND 20/00 CENTS ($51,733.20) so that the date of expiration is modified and amended to be April 30, 1999, as though the said date were the original date of expiration mentioned in said lease and the parties hereto agree to be bound by the same terms, covenants, conditions, provisions, rules and regulations embodied at length in said lease, except as specifically modified herein. The said lease shall form a part hereof as though included fully at length herein and forms a part hereof by reference thereto. IT IS FURTHER COVENANTED AND AGREED that the Landlord is not to make any repairs or decorations to the premises mentioned in said Lease, except as specifically mentioned in this Lease Extension Agreement and in the Rider attached hereto and forming a part hereof. IN WITNESS WHEREOF, and intending to be bound thereby, the parties hereto have executed this instrument as of the day and year first above written. WITNESS: 1790 BROADWAY ASSOCIATES By: 1790 Broadway Corp., General Partner _________________________ By: ____________________________________ Its: JUDITH FOX COMPANIES, INC. _________________________ By: ____________________________________ Its: 70 RIDER ATTACHED TO AND FORMING PART OF LEASE EXTENSION AGREEMENT BY AND BETWEEN 1790 BROADWAY ASSOCIATES, AS OWNER, AND JUDITH FOX COMPANIES, INC., AS TENANT It is hereby agreed by and between Owner and Tenant that the following amendments to the Lease dated February 19, 1991, by and between Owner and Tenant shall be incorporated into and form a part of this Lease Extension Agreement dated as of April 1, 1996. If and to the extent that any of the provisions of this Rider conflict or are otherwise inconsistent with any of the preceding provisions of the Lease Extension Agreement or of the Lease, whether or not such inconsistency is expressly noted in this Rider, the provisions of this Rider shall prevail. 1. REAL ESTATE TAX ESCALATION. Article 39 A (2) shall read: (2) "Base Year Taxes" shall mean the Real Estate Taxes as finally determined for the tax fiscal year July 1, 1995 through June 30, 1996 ("Base Year"). 2. EXPENSE ESCALATION. Article 40 A (2) shall read: (2) "Base Rate" shall mean the rate in effect in 1996. 3. RENT ESCALATION - UTILITY INCREASE. Articles 41 A (4) and (5) shall read: (4) "Base Year" shall mean the twelve (12) month period ending on the last day of December, 1996. (5) "Comparison Year" shall mean the twelve (12) month period commencing on January 1, 1997 and each successive twelve (12) month period in which occurs any part of the term of this lease. 4. AS IS: OWNER'S CONSTRUCTION. Article 51 shall be amended to read: A. Save as hereinafter set forth, Tenant acknowledged that it has inspected the demised premises and Tenant agrees to accept the demised premises in their "AS IS" physical condition and acknowledges that Owner shall not be obligated to make any improvements or alterations to the demised premises whatsoever. B. Owner shall, at Owner's sole cost and expense, repaint the demised premises to building standard. Owner shall, at Owner's sole cost and expense, clean the entire carpeted area of the demised premises, including carpet re-gluing where necessary. C. Tenant acknowledges that Tenant is presently in possession of the demised premises pursuant to the Lease, as amended and hereby extended. Tenant further acknowledges that the work specified in subparagraph B hereof shall be carried out at the same time as Tenant is in occupancy of the demised premises and Tenant agrees that Tenant will co-operate fully with Owner and with Owner's contractors or other labor in performing said work, and that there shall be no abatement of rent or other allowance to Tenant for diminution in rental value and no liability on the part of Owner by reason of inconvenience, annoyance or injury to business arising from said work. 71 5. NO BROKER. Tenant covenants, represents and warrants that Tenant has had no dealings or communications with any broker or agent in connection with the consummation of this Lease Extension Agreement and Tenant covenants and agrees to pay, hold harmless and indemnify Landlord from and against any and all cost, expense (including reasonable attorneys' fees) or liability for any compensation, commissions or charges claimed by any broker or agent with respect to this Lease Extension Agreement or the negotiation thereof. 6. LEASE IN FULL FORCE AND EFFECT. Except as modified by this Lease Extension Agreement, the Lease, all prior amendments of the Lease and all covenants, agreements, terms and conditions thereof shall remain in full force and effect. IN WITNESS WHEREOF, and intending to be bound thereby, the parties hereto have executed this instrument as of the day and year first above written. WITNESS: 1790 BROADWAY ASSOCIATES By: 1790 Broadway Corp., General Partner ______________________ By: __________________________________ Its: JUDITH FOX COMPANIES, INC. ______________________ By: __________________________________ Its: -2- 72 Schedule 3.1.4 INSURANCE
TERM COMPANY/DESCRIPTION LIMIT POLICY # FROM/TO - ------------------- ----- -------- ------- JUDITH FOX COMPANIES, INC. Safeco: S. Durnwirth - keyman life $ 200,000 AA0677253 8/25/95-8/25/96 W. Sippel - keyman life $ 150,000 AA0677252 8/28/95-8/28/96 First Colony: W. Devlin - keyman life $ 150,000 1,863,255 7/15/95-7/15/96 K. Wimbish - keyman life $ 200,000 2,205,607 7/20/95-7/20/96 K. Wimbish - Life (company paid personal policy) 2216691 7/20/95-7/20/96 Paul Revere Insurance: S. Durnwirth - LTD (company paid personal policy) 10236684603 8/15/95-9/15/96 Judith Fox - LTD (company paid personal policy) 10217905903 9/15/95-9/15/96 K. Wimbish - LTD (company paid personal policy) 10267369803 9/15/95-9/15/96 EVLICO: K. Wimbish - Life (company paid personal policy) 44 239 033 7/06/95-7/06/96 S. Durnwirth - Life (company paid personal policy) 44 242 359 7/06/94-7/06/95 Commercial Union: Auto policy - 1993 LEXUS LS400 SEDAN $1,000,000 CXAH12241 1/01/96-1/01/97 Granite State Insurance: Virginia workers comp $1,000,000 WC 334-54-48 1/05/96-1/05/97 Continental Insurance Company: Crime policy $1,000,000 BNP0024324 1/01/96-1/01/97 Commercial Union insurance: General Liability: AZR488900 1/01/96-1/01/97 General Aggregate $2,000,000 Products $2,000,000 Personal and Advertising $1,000,000 Each Occurrence $1,000,000 Commercial Union Insurance: Umbrella: PZDZ48220 1/01/96-1/01/97 General Aggregate $2,000,000 Products $2,000,000 Bodily Injury $2,000,000 Each Occurrence $1,000,000 Employment agency bond 66013002943781 9/28/95-9/28/96 Aetna: Fiduciary Responsibility (Profit Sharing Plan) $ 500,000 058FF100882032 6/01/95-6/01/98 National Union Fire Insurance: Errors and Omissions $1,000,000 1941232 6/18/95-6/18/96
73 ROSEMARY SCOTT (branch) The State Insurance Fund: New York workers comp N.Y. State 959601-6 12/14/95-12/14/96 Required Limit ITT Hartford: Virginia workers comp $ 500,00 77WZ GR 6593 7/21/95-7/21/96 Penn-American Insurance Company: General Liability: PAC 1030665 8/03/95-8/03/96 General Aggregate $2,000,000 Products $1,000,000 Personal and Advertising $1,000,000 Each Occurrence $1,000,000
Copies of all policies provided to the auditors -2- 74 Schedule 3.1.5 LITIGATION b) Judith Fox Companies, Inc. v. Jim Beck, Inc. - Judgement filing for open accounts receivable in the amount of $4,294.21. Jim Beck, Inc. has filed for bankruptcy. c) Tax liens and garnishments filed against employees on a ongoing basis in the normal course of operations. 75 Schedule 3.1.6 LICENSES AND PERMITS Business licenses for Albemarle, Chesterfield and Henrico Counties, Virginia. 76 Schedule 3.1.12 FIXED ASSETS AND EQUIPMENT Attachment A - Fixed assets as of December 31, 1995 per general ledger. Attachment B - Fixed asset additions for the period January 1 thru April 30, 1996 per charges to the general ledger. Does not include invoices not received as of April 30, 1996. 77 Schedule 3.1.13 PROPRIETARY RIGHTS 1. Pending Application for service mark filed with the U.S. Patent and Trademark office for "Judith Fox" (serial number 75-031611). 2. Pending Application for service mark filed with the U.S. Patent and Trademark office for "Judith Fox Training for Growth" (serial number 75-031600). 3. "Judith Fox Staffing Companies" trade name. 4. "Judith Fox Staffing" trade name. 5. "Judith Fox Technical and Professional" trade name. 6. "Judith Fox Accounting and Finance" trade name. 7. "Judith Fox Temporaries" trade name. 8. "Rosemary Scott Temporaries" trade name. 9. All corporate names and foreign qualifications listed on Schedule 3.1.1. 10. All of Buyer's rights to software under licensing and other agreements with Caldwell-Spartin Service, Inc. 11. Any and all other Intellectual Property, as defined in the Asset Purchase Agreement, of the Buyer. 78 Schedule 3.1.15 BENEFIT PLANS 1. Incentive Compensation Plan for Jack C. Glashow. (Copy previously provided by Buyer.) 2. Incentive Compensation Plan for Bonnie A. Sugrue. (Copy previously provided by Buyer.) 3. Incentive Compensation Plan for Catherine Homar. (Copy previously provided by Buyer.) 4. Profit Sharing Plan. (Copy previously provided to Buyer.) 5. Section 125 Cafeteria Plan. (Copy previously provided to Buyer.) 6. Additional Benefits as listed in the "Employee Benefit Plan" information package. (Copy previously provided by Buyer.) 79 Schedule 3.1.17 CUSTOMER CONTRACTS 1. Services Agreement between Signet Bank and Judith Fox Companies, Inc. entered into in July of 1994 pursuant to Confidential Proposal dated June, 1994 (Copy previously provided to Buyer.) 2. Discount and Rebate Arrangement between Sony Music Entertainment and Rosemary Scott Temporaries in accordance with Letter dated January 1, 1996 (Copy previously provided to Buyer.) 3. Value Discount Arrangement between CBS, Inc. and Rosemary Scott Temporaries (Original rate sheet of September 1, 1985, Copy previously provided to Buyer.) EX-10.21 4 COMMITMENT LETTER-NATIONSBANK 1 EXHIBIT 10.21 May 22, 1996 Mr. Michael Bernard Personnel Group of America, Inc. 3720 One First Union Center 301 South College Street Charlotte, North Carolina 28202 Re: $60 Million Senior Secured Revolving Credit Facility Dear Mr. Bernard: NationsBank, N.A. ("NationsBank") is pleased to offer to be the agent (in such capacity, the "Agent") for a $60 million Senior Secured Revolving Credit Facility (the "Facility") to Personnel Group of America, Inc., a Delaware corporation (the "Borrower"), and to offer its commitment to lend up to $30 million of the Facility, upon and subject to the terms and conditions of this letter and the Summary of Terms and Conditions attached hereto as Annex I (the "Term Sheet"). All capitalized terms used and not otherwise defined herein shall have the meanings set forth in the Term Sheet. NationsBanc Capital Markets, Inc. ("NCMI") is pleased to advise you of its commitment, as Arranger for the Facility, to use its best efforts to form a syndicate of financial institutions (the "Lenders") reasonably acceptable to you for the Facility. The commitments of NationsBank and NCMI hereunder are subject to the satisfaction of each of the following conditions precedent in a manner acceptable to NationsBank and NCMI in their sole discretion: (a) each of the terms and conditions set forth herein; (b) each of the terms and conditions set forth in the Term Sheet; (c) the negotiation, execution and delivery of definitive documentation with respect to the Facility consistent with the Term Sheet satisfactory to the Agent and the Lenders; and (d) there not having occurred and being continuing since the date hereof a material adverse change in the market for syndicated bank credit facilities or a material disruption of, or a material adverse change in, financial, banking or capital market conditions, in each case as determined by NationsBank and NCMI in their sole discretion. NationsBank will act as Agent for the Facility and NCMI will act as Arranger for the Facility. No additional agents will be appointed without the prior approval of NationsBank and NCMI. Furthermore, the commitments of NationsBank and NCMI hereunder are based upon the financial and other information regarding the Borrower and its subsidiaries previously provided to NationsBank and NCMI and are subject to the condition, among others, that there shall not have occurred after the date of such information, in the opinion of NationsBank and NCMI, any material adverse change in the 2 Personnel Group of America, Inc. May 22, 1996 Page 2 business, assets, liabilities (actual or contingent), operations, condition (financial or otherwise) or prospects of the Borrower and its subsidiaries taken as a whole. If the continuing review by NationsBank and NCMI of the Borrower discloses information relating to conditions or events not previously disclosed to NationsBank and NCMI or relating to new information or additional developments concerning conditions or events previously disclosed to NationsBank and NCMI which NationsBank and NCMI in their sole discretion believe may have a material adverse effect on the condition (financial or otherwise), assets, properties, business, operations or prospects of the Borrower and its subsidiaries taken as a whole, NationsBank and NCMI may, in their sole discretion, suggest alternative financing amounts or structures that ensure adequate protection for the Lenders or decline to participate in the Facility. You agree to actively assist NationsBank and NCMI in achieving a syndication of the Facilities that is satisfactory to NationsBank, NCMI and you. In the event that such syndication can not be achieved in a manner satisfactory to NationsBank, NCMI and you under the structure outlined in the Term Sheet you agree to cooperate with NationsBank and NCMI in attempting to develop an alternative structure that will permit a satisfactory syndication of the Facility. Syndication of the Facility will be accomplished by a variety of means, including direct contact during the syndication between senior management and advisors of the Borrower and the proposed Lenders. To assist NationsBank and NCMI in the syndication efforts, you hereby agree to (a) provide and cause your advisors to provide NationsBank and NCMI and the other Lenders upon request with all information reasonably deemed necessary by NationsBank and NCMI to complete syndication, (b) assist NationsBank and NCMI upon their reasonable request in the preparation of an information memorandum to be used in connection with the syndication of the Facility and (c) otherwise assist NationsBank and NCMI in their syndication efforts, including by making available officers and advisors of the Borrower and its subsidiaries from time to time to attend and make presentations regarding the business and prospects of the Borrower and its subsidiaries, as appropriate, at a meeting or meetings of prospective Lenders. You further agree to refrain from engaging in new bank loans for the Borrower and its subsidiaries during such syndication process unless otherwise agreed to by NationsBank and NCMI. It is understood and agreed that NationsBank and NCMI, after consultation with you, will manage and control all aspects of the syndication, including decisions as to the selection of proposed Lenders and any titles offered to proposed Lenders, when commitments will be accepted and the final allocations of the commitments among the Lenders. It is understood that no Lender participating in the Facility will receive compensation from you outside the terms contained herein and in the Term Sheet in order to obtain its commitment. It is also understood and agreed that the amount and distribution of the fees among the Lenders will be at the sole discretion of NationsBank and NCMI and that any syndication prior to execution of definitive documentation will reduce the commitment of NationsBank. You hereby represent, warrant and covenant that (i) all information, other than Projections (as defined below), which has been or is hereafter made available to NationsBank and NCMI or the Lenders by you or any of your representatives in connection with the transactions contemplated hereby ("Information") is and will be complete and correct in all material respects and does not and will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained therein not misleading and (ii) all financial projections, as well as any pro forma financial statements, concerning the Borrower that have been or are hereafter made available to NationsBank and NCMI or the Lenders by you or any of your representatives (the "Projections") have been or will be prepared in good faith based upon reasonable assumptions. You agree to furnish us with such Information and Projections as we may reasonably request and to supplement the Information and the Projections from time to time until the closing date for the Facility so that the representation and warranty in the preceding sentence is correct on such date. In arranging and syndicating the Facility, NationsBank and NCMI will be using and relying on the Information and the Projections without independent verification thereof. By acceptance of this offer, Borrower agrees to pay all reasonable out-of-pocket fees and expenses (including reasonable attorneys' fees and expenses and expenses of due diligence) incurred before or after the date hereof by the Agent or NCMI in connection with the Facility and the syndication thereof. 3 Personnel Group of America, Inc. May 22, 1996 Page 3 In the event that NationsBank or NCMI becomes involved in any capacity in any action, proceeding or investigation in connection with any matter contemplated by this letter, the Borrower will reimburse NationsBank and NCMI for their reasonable legal and other expenses (including the cost of any investigation and preparation) as they are incurred by NationsBank or NCMI. The Borrower also agrees to indemnify and hold harmless NationsBank, NCMI and their affiliates and their respective directors, officers, employees and agents (the "Indemnified Parties") from and against any and all losses, claims, damages and liabilities, joint or several, related to or arising out of any matters contemplated by this letter unless and only to the extent that it shall be finally judicially determined that such losses, claims, damages or liabilities resulted from the gross negligence or willful misconduct of NationsBank or NCMI. The provisions of the immediately preceding two paragraphs shall remain in full force and effect regardless of whether definitive financing documentation for the Facility shall be executed and delivered and notwithstanding the termination of this letter or the commitments of NationsBank and NCMI hereunder. Neither this offer nor the undertaking and commitment contained herein may be disclosed to or relied upon by any other person or entity other than your accountants, attorneys and other advisors, without the prior written consent of NationsBank and NCMI, except that following your acceptance hereof you may make public disclosure hereof as required by law. As described herein and in the Term Sheet, NCMI will act as Arranger for the Facilities. NationsBank reserves the right to allocate, in whole or in part, to NCMI certain fees payable to NationsBank in such manner as NationsBank and NCMI agree in their sole discretion. You acknowledge and agree that NationsBank may share with any of its affiliates (including specifically NCMI) any information relating to the Facilities, the Borrower and its subsidiaries and affiliates. This letter shall be governed by the laws of the State of North Carolina. This letter may be modified or amended only in writing. This letter is not assignable by Borrower without the prior written consent of NationsBank and NCMI. This letter supersedes and replaces any and all proposals or commitment letters previously delivered by NationsBank or NCMI to Borrower relating to the Facility. This offer will expire at 5:00 p.m. Charlotte, North Carolina time on Thursday, May 23, 1996 unless Borrower executes this letter and returns it to the Agent prior to that time (which may be by facsimile transmission), whereupon this letter shall become a binding agreement. Thereafter, this undertaking and commitment will expire at 5:00 p.m. Charlotte, North Carolina time on Monday, July 31, 1996 unless definitive Facility documentation is executed and delivered prior to that time. Very truly yours, NATIONSBANK, N.A., Individually and as Agent By: /s/ Mark D. Halmrast -------------------------------- Mark D. Halmrast Vice President NATIONSBANC CAPITAL MARKETS, INC. By: /s/ Charles F. Wallach -------------------------------- Title: Vice President ----------------------------- 4 Personnel Group of America, Inc. May 22, 1996 Page 4 Accepted and Agreed To: PERSONNEL GROUP OF AMERICA, INC. By: /s/ Michael P. Bernard --------------------------------------- Title: Chief Financial Officer & Treasurer ------------------------------------ 5 PERSONNEL GROUP OF AMERICA, INC. SUMMARY OF TERMS & CONDITIONS MAY 21, 1996 =============================================================================== BORROWER: Personnel Group of America, Inc. (the "Borrower"). GUARANTORS: All existing and hereafter acquired direct and indirect subsidiaries of the Borrower (the "Subsidiaries") (the Borrower and the Subsidiaries shall be referred to herein together as the "Companies"). ADMINISTRATIVE AGENT: NationsBank, N.A. (the "Agent" or "NationsBank") will act as sole and exclusive Administrative Agent. As such, NationsBank will negotiate with the Companies, act as the primary contact for the Companies and perform all other duties associated with the role of exclusive Administrative Agent. No other agents or co-agents may be appointed without the prior written consent of NationsBank and NCMI. ARRANGER: NationsBanc Capital Markets, Inc. ("NCMI"). LENDERS: A syndicate of financial institutions (including NationsBank) arranged by NCMI, which institutions shall be acceptable to the Borrower and the Agent (collectively, the "Lenders"). FACILITY: NCMI will arrange, on a best-efforts basis, a $60 million Revolving Credit Facility. The Facility will include a $10 million sublimit for the issuance of standby and commercial letters of credit (each a "Letter of Credit"). Letters of Credit will be issued by NationsBank (in such capacity, the "Fronting Bank"), and each Lender will purchase an irrevocable and unconditional participation in each Letter of Credit. PURPOSE: The proceeds of the Facility shall be used: (i) to refinance the outstanding principal balance of existing indebtedness of the Companies, (ii) to pay the cash portion of the purchase price for Permitted Acquisitions (as defined below); (iii) to pay fees and expenses incurred in connection with the Permitted Acquisitions and (iv) to provide for working capital and general corporate purposes of the Companies. INTEREST RATES: The Facility shall bear interest as set forth on Addendum I hereto. MATURITY: The Facility shall terminate and all amounts outstanding thereunder shall be due and payable in full 3 years from Closing. AVAILABILITY: Loans under the Facility may be made, and Letters of Credit may be issued subject to Availability. Availability shall be determined 6 by a Borrowing Base equal to 85% of Eligible Receivables of the Companies. SECURITY: The Agent (on behalf of the Lenders) shall receive a first priority perfected security interest in all of the capital stock or partnership interests of each of the domestic direct and indirect subsidiaries of the Borrower, which capital stock shall not be subject to any other lien or encumbrance. The Agent (on behalf of the Lenders) shall also receive a first priority perfected security interest in all accounts receivable and a negative pledge, subject to de minimus amounts agreed upon by the Agent, on all other assets of the Companies. The foregoing security shall ratably secure the Facility and any interest rate swap/foreign currency swap or similar agreements with a Lender under the Facility. MANDATORY PREPAYMENTS AND COMMITMENT REDUCTIONS: The Facility will be prepaid by an amount equal to 100% of the net cash proceeds of all asset sales by the Companies, subject to de minimus baskets and reinvestment provisions to be agreed upon and net of selling expenses and taxes to the extent such taxes are paid. OPTIONAL PREPAYMENTS AND COMMITMENT REDUCTIONS: The Borrower may prepay the Facility in whole or in part at any time without penalty, subject to reimbursement of the Lenders' breakage and redeployment costs in the case of prepayment of LIBOR borrowings. CONDITIONS PRECEDENT TO CLOSING: The initial funding of the Facility will be subject to satisfaction of the conditions precedent deemed appropriate by the Agent and the Lenders, including but not limited to the following: (i) The completion of all due diligence with respect to the Companies and the Acquisitions in process, in scope and determination satisfactory to NationsBank and NCMI in their sole discretion. (ii) The negotiation, execution and delivery of definitive documentation with respect to the Facility satisfactory to NCMI, the Agent and the Lenders. (iii) The Agent's satisfactory review of any existing purchase agreements (including all schedules and exhibits thereto) regarding the Acquisitions in process (the "Purchase Agreement"). (iv) The corporate capital and ownership structure (including articles of incorporation and by-laws) of the Companies -2- 7 (after giving effect to the Acquisitions in process), shall be satisfactory to the Agent, and all employment contracts, equity interests and key man life insurance with senior executives shall be satisfactory to the Agent. As a specific condition of appropriate capital structure, the Borrower shall have executed a successful secondary public offering of equity. The determination of successful shall include obtaining a minimum of $35 million in net proceeds from such offering. (v) The Agent shall have received and, in each case, approved the consolidated financial statements of the Companies for the fiscal years 1993, 1994 and 1995, including balance sheets, income and cash flow statements audited by independent public accountants of recognized national standing and prepared in conformity with GAAP, interim monthly financial statements, monthly working capital detail for the trailing twelve months and first projected year, a pro forma balance sheet of the Companies as of the Closing Date giving effect to Acquisitions and reflecting estimated purchase price accounting adjustments, prepared by independent public accountants of recognized national standing, and such other information relating to the Acquisitions as the Agent may require. (vi) There shall not have occurred a material adverse change since December 31, 1995 in the business, assets, operations, condition (financial or otherwise) or prospects of the Companies or the Acquisitions in process. (vii) The Agent shall have received and be satisfied with the form and content of the accounts receivable reports prepared by the Companies (including without limitation the Acquisitions in process. (viii) The Agent shall have received (a) satisfactory opinions of counsel to the Companies (which shall cover, among other things, authority, legality, validity, binding effect and enforceability of the documents for the Facility) and such corporate resolutions, certificates and other documents as the Agent shall reasonably require and (b) satisfactory evidence that the Agent (on behalf of the Lenders) holds a perfected, first priority lien in all collateral for the Facility, subject to no other liens except for permitted liens to be determined by the Agent. (ix) Receipt of all governmental, shareholder and third party consents (including Hart-Scott Rodino clearance) and approvals necessary or, in the opinion of the Agent, desirable in connection with the purchase of the Acquisitions in process and the related financings and other transactions contemplated hereby and expiration of all applicable waiting periods without any action being -3- 8 taken by any authority that could restrain, prevent or impose any material adverse conditions on the Acquisitions in process or such other transactions or that could seek or threaten any of the foregoing, and no law or regulation shall be applicable which in the judgment of the Agent could have such effect. (x) The absence of any action, suit, investigation or proceeding pending or threatened in any court or before any arbitrator or governmental authority that purports to affect the Acquisitions in process or the Companies or any transaction contemplated hereby, or that could have a material adverse effect on the Acquisitions in process, the Companies or any transaction contemplated hereby or on the ability of the Companies to perform their obligations under the documents to be executed in connection with the Facility. (xi) The Companies shall be in compliance with all existing financial obligations, covenants and agreements under the existing credit agreement with NationsBank, after giving effect to Acquisitions in process. (xii) Receipt and review, with results satisfactory to the Agent and its counsel, of information regarding litigation, tax, accounting, labor, insurance, pension liabilities (actual or contingent), real estate leases, material contracts, debt agreements, property ownership, and contingent liabilities of the Companies and all Acquisitions in process. (xiii) The Agent shall be satisfied that the amount of committed financing available to the Borrower shall be sufficient to meet the ongoing financing needs of the Companies after giving effect to the Borrower's financial plan and there shall be no less than $15 million of availability under the Facility at Closing. (xiv) The Borrower shall provide the Agent with written evidence of its acquisition due diligence process and procedures in form satisfactory to the Agent. (xv) The Borrower shall provide a management infrastructure plan which supports the Borrower's internal growth and the addition of the already acquired companies in form satisfactory to the Agent. (xvi) The Borrower shall provide written evidence of its plan to develop its own in-house systems capabilities independent from Adia and integration of the Caldwell-Spartin system into the Borrower's branch network. Such written plan shall be acceptable to the Agent. -4- 9 (xvii) Provide the Agent with a 3 year financial forecast which will include an income statement, balance sheet and cash flow statement. REPRESENTATIONS & WARRANTIES: Usual and customary for transactions of this type, to include without limitation: (i) corporate status; (ii) corporate power and authority/enforceability; (iii) no violation of law or contracts or organizational documents; (iv) no material litigation; (v) correctness of specified financial statements and no material adverse change; (vi) no required governmental or third party approvals; (vii) use of proceeds/compliance with margin regulations; (viii) status under Investment Company Act; (ix) ERISA; (x) environmental matters; (xi) perfected liens and security interests; (xiii) payment of taxes, and (xiv) consummation of the Acquisitions in process. COVENANTS: Usual and customary for transactions of this type, to include without limitation: (i) delivery of financial statements and other reports; (ii) delivery of compliance and borrowing base certificates: (iii) notices of default, material litigation and material governmental and environmental proceedings; (iv) compliance with laws; (v) payment of taxes; (vi) maintenance of insurance; (vii) limitation on liens; (viii) limitations on mergers, consolidations and sales of assets; (ix) limitations on incurrence of debt; (x) limitations on dividends and stock redemptions and the redemption and/or prepayment of other debt; (xi) limitations on investments; (xii) ERISA; (xiii) limitation on transactions with affiliates; and (xiv) limitation on capital expenditures. Financial covenants to include (but not limited to): - Maintenance at all times of a Minimum Net Worth, with step-up provisions to be agreed upon - Maintenance on a rolling four quarter basis of a Maximum Leverage Ratio - Maintenance on a rolling four quarter basis of a Minimum Fixed Charge Coverage Ratio (EBITDAR less capital expenditures less cash taxes)/(interest expense + scheduled principal repayments + rents) Maintenance at all times of a Current Ratio to be agreed upon All acquisitions will be subject to pro-forma covenant compliance. Individual acquisitions where the purchase price is greater than $12.5 million will be subject to Lender approval. Except as otherwise agreed between the Borrower and the Agent, all acquisitions of health care related companies shall be made by and become the property of Nursefinders, Inc., and all other acquisitions shall be made by and become the property of StaffPLUS, Inc. -5- 10 Prior to the closing, the Borrower and the Agent will explore other structuring alternatives with respect to future acquisitions. The Borrower shall agree that it will not engage in any business, activity or operations other than owning and holding the capital stock of the Subsidiaries and activities directly related thereto. The Borrower shall not be permitted to merge with or into any of its Subsidiaries either now owned or hereafter created. EVENTS OF DEFAULT: Usual and customary in transactions of this nature, and to include, without limitation, (i) nonpayment of principal, interest, fees or other amounts, (ii) violation of covenants, (iii) inaccuracy of representations and warranties, (iii) cross-default to other material agreements and indebtedness, (iv) bankruptcy, (v) material judgments, (vi) ERISA, (vii) actual or asserted invalidity of any loan documents or security interests, (viii) Borrower engaging in any business or activity other than holding 100% of the common stock of the Subsidiaries, or (ix) a Change in Control of the Borrower. ASSIGNMENTS/ PARTICIPATIONS: Each Lender will be permitted to make assignments to other financial institutions approved by the Borrower and the Agent, which approval shall not be unreasonably withheld. Lenders will be permitted to sell participations with voting rights limited to significant matters such as changes in amount, rate, and maturity date. An assignment fee of $3,500 is payable by the Lender to the Agent upon any such assignment occurring (including, but not limited to an assignment by a Lender to another Lender). WAIVERS & AMENDMENTS: Amendments and waivers of the provisions of the loan agreement and other definitive credit documentation will require the approval of Lenders holding loans and commitments representing more than 50% of the aggregate amount of loans and commitments under the Facility, except that (a) the consent of all the Lenders affected thereby shall be required with respect to (i) increases in commitment amounts, (ii) reductions of principal, interest, or fees, (iii) extensions of scheduled maturities or times for payment, (iv) releases of all or substantially all collateral and (v) releases of all or substantially all guarantors. INDEMNIFICATION: The Companies shall indemnify the Lenders from and against all losses, liabilities, claims, damages or expenses relating to their loans, the Companies' use of loan proceeds or the commitments, including but not limited to reasonable attorneys' fees and settlements costs. This indemnification shall survive and continue for the benefit of the Lenders at all times after the Borrower's acceptance of the Lenders' commitment for the Facility, notwithstanding any failure of the Facility to close. CLOSING: On or before July 31, 1996. -6- 11 GOVERNING LAW: North Carolina. FEES/EXPENSES: As outlined in ADDENDUM I. OTHER: This term sheet is intended as an outline only and does not purport to summarize all the conditions, covenants, representations, warranties and other provisions which would be contained in definitive legal documentation for the Facility contemplated hereby. The Companies shall waive their right to a trial by jury. -7- 12 ADDENDUM I FEES AND EXPENSES =============================================================================== COMMITMENT FEE Commitment Fee (calculated on the basis of actual number of days elapsed in a year of 360 days) calculated on the unused portion of the Facility shall commence to accrue upon the execution of a definitive credit agreement and thereafter quarterly in arrears. Such commitment fee shall be determined by the Pricing Matrix disclosed below. INTEREST RATES: The Facility shall bear interest at a margin over the applicable LIBOR rate, as determined by the Pricing Matrix, or the Alternate Base Rate (defined as the higher of (i) the NationsBank prime rate and (ii) the Federal Funds rate plus 1/2%); provided, that if during the 180 day period following the Closing, any breakage costs, charges or fees are incurred with respect to LIBOR loans on account of the syndication of the Facility, the Borrower shall immediately reimburse the Agent for any such costs, charges or fees. Such right of reimbursement to be in addition to and not in limitation of customary cost and yield protection. The Borrower may select interest periods of 1, 2, 3 or 6 months for LIBOR loans, subject to availability. A penalty rate shall apply on all loans in the event of default at a rate per annum of 2% above the applicable interest rate. PRICING MATRIX:
DEBT TO EBITDA RATIO SPREAD OVER LIBOR COMMITMENT FEE ---------------------------------------------------------- 0.0 - 0.75 62.5 25 0.75 - 1.50 87.5 25 1.50 - 2.25 112.5 37.5 Above 2.25 135 37.5
COST AND YIELD PROTECTION: The usual for transactions and facilities of this type, including, without limitation, in respect of prepayments, changes in capital adequacy and capital requirements or their interpretation, illegality, unavailability, reserves without proration or offset. LETTER OF CREDIT FEES: Letter of credit fees are due quarterly in arrears to be shared proportionately by the Lenders. Fees will be equal to the interest rate spread on LIBOR loans on a per annum basis plus a fronting fee of 1/8% per annum to be paid to Agent as Fronting Bank for its own account. Fees will be calculated on the aggregate stated amount for each letter of credit for the stated duration thereof. -1- 13 UPFRONT FEE: The Borrower shall pay to the Lenders at closing an upfront fee calculated on the basis of each Lender's committed amount of the Facility. The Agent anticipates this fee to be equal in amount to 1/4% of the Facility, subject to further review and adjustment based on market conditions. ARRANGEMENT FEE: The Borrower shall pay to NCMI an arrangement fee equal to $300,000. The first $100,000 of this fee shall be payable upon the Borrower's acceptance of this Commitment, with the balance payable at closing of the Facility. ADMINISTRATIVE AGENT FEE: The Borrower shall pay the Agent an annual administration fee equal in amount to $35,000.00. EXPENSES: Borrower will pay all reasonable costs and expenses associated with the preparation, due diligence, administration, syndication and enforcement of all documents executed in connection with the Facility, including without limitation, the legal fees of the Agent's counsel regardless of whether or not the Facility is closed. -2- EX-21.01 5 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21.01 SUBSIDIARIES OF PERSONNEL GROUP OF AMERICA, INC.
STATE OF SUBSIDIARY INCORPORATION DOES BUSINESS AS - --------------------------------- ------------ -------------------------------------------- B.C.P., Inc...................... Hawaii Nursefinders of Hawaii, Inc. PFI, Inc......................... Delaware Nursefinders, through its wholly-owned subsidiary Nursefinders, Inc., a Texas corporation, and NF Services, Inc., a New York corporation and wholly-owned subsidiary of Nursefinders, Inc. Profile Temporary Services, Illinois Profile Temporary Staffing Inc............................ StaffPLUS, Inc................... Delaware Abar Staffing, FirstWord Staffing Services, Staffinders Personnel, Temp Connection, TempWorld, West Personnel, and Word Processors Personnel Services (WPPS) Thomas Staffing Services, Inc.... California Thomas Staffing
EX-23.01 6 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.01 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report dated February 29, 1996 covering the consolidated financial statements of Personnel Group of America, Inc. and subsidiaries, and our report dated May 10, 1996 covering the combined financial statements of Judith Fox Staffing Companies and to all references to our Firm included in or made a part of this registration statement. ARTHUR ANDERSEN LLP /s/ Arthur Andersen LLP -------------------------------------- Charlotte, North Carolina, May 23, 1996. EX-23.02 7 CONSENT OF PHILLIP GOODMAN 1 EXHIBIT 23.02 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report dated September 13, 1995 covering the financial statements of The Computer Resources Group, Inc. and to all references to our Firm included in or made a part of this registration statement. PHILLIP GOODMAN ACCOUNTANCY CORPORATION /s/ Philllip Goodman Accountancy Corporation -------------------------------------- Santa Clara, California, May 22, 1996. -----END PRIVACY-ENHANCED MESSAGE-----